MORGAN STANLEY UNIVERSAL FUNDS INC, 485APOS, 1999-01-29

MORGAN STANLEY UNIVERSAL FUNDS INC
485APOS, 1999-01-29

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<PAGE>

As Filed With the Securities and Exchange Commission on January 29, 1999
File No. 333-03013
811-7607
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
POST-EFFECTIVE AMENDMENT NO. 7 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 8 [X]

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
-------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

1221 Avenue of the Americas
New York, New York 10020
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(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (800) 548-7786
--------------

Harold J. Schaaff, Jr., Esq.
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas, New York, New York 10020
------------------------------------------------------------------
(Name and Address of Agent for Service)

Copy to:
<TABLE>
<CAPTION>
<S> <C>
Michael F. Klein, Esq. Richard W. Grant, Esq.
Morgan Stanley Dean Witter Investment Management Inc. Morgan, Lewis & Bockius LLP
1221 Avenue of the Americas 1701 Market Street
New York, NY 10020 Philadelphia, PA 19103

</TABLE>

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It is proposed that this filing will become effective (check appropriate box)

immediately upon filing pursuant to paragraph (b) of Rule 485.
----
on [ date ] pursuant to paragraph (b) of Rule 485.
----
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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75 days after filing pursuant to paragraph (a)(2) of Rule 485.
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X on April 1, 1999 pursuant to paragraph (a) of Rule 485.
----

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<PAGE>

MAY 1, 1999

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

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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>

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").

TABLE OF CONTENTS
Page
----

<S> <C>
INVESTMENT SUMMARY.................................................. 1
ADDITIONAL RISKS AND INFORMATION.................................... 2
INVESTMENT ADVISER.................................................. 3
MANAGEMENT FEE...................................................... 3
ACCOUNT POLICIES.................................................... 4
WHERE TO FIND ADDITIONAL INFORMATION................................ 6
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Money Market Portfolio

Objective: To maximize current income and preserve capital while maintaining
high levels of liquidity.

Approach: The Portfolio invests in high quality money market instruments
with effective maturities of 397 days or less. In selecting
investments, the Adviser seeks to maintain a share price of $1.00
per share

Process: The Adviser assesses current and projected market and economic
conditions, particularly interest rates. Based on this analysis,
the Adviser uses gradual shifts in average maturity to manage the
Portfolio conservatively. The Adviser 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: The Fund may be appropriate for investors who want to minimize
the risk of loss of principal and maintain liquidity of their
investment, and at the same time receive a return on their
investment. The Portfolio invests only in money market
instruments that the Adviser believes 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.

Performance Information

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 RISKS 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.

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
some municipal 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

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.

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
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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, providing 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. 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 February 28, 1999, MSDW Investment Management and its institutional
investment advisory affiliates had approximately $___ 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................. 0.30%
- -----------------------------------------
From $500 million to $1 billion.... 0.25%
- -----------------------------------------
More than $1 billion............... 0.20%
- -----------------------------------------
</TABLE>

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.55% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

3
<PAGE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that 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 we receive 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.

How the Portfolio Calculates NAV

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, Distributions and Taxes

4
<PAGE>

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.

5
<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 visit the MSDW
Investment Management web site at www._____________.

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

6
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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 Andersen & Sherrerd, LLP ("MAS").

TABLE OF CONTENTS

Page
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<S> <C>
INVESTMENT SUMMARY..................................................... 1
ADDITIONAL RISKS AND INFORMATION....................................... 3
INVESTMENT ADVISER..................................................... 6
MANAGEMENT FEE......................................................... 6
PORTFOLIO MANAGERS..................................................... 7
PERFORMANCE OF THE ADVISER............................................. 7
ACCOUNT POLICIES....................................................... 8
FINANCIAL HIGHLIGHTS................................................... 10
WHERE TO FIND ADDITIONAL INFORMATION................................... 11
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Fixed Income Portfolio

Objective: 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.

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

1
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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 Information

The following bar chart and table show the performance of the
Portfolio year-by-year and as an average over different periods of
time. This performance 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 table 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.

<TABLE>
<CAPTION>
---------------------------------------------
PERFORMANCE
Commenced operations as of January 2, 1997
---------------------------------------------
<S> <C>
9.93%

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

1997 1998
---------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
---------------------------------------------
</TABLE>

Average Annual Total Return for periods ended December 31, 1998

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Fixed Income Portfolio Salomon Smith Barney
(commenced operations on Broad Investment Grade
January 2, 1997) Bond Index*
- -----------------------------------------------------------------------
<S> <C> <C>
Past One Year
- -----------------------------------------------------------------------
Since Inception
- -----------------------------------------------------------------------
</TABLE>

*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. The index is a
hypothetical measure of performance based on the ups and downs of securities
that make up its market. As a result, the index does not show actual investment
returns or reflect payment of management or brokerage fees, which would lower
the index's performance.

2
<PAGE>

ADDITIONAL RISKS 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. Fixed income securities, regardless of credit quality,
experience price volatility, especially in response to interest rate changes.
As a result of price volatility, there is a risk that you may lose money by
investing in the Portfolio.

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
a 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.

3
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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 affects 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 it exposure to the
risk of changing interest rates. A Portfolio with a lower average duration
generally will experience less price volatility in responses to changes in
interest rates as compared with a portfolio with a higher duration.

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.

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

4
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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.

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.

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.

Year 2000

5
<PAGE>

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.

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 February 28, 1999, MAS and its institutional advisory
affiliates had approximately $___ 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>

6
<PAGE>

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.70% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co.
Incorporated ("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
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 University of Tennessee and attended
the Graduate School of Economics at University of Texas. Messrs. Bennett, Dunn,
and Worley have shared primary responsibility for managing the Portfolio's
assets since its inception.

PERFORMANCE OF THE ADVISER

The Adviser manages the Fixed Income Portfolio of MAS Funds, Inc. ("MAS Funds")
which served as the model for this Portfolio of the Fund. The Fixed Income
Portfolio of the MAS

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Funds has substantially the same investment objectives, policies and strategies
as the Portfolio of the Fund. In addition, the Adviser intends this Portfolio of
the Fund and the Fixed Income Portfolio of MAS Funds to be managed by the same
personnel and to continue to have substantially similar investment strategies,
techniques and characteristics. Past investment performance of the Institutional
Shares of the MAS Funds' Fixed Income Portfolio, as shown in the table below,
may be relevant to your consideration of the Portfolio. The investment
performance of the Fixed Income Portfolio of MAS Funds is not necessarily
indicative of future performance of this Portfolio of the Fund. Also, the
operating expenses of this Portfolio of the Fund will be different from, and may
be higher than, the operating expenses of the Fixed Income Portfolio of MAS
Funds. The investment performance of the Institutional Shares of the MAS Funds'
Fixed Income Portfolio is provided merely to indicate the experience of the
Adviser in managing a similar portfolio.

<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Average Average Average
Annual Annual Annual
Total Total Total Total Total Total Total Average
Return Return Return Return Return Return Return Annual
One Three Five Ten Three Five Ten Total
Year Years Years Years Years Years Years Return
Fund Inception Ended Ended Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed 11/14/84
Income
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive the insurance company's purchase order. NAV for one share is
the value of that share's portion

8
<PAGE>

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.

How the Portfolio Calculates NAV

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, 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, Distributions and Taxes

Dividends and Distributions

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

Taxes

9
<PAGE>

FINANCIAL HIGHLIGHTS

The following table provides audited financial highlights for the Portfolio.
These financial highlights have been audited by __________________________,
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
Selected Per Share Data Year Ended January 2, 1997* to
and Ratios December 31, 1998 December 31, 1997
- ------------------------ ----------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.00
-------

Income From Investment
Operations
Net Investment Income...... 0.46
Net Realized and
Unrealized Gain........... 0.53
-------
Total From Investment
Operations................ 0.99
-------
Distributions
Net Investment Income...... (0.45)

Net Realized
Gain...................... (0.13)
-------
Total Distributions........ (0.58)
-------

Net Asset Value, End of
Period..................... $ 10.41
=======
Total Return................ 9.93%
=======

Ratios and Supplemental
Data:
Net Assets, End of
Period (000's)............. $12,760
Ratio of Expenses to
Average Net Assets......... 0.70%**
Ratio of Net Investment
Income to Average Net
Assets..................... 5.66%**
Portfolio Turnover Rate..... 185%
- ---------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period:
Per Share Benefit to Net
Investment Income....... $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................. 1.71%**
Net Investment Income
to Average Net
Assets.................. 4.65%**
</TABLE>
- ---------------------------------------------------------------------

*Commencement of operations

**Annualized

10
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www.______.

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

11
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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
Andersen & Sherrerd, LLP ("MAS").

TABLE OF CONTENTS

Page
----

INVESTMENT SUMMARY.................................................... 1
ADDITIONAL RISKS AND INFORMATION...................................... 3
INVESTMENT ADVISER.................................................... 6
MANAGEMENT FEE........................................................ 6
PORTFOLIO MANAGERS.................................................... 7
PERFORMANCE OF THE ADVISER............................................ 7
ACCOUNT POLICIES...................................................... 8
FINANCIAL HIGHLIGHTS.................................................. 10
WHERE TO FIND ADDITIONAL INFORMATION.................................. 11
<PAGE>

INVESTMENT SUMMARY

High Yield Portfolio

Objective: 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. 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 Information

1
<PAGE>

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.

<TABLE>
<CAPTION>
---------------------------------------------
PERFORMANCE
---------------------------------------------
Commenced operations as of January 2, 1997
<S> <C>
---------------------------------------------
13.53%

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

1997 1998
---------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
---------------------------------------------
</TABLE>

Average Annual Total Return for periods ended December 31, 1998

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
High Yield Portfolio Salomon Smith Barney
(commenced operations on High-Yield Market Index*
January 2, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
Past One Year
- --------------------------------------------------------------------------------
Since Inception
- --------------------------------------------------------------------------------
</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. The
index is a hypothetical measure of performance based on the ups and downs of
securities that make up its market. As a result, the index does not show actual
investment returns or reflect payment of management or brokerage fees, which
would lower the index's performance.

2
<PAGE>

ADDITIONAL RISKS AND INFORMATION

Price Volatility

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 affects 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 it exposure to the
risk of changing interest rates. A Portfolio with a lower average duration
generally will experience lee price volatility in responses to changes in
interest rates as compared with a portfolio with a higher duration.

Derivatives

3
<PAGE>

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.

Foreign Investing

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 locations 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

4
<PAGE>

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.

Mortgage Securities

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-backed securities
generally.

Temporary Defensive Investments

Portfolio Turnover

Year 2000

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

5
<PAGE>

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.

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>

6
<PAGE>

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.80% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

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

High Yield Portfolio-- Stephen F. Esser, Robert E. Angevine and Thomas L.
Bennett. Stephen F. Esser, a Managing Director of Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), joined MAS in 1988. He assumed responsibility
for the MAS Funds High Yield Portfolio in 1989. Mr. Esser holds a B.S. from
University of Delaware. Robert Angevine, a Principal of Morgan Stanley and a
Portfolio Manager for high yield investments, joined Morgan Stanley in October
1988. Mr. Angevine received an M.B.A. from Fairleigh Dickinson University and a
B.A. in Economics from Lafayette College. 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 University of Cincinnati.
Messrs. Esser, Bennett and Angevine have shared primary responsibility for
managing the Portfolio's assets since its inception.

PERFORMANCE OF THE ADVISER

The Adviser manages the High Yield Portfolio of MAS Funds, Inc. ("MAS Funds")
which served as the model for this Portfolio of the Fund. The High Yield
Portfolio of the MAS Funds has substantially the same investment objectives,
policies and strategies as the Portfolio of the Fund. In addition, the Adviser
intends this Portfolio of the Fund and the High Yield Portfolio of MAS Funds to
be managed by the same personnel and to continue to have substantially similar
investment strategies, techniques and characteristics. Past investment
performance of the Institutional Shares of the MAS Funds' High Yield Portfolio,
as shown in the table below, may be relevant to your consideration of the
Portfolio. The investment performance of the High Yield Portfolio of MAS Funds
is not necessarily indicative of future performance of this Portfolio of

7
<PAGE>

the Fund. Also, the operating expenses of this Portfolio of the Fund will be
different from, and may be higher than, the operating expenses of the High Yield
Portfolio of MAS Funds. The investment performance of the Institutional Shares
of the MAS Funds' High Yield Portfolio is provided merely to indicate the
experience of the Adviser in managing a similar portfolio.

<TABLE>
- ---------------------------------------------------------------------------------------------------
Average Average
Annual Annual
Total Total Total Total Total Average
Return Return Return Return Return Annual
One Year Three Five Three Five Years Total
Ended Years Years Years Ended Return
Fund Inception 12/31/98 Ended Ended Ended 12/31/98 Since
Name Date 12/31/98 12/31/98 12/31/98 Inception
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield 2/28/89
- ---------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

8
<PAGE>

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, Distributions and Taxes

Dividends and Distributions

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

Taxes

9
<PAGE>

FINANCIAL HIGHLIGHTS

Net Realized
Gain................. (0.13)
-------
Total Distributions... (0.76)
-------
Net Asset Value, End of
Period................ $ 10.59
=======
Total Return........... 13.53%
=======
Ratios and Supplemental
Data:
Net Assets, End of
Period (000's)........ $12,490
Ratio of Expenses to
Average Net Assets.... 0.81%**
Ratio of Expenses to
Average Net Assets
Excluding Interest
Expense............... 0.80%**
Ratio of Net Investment
Income to Average Net
Assets................ 7.41%**
Portfolio Turnover
Rate.................. 78%
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period:
Per Share Benefit to
Net Investment
Income............... $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average
Net Assets........... 1.68%**
Net Investment Income
to Average Net
Assets............... 6.53%**
</TABLE>
- ----------------------------------------------------------------------------

*Commencement of operations

**Annualized

10
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

11
<PAGE>

MAY 1, 1999

CORE EQUITY
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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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 Andersen & Sherrerd, LLP ("MAS").

TABLE OF CONTENTS

Page
----

INVESTMENT SUMMARY..................................................... 1
ADDITIONAL RISKS AND INFORMATION....................................... 2
INVESTMENT ADVISER..................................................... 3
MANAGEMENT FEE......................................................... 3
PORTFOLIO MANAGERS..................................................... 4
PERFORMANCE OF THE ADVISER............................................. 5
ACCOUNT POLICIES....................................................... 6
WHERE TO FIND ADDITIONAL INFORMATION................................... 7
<PAGE>

INVESTMENT SUMMARY

Core Equity Portfolio

Objective: 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).
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.

Performance Information

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>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

Foreign Investing

Temporary Defensive Investments

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)

2
<PAGE>

will cause the Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.

Year 2000

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:

3
<PAGE>

<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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.85% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co.
Incorporated ("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
1987-1994. 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 Fund s 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

4
<PAGE>

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.

PERFORMANCE OF THE ADVISER

The Adviser manages the Equity Portfolio of MAS Funds, Inc. ("MAS Funds") which
served as the model for this Portfolio of the Fund. The Equity Portfolio of the
MAS Funds has substantially the same investment objectives, policies and
strategies as the Portfolio of the Fund. In addition, the Adviser intends this
Portfolio of the Fund and the Equity Portfolio of MAS Funds to be managed by the
same personnel and to continue to have substantially similar investment
strategies, techniques and characteristics. Past investment performance of the
Institutional Shares of the MAS Funds' Equity Portfolio, as shown in the table
below, may be relevant to your consideration of the Portfolio. The investment
performance of the Equity Portfolio of MAS Funds is not necessarily indicative
of future performance of this Portfolio of the Fund. Also, the operating
expenses of this Portfolio of the Fund will be different from, and may be higher
than, the operating expenses of the Equity Portfolio of MAS Funds. The
investment performance of the Institutional Shares of the MAS Funds' Equity
Portfolio is provided merely to indicate the experience of the Adviser in
managing a similar portfolio.

<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Average Average Average
Annual Annual Annual
Total Total Total Total Total Total Total Average
Return Return Return Return Return Return Return Annual
One Three Five Ten Three Five Ten Total
Year Years Years Years Years Years Years Return
Fund Inception Ended Ended Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Equity 11/14/84
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

5
<PAGE>

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 we receive 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.

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

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

Taxes

6
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

7
<PAGE>

MAY 1, 1999

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

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
<S> <C>

INVESTMENT SUMMARY........................................................ 1
ADDITIONAL RISKS AND INFORMATION.......................................... 3
INVESTMENT ADVISER........................................................ 5
MANAGEMENT FEE............................................................ 5
PORTFOLIO MANAGERS........................................................ 6
PERFORMANCE OF THE ADVISER................................................ 6
ACCOUNT POLICIES.......................................................... 7
FINANCIAL HIGHLIGHTS...................................................... 9
WHERE TO FIND ADDITIONAL INFORMATION......................................10
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Equity Growth Portfolio

Objective: 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 $500
million 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 well established 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 ascertain 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). 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 Information

1
<PAGE>

insurance company. If it did, returns would be lower. The bar
chart and table 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.

<TABLE>
<CAPTION>
---------------------------------------------
PERFORMANCE
---------------------------------------------
Commenced operations as of January 2, 1997
---------------------------------------------
33.05%

---------------------------------------------
<S> <C>
1997 1998
---------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
---------------------------------------------
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
---------------------------------------------
</TABLE>

Average Annual Return for periods ended December 31, 1998

<TABLE>
<CAPTION>
<S> <C> <C>
Equity Growth Portfolio Standard & Poor's
(commenced operations on 500 Composite
January 2, 1997) Index*
- --------------------------------------------------------------------------------
Past One Year
- --------------------------------------------------------------------------------
Since Inception
- --------------------------------------------------------------------------------
</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. The index is a
hypothetical measure of performance based on the ups and downs of securities
that make up its market. As a result, the index does not show actual investment
returns or reflect payment of management or brokerage fees, which would lower
the index's performance.
2
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

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.

3
<PAGE>

Temporary Defensive Investments

Portfolio Turnover

Year 2000

4
<PAGE>

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

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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.85% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

5
<PAGE>

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

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co. Incorporated ("Morgan Stanley") 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. 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.

PERFORMANCE OF THE ADVISER

The Adviser manages the Equity Growth Portfolio of Morgan Stanley Dean Witter
Institutional Fund, Inc. ("MSDWIF") which served as the model for this Portfolio
of the Fund. The Equity Growth Portfolio of MSDWIF has substantially the same
investment objectives, policies and strategies as this Portfolio of the Fund.
In addition, the Adviser intends this Portfolio of the Fund and the Equity
Growth Portfolio of MSDWIF to be managed by the same personnel and to continue
to have substantially similar investment strategies, techniques and
characteristics.

6
<PAGE>

Past investment performance of the Class A Shares of the MSDWIF Equity Growth
Portfolio, as shown in the table below, may be relevant to your consideration of
the Portfolio. The investment performance of the Equity Growth Portfolio of
MSDWIF is not necessarily indicative of future performance of this Portfolio of
the Fund. Also, the operating expenses of this Portfolio of the Fund will be
different from, and may be higher than, the operating expenses of the Equity
Growth Portfolio of MSDWIF. The investment performance of the Class A Shares of
the MSDWIF Equity Growth Portfolio is provided merely to indicate the experience
of the Adviser in managing a similar portfolio.

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Average
Annual Annual Average
Total Total Total Total Total Annual
Return Return Return Return Return Total
One Year Three Years Five Years Three Years Five Years Return
Ineption Ended Ended Ended Ended Ended Since
Fund Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
- --------- ---- --------- -------- -------- -------- -------- ---------
- -----------------------------------------------------------------------------------------------------------
Equity 4/2/91
Growth
- -----------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

7
<PAGE>

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

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.

8
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
Selected Per Share Data Year Ended January 2, 1997* to
and Ratios December 31, 1998 December 31, 1997
- ----------------------- ----------------- -------------------
<S> <C> <C>
Net Asset Value, Begin-
ning of Period........ $ 10.00
-------
Income From Investment
Operations
Net Investment In-
come................. 0.02
Net Realized and
Unrealized Gain...... 3.27
-------
Total From Investment
Operations........... 3.29
-------
Distributions
Net Investment In-
come................. (0.02)
Net Realized Gain..... (0.53)
-------
Total Distributions... (0.55)
-------
Net Asset Value, End of
Period................ $ 12.74
=======
Total Return........... 33.05%
=======
Ratios and Supplemental
Data:
Net Assets, End of
Period (000's)........ $12,419
Ratio of Expenses to
Average Net Assets.... 0.85%**
Ratio of Net Investment
Income to Average Net
Assets................ 0.41%**
Portfolio Turnover
Rate.................. 172%
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period:
Per Share Benefit to
Net Investment
Income............... $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average
Net Assets........... 2.05%**
Net Investment
Loss to Average Net
Assets............... (0.80)%**
</TABLE>
- ----------------------------------------------------------------------------

*Commencement of operations

**Annualized

9
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

10
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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
Andersen & Sherrerd, LLP ("MAS").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
<S> <C>

Page
----

INVESTMENT SUMMARY........................................................ 1
ADDITIONAL RISKS AND INFORMATION.......................................... 3
INVESTMENT ADVISER........................................................ 4
MANAGEMENT FEE............................................................ 4
PORTFOLIO MANAGERS........................................................ 5
PERFORMANCE OF THE ADVISER................................................ 5
ACCOUNT POLICIES.......................................................... 6
FINANCIAL HIGHLIGHTS...................................................... 8
WHERE TO FIND ADDITIONAL INFORMATION...................................... 9
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Value Portfolio

Objective: 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). 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 Information

The following bar chart and table show the performance of the
Portfolio year-by-year and as an average over different periods
of time. This performance 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 table demonstrate the
variability of performance over time and provide an indication of

1
<PAGE>

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.

<TABLE>
<CAPTION>
---------------------------------------------
PERFORMANCE
<S> <C>
---------------------------------------------
Commenced operations as of January 2, 1997
20.98%

---------------------------------------------
---------------------------------------------
1997 1998
---------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
---------------------------------------------
</TABLE>

Average Annual Total Return for periods ended December 31, 1998

<TABLE>
<CAPTION>
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Value Portfolio Standard & Poor's
(commenced operations on 500 Composite
January 2, 1997) Index*
-----------------------------------------------------------------------------------------------------------------
Past One Year
- -----------------------------------------------------------------------------------------------------------------
Since Inception
- -----------------------------------------------------------------------------------------------------------------
* 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. The index is a hypothetical measure of performance based on the ups and downs of securities that make
up its market. As a result, the index does not show actual investment returns or reflect payment of management
or brokerage fees, which would lower the index's performance.
</TABLE>

2
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

Foreign Investing

Temporary Defensive Investments

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)

3
<PAGE>

will cause the Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.

Year 2000

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 February 28, 1999, MAS and it institutional advisory affiliates
had approximately $___ 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:

4
<PAGE>

<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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.85% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

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

Value Portfolio-- Robert J. Marcin, Richard M. Behler and Nicholas J. Kovich.
Robert J. Marcin, a Managing Director of Morgan Stanley & Co. Incorporated
("Morgan Stanley"), joined MAS in 1988. He assumed responsibility for the MAS
Funds Value Portfolio in 1990 and the MAS Fund s 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 Senior Vice President for Merrill Lynch Economics from
1987 through 1992. He assumed responsibility for the MAS Fund's 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.

PERFORMANCE OF THE ADVISER

The Adviser manages the Value Portfolio of MAS Funds, Inc. ("MAS Funds") which
served as the model for this Portfolio of the Fund. The Value Portfolio of the
MAS Funds has substantially the same investment objectives, policies and
strategies as the Portfolio of the Fund.

5
<PAGE>

In addition, the Adviser intends this Portfolio of the Fund and the Value
Portfolio of MAS Funds to be managed by the same personnel and to continue to
have substantially similar investment strategies, techniques and
characteristics. Past investment performance of the Institutional Shares of the
MAS Funds' Value Portfolio, as shown in the table below, may be relevant to your
consideration of the Portfolio. The investment performance of the Value
Portfolio of MAS Funds is not necessarily indicative of future performance of
this Portfolio of the Fund. Also, the operating expenses of this Portfolio of
the Fund will be different from, and may be higher than, the operating expenses
of the Value Portfolio of MAS Funds. The investment performance of the
Institutional Shares of the MAS Funds' Value Portfolio is provided merely to
indicate the experience of the Adviser in managing a similar portfolio.

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Average Average Average
Annual Annual Annual
Total Total Total Total Total Total Total Average
Return Return Return Return Return Return Return Annual
One Three Five Ten Three Five Ten Total
Year Years Years Years Years Years Years Return
Fund Inception Ended Ended Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
---- --------- -------- -------- -------- -------- -------- -------- -------- ---------
- -------------------------------------------------------------------------------------------------------------------
Value 11/5/84
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

6
<PAGE>

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
Selected Per Share Data Year Ended January 2, 1997* to
and Ratios December 31, 1998 December 31, 1997
- ----------------------- ----------------- -------------------
<S> <C> <C>
Net Asset Value, Begin-
ning of Period........ $ 10.00
-------
Income From Investment
Operations
Net Investment In-
come................. 0.10
Net Realized and
Unrealized Gain...... 1.99
-------
Total From Investment
Operations........... 2.09
-------
Distributions
Net Investment In-
come................. (0.10)
In Excess of Net In-
vestment Income...... 0.00 +
Net Realized Gain..... (0.21)
In Excess of Net Real-
ized Gain............ 0.00 +
-------
Total Distributions... (0.31)
-------
Net Asset Value, End of
Period................ $ 11.78
=======
Total Return........... 20.98%
=======
Ratios and Supplemental
Data:
Net Assets, End of
Period (000's)........ $14,664
Ratio of Expenses to
Average Net Assets.... 0.85%**
Ratio of Net Investment
Income to Average Net
Assets................ 1.70%**
Portfolio Turnover
Rate.................. 34%
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period:
Per Share Benefit to
Net Investment
Income............... $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average
Net Assets........... 1.87%**
Net Investment Income
to Average Net
Assets............... 0.68%**
</TABLE>
- ----------------------------------------------------------------------------

*Commencement of operations

**Annualized

+Amount is less than $0.01 per share.

8
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

<PAGE>

MAY 1, 1999

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

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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 Andersen & Sherrerd, LLP ("MAS").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
Page
----
<S> <C>
INVESTMENT SUMMARY........................................................... 1
ADDITIONAL RISKS AND INFORMATION............................................. 3
INVESTMENT ADVISER........................................................... 4
MANAGEMENT FEE............................................................... 4
PORTFOLIO MANAGERS........................................................... 5
PERFORMANCE OF THE ADVISER................................................... 5
ACCOUNT POLICIES............................................................. 6
WHERE TO FIND ADDITIONAL INFORMATION......................................... 8
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Mid Cap Growth Portfolio

Objective: 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). 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.

1
<PAGE>

Portfolio Information

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

2
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

Foreign Investing

Temporary Defensive Investments

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)

3
<PAGE>

will cause the Portfolio to incur additional transaction costs and may result in
taxable gains being passed through to shareholders.

Year 2000

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:

4
<PAGE>

<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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.05% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

PORTFOLIO MANAGERS

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

Mid Cap Growth Portfolio-Arden C. Armstrong and Abhi Y Kanitkar. Arden C.
Armstrong, a Managing Director of Morgan Stanley & Co. Incorporated ("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 Fund's 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.

PERFORMANCE OF THE ADVISER

The Adviser manages the Mid Cap Growth Portfolio of MAS Funds, Inc. ("MAS
Funds") which served as the model for this Portfolio of the Fund. The Mid Cap
Growth Portfolio of the MAS Funds has substantially the same investment
objectives, policies and strategies as the Portfolio of the Fund. In addition,
the Adviser intends this Portfolio of the Fund and the Mid Cap Growth Portfolio
of MAS Funds to be managed by the same personnel and to continue to have
substantially similar investment strategies, techniques and characteristics.
Past investment performance of the Institutional Shares of the MAS Funds' Mid
Cap Growth Portfolio, as shown

5
<PAGE>

in the table below, may be relevant to your consideration of the Portfolio. The
investment performance of the Mid Cap Growth Portfolio of MAS Funds is not
necessarily indicative of future performance of this Portfolio of the Fund.
Also, the operating expenses of this Portfolio of the Fund will be different
from, and may be higher than, the operating expenses of the Mid Cap Growth
Portfolio of MAS Funds. The investment performance of the Institutional Shares
of the MAS Funds' Mid Cap Growth Portfolio is provided merely to indicate the
experience of the Adviser in managing a similar portfolio.

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Average
Annual Annual
Total Total Total Total Total Average
Return Return Return Return Return Annual
One Three Five Three Five Total
Year Years Years Years Years Return
Fund Inception Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
---- ---- -------- -------- -------- ------- -------- ---------
- ----------------------------------------------------------------------------------------------
Mid 3/30/90
Cap
Growth
- ----------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

6
<PAGE>

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

7
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

8
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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
Andersen & Sherrerd, LLP ("MAS").

TABLE OF CONTENTS
<S> <C>

Page
----

INVESTMENT SUMMARY...................... 1
ADDITIONAL RISKS AND INFORMATION........ 3
INVESTMENT ADVISER...................... 4
MANAGEMENT FEE.......................... 4
PORTFOLIO MANAGERS...................... 5
PERFORMANCE OF THE ADVISER.............. 5
ACCOUNT POLICIES........................ 6
FINANCIAL HIGHLIGHTS.................... 8
WHERE TO FIND ADDITIONAL INFORMATION.... 9
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Mid Cap Value Portfolio

Objective: 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). 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 Information

1
<PAGE>

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.

PERFORMANCE
Commenced operations as of January 2, 1997
- ---------------------------------------------
<S> <C>
40.93%

- ---------------------------------------------
1997 1998
- ---------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
- ---------------------------------------------
</TABLE>

Average Annual Total Return for periods ended December 31, 1998

<TABLE>
<CAPTION>
<S> <C> <C>
Mid Cap Value Portfolio Standard & Poor's
(commenced operations on MidCap 400 Index*
January 2, 1997)

- ------------------------------------------------------------------------------
Past One Year
- ------------------------------------------------------------------------------
Since Inception
- ------------------------------------------------------------------------------

*The S&P MidCap 400 Index is a value weighted index. The companies chosen for
the Index generally have market values between $800 million and $3 billion,
depending on current market valuation and represent a broad range of industry
segments within the U.S. economy. The index is a hpothetical measure of
performance based on the ups and downs of securities that make up its market.
As a result, the index does not show actual investment returns or reflect
payment of management or brokerage fees, which would lower the index's
performance.
</TABLE>

2
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

Foreign Investing

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.

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)

3
<PAGE>

will cause the Portfolio to incur additional transaction costs and may result
in taxable gains being passed through to shareholders.

Year 2000

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:

4
<PAGE>

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

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.05% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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
& Co. Incorporated ("Morgan Stanley"), joined MAS in 1991. He served as a
Programmer in Applications Software Development at Alphametrics Corporation from
1987 through 1991 and as a Data Analyst and Inflation Economist at Wharton
Econometric Forecasting Associates from 1984 through 1987. He holds a B.A. in
Economics from Haverford College. Gary G. Schlarbaum, a Managing Director of
Morgan Stanley, joined MAS in 1987. He assumed responsibility for the MAS Funds
Equity and Small Cap Value Portfolios in 1987, the MAS Funds Balanced Portfolio
in 1992 and the MAS Funds Multi-Asset-Class and Mid Cap Value Portfolios in
1994. Mr. Schlarbaum holds a B.A. from Coe College and a Ph.D. from University
of Pennsylvania. Bradley S. Daniels, a Vice President of Morgan Stanley, joined
MAS in 1985. 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.

PERFORMANCE OF THE ADVISER

The Adviser manages the Mid Cap Value Portfolio of MAS Funds, Inc. ("MAS Funds")
which served as the model for this Portfolio of the Fund. The Mid Cap Value
Portfolio of the MAS

5
<PAGE>

Funds has substantially the same investment objectives, policies and strategies
as the Portfolio of the Fund. In addition, the Adviser intends this Portfolio of
the Fund and the Mid Cap Value Portfolio of MAS Funds to be managed by the same
personnel and to continue to have substantially similar investment strategies,
techniques and characteristics. Past investment performance of the Institutional
Shares of the MAS Funds' Mid Cap Value Portfolio, as shown in the table below,
may be relevant to your consideration of the Portfolio. The investment
performance of the Mid Cap Value Portfolio of MAS Funds is not necessarily
indicative of future performance of this Portfolio of the Fund. Also, the
operating expenses of this Portfolio of the Fund will be different from, and may
be higher than, the operating expenses of the Mid Cap Value Portfolio of MAS
Funds. The investment performance of the Institutional Shares of the MAS Funds'
Mid Cap Value Portfolio is provided merely to indicate the experience of the
Adviser in managing a similar portfolio.

<TABLE>
<CAPTION>
Average Annual
Total Return Total Return Total Return Average Annual
One Year Three Years Three Years Total Return
Fund Inception Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 Inception
---- -------- ------------ ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Mid Cap Value 12/30/94
- ----------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

6
<PAGE>

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

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

Taxes

7
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
Selected Per Share Data Year Ended January 2, 1997* to
and Ratios December 31, 1998 December 31, 1997
- ----------------------- ----------------- -------------------
<S> <C> <C>
Net Asset Value, Begin-
ning of Period........ $ 10.00
-------
Income From Investment
Operations
Net Investment In-
come................. 0.02
Net Realized and
Unrealized Gain...... 4.05
-------
Total From Investment
Operations........... 4.07
-------
Distributions
Net Investment In-
come................. (0.02)
Net Realized Gain..... (0.73)
-------
Total Distributions... (0.75)
-------
Net Asset Value, End of
Period................ $ 13.32
=======
Total Return........... 40.93%
=======
Ratios and Supplemental
Data:
Net Assets, End of
Period (000's)........ $11,461
Ratio of Expenses to
Average Net Assets.... 1.05%**
Ratio of Net Investment
Income to Average Net
Assets................ 0.19%**
Portfolio Turnover
Rate.................. 141%
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period:
Per Share Benefit to
Net Investment
Income............... $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average
Net Assets........... 2.13%**
Net Investment
Loss to Average Net
Assets............... (0.89)%**
</TABLE>
- ----------------------------------------------------------------------------

*Commencement of operations

**Annualized

8
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

9
<PAGE>

MAY 1, 1999

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").

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
Page
----
<S> <C>
INVESTMENT SUMMARY................................... 1
ADDITIONAL RISKS AND INFORMATION..................... 3
INVESTMENT ADVISER................................... 5
MANAGEMENT FEE....................................... 6
PORTFOLIO MANAGERS................................... 6
PERFORMANCE OF THE ADVISER........................... 7
ACCOUNT POLICIES..................................... 7
FINANCIAL HIGHLIGHTS................................. 9
WHERE TO FIND ADDITIONAL INFORMATION................. 10
</TABLE>
<PAGE>

INVESTMENT SUMMARY

U. S. Real Estate Portfolio

Objective: 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). 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.

1
<PAGE>

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 Information

The following bar chart and table show the performance of the
Portfolio over the last year and as an average over different
periods of time. This performance 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 table
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.

<TABLE>
<CAPTION>
PERFORMANCE
<S> <C>
Commenced operations on March 3, 1997
- ----------------------------------------

1998
- ----------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
- ----------------------------------------
</TABLE>

Average Annual Total Return for period ended December 31, 1998

U.S. Real Estate Portfolio National Association of
(commenced operations on Real Estate Investment
March 3, 1997) Trusts (NAREIT) Equity
Index*

<S> <C> <C>
Past One Year
---------------------------------------------------------------------------------
Since Inception
---------------------------------------------------------------------------------
</TABLE>

*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). The index is a hypothetical
measure of performance based on the ups and downs of securities that make up
its market. As a result, the index does not show actual investment returns or
reflect payment of management or brokerage fees, which would lower the index's
performance.
2

<PAGE>

ADDITIONAL RISKS 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 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. As a result of price volatility,
there is a risk that you may lose money by investing in the Portfolio.

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 over-building. 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.

<PAGE>

Temporary Defensive Investments

Portfolio Turnover

4
<PAGE>

Year 2000

INVESTMENT ADVISER

5
<PAGE>

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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.10% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

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

U.S. Real Estate Portfolio -- Theodore R. Bigman and Douglas A. Funke. Theodore
R. Bigman joined Morgan Stanley & Co. Incorporated ("Morgan Stanley") in 1995
and currently is a Principal of the Adviser and Morgan Stanley. He has primary
responsibility for managing the Adviser's global real estate securities
business. Prior to joining the Adviser, 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 the Adviser and Morgan Stanley and is responsible for providing research and
analytical support for the group's real estate securities investment business.
Prior to joining the Adviser, 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. Theodore R. Bigman has shared primary responsibility for
managing the Portfolio's assets since its inception. Douglas A.

6
<PAGE>

Funke has shared primary responsibility for managing the Portfolio's assets
since January 1999.

PERFORMANCE OF THE ADVISER

The Adviser manages the U.S. Real Estate Portfolio of Morgan Stanley Dean Witter
Institutional Fund, Inc. ("MSDWIF") which served as the model for this Portfolio
of the Fund. The U.S. Real Estate Portfolio of MSDWIF has substantially the
same investment objectives, policies and strategies as this Portfolio of the
Fund. In addition, the Adviser intends this Portfolio of the Fund and the U.S.
Real Estate Portfolio of MSDWIF to be managed by the same personnel and to
continue to have substantially similar investment strategies, techniques and
characteristics.

Past investment performance of the Class A Shares of the MSDWIF U.S. Real Estate
Portfolio, as shown in the table below, may be relevant to your consideration of
the Portfolio. The investment performance of the U.S. Real Estate Portfolio of
MSDWIF is not necessarily indicative of future performance of this Portfolio of
the Fund. Also, the operating expenses of this Portfolio of the Fund will be
different from, and may be higher than, the operating expenses of the U.S. Real
Estate Portfolio of MSDWIF. The investment performance of the Class A Shares of
the MSDWIF U.S. Real Estate Portfolio is provided merely to indicate the
experience of the Adviser in managing a similar portfolio.

<TABLE>
<CAPTION>
Average Annual
Total Return Total Return Total Return Average Annual
One Year Three Years Three Years Total Return
Fund Name Inception Date Ended 12/31/98 Ended 12/31/98 Ended 12/31/98 Since Inception
- ------------------- -------------- -------------- -------------- -------------- ---------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Real Estate 2/24/95
- -------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

7
<PAGE>

The price per share will be the net asset value per share (NAV) next determined
after we receive 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 of the
NYSE (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business.

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

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

Taxes

8
<PAGE>

FINANCIAL HIGHLIGHTS

The following table provides audited financial highlights for the Portfolio.
These financial highlights have been audited by___________________________
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
March 3,
1997* to
Selected Per Share Data and Year Ended December 31,
Ratios December 31, 1998 1997
- --------------------------- ----------------- ------------
<S> <C> <C>
Net Asset Value, Beginning
of Period................. $ 10.00
-------
Income From Investment
Operations
Net Investment Income.... 0.17
Net Realized and
Unrealized Gain......... 1.61
-------
Total From Investment
Operations............ 1.78
-------
Distributions
Net Investment Income.... (0.17)
Net Realized Gain........ (0.20)
-------
Total Distributions.... (0.37)
-------
Net Asset Value, End of
Period.................... $ 11.41
=======
Total Return............... 17.99%
=======
Ratios and Supplemental
Data:
Net Assets, End of Period
(000's)................... $13,055
Ratio of Expenses to
Average Net Assets........ 1.10%**
Ratio of Net Investment
Income to Average Net
Assets.................... 3.14%**
Portfolio Turnover Rate.... 114%
- ---------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period:
Per Share Benefit to Net
Investment Income....... $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................. 2.32%**
Net Investment Income
to Average Net
Assets.................. 1.92%**
</TABLE>
- ---------------------------------------------------------------------

*Commencement of operations

**Annualized

9
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

10
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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 Andersen & Sherrerd, LLP ("MAS").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
<S> <C>

Page
----

INVESTMENT SUMMARY................................................1
ADDITIONAL RISKS AND INFORMATION..................................3
INVESTMENT ADVISER................................................5
MANAGEMENT FEE....................................................5
PORTFOLIO MANAGERS................................................6
PERFORMANCE OF THE ADVISER........................................7
ACCOUNT POLICIES..................................................7
WHERE TO FIND ADDITIONAL INFORMATION..............................9
</TABLE>
<PAGE>

INVESTMENT SUMMARY

International Fixed Income Portfolio

Objective: 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.
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.

1
<PAGE>

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 Information

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

<PAGE>

ADDITIONAL RISKS 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.

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 affects 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 it exposure to the
risk of changing interest rates. A portfolio with a lower average duration
generally will experience less price volatility in responses to changes in
interest rates as compared with a portfolio with a higher duration.

Derivatives

3
<PAGE>

Emerging Market Risks

High Yield Securities

Temporary Defensive Investments

Portfolio Turnover

4
<PAGE>

Year 2000

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:

5
<PAGE>

<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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.80% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

PORTFOLIO MANAGERS

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

International Fixed Income Portfolio-- J. David Germany, Michael Kushma, Paul F.
O'Brien and Richard B Worley. J. David Germany, a Managing Director of Morgan
Stanley & Co. Incorporated ("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 1994.
Mr. Germany holds an A.B. 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 1988. 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
holds an A.B. from Princeton University, an M.S. from London School of Economics
and an M.A. in Philosophy from Columbia University. Paul F. O'Brien, a Principal
of Morgan Stanley, joined MAS in 1996. He served as Head of European Economics
from 1993 through 1995 for JP Morgan and as 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,
holds a B.S. from Massachusetts Institute of Technology and a Ph.D. in Economics
from University of Minnesota. 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 University of Tennessee and attended the Graduate School of Economics at
University of Texas. Messrs. Germany, Kushma, O'Brien and Worley have shared
primary responsibility for managing the Portfolio's assets since its inception.

6
<PAGE>

PERFORMANCE OF THE ADVISER

The Adviser manages the International Fixed Income Portfolio of MAS Funds, Inc.
("MAS Funds") which served as the model for this Portfolio of the Fund. The
International Fixed Income Portfolio of the MAS Funds has substantially the same
investment objectives, policies and strategies as the Portfolio of the Fund. In
addition, the Adviser intends this Portfolio of the Fund and the International
Fixed Income Portfolio of MAS Funds to be managed by the same personnel and to
continue to have substantially similar investment strategies, techniques and
characteristics. Past investment performance of the Institutional Shares of the
MAS Funds' International Fixed Income Portfolio, as shown in the table below,
may be relevant to your consideration of the Portfolio. The investment
performance of the International Fixed Income Portfolio of MAS Funds is not
necessarily indicative of future performance of this Portfolio of the Fund.
Also, the operating expenses of this Portfolio of the Fund will be different
from, and may be higher than, the operating expenses of the International Fixed
Income Portfolio of MAS Funds. The investment performance of the Institutional
Shares of the MAS Funds' International Fixed Income Portfolio is provided merely
to indicate the experience of the Adviser in managing a similar portfolio.

- --------------------------------------------------------------------------------------------
Average
Total Annual Total Average
Return One Total Return Return Total Annual Total
Fund Inception Year Ended Three Years Years Ended Return Since
Name Date 12/31/98 Ended 12/31/98 12/31/98 Inception
---- ---- -------- -------------- -------- ---------
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International 4/29/94
Fixed Income
- --------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

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 we receive 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.

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

8
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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

9
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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").

TABLE OF CONTENTS

Page
----

INVESTMENT SUMMARY.................................................... 1
ADDITIONAL RISKS AND INFORMATION...................................... 4
INVESTMENT ADVISER.................................................... 7
MANAGEMENT FEE........................................................ 7
PORTFOLIO MANAGERS.................................................... 7
PERFORMANCE OF THE ADVISER............................................ 8
ACCOUNT POLICIES...................................................... 9
FINANCIAL HIGHLIGHTS.................................................. 11
WHERE TO FIND ADDITIONAL INFORMATION.................................. 12
<PAGE>

INVESTMENT SUMMARY

Emerging Markets Debt Portfolio

Objective: 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) current yield; (iii) real interest rates; and
(iv) 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. 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

1
<PAGE>

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.

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 Information

2
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------
PERFORMANCE
----------------------------------------
Commenced operations on June 16, 1997
----------------------------------------
<S> <C>

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

1998
----------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
----------------------------------------
</TABLE>

Average Annual Total Return for periods ended December 31, 1998

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio JP Morgan Emerging
(commenced operations on June Markets Bond Plus Index*
16, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
Past One Year
- --------------------------------------------------------------------------------
Since Inception
- --------------------------------------------------------------------------------
</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. The index
is a hypothetical measure of performance based on the ups and downs of
securities that make up its market. As a result, the index does not show actual
investment returns or reflect payment of management or brokerage fees, which
would lower the index's performance.

3
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
portfolio.

Emerging Market Risks

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 affects 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 it exposure to the
risk of changing interest rates. A Portfolio with a lower average duration
generally will experience lee price volatility in responses to changes in
interest rates as compared with a portfolio with a higher duration.

Derivatives

4
<PAGE>

The Portfolio will limit its use of derivatives to 33 1/3% of its total assets
measured by the aggregate notional amount of outstanding derivatives. 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.

Emerging Market Risks

High Yield Securities

5
<PAGE>

investment grade securities. The Portfolio's investments in high yield
securities expose it to a substantial degree of credit risk.

Temporary Defensive Investments

Portfolio Turnover

Year 2000

6
<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................. 0.80%
-----------------------------------------
From $500 million to $1 billion.... 0.75%
-----------------------------------------
More than $1 billion............... 0.70%
-----------------------------------------
</TABLE>

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.30% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co.
Incorporated ("Morgan Stanley"), joined MAS in 1984. He assumed responsibility
for the MAS Funds Fixed Income Portfolio in 1984, the MAS Funds

7
<PAGE>

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
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 holds a B.S. from University of Delaware.
Abigail L. McKenna joined MSDW Investment Management in 1996 and is a Principal
of MSDW Investment Management and Morgan Stanley. She 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 trading and management of Corporate Bond
Portfolios. She 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.

PERFORMANCE OF THE ADVISER

The Adviser manages the Emerging Markets Debt Portfolio of Morgan Stanley Dean
Witter Institutional Fund, Inc. ("MSDWIF") which served as the model for this
Portfolio of the Fund. The Emerging Markets Debt Portfolio of MSDWIF has
substantially the same investment objectives, policies and strategies as this
Portfolio of the Fund. In addition, the Adviser intends this Portfolio of the
Fund and the Emerging Markets Debt Portfolio of MSDWIF to be managed by the same
personnel and to continue to have substantially similar investment strategies,
techniques and characteristics.

Past investment performance of the Class A Shares of the MSDWIF Emerging Markets
Debt Portfolio, as shown in the table below, may be relevant to your
consideration of the Portfolio. The investment performance of the Emerging
Markets Debt Portfolio of MSDWIF is not necessarily indicative of future
performance of this Portfolio of the Fund. Also, the operating expenses of this
Portfolio of the Fund will be different from, and may be higher than, the
operating expenses of the Emerging Markets Debt Portfolio of MSDWIF. The
investment performance of the Class A Shares of the MSDWIF Emerging Markets Debt
Portfolio is provided merely to indicate the experience of the Adviser in
managing a similar portfolio.

8
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Total Average Average
Total Return Total Annual Annual Average
Return Three Return Total Return Total Return Annual
One Year Years Five Years Three Years Five Years Total Return
Fund Inception Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging
Markets 2/1/94
Debt
- -------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

9
<PAGE>

Dividends, Distributions and Taxes

Dividends and Distributions

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

Taxes

10
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
June 16,
1997* to
Selected Per Share Data and Year Ended December 31,
Ratios December 31, 1998 1997
- --------------------------- ----------------- ------------
<S> <C> <C>
Net Asset Value, Beginning
of Period................. $ 10.00
-------
Income From Investment
Operations
Net Investment Income.... 0.28
Net Realized and
Unrealized Loss......... (0.22)
-------
Total From Investment
Operations............ 0.06
-------
Distributions
Net Investment Income.... (0.27)
Net Realized Gain........ (0.02)
In Excess of Net Realized
Gain.................... (0.10)
-------
Total Distributions.... (0.39)
-------
Net Asset Value, End of
Period.................... $ 9.67
=======
Total Return............... 0.76%
=======
Ratios and Supplemental
Data:
Net Assets, End of Period
(000's)................... $26,378
Ratio of Expenses to
Average Net Assets........ 1.35%**
Ratio of Expenses to Average
Net Assets Excluding Interet
Expense................... 1.30%**
Ratio of Net Investment
Income to Average Net
Assets.................... 8.10%**
Portfolio Turnover Rate.... 173%
- ------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period:
Per Share Benefit to Net
Investment Income....... $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................. 2.06%**
Net Investment Income
to Average Net
Assets.................. 7.39%**
</TABLE>
- ------------------------------------------- ---------------

*Commencement of operations

**Annualized

11
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www._____.

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

12
<PAGE>

MAY 1, 1999

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

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
<S> <C>

INVESTMENT SUMMARY................................................................ 1
ADDITIONAL RISKS AND INFORMATION.................................................. 3
INVESTMENT ADVISER................................................................ 5
MANAGEMENT FEE.................................................................... 5
PORTFOLIO MANAGERS................................................................ 5
PERFORMANCE OF THE ADVISER........................................................ 6
ACCOUNT POLICIES.................................................................. 6
FINANCIAL HIGHLIGHTS.............................................................. 9
WHERE TO FIND ADDITIONAL INFORMATION..............................................10
</TABLE>

<PAGE>

INVESTMENT SUMMARY

Global Equity Portfolio

Objective: 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. The
Adviser 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 Adviser
initially conducts quantitative screening designed to identify
undervalued issuers, based on price-to-book value, price-to-cash
flow and other value-oriented criteria. Analysts then conduct
fundamental analysis on the 25% of issuers that quantitative
screening indicates are most undervalued. They focus on criteria
such as financial structure, strategic value of assets,
franchise, products and management. In addition, the Adviser
typically visits each company prior to investing. The Adviser
continually scrutinizes Portfolio holdings to insure that they
remain on its list of the 25% most undervalued companies in the
global equity universe.

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). In addition, at times the Portfolio's
market sector, foreign and domestic equity securities, may
underperform relative to other sectors.

<PAGE>

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 Information

The following bar chart and table show the performance of the
Portfolio year-by-year and as an average over different periods
of time. This performance 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 table 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.

<TABLE>
<CAPTION>
- -----------------------------------------------------
PERFORMANCE
- -----------------------------------------------------
Commenced operations on January 2, 1997

- -----------------------------------------------------
<S> <C>
20.04%

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

1997 1998
- -----------------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
- -----------------------------------------------------
</TABLE>

Average Annual Return for periods ended December 31, 1998

- ------------------------------------------------------------------------------------------------------------------------------------
Global Equity Portfolio Morgan Stanley Capital
(commenced operations on International (MSCI)
January 2, 1997) World Index*
- ------------------------------------------------------------------------------------------------------------------------------------
Past One Year
- ------------------------------------------------------------------------------------------------------------------------------------
Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

*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). The index is a hypothetical measure of performance
based on the ups and downs of securities that make up its market. As a result, the index does not show actual investment returns or
reflect payment of management or brokerage fees, which would lower the index's performance.
</TABLE>

2
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

Derivatives

<PAGE>

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.

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.

Portfolio Turnover

Year 2000

<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 0.80%
------------------------------------------------
From $500 million to $1 billion 0.75%
------------------------------------------------
More than $1 billion 0.70%
------------------------------------------------
</TABLE>

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.15% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

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

Global Equity Portfolio-- Frances Campion, Richard Boon and Paul Boyne. Frances
Campion joined MSDW Investment Management in January 1990 as a Global Equity
Fund Manager and is now a Managing Director of MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley"). Her responsibilities
include day-to-day

<PAGE>

management of the Global Equity product. Prior to joining MSDW Investment
Management, Ms. Campion was a U.S. equity analyst with Lombard Odier Limited
where she had responsibility for the management of global portfolios. She is a
graduate of University College, Dublin. Richard Boon joined the MSDW Investment
Management's Global Equity team in London in September 1995 and became a
Principal in December 1998. In addition to portfolio construction, his
responsibilities include security analysis on North American and Australasian
equities. Prior to joining MSDW Investment Management, he spent seven years in
investment banking, working for Deutsche Bank as a member of their Equity
Capital Markets Group; advising the UK Post Office on its proposed
privatization; and with Ord Minnett Securities in their Mergers & Acquisitions
division. He is a graduate of both Canterbury and Victoria Universities, New
Zealand. Mr. Boon is individually registered in the UK with the Investment
Management Regulatory Organisation. Paul Boyne joined MSDW Investment
Management, London in 1993 after working as a Chartered Accountant with Grant
Thornton International in Dublin. At MSDW Investment Management, he assists in
the implementation of the Global Equity Program and the analysis of North
American and Irish equities. He is currently completing a post-graduate degree
with University College, Dublin. Mr. Boyne became a Principal in December 1998.
Mr. Boyne is individually registered in the UK with the Investment Management
Regulatory Organisation. Ms. Campion has had primary responsibility for managing
the Portfolio's assets since its inception. Messrs. Boon and Boyne have shared
primary responsibility for managing the Portfolio's assets since _________.

PERFORMANCE OF THE ADVISER

The Adviser manages the Global Equity Portfolio of Morgan Stanley Dean Witter
Institutional Fund, Inc. ("MSDWIF") which served as the model for this Portfolio
of the Fund. The Global Equity Portfolio of MSDWIF has substantially the same
investment objectives, policies and strategies as this Portfolio of the Fund.
In addition, the Adviser intends this Portfolio of the Fund and the Global
Equity Portfolio of MSDWIF to be managed by the same personnel and to continue
to have substantially similar investment strategies, techniques and
characteristics.

Past investment performance of the Class A Shares of the MSDWIF Global Equity
Portfolio, as shown in the table below, may be relevant to your consideration of
the Portfolio. The investment performance of the Global Equity Portfolio of
MSDWIF is not necessarily indicative of future performance of this Portfolio of
the Fund. Also, the operating expenses of this Portfolio of the Fund will be
different from, and may be higher than, the operating expenses of the Global
Equity Portfolio of MSDWIF. The investment performance of the Class A Shares of
the MSDWIF Global Equity Portfolio is provided merely to indicate the experience
of the Adviser in managing a similar portfolio.

<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Name Inception Total Total Total Average Average Average
- --------- Date Return Return Return Annual Annual Annual
---- One Year Three Years Five Years Total Total Total
Ended Ended Ended Return Return Return
12/31/98 12/31/98 12/31/98 Three Years Five Years Since
-------- -------- -------- Ended Ended Inception
12/31/98 12/31/98 ---------
-------- --------
- -----------------------------------------------------------------------------------------------------------
Global 7/15/92
Equity
- -----------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

<PAGE>

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
January 2,
Year Ended 1997* to
Selected Per Share Data and December 31, December 31,
Ratios 1998 1997
- --------------------------- ------------ ------------
<S> <C> <C>
Net Asset Value, Beginning
of Period................. $ 10.00
-------
Income From Investment
Operations
Net Investment Income.... 0.08
Net Realized and
Unrealized Gain......... 1.92
-------
Total From Investment
Operations............ 2.00
-------
Distributions
Net Investment Income.... (0.08)
Net Realized Gain........ (0.18)
-------
Total Distributions.... (0.26)
-------
Net Asset Value, End of
Period.................... $ 11.74
=======
Total Return............... 20.04%
=======
Ratios and Supplemental
Data:
Net Assets, End of Period
(000's)................... $14,707
Ratio of Expenses to
Average Net Assets........ 1.15%**
Ratio of Net Investment
Income to Average Net
Assets.................... 1.24%**
Portfolio Turnover Rate.... 20%
- -----------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period:
Per Share Benefit to Net
Investment Income....... $ 0.09
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................. 2.43%**
Net Investment
Loss to Average Net
Assets.................. (0.04)%**
</TABLE>
- -----------------------------------------------------------------

*Commencement of operations

**Annualized

9
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www._____.

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

10
<PAGE>

MAY 1, 1999

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

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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").

TABLE OF CONTENTS
<S> <C>
Page
----

INVESTMENT SUMMARY....................... 1
ADDITIONAL RISKS AND INFORMATION......... 4
INVESTMENT ADVISER....................... 5
MANAGEMENT FEE........................... 6
PORTFOLIO MANAGER........................ 6
PERFORMANCE OF THE ADVISER............... 7
ACCOUNT POLICIES......................... 7
FINANCIAL HIGHLIGHTS..................... 9
WHERE TO FIND ADDITIONAL INFORMATION 10
</TABLE>
<PAGE>

INVESTMENT SUMMARY

International Magnum Portfolio

Objective: 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 diversified 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
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, Australiasia, 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). In addition, at times the Portfolio's market
sector, foreign equity securities, may underperform relative to
other sectors.

1
<PAGE>

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 Information

The following bar chart and table show the performance of the
Portfolio year-by-year and as an average over different periods of
time. This performance 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 table 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.

PERFORMANCE
Commenced operations on January 2, 1997
- ------------------------------------------
<S> <C>
7.31%

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

1997 1998
- ------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
- ------------------------------------------
</TABLE>

2
<PAGE>

Average Annual Total Return for periods ended December 31, 1998
======================================================================================================
International Magnum Portfolio MSCI EAFE Index*
(commenced operations on January 2, 1997)
<S> <C> <C>
Past One Year
- -----------------------------------------------------------------------------------------------------

Since Inception
- ---------------------------------------------------------------------------------------------------
</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). The
index is a hypothetical measure of performance based on the ups and downs of
securities that make up its market. As a result, the index does not show actual
investment returns or reflect payment of management or brokerage fees, which
would lower the index's performance.

3
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

Derivatives

4
<PAGE>

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.

Temporary Defensive Investments

Portfolio Turnover

Year 2000

INVESTMENT ADVISER

5
<PAGE>

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:

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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.15% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGER

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

International Magnum Portfolio-- Francine J. Bovich. Francine J. Bovich, a
Managing Director of MSDW Investment and Morgan Stanley & Co. Incorporated
("Morgan Stanley"), joined MSDW Investment Management in 1993. Previously, Ms.
Bovich was a Principal and Executive Vice President of Westwood Management Corp.
("Westwood"), a registered investment adviser. Ms. Bovich serves as the U.S.
Representative to the United Nations Investment Committee. She holds a B.A. in

6
<PAGE>

Economics from Connecticut College and an M.B.A. in Finance from New York
University. Ms. Bovich has had primary responsibility for managing the Portfolio
since its inception.

PERFORMANCE OF THE ADVISER

The Adviser manages the International Magnum Portfolio of Morgan Stanley Dean
Witter Institutional Fund, Inc. ("MSDWIF") which served as the model for this
Portfolio of the Fund. The International Magnum Portfolio of MSDWIF has
substantially the same investment objectives, policies and strategies as this
Portfolio of the Fund. In addition, the Adviser intends this Portfolio of the
Fund and the International Magnum Portfolio of MSDWIF to be managed by the same
personnel and to continue to have substantially similar investment strategies,
techniques and characteristics.

Past investment performance of the Class A Shares of the MSDWIF International
Magnum Portfolio, as shown in the table below, may be relevant to your
consideration of the Portfolio. The investment performance of the International
Magnum Portfolio of MSDWIF is not necessarily indicative of future performance
of this Portfolio of the Fund. Also, the operating expenses of this Portfolio
of the Fund will be different from, and may be higher than, the operating
expenses of the International Magnum Portfolio of MSDWIF. The investment
performance of the Class A Shares of the MSDWIF International Magnum Portfolio
is provided merely to indicate the experience of the Adviser in managing a
similar portfolio.

Total Return One Average Annual Total
Year Return Since Inception
Fund Name Inception Date Ended 12/31/98
- ----------------------- --------------

- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Magnum 3/15/96
- ------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

7
<PAGE>

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 we receive 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.

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

8
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
January 2,
1997* to
Selected Per Share Data and Year Ended December 31,
Ratios December 31, 1998 1997
- --------------------------- ----------------- -------------
<S> <C> <C>
Net Asset Value, Beginning
of Period................. $ 10.00
-------
Income From Investment
Operations
Net Investment Income.... 0.13
Net Realized and
Unrealized Gain......... 0.59
-------
Total From Investment
Operations............ 0.72
-------
Distributions
Net Investment Income.... (0.32)
Net Realized Gain........ (0.02)
-------
Total Distributions.... (0.34)
-------
Net Asset Value, End of
Period.................... $ 10.38
=======
Total Return............... 7.31%
=======
Ratios and Supplemental
Data:
Net Assets, End of Period
(000's)................... $18,855
Ratio of Expenses to
Average Net Assets........ 1.16%**
Ratio of Expenses to
Average Net Assets
Excluding Interest
Expense................... 1.15%**
Ratio of Net Investment
Income to Average Net
Assets.................... 1.43%**
Portfolio Turnover Rate.... 41%
- ------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period:
Per Share Benefit to Net
Investment Income....... $ 0.15
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................. 2.78%**
Net Investment
Loss to Average Net
Assets.................. (0.19)%**
</TABLE>
- ------------------------------------------------------------------------------

*Commencement of operations

**Annualized

9
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www.______.

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

10
<PAGE>

MAY 1, 1999

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

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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").
<TABLE>
<CAPTION>

TABLE OF CONTENTS

Page
----
<S> <C>
INVESTMENT SUMMARY.......................................................... 1
ADDITIONAL RISKS AND INFORMATION............................................ 4
INVESTMENT ADVISER.......................................................... 5
MANAGEMENT FEE.............................................................. 6
PORTFOLIO MANAGERS.......................................................... 6
PERFORMANCE OF THE ADVISER.................................................. 7
ACCOUNT POLICIES............................................................ 8
FINANCIAL HIGHLIGHTS........................................................10
WHERE TO FIND ADDITIONAL INFORMATION........................................11
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Emerging Markets Equity Portfolio

Objective: 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 primarily in
growth-oriented equity securities in undervalued emerging markets
and, from time to time, in fixed income securities. 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 focus on shareholder value.

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). In addition,
at times the Portfolio's market sector, emerging markets equity
securities, may underperform relative to other sectors.

1
<PAGE>

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 Information

The following bar chart and table show the performance of the
Portfolio year-by-year and as an average over different periods
of time. This performance 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 table 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.

2
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------
PERFORMANCE
------------------------------------------
Commenced operations on October 1, 1996
------------------------------------------
<S> <C>

0.52%

------------------------------------------
1997 1998
------------------------------------------
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
------------------------------------------
</TABLE>

Average Annual Total Return for periods ended December 31, 1998

- ----------------------------------------------------------------------------------------------------------------
Emerging Markets Equity IFC Global Total Return
Portfolio Composite Index*
(commenced operations on
October 1, 1996)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Past One Year
- ----------------------------------------------------------------------------------------------------------------
Since Inception
- ----------------------------------------------------------------------------------------------------------------

*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 index is a hypothetical measure of performance based on the ups and downs of securities
that make up its market. As a result, the index does not show actual investment returns or reflect payment
of management or brokerage fees, which would lower the index's performance.
</TABLE>

3
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

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 countries 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

4
<PAGE>

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.

Temporary Defensive Investments

Portfolio Turnover

Year 2000

INVESTMENT ADVISER

5
<PAGE>

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:

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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.75% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co. Incorporated ("Morgan
Stanley"). He is head of and a Portfolio Manager of the Emerging Markets Equity
Group. He was born in Argentina and graduated from Yale University

6
<PAGE>

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 of the Emerging Markets
Equity Group. Prior to joining MSDW Investment Management, he worked in the
Latin America group at Bankers Trust 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 shared primary responsibility for managing
the Portfolio's assets since September 1997. Mr. Skov has shared primary
responsibility for managing the Portfolio's assets since October 1998.

PERFORMANCE OF THE ADVISER

The Adviser manages the Emerging Markets Portfolio of Morgan Stanley Dean Witter
Institutional Fund, Inc. ("MSDWIF") which served as the model for this Portfolio
of the Fund. The Emerging Markets Portfolio of MSDWIF has substantially the same
investment objectives, policies and strategies as this Portfolio of the Fund.
In addition, the Adviser intends this Portfolio of the Fund and the Emerging
Markets Portfolio of MSDWIF to be managed by the same personnel and to continue
to have substantially similar investment strategies, techniques and
characteristics.

Past investment performance of the Class A Shares of the MSDWIF Emerging Markets
Portfolio, as shown in the table below, may be relevant to your consideration of
the Portfolio. The investment performance of the Emerging Markets Portfolio of
MSDWIF is not necessarily indicative of future performance of this Portfolio of
the Fund. Also, the operating expenses of this Portfolio of the Fund will be
different from, and may be higher than, the operating expenses of the Emerging
Markets Portfolio of MSDWIF. The investment performance of the Class A Shares
of the MSDWIF Emerging Markets Portfolio is provided merely to indicate the
experience of the Adviser in managing a similar portfolio.

7
<PAGE>

- -------------------------------------------------------------------------------------------------------------
Total Average Average
Total Total Return Annual Annual Average
Return Return Five Years Total Return Total Return Annual
Fund Inception One Year Three Ended Three Years Five Years Total Return
Name Date Ended Years 12/31/98 Ended Ended Since
---- ---- 12/31/98 Ended -------- 12/31/98 12/31/98 Inception
-------- 12/31/98 -------- -------- ---------
--------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging
Markets 9/25/92
- -------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

8
<PAGE>

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

9
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
October 1,
Year Ended Year Ended 1996* to
Selected Per Share Data and December 31, December 31, December 31,
Ratios 1998 1997 1996
- --------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 9.78 $ 10.00
------- -------
Income From Investment
Operations
Net Investment Income.... 0.04 0.01
Net Realized and
Unrealized Loss......... -- (0.21)
------- -------
Total From Investment
Operations............ 0.04 (0.20)
------- -------
Distributions
Net Investment Income.... (0.07) (0.02)
Net Realized Gain........ (0.02) --
In Excess of Net Realized
Gain.................... (0.28) --
------- -------
Total Distributions.... (0.37) (0.02)
------- -------
Net Asset Value, End of
Period.................... $ 9.45 $ 9.78
======= =======
Total Return............... 0.52% (2.03)%
======= =======
Ratios and Supplemental
Data:
Net Assets, End of Period
(000's)................... $34,098 $11,789
Ratio of Expenses to
Average Net Assets........ 1.80% 1.79%**
Ratio of Expenses to
Average Net Assets
Excluding Interest Expense
and Foreign Tax Expense... 1.75% 1.75%**
Ratio of Net Investment
Income to Average Net
Assets.................... 0.47% 0.32%**
Portfolio Turnover Rate.... 87% 9%
- -------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period:
Per Share Benefit to Net
Investment Income....... $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................. 4.12% 6.17%**
Net Investment
Loss to Average Net
Assets.................. (1.84)% (4.06)%**
</TABLE>
- -------------------------------------------------------------------------

*Commencement of operations

**Annualized

10
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www.______.

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

11
<PAGE>

MAY 1, 1999

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

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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>

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").

TABLE OF CONTENTS
Page
----
<S> <C>
INVESTMENT SUMMARY.......................................................... 1
ADDITIONAL RISKS AND INFORMATION............................................ 4
INVESTMENT ADVISER.......................................................... 6
MANAGEMENT FEE.............................................................. 6
PORTFOLIO MANAGERS.......................................................... 7
PERFORMANCE OF THE ADVISER.................................................. 7
ACCOUNT POLICIES............................................................ 8
FINANCIAL HIGHLIGHTS........................................................ 10
WHERE TO FIND ADDITIONAL INFORMATION........................................ 11
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Asian Equity Portfolio

Objective: 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.)

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

1
<PAGE>

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 Information

The following bar chart and table show the performance of the
Portfolio over the last year and as an average over different
periods of time. This performance 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 table
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.

----------------------------------------
PERFORMANCE
----------------------------------------
Commenced operations on March 3, 1997
----------------------------------------

----------------------------------------
1998
----------------------------------------
<S> <C>
HIGH (QUARTER) LOW (QUARTER)
mo/yr - mo/yr mo/yr - mo/yr
xx.xx% xx.xx%
----------------------------------------
</TABLE>

2
<PAGE>

Average Annual Total Return for periods ended December 31, 1998

<TABLE>
<CAPTION>
-----------------------------------------------------
Asian Equity Portfolio Morgan Stanley Capital
(commenced operations on International (MSCI)
March 3, 1997) Combined Far-East Free
ex-Japan Index*
<S> <C> <C>
-----------------------------------------------------
Past One Year
-----------------------------------------------------
Since Inception
-----------------------------------------------------

</TABLE>

*The MSCI Combined 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). The index is a hypothetical
measure of performance based on the ups and downs of securities that make up its
market. As a result, the index does not show actual investment returns or
reflect payment of management or brokerage fees, which would lower the index's
performance.

3
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

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 locations 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

4
<PAGE>

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.

Temporary Defensive Investments

Portfolio Turnover

Year 2000

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.

5
<PAGE>

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, providing 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. 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
February 28, 1999, MSDW Investment Management and its institutional investment
advisory affiliates had approximately $___ 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:

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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.20% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

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

6
<PAGE>

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co. Incorporated ("Morgan Stanley") and a senior
member of MSDW Investment Management's emerging markets group focusing primarily
on the East Asian markets. 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 the East Asian and
Middle Eastern markets. 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 Asian Equity Portfolio
since August 1998.

PERFORMANCE OF THE ADVISER

The Adviser manages the Asian Equity Portfolio of Morgan Stanley Dean Witter
Institutional Fund, Inc. ("MSDWIF") which served as the model for this Portfolio
of the Fund. The Asian Equity Portfolio of MSDWIF has substantially the same
investment objectives, policies and strategies as this Portfolio of the Fund. In
addition, the Adviser intends this Portfolio of the Fund and the Asian Equity
Portfolio of MSDWIF to be managed by the same personnel and to continue to have
substantially similar investment strategies, techniques and characteristics.

Past investment performance of the Class A Shares of the MSDWIF Asian Equity
Portfolio, as shown in the table below, may be relevant to your consideration of
the Portfolio. The investment performance of the Asian Equity Portfolio of
MSDWIF is not necessarily indicative of future performance of this Portfolio of
the Fund. Also, the operating expenses of this Portfolio of the Fund will be
different from, and may be higher than, the operating expenses of the Asian
Equity Portfolio of MSDWIF. The investment performance of the Class A Shares of
the MSDWIF Asian Equity Portfolio is provided merely to indicate the experience
of the Adviser in managing a similar portfolio.

7
<PAGE>

- ------------------------------------------------------------------------------------------------------------
Total Average Average
Total Return Total Annual Annual Average
Return Three Return Total Return Total Return Annual
One Year Years Five Years Three Years Five Years Total Return
Fund Inception Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Asian
Equity 7/1/91
- ------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

8
<PAGE>

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

9
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Period from
March 3,
1997* to
Selected Per Share Data and Year Ended December 31,
Ratios Deceember 31, 1998 1997
- --------------------------- ------------------ -------------
<S> <C> <C>
Net Asset Value, Beginning
of Period................. $ 10.00
---------
Income From Investment
Operations
Net Investment Income.... 0.01
Net Realized and
Unrealized Loss......... (4.36)
---------
Total From Investment
Operations............ (4.35)
---------
Distributions
Net Investment Income.... (0.01)
---------
Total Distributions.... (0.01)
---------
Net Asset Value, End of
Period.................... $ 5.64
=========
Total Return............... (43.52)%
=========
Ratios and Supplemental
Data:
Net Assets, End of Period
(000's)................... $ 12,571
Ratio of Expenses to
Average Net Assets........ 1.35%**
Ratio of Expenses to
Average Net Assets
Excluding Interest Expense
and Foreign Tax Expense... 1.20%**
Ratio of Net Investment
Income to Average Net
Assets.................... 0.32%**
Portfolio Turnover Rate.... 130%
- --------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period:
Per Share Benefit to Net
Investment Income....... $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................. 3.10%**
Net Investment
Loss to Average Net
Assets.................. (1.43)%**
</TABLE>
- --------------------------------------------------------------------

*Commencement of operations

**Annualized

10
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www._______.

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

11
<PAGE>

MAY 1, 1999

LATIN AMERICAN PORTFOLIO

Long-term capital appreciation by investing primarily in equity securities of
Latin American issuers and, from time to time, fixed income securities issued or
guaranteed by Latin American issuers.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
<S> <C>
Page
----

INVESTMENT SUMMARY.......................................................... 1
ADDITIONAL RISKS AND INFORMATION............................................ 3
INVESTMENT ADVISER.......................................................... 5
MANAGEMENT FEE.............................................................. 5
PORTFOLIO MANAGERS.......................................................... 6
PERFORMANCE OF THE ADVISER.................................................. 6
ACCOUNT POLICIES............................................................ 7
WHERE TO FIND ADDITIONAL INFORMATION........................................ 9
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Latin American Portfolio

Objective: Long-term capital appreciation by investing primarily in equity
securities of Latin American issuers and, from time to time,
fixed income securities issued or guaranteed by 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. In addition, the Portfolio may, from time to time,
invest in fixed income securities. These will usually be high
yield securities.

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). The
Portfolio's investments in high yield securities may 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. In
addition, at times the Portfolio's market sector, equity
securities of Latin American issuers, may underperform relative
to other sectors.

1
<PAGE>

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.

Performance Information

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

2
<PAGE>

ADDITIONAL RISKS 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. As a result
of price volatility, there is a risk that you may lose money by investing in the
Portfolio.

Emerging Market Risks

Derivatives

3
<PAGE>

High Yield Securities

Temporary Defensive Investments

Portfolio Turnover

Year 2000

4
<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 ................ 1.10%
------------------------------------------
</TABLE>

5
<PAGE>

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

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 1.75% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co. Incorporated ("Morgan
Stanley"). He is head of and a Portfolio Manager of 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 of the Emerging Markets Equity Group.
Prior to joining MSDW Investment Management, he worked in the Latin America
group at Bankers Trust 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. He 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. Messrs. Skov and Perl have
shared primary responsibility for managing the Portfolio's assets since May 1997
and November 1998, respectively.

PERFORMANCE OF THE ADVISER

The Adviser manages the Latin American Portfolio of Morgan Stanley Dean Witter
Institutional Fund, Inc. ("MSDWIF") which served as the model for this Portfolio
of the Fund. The Latin American Portfolio of MSDWIF has substantially the same
investment objectives, policies and strategies as this Portfolio of the Fund.
In addition, the Adviser intends this Portfolio of the Fund

6
<PAGE>

and the Latin American Portfolio of MSDWIF to be managed by the same personnel
and to continue to have substantially similar investment strategies, techniques
and characteristics.

Past investment performance of the Class A Shares of the MSDWIF Latin American
Portfolio, as shown in the table below, may be relevant to your consideration of
the Portfolio. The investment performance of the Latin American Portfolio of
MSDWIF is not necessarily indicative of future performance of this Portfolio of
the Fund. Also, the operating expenses of this Portfolio of the Fund will be
different from, and may be higher than, the operating expenses of the Latin
American Portfolio of MSDWIF. The investment performance of the Class A Shares
of the MSDWIF Latin American Portfolio is provided merely to indicate the
experience of the Adviser in managing a similar portfolio.

Total Average Average
Total Return Total Annual Annual Average
Return Three Return Total Return Total Return Annual
One Year Years Five Years Three Years Five Years Total Return
Fund Inception Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
---- ---- -------- -------- -------- -------- -------- ---------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Latin
American 1/18/95
- -------------------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

7
<PAGE>

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

8
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www.______.

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

9
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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
Andersen & Sherrerd, LLP ("MAS").

TABLE OF CONTENTS

Page
----

INVESTMENT SUMMARY................................................... 1
ADDITIONAL RISKS AND INFORMATION..................................... 3
INVESTMENT ADVISER................................................... 6
MANAGEMENT FEE....................................................... 7
PORTFOLIO MANAGERS................................................... 7
PERFORMANCE OF THE ADVISER........................................... 8
ACCOUNT POLICIES..................................................... 9
WHERE TO FIND ADDITIONAL INFORMATION................................. 11
<PAGE>

INVESTMENT SUMMARY

Balanced Portfolio

Objective: 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. 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.

1
<PAGE>

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.

Performance Information

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

2
<PAGE>

ADDITIONAL RISKS 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. As a result of price
volatility, there is a risk that you may lose money by investing in the
Portfolio.

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 affects 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 it exposure to the
risk of changing interest rates. A portfolio with a lower average duration
generally will experience less price volatility in responses to changes in
interest rates as compared with a portfolio with a higher duration.

Foreign Investing

3
<PAGE>

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.

Emerging Market Risks

Derivatives

4
<PAGE>

High Yield Securities

Mortgage Securities

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.

Temporary Defensive Investments

5
<PAGE>

Portfolio Turnover

Year 2000

INVESTMENT ADVISER

6
<PAGE>

positions in each of its three primary businesses-securities, asset management
and credit services. As of February 28, 1999, MAS and its institutional
advisory affiliates had approximately $___ 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.................. 0.50%
--------------------------------------------
From $500 million to $1 billion..... 0.45%
--------------------------------------------
More than $1 billion................ 0.40%
--------------------------------------------
</TABLE>

However, the Adviser has agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.80% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

PORTFOLIO MANAGERS

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

Balanced Portfolio-- Thomas L. Bennett, Gary G. Schlarbaum, Horatio A. Valieras
and Richard B. Worley. Thomas L. Bennett, a Managing Director of Morgan Stanley
& Co. Incorporated ("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
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 University of Tennessee and attended the

7
<PAGE>

Graduate School of Economics at 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 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 and 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 Massachusetts Institute of
Technology and an M.B.A. from University of California, Berkeley. Messrs.
Bennett, Schlarbaum, Valieras and Worley have shared primary responsibility for
managing the Portfolio's assets since its inception.

PERFORMANCE OF THE ADVISER

The Adviser manages the Balanced Portfolio of MAS Funds, Inc. ("MAS Funds")
which served as the model for this Portfolio of the Fund. The Balanced
Portfolio of the MAS Funds has substantially the same investment objectives,
policies and strategies as the Portfolio of the Fund. In addition, the Adviser
intends this Portfolio of the Fund and the Balanced Portfolio of MAS Funds to be
managed by the same personnel and to continue to have substantially similar
investment strategies, techniques and characteristics. Past investment
performance of the Institutional Shares of the MAS Funds' Balanced Portfolio, as
shown in the table below, may be relevant to your consideration of the
Portfolio. The investment performance of the Balanced Portfolio of MAS Funds is
not necessarily indicative of future performance of this Portfolio of the Fund.
Also, the operating expenses of this Portfolio of the Fund will be different
from, and may be higher than, the operating expenses of the Balanced Portfolio
of MAS Funds. The investment performance of the Institutional Shares of the MAS
Funds' Balanced Portfolio is provided merely to indicate the experience of the
Adviser in managing a similar portfolio.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Average Average
Annual Annual
Total Total Total Total Total Average
Return Return Return Return Return Annual
One Three Five Three Five Total
Year Years Years Years Years Return
Fund Inception Ended Ended Ended Ended Ended Since
Name Date 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 Inception
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Balanced 12/31/92
- ---------------------------------------------------------------------------------------
</TABLE>

8
<PAGE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

9
<PAGE>

10
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

For additional Fund information, including information regarding the investments
comprising the Portfolio, please call 1-800-281-2715 or visit the MSDW
Investment Management web site at www.______.

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

11
<PAGE>

MAY 1, 1999

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.

A Portfolio of Morgan Stanley Dean Witter Universal Funds, Inc.

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 Andersen & Sherrerd, LLP ("MAS").
<TABLE>
<CAPTION>

TABLE OF CONTENTS
<S> <C>
Page
----

INVESTMENT SUMMARY............................................................ 1
ADDITIONAL RISKS AND INFORMATION.............................................. 3
INVESTMENT ADVISER............................................................ 6
MANAGEMENT FEE................................................................ 7
PORTFOLIO MANAGERS............................................................ 7
PERFORMANCE OF THE ADVISER.................................................... 8
ACCOUNT POLICIES.............................................................. 9
WHERE TO FIND ADDITIONAL INFORMATION..........................................11
</TABLE>
<PAGE>

INVESTMENT SUMMARY

Multi-Asset-Class Portfolio

Objective: 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. 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.

1
<PAGE>

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.

Performance Information

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

2
<PAGE>

ADDITIONAL RISKS 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. As a result of price
volatility, there is a risk that you may lose money by investing in the
Portfolio.

Derivatives

3
<PAGE>

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 affects 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 it exposure to the
risk of changing interest rates. A portfolio with a lower average duration
generally will experience less price volatility in responses 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 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.

Emerging Market Risks

4
<PAGE>

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.

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

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.

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

5
<PAGE>

for temporary purposes. If the Adviser incorrectly predicts the effects of these
changes, such defensive investments may adversely affect the Portfolio's
performance.

Portfolio Turnover

Year 2000

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

6
<PAGE>

services. As of February 28, 1999, MAS and its institutional advisory affiliates
had approximately $___ 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:

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 agreed to voluntarily waive receipt of its management
fees and to reimburse the Portfolio, if necessary, if such fees would cause the
Portfolio's total annual operating expenses to exceed 0.95% of its average daily
assets. These fee waivers and reimbursements are voluntary and may be terminated
by the Adviser at any time without notice.

PORTFOLIO MANAGERS

The following individuals have primary day-to-day portfolio management
responsibilities 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 & Co. Incorporated ("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 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 1994.
Mr. Germany holds an A.B. 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

7
<PAGE>

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. 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 and 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 Massachusetts Institute of
Technology and an M.B.A. from 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 University of Tennessee and attended
the Graduate School of Economics at University of Texas. Messrs. Bennett,
Germany, Schlarbaum, Valieras and Worley have shared primary responsibility for
managing the Portfolio's assets since its inception.

PERFORMANCE OF THE ADVISER

The Adviser manages the Multi-Asset-Class Portfolio of MAS Funds, Inc. ("MAS
Funds" which served as the model for this Portfolio of the Fund. The
Multi-Asset-Class Portfolio of the MAS Funds has substantially the same
investment objectives, policies and strategies as the Portfolio of the Fund. In
addition, the Adviser intends this Portfolio of the Fund and the Multi-Asset-
Class Portfolio of MAS Funds to be managed by the same personnel and to continue
to have substantially similar investment strategies, techniques and
characteristics. Past investment performance of the Institutional Shares of the
MAS Funds' Multi-Asset-Class Portfolio, as shown in the table below, may be
relevant to your consideration of the Portfolio. The investment performance of
the Multi-Asset-Class Portfolio of MAS Funds is not necessarily indicative of
future performance of this Portfolio of the Fund. Also, the operating expenses
of this Portfolio of the Fund will be different from, and may be higher than,
the operating expenses of the Multi-Asset-Class Portfolio of MAS Funds. The
investment performance of the Institutional Shares of the MAS Funds'
Multi-Asset-Class Portfolio is provided merely to indicate the experience of the
Adviser in managing a similar portfolio.

8
<PAGE>

Average
Annual
Total Average
Total Return Annual
Total Return Three Total
Return One Three Years Years Return
Inception Year Ended Ended Ended Since
Fund Name Date 12/31/98 12/31/98 12/31/98 Inception
--------- ---- -------- -------- -------- ---------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Multi-Asset-Class 7/29/94
- -----------------------------------------------------------------------------------------------------
</TABLE>

ACCOUNT POLICIES

Purchasing and Selling Fund Shares

Shares are offered on each day that the NYSE is open for business.

The price per share will be the net asset value per share (NAV) next determined
after we receive 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.

How the Portfolio Calculates NAV

9
<PAGE>

Dividends, Distributions and Taxes

Dividends and Distributions

The Portfolio distributes its investment income annually as dividends and 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.

10
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION

Statement of Additional Information

Shareholder Reports

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
Commissions 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., P.O. Box 2798, Boston,
Massachusetts 02208-2798.

11
<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 of Contents Page
----

Investment Policies.........................................................
Investments and Strategies..................................................
Taxes.......................................................................
Purchase of Shares..........................................................
Redemption of Shares........................................................
Investment Limitations......................................................
Determining Maturities of Certain
Instruments.................................................................
Management of the Fund......................................................
Net Asset Value for the Money Market
Portfolio...................................................................
Portfolio Transactions......................................................
Performance Information.....................................................
General Performance Information.............................................
General Information.........................................................
Description of Ratings......................................................
Financial Statements........................................................

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."

<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
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 Portfolio Under normal circumstances, the Portfolio
will 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 Portfolio Under normal circumstances, at least 65%
of the 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.
- --------------------------------------------------------------------------------

</TABLE>

1
<PAGE>

<TABLE>

- --------------------------------------------------------------------------------
<S> <C>
International Fixed Income Portfolio Under normal circumstances, at least 95%
of the 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 Portfolio Under normal circumstances, the
Portfolio will 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.
- --------------------------------------------------------------------------------
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 Portfolio Under normal circumstances, at least 65%
of the total assets of the Portfolio
will be invested in Equity Securities of
issuers in at least three different EAFE
countries. The Portfolio may invest up
to 5% of its total assets in the
securities of issuers domiciled in non-
EAFE countries.
- --------------------------------------------------------------------------------
Emerging Markets Equity Portfolio Under normal circumstances, at least 65%
of the 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 Portfolio The Portfolio expects, under normal
circumstances, 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.
- --------------------------------------------------------------------------------

</TABLE>

2
<PAGE>

<TABLE>

- --------------------------------------------------------------------------------
<S> <C>
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 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.
- --------------------------------------------------------------------------------

</TABLE>

3
<PAGE>

INVESTMENTS AND STRATEGIES
- --------------------------

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 Income High Yield Money 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 x x
Management
- -----------------------------------------------------------------------------------
Mortgage Investing x x
- -----------------------------------------------------------------------------------
Value Investing x x
- -----------------------------------------------------------------------------------
EQUITY SECURITIES:
- -----------------------------------------------------------------------------------
Common Stocks
- -----------------------------------------------------------------------------------
Depositary Receipts
- -----------------------------------------------------------------------------------
ADRs
- -----------------------------------------------------------------------------------
Preferred Stocks x x
- -----------------------------------------------------------------------------------
Rights
- -----------------------------------------------------------------------------------
Warrants
- -----------------------------------------------------------------------------------
Convertible Securities x x
- -----------------------------------------------------------------------------------
Partnerships
- -----------------------------------------------------------------------------------
Investment Company Securities x x
- -----------------------------------------------------------------------------------
REITs
- -----------------------------------------------------------------------------------
FIXED INCOME SECURITIES:
- -----------------------------------------------------------------------------------
Investment Grade Securities x x x
- -----------------------------------------------------------------------------------
High Yield Securities x x
- -----------------------------------------------------------------------------------
</TABLE>

4
<PAGE>

------------------------------------------------
Fixed Income High Yield Money Market
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities x x x
- -----------------------------------------------------------------------------------
Agencies x x x
- -----------------------------------------------------------------------------------
Corporates x x x
- -----------------------------------------------------------------------------------
Money Market Instruments x x x
- -----------------------------------------------------------------------------------
Mortgage Related Securities: x x x
- -----------------------------------------------------------------------------------
- MBSs x x x
- -----------------------------------------------------------------------------------
- CMOs x x
- -----------------------------------------------------------------------------------
- SMBSs x x
- -----------------------------------------------------------------------------------
Repurchase Agreements x x x
- -----------------------------------------------------------------------------------
Municipals x x
- -----------------------------------------------------------------------------------
Asset-Backed Securities x x
- -----------------------------------------------------------------------------------
Loan Participations and x x
Assignments
- -----------------------------------------------------------------------------------
Commercial Paper x x x
- -----------------------------------------------------------------------------------
Temporary Investments x x x
- -----------------------------------------------------------------------------------
Zero Coupons, Pay-In-Kind
Securities or Deferred Payment x x
Securities
- -----------------------------------------------------------------------------------
Floaters x x x
- -----------------------------------------------------------------------------------
Inverse Floaters x x
- -----------------------------------------------------------------------------------
Cash Equivalents x x x
- -----------------------------------------------------------------------------------
Yankee Dollars x x
- -----------------------------------------------------------------------------------
FOREIGN INVESTMENT:
- -----------------------------------------------------------------------------------
Foreign Equity Securities x
- -----------------------------------------------------------------------------------
Foreign Bonds x x
- -----------------------------------------------------------------------------------
Foreign Currency Transactions x x
- -----------------------------------------------------------------------------------
Emerging Market Country x
Securities
- -----------------------------------------------------------------------------------
Russian Securities
- -----------------------------------------------------------------------------------
Brady Bonds x x
- -----------------------------------------------------------------------------------
Investment Funds
- -----------------------------------------------------------------------------------
</TABLE>

5
<PAGE>

----------------------------------------------------
Fixed Income High Yield Money Market
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
- ---------------------------------------------------------------------------------------
Loans of Portfolio Securities x x x
- ---------------------------------------------------------------------------------------
Non-Publicly Traded Securities,
Private Placements and Restricted x x x
Securities (Private Placements)
- ---------------------------------------------------------------------------------------
When-Issued and Delayed x x
Delivery Securities
- ---------------------------------------------------------------------------------------
Leverage
- ---------------------------------------------------------------------------------------
Reverse Repurchase Agreements x x x
- ---------------------------------------------------------------------------------------
Short Sales x x
- ---------------------------------------------------------------------------------------
Structured Investments x x x
- ---------------------------------------------------------------------------------------
DERIVATIVE PRODUCTS:
- ---------------------------------------------------------------------------------------
Futures Contracts x x
- ---------------------------------------------------------------------------------------
Forward Contracts x x
- ---------------------------------------------------------------------------------------
Options x x
- ---------------------------------------------------------------------------------------
Swaps x x
- ---------------------------------------------------------------------------------------
</TABLE>

6
<PAGE>

U.S. EQUITY PORTFOLIOS
----------------------

7
<PAGE>

---------------------------------------------------------------------
Core Equity Mid Cap Mid Cap U.S. Value
Equity Growth Growth Value Real Estate
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Convertible x x x x x x
Securities
- ----------------------------------------------------------------------------------------------------
Partnerships x
- ----------------------------------------------------------------------------------------------------
Investment Company
Securities x x x x x x
- ----------------------------------------------------------------------------------------------------
REITS x
- ----------------------------------------------------------------------------------------------------
FIXED INCOME
SECURITIES:
- ----------------------------------------------------------------------------------------------------
Investment Grade x x x x x x
Securities
- ----------------------------------------------------------------------------------------------------
High Yield Securities
- ----------------------------------------------------------------------------------------------------
U.S. Government x x x x x x
Securities
- ----------------------------------------------------------------------------------------------------
Agencies x x x x
- ----------------------------------------------------------------------------------------------------
Corporates x x x
- ----------------------------------------------------------------------------------------------------
Money Market x x x x x x
Instruments
- ----------------------------------------------------------------------------------------------------
Mortgage Related
Securities:
- ----------------------------------------------------------------------------------------------------
- MBSs
- ----------------------------------------------------------------------------------------------------
- CMOs
- ----------------------------------------------------------------------------------------------------
- SMBSs
- ----------------------------------------------------------------------------------------------------
Repurchase x x x x x x
Agreements
- ----------------------------------------------------------------------------------------------------
Municipals
- ----------------------------------------------------------------------------------------------------
Asset-Backed
Securities
- ----------------------------------------------------------------------------------------------------
Loan Participations
and Assignments
- ----------------------------------------------------------------------------------------------------
Commercial Paper x x x x x x
- ----------------------------------------------------------------------------------------------------
Temporary x x x x x x
Investments
- ----------------------------------------------------------------------------------------------------
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------
Core Equity Mid Cap Mid Cap U.S. Value
Equity Growth Growth Value Real Estate
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Zero Coupons, Pay-
In-Kind Securities or x x x x x x
Deferred Payment
Securities
- ----------------------------------------------------------------------------------------------------
Floaters
- ----------------------------------------------------------------------------------------------------
Inverse Floaters
- ----------------------------------------------------------------------------------------------------
Cash Equivalents x x x x x x
- ----------------------------------------------------------------------------------------------------
Yankee Dollars x
- ----------------------------------------------------------------------------------------------------
FOREIGN INVESTMENT:
- ----------------------------------------------------------------------------------------------------
Foreign Equity x x x x x x
Securities
- ----------------------------------------------------------------------------------------------------
Foreign Bonds x x x x x x
- ----------------------------------------------------------------------------------------------------
Foreign Currency x x x x x x
Transactions
- ----------------------------------------------------------------------------------------------------
Emerging Market
Country Securities
- ----------------------------------------------------------------------------------------------------
Russian Securities
- ----------------------------------------------------------------------------------------------------
Brady Bonds x
- ----------------------------------------------------------------------------------------------------
Investment Funds x
- ----------------------------------------------------------------------------------------------------
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
- ----------------------------------------------------------------------------------------------------
Loans of Portfolio x x x x x x
Securities
- ----------------------------------------------------------------------------------------------------
Non-Publicly Traded
Securities, Private
Placements and x x x x x x
Restricted Securities
- ----------------------------------------------------------------------------------------------------
When-Issued and
Delayed Delivery x x x x x x
Securities
- ----------------------------------------------------------------------------------------------------
Leverage
- ----------------------------------------------------------------------------------------------------
Reverse Repurchase x x x x
Agreements
- ----------------------------------------------------------------------------------------------------
Short Sales x x x x
- ----------------------------------------------------------------------------------------------------
Structured
Investments
- ----------------------------------------------------------------------------------------------------
</TABLE>

9
<PAGE>

10
<PAGE>

GLOBAL PORTFOLIOS
-----------------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Asian Emerging Emerging Global International International Latin
Equity Markets Markets Equity Fixed Income Magnum American
Debt Equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STRATEGIES:
- ----------------------------------------------------------------------------------------------------------------------
Emerging x x x x x
Markets Investing
- ----------------------------------------------------------------------------------------------------------------------
Foreign Fixed x x x x x x x
Income Investing
- ----------------------------------------------------------------------------------------------------------------------
Foreign Investing x x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
High Yield x x x x
Investing
- ----------------------------------------------------------------------------------------------------------------------
Maturity and x
Duration
Management
- ----------------------------------------------------------------------------------------------------------------------
Mortgage x
Investing
- ----------------------------------------------------------------------------------------------------------------------
Value Investing x
- ----------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES:
- ----------------------------------------------------------------------------------------------------------------------
Common Stocks x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Depositary Receipts x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stocks x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Rights x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Warrants x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Convertible Securities x x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Partnerships x x x x
- ----------------------------------------------------------------------------------------------------------------------
Investment Company x x x x x x x
Securities
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Asian Emerging Emerging Global International International Latin
Equity Markets Markets Equity Fixed Income Magnum American
Debt Equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
FIXED INCOME
SECURITIES:
- ----------------------------------------------------------------------------------------------------------------------
Investment Grade
Securities x x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
High Yield Securities x x x x
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government
Securities x x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Agencies x x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Corporates x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Money Market x x x x x x x
Instruments
- ----------------------------------------------------------------------------------------------------------------------
Mortgage Related x x GOVT.
Securities: ONLY
- ----------------------------------------------------------------------------------------------------------------------
- MBSs x x
- ----------------------------------------------------------------------------------------------------------------------
- CMOs x x
- ----------------------------------------------------------------------------------------------------------------------
- SMBSs x x
- ----------------------------------------------------------------------------------------------------------------------
Repurchase
Agreements x x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Municipals x
- ----------------------------------------------------------------------------------------------------------------------
Asset-Backed x x
Securities
- ----------------------------------------------------------------------------------------------------------------------
Commercial Paper x x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Loan Participations x x
and Assignments
- ----------------------------------------------------------------------------------------------------------------------
Temporary x x x x x x x
Investments
- ----------------------------------------------------------------------------------------------------------------------
Zero Coupons, Pay-In-
Kind Securities or x x x x x
Deferred Payment
Securities
- ----------------------------------------------------------------------------------------------------------------------
Floaters x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Inverse Floaters x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Cash Equivalents x x x x x x
- ----------------------------------------------------------------------------------------------------------------------
Yankee Dollars x x x
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

12
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Asian Emerging Emerging Global International International Latin
Equity Markets Markets Equity Fixed Income Magnum American
Debt Equity
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOREIGN INVESTMENT:
- ------------------------------------------------------------------------------------------------------
Foreign Equity x x x x x
Securities
- ------------------------------------------------------------------------------------------------------
Foreign Bonds x x x x x x x
- ------------------------------------------------------------------------------------------------------
Foreign Currency x x x x x x x
Transactions
- ------------------------------------------------------------------------------------------------------
Emerging Market x x x x x x x
Country Securities
- ------------------------------------------------------------------------------------------------------
Russian Securities x x
- ------------------------------------------------------------------------------------------------------
Brady Bonds x x x x x x
- ------------------------------------------------------------------------------------------------------
Investment Funds x x x x x x x
- ------------------------------------------------------------------------------------------------------
Eurodollars x x x x x x x
- ------------------------------------------------------------------------------------------------------
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
- ------------------------------------------------------------------------------------------------------
Loans of Portfolio x x x x x x x
Securities
- ------------------------------------------------------------------------------------------------------
Non-Publicly Traded
Securities, Private x x x x x x x
Placements and
Restricted Securities
- ------------------------------------------------------------------------------------------------------
When-Issued and
Delayed Delivery x x x x x x x
Securities
- ------------------------------------------------------------------------------------------------------
Leverage x x
- ------------------------------------------------------------------------------------------------------
Reverse Repurchase x x x
Agreements
- ------------------------------------------------------------------------------------------------------
Short Sales x x
- ------------------------------------------------------------------------------------------------------
Structured Investments x x x x x
- ------------------------------------------------------------------------------------------------------
DERIVATIVE PRODUCTS:
- ------------------------------------------------------------------------------------------------------
Futures Contracts x x x x x x x
- ------------------------------------------------------------------------------------------------------
Forward Contracts x x x x x x x
- ------------------------------------------------------------------------------------------------------
Options x x x x x x x
- ------------------------------------------------------------------------------------------------------
Swaps x x x x x x x
- ------------------------------------------------------------------------------------------------------
</TABLE>

13
<PAGE>

ASSET ALLOCATION PORTFOLIOS
---------------------------

<TABLE>
<CAPTION>
----------------------------------------------
BALANCED MULTI-ASSET-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)
- ---------------------------------------------------------------------------------
Preferred Stocks x x
- ---------------------------------------------------------------------------------
Rights x x
- ---------------------------------------------------------------------------------
Warrants x x
- ---------------------------------------------------------------------------------
Convertible Securities x x
- ---------------------------------------------------------------------------------
Partnerships
- ---------------------------------------------------------------------------------
Investment Company Securities x x
- ---------------------------------------------------------------------------------
REITs
- ---------------------------------------------------------------------------------
FIXED INCOME SECURITIES:
- ---------------------------------------------------------------------------------
Investment Grade Securities
- ----------------------------------------------------------------------------------
High Yield Securities x x
- ----------------------------------------------------------------------------------
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------
BALANCED MULTI-ASSET-CLASS

- ---------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Securities x x
- ---------------------------------------------------------------------------------
Agencies x x
- ---------------------------------------------------------------------------------
Corporate Bonds x x
- ---------------------------------------------------------------------------------
Money Market Instruments x x
- ---------------------------------------------------------------------------------
Mortgage Related Securities: x x
- ---------------------------------------------------------------------------------
- MBSs x x
- ---------------------------------------------------------------------------------
- CMOs x x
- ---------------------------------------------------------------------------------
- SMBSs x x
- ---------------------------------------------------------------------------------
Repurchase Agreements x x
- ---------------------------------------------------------------------------------
Municipals x x
- ---------------------------------------------------------------------------------
Asset-Backeds x x
- ---------------------------------------------------------------------------------
Loan Participations and Assignments x x
- ---------------------------------------------------------------------------------
Commercial Paper x x
- ---------------------------------------------------------------------------------
Temporary Investments x x
- ---------------------------------------------------------------------------------
Zero Coupons, Pay-In-Kind
Securities or Deferred Payment x x
Securities
- ---------------------------------------------------------------------------------
Floaters x x
- ---------------------------------------------------------------------------------
Inverse Floaters x x
- ---------------------------------------------------------------------------------
Cash Equivalents x x
- ---------------------------------------------------------------------------------
Yankee Dollars x x
- ---------------------------------------------------------------------------------
FOREIGN INVESTMENT:
- ---------------------------------------------------------------------------------
Foreign Equity Securities x x
- ---------------------------------------------------------------------------------
Foreign Bonds x x
- ---------------------------------------------------------------------------------
Foreign Currency Transactions x x
- ---------------------------------------------------------------------------------
Emerging Market Country Securities x x
- ---------------------------------------------------------------------------------
Russian Securities
- ---------------------------------------------------------------------------------
Brady Bonds x x
- ---------------------------------------------------------------------------------
Investment Funds x x
- ---------------------------------------------------------------------------------
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
- ---------------------------------------------------------------------------------
Loans of Portfolio Securities x x
- ---------------------------------------------------------------------------------
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------
BALANCED MULTI-ASSET-CLASS

- ---------------------------------------------------------------------------------
<S> <C> <C>
Non-Publicly Traded Securities,
Private Placements and Restricted x x
Securities
- ---------------------------------------------------------------------------------
When-Issued and Delayed Delivery x x
Securities
- ---------------------------------------------------------------------------------
Leverage
- ---------------------------------------------------------------------------------
Reverse Repurchase Agreements x x
- ---------------------------------------------------------------------------------
Short Sales x x
- ---------------------------------------------------------------------------------
Structured Investments x x
- ---------------------------------------------------------------------------------
DERIVATIVE PRODUCTS:
- ---------------------------------------------------------------------------------
Futures Contracts x x
- ---------------------------------------------------------------------------------
Forward Contracts x x
- ---------------------------------------------------------------------------------
Options x x
- ---------------------------------------------------------------------------------
Swaps x x
- ---------------------------------------------------------------------------------
</TABLE>

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.

16
<PAGE>

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.

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.

17
<PAGE>

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

18
<PAGE>

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' investment.

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.

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

19
<PAGE>

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 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.

ADRS. For information concerning American Depositary Receipts ("ADR"), see
"Depositary Receipts" above.

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.

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.

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.

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.

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.

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

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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.

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, 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.

INVESTMENT GRADE SECURITIES. Investment Grade Securities are those 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.

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

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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.

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.

AGENCIES. Agencies are 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.

CORPORATES. Corporates are debt 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.

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.

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.

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.

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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 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.

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

Freddie Mac Certificates. Freddie Mac is a corporate instrumentality of
the United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). The obligations of Freddie Mac are obligations solely
of Freddie Mac and are not backed by the full faith and credit of the U.S.
Government.

Freddie Mac certificates represent a pro rata interest in a group of
mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie Mac.
The mortgage loans underlying the Freddie Mac Certificates consist of fixed rate
or adjustable rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first liens on one-
to-four-family residential properties or multi-family projects. Each mortgage
loan must meet the applicable standards set forth in the FHLMC Act. A Freddie
Mac Certificate group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.

Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal and
interest on certificates that are based on and backed by a pool of FHA Loans, VA
Loans or by pools of other eligible mortgage loans. The Housing Act provides
that the full faith and credit of the U.S. Government is pledged to the payment
of all amounts that may be required to be paid under any guaranty. In order to
meet its obligations under such guaranty, Ginnie Mae is authorized to borrow
from the U.S. Treasury with no limitations as to amount.

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Each Ginnie Mae certificate represents a pro rata interest in one or more
of the following types of mortgage loans: (i) fixed rate level payment mortgage
loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed rate
growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multi-family residential
properties under construction; (vi) mortgage loans on completed multi-family
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one-
to-four-family housing units.

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.

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

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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.

Credit Enhancement. Mortgage related securities are often backed by a pool
of assets representing the obligations of a number of parties. To lessen the
effect of failure by obligors on underlying assets to make payments, these
securities may have various types of credit support. Credit support falls into
two primary categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection generally refers to the provision of advances, typically by
the entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties (referred
to herein as "third party credit support"), through various means of structuring
the transaction or through a combination of such approaches.

The ratings of mortgage related securities for which third party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could
decline in the event of deterioration in the creditworthiness of the credit
enhancement provider even in cases where the delinquency and loss experience on
the underlying pool of assets is better than expected.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal and
interest thereon, with defaults on the underlying assets being borne first by
the holders of the most subordinated class), creation of "reserve funds" (where
cash or investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and "over-
collateralization" (where the scheduled payments on, or the principal amount of,
the underlying assets exceed those required to make payment of the securities
and pay any servicing or other fees). The degree of credit support provided for
each security is generally based on historical information with respect to the
level of credit risk associated with the underlying assets. Delinquency or loss
in excess of that which is anticipated could adversely affect the return on an
investment in such a security.

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

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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.

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. 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.

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.

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
represent an ownership interest in the issuer they have many of the
characteristics of an Equity Security and are, therefore, included in both the
definition of Fixed Income Security and Equity Security.

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. Prices of
Convertible Fixed Income Securities frequently are more volatile than non-
Convertible Fixed Income Securities. Convertible Securities may be viewed as an
investment in the current security or the security into which the Convertible
Security may be exchanged and, therefore, are included in both the definition of
Fixed Income Security or Equity Security.

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

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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 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.

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

ZERO COUPONS, PAY-IN-KIND SECURITIES OR DEFERRED PAYMENT SECURITIES. Zero
Coupon, Pay-In-Kind and Deferred Payment Securities are all types of Fixed
Income Securities on which the holder does not receive periodic cash payments of
interest or principal. Generally, these securities are subject to greater price
volatility and lesser liquidity in the event of adverse market conditions than
comparably rated securities paying cash interest at regular intervals. Although
a Portfolio will not receive cash periodic coupon payments on these securities,
the Portfolio may be deemed to have received interest income, or "phantom
income" during the life of the obligation. The Portfolio may have to pay taxes
on this phantom income, although it has not received any cash payment.

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.

Pay-In-Kind Securities. Pay-In-Kind Securities are securities that have
interest payable by delivery of additional securities. Upon maturity, the holder
is entitled to receive the aggregate par value of the securities.

Deferred Payment Securities. Deferred Payment Securities are securities
that remain Zero Coupons until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.

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

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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."

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.

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 this 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).

(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

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<PAGE>

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.

YANKEE DOLLAR AND EURODOLLAR OBLIGATIONS. The Portfolios may invest in
Eurodollar and Yankee dollar 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.
Yankee dollar bank obligations are dollar-denominated obligations issued in the
U.S. capital markets by foreign banks.

Eurodollar and Yankee dollar obligations are subject to the same risks as
domestic issues but Eurodollar (and to a limited extent, Yankee dollar)
obligations 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 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.

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

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, but also may enter into forward contracts to purchase or sell
foreign currencies. 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

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<PAGE>

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 several
circumstances. 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 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 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. None of the Portfolios
intend to enter into such forward contracts to protect the value of portfolio
securities on a continuous basis. The Portfolios will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate such Portfolio to deliver an amount
of foreign currency in excess of the value of such Portfolio's securities or
other assets denominated in that currency.

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 place cash or liquid securities 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

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<PAGE>

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 currency warrants. Portfolios may invest in foreign currency warrants,
which entitle the holder to receive from the issuer an amount of cash
(generally, for warrants issued in the U.S., in U.S. dollars) which is
calculated pursuant to a predetermined formula and based on the exchange rate
between a specified foreign currency and the U.S. dollar as of the exercise date
of the warrant. Foreign currency warrants generally are exercisable upon their
issuance and expire as of a specified date and time.

Foreign currency warrants have been issued in connection with U.S. dollar-
denominated debt offerings by major corporate issuers in an attempt to reduce
the foreign currency exchange risk which, from the point of view of prospective
purchasers of the securities, is inherent in the international fixed-income
marketplace. Foreign currency warrants may attempt to reduce the foreign
exchange risk assumed by purchasers of a security by, for example, providing for
a supplemental payment in the event that the U.S. dollar depreciates against the
value of a major foreign currency such as the Japanese Yen or German
Deutschmark. The formula used to determine the amount payable upon exercise of a
foreign currency warrant may make the warrant worthless unless the applicable
foreign currency exchange rate moves in a particular direction (e.g., unless the
U.S. dollar appreciates or depreciates against the particular foreign currency
to which the warrant is linked or indexed). Foreign currency warrants are
severable from the debt obligations with which they may be offered, and may be
listed on exchanges.

Foreign currency warrants may be exercisable only in certain minimum amounts,
and an investor wishing to exercise warrants who possesses less than the minimum
number required for exercise may be required either to sell the warrants or to
purchase additional warrants, thereby incurring additional transaction costs. In
the case of any exercise of warrants, there may be a delay between the time a
holder of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants.

Foreign currency warrants are generally unsecured obligations of their issuers
and are not standardized foreign currency options issued by the OCC. Unlike
foreign currency options issued by the OCC, the terms of foreign exchange
warrants generally will not be amended in the event of governmental or
regulatory actions affecting exchange rates or in the event of the imposition of
other regulatory controls affecting the international currency markets. The
initial public offering price of foreign currency warrants is generally
considerably in excess of the price that a commercial user of foreign currencies
might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to complex political or economic factors.

Principal exchange rate linked securities. Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity in
an amount that may vary based on the exchange rate between the U.S. dollar and a
particular foreign currency at or about that time. The return on "standard"
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked appreciates against the U.S. dollar, and is
adversely affected by increases in the foreign exchange value of the U.S.
dollar; "reverse" principal exchange rate linked securities are like the
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some

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<PAGE>

of the foreign exchange risk, or relatively lower interest rates if the issuer
has assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited cases
be subject to acceleration of maturity (generally, not without the consent of
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.

Performance indexed paper. Performance indexed paper is U.S. dollar-denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on performance indexed paper is between the
U.S. dollar and a designated currency as of or about that time (generally, the
index maturity two days prior to maturity). The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on U.S. dollar-denominated
commercial paper, with both the minimum and maximum rates of return on the
investment corresponding to the minimum and maximum values of the spot exchange
rate two business days prior to maturity.

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.

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.

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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).

RUSSIAN 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 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.

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. Brady Bonds
have only been issued in recent years, and, accordingly, do not have a long
payment history. 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.

INVESTMENT FUNDS. Some emerging market countries have laws and regulations that
currently preclude direct investment 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.

OTHER SECURITIES

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

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<PAGE>

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 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 that
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% 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.

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 place
cash or liquid securities in a segregated account in an amount equal to the
Portfolio's commitment to purchase these securities.

LEVERAGE. Each Portfolio that engages in leveraging is authorized to borrow
money from banks and other entities in an amount up to 33 1/3% of its total
assets (including the amount borrowed) less all liabilities and indebtedness
other than the borrowing, and may use the proceeds of the borrowing for
investment purposes or to pay dividends. Leveraging for investment purposes is a
speculative characteristic. Portfolios authorized to engage in leveraging for
investment purposes do so only when the Adviser believes that doing so will
benefit the Portfolio after taking into account considerations such as the costs
of leverage and the likely investment returns on securities purchased with
borrowed funds. Leveraging by a Portfolio will create the opportunity for
increased net income but, at the same

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time, will involve special risk considerations. Leverage will magnify declines
as well as increases in a Portfolio's net asset value per share and net yield.
Each Portfolio that engages in leveraging expects that all of its borrowing will
be made on a secured basis. The Portfolio's Custodian will either segregate the
assets securing the borrowing for the benefit of the lenders or make
arrangements with a suitable sub-custodian. If assets used to secure the
leverage 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.

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 will 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 sales will be secured by collateral deposited with the broker that
consists of cash or other liquid securities. In addition, the Portfolio will
place in a segregated account with its Custodian 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 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.

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PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically
is preferred stock with some characteristics of common stock. PERCS are
mandatorily convertible into common stock after a period of time, usually three
years, during which the investors' capital gains are capped, usually at 30%.
Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Portfolio may
be compensated with a substantially higher dividend yield than that on the
underlying common stock. Investors that seek current income find PERCS
attractive because PERCS provide a high dividend income than that paid with
respect to a company's common stock.

ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt
securities, in that the principal amount received at maturity is not fixed but
is based on the price of the issuer's common stock. ELKS are debt securities
commonly issued in fully registered form for a term of three years under an
indenture trust. At maturity, the holder of ELKS will be entitled to receive a
principal amount equal to the lesser of a cap amount, commonly in the range of
30% to 55% greater than the current price of the issuer's common stock, or the
average closing price per share of the issuer's common stock , subject to
adjustment as a result of certain dilution events, for the 10 trading days
immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject to
redemption prior to maturity. ELKS usually bear interest during the three-year
term at a substantially higher rate than the dividend yield on the underlying
common stock. In exchange for having the cap on the return that might have been
received as capital gains on the underlying common stock, a Portfolio may be
compensated with the higher yield, contingent on how well the underlying common
stock does. Investors that seek current income, find ELKS attractive because
ELKS provide a higher dividend income than that paid with respect to a company's
common stock. The return on ELKS depends on the creditworthiness of the issuer
of the securities, which may be the issuer of the underlying securities or a
third party investment banker or other lender. The creditworthiness of such
third party issuer of ELKS may, and often does, exceed the creditworthiness of
the issuer of the underlying securities. The advantage of using ELKS over
traditional equity and debt securities is that the former are income producing
vehicles that may provide a higher income than the dividend income on the
underlying equity securities while allowing some participation in the capital
appreciation of the underlying equity securities. Another advantage of using
ELKS is that they may be used for hedging to reduce the risk of investing in the
generally more volatile underlying equity securities.

LYONs. Liquid Yield Option Notes ("LYONs") differ from ordinary debt
securities, in that the amount received prior to maturity is not fixed but is
based on the price of the issuer's common stock. LYONs are zero-coupon notes
that sell at a large discount from face value. For an investment in LYONs, the
Portfolio will not receive any interest payments until the notes mature,
typically in 15 to 20 years, when the notes are redeemed at face, or par, value.
The yield on LYONs, typically, is lower-than-market rate for debt securities of
the same maturity, due in part to the fact that the LYONs are convertible into
common stock of the issuer at any time at the option of the holder of the LYONs.
Commonly, the LYONs are redeemable by the issuer at any time after an initial
period or if the issuer's common stock is trading at a specified price level or
better or, at the option of the holder, upon certain fixed dates. The
redemption price typically is the purchase price of the LYONs plus accrued
original issue discount to the date of redemption, which amounts to the lower-
than-market yield. A Portfolio will receive only the lower-than-market yield
unless the underlying common stock increases in value at a substantial rate.
LYONs are attractive to investors when it appears that they will increase in
value due to the rise in value of the underlying common stock.

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

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Structured Notes to tailor their investments to the specific risks and returns
the Adviser wishes to accept while avoiding or reducing certain other risks.

DERIVATIVES. The Portfolios may use 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 notional amount of outstanding
derivatives. The Fixed Income, High Yield, Core Equity, Value, Mid Cap Growth,
Mid Cap Value, International Fixed Income, Balanced and Multi-Asset-Class
Portfolios will not enter into futures to the extent that each Portfolio's
outstanding obligations to purchase securities under these contracts, in
combination with its outstanding obligations with respect to options, would
exceed 50% of its total assets. The Portfolios' investments in forward foreign
currency contracts and Derivatives used for hedging purposes are not subject to
the foregoing limits.

The Portfolios may use 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 if
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.

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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 uses 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 anticipations 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 futures 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 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.

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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
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

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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' prospectus. 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' prospectus 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

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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.

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.

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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

42
<PAGE>

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 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

43
<PAGE>

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;

(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;

44
<PAGE>

(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.

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

45
<PAGE>

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.

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
1221 Avenue of the Americas Morgan Stanley Dean Witter Investment
New York, NY 10020 Management Inc. and Morgan Stanley Dean
11/26/32 Witter Investment Management Limited;
Managing Director of Morgan Stanley & Co.
Incorporated; Director of Rand McNally
Company; 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
1221 Avenue of the Americas and Morgan Stanley Dean Witter Investment
New York, NY 10020 Management Inc.; President and Officer of
12/12/58 various U.S. registered investment companies
managed by Morgan Stanley Dean Witter
Investment Management Inc. Previously
practiced law with the New York law firm of
Rogers & Wells.

John D. Barrett, II Director Chairman and Director of Barrett Associates,
521 Fifth Avenue Inc. (investment counseling); Director of the
New York, NY 10135 Ashforth Company (real estate); Director of
8/21/35 Morgan Stanley Dean Witter Institutional Fund,
Inc. and Morgan Stanley Dean Witter Strategic
Adviser Fund, Inc.
</TABLE>

46
<PAGE>

<TABLE>
<CAPTION>
Name, Address and
Date of Birth Position with Fund Principal Occupation During Past Five Years
------------- ------------------ -------------------------------------------
<S> <C> <C>
Gerard E. Jones Director Partner in Richards & O'Neil LLP (law firm);
43 Arch Street Director of Morgan Stanley Dean Witter
Greenwich, CT 06830 Institutional Fund, Inc. and Morgan Stanley
1/23/37 Dean Witter Strategic Adviser Fund, Inc.

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

Samuel T. Reeves Director Chairman of the Board and CEO, Pinacle
8211 North Fresno Street Trading L.L.C. (investments); Director, Pacific
Fresno, CA 93720 Gas and Electric and PG&E Enterprises
7/28/34 (utilities); Director of Morgan Stanley Dean
Witter Institutional Fund, Inc. and Morgan
Stanley Dean Witter Strategic Adviser Fund,
Inc.

Fergus Reid Director Chairman and Chief Executive Officer of
85 Charles Colman Blvd LumeLite Plastics Corporation (injection
Pawling, NY 12564 molding); Trustee and Director of Vista Mutual
8/12/32 Fund Group; Director 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,
2800 North Central Avenue P.C.; Formerly, Of Counsel, Bryan, Cave LLP
Phoenix, AZ 85004 (law firms); Director of Morgan Stanley Dean
1/24/34 Witter Institutional Fund, Inc. and Morgan
Stanley Dean Witter Strategic Adviser Fund,
Inc.

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

Joseph P. Stadler* Vice President Principal of Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas and Morgan Stanley Dean Witter Investment
New York, NY 10020 Management Inc.; Previously with Price
6/7/54 Waterhouse LLP (now PricewaterhouseCoopers
LLP) (accounting); Vice President of various
U.S. registered investment companies managed
by Morgan Stanley Dean Witter Investment
Management Inc.
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
Name, Address and
Date of Birth Position with Fund Principal Occupation During Past Five Years
------------- ------------------ -------------------------------------------
<S> <C> <C>
Lorraine Truten* Vice President Vice President, MAS Funds; Head of Mutual
One Tower Bridge Fund Services, Miller Anderson & Sherrerd,
West Conshohocken, PA 19428 LLP; Principal of Morgan Stanley Dean Witter
5/11/61 Investment Management Inc.; President, MAS
Fund Distribution, Inc.

Stefanie V. Chang* Vice President Vice President of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated and Morgan Stanley Dean Witter
New York, NY 10020 Investment Management Inc.; Vice President of
11/30/66 various U.S. registered investment companies
managed by Morgan Stanley Dean Witter
Investment 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 &
One Tower Bridge Co.; Head of Fund Administration, Miller
West Conshohocken, PA 19428 Andersen & Sherrerd, LLP; Treasurer MAS Funds;
6/18/64 formerly Manager, Internal Accounting and then
Vice President and Director of Investment
Accounting, PFPC, Inc.

Valerie Y. Lewis* Secretary Vice President of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated and Morgan Stanley Dean Witter
New York, NY 10020 Investment Management Inc.; Previously with
3/26/56 Citcorp (banking); Secretary of various U.S.
registered investment companies managed by
Morgan Stanley Dean Witter Investment
Management Inc.

Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General
73 Tremont Street Counsel of Chase Global Funds Services
Boston, MA 02108-3913 Company; Previously with Leland, O'Brien,
3/7/55 Rubinstein Associates, Inc. (investments).

Joanna Haigney Treasurer Assistant Vice President, Senior Manager of
73 Tremont Street Fund Administration and Compliance Services,
Boston, MA 02108-3913 Chase Global Funds Services Company;
10/10/66 Treasurer of various U.S. registered investment
companies managed by Morgan Stanley Dean
Witter Investment Management Inc. Previously
with Coopers & Lybrand LLP (now
PricewaterhouseCoopers LLP).

Belinda A. Brady Assistant Treasurer Fund Administration Manager, Chase Global
73 Tremont Street Funds Services Company. Previously was senior
Boston, MA 02108-3913 auditor at Coopers & Lybrand LLP (now
1/23/68 PricewaterhouseCoopers LLP).
</TABLE>
_______________
* "Interested Person" within the meaning of the 1940 Act.

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

48
<PAGE>

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 $_____ 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.

49
<PAGE>

COMPENSATION TABLE

<TABLE>
(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 (a) Expenses Retirement Directors
- ----------------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Barton M. Biggs $ 0 $ 0 $ 0 $ 0
Michael F. Klein 0
John D. Barrett, II 0 0 0 ______(c)
Gerard E. Jones 0 0 0 ______(c)(d)
Andrew McNally, IV(b) ___ 0 0 ______(c)
Samuel T. Reeves(b) ___ 0 0 ______(c)
Fergus Reid ___ 0 0 ______(c)(d)
Frederick O. Robertshaw(b) ___ 0 0 ______(c)
</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--3; Mr. Jones--4; Mr. McNally--3; Mr.
Reeves--3; Mr. Reid--4; Mr. Robertshaw--3.
(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.

50
<PAGE>

INVESTMENT 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.

Pursuant to an investment advisory agreement, the Advisers 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
---------------------------------------------------------------------------------

YEAR ENDED YEAR ENDED YEAR ENDED
PORTFOLIO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Growth Portfolio $______ $_____/1/ N/A
---------------------------------------------------------------------------------
U.S. Real Estate Portfolio $______ $_____/2/ N/A
---------------------------------------------------------------------------------
Emerging Markets Debt Portfolio $______ $_____/3/ N/A
---------------------------------------------------------------------------------
Global Equity Portfolio $______ $_____/1/ N/A
---------------------------------------------------------------------------------
International Magnum Portfolio $______ $_____/1/ N/A
---------------------------------------------------------------------------------
Emerging Markets Equity Portfolio $______ $_______ $_____/4/
---------------------------------------------------------------------------------
Asian Equity Portfolio $______ $_____/2/ N/A
---------------------------------------------------------------------------------
</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
---------------------------------------------------------------------------------

** 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.

51
<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.

MSDW Investment Management Advised Portfolios*

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PORTFOLIOS YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER
1998 1997 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Growth Portfolio $______ $_____/1/ N/A
- ---------------------------------------------------------------------------------------------------------
U.S. Real Estate Portfolio $______ $_____/2/ N/A
- ---------------------------------------------------------------------------------------------------------
Emerging Markets Debt
Portfolio $______ $_____/3/ N/A
- ---------------------------------------------------------------------------------------------------------
Global Equity Portfolio $______ $_____/1/ N/A
- ---------------------------------------------------------------------------------------------------------
International Magnum
Portfolio $______ $_____/1/ N/A
- ---------------------------------------------------------------------------------------------------------
Emerging Markets Equity
Portfolio $______ $______ ______/4/
- ---------------------------------------------------------------------------------------------------------
Asian Equity Portfolio $______ $_____/3/ N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>

* The Money Market and Latin American Portfolios were not operational in the
fiscal years ended December 31, 1998, 1997 and 1996. Consequently, no
administration 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>
- ---------------------------------------------------------------------------------------------------------
PORTFOLIOS YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER
1998 1997 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income Portfolio $______ $_____/2/ N/A
- ---------------------------------------------------------------------------------------------------------
High Yield Portfolio $______ $_____/2/ N/A
- ---------------------------------------------------------------------------------------------------------
Value Portfolio $______ $_____/2/ N/A
- ---------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio $______ $_____/2/ N/A
- ---------------------------------------------------------------------------------------------------------
</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 administration fees were
paid by these Portfolios.
/1/ As no MAS Advised Portfolio was December 31, 1996, the Fund did not pay any
administration fees to MAS during this period./ in operation in the period
from October 1, 1996 (commencement of operations) through
/2/ For the period from January 2, 1997 to December 31, 1997.

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.

52
<PAGE>

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.

DISTRIBUTION OF FUND SHARES

Under a Distribution Agreement with the Fund, Morgan Stanley & Co. Incorporated
("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 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 January 11, 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 Portfolio Allmerica Financial Life 46%
Insurance & Annuity Company*/1/
440 Lincoln St., S-310
Worcester, MA 01653

General American Life Insurance Company*/2/ 28%
700 Market Street
St. Louis, MO 63101

American General Life Insurance Company* 7%
P. O. Box 1591
Houston, TX 77251
</TABLE>

53
<PAGE>

OUTSTANDING
PORTFOLIO NAME OF BENEFICIAL OWNER SHARES
- --------- ------------------------ -----------
<S> <C> <C>
Transamerica Life Insurance and Annuity Company* 7%
Separate Account VA6
401 North Tryon Street
Charlotte, NC 28210

ICMG Registered Variable Life* 6%
Separate Account
P. O. Box 2999
Hartford, CT 06104

High Yield Portfolio Hartford Life & Annuity Insurance Company*/3/ 31%
Separate Account Three
P. O. Box 2999
Hartford, CT 06104

American General Life Insurance Company* 24%
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 Portfolio Northbrook Life Insurance Company*/4/ 43%
3100 Sanders Road
Northbrook, IL 60062

American General Life Insurance Company*/5/ 27%
P. O. Box 1591
Houston, TX 77251

AIG Life Insurance Company* 15%
1 Alico Plaza
Wilmington, DE 19801

General American Life Insurance Company* 12%
700 Market Street
St. Louis, MO 63101

Value Portfolio American General Life Insurance Company*/5/ 51%
P. O. Box 1591
Houston, TX 77251

AIG Life Insurance Company*/6/ 25%
1 Alico Plaza
Wilmington, DE 19801

The Travelers Insurance Company* 9%
One Tower Square
Hartford, CT 06183
</TABLE>

54
<PAGE>

PERCENT OF
OUTSTANDING
PORTFOLIO NAME OF BENEFICIAL OWNER SHARES
- --------- ------------------------ -----------
<S> <C> <C>
General American Life Insurance Company* 8%
700 Market Street
St. Louis, MO 63101

Mid Cap Value Portfolio American General Life Insurance Company*/5/ 58%
P. O. Box 1591
Houston, TX 77251

Hartford Life & Annuity Insurance Company* 24%
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 Portfolio Ameritas Variable Life Insurance Company* 21%
Separate Account VA-2
P.O. Box 82550
Lincoln, NE 68501

Morgan Stanley Dean Witter & Co. 17%
1585 Broadway
New York, NY 10036

Integrity Life Insurance Company* 16%
515 West Market Street
Louisville, KY 40202

Northbrook Life Insurance Company* 14%
3100 Sanders Road
Northbrook, IL 60062

Connecticut General Life Insurance Company* 10%
P. O. Box 2975
Hartford, CT 06104

Annuity Investors Life Insurance Company* 8%
P. O. Box 5423
Cincinnati, OH 45201

Ameritas Variable Life Insurance Company* 6%
Separate Account V
P.O. Box 82550
Lincoln, NE 68501

National Integrity Life Insurance Company* 6%
515 West Market Street
Louisville, KY 40202

Global Equity Portfolio Fidelity Investments Life Insurance Company*/7/ 42%
82 Devonshire Street, R258
Boston, MA 02109

Ameritas Variable Life Insurance Company* 19%
Separate Account V
P.O. Box 82550
Lincoln, NE 68501
</TABLE>

55
<PAGE>

<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
PORTFOLIO NAME OF BENEFICIAL OWNER SHARES
- --------- ------------------------ -----------
<S> <C> <C>
American General Life Insurance Company* 19%
P. O. Box 1591
Houston, TX 77251

The Travelers Insurance Company* 6%
One Tower Square
Hartford, CT 06183

International Magnum Portfolio Fidelity Investments Life Insurance Company*/7/ 27%
82 Devonshire Street, R258
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* 13%
P.O. Box 82550
Lincoln, NE 68501

Northbrook Life Insurance Company* 8%
3100 Sanders Road
Northbrook, IL 60062

LPLA Separate Account* 5%
3109 Poplarwood Ct.
Raleigh, NC 27604

Emerging Markets Equity Portfolio New York Life Insurance and Annuity Corporation*/8/ 43%
300 Interpace Parkway
Parsippany, NJ 07054

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* 5%
P. O. Box 1591
Houston, TX 77251

Asian Equity Portfolio Morgan Stanley Dean Witter & Co. /9/ 42%
1585 Broadway
New York, NY 10036
</TABLE>

56
<PAGE>

PERCENT OF
OUTSTANDING
PORTFOLIO NAME OF BENEFICIAL OWNER SHARES
- --------- ------------------------ -----------
<S> <C> <C>
Integrity Life Insurance Company*/10/ 30%
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* 10%
P.O. Box 82550
Lincoln, NE 68501

Emerging Markets Debt Portfolio Nationwide Life Insurance Company*/11/ 36%
P. O. Box 182029
Columbus, OH 43218

Morgan Stanley Dean Witter & Co. 16%
1585 Broadway
New York, NY 10036

Integrity Life Insurance Company* 16%
515 West Market Street
Louisville, KY 40202

Nationwide Life Insurance Company* 13%
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.

57
<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

58
<PAGE>

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. 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 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.
During the fiscal year ended December 31, 1998, the Fund directed the payment of
$______ in brokerage commissions to brokers because of research services
provided.

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.

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 COMMISSIONS PAID TO DWR
----------------------------------------------------------------------------------------
PERCENT OF PERCENT OF
TOTAL PERCENT OF TOTAL PERCENT OF TOTAL
COMMISSIONS TOTAL TOTAL BROKERED TOTAL TOTAL BROKERED
PORTFOLIO* PAID COMMISSIONS COMMISSIONS TRANSACTIONS COMMISSIONS COMMISSIONS TRANSACTIONS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Income
- --------------------------------------------------------------------------------------------------------------------------------
High Yield
- --------------------------------------------------------------------------------------------------------------------------------
Equity Growth
- --------------------------------------------------------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Real Estate
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Debt
- --------------------------------------------------------------------------------------------------------------------------------
Global Equity
- --------------------------------------------------------------------------------------------------------------------------------
International Magnum
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Equity
- --------------------------------------------------------------------------------------------------------------------------------
Asian Equity
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

59
<PAGE>

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 COMMISSIONS PAID TO DWR
-----------------------------------------------------------------------------------------
PERCENT OF PERCENT OF
TOTAL PERCENT OF TOTAL PERCENT OF TOTAL
COMMISSIONS TOTAL TOTAL BROKERED TOTAL TOTAL BROKERED
PORTFOLIO* PAID COMMISSIONS COMMISSIONS TRANSACTIONS COMMISSIONS COMMISSIONS TRANSACTIONS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Income ---/1/
- --------------------------------------------------------------------------------------------------------------------------------
High Yield ---/1/
- --------------------------------------------------------------------------------------------------------------------------------
Equity Growth ---/1/
- --------------------------------------------------------------------------------------------------------------------------------
Value ---/1/
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value ---/1/
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Real Estate ---/2/
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Debt ---/3/
- --------------------------------------------------------------------------------------------------------------------------------
Global Equity ---/1/
- --------------------------------------------------------------------------------------------------------------------------------
International Magnum ---/1/
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Equity
- --------------------------------------------------------------------------------------------------------------------------------
Asian Equity ---/2/
- --------------------------------------------------------------------------------------------------------------------------------
</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, 1997, and consequently,
no brokerage 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.

The following table shows the brokerage commissions paid by the Portfolios 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
- --------------------------------------------------------------------------------------------
COMISSIONS 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 ---
- --------------------------------------------------------------------------------------------
</TABLE>

* The Emerging Markets Equity Portfolio was the only Portfolio operational in
the fiscal year ended December 31, 1996.

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.

60
<PAGE>

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 Annual Total Total
Inception Return One Year ended Return Since
Name of Portfolio* Date 12/31/98 Inception
----------------- --------- --------------------- ------------
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income 1/02/97
------------------------------------------------------------------------------------------
High Yield 1/02/97
------------------------------------------------------------------------------------------
Equity Growth 1/02/97
------------------------------------------------------------------------------------------
Value 1/02/97
------------------------------------------------------------------------------------------
Mid Cap Value 1/02/97
------------------------------------------------------------------------------------------
U.S. Real Estate 3/03/97
------------------------------------------------------------------------------------------
Emerging Markets Debt 6/16/97
------------------------------------------------------------------------------------------
Global Equity 1/02/97
------------------------------------------------------------------------------------------
</TABLE>

61
<PAGE>

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.

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

62
<PAGE>

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.

63
<PAGE>

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

64
<PAGE>

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 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.

65
<PAGE>

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.

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 ______________, 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 _____ for the period from _____, 1998 through
_____, 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.

<PAGE>

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.

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.

<PAGE>

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.

68
<PAGE>

FINANCIAL STATEMENTS
- --------------------

The Fund's financial statements for the fiscal year ended December 31, 1998,
including the notes thereto and the report of _________________________, 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.

[INSERT FINANCIAL STATEMENTS]

69
<PAGE>

PART C. OTHER INFORMATION
-----------------

Item 23. Exhibits

(a) (1) Articles of Incorporation between Registrant and Morgan Stanley
Asset Management Inc. are incorporated by reference to Exhibit
1(a) to Registrant's Registration Statement on Form N-1A (File
Nos. 333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession #0000950109-96-002517)
on May 1, 1996.

(2) Articles of Amendment to Articles of Incorporation (changing
"Growth Portfolio" to "Equity Growth Portfolio") are incorporated
by reference to Exhibit 1(b) to Post-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form N-1A (File No.
333-3013 and 811-7607), as filed with the Securities and Exchange
Commission via EDGAR (Accession #0000950109-97-004685) on June
24, 1997.

(3) Articles Supplementary to Articles of Incorporation (adding Latin
American Portfolio and increasing number of authorized shares)
are incorporated by reference to Exhibit 1(c) to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on
Form N-1A (File Nos. 333-0313 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0001036050-98-00610) on April 15, 1998.

(4) Articles of Amendment to Articles of Incorporation (changing name
of the Fund and one of the Fund's investment advisers) are filed
herewith.

(b) By-laws are incorporated by reference to Exhibit 2 to Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-7607),
as filed with the Securities and Exchange Commission via EDGAR
(Accession #0000950109-96-002517) on May 1, 1996.

(d) (1) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. ("MSAM") with respect to the Money
Market, Emerging Markets Debt, Equity Growth, U.S. Real Estate,
Global Equity, International Magnum, Emerging Markets Equity and
Asian Equity Portfolios is incorporated by reference to Exhibit
5(a) to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-
7607), as filed with the Securities and Exchange Commission via
EDGAR (Accession #0001036050-98-000074) on January 28, 1998.

(2) Investment Advisory Agreement between Registrant and Miller
Anderson & Sherrerd, LLP ("MAS") with respect to the Fixed
Income, High Yield, International Fixed Income, Balanced, Multi-
Asset-Class, Value, Core Equity, Mid Cap Growth and Mid Cap Value
Portfolios is filed herewith.

(3) Supplement to Investment Advisory Agreement (adding Latin
American Portfolio) is incorporated by reference to Exhibit 5(c)
to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-
7607), as filed with the Securities and Exchange Commission via
EDGAR (Accession #0001036050-98-000610) on April 15, 1998.

(e) Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated is incorporated by reference to Exhibit 6 to Post-
Effective Amendment No. 6 to the Registrant's Registration Statement
on Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession #0001036050-
98-000610) on April 15, 1998.

(f) Not applicable.

C-1

<PAGE>

(g) (1) Form of Domestic Mutual Fund Custody Agreement between Registrant and
Chase Manhattan Bank, N.A. is filed herewith.

(2) Form of International Custody Agreement between the Registrant and
Morgan Stanley Trust Company (as assumed by The Chase Manhattan Bank,
N.A.) is incorporated by reference to Exhibit 8(b) to Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form N-
1A (File Nos. 333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession #0000950109-96-005973) on
September 16, 1996.

(h) (1) Form of Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. is incorporated by reference to Exhibit 9(a) to
Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession
#0000950109-96-005973) on September 16, 1996.

(2) Form of Administration Agreement between Registrant and Miller
Anderson & Sherrerd, LLP is incorporated by reference to Exhibit 9(b)
to Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession
#0000950109-96-005973) on September 16, 1996.

(3) Sub-Administration Agreement between Morgan Stanley Asset Management
Inc. and Chase Global Funds Services Company is filed herewith.

(4) Form of Sub-Administration Agreement between Miller Anderson &
Sherrerd LLP and Chase Global Funds Services Company is incorporated
by reference to Exhibit 9(d) to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File Nos. 333-3013
and 811-7607), as filed with the Securities and Exchange Commission
via EDGAR (Accession #0000950109-96-005973) on September 16, 1996.

(i) Opinion of Counsel is incorporated by reference to Exhibit 10 to Pre-
Effective Amendment No. 1 to the Registrant's Registration Statement on
Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the Securities
and Exchange Commission via EDGAR (Accession #0000950109-96-005973) on
September 16, 1996.

(j) Consent of PricewaterhouseCoopers LLP (formerly, Price Waterhouse, LLP),
Independent Accountants is incorporated by reference to Exhibit 11 to
Post-Effective Amendment No. 6 to Registrant's Registration Statement on
Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the Securities
and Exchange Commission via EDGAR (Accession #0001036050-98-000610) on
April 15, 1998.

(k) Not applicable.

(l) Not applicable.

(m) Not applicable.

C-2
<PAGE>

(n) Financial Data Schedules are filed herewith.

(o) Not applicable.

(p) Powers of Attorney are incorporated by reference to Exhibit 24 to Post-
Effective Amendment No. 6 to Registrant's Registration Statement on
Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the Securities
and Exchange Commission via EDGAR (Accession #0001036050-98-000610) on
April 15, 1998.

____________________________

C-3
<PAGE>

Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------

Provide a list or diagram of all persons directly or indirectly
---------------------------------------------------------------
controlled by or under common control with the Registrant. For any person
- --------------------------------------------------------------------------
controlled by another person, disclose the percentage of voting securities owned
- --------------------------------------------------------------------------------
by the immediately controlling person or other basis of that person's control.
- -------------------------------------------------------------------------------
For each company, also provide the state or other sovereign power under the laws
- --------------------------------------------------------------------------------
of which the company is organized.
- ----------------------------------

As of January 11, 1999 Morgan Stanley Dean Witter & Co. ("MSDW"), a
Delaware corporation located at 1585 Broadway, New York, New York 10036, owned
of record 42% of the outstanding voting securities of the Asian Equity
Portfolio. MSDW will vote shares of the Portfolios that it owns in the same
proportion as shares of the Portfolios are voted by insurance companies.
Insurance companies vote shares of the Portfolios held in their separate
accounts in accordance with voting instructions of their variable annuity
contract and variable life insurance policy owners. Accordingly, MSDW is not
viewed as in control of the Portfolios and therefore MSDW's affiliates are not
viewed as under common control with the Portfolios.

Item 25. Indemnification
---------------

State the general effect of any contract, arrangements or statute
-----------------------------------------------------------------
under which any director, officer, underwriter or affiliated person of the
- --------------------------------------------------------------------------
Registrant is insured or indemnified against any liability incurred in their
- ----------------------------------------------------------------------------
official capacity, other than insurance provided by any director, officer,
- --------------------------------------------------------------------------
affiliated person, or underwriter for their own protection.
- ----------------------------------------------------------

Reference is made to Article SEVEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

Item 26. Business and Other Connections of Investment Advisers
-----------------------------------------------------

Describe any other business, profession, vocation or employment of a
--------------------------------------------------------------------
substantial nature in which the investment adviser and each director, officer or
- --------------------------------------------------------------------------------
partner of the investment adviser, is or has been, engaged within the last two
- ------------------------------------------------------------------------------
fiscal years for his or her own account or in the capacity of director, officer,
- --------------------------------------------------------------------------------
employee, partner or trustee. (Disclose the name and principal business address
- --------------------------------------------------------------------------------
of any company for which a person listed above serves in the capacity of
- ------------------------------------------------------------------------
director, officer, employee, partner or trustee, and the nature of the
- ----------------------------------------------------------------------
relationship.)
- --------------

Reference is made to the caption "Management of the Fund--Investment
Advisers" in the Prospectuses constituting Part A which is incorporated by
reference to this Registration Statement and "Management of the Fund" in Part B
which is incorporated by reference to this Registration Statement.

C-4
<PAGE>

Listed below are the officers and Directors of Morgan Stanley Dean Witter
Investment Management Inc.:

<TABLE>
<CAPTION>
NAME AND POSITION WITH MSDW
INVESTMENT MANAGEMENT, INC. NAME OF OTHER COMPANY POSITION WITH OTHER COMPANY
- ---------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
Barton M. Biggs Morgan Stanley & Co. Managing Director
Chairman, Director and Incorporated
Managing Director

Dennis G. Sherva Morgan Stanley & Co. Managing Director
Director and Managing Director Incorporated

Harold J. Schaaff, Jr. Morgan Stanley & Co. Principal
General Counsel, Secretary and Incorporated
Principal

Donald P. Ryan Morgan Stanley & Co. Principal
Compliance Officer and Principal Incorporated

Alexander C. Frank Morgan Stanley & Co. Managing Director
Treasurer Incorporated

Marna C. Whittington Miller Anderson & Sherrerd, LLP Executive Committee Member
Chief Operating Officer,
Managing Director and Member
of Executive Committee

Richard B. Worley Miller Anderson & Sherrerd, LLP Portfolio Manager and
President, Director and Member Executive Committee Member
of Executive Committee
MAS Fund Distribution, Inc. Registered Representative

Morgan Stanley & Co. Managing Director
Incorporated

Peter D. Caldecott Morgan Stanley Dean Witter Managing Director
Managing Director and Member Investment Management Limited
of Executive Committee

Thomas L. Bennett Morgan Stanley & Co. Managing Director
Member of Executive Committee Incorporated
and Portfolio Manager
MAS Fund Distribution, Inc. Director

Miller Anderson & Sherrerd, LLP Portfolio Manager

Frank P. L. Minard Morgan Stanley & Co. Managing Director
Managing Director and Member Incorporated
of Executive Committee

Alan E. Goldberg Morgan Stanley & Co. Managing Director
Member of Executive Committee Incorporated
</TABLE>

In addition, MSDW Investment Management acts as investment adviser or
sub-adviser to the following registered investment companies: American Advantage
International Equity Fund; Fountain Square International Equity Fund; The Latin
American Discovery Fund, Inc.; The Malaysia Fund, Inc; Morgan Stanley Africa
Investment

C-5
<PAGE>

Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley Emerging
Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.; Morgan
Stanley Global Opportunity Bond Fund, Inc.; Morgan Stanley High Yield Fund,
Inc.; Morgan Stanley Russia and New Europe Fund, Inc.; Morgan Stanley India
Investment Fund, Inc.; certain portfolios of Morgan Stanley Dean Universal
Funds, Inc.; Morgan Stanley Dean Witter Strategic Adviser Fund, Inc.; The
Pakistan Investment Fund, Inc.; The Thai Fund, Inc.; The Turkish Investment
Fund, Inc.; Aggressive Growth Asset Allocation Fund, Inc.; Accounts of Principal
Variable Contracts Fund, Inc.; certain portfolios of the SunAmerica Series
Trust; Fortis Series Fund, Inc.; - Global Asset Allocation Series; Morgan
Stanley Dean Witter International Fund; Morgan Stanley Dean Witter International
SmallCap Fund; Morgan Stanley Dean Witter Pacific Growth Fund, Inc.; Morgan
Stanley Dean Witter Real Estate Fund; Morgan Stanley Dean Witter Variable
Investment Series - Pacific Growth Portfolio; Morgan Stanley Dean Witter Japan
Fund, Inc.; Morgan Stanley Dean Witter European Growth Fund Inc.; Morgan
Stanley Dean Witter Variable Investment Series - European Growth Portfolio;
Morgan Stanley Dean Witter Growth Fund; Morgan Stanley Dean Witter Select
Dimensions Investment Series -- The Growth Portfolio; Morgan Stanley Dean Witter
Worldwide High Income Fund; Endeavor Series Trust - Endeavor Money Market
Portfolio; Endeavor Series Trust - Endeavor Asset Allocation Portfolio; EQ
Advisors Trust - Morgan Stanley Emerging Markets Equity Portfolio; Frank Russell
Investment Company - Diversified Equity Fund; Frank Russell Investment Company -
Equity I Fund; NASL Series Trust - Global Equity Trust; New England Zenith Fund
- - Morgan Stanley International Magnum Equity Series; North American Funds -
Global Equity Fund; Pacific Select Fund - The International Portfolio; Pacific
Select Fund - Real Estate Investment Trust ("REIT") Portfolio; SEI Institutional
Investments Trust - Emerging Markets Equity Fund; SEI Institutional
International Trust - Emerging Markets Equity Portfolio; Style Select Series
Inc. - Large Cap Blend Portfolio; TCW/DW Emerging Markets Opportunities Trust;
Van Kampen World Portfolio Series Trust - Global Government Securities Fund; Van
Kampen Life Investment Trust - Global Equity Fund; Van Kampen Life Investment
Trust - Real Estate Securities Fund; Van Kampen Global Managed Assets Fund; Van
Kampen Real Estate Securities Fund; certain portfolios of Van Kampen Series
Fund, Inc.

MAS is a Pennsylvania limited liability partnership founded in 1969. MAS
provides investment services to employee benefit plans, endowment funds,
foundations and other institutional investors as well as serving as investment
adviser to MAS Funds, a registered investment company.

<TABLE>
<CAPTION>
NAME AND POSITION WITH MSDW
INVESTMENT MANAGEMENT, INC. NAME OF OTHER COMPANY POSITION WITH OTHER COMPANY
- ------------------------------- --------------------------------- ---------------------------
<S> <C> <C>
Richard Brown Worley Morgan Stanley & Co. Incorporated Managing Director
Portfolio Manager Morgan Stanley Dean Witter Portfolio Manager
Executive Committee Member Investment Management, Inc.
MAS Fund Distribution, Inc. Registered Representative

Thomas Leonard Bennett Morgan Stanley Universal Funds Director
Portfolio Manager Morgan Stanley & Co. Incorporated Managing Director
Executive Committee Member Morgan Stanley Dean Witter Portfolio Manager
Investment Management, Inc.
MAS Funds Chairman
MAS Fund Distribution, Inc. Director

Gilbert Schlarbaum Morgan Stanley & Co. Incorporated Managing Director
Portfolio Manager Morgan Stanley Dean Witter Portfolio Manager
Executive Committee Member Investment Management, Inc.
MAS Fund Distribution, Inc. Director

Robert J. Marcin Morgan Stanley Asset Management, Portfolio Manager
Portfolio Manager Inc. Managing Director
Executive Committee Member Morgan Stanley & Co. Incorporated Registered Representative
MAS Fund Distribution, Inc.

Marna C. Whittington Morgan Stanley & Co. Incorporated Managing Director
Executive Committee Member MAS Fund Distribution, Inc. CEO
Rohm Haas Director
</TABLE>

C-6
<PAGE>

Item 27. Principal Underwriters
----------------------

(a) State the name of each investment company (other than the Registrant)
---------------------------------------------------------------------
for which each principal underwriter currently distributing securities of the
- -----------------------------------------------------------------------------
Registrant also acts as a principal underwriter, depositor or investment
- ------------------------------------------------------------------------
adviser.
- --------

Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for Morgan
Stanley Universal Funds, Inc., Morgan Stanley Dean Witter Institutional Fund,
Inc. and Morgan Stanley Dean Witter Strategic Adviser Fund, Inc.

(b) Provide the information with respect to each director, officer or
-----------------------------------------------------------------
partner of each principal underwriter named in answer to Item 20.
- -----------------------------------------------------------------

Name and Principal Business Position and Offices with Position and Offices
Address* Principal Underwriter with Registrant
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Barton M. Biggs Chairman and Director Chairman and Director
- ----------------------------------------------------------------------------------------------------
Bruce D. Fiedorek Director and Vice Chairman
- ----------------------------------------------------------------------------------------------------
Richard B. Fisher Director and Chairman
of the Board
- ----------------------------------------------------------------------------------------------------
Takeo Kani Director
- ----------------------------------------------------------------------------------------------------
Peter F. Karches Director and
President and Chief Operating
Officer
- ----------------------------------------------------------------------------------------------------
John J. Mack Director
- ----------------------------------------------------------------------------------------------------
Robert A. Metzler Director
- ----------------------------------------------------------------------------------------------------
Stephan F. Newhouse Director and Vice Chairman
- ----------------------------------------------------------------------------------------------------
Ralph L. Pellechio Director and General Counsel
and Secretary
- ----------------------------------------------------------------------------------------------------
Joseph R. Perella Director
- ----------------------------------------------------------------------------------------------------
Robert G. Scott Director and Chief Financial
Officer
- ----------------------------------------------------------------------------------------------------
John S. Wadsworth, Jr. Director
- ----------------------------------------------------------------------------------------------------
Sir David Alan Walker Director
- ----------------------------------------------------------------------------------------------------
J. Steven W. Ward Director
- ----------------------------------------------------------------------------------------------------
</TABLE>

* Morgan Stanley & Co. Incorported
1585 Broadway
New York, NY 10036

Item 28. Location of Accounts and Records
--------------------------------

State the name and address of each person maintaining principal
---------------------------------------------------------------
possession of each account, book or other document required to be maintained by
- -------------------------------------------------------------------------------
section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the rules under that
- ----------------------------------------------------------------------------
section.
- --------

The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940, as amended, and the rules promulgated
thereunder are maintained in the physical possession of the Registrant;
Registrant's Transfer Agent, Chase Global Funds Services Company, P.O. Box 2798,
Boston, Massachusetts 02208-2798; and the Registrant's custodian banks,
including sub-custodians.

Item 29. Management Services
-------------------

Provide a summary of the substantive provisions of any management-
-----------------------------------------------------------------
related service contract not discussed in Part A or Part B, disclosing the
- --------------------------------------------------------------------------
parties to the contract and the total amount paid and by whom, for the Fund's
- -----------------------------------------------------------------------------
last three fiscal years.
- ------------------------

Each of MSDW Investment Management and MAS have entered into Sub-
Administration Agreements with Chase Global Funds Services Companies ("Chase")
(filed as Exhibit Nos. 9(c) and 9(d) to Pre-Effective Amendment No.1 to the
Registration Statement) pursuant to which Chase will provide fund
administration, fund accounting and transfer agency services to specified
Portfolios of the Registrant.

C-7
<PAGE>

Item 30. Undertakings
------------

In initial registration statements filed under the Securities Act,
------------------------------------------------------------------
provide an undertaking to file an amendment to the registration statement with
- ------------------------------------------------------------------------------
certified financial statements showing the initial capital received before
- --------------------------------------------------------------------------
accepting subscriptions from more than 25 persons if the Fund intends to raise
- ------------------------------------------------------------------------------
its initial capital under section 14(a)(3)[15U.S.C. 80a-14(a)(3)].
- ------------------------------------------------------------------

(a) Not Applicable.

(b) Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the 1940 Act inform
the Board of Directors of his or their desire to communicate with other
Shareholders of the Fund, the Directors will inform such Shareholder(s) as to
the approximate number of Shareholders of record and the approximate costs of
mailing or afford said Shareholders access to a list of Shareholders.

(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders, upon request and without charge.

C-8
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on January 27, 1999.

MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.

By: /s/Michael F. Klein
------------------------------
Michael F. Klein
President and Director

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title(s) Date
- --------- -------- ----
<S> <C> <C>

/s/ Michael F. Klein Director, President January 27, 1999
- ------------------------------ (Chief Executive
Michael F. Klein Officer)

*/s/ Barton M. Biggs Director (Chairman) January 27, 1999
- ------------------------------
Barton M. Biggs

*/s/ Fergus Reid Director January 27, 1999
- ------------------------------
Fergus Reid

*/s/ Frederick O. Robertshaw Director January 27, 1999
- ------------------------------
Frederick O. Robertshaw

*/s/ Andrew McNally, IV Director January 27, 1999
- ------------------------------
Andrew McNally, IV

*/s/ John D. Barrett, II Director January 27,1999
- ------------------------------
John D. Barrett, II

*/s/ Gerard E. Jones Director January 27, 1999
- ------------------------------
Gerard E. Jones

*/s/ Samuel T. Reeves Director January 27, 1999
- ------------------------------
Samuel T. Reeves

/s/ Joanna Haigney Treasurer January 27, 1999
- ------------------------------
Joanna Haigney

*By: /s/Michael F. Klein
------------------------------
Michael F. Klein
Attorney-In-Fact
</TABLE>

C-9
<PAGE>

EXHIBIT INDEX
-------------

EDGAR
Exhibit
Number
- ------
Description
-----------

EX-99 (4) Articles of Amendment to Articles of Incorporation (changing name
of the Fund and one of the Fund's investment advisers) are filed
herewith.

EX-99 (2) Investment Advisory Agreement between Registrant and Miller
Anderson & Sherrerd, LLP ("MAS") with respect to the Fixed
Income, High Yield, International Fixed Income, Balanced, Multi-
Asset-Class, Value, Core Equity, Mid Cap Growth and Mid Cap Value
Portfolios is filed herewith.

C-10
<PAGE>

(f) Not applicable.

EX-99 (g) (1) Form of Domestic Mutual Fund Custody Agreement between
Registrant and Chase Manhattan Bank, N.A. is filed
herewith.

(2) Form of International Custody Agreement between the Registrant
and Morgan Stanley Trust Company (as assumed by The Chase
Manhattan Bank, N.A.) is incorporated by reference to Exhibit
8(b) to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and
811-7607), as filed with the Securities and Exchange Commission
via EDGAR (Accession #0000950109-96-005973) on September 16,
1996.

(h) (1) Form of Administration Agreement between Registrant and Morgan
Stanley Asset Management Inc. is incorporated by reference to
Exhibit 9(a) to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession #0000950109-96-005973)
on September 16, 1996.

(2) Form of Administration Agreement between Registrant and Miller
Anderson & Sherrerd, LLP is incorporated by reference to
Exhibit 9(b) to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File Nos.
333-3013 and 811-7607), as filed with the Securities and
Exchange Commission via EDGAR (Accession #0000950109-96-005973)
on September 16, 1996.

EX-99 (3) Sub-Administration Agreement between Morgan Stanley Asset
Management Inc. and Chase Global Funds Services Company is
filed herewith.

(4) Form of Sub-Administration Agreement between Miller Anderson &
Sherrerd LLP and Chase Global Funds Services Company is
incorporated by reference to Exhibit 9(d) to Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement on
Form N-1A (File Nos. 333-3013 and 811-7607), as filed with the
Securities and Exchange Commission via EDGAR (Accession
#0000950109-96-005973) on September 16, 1996.

C-11
<PAGE>

(i) Opinion of Counsel is incorporated by reference to Exhibit 10 to
Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession
#0000950109-96-005973) on September 16, 1996.

(j) Consent of PricewaterhouseCoopers LLP (formerly, Price Waterhouse,
LLP), Independent Accountants is incorporated by reference to
Exhibit 11 to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (File Nos. 333-3013 and 811-
7607), as filed with the Securities and Exchange Commission via
EDGAR (Accession #0001036050-98-000610) on April 15, 1998.

(k) Not applicable.

(l) Not applicable.

(m) Not applicable.

EX-27 (n) Financial Data Schedules are filed herewith.

(o) Not applicable.

(p) Powers of Attorney are incorporated by reference to Exhibit 24 to
Post-Effective Amendment No. 6 to Registrant's Registration
Statement on Form N-1A (File Nos. 333-3013 and 811-7607), as filed
with the Securities and Exchange Commission via EDGAR (Accession
#0001036050-98-000610) on April 15, 1998.

C-12

<PAGE>

ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
MORGAN STANLEY UNIVERSAL FUNDS, INC.

MORGAN STANLEY UNIVERSAL FUNDS, INC. (the "Corporation"), a corporation
organized under the laws of the State of Maryland, having its principal place of
business at 1221 Avenue of the Americas, New York, New York 10020, does hereby
certify to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.

SECOND: Pursuant to the authority contained in Section 2-605(a)(4) of the
Maryland General Corporation Law, a majority of the full Board of Directors by
resolution passed on September 19, 1998, have changed the name of the
Corporation to Morgan Stanley Dean Witter Universal Funds, Inc.

THIRD: Pursuant to the requirements of Section 2-607 of the Maryland
General Corporation Law, the Board of Directors has determined to file of record
these Articles of Amendment, which Amendment is limited to changes expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be made
without action by the stockholders and which Amendment is solely for the purpose
of changing the name of the Corporation.

FOURTH: Article SECOND, of the Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:

The name of the Corporation is Morgan Stanley Dean Witter Universal
Funds, Inc.

FIFTH: These Articles of Amendment shall be effective upon the later of
January 6, 1999 or the time the State Department of Assessments and Taxation of
Maryland accepts these Articles of Amendment of record.
<PAGE>

IN WITNESS WHEREOF, Morgan Stanley Universal Funds, Inc. has caused these
Articles of Amendment to be signed in its corporate name and on its behalf by
its President and its corporate seal to be hereunto affixed and attested by its
Secretary as of the 6th day of January, 1999.

MORGAN STANLEY UNIVERSAL FUNDS, INC.

By: /s/Michael F. Klein
-------------------
Michael F. Klein
President

[SEAL]

Attest:

/s/Valerie Y. Lewis
- -------------------
Valerie Y. Lewis
Secretary
<PAGE>

THE UNDERSIGNED, President of Morgan Stanley Universal Funds, Inc.,
who executed on behalf of said corporation the foregoing Articles of Amendment
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth herein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.

/s/Michael F. Klein
-------------------
Michael F. Klein
President

<PAGE>

MILLER ANDERSON & SHERRERD, LLP
INVESTMENT ADVISORY AGREEMENT

AGREEMENT made this 31st day of May, 1997 by and between Morgan Stanley
Universal Funds, Inc., a Maryland corporation (the "Fund") and Miller Anderson &
Sherrerd, LLP, a Pennsylvania limited liability partnership (the "Adviser").

1. Duties of Adviser. The Fund hereby appoints the Adviser to act as
investment adviser to the investment funds (the "Portfolios") of the Fund as set
forth on Schedule A attached hereto, for the period and on such terms as set
forth in this Agreement. The Fund employs the Adviser to manage the investment
and reinvestment of the assets of the Portfolios, to continuously review,
supervise and administer the investment program of each of the Portfolios, to
determine in its discretion the securities to be purchased or sold and the
portion of each Portfolios' assets to be held uninvested, to provide the Fund
with records concerning the Adviser's activities which the Fund is required to
maintain, and to render regular reports to the Fund's officers and Board of
Directors concerning the Adviser's discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to the
control of the officers and the Board of Directors of the Fund, and in
compliance with the objectives, policies and limitations set forth in the Fund's
prospectus and applicable laws and regulations. The Adviser accepts such
employment and agrees to render the services and to provide, at its own expense,
the office space, furnishings and equipment and the personnel required by it to
perform the services on the terms and for the compensation provided herein.

2. Portfolio Transactions. The Adviser is authorized to select the brokers
or dealers that will execute the purchases and sales of securities for each of
the Portfolios and is directed to use its best efforts to obtain the best
available price and most favorable execution, except as prescribed herein.
Unless and until otherwise directed by the Board of Directors of the Fund, the
Adviser is authorized to effect individual securities transactions at commission
rates in excess of the minimum commission rates available, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage or research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund. The execution of
such transactions shall not be deemed to represent an unlawful act or breach of
any duty created by this Agreement or otherwise. The Adviser will promptly
communicate to the officers and Directors of the Fund such information relating
to portfolio transactions as they may reasonably request.

3. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 1 of this Agreement, the Fund shall pay to the
Adviser, at the end of each of the Fund's fiscal quarters, an advisory fee
calculated by applying a quarterly rate, based on the annual percentage rates as
set forth in Schedule B attached hereto with respect to the average daily net
assets of each of the Portfolios for the quarter.

1
<PAGE>

In the event of termination of this Agreement, the fees provided in this
Section shall be computed on the basis of the period ending on the last business
day on which this Agreement is in effect subject to a pro rata adjustment based
on the number of days elapsed in the current fiscal quarter as a percentage of
the total number of days in such quarter.

4. Other Services. At the request of the Fund, the Adviser in its
discretion may make available to the Fund office facilities, equipment,
personnel and other services. Such office facilities, equipment, personnel and
services shall be provided for or rendered by the Adviser and billed to the Fund
at the Adviser's cost.

5. Reports. The Fund and the Adviser agree to furnish to each other
current prospectuses, statements of additional information, proxy statements,
reports to stockholders, certified copies of their financial statements, and
such other information with regard to their affairs as each may reasonably
request.

6. Status of Adviser. The services of the Adviser to the Fund are not to
be deemed exclusive, and the Adviser shall be free to render similar services to
others.

7. Liability of Adviser. In the absence of (i) willful misfeasance, bad
faith or gross negligence on the part of the Adviser in performance of its
obligations and duties hereunder, (ii) reckless disregard by the Adviser of its
obligations and duties hereunder, or (iii) a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the Investment Company Act of 1940, as amended
("1940 Act")), the Adviser shall not be subject to any liability whatsoever to
the Fund, or to any stockholder of the Fund, for any error of judgment, mistake
of law or any other act or omission in the course of, or connected with,
rendering services hereunder including, without limitation, for any losses that
may be sustained in connection with the purchase, holding, redemption or sale of
any security on behalf of any of the Portfolios.

8. Permissible Interests. Subject to and in accordance with the Articles
of Incorporation of the Fund and the Limited Partnership Agreement of the
Adviser, Directors, officers, agents and stockholders of the Fund are or may be
interested in the Adviser (or any successor thereof) as partners, employees,
officers, agents, or otherwise; partners, employees and agents of the Adviser
are or may be interested in the Fund as Directors, officers, stockholders or
otherwise; and the Adviser (or any successor) is or may be interested in the
Fund as a stockholder or otherwise; and that the effect of any such
interrelationships shall be governed by said Articles of Incorporation, Limited
Partnership Agreement and the provisions of the 1940 Act.

9. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall continue until the earlier of the end of two years after
the date first written above or a date within such two-year period as
specifically approved (a) by the vote of a majority of those members of the
Board of Directors of the Fund who are not parties to this Agreement or

2
<PAGE>

interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Board of Directors of the
Fund or by vote of a majority of the outstanding voting securities of each of
the Portfolios; and thereafter shall continue for periods of one year so long as
such continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Board of Directors of the Fund who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities of each of the Portfolios; provided, however, that
-------- -------
if the holders of any Portfolios fail to approve the Agreement as provided
herein, the Adviser may continue to serve in such capacity in the manner and to
the extent permitted by the 1940 Act and rules thereunder. This Agreement may
be terminated with respect to any of the Portfolios at any time, without the
payment of any penalty, by vote of a majority of the entire Board of Directors
of the Fund or by vote of a majority of the outstanding voting securities of the
Portfolio on 60 days' written notice to the Adviser. This Agreement may be
terminated by the Adviser at any time, without the payment of any penalty, upon
90 days' written notice to the Fund. This Agreement will automatically and
immediately terminate in the event of its assignment, provided that an
--------
assignment to a corporate successor to all or substantially all of the Adviser's
business or to a wholly-owned subsidiary of such corporate successor which does
not result in a change of actual control of the Adviser's business shall not be
deemed to be an assignment for the purposes of this Agreement. Any notice under
this Agreement shall be given in writing, addressed and delivered or mailed
postpaid, to the other party at any office of such party and shall be deemed
given when received by the addressee.

As used in this Section 9, the terms "assignment," "interested persons,"
and "a vote of a majority the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act.

10. Amendment of Agreement. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those members of the Board of Directors of the Fund who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment, and (b) by vote of a
majority of the outstanding voting securities of each of the Portfolios.

11. Use of Name. The Fund agrees that if this Agreement is terminated and
the Adviser shall no longer be the adviser to the Fund, the Fund will, within a
reasonable period of time, change its name to delete the reference to "Morgan
Stanley."

12. Severability. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.

3
<PAGE>

13. Applicable Law. This Agreement shall be construed in accordance with
the laws of the State of New York, provided, that nothing herein shall be
----------
construed as being inconsistent with the 1940 Act.

14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first written above.

MILLER ANDERSON & MORGAN STANLEY
SHERRERD, LLP UNIVERSAL FUNDS, INC.

By: /s/ Lorraine Truten By: /s/ Michael Klein
---------------------------- ---------------------------
Name: Lorraine Truten Name: Michael Klein
Title: Principal Title: President

4
<PAGE>

SCHEDULE A
TO
INVESTMENT ADVISORY AGREEMENT DATED AS OF MAY 31, 1997
BY AND BETWEEN
MORGAN STANLEY UNIVERSAL FUNDS, INC.
AND
MILLER ANDERSON & SHERRERD, LLP

PORTFOLIOS
----------

1. Fixed Income Portfolio
2. High Yield Portfolio
3. Core Equity Portfolio
4. Value Portfolio
5. Mid Cap Growth Portfolio
6. Mid Cap Value Portfolio
7. International Fixed Income Portfolio
8. Balanced Portfolio
9. Multi-Asset-Class Portfolio

5
<PAGE>

SCHEDULE B
TO
INVESTMENT ADVISORY AGREEMENT DATED AS OF MAY 31, 1997
BY AND BETWEEN
MORGAN STANLEY UNIVERSAL FUNDS, INC.
AND
MILLER ANDERSON & SHERRERD, LLP

ADVISORY FEES FOR THE FUND'S PORTFOLIOS ADVISED BY MAS
------------------------------------------------------

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------
PORTFOLIO FIRST $500 MILLION FROM $500 MILLION MORE THAN $1BILLION
TO $1 BILLION
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income 0.40% 0.35% 0.30%
- -----------------------------------------------------------------------------------
High Yield 0.50% 0.45% 0.40%
- -----------------------------------------------------------------------------------
Core Equity 0.55% 0.50% 0.45%
- -----------------------------------------------------------------------------------
Value 0.55% 0.50% 0.45%
- -----------------------------------------------------------------------------------
Mid Cap Growth 0.75% 0.70% 0.65%
- -----------------------------------------------------------------------------------
Mid Cap Value 0.75% 0.70% 0.65%
- -----------------------------------------------------------------------------------
International Fixed 0.50% 0.45% 0.40%
Income
- -----------------------------------------------------------------------------------
Balanced 0.50% 0.45% 0.40%
- -----------------------------------------------------------------------------------
Multi-Asset-Class 0.65% 0.60% 0.55%
- -----------------------------------------------------------------------------------
</TABLE>

<PAGE>

DOMESTIC CUSTODY AGREEMENT [INST/FIN]

TO: THE CHASE MANHATTAN BANK
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004

Gentlemen:

We hereby request you to open and to maintain a Custody Account in our name
and to hold therein as our custodian, upon the following terms and conditions,
all stocks, bonds, rights, warrants and other negotiable and non-negotiable
paper issued in certificated or book-entry form and commonly treated or dealt
with on securities exchanges or securities markets as shall be received by and
acceptable to you for the Custody Account (hereinafter referred to as
"securities"). As used herein, the term Custody Account shall include all such
Custody Accounts opened pursuant to this Domestic Custody Agreement (the
"Agreement").

As a management investment company under the Investment Company Act of 1940
(the "Act"), we are required to provide for the safekeeping of our securities
and similar investments under custody arrangements that meet the requirements of
Section 17f of the Act and rules and regulations thereunder. We are placing and
maintaining our domestic securities and investments in your custody for, among
other purposes, meeting the custody requirements of the Act and the applicable
rules and regulations thereunder.

Securities held by you for the Custody Account shall be segregated at all
times from your proprietary assets.

1. TRANSACTIONS. Unless you receive contrary written instructions from
us, and subject to the provisions of this Agreement, you are authorized:

(a) to receive all interest and dividends payable on the securities
and (except as hereinafter set forth in the section entitled
"Miscellaneous") to credit such interest and dividends to the demand
deposit cash account of ours with you designated by us to receive all sums
collected in respect of transactions to the Custody Account (each such
account a "Cash Account");

(b) to credit all proceeds received from sales and redemptions of
securities to the Cash Account;

(d) to present obligations (including coupons) for payment upon
maturity, when called for redemption and when income payments are due;

(e) to exchange securities for other securities where the exchange is
purely ministerial as, for example, the exchange of securities in temporary
form for securities in definitive form or the mandatory exchange of
certificates;

(f) to sell fractional interests resulting from a stock split or a
stock dividend and to credit the Cash Account with the proceeds thereof;

(g) to execute in our name, whenever you deem it appropriate, such
ownership and other certificates as may be required to obtain payments with
respect to, or to effect the sale, transfer or other disposition of,
securities in the Custody Account and to guarantee as our signature the
signature so affixed;

(h) to receive and hold in the Custody Account securities which have
transfer limitations imposed upon them by the Securities Act of 1933, as
amended; and

(i) to convert moneys received with respect to securities of foreign
issue into United States dollars whenever it is practical to do so through
customary banking channels. In effecting such conversion you may use any
method or agency available to you, including the facilities of your own
divisions, subsidiaries or affiliates. You shall incur no liability on
account of any loss suffered or expense incurred as a result of such
conversion, including, without limitation, losses arising from fluctuations
in exchange rates affecting any such conversion, provided you act in good
faith and without negligence.

2. INSTRUCTIONS. You are authorized to rely and act upon all further
written instructions given or purported to be given by one or more officers,
employees or agents of ours (i) authorized by or in accordance with a corporate
resolution of ours delivered to you or (ii) described as authorized in a
certificate delivered to you by our Secretary or an Assistant Secretary or
similar officer of ours (each such officer, employee or agent or combination of
officers, employees and agents authorized pursuant to clause (i) or described
pursuant to clause (ii) of this paragraph is hereinafter referred to as an
"Authorized Officer"). (The term "instructions" includes, without limitation,
instructions to sell, assign, transfer, deliver, purchase or receive for the
Custody Account, any and all stocks, bonds and other securities or to transfer
funds in the Cash Account.) You may also rely and act upon instructions when
bearing or purporting to bear the facsimile signature of any of the individuals
designated by an Authorized Officer regardless of by whom or by what means the
actual or purported facsimile signature or signatures thereon may have been
affixed thereto if such facsimile signature or signatures in all respects
conforms to the facsimile specimen or specimens from time to time furnished to
you by any of such Authorized Officers, our Secretary or an Assistant Secretary
or similar officer of ours. In addition, you may rely and act upon instructions
received by telephone, telex, TWX,

2
<PAGE>

facsimile transmission, bank wire or other teleprocess or electronic instruction
or trade information system acceptable to you which you believe in good faith to
have been given by an Authorized Officer or which are transmitted with proper
testing or authentication pursuant to terms and conditions which you may
specify. You may also rely and act upon instructions transmitted electronically
through your TITAN Data Entry System or any similar electronic instruction
system acceptable to you. You shall incur no liability to us or otherwise as a
result of any act or omission by you in accordance with instructions on which
you are authorized to rely pursuant to the provisions of this paragraph. Any
instructions delivered to you by telephone shall promptly thereafter be
confirmed in writing by an Authorized Officer, but you shall incur no liability
for our failure to send such confirmation in writing, the failure of any such
written confirmation to conform to the telephone instructions which you
received, the failure of any such written confirmation to be signed or properly
signed, or your failure to produce such confirmation at any subsequent time,
provided you act in good faith and you have executed such instruction without
negligence. You shall incur no liability for refraining from acting upon any
instructions which for any reason you, in good faith, are unable to verify to
your own satisfaction. With respect to instructions received hereunder to
transfer funds from the Cash Account to any other account or party, we agree to
implement any callback or other authentication method or procedure or security
device required by you at any time or from time to time. Unless otherwise
expressly provided, all authorizations and instructions shall continue in full
force and effect until canceled or superseded by subsequent authorizations or
instructions received by your safekeeping account administrator with reasonable
opportunity to act thereon. Your authorization to rely and act upon instructions
pursuant to this paragraph shall be in addition to, and shall not limit, any
other authorization which we may give you regarding our accounts with you.

We agree that, if you require test arrangements, authentication methods or
procedures or other security devices to be used with respect to instructions
which we may give hereunder, thereafter instructions given by us shall be given
and processed in accordance with terms and conditions for the use of such
arrangements, methods or procedures or devices as you may put into effect and
modify from time to time. We shall safeguard any testkeys, identification codes
or other security devices which you make available to us and agree that we shall
be responsible for any loss, liability or damage incurred by you or by us as a
result of your acting in accordance with instructions from any unauthorized
person using the proper security device. You may electronically record any
instructions given by telephone, and any other telephone discussions with
respect to the Custody Account or transactions pursuant to this Agreement.

If you are instructed by us to purchase or sell securities for the Custody
Account you may enter purchase and sale orders and confirmations, and perform
any other acts incidental or necessary to the performance thereof with brokers
or dealers or similar agents selected by you, including any broker or dealer or
similar agent affiliated with you, for our account and risk in accordance with
accepted industry practices in the relevant market.

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Except as may be provided otherwise herein, you are authorized to execute
our instructions and take other actions pursuant to this Agreement in accordance
with your customary processing practices for customers similar to us and, in
accordance with such practices, you may retain agents, including subsidiaries or
affiliates of yours, to perform certain of such functions.

In acting upon instructions to deliver securities against payment, you are
authorized, in accordance with customary securities processing practices, to
deliver such securities to the purchaser thereof or dealer therefor (including
to an agent for any such purchaser or dealer) against a receipt, with the
expectation of collecting payment from the purchaser, dealer or agent to whom
the securities were so delivered before the close of business on the same day.

3. REGISTRATION. Unless you receive contrary instructions from us, you
are authorized to keep securities in your own vaults or in book entry form
registered in your name or in the name of your nominee or nominees or, where
securities are eligible for deposit in a Depository (hereinafter defined), such
as The Depository Trust Company, the Federal Reserve Bank of New York or
Participants Trust Company, you may use any such Depository and permit the
registration of registered securities in the name of its nominee or nominees,
and we agree to hold you and the nominees harmless from any liability as holders
of record, provided that in keeping securities in book entry form and in
selecting and engaging in transactions with the Depository you act in
conformance with Rule 17f-4 under the Act. We shall accept the return or
delivery of securities of the same class and denomination as those deposited
with you by us or otherwise received by you for the Custody Account, and you
need not retain the particular certificates so deposited or received.

If any of our securities registered in your name or the name of your
nominee or held in a Depository and registered in the name of the Depository's
nominee are called for partial redemption by the issuer of such securities, you
are authorized to allot the called portion to the respective beneficial holders
of the securities in any manner deemed to be fair and equitable by you in your
sole discretion.

4. STATEMENTS. You shall notify us of each securities transaction
effected for the Custody Account and of income on and redemptions of the
securities in the Custody Account, as well as furnish us a listing of such
securities, at such times upon which you and we mutually agree. Periodic
statements shall be rendered to us as we may reasonably require, but not less
frequently than monthly. You shall at all times maintain proper books and
records that shall identify the securities as ours. Your books and records
relating to the Custody Account shall be available for inspection upon
reasonable notice to you during your regular business hours by duly authorized
officers, employees, or agents of ours, or by legally authorized regulatory
officials who are then in the process of reviewing our financial affairs upon
proof to you of such official status.

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Unless we shall send to you a written exception or objection to any
statement of account within 60 days of our receipt of such statement from you,
we shall be deemed to have approved such statement. In such event, or where we
have otherwise approved such statement, you shall, to the extent permitted by
law, be released, relieved and discharged with respect to all matters set forth
in such statement or reasonably implied therefrom as though it had been settled
by the decree of a court of competent jurisdiction in an action where we and all
persons having or claiming an interest in the Custody Account or Cash Account
were parties.

5. CORPORATE ACTIONS. You shall send us such proxies (signed in blank,
if issued in your name or the name of your nominee or a nominee of a Depository)
and communications with respect to securities in the Custody Account as call for
voting or relate to legal proceedings within a reasonable time after sufficient
copies are received by you for forwarding to customers. In addition, you shall
follow coupon payments, redemptions, exchanges or similar matters with respect
to securities in the Custody Account and advise us of rights issued, tender
offers or any other discretionary rights with respect to such securities, in
each case, of which you receive notice at your central corporate actions
department from the issuer or from the Depository in which such securities are
held or notice published in publications and reported in reporting services
routinely used by you for this purpose.

6. CUSTODIAN RESPONSIBILITY. Except as provided in the next following
paragraph, you shall be obligated to indemnify us for any loss of securities
credited to the Custody Account resulting from (i) the negligence or willful
misconduct of you or your officers, employees or agents retained by you to hold
such securities or (ii) the burglary, robbery, hold-up, theft or mysterious
disappearance, including loss by damage or destruction. In the event of a loss
of securities in the Custody Account for which you are required to indemnify us
pursuant to the immediately preceding sentence, at your option, you shall
promptly replace such securities (by among other means posting appropriate
security or bond with the issuer(s) of such securities and obtaining their
reissue) or the value thereof (determined based upon the market value of the
securities which are the subject of such loss as of the date you notify us of
the discovery of such loss) and the value of any loss of rights or privileges
resulting from the loss of such securities. The foregoing indemnity shall be
your exclusive liability to us for your loss of securities from the Custody
Account. In respect of all your other duties and obligations pursuant to the
terms of this Agreement, you shall be liable to us only to the extent of our
general damages suffered or incurred as a result of any act or omission of you
or your officers, employees or agents which constitutes negligence or willful
misconduct. General damages shall mean only those damages as directly and
necessarily result from such act or omission without reference to any special
conditions or circumstances of ours or of any transaction, whether or not you
have been advised of any such special conditions or circumstances and regardless
of the form of action any such damage may be claimed

You shall not be liable for the acts or omissions of (or the bankruptcy or
insolvency of) any Depository. If, however, as a result of any act or omission
of, or the bankruptcy or insolvency of, any Depository we suffer any loss or
liability, you will take such steps with

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<PAGE>

respect thereto in order to effect a recovery as you shall reasonably deem
appropriate under the circumstances (including the bringing and settling of
legal proceedings), provided that unless you shall be liable as set forth in the
immediately preceding paragraph of this Agreement, for such loss or liability by
virtue of the negligence or misconduct of you or your officers, employees or
agents, the amount of any cost or expense in effecting, or attempting to effect,
such recovery shall be for our account, and you shall have the right to charge
such cost or expense to the Cash Account. We further agree to be bound by the
Depository rules and procedures applicable to you as a participant in respect of
any securities held by you in your account with such Depository. "Depository"
shall mean a federal reserve bank and any "clearing corporation" as defined
under Article 8 of the New York Uniform Commercial Code, as amended from time to
time, and qualified under Section 17f-4 of the Act

All collection and receipt of funds or securities and all payment and
delivery of funds or securities under this Agreement shall be made by you as our
agent, at our risk with respect to our actions or omissions and those of persons
other than you, including, without limitation, the risk associated with the
securities processing practice of delivering securities against a receipt and
the risk that the counterparty in any transaction into which we enter will not
transfer funds or securities or otherwise perform in accordance with our
expectation of its obligations thereunder (including, without limitation, where,
as a result of such nonperformance, a Depository reverses, or requires repayment
of, any credit given in connection with the transfer of securities).

In no event shall you be responsible or liable for any loss due to forces
beyond your control, including, but not limited to, acts of God, flood, fire,
nuclear fusion, fission or radiation, war (declared or undeclared), terrorism,
insurrection, revolution, riot, strikes or work stoppages for any reason,
embargo, closure or disruption of any market, government action, including any
laws, ordinances, regulations or the like which restrict or prohibit the
providing of the services contemplated by this Agreement, inability to obtain
equipment or communications facilities, or the error in transmission of
information caused by any machines or systems or the failure of equipment or
interruption of communications facilities, and other causes whether or not of
the same class or kind as specifically named above. In the event that you are
unable substantially to perform for any of the reasons described in the
immediately preceding sentence, you shall so notify us as soon as reasonably
practicable.

You shall be responsible for only those duties expressly stated in this
Agreement or expressly contained in instructions to perform the services
described herein given to you pursuant to the provisions of this Agreement and
accepted by you and, without limiting the foregoing, you shall have no duty or
responsibility:

(a) to supervise the investment of, or make recommendations with
respect to the purchase, retention or sale of, securities relating to the
Custody Account, or to maintain any insurance on securities in the Custody
Account for our benefit;

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<PAGE>

(b) with regard to any security in the Custody Account as to which a
default in the payment of principal or interest has occurred, to give
notice of default, make demand for payment or take any other action with
respect to such default (unless you shall have received notice of such
default at your corporate actions department);

(c) except as otherwise specifically provided in this section under
the heading "Custodian Responsibility", for any act or omission, or for the
solvency or insolvency, or notice to us of the solvency or insolvency, of
any broker or agent which is selected by you with reasonable care or by us
or any other person to effect any transaction for the Custody Account or to
perform any service under this Agreement;

(d) to evaluate, or report to us regarding, the financial condition
of any person, firm or corporation to which you deliver securities or funds
pursuant to this Agreement;

(e) for any loss occasioned by delay in the actual receipt of notice
by you of any payment, redemption or other transaction in respect to which
you are authorized to take some action pursuant to this Agreement; or

(f) for any errors or omissions made by any recognized securities
pricing service used by you to value securities credited to the Custody
Account as part of any service subscribed to by us from you.

7. SETTLEMENTS. We agree with you that all credits of securities and
proceeds by you to the Custody Account and the Cash Account, respectively, on
the settlement or payable date shall be provisional when made and you shall be
entitled to reverse any such credits subject to actual receipt or collection of
immediately available funds.

We shall have sufficient immediately available funds each day in the Cash
Account to pay for the settlement of all securities delivered against payment to
you and credited to the Custody Account. Should we fail to have sufficient
immediately available funds in the Cash Account to settle these deliveries of
securities pursuant to the preceding sentence (a "Deficit"), you, in your sole
discretion, may elect (i) to reject the settlement of any or all of the
securities delivered to you that day to the Custody Account, (ii) to settle the
deliveries on our behalf and debit the Cash Account (A) for the amount of such
Deficit and (B) for the amount of the funding or other cost or expense incurred
or sustained by you for our failure to have sufficient immediately available
funds in the Cash Account by the applicable settlement deadline for you, or
(iii) to reverse the posting of the securities credited to the Custody Account.

You shall have the right to reverse any erroneous or provisional credit
entries to the Cash Account retroactively to the date upon which the correct
entry, or no entry, should have been made.

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The foregoing rights are in addition to and not in limitation of any other
rights or remedies available to you under this Agreement or otherwise. Any
advances made by you to us in connection with the purchase, sale, redemption,
transfer or other designation of securities or in connection with disbursements
of funds to any party, which create or result in an overdraft in the Cash
Account shall be deemed a loan by you to us, payable on demand, and bear
interest on the amount of the loan each day that the loan remains unpaid at your
prime rate in effect as announced by you from time to time, plus the cost to you
of any required reserves. We shall also bear the cost of any Federal Reserve
Bank daylight overdraft charge incurred by you and allocated to transactions
effected for the Custody Account or the Cash Account.

No prior action or course of dealing on your part with respect to the
settlement of securities transactions on our behalf shall be used by or give
rise to any claim or action by us against you for your refusal to pay or settle
for a securities transaction we have not timely funded as required herein.

8. RESPONSIBLE AS PRINCIPAL. We agree that we shall be responsible to
you as a principal for all of our obligations to you arising under or in
connection with this Agreement, notwithstanding that we may be acting on behalf
of other persons, and we warrant our authority to deposit in the Custody Account
and Cash Account, respectively, any securities and funds which you or your
agents receive therefor and to give instructions relative thereto. We further
agree that you shall not be subject to, nor shall your rights and obligations
with respect to this Agreement and the Custody Account or the Cash Account be
affected by, any agreement between us and any such person.

9. CREDITING AND DEBITING PROCEDURES. With respect to all transactions
for the Custody Account and the Cash Account, including, without limitation,
dividend and interest payments and sales and redemptions of securities,
availability of funds credited to the Custody Account and Cash Account shall be
based on the type of funds used in the trade settlement or payment, including,
but not limited to, same day availability for federal or same day funds and next
business day availability for clearing house or next day funds. Furthermore,
with respect to all purchases and sales of securities for the Custody Account,
the proceeds from the sale of securities shall be credited to the Cash Account
on the date proceeds are received by you and the cost of securities purchased
shall be debited to the Cash Account on the date securities are received by you,
unless we request your contractual settlement service for the Custody Account in
which case the following provisions shall apply with respect to the delivery and
receipt of securities for the Custody Account for those securities and
transactions as to which you customarily offer this service.

(a) When we instruct you to deliver or receive securities, on the
contractual settlement date you shall credit the Cash Account with the
expected proceeds of the transaction and debit the Custody Account for the
securities which we have instructed you to deliver, in the case of
deliveries, and debit the Cash Account for the cost of the securities which
we have instructed you to receive and credit the Custody Account with

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<PAGE>

such securities, in the case of receives. These credits and debits are
provisional accounting entries which you shall reverse on our instructions
and which you may reverse, even in the absence of instructions from us, if
the transaction with respect to which they were made fails to settle within
a reasonable period, determined by you in your discretion, after the
contractual settlement date, except that if you deliver securities which
are returned by the recipient thereof, you may reverse such credits and
debits at any time. You have no obligation to use this crediting and
debiting procedure with respect to a delivery of securities if we do not
have actually in our account sufficient securities to make the delivery.

(b) As with other transactions processed by you, your responsibility
with respect to transactions for which you use this crediting and debiting
procedure shall be governed by the provisions of this Custody Agreement,
including the section headed "Custodian Responsibility". We agree that your
using this procedure is not an assurance by you that the transaction will
actually settle on the contractual settlement date and does not impose any
additional responsibility on you with respect to the transaction. Without
limiting your right to reverse credits and debits described above, the
account statements which you furnish to us shall reflect transactions as to
which you use this procedure as if they had actually settled on the
contractual settlement date, unless prior to the date to which the
statement relates, you have reversed such credits and debits.

With respect to securities or transactions as to which you do not
customarily offer this service, you shall (i) in the case of deliveries of
securities, credit the proceeds of the transaction to the Cash Account on
the date they are received by you and debit the securities from the Custody
Account on the date they are delivered by you, and (ii) in the case of
securities received, debit the Cash Account for the cost of such securities
and credit the Custody Account with such securities on the date the
securities are received by you.

10. SWEEP OF CASH BALANCES. Unless you receive contrary instructions from
us, you are directed automatically to arrange for the investment of cash in the
Cash Account in mutual funds (including, without limitation, the VISTA Money
Market Funds and any other mutual fund with respect to which you or an affiliate
or subsidiary of yours serves as an investment adviser, administrator,
shareholder servicing agent, and/or custodian or subcustodian and regardless of
whether or not you or an affiliate or subsidiary of yours receives any fees for
services rendered to any such mutual fund in addition to the fees received by
you pursuant to this Agreement, all of which such fees you are specifically
authorized to retain) or money market accounts (including, without limitation,
accounts of yours or an affiliate or subsidiary of yours) which you make
available for such purposes and which we shall select through instructions to
you. Further, in this regard, you are directed automatically to arrange for the
redemption of such mutual fund shares

9
<PAGE>

or for the withdrawal of amounts from such money market accounts as may be
necessary to avoid any potential overdraft hereunder that you perceive based
upon the information available to you at the time of such redemption or
withdrawal. We agree that we shall read the prospectus for any mutual fund prior
to investing and acknowledge that investments in mutual fund shares are not
insured by the Federal Deposit Insurance Corporation and are not obligations of
or guaranteed by you.

11. TAXES. Unless we have already done so, we shall deliver promptly to
you with respect to each Custody Account established under this Agreement, two
duly completed and executed copies of the proper United States Internal Revenue
Service forms: (i) Form W-9, if we are a U.S. citizen or resident person; and
(ii) Form 1001, Form 4224, Form W-8 or Form 8709 (as applicable), if we are a
nonresident person, certifying our status as a nonresident person, and that we
are entitled to receive United States source payments under or in connection
with this Agreement without deduction as withholding or at a reduced rate of
withholding for United States federal income taxes. We agree to provide duly
executed and completed updates of such form(s) (or successor applicable forms),
on or before the date that such form(s) expire or become obsolete or after the
occurrence of an event requiring a change in the most recent form previously
delivered by us to you. We further agree to pay, indemnify, and hold you
harmless from and against any and all liabilities, penalties, interest or
additions to tax with respect to, or resulting from, any delay in, or failure
by, you (i) to pay, withhold or report any Federal, state or foreign taxes
imposed on, or in respect of, the property held in the Custody Account(s), or
this Agreement, or (ii) to report interest, dividend or other income paid or
credited to the Cash Account, whether such failure or delay by you to pay,
withhold or report tax or income is a result of (x) our failure to comply with
the terms of this sub-paragraph, or (y) your own acts or omissions; provided,
however, we shall not be liable to you for any penalty or additions to tax due
as a result of your failure to pay or withhold tax or to report to us interest,
dividend or other income paid or credited to the Cash Account solely as a result
of your negligent acts or omissions.

12. OTHER ACCOUNTS. From time to time we may instruct you to open and
maintain more than one Custody Account for us. Unless we and you otherwise
expressly agree, such accounts will be governed by the provisions of this
Agreement.

13. FEES, INDEMNIFICATION. We agree to pay you compensation for your
services pursuant to this Agreement at the fees of which you shall notify us
from time to time. We also agree to hold you and your officers, employees and
agents harmless from, and to indemnify and reimburse you and them for, all
claims, liabilities, losses, damages and expenses (including out-of-pocket and
incidental expenses and legal fees) incurred by you or them in connection with
or relating to the Custody Account or your acting under this Agreement, provided
that you or they, as the case may be, have not acted with negligence or willful
misconduct with respect to the events resulting in such claims, liabilities,
losses, damages or expenses.

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14. LIEN. We hereby pledge, assign and grant to you a continuing security
interest in, and a lien on the securities in the Custody Account and any
securities in your possession or under your control for credit to the Custody
Account, and you shall have all of the rights and remedies of a secured party
under the New York Uniform Commercial Code, as amended, as security for any and
all obligations, matured or not matured, direct or indirect, absolute or
contingent, now due or hereafter to become due of us to you pursuant to this
Agreement; provided, however, if the Custody Account in which such securities
are credited is clearly designated on your records as an account in which our
interest is that of an agent or fiduciary for others, your security interest in
a particular security in such account will terminate at the time we pay to you
the settlement amount for such security in immediately available funds.

15. SET-OFF. You may, without notice to us, setoff any sums held for us
or standing to the credit of any of our cash accounts with you in or towards the
satisfaction of any obligation of us to you under this Agreement, whether or not
any such sums or credits or obligations are matured or unmatured, direct or
indirect, absolute or contingent, and may do so notwithstanding that the
accounts may be maintained at different branches of yours and may not be
expressed in the same currency.

16. TERMINATION. Either party may terminate this Agreement at any time
upon ninety days written notice. Our obligations pursuant to the paragraphs
under the headings "Registration", "Settlements" and "Fees, Indemnification"
shall survive the termination of this Agreement.

17. NOTICES. Notices with respect to termination, specification of
Authorized Officers and terms and conditions for instructions required hereunder
shall be in writing, and shall be deemed to have been duly given if delivered
personally, by courier service or by mail, postage prepaid, to the following
addresses (or to such other address as either party hereto may from time to time
designate by notice duly given in accordance with this paragraph):

To us at: Morgan Stanley Universal Funds, Inc.
1221 Avenue of the Americas
5th floor
New York, New York 10020
Attention: Secretary

To you, to the attention of the individual designated by you as the
safekeeping account administrator for our account, at:

The Chase Manhattan Bank
Institutional Client Services
4 New York Plaza, 4th Floor
New York, New York 10004

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18. GOVERNING LAW, SUCCESSORS AND ASSIGNS, HEADINGS. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to laws as to conflicts of laws, and shall be binding on
our and your respective successors and assigns. We and you hereby irrevocably
submit to the exclusive jurisdiction of the state and federal courts in the
State and County of New York for the purposes of any suit, action or other
proceedings arising out of this Agreement. We and you hereby irrevocably waive
any objection on the ground of venue, forum non conveniens, or any similar
grounds, and irrevocably consent to service of process by mail or in any manner
permitted by New York law, and irrevocably waive our rights to any jury trial.
The headings of the paragraphs hereof are included for convenience of reference
only and do not form a part of this Agreement.

19. PRIOR PROPOSALS. This Agreement (including any Riders relating to
additional services in respect of the Custody Account we may request of you)
shall contain the complete agreement of the parties hereto with respect to the
Custody Account (except as may be expressly provided to the contrary herein) and
supersedes and replaces any previously made proposals, representations,
warranties or agreements with respect thereto by either or both of the parties
hereto. This Agreement shall become effective upon execution hereof by us and
acceptance by you.

20. SEPARABILITY. Any provisions of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

21. RESERVATION OF RIGHT. You shall have the right not to accept for
deposit to the Custody Account any securities which are in a form or condition
which you, in your sole discretion, determine not to be suitable for the
services you provide under this Agreement.

22. ADDITIONAL DUTIES. If we shall ask you to perform duties or
responsibilities not specifically set forth in this Agreement and you choose to
perform such additional duties or responsibilities, you shall be held to the
same standard of care and you shall be entitled to all the protective provisions
(including but not limited to limitation of liability and indemnification) set
forth herein.

23. COUNTERPARTS. This Agreement may be executed in several counterparts
each of which shall be deemed to be an original and together shall constitute
one and the same agreement.

24. MISCELLANEOUS. We understand that we may request to have a Custody
Account established under this Agreement which is not linked to a Cash Account.
We understand further that with respect to any such Custody Account so
established any funds received by you in respect of transactions for such
Custody Account will be credited to the Custody Account and,

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<PAGE>

further, funds credited to the Custody Account must be transferred by us by
means of instruction (a "payment order") to one of your account administrators
assigned by you for the Custody Account, which you will identify to us. We agree
that payment orders and communications seeking to cancel or amend payment orders
which are issued by telephone, telecopier or in writing shall be subject to a
mutually agreed security procedure and you may execute or pay payment orders
issued in our name when verified by you in accordance with such procedure.

In executing or paying a payment order you may rely upon the identifying
number (e.g. Fedwire routing number or account) or any party as instructed in
the payment order. We assume full responsibility for any inconsistency between
the name and identifying number of any party in payment orders issued to you in
our name.

With respect to any Custody Account established under this Agreement which
is not linked to a Cash Account, all references to Cash Account shall be read to
mean Custody Account.

MORGAN STANLEY UNIVERSAL FUNDS, INC.

By:_____________________________________

Title:__________________________________

Date:___________________________________

Accepted by:

THE CHASE MANHATTAN BANK

By:_____________________

Title:__________________

Date:___________________

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GLOBAL CUSTODY RIDER

DOMESTIC CUSTODY AGREEMENT

FOR

MUTUAL FUNDS

We hereby request you, The Chase Manhattan Bank, to provide to us, Global
Custody Services subject to the terms of our Domestic Custody Agreement with
you, and the terms herein. If there is any conflict between the terms in our
Domestic Custody Agreement and the terms in this Rider with regard to your
providing Global Custody Services to us, the terms of this Rider shall govern.
The terms of this Rider shall be effective as of the date you commence to
provide Global Custody Services to us.

1. Maintenance of Securities and Cash Outside the United States.

Unless our instructions specifically require another location acceptable to
you:

(a) securities shall be held in the country or other jurisdiction in which
the principal trading market for such securities are located, where such
securities are to be presented for payment or where such securities are
acquired; and

(b) cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.

Cash may be held pursuant to instructions in either interest or non-
interest bearing accounts as may be available for the particular currency. To
the extent you can comply with our instructions to you, you are authorized to
maintain cash balances on deposit for us with you or one of your "Affiliates" at
such reasonable rates of interest as may from time to time be paid on such
accounts or in non-interest bearing accounts as we may direct, if acceptable to
you. For purposes hereof, the term "Affiliate" shall mean an entity controlling,
controlled by, or under common control with, Bank.

If we wish to have any of the securities held in the custody of an
institution other than the established Subcustodians as defined in Section 2
hereof (or their securities depositories), such arrangement must be authorized
by a written agreement, signed by you and us.
<PAGE>

2. Subcustodians and Depositories.

You may act under this Rider through the subcustodians listed in Schedule A
hereto with which you have entered into subcustodial agreements
("Subcustodians"). We authorize you to hold securities recorded to the Custody
Account in accounts which you have established with one or more of your branches
or Subcustodians. You and Subcustodians are authorized to hold any of the
securities in your accounts with any Depository in which you or they
participate.

You may add new, replace or remove Subcustodians. We shall be given
reasonable notice by you of any amendment to Schedule A. Upon our request, you
shall identify the name, address and principal place of business of any
Subcustodian of our securities and the name and address of the governmental
agency or other regulatory authority that supervises or regulates such
Subcustodian.

With respect to securities maintained outside the United States the terms
Subcustodian and securities depositories as used herein shall mean a branch of a
qualified U.S. bank, an eligible foreign custodian or an eligible foreign
securities depository, which are further defined as follows:

(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the 1940 Act;

(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company, incorporated or organized under the laws of a
country other than the United States, that is regulated as such by
that country's government or an agency thereof and that has
shareholders' equity in excess of $200 million in U.S. currency (or a
foreign currency equivalent thereof) as of the close of its fiscal
year most recently completed prior to the date hereof, (ii) a majority
owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a
country other than the United States and that has shareholders' equity
in excess of $100 million in U.S. currency (or a foreign currency
equivalent thereof) as of the close of its fiscal year most recently
completed prior to the date hereof, and (iii) a banking institution or
trust company incorporated or organized under the laws of a country
other than the United States or a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States which has such other qualifications as shall be
specified in Instructions and approved by you; and

(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, which operates (i) the
central system for handling securities or

2
<PAGE>

equivalent book-entries in that country, or (ii) a transnational
system for the central handling of securities or equivalent book-
entries.

We represent that our Board of Directors has approved each of the
Subcustodians listed in Schedule A hereto and the terms of the subcustody
agreements between you and each Subcustodian, which are attached to Schedule A,
and further represent that our Board has determined that the use of each
Subcustodian and the terms of each subcustody agreement are consistent with the
best interests of the Fund(s) and its (their) shareholders. You shall supply us
with any amendment to Schedule A for approval. We have supplied or shall supply
you with certified copies of our Board of Directors resolution(s) with respect
to the foregoing prior to placing securities with any Subcustodian so approved.

3. Use of Subcustodian.

(a) You shall identify the securities on your books as belonging to us.

(b) A Subcustodian shall hold our securities together with securities
belonging to other of your customers in accounts identified on such
Subcustodian's books as for the exclusive benefit of your customers.

(c) Any securities in the accounts held by a Subcustodian shall be subject
only to the instruction of you or your agent. Any securities held in a
Depository for the account of a Subcustodian shall be subject only to
the directions of such Subcustodian.

(d) Any agreement you enter into with a Subcustodian for holding your
customers' assets shall provide that such assets shall not be subject
to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian except for safe custody or administration,
and that the beneficial ownership of such assets shall be freely
transferable without the payment of money or value other than for safe
custody or administration. Where securities are deposited by a
Subcustodian with a securities depository, you shall cause the
Subcustodian to identify on its books as belonging to you, as agent,
the securities shown on the Subcustodian's account on the books of
such securities depository. The foregoing shall not apply to the
extent of any special agreement or arrangement made by us with any
particular Subcustodian.

4. Global Securities Account Transactions.

(a) Securities shall be transferred, exchanged or delivered by you or
Subcustodian upon receipt by you of instructions which include all information
required by you. Settlement and payment for securities received for, and
delivery of securities out of, the Custody Account may be made in accordance
with the customary or established securities trading or securities

3
<PAGE>

processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of securities out of the
Custody Account may be made in any manner specifically required by our
instructions acceptable to you.

All collections of funds or other property paid or distributed in respect
of securities in the Custody Account shall be made at our risk. You shall have
no liability for any loss occasioned by delay in the actual receipt of notice by
you or by Subcustodians of any payment, redemption or other transaction
regarding securities in the Custody Account in respect of which you have agreed
to take any action under the Agreement.

5. Corporate Actions; Proxies; Tax Reclaims.

(a) Corporate Actions. Whenever you receive information concerning the
-----------------
securities which requires discretionary action by the beneficial owner of the
securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), you
shall give us notice of such Corporate Actions to the extent that your central
corporate actions department has actual knowledge of a Corporate Action in time
to notify your customers.

When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, you shall endeavor to obtain instructions from us or
an Authorized Officer, but if instructions are not received in time for you to
take timely action, or actual notice of such Corporate Action was received too
late to seek instructions, you are authorized to sell such rights entitlement or
fractional interest and to credit the Cash Account with the proceeds or take any
other action you deem, in good faith, to be appropriate in which case you shall
be held harmless for any such action.

(b) Proxy Voting. You shall provide proxy voting services, if elected by
------------
us, in accordance with the terms of the Proxy Voting Services Rider hereto.
Proxy voting services may be provided by you or, in whole or in part, by one or
more third parties appointed by you (which may be your Affiliates); provided
that you shall be liable for the performance of any such third party to the same
extent as you would have been if you performed such services yourself.

(i) Subject to the provisions hereof, you shall apply for a reduction of
withholding tax and any refund of any tax paid or tax credits which
apply in each applicable market in respect of income payments on
securities for our benefit which you believe may be available to us.

4
<PAGE>

(ii) The provision of tax reclaim services by you is conditional upon your
receiving from us or to the extent beneficially owned by others, the
beneficial owner, of securities (A) a declaration of its identity and
place of residence and (B) certain other documentation (pro forma
--- -----
copies of which are available from you). We acknowledge that, if you
do not receive such declarations, documentation and information,
additional United Kingdom taxation shall be deducted from all income
received in respect of securities issued outside the United Kingdom
and that U.S. non-resident alien tax or U.S. backup withholding tax
shall be deducted from U.S. source income. We shall provide to you
such documentation and information as you may require in connection
with taxation, and warrant that, when given, this information shall
be true and correct in every respect, not misleading in any way, and
contain all material information. We undertake to notify you
immediately if any such information requires updating or amendment.

(iii) You shall not be liable to us or any third party (other than a third
party acting on your behalf) for any taxes, fines or penalties
payable by you or us, and shall be indemnified accordingly, whether
these result from the inaccurate completion of documents by us or any
third party acting on our behalf, or as a result of the provision to
you or any third party of inaccurate or misleading information or the
withholding of material information by us or any other third party
acting on our behalf, or as a result of any delay of any revenue
authority or any other matter beyond your control.

(iv) We confirm that you are authorised to deduct from any cash received
or credited to the Cash Account any taxes or levies required by any
revenue or governmental authority for whatever reason in respect of
the Custody Account.

(v) You shall perform tax reclaim services only with respect to taxation
levied by the revenue authorities of the countries notified to us
from time to time and you may, by notification in writing, at your
absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in
this sub-clause, you shall have no responsibility with regard to our
tax position or status in any jurisdiction.

(vi) We confirm that you are authorised to disclose any information
requested by any revenue authority or any governmental body in
relation to us or the securities and/or cash held for us.

(vii) Tax reclaim services may be provided by you or, in whole or in part,
by one or more third parties appointed by you (which may be your
Affiliates);

provided that you shall be liable for the performance of any such third
party to the same extent as you would have been if you performed such
services yourself.

5
<PAGE>

6. Nominees.

Securities which are ordinarily held in registered form may be registered
in a nominee name of yours, Subcustodian or Depository, as the case may be. You
may without notice to us cause any such securities to cease to be registered in
the name of any such nominee and to be registered in our name. We agree to hold
you, Subcustodian, Depository and your and their respective nominees harmless
from any liability arising directly or indirectly from your or their status as a
mere record holder of securities in the Custody Account.

7. Standard of Care.

(a) Delete the second paragraph under "Custodian Responsibility" and
insert, in lieu thereof, the following

You shall be liable to us for any loss which shall occur as the result of
the failure of a Subcustodian to exercise reasonable care with respect to
the safekeeping of securities to the same extent that you would be liable
to us if you were holding such securities in New York. In the event of any
loss to us by reason of the failure of a Subcustodian to utilize reasonable
care, you shall be liable to us only to the extent of our general damages,
to be determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and without
reference to any special conditions or circumstances, whether or not you or
your Subcustodian have been advised of any such special conditions or
circumstances and regardless of the form of action any such damage may be
claimed. You shall not be responsible for the insolvency of any
Subcustodian which is not a branch or your Affiliate.

(b) Add the following at the end of the "Custodian Responsibility"
section:

(i) You shall be entitled to rely, and may act, upon the advice of
reputable counsel (who may be counsel for us) on all matters and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice.

(ii) Without limiting anything else contained in this Section, you shall
not be liable for any loss which results from: 1) the general risk of
investing, or 2) investing or holding securities in a particular
country including, but not limited to, nationalization, expropriation
or other governmental actions; regulation of the banking or
securities industry; currency restrictions, devaluations or
fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of
securities.

(iii) Consistent with and without limiting the remainder hereof, it is
specifically acknowledged that you shall have no duty or
responsibility to: (i) question Instructions; (ii) supervise or make
recommendations with respect to investments

6
<PAGE>

or the retention of securities; (iii) advise us or an Authorized
Person regarding any default in the payment of principal or income of
any security (except where such notice has been received by your
corporate actions department); (iv) review or reconcile trade
confirmations received from brokers. We shall bear any responsibility
to review such confirmations against Instructions issued to and
statements issued by you.

(iv) We authorize you to act hereunder notwithstanding that you or any of
your divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that you may have a potential
conflict of duty or interest including the fact that you or any of
your Affiliates may provide brokerage services to other customers,
act as financial advisor to the issuer of securities, act as a lender
to the issuer of securities, act in the same transaction as agent for
more than one customer, have a material interest in the issue of
securities, or earn profits from any of the activities listed herein,
provided you perform you duties in this Agreement in good faith and
without negligence.

(v) You hereby warrant to us that in your opinion, after due inquiry, the
established procedures to be followed by each of your branches, each
branch of a qualified U.S. Bank, each eligible foreign custodian and
each eligible foreign securities depository holding our securities
pursuant hereto afford protection for such securities at least equal
to that afforded by your established procedures with respect to
similar securities held by you and your securities depositories in
New York.

8. Fees and Expenses.

We agree to pay you for Global Custody Services hereunder the fees set
forth in Schedule B hereto or such other amounts as may be agreed upon in
writing, together with your reasonable out-of-pocket or incidental expenses,
including, but not limited to, legal fees.

9. Purposes for Instructions.

Cash Account and Custody Account transactions made pursuant hereto may be
made only for the purposes listed below. Instructions must specify the
purpose for which any transaction is to be made and we shall be solely
responsible to assure that Instructions are in accord with any limitations
or restrictions applicable to us by law or as may be set forth in our
prospectus.

(a) In connection with the purchase or sale of securities at prices as
confirmed by Instructions;

(b) When securities are called, redeemed or retired, or otherwise become
payable;

7
<PAGE>

(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;

(d) Upon conversion of securities pursuant to their terms into other
securities;

(e) Upon exercise of subscription, purchase or other similar rights
represented by securities;

(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;

(g) In connection with any borrowings by us requiring a pledge of
securities, but only against receipt of amounts borrowed;

(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to us;

(i) For the purpose of redeeming shares of our capital stock and the
delivery to, or the crediting to the account of, yours, your Subcustodian
or our transfer agent, such shares to be purchased or redeemed;

(j) For the purpose of redeeming in kind shares of ours against delivery
to you, your Subcustodian or our transfer agent of such shares to be so
redeemed;

(k) For delivery in accordance with the provisions of any agreement among
you, us and a broker-dealer registered under the Securities Exchange Act of
1934 and a member of The National Association of Securities Dealers, Inc.,
relating to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by us;

(l) For release of securities to designated brokers under covered call
options, provided, however, that such securities shall be released only
upon payment to you of monies for the premium due and a receipt for the
securities which are to be held in escrow. Upon exercise of the option, or
at expiration, you shall receive from brokers the securities previously
deposited. You shall act strictly in accordance with Instructions in the
delivery of securities to be held in escrow and shall have no
responsibility or liability for any such securities which are not returned
promptly when due other than to make proper request for such return;

(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from securities or related
transactions;

8
<PAGE>

(n) For other proper purposes as may be specified in Instructions issued
by an officer of ours which shall include a statement of the purpose for
which the delivery or payment is to be made, the amount of the payment or
specific securities to be delivered, the name of the person or persons to
whom delivery or payment is to be made, and a certification that the
purpose is a proper purpose under the instruments governing us; and

(o) Upon the termination hereof as set forth in Section 16.

10. Miscellaneous.

(a) Foreign Exchange Transactions. To facilitate the administration of
-----------------------------
our trading and investment activity, you are authorized to enter into spot or
forward foreign exchange contracts with us or an Authorized Officer for us and
may also provide foreign exchange through your subsidiaries, Affiliates or
Subcustodians. Instructions including standing instructions, may be issued with
respect to such contracts but you may establish rules or limitations concerning
any foreign exchange facility made available. In all cases where you and your
subsidiaries, Affiliates or Subcustodians enter into a foreign exchange contract
related to the Custody Account, the terms and conditions of the then current
foreign exchange contract used by you or your subsidiary, Affiliate or
Subcustodian and, to the extent not inconsistent, the Agreement shall apply to
such transaction.

(b) Certification of Residency, etc. We certify that we are a resident of
--------------------------------
the United States and agrees to notify you of any changes in residency. You may
rely upon this certification or the certification of such other facts as may be
required to administer your obligations under this Rider and the Agreement. We
shall indemnify you against all losses, liability, damages, claims or demands
arising directly or indirectly from any such certifications.

(c) Access to Records. You shall allow our independent public accountant
-----------------
reasonable access to records relating to the Custody Account as is required in
connection with their examination of books and records pertaining to our
affairs. Subject to restrictions under applicable law, you shall also obtain an
undertaking to permit our independent public accountants reasonable access to
the records of any Subcustodian which has physical possession of any securities
as may be required in connection with the examination of our books and records.
Upon our reasonable request, you shall furnish us such reports (or portions
thereof) of your system of internal accounting controls applicable to your
duties hereunder. You shall endeavor to obtain and furnish us with such similar
reports as it may reasonably request with respect to each Subcustodian and
securities depository holding securities.

(d) Our Representation. We represent that the securities being placed in
------------------
your custody are subject to the Investment Company Act of 1940, as amended (the
"1940 Act"), as the same may be amended from time to time.

9
<PAGE>

(e) Compliance with Rule 17f-5. Except to the extent that you have
--------------------------
specifically agreed to comply with a condition of a rule, regulation,
interpretation promulgated by or under the authority of the Securities and
Exchange Commission ("SEC") or the Exemptive Order applicable to accounts of
this nature issued to you (1940 Act, Release No. 12053, November 20, 1981), as
amended, or unless you have otherwise specifically agreed, we shall be solely
responsible to assure that the maintenance of securities hereunder complies with
such rules, regulations, interpretations or exemptive order promulgated by or
under the authority of the SEC.

MORGAN STANLEY UNIVERSAL FUNDS, INC

By:_____________________________________
Name
Title

Date:___________________________________

<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

. FUND ADMINISTRATION SERVICES

. FUND ACCOUNTING SERVICES

. TRANSFER AGENCY SERVICES

CHASE GLOBAL FUNDS SERVICES COMPANY

SEPTEMBER 16, 1996
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

TABLE OF CONTENTS
-----------------

SECTION PAGE
- ------- ----

1. APPOINTMENT............................................................. 1

2. REPRESENTATIONS AND WARRANTIES.......................................... 2

3. DELIVERY OF DOCUMENTS................................................... 4

4. SERVICES PROVIDED....................................................... 5

5. FEES AND EXPENSES....................................................... 6

6. DUTIES, RESPONSIBILITIES AND LIMITATION OF LIABILITY.................... 8

7. CONFIDENTIALITY......................................................... 12

8. TERM.................................................................... 12

9. NOTICES................................................................. 13

10. WAIVER.................................................................. 13

11. FORCE MAJEURE........................................................... 14

12. AMENDMENTS.............................................................. 14

13. SEVERABILITY............................................................ 14

14. ASSIGNABILITY........................................................... 14

15. HEADINGS................................................................ 14

16. GOVERNING LAW........................................................... 14

Signatures................................................................... 15
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

TABLE OF CONTENTS (CONTINUED)
-----------------------------

PAGE
----

Schedule A -- Fees and Expenses............................................. A-1

Schedule B -- Fund Administration Services Description...................... B-1

Schedule C -- Fund Accounting Services Description.......................... C-1

Schedule D -- Transfer Agency Services Description.......................... D-1

Schedule E -- MSAM Portfolios............................................... E-1
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

AGREEMENT made as of September 16, 1996 by and between MORGAN STANLEY ASSET
MANAGEMENT INC. ("MSAM") a Delaware corporation, and CHASE GLOBAL FUNDS SERVICES
COMPANY ("Chase"), a Delaware corporation.

WITNESSETH:

WHEREAS, The Morgan Stanley Universal Funds, Inc. (the "Fund") is
registered as a no-load, open-end management investment company, with
diversified and nondiversified series of shares (each, a "portfolio"), under the
Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, MSAM is responsible for the provision of certain transfer agent,
fund accounting and administration services to certain portfolios (the "MSAM
Portfolios") of the Fund listed on Schedule E pursuant to the Agreement between
MSAM and the Fund dated as of September 16, 1996 (the "MSAM Administration
Agreement"); and

WHEREAS, MSAM wishes to retain Chase to provide certain transfer agent,
fund accounting and administration services with respect to the MSAM Portfolios
of the Fund, and Chase is willing to furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. APPOINTMENT. MSAM hereby appoints Chase to provide services for the
Fund, as described hereinafter, subject to the supervision of MSAM and the Board
of Directors of the Fund (the "Board"), for the period and on the terms set
forth in this Agreement. Chase

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<PAGE>

accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Section 5 of and Schedule A to this
Agreement.

2. REPRESENTATIONS AND WARRANTIES.

(a) Chase represents and warrants to MSAM that:

(i) Chase is a corporation, duly organized and existing
under the laws of the State of Delaware;

(ii) Chase is duly qualified to carry on its business in the
Commonwealth of Massachusetts;

(iii) Chase is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this Agreement;

(iv) all requisite corporate proceedings have been taken to
authorize Chase to enter into and perform this Agreement;

(v) Chase has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;

(vi) no legal or administrative proceedings have been
instituted or threatened which would impair Chase's ability to perform its
duties and obligations under this Agreement; and

(vii) Chase's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Chase or any law or regulation applicable to Chase;

(b) MSAM represents and warrants to Chase that:

-2-
<PAGE>

(i) the Fund is a Maryland corporation, duly organized and
existing and in good standing under the laws of Maryland;

(ii) MSAM is empowered under applicable laws and by its
Charter Document and By-Laws to enter into and perform this Agreement;

(iii) all requisite proceedings have been taken by the Fund to
authorize MSAM to enter into and perform this Agreement;

(iv) the Fund is an investment company properly registered
under the 1940 Act;

(v) a registration statement under the Securities Act of
1933, as amended ("1933 Act") and the 1940 Act on Form N-1A has been filed and
will be effective and will remain effective during the term of this Agreement,
and all necessary filings under the laws of the states will have been made and
will be current during the term of this Agreement;

(vi) no legal or administrative proceedings have been
instituted or threatened which would impair MSAM's ability to perform its duties
and obligations under this Agreement;

(vii) the Fund's registration statements comply in all
material respects with the 1933 Act and the 1940 Act (including the rules and
regulations thereunder) and none of the Fund's prospectuses and/or statements of
additional information contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein not misleading;
and

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<PAGE>

(vii) MSAM's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of MSAM or the Fund or any law or regulation applicable to it.

3. DELIVERY OF DOCUMENTS. MSAM will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information that Chase may request or requires to properly discharge its
duties. Such documents may include but are not limited to the following:

(a) Resolutions of the Board authorizing the appointment of MSAM and
Chase to provide certain services to the Fund and approving this Agreement;

(b) The Fund's Charter Document;

(d) The Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");

(e) The Fund's registration statement including exhibits, as
amended, on Form N-1A (the "Registration Statement") under the 1933 Act and the
1940 Act, as filed with the SEC;

(f) Copies of the Investment Advisory Agreement between the Fund and
MSAM (the "Advisory Agreement");

(g) Copy of the Administration Agreement between MSAM and the Fund;

(h) Opinions of counsel and auditors' reports;

(i) The Fund's prospectus(es) and statement(s) of additional
information relating to all funds, series, portfolios and classes, as
applicable, and all amendments and

-4-
<PAGE>

supplements thereto (such Prospectus(es) and Statement(s) of Additional
Information and supplements thereto, as presently in effect and as from time to
time hereafter amended and supplemented, herein called the "Prospectuses"); and

(j) Such other agreements as the Fund may enter into from time to
time including securities lending agreements, futures and commodities account
agreements, brokerage agreements and options agreements.

4. SERVICES PROVIDED.

(a) Chase will provide the following services subject to the
control, direction and supervision of MSAM and the Board and in compliance with
the objectives, policies and limitations set forth in the Fund's Registration
Statement, Charter Document and By-Laws; applicable laws and regulations; and
all resolutions and policies implemented by the Board:

(i) Fund Administration,

(ii) Fund Accounting, and

(iii) Transfer Agency.

A general description of each of the above services is contained in Schedules B,
C and D, respectively, to this Agreement.

(b) Chase will also:

(i) provide office facilities with respect to the provision
of the services contemplated herein (which may be in the offices of Chase or a
corporate affiliate of Chase);

(ii) provide the services of individuals to serve as officers
of the Fund who will be designated by Chase and elected by the Board subject to
reasonable Board approval;

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<PAGE>

(iii) provide or otherwise obtain personnel sufficient for
provision of the services contemplated herein;

(iv) furnish equipment and other materials, which are
necessary or desirable for provision of the services contemplated herein; and

(v) keep records relating to the services contemplated
herein in such form and manner as Chase may deem appropriate or advisable. To
the extent required by Section 31 of the 1940 Act and the rules thereunder,
Chase agrees that all such records prepared or maintained by Chase relating to
the services provided hereunder are the property of the Fund and will be
preserved for the periods prescribed under Rule 31a-2 under the 1940 Act,
maintained at the Fund's expense, and made available in accordance with such
Section and rules.

5. FEES AND EXPENSES.

(a) As compensation for the services rendered to MSAM and the Fund
pursuant to this Agreement, MSAM shall pay Chase monthly fees determined as set
forth in Schedule A to this Agreement. Such fees are to be billed monthly and
shall be due and payable upon receipt of the invoice. Upon any termination of
the provision of services under this Agreement before the end of any month, the
fee for the part of the month before such termination shall be prorated
according to the proportion which such part bears to the full monthly period and
shall be payable upon the date of such termination.

(b) For the purpose of determining fees calculated as a function of
the Fund's assets, the value of the Fund's assets and net assets shall be
computed as required by its currently effective Prospectus, generally accepted
accounting principles, and resolutions of the Board.

-6-
<PAGE>

(c) MSAM may request additional services, additional processing, or
special reports which are not contemplated in this Agreement, and will provide
such specifications and requirements documentation as may be reasonably required
by Chase. If Chase elects to provide such services or arranges for such
services to be provided, it shall be entitled to additional fees and expenses as
its customary rates and charges as agreed upon by the parties.

(d) Chase will bear its own expenses in connection with the
performance of the services under this Agreement except as provided herein or as
agreed to by the parties. MSAM agrees to promptly reimburse Chase for any
services, equipment or supplies ordered by or for MSAM or the Fund through Chase
and for any other expenses that Chase may incur on MSAM's or the Fund's behalf
at MSAM's or the Fund's request or as consented to by MSAM or the Fund. Such
other expenses to be incurred in the operation of the Fund and to be borne by
MSAM, include, but are not limited to: taxes; interest; brokerage fees and
commissions; salaries and fees of officers and directors who are not officers,
directors, shareholders or employees of Chase, or MSAM or the Fund's
distributor; SEC and state Blue Sky registration and qualification fees, levies,
fines and other charges; EDGAR filing fees, processing services and related
fees; postage and mailing costs; costs of share certificates; advisory and
administration fees; charges and expenses of pricing and data services,
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; consulting fees; customary bank charges
and fees; costs of maintenance of corporate existence; expenses of typesetting
and printing of Prospectuses for regulatory purposes and for distribution to
current shareholders of the Fund (the Fund's distributor to bear the expense of
all other printing, production, and distribution of Prospectuses, and marketing
materials); expenses of printing and

-7-
<PAGE>

production costs of shareholders' reports and proxy statements and materials;
expenses of proxy solicitation, proxy tabulation and annual meetings; costs and
expenses of Fund stationery and forms; costs and expenses of special telephone
and data lines and devices; costs associated with corporate, shareholder, and
Board meetings; trade association dues and expenses; reprocessing costs to Chase
caused by third party errors; and any extraordinary expenses and other customary
Fund expenses. In addition, Chase may utilize one or more independent pricing
services to obtain securities prices and to act as backup to the primary pricing
services in connection with determining the net asset values of the Fund. MSAM
will reimburse Chase for the Fund's share of the cost of such services based
upon the actual usage by the Fund of the services for the benefit of the Fund.

(e) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.

(f) In the event that MSAM is more than ninety (90) days delinquent
in its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the Fund),
this Agreement may be terminated upon thirty (30) days' written notice to the
Fund by Chase. MSAM must notify Chase in writing of any contested amounts within
thirty (30) days of receipt of a billing for such amounts. Disputed amounts are
not due and payable while they are being investigated.

6. DUTIES, RESPONSIBILITIES AND LIMITATION OF LIABILITY.

(a) In the performance of its duties hereunder, Chase shall be
obligated, as applicable, to exercise the due care and diligence of a mutual
fund administrator, mutual fund accountant and mutual fund transfer agent in
providing the services called for in this Agreement,

-8-
<PAGE>

including the services referenced in Section 4 of this Agreement, and in all
events shall act in good faith in performing the services provided for under
this Agreement.

(b) Chase shall not be liable for any error of judgment or mistake
of law or for any loss or expense suffered by the Fund in connection with the
matters to which this Agreement relates, except for a loss or expense caused by
or resulting from willful misfeasance, bad faith or negligence on Chase's part
in the performance of its duties or from reckless disregard by Chase of its
obligations and duties under this Agreement.

(c) Subject to Section 6(a) and 6(b) above, Chase shall not be
responsible for, and MSAM shall indemnify and hold Chase harmless from and
against, any and all losses, damages, costs, reasonable attorneys' fees and
expenses, payments, expenses and liabilities incurred by Chase, any of its
agents, or MSAM's or the Fund's agents in the performance of its/their duties
hereunder, including but not limited to those arising out of or attributable to:

(i) any and all actions of Chase or its officers or agents
required to be taken pursuant to this Agreement;

(ii) the reliance on or use by Chase or its officers or
agents of information, records, or documents which are received by Chase or its
officers or agents and furnished to them by or on behalf of MSAM or the Fund,
and which have been prepared or maintained by MSAM or the Fund or any third
party on behalf of MSAM or the Fund;

(iii) MSAM's or the Fund's refusal or failure to comply with
the terms of this Agreement or MSAM's or the Fund's lack of good faith, or
its/their actions, or lack thereof, involving negligence or willful misfeasance;

(iv) the breach of any representation or warranty of MSAM
hereunder;

-9-
<PAGE>

(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with investors and
shareholders, or reasonable reliance by Chase on telephone or other electronic
instructions of any person acting on behalf of a shareholder or shareholder
account for which telephone or other electronic services have been authorized;

(vi) the reliance on or the carrying out by Chase or its
officers or agents of any proper instructions reasonably believed to be duly
authorized, or requests of MSAM or the Fund or recognition by Chase of any share
certificates which are reasonably believed to bear the proper signatures of the
officers of the Fund and the proper countersignature of any transfer agent or
registrar of the Fund;

(vii) any delays, inaccuracies, errors in or omissions from
information or data provided to Chase by data, corporate action pricing services
or securities brokers and dealers;

(viii) the offer or sale of shares by the Fund in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Fund or its service providers and
agents other than Chase, or (2) existing or arising out of activities, actions
or omissions by or on behalf of the Fund prior to the effective date of this
Agreement;

(ix) any failure of the Fund's registration statement to
comply with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other

-10-
<PAGE>

applicable laws, or any untrue statement of a material fact or omission of a
material fact necessary to make any statement therein not misleading in a Fund's
prospectus;

(x) the failure of MSAM or the Fund and its distributor to
comply with applicable securities, tax, commodities and other laws, rules and
regulations, and

(xi) all actions, inactions, omissions, or errors caused by
or resulting from the willful misfeasance, bad faith or negligence of third
parties to whom Chase, MSAM or the Fund has assigned any rights and/or delegated
any duties under this Agreement at the request of or as required by MSAM or by
the Fund or its distributor, provided that each of such third parties was chosen
by MSAM or by the Fund or its distributor.

(d) In performing its services hereunder, Chase shall be entitled to
rely on any oral or written instructions, notices or other communications,
including electronic transmissions, from MSAM, the Fund and their custodians,
officers and directors, investors, agents and other service providers which
Chase reasonably believes to be genuine, valid and authorized, and shall be
indemnified by MSAM for any loss or expense caused by such reasonable reliance.

(e) Chase shall indemnify and hold MSAM and/or the Fund harmless
from and against any and all losses, damages, costs, charges, reasonable
attorneys' fees and expenses, payments, expenses and liabilities arising out of
or attributable to Chase's refusal or failure to comply with the material terms
of this Agreement; Chase's breach of any material representation made by it
herein; or Chase's lack of good faith, or acts involving negligence, willful
misfeasance or reckless disregard of its duties under this Agreement.

7. CONFIDENTIALITY. Chase agrees to treat confidentially all records and
other information relative to the Fund's prior, present or potential
shareholders, and to not use such

-11-
<PAGE>

records and information for any purpose other than performance of Chase's
responsibilities and duties hereunder. Chase may seek a waiver of such
confidentiality provisions by furnishing reasonable prior notice to MSAM and
obtaining approval in writing from MSAM, which approval shall not be
unreasonably withheld. Waivers of confidentiality are automatically effective
without further action by Chase where Chase may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities with respect to Internal Revenue
Service levies, subpoenas and similar actions, or with respect to requests by
the Fund.

8. TERM. This Agreement shall become effective on the date first
hereinabove written and may be modified or amended from time to time by mutual
agreement between the parties hereto. The Agreement shall continue in effect
unless terminated by either party on 90 days' prior written notice. Upon
termination of this Agreement, MSAM shall pay to Chase such compensation and any
out-of-pocket or other reimbursable expenses which may become due or payable
under the terms hereof as of the date of termination or after the date that the
provision of services ceases, whichever is later.

9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed effective on the date of personal delivery (by
private messenger, courier service or otherwise) or upon confirmed receipt of
telex or facsimile, whichever occurs first, or upon receipt if by mail to the
parties at the following address (or such other address as a party may specify
by notice to the other):

If to MSAM:

Morgan Stanley Asset Management Inc.

-12-
<PAGE>

1221 Avenue of the Americas
New York, NY 10020
Attention: Harold J. Schaaff, Jr.
Fax: 212-762-7377

If to Chase:

Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
Attention: Karl O. Hartmann, Esq.
Fax: 617-557-8616

10. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.

11. FORCE MAJEURE. Chase shall not be responsible or liable for any harm,
loss or damage suffered by MSAM or the Fund, its investors, or other third
parties or for any failure or delay in performance of Chase's obligations under
this Agreement arising out of or caused, directly or indirectly, by
circumstances beyond Chase's control. In the event of a force majeure, any
resulting harm, loss, damage, failure or delay by Chase will not give MSAM the
right to terminate this Agreement.

12. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.

-13-
<PAGE>

13. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.

14. ASSIGNABILITY. This Agreement shall not be assigned by any of the
parties hereto without the prior consent in writing of the other party.

15. HEADINGS. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement and shall
not affect in any way the meaning or interpretation of this Agreement.

16. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND THE SUBSTANTIVE
PROVISIONS HEREOF INTERPRETED UNDER AND IN ACCORDANCE WITH LAWS OF THE STATE OF
NEW YORK.

-14-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.

MORGAN STANLEY ASSET
MANAGEMENT INC.

By: /s/ Michael F. Klein
----------------------

Name: Michael F. Klein

Title: Principal

CHASE GLOBAL FUNDS
SERVICES COMPANY

By: /s/ W. Andrew Fry
-------------------

Name: W. Andrew Fry

Title: President

-15-
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

SCHEDULE A
FEES AND EXPENSES

FUND ADMINISTRATION AND ACCOUNTING FEES

A. For the services rendered under this Agreement, MSAM shall pay to Chase an
annual fee based on the following schedule:

7 basis points on the first $500 million in total assets, plus
6 basis points on the next $500 million to $1 billion in total assets, plus
4 basis points on the next $1 billion to $5 billion in total assets, plus
2 basis points on the total assets in excess of $5 billion

B. The foregoing calculation is based on the average daily net assets of the
Fund. The fees will be computed, billed and payable monthly. The minimum
charge per portfolio, per month will be as follows:

Zero for the first three months,
$2,083 for the next 6 months,
$4,167 for the next 6 months,
$6,250 after 15 months.

C. Out-of-pocket expenses, including but not limited to those in Section 5(d),
will be computed and billed by Chase and payable monthly by MSAM.

A-1
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

SCHEDULE B
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES

I. FINANCIAL AND TAX REPORTING

A. Prepare management reports and Board materials, such as unaudited
financial statements and summaries of dividends and distributions.

B. Report Fund performance to outside services as directed by Fund
management.

C. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in the Fund's prospectus(es). Assist
Fund management in making final determinations of distribution
amounts.

D. Estimate and recommend year-end dividend and capital gain
distributions necessary to establish Fund's status as a regulated
investment company ("RIC") under Section 4982 of the Internal Revenue
Code of 1986, as amended (the "Code") regarding minimum distribution
requirements.

E. Working with the Fund's public accountants or other professionals,
prepare and file Fund's Federal tax return on Form 1120-RIC along with
all state and local tax returns where applicable. Prepare and file
Federal Excise Tax Return (Form 8613).

F. Prepare and file Fund's Semi-Annual and Annual Reports on Form N-SAR
with the SEC.

G. Prepare and coordinate printing of Fund's Semi-Annual and Annual
Reports to Shareholders.

H. In conjunction with transfer agent, notify shareholders as to what
portion, if any, of the distributions made by the Fund during the
prior fiscal year were exempt-interest dividends under Section
852(b)(5)(A) of the Code.

I. Provide Form 1099-MISC to persons other than corporations (i.e.,
Directors) to whom the Fund paid more than $600 during the year.

J. Prepare and file California State Expense Limitation Report, if
applicable.

B-1
<PAGE>

K. Provide financial information for Fund proxies and prospectuses
(Expense Table).

II. PORTFOLIO COMPLIANCE

A. Assist with monitoring each Investment Fund's compliance with
investment restrictions (e.g., issuer or industry diversification,
etc.) listed in the current prospectus(es) and Statement(s) of
Additional Information, although primary responsibility for such
compliance shall remain with the Fund's investment adviser or
investment manager.

B. Assist with monitoring compliance of each portfolio of the Fund with
the requirements of Section 851 of the Code for qualification as a RIC
(i.e., 90% Income, 30% Income - Short Three, Diversification Tests)
and each Fund's compliance with the requirements of Section 817(h) of
the Code (i.e., Diversification), although primary responsibility for
such compliance shall remain with the Fund's investment adviser or
investment manager.

C. Assist with monitoring investment manager's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements", Rule 17a-7, and Rule 12d-3 procedures, although primary
responsibility for such compliance shall remain with the Fund's
investment adviser or investment manager.

D. Mail quarterly requests for "Securities Transaction Reports" to the
Fund's Directors and Officers and "access persons" under the terms of
the Fund's Code of Ethics and SEC regulations.

III. REGULATORY AFFAIRS AND CORPORATE GOVERNANCE

A. Prepare and file post-effective amendments to the Fund's registration
statement and supplements as needed.

B. Prepare and file proxy materials and administer shareholder meetings.

C. Prepare and file all state registrations of the Fund's securities
including annual renewals; registering new funds, portfolios, or
classes; preparing and filing sales reports; filing copies of the
registration statement, prospectus and statement of additional
information; and increasing registered amounts of securities in
individual states.

D. Prepare Board materials for Board meetings.

B-2
<PAGE>

E. Prepare and file with the SEC Rule 24f-2 Notices (and similar state
filings, if required by the states). Chase shall not be responsible for
preparing any legal opinions required in connection with Rule 24f-2
Notices.

F. Assist with the review and monitoring of fidelity bond and errors and
omissions insurance coverage and the submission of any related
regulatory filings.

G. Prepare and update documents such as charter document, by-laws, and
foreign qualification filings.

H. Provide support with respect to routine regulatory examinations or
investigations of the Fund.

I. File copies of financial reports to shareholders with the SEC under
Rule 30b2-1.

IV. GENERAL ADMINISTRATION

A. Furnish certain officers of the Fund, subject to reasonable Board
approval.

B. Prepare fund, portfolio or class expense projections, establish
accruals and review on a periodic basis, including expenses based on a
percentage of average daily net assets (advisory and administrative
fees) and expenses based on actual charges annualized and accrued
daily (audit fees, registration fees, directors' fees, etc.).

C. For new funds, portfolios and classes, obtain Employer or Taxpayer
Identification Number and CUSIP numbers, as necessary. Estimate
organizational costs and expenses and monitor against actual
disbursements.

D. Coordinate all communications and data collection with regard to any
regulatory examinations and yearly audits by independent accountants.

B-3
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

SCHEDULE C
DESCRIPTION OF FUND ACCOUNTING SERVICES

I. GENERAL DESCRIPTION

Chase shall provide the following accounting services to the Fund:

A. Maintenance of the books and records for the Fund's assets, including
records of all securities transactions.

B. Calculation of each funds', portfolios' or classes' Net Asset Value in
accordance with the Prospectus and Statement of Additional
Information, and after the fund, portfolio or class meets eligibility
requirements, transmission to NASDAQ and to such other entities,
including insurance companies which have entered into a Participation
Agreement with the Fund with respect to one or more portfolio(s), as
directed by the Fund.

C. Accounting for dividends and interest received and distributions made
by the Fund.

D. Coordinate with the Fund's independent auditors with respect to the
annual audit, and as otherwise requested by the Fund.

E. Production of transaction data, financial reports and such other
periodic and special reports that the Board may reasonably request.

F. Reconcile records with the Fund's custodian and depository banks.

II. DOMESTIC FUND ACCOUNTING DAILY REPORTS

Chase will supply MSAM with the following reports on a daily basis:

A. General Ledger Reports

1. Trial Balance Report
2. General Ledger Activity Report

B. Portfolio Reports

1. Portfolio Report

C-1
<PAGE>

2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report

C. Pricing Reports

1. Pricing Report
2. Pricing Report by Market Value
3. Pricing Variance by Percentage Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report

D. Accounts Receivable/Payable Reports

1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report

E. Other Reports

1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal

III. INTERNATIONAL FUND ACCOUNTING DAILY REPORTS

Chase will supply MSAM with the following reports on a daily basis:

A. General Ledger

1. Trial Balance Report
2. General Ledger Activity Report

B. Portfolio Reports

1. Portfolio Report by Sector
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal

C-2
<PAGE>

C. Currency Reports

1. Currency Purchase/Sales Journal
2. Currency Valuation Report

D. Pricing Reports

1. Pricing Report by Country
2. Pricing Report by Market Value
3. Price Variance by Percentage Change
4. NAV Report
5. NAV Proof Report

E. Accounts Receivable/Payable Reports

1. Accounts Receivable for Investments Sold/Matured
2. Accounts Payable for Investments Purchased
3. Accounts Receivable for Forward Exchange Contracts
4. Accounts Payable for Forward Exchange Contracts
5. Interest Receivable Valuation
6. Interest Recoverable Withholding Tax
7. Dividends Receivable Valuation
8. Dividends Recoverable Withholding Tax

F. Other Reports

1. Exchange Rate Report

IV. MONTHLY FUND ACCOUNTING REPORTS

Chase will provide MSAM with the following reports on a monthly basis.

A. Standard Reports

1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Fund Performance Report

C-3
<PAGE>

10. SEC Yield Calculation Worksheet

B. International Reports

1. Forward Contract Transaction History Report
2. Currency Gain/Loss Report

C-4
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

SCHEDULE D
DESCRIPTION OF TRANSFER AGENCY SERVICES

The following is a general description of the transfer agency services
Chase shall provide to the Fund.

A. SHAREHOLDER RECORDKEEPING. Maintain records showing for each Fund
shareholder the following: (i) name, address, appropriate tax
certification and tax identifying number; (ii) number of shares of
each fund, portfolio or class; (iii) historical information including,
but not limited to, dividends paid, date and price of all transactions
including individual purchases and redemptions, based upon appropriate
supporting documents; and (iv) any dividend reinvestment order,
application, specific address, payment and processing instructions and
correspondence relating to the current maintenance of the account.

B. SHAREHOLDER ISSUANCE. Record the issuance of shares of each fund,
portfolio or class. Except as specifically agreed in writing between
Chase and the Fund, Chase shall have no obligation when countersigning
and issuing and/or crediting shares to take cognizance of any other
laws relating to the issue and sale of such shares except insofar as
policies and procedures of the Stock Transfer Association recognize
such laws.

C. TRANSFER, PURCHASE AND REDEMPTION ORDERS. Process all orders for the
transfer, purchase and redemption of shares of the Fund in accordance
with the Fund's current registration statement and customary transfer
agency policies and procedures, including electronic transmissions
which the Fund acknowledges it has authorized in accordance with the
terms of any Participation Agreement between the Fund and an insurance
company, or in accordance with any instructions of the Fund or its
agents which Chase reasonably believes to be authorized.

D. SHAREHOLDER COMMUNICATIONS. Transmit all communications by the Fund
to its shareholders promptly following the delivery by the Fund of the
material to be transmitted by mail, telephone, courier service or
electronically.

E. PROXY MATERIALS. Assist with the mailing or transmission of proxy
materials, tabulating votes, and compiling and certifying voting
results. Services may include the provision of inspectors of election
at any meeting of shareholders.

F. SHARE CERTIFICATES. If permitted by Fund policies, and if a
shareholder of the Fund requests a certificate representing shares,
Chase as Transfer Agent, will

D-1
<PAGE>

countersign and mail a share certificate to the investor at his/her
address as it appears on the Fund's shareholder records.

G. RETURNED CHECKS. In the event that any check or other negotiable
instrument for the payment of shares is returned unpaid for any
reason, Chase will take such steps as Chase may, in its discretion,
deem appropriate and notify the Fund of such action. However, the
Fund remains ultimately liable for any returned checks or negotiable
instruments of its shareholders.

H. SHAREHOLDER CORRESPONDENCE. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such other
shareholder correspondence as may from time to time be mutually agreed
upon.

I. TAX REPORTING. Chase shall issue appropriate shareholder tax forms as
required.

J. DIVIDEND DISBURSING. Chase will prepare and mail checks, place wire
transfers or credit income and capital gain payments to shareholders.
The Fund will advise Chase of the declaration of any dividend or
distribution and the record and payable date thereof at least five (5)
days prior to the record date. Chase will, on or before the payment
date of any such dividend or distribution, notify the Fund's Custodian
of the estimated amount required to pay any portion of such dividend
or distribution payable in cash, and on or before the payment date of
such distribution, the Fund will instruct its Custodian to make
available to Chase sufficient funds for the cash amount to be paid
out. If a shareholder is entitled to receive additional shares by
virtue of any such distribution or dividend, appropriate credits will
be made to each shareholder's account.

K. ESCHEATMENT. Chase shall provide escheatment services only with
respect to the escheatment laws of the Commonwealth of Massachusetts,
including those which relate to reciprocal agreements with other
states.

L. TELEPHONE SERVICES. Chase will provide staff coverage, training and
supervision in connection with the Fund's telephone line for
shareholder inquiries, and will respond to inquiries concerning
shareholder records, transactions processed by Chase, procedures to
effect the shareholder records and inquiries of a general nature
relative to shareholder services. All other telephone calls will be
referred to the Fund, as appropriate.

M. FULFILLMENT SERVICES. As directed by the Fund, MSAM or the Fund's
distributor, or upon the request of prospective shareholders either by
telephone or in writing, Chase will mail reasonable quantities of
prospectuses, applications to purchase shares, and other information
normally sent to prospective shareholders.

D-2
<PAGE>

MUTUAL FUNDS SUB-ADMINISTRATION AGREEMENT

SCHEDULE E
MSAM PORTFOLIOS

1. Money Market

2. Growth

3. U.S. Real Estate

4. Emerging Markets Debt

5. Global Equity

6. International Magnum

7. Emerging Markets Equity

8. Asian Equity

E-1

<PAGE>

<ARTICLE> 6
<CIK> 0001011378
<NAME> MORGAN STANLEY UNIVERSAL FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> EMERGING MARKETS EQUITY PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 43,307
<INVESTMENTS-AT-VALUE> 35,745
<RECEIVABLES> 620
<ASSETS-OTHER> 68
<OTHER-ITEMS-ASSETS> 506
<TOTAL-ASSETS> 36,939
<PAYABLE-FOR-SECURITIES> 399
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 581
<TOTAL-LIABILITIES> 980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,235
<SHARES-COMMON-STOCK> 4,506
<SHARES-COMMON-PRIOR> 3,610
<ACCUMULATED-NII-CURRENT> 243
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,957)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,562)
<NET-ASSETS> 35,959
<DIVIDEND-INCOME> 397
<INTEREST-INCOME> 188
<OTHER-INCOME> 0
<EXPENSES-NET> (356)
<NET-INVESTMENT-INCOME> 229
<REALIZED-GAINS-CURRENT> (3,032)
<APPREC-INCREASE-CURRENT> (3,726)
<NET-CHANGE-FROM-OPS> (6,529)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,852
<NUMBER-OF-SHARES-REDEEMED> (8,462)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,861
<ACCUMULATED-NII-PRIOR> 14
<ACCUMULATED-GAINS-PRIOR> (925)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 237
<INTEREST-EXPENSE> 13
<GROSS-EXPENSE> 615
<AVERAGE-NET-ASSETS> 38,296
<PER-SHARE-NAV-BEGIN> 9.45
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (1.52)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.98
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<CIK> 0001011378
<NAME> MORGAN STANLEY UNIVERSAL FUNDS, INC.
<SERIES>
<NUMBER> 02
<NAME> FIXED INCOME PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 35,526
<INVESTMENTS-AT-VALUE> 35,607
<RECEIVABLES> 2,367
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5
<TOTAL-ASSETS> 37,979
<PAYABLE-FOR-SECURITIES> 10,643
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55
<TOTAL-LIABILITIES> 10,698
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,394
<SHARES-COMMON-STOCK> 2,531
<SHARES-COMMON-PRIOR> 1,225
<ACCUMULATED-NII-CURRENT> 584
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 233
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70
<NET-ASSETS> 27,281
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 657
<OTHER-INCOME> 0
<EXPENSES-NET> (75)
<NET-INVESTMENT-INCOME> 582
<REALIZED-GAINS-CURRENT> 155
<APPREC-INCREASE-CURRENT> (80)
<NET-CHANGE-FROM-OPS> 657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,254
<NUMBER-OF-SHARES-REDEEMED> (390)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,521
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 78
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 114
<AVERAGE-NET-ASSETS> 21,370
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0
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<PAGE>

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<PAGE>

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<PAGE>

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<INTEREST-EXPENSE> 5
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<PER-SHARE-NAV-BEGIN> 9.67
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> (0.81)
<PER-SHARE-DIVIDEND> 0
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<PER-SHARE-NAV-END> 9.30
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>