WITTER DEAN EUROPEAN GROWTH FUND INC
497, 1994-12-23
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<PAGE>
              PROSPECTUS
DECEMBER 22, 1994

              Dean Witter European Growth Fund Inc. (the "Fund") is an open-end,
diversified management investment company whose investment objective is to
maximize the capital appreciation of its investments. The Fund seeks to achieve
this objective by investing primarily in securities issued by issuers located in
Europe.

               Shares of the Fund are continuously offered at net asset value
without the imposition of a sales charge. However, redemptions and/or
repurchases of shares are subject in most cases to a contingent deferred sales
charge, scaled down from 5% to 1% of the amount redeemed, if made within six
years of purchase, which charge will be paid to the Fund's Distributor, Dean
Witter Distributors Inc. (See "Redemptions and Repurchases--Contingent Deferred
Sales Charge.") In addition, the Fund pays the Distributor a Rule 12b-1
distribution fee pursuant to a Plan of Distribution at the annual rate of 1.0%
of the lesser of the (i) average daily aggregate net sales or (ii) average daily
net assets of the Fund. (See "Purchase of Fund Shares--Plan of Distribution.")

               This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated December 22, 1994, which has been filed with
the Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.

     DEAN WITTER DISTRIBUTORS INC.
      DISTRIBUTOR
      TABLE OF CONTENTS

   
Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
The Fund and its Management/5
Investment Objective and Policies/5
 Risk Considerations/7
Investment Restrictions/14
Purchase of Fund Shares/15
Shareholder Services/17
Redemptions and Repurchases/20
Dividends, Distributions and Taxes/22
Performance Information/23
Additional Information/23
    

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

     Dean Witter European
     Growth Fund Inc.
     Two World Trade Center
     New York, New York 10048
     (212) 392-2550 or
     (800) 526-3143
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                 <C>
The                 The Fund is an open-end, diversified management investment company investing primarily in securities issued by
Fund                issuers located in Europe.
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Offered      Shares of common stock with $.01 par value (see page 23).
- ------------------------------------------------------------------------------------------------------------------------------------
Offering Price      At net asset value without sales charge (see page 15). Shares redeemed within six years of purchase are subject
                    to a contingent deferred sales charge under most circumstances (see page 20).
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum             Minimum initial investment, $1,000; minimum subsequent investments, $100 (see page 15).
Purchase
- ------------------------------------------------------------------------------------------------------------------------------------
Investment          The investment objective of the Fund is to maximize the capital appreciation of its investments (see page 5).
Objective
- ------------------------------------------------------------------------------------------------------------------------------------
Investment          Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary, Dean Witter
Manager and         Services Company Inc., serve in various investment management, advisory, management and administrative
Sub-Advisor         capacities to ninety investment companies and other portfolios with net assets under management of approximately
                    $69.5 billion at October 31, 1994. Morgan Grenfell Investment Services Ltd. has been retained by the Investment
                    Manager as Sub-Advisor to provide investment advice and manage the Fund's portfolio. Morgan Grenfell Investment
                    Services Ltd. currently serves as investment advisor for U.S. corporate and public employee benefit plans,
                    investment companies, endowments and foundations with assets of approximately $9.4 billion at September 30, 1994
                    (see page 5).
- ------------------------------------------------------------------------------------------------------------------------------------
Management          The Investment Manager receives a monthly fee from the Fund at the annual rate of 1.0% of daily net assets on
Fee                 assets not exceeding $500 million; and 0.95% of the daily net assets on assets exceeding $500 million. The
                    Sub-Advisor receives a monthly fee from the Investment Manager equal to 40% of the Investment Manager's monthly
                    fee (see page 5). Although the management fee is higher than that paid by most other investment companies, the
                    fee reflects the specialized nature of the Fund's investment policies.
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and       Dividends from net investment income and distributions from net capital gains are paid at least once each year.
Distributions       Dividends and capital gains distributions are automatically reinvested in additional shares at net asset value
                    unless the shareholder elects to receive cash (see pages 17 and 22).
- ------------------------------------------------------------------------------------------------------------------------------------
Distributor         Dean Witter Distributors Inc. (the "Distributor"), for its services as Distributor, which include payment of
                    sales commissions to account executives and various other promotional and sales related expenses, the
                    Distributor receives from the Fund a distribution fee accrued daily and payable monthly at the rate of 1% per
                    annum of the lesser of (i) the Fund's average daily aggregate net sales or (ii) the Fund's average daily net
                    assets. This fee compensates the Distributor for services provided in distributing shares of the Fund and for
                    sales related expenses. The Distributor also receives the proceeds of any contingent deferred sales charges (see
                    pages 16-17).
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption--        At net asset value; redeemable involuntarily if total value of the account is less than $100. Although no
Contingent          commission or sales load is imposed upon the purchase of shares, a contingent deferred sales charge (scaled down
Deferred Sales      from 5% to 1%) is imposed on any redemption of shares if after such redemption the aggregate current value of an
Charge              account with the Fund falls below the aggregate amount of the investor's purchase payments made during the six
                    years preceding the redemption. However, there is no charge imposed on redemption of shares purchased through
                    reinvestment of dividends or distributions (see pages 20-22).
- ------------------------------------------------------------------------------------------------------------------------------------
Risk                The net asset value of the Fund's shares will fluctuate with changes in the market value of its portfolio
Considerations      securities. It should be recognized that the foreign securities and markets in which the Fund invests pose
                    different and greater risks than those customarily associated with domestic securities and their markets.
                    Furthermore, investors should consider other risks associated with a portfolio of international securities,
                    including fluctuations in foreign currency exchange rates (i.e., if a substantial portion of the Fund's assets
                    are denominated in foreign currencies which decrease in value with respect to the U.S. dollar, the value of the
                    investor's shares and the distributions made on those shares will, likewise, decrease in value), foreign
                    securities exchange controls and foreign tax rates, as well as investments in forward currency contracts,
                    options and futures contracts, repurchase agreements, when-issued and delayed delivery securities and forward
                    commitments, when, as and if issued securities and lending of portfolio securities (see pages 7-13). The
                    investor should also note that the Fund intends to invest over 25% of its total assets in securities of issuers
                    located in the United Kingdom.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
    

  THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
                                   ELSEWHERE
       IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.

                                       2
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

    The  following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The  expenses and fees set forth  in the table are for  the
fiscal year ended October 31, 1994.

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------
<S>                                                                                      <C>
Maximum Sales Charge Imposed on Purchases..............................................  none
Maximum Sales Charge Imposed on Reinvested Dividends...................................  none
Deferred Sales Charge
  (as a percentage of the lesser of original purchase price or redemption proceeds)....  5.0%
      A contingent deferred sales charge is imposed at the following declining rates:
</TABLE>

<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT MADE                                                                                   PERCENTAGE
- --------------------------------------------------------------------------------------------  -------------
<S>                                                                                           <C>
First.......................................................................................          5.0%
Second......................................................................................          4.0%
Third.......................................................................................          3.0%
Fourth......................................................................................          2.0%
Fifth.......................................................................................          2.0%
Sixth.......................................................................................          1.0%
Seventh and thereafter......................................................................      none
</TABLE>

<TABLE>
<S>                                                                                      <C>
Redemption Fees........................................................................       none
Exchange Fee...........................................................................       none
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------------------------------------------------------
Management Fees........................................................................       0.99%
12b-1 Fees*............................................................................       0.95%
Other Expenses.........................................................................       0.33%
Total Fund Operating Expenses..........................................................       2.27%
<FN>
- ------------
*  A PORTION OF  THE 12B-1 FEE  EQUAL TO 0.25%  OF THE FUND'S  AVERAGE DAILY NET
  ASSETS IS  CHARACTERIZED AS  A  SERVICE FEE  WITHIN  THE MEANING  OF  NATIONAL
  ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES.
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE                                                                   1 year       3 years      5 years     10 years
- ----------------------------------------------------------------------  -----------  -----------  -----------  -----------
<S>                                                                     <C>          <C>          <C>          <C>
You  would pay the following expenses on a $1,000 investment, assuming
 (1) 5%  annual return  and (2)  redemption at  the end  of each  time
 period:..............................................................   $      73    $     101    $     141    $     260
You  would pay the following expenses on the same investment, assuming
 no redemption:.......................................................   $      23    $      71    $     121    $     260
</TABLE>

    THE ABOVE  EXAMPLE SHOULD  NOT BE  CONSIDERED A  REPRESENTATION OF  PAST  OR
FUTURE  EXPENSES OR PERFORMANCE. ACTUAL  EXPENSES OF THE FUND  MAY BE GREATER OR
LESS THAN THOSE SHOWN.

    The purpose of  this table is  to assist the  investor in understanding  the
various  costs and expenses that  an investor in the  Fund will bear directly or
indirectly. For a  more complete description  of these costs  and expenses,  see
"The  Fund  and its  Management," "Plan  of  Distribution" and  "Redemptions and
Repurchases."

    Long-term shareholders  of  the Fund  may  pay  more in  sales  charges  and
distribution  fees than the  economic equivalent of  the maximum front-end sales
charges permitted by the NASD.

                                       3
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

    The  following  data and  ratios for  a share  of capital  stock outstanding
throughout each period have  been audited by  Price Waterhouse LLP,  independent
accountants.  This  data  should  be  read  in  conjunction  with  the financial
statements, notes thereto, and the unqualified report of independent accountants
which  are  contained  in  the  Statement  of  Additional  Information.  Further
information  about the performance of the Fund is contained in the Fund's Annual
Report to Shareholders, which may be obtained without charge upon request of the
Fund.

<TABLE>
<CAPTION>
                                                                                                                 FOR THE PERIOD
                                                              FOR THE YEAR ENDED OCTOBER 31,                      MAY 31, 1990*
                                                  ------------------------------------------------------             THROUGH
                                                    1994           1993           1992           1991           OCTOBER 31, 1990
                                                  ---------      ---------      ---------      ---------      ---------------------
<S>                                               <C>            <C>            <C>            <C>            <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.........      $11.86          $8.57          $9.22          $9.23                  $10.00
                                                  ---------      ---------      ---------      ---------            ----------
Net investment income (loss).................        0.02          (0.01)          0.01           0.05                    0.05
Net realized and unrealized gain (loss) on
  investments................................        1.84           3.30          (0.23)          0.07                   (0.82)
                                                  ---------      ---------      ---------      ---------            ----------
Total from investment operations.............        1.86           3.29          (0.22)          0.12                   (0.77)
                                                  ---------      ---------      ---------      ---------            ----------
Less dividends and distributions from:
  Net investment income......................       --             --             (0.03)         (0.07)              --
  Net realized capital gains.................       (0.23)         --             (0.40)         (0.06)              --
                                                  ---------      ---------      ---------      ---------            ----------
Total dividends and distributions............       (0.23)         --             (0.43)         (0.13)              --
                                                  ---------      ---------      ---------      ---------            ----------
Net asset value, end of period...............      $13.49         $11.86          $8.57          $9.22                   $9.23
                                                  ---------      ---------      ---------      ---------            ----------
                                                  ---------      ---------      ---------      ---------            ----------
TOTAL INVESTMENT RETURN +....................       15.61%         38.74%         (2.39)%         1.33%                  (7.70)%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).....     $758,502       $459,201       $296,548       $315,944       $        303,872
Ratios to average net assets:
  Expenses...................................        2.27%          2.38%          2.40%          2.44%                   2.45%(2)
  Net investment income (loss)...............        0.21%         (0.09)%         0.11%          0.51%                   1.52%(2)
Portfolio turnover rate......................          72%           120%           116%           111%                     36%(1)
<FN>
- ---------------
 *  COMMENCEMENT OF OPERATIONS.
 +  DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
(1)  NOT ANNUALIZED.
(2)  ANNUALIZED.
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       4
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------

    Dean  Witter  European  Growth  Fund  Inc.  (the  "Fund")  is  an  open-end,
diversified  management investment company incorporated in the state of Maryland
on February 13, 1990.

    Dean Witter InterCapital Inc. ("InterCapital" or the "Investment  Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment  Manager.  The Investment  Manager, which  was incorporated  in July,
1992, is a wholly-owned  subsidiary of Dean Witter,  Discover & Co. ("DWDC"),  a
balanced  financial services organization providing  a broad range of nationally
marketed credit and investment products.

    InterCapital and its wholly-owned  subsidiary, Dean Witter Services  Company
Inc.,   serve  in  various  investment   management,  advisory,  management  and
administrative capacities to ninety other investment companies (the "Dean Witter
Funds"), thirty  of  which are  listed  on the  New  York Stock  Exchange,  with
combined  assets  of approximately  $67.5 billion  as of  October 31,  1994. The
Investment Manager also manages and  advises portfolios of pension plans,  other
institutions and individuals which aggregated approximately $2.0 billion at such
date.

    The  Fund  has retained  the  Investment Manager  to  provide administrative
services, manage its business affairs and supervise the investment of the Fund's
assets. InterCapital has retained Dean  Witter Services Company Inc. to  perform
the aforementioned administrative services for the Fund.

    Under  a Sub-Advisory Agreement between  Morgan Grenfell Investment Services
Limited (the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides
the Fund with investment advice and portfolio management relating to the  Fund's
investments  in  securities issued  by issuers  located in  Europe and  in other
countries located elsewhere around the world, subject to the overall supervision
of the  Investment Manager.  The Fund's  Directors review  the various  services
provided by the Investment Manager and the Sub-Advisor to ensure that the Fund's
general investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory manner.

   
    The Sub-Advisor, whose address is 20 Finsbury Circus, London, England, as of
September  30,  1994,  manages assets  of  approximately $9.4  billion  for U.S.
corporate and public  employee benefit plans,  investment companies,  endowments
and  foundations. The Sub-Advisor is an indirect subsidiary of Deutsche Bank AG,
the largest commercial bank in Germany.
    

    As full compensation for the services  and facilities furnished to the  Fund
and  for expenses of the  Fund assumed by the  Investment Manager, the Fund pays
the Investment Manager  monthly compensation  calculated daily  by applying  the
annual  rate of 1.0% of the portion of the Fund's daily net assets not exceeding
$500 million;  and 0.95%  of the  portion  of daily  net assets  exceeding  $500
million.  As compensation for its services provided pursuant to the Sub-Advisory
Agreement, the  Investment Manager  pays  the Sub-Advisor  monthly  compensation
equal to 40% of its monthly compensation.

    For  the  fiscal  year  ended  October  31,  1994,  the  Fund  accrued total
compensation to the Investment Manager amounting to 0.99% of the Fund's  average
daily  net assets (of which 40% was accrued to the Sub-Advisor by the Investment
Manager) and the Fund's total expenses  amounted to 2.27% of the Fund's  average
daily net assets.

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

    The investment objective of the Fund is to maximize the capital appreciation
of  its investments. There is no assurance  that the objective will be achieved.
The following policies may be changed

                                       5
<PAGE>
by the Board of Directors without shareholder approval.

    The Fund seeks to achieve its investment objective by investing at least 65%
of its total assets in securities issued by issuers located in countries located
in Europe. Such issuers will include companies (i) which are organized under the
laws of a European country and have a principal office in a European country, or
(ii) which derive 50% or more of  their total revenues from business in  Europe,
or  (iii)  the equity  securities of  which  are traded  principally on  a stock
exchange in Europe.

    The principal countries in  which such issuers will  be located are  France;
the  United Kingdom;  Germany; the  Netherlands; Spain;  Sweden; Switzerland and
Italy. The Fund currently intends to invest more than 25% of its total assets in
the United Kingdom.  As such,  the investment performance  of the  Fund will  be
subject to social, political and economic events occurring in the United Kingdom
to a greater extent than those occurring in other European countries.

    The  securities  invested in  will  primarily consist  of  equity securities
issued by companies  based in European  countries, but may  also include  fixed-
income  securities issued or guaranteed  by European governments (including zero
coupon treasury  securities),  when  it  is deemed  that  such  investments  are
consistent with the Fund's investment objective. For example, there may be times
when  the Sub-Advisor  determines that the  prices of  government securities are
more likely to  appreciate than  those of  equity securities.  Such an  occasion
might  arise when inflation  concerns have led to  general increases in interest
rates. Such fixed-income  securities which  will be  purchased by  the Fund  are
likely to be obligations of the treasuries of one of the major European nations.
In  addition, the Fund  may invest in fixed-income  securities which are, either
alone or in combination with a warrant, option or other right, convertible  into
the  common  stock of  a European  issuer,  when the  Investment Manager  or the
Sub-Advisor determines that  such securities  are more likely  to appreciate  in
value  than the common stock  of such issuers or  when the Investment Manager or
Sub-Advisor wishes to  hedge the  risk inherent in  the direct  purchase of  the
equity of a given issuer. The Fund will select convertible securities of issuers
whose common stock has, in the opinion of the Investment Manager or Sub-Advisor,
a  superior  investment  potential.  The  Fund  may  also  purchase  equity  and
fixed-income securities which are issued  in private placements and warrants  or
other securities conveying the right to purchase common stock.

    The  remainder of the Fund's portfolio equalling, at times, up to 35% of the
Fund's total assets, may be invested in equity and/or government and convertible
securities issued by issuers located anywhere in the world, including the United
States, subject to the Fund's investment objective. In addition, this portion of
the Fund's portfolio will consist of various other financial instruments such as
forward foreign exchange contracts, futures contracts and options (see below).

    It is anticipated that the securities held by the Fund in its portfolio will
be denominated,  principally, in  liquid  European currencies.  Such  currencies
include  the  German mark,  French franc,  British  pound, Dutch  guilder, Swiss
franc, Swedish krona, Italian  lira, and Spanish peseta.  In addition, the  Fund
may  hold  securities  denominated in  the  European Currency  Unit  (a weighted
composite of the currencies of member  states of the European Monetary  System).
Securities  of issuers within a given country may be denominated in the currency
of a different country.

    The Fund may also  invest in securities  of foreign issuers  in the form  of
American  Depository  Receipts (ADRs),  European  Depository Receipts  (EDRs) or
other similar securities convertible into  securities of foreign issuers.  These
securities  may  not necessarily  be  denominated in  the  same currency  as the
securities into which they may be converted. ADRs are receipts typically  issued
by  a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are

                                       6
<PAGE>
European  receipts  evidencing  a  similar  arrangement.  Generally,  ADRs,   in
registered  form, are designed  for use in the  United States securities markets
and EDRs, in bearer form, are designed for use in European securities markets.

    There may be  periods during  which market conditions  warrant reduction  of
some or all of the Fund's securities holdings. During such periods, the Fund may
adopt  a temporary  "defensive" posture  in which  greater than  35% of  its net
assets  are  invested  in   cash  or  money   market  instruments.  Under   such
circumstances,  the money  market instruments in  which the Fund  may invest are
securities  issued  or  guaranteed  by   the  U.S.  Government;  American   bank
obligations; Eurodollar certificates of deposit; obligations of American savings
institutions;  fully insured  certificates of  deposit; and  commercial paper of
American issuers rated within the  two highest grades by  Moody's or S&P or,  if
not  rated, issued by a company having  an outstanding debt issue rated at least
AA by S&P or Aa by Moody's.

RISK CONSIDERATIONS

    FOREIGN SECURITIES.    Investors  should carefully  consider  the  risks  of
investing  in  securities  of  foreign  issuers  and  securities  denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between  the
currencies of different nations will affect the value of the Fund's investments.
Changes  in foreign  currency exchange  rates relative  to the  U.S. dollar will
affect the U.S. dollar  vaue of the Fund's  assets denominated in that  currency
and thereby impact upon the Fund's total return on such assets.

    Foreign  currency  exchange rates  are determined  by  forces of  supply and
demand on the foreign exchange markets. These forces are themselves affected  by
the   international  balance  of  payments  and  other  economic  and  financial
conditions, government intervention,  speculation and  other factors.  Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges  on which the  currencies trade. The  foreign currency transactions of
the Fund will  be conducted  on a  spot basis  or through  forward contracts  or
futures  contracts (see below).  The Fund may incur  certain costs in connection
with these currency transactions.

    Investments in  foreign  securities will  also  occasion risks  relating  to
political  and  economic  developments  abroad,  including  the  possibility  of
expropriations or confiscatory taxation, limitations  on the use or transfer  of
Fund   assets  and  any  effects  of   foreign  social,  economic  or  political
instability. Political and economic developments  in Europe, especially as  they
relate  to changes in the  structure of the European  Economic Community and the
anticipated development of a  unified common market,  may have profound  effects
upon the value of a large segment of the Fund's portfolio. Continued progress in
the  evolution of, for example, a united European common market may be slowed by
unanticipated political or  social events and  may, therefore, adversely  affect
the  value of certain  of the securities  held in the  Fund's portfolio. Foreign
companies are not subject to the regulatory requirements of U.S. companies  and,
as  such, there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting, auditing  and
financial reporting standards and requirements comparable to those applicable to
U.S. companies.

    Securities  of foreign issuers may be less liquid than comparable securities
of U.S.  issuers  and,  as such,  their  price  changes may  be  more  volatile.
Furthermore,  foreign exchanges and broker-dealers are generally subject to less
government  and   exchange  scrutiny   and   regulation  than   their   American
counterparts.  Brokerage commissions,  dealer concessions  and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund  trades effected in  such markets. Inability  to dispose  of
portfolio securities due to settlement delays could result in losses to the Fund
due  to subsequent declines in value of such securities and the inability of the
Fund to make

                                       7
<PAGE>
intended security purchases due to settlement problems could result in a failure
of the Fund to make potentially advantageous investments.
                                  ------------
    To hedge  against adverse  price movements  in the  securities held  in  its
portfolio  and the currencies in  which they are denominated  (as well as in the
securities it might wish to purchase and their denominated currencies) the  Fund
may  engage in  transactions in forward  foreign currency  contracts, options on
securities  and  currencies,  and  futures  contracts  and  options  on  futures
contracts  on securities,  currencies and  indexes. The  Fund may  also purchase
options  on  securities  to  facilitate  its  participation  in  the   potential
appreciation  of the value  of the underlying securities.  A discussion of these
transactions follows and is supplemented by further disclosure in the  Statement
of Additional Information.

    FORWARD  FOREIGN  CURRENCY EXCHANGE  CONTRACTS.  A forward  foreign currency
exchange contract ("forward  contract") involves  an obligation  to purchase  or
sell a 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.  The Fund  may enter  into forward  contracts as  a hedge  against
fluctuations in future foreign exchange rates.

    The Fund will enter into forward contracts under various circumstances. When
the  Fund  enters  into  a contract  for  the  purchase or  sale  of  a security
denominated in a foreign currency, it may, for example, desire to "lock in"  the
price  of the security in U.S. dollars  or some other foreign currency which the
Fund is  temporarily  holding in  its  portfolio.  By entering  into  a  forward
contract  for  the purchase  or sale,  for a  fixed amount  of dollars  or other
currency, of the amount of foreign currency involved in the underlying  security
transactions,  the Fund will be  able to protect itself  against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar  or
other  currency which is  being used for  the security purchase  and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.

    At other times, when,  for example, it  is believed that  the currency of  a
particular  foreign country  may suffer a  substantial decline  against the U.S.
dollar or  some  other foreign  currency,  the Fund  may  enter into  a  forward
contract to sell, for a fixed amount of dollars or other currency, the amount of
foreign  currency approximating the value of some or all of the Fund's portfolio
securities (or  securities  which the  Fund  has purchased  for  its  portfolio)
denominated  in such foreign  currency. Under identical  circumstances, the Fund
may enter into a forward contract to sell, for a fixed amount of U.S. dollars or
other currency, an amount of foreign  currency other than the currency in  which
the  securities to be hedged are denominated  approximating the value of some or
all of the  portfolio securities to  be hedged. This  method of hedging,  called
"cross-hedging,"  will  be  selected  when it  is  determined  that  the foreign
currency in  which the  portfolio securities  are denominated  has  insufficient
liquidity  or  is trading  at a  discount  as compared  with some  other foreign
currency with which it tends to move in tandem.

    In addition, when the Fund anticipates purchasing securities at some time in
the future, and wishes to lock in  the current exchange rate of the currency  in
which  those securities  are denominated against  the U.S. dollar  or some other
foreign currency, it may enter into a forward contract to purchase an amount  of
currency  equal to some or  all of the value of  the anticipated purchase, for a
fixed amount of U.S. dollars or other currency.

    Lastly, the Fund is permitted to  enter into forward contracts with  respect
to  currencies in which certain of  its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").

    In all  of the  above circumstances,  if the  currency in  which the  Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in  value with respect to the currency  which is being purchased (or sold), then
the Fund will have

                                       8
<PAGE>
realized fewer gains than had the  Fund not entered into the forward  contracts.
Moreover,  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  such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The Fund is not required to enter  into
such transactions with regard to its foreign currency-denominated securities and
will  not  do so  unless  deemed appropriate  by  the Investment  Manager and/or
Sub-Advisor. The Fund generally  will not enter into  a forward contract with  a
term  of greater than one year, although it may enter into forward contracts for
periods of up to  five years. The Fund  may be limited in  its ability to  enter
into  hedging transactions involving  forward contracts by  the Internal Revenue
Code of 1986 (the "Code") requirements relating to qualifications as a regulated
investment company (see "Dividends, Distributions and Taxes").

    OPTIONS AND FUTURES  TRANSACTIONS.  Call  and put options  on U.S.  Treasury
notes,  bonds and bills, on various  foreign currencies and on equity securities
are listed on several U.S. and  foreign securities exchanges and are written  in
over-the-counter  transactions  ("OTC Options").  Listed  options are  issued or
guaranteed by the exchange on which they trade or by a clearing corporation such
as the Options Clearing Corporation ("OCC").  Ownership of a listed call  option
gives  the Fund the  right to buy from  the OCC (in the  U.S.) or other clearing
corporation or  exchange, the  underlying security  or currency  covered by  the
option  at  the stated  exercise price  (the  price per  unit of  the underlying
security or currency) by filing an exercise notice prior to the expiration  date
of  the option. The writer (seller) of the option would then have the obligation
to sell, to the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency at that  exercise price prior to the  expiration
date  of the option, regardless of its then current market price. Ownership of a
listed put option would give the Fund the right to sell the underlying  security
or  currency to the OCC (in the  U.S.) or other clearing corporation or exchange
at the stated exercise  price. Upon notice  of exercise of  the put option,  the
writer  of  the option  would  have the  obligation  to purchase  the underlying
security or currency from the OCC (in the U.S.) or other clearing corporation or
exchange at the exercise price.

    OTC OPTIONS.  Exchange-listed options are issued by the OCC (in the U.S.) or
other clearing corporation or  exchange which assures  that all transactions  in
such  options  are properly  executed. OTC  options are  purchased from  or sold
(written) to dealers or  financial institutions which  have entered into  direct
agreements  with the Fund. With OTC  options, such variables as expiration date,
exercise price  and  premium  will be  agreed  upon  between the  Fund  and  the
transacting dealer, without the intermediation of a third party such as the OCC.
If  the transacting dealer fails  to make or take  delivery of the securities or
amount of foreign currency  underlying an option it  has written, in  accordance
with  the terms  of that option,  the Fund would  lose the premium  paid for the
option as well  as any  anticipated benefit of  the transaction.  The Fund  will
engage  in OTC option transactions only with member banks of the Federal Reserve
System or primary dealers  in U.S. Government securities  or with affiliates  of
such  banks  or dealers  which have  capital of  at least  $50 million  or whose
obligations are guaranteed by an entity having capital of at least $50 million.

    COVERED CALL WRITING.  The Fund  is permitted to write covered call  options
on  portfolio securities which are denominated in either U.S. dollars or foreign
currencies and on  the U.S.  dollar and  foreign currencies,  without limit,  in
order to hedge against the decline in the value of a security or currency and to
close  out long call option positions. Generally,  a call option is "covered" if
the Fund owns the security or the currency underlying the option it has written,
holds a call option on the same  underlying security or currency with a  similar
exercise  price or  maintains a sufficient  amount of cash,  cash equivalents or
liquid securities to purchase the underlying

                                       9
<PAGE>
security or to  exchange for  the underlying  currency. As  a writer  of a  call
option,  the Fund has the obligation, upon  notice of exercise of the option, to
deliver the security or amount of currency underlying the option (certain listed
and OTC call options written  by the Fund will  be exercisable by the  purchaser
only on a specific date).

    The  Fund  will receive  from the  purchaser, in  return for  a call  it has
written, a "premium"; i.e., the price  of the option. The premium received  will
offset  a portion of the  potential loss incurred by  the Fund if the securities
underlying the option are ultimately sold by the Fund at a loss. Furthermore,  a
premium  received on a  call written on  a foreign currency  will ameliorate any
potential loss of value on the portfolio security due to a decline in the  value
of the currency. However, during the option period, the covered call writer has,
in  return for the premium  on the option, given  up the opportunity for capital
appreciation above the exercise price should the market price of the  underlying
security  (or the  exchange rate  of the  currency in  which it  is denominated)
increase, but has retained the risk of  loss should the price of the  underlying
security  (or the  exchange rate  of the  currency in  which it  is denominated)
decline. The size of premiums will fluctuate with varying market conditions.

    PURCHASING CALL AND PUT OPTIONS.  The Fund may purchase listed and OTC  call
and  put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing or, in the case
of call options on a foreign currency, to hedge against an adverse exchange rate
change of  the currency  in  which the  security  it anticipates  purchasing  is
denominated  vis-a-vis the currency in which  the exercise price is denominated.
The Fund may purchase put options on securities which it holds in its  portfolio
only  to protect itself against  a decline in the value  of the security. If the
value of the underlying security  were to fall below  the exercise price of  the
put  purchased in an  amount greater than  the premium paid  for the option, the
Fund would  incur no  additional  loss. Similarly,  the  Fund may  purchase  put
options on currencies in which securities which it holds are denominated only to
protect  itself  against  a decline  in  value  of such  currency  vis-a-vis the
currency in  which  the exercise  price  is denominated.  If  the value  of  the
currency  underlying the option were to fall below the exercise price of the put
purchased in an amount greater  than the premium paid  for the option, the  Fund
would  incur no additional loss. There are no other limits on the Fund's ability
to purchase call and put options.

    FUTURES CONTRACTS.  The  Fund may purchase and  sell futures contracts  that
are  currently  traded, or  may in  the future  be traded,  on U.S.  and foreign
commodity exchanges on common stocks, such underlying fixed-income securities as
U.S. Treasury bonds, notes, and bills and/or any foreign government fixed-income
security ("interest rate" futures),  on various currencies ("currency"  futures)
and on such indexes of U.S. or foreign equity and fixed-income securities as may
exist  or  come into  being, such  as the  Standard  & Poor's  500 Index  or the
Financial Times Equity Index ("index" futures). As a futures contract purchaser,
the Fund incurs  an obligation to  take delivery  of a specified  amount of  the
obligation  underlying the  contract at  a specified  time in  the future  for a
specified price.  As  a  seller  of  a futures  contract,  the  Fund  incurs  an
obligation  to deliver  the specified amount  of the underlying  obligation at a
specified time in return for an agreed upon price.

    The Fund  will purchase  or sell  interest rate  futures contracts  for  the
purpose  of hedging  some or all  of the  value of its  portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest  rates.
If  it is anticipated that interest rates may rise and, concomitantly, the price
of certain of its portfolio securities fall, the Fund may sell an interest  rate
futures  contract. If  declining interest  rates are  anticipated, the  Fund may
purchase an  interest  rate futures  contract  to protect  against  a  potential
increase  in the price of securities the Fund intends to purchase. Subsequently,
appropriate

                                       10
<PAGE>
securities may be purchased by the Fund in an orderly fashion; as securities are
purchased, corresponding  futures positions  would be  terminated by  offsetting
sales of contracts.

    The  Fund will purchase or  sell index futures contracts  for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) against  changes
in  their prices. If it is anticipated that the prices of securities held by the
Fund may fall, the Fund may sell  an index futures contract. Conversely, if  the
Fund  wishes to hedge against anticipated  price rises in those securities which
the Fund intends to purchase, the Fund may purchase an index futures contract.

    The Fund will purchase or sell  currency futures on currencies in which  its
portfolio  securities (or anticipated portfolio  securities) are denominated for
the purposes of hedging against anticipated changes in currency exchange  rates.
The  Fund will enter into currency futures contracts for the same reasons as set
forth above for  entering into  forward foreign currency  contracts; namely,  to
"lock-in"  the  value  of a  security  purchased  or sold  in  a  given currency
vis-a-vis a different currency or to hedge against an adverse currency  exchange
rate  movement of a  portfolio security's (or  anticipated portfolio security's)
denominated currency vis-a-vis a different currency.

    In addition to the above, interest rate, index and currency futures will  be
bought  or sold in order to close out a short or long position maintained by the
Fund in a corresponding futures contract.

    OPTIONS ON FUTURES CONTRACTS.  The Fund may purchase and write call and  put
options  on futures  contracts which  are traded on  an exchange  and enter into
closing transactions  with respect  to  such options  to terminate  an  existing
position.  An option  on a  futures contract gives  the purchaser  the right (in
return for the premium paid) to assume a position in a futures contract (a  long
position if the option is a call and a short position if the option is a put) at
a  specified exercise  price at  any time  during the  term of  the option. Upon
exercise of the option, the  delivery of the futures  position by the writer  of
the  option  to the  holder  of the  option is  accompanied  by delivery  of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the  case of a  call, or is  less than, in  the case of  a put,  the
exercise price of the option on the futures contract.

    The  Fund will purchase and write options on futures contracts for identical
purposes to  those  set forth  above  for the  purchase  of a  futures  contract
(purchase  of a call option)  and the sale of a  futures contract (purchase of a
put option or sale of a call option),  or to close out a long or short  position
in  futures contracts.  If, for example,  the Investment  Manager or Sub-Advisor
wished to  protect against  an  increase in  interest  rates and  the  resulting
negative  impact on  the value  of a portion  of its  fixed-income portfolio, it
might write a call option on  an interest rate futures contract, the  underlying
security  of which correlates  with the portion of  the portfolio the Investment
Manager seeks  to hedge.  Any premiums  received in  the writing  of options  on
futures  contracts  may,  of  course, provide  a  further  hedge  against losses
resulting from price declines in portions of the Fund's portfolio.

   
    LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS  ON FUTURES.  The Fund may  not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired  options on futures  contracts exceeds 5%  of the value  of the Fund's
total assets, after taking into  account unrealized gains and unrealized  losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more)  than  the  market price  of  the  underlying security)  at  the  time of
purchase, the  in-the-money  amount  may  be excluded  in  calculating  the  5%.
However,  there is no overall limitation on  the percentage of the Fund's assets
which  may   be   subject   to   a   hedge   position.   Except   as   described
    

                                       11
<PAGE>
above,  there are no other limitations on the use of futures and options thereon
by the Fund.

    RISKS OF  OPTIONS AND  FUTURES  TRANSACTIONS. The  Fund  may close  out  its
position  as writer of an option, or as a buyer or seller of a futures contract,
only if a  liquid secondary market  exists for options  or futures contracts  of
that  series. There is no assurance that  such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.

    Exchanges may limit the amount by which the price of many futures  contracts
may  move on  any day. If  the price moves  equal the daily  limit on successive
days, then it  may prove impossible  to liquidate a  futures position until  the
daily limit moves have ceased.

    The  extent to which the Fund  may enter into transactions involving options
and  futures  contracts  may   be  limited  by   the  Code's  requirements   for
qualification  as a  regulated investment  company and  the Fund's  intention to
qualify as such. See "Dividends, Distributions and Taxes."

    While the futures contracts and options transactions to be engaged in by the
Fund for  the  purpose  of  hedging the  Fund's  portfolio  securities  are  not
speculative  in nature, there are risks inherent in the use of such instruments.
One such  risk  is  that  the  Fund's  management  could  be  incorrect  in  its
expectations  as to the  direction or extent  of various interest  rate or price
movements or the time span within  which the movements take place. For  example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an  increase  in interest  rates,  and then  interest  rates went  down instead,
causing bond prices to rise, the Fund would lose money on the sale.

    Another risk  which may  arise  in employing  futures contracts  to  protect
against  the  price volatility  of portfolio  securities is  that the  prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash  prices of  the Fund's  portfolio securities  and their  denominated
currencies.  Another such risk is that prices of interest rate futures contracts
may not move  in tandem with  the changes in  prevailing interest rates  against
which  the Fund seeks a  hedge. A correlation may also  be distorted by the fact
that the futures  market is dominated  by short-term traders  seeking to  profit
from  the difference  between a contract  or security price  objective and their
cost of borrowed funds. Such distortions are generally minor and would  diminish
as the contract approached maturity.

    The  Fund,  by entering  into transactions  in  foreign futures  and options
markets, will  also incur  risks  similar to  those  discussed above  under  the
section entitled "Foreign Securities."

    Compared  to the purchase or sale of futures contracts, the purchase of call
or put options  on futures contracts  involves less potential  risk to the  Fund
because  the maximum amount  at risk is  the premium paid  for the options (plus
transaction costs). However,  there may be  circumstances when a  purchase of  a
call or put option on a futures contract would result in a loss to the Fund when
the  purchase or sale of a futures contract  would not result in a loss, such as
when there  is no  movement in  the  prices of  the underlying  securities.  The
writing  of a put or call option on a futures contract involves risks similar to
those relating to transactions in futures contracts, as are described above.

   
    REPURCHASE AGREEMENTS.  The Fund may enter into repurchase agreements, which
may be viewed  as a type  of secured lending  by the Fund,  and which  typically
involve  the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings  and loan association or broker-dealer.  The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a  fixed time in the future,  usually not more than seven  days from the date of
purchase. While repurchase agreements involve certain risks not associated  with
direct investments
    

                                       12
<PAGE>
in  debt securities, including the risks of default or bankruptcy of the selling
financial institution, the Fund follows procedures to minimize such risks. These
procedures  include   effecting  repurchase   transactions  only   with   large,
well-capitalized  and  well-established financial  institutions  and maintaining
adequate collateralization.

    WHEN-ISSUED AND DELAYED DELIVERY SECURITIES  AND FORWARD COMMITMENTS.   From
time  to  time,  in the  ordinary  course  of business,  the  Fund  may purchase
securities on a when-issued  or delayed delivery basis  or may purchase or  sell
securities on a forward commitment basis. When such transactions are negotiated,
the  price is fixed at the time of  the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the  percentage of  the Fund's  assets which  may be  committed to  the
purchase  of securities on a when-issued, delayed delivery or forward commitment
basis. An  increase in  the percentage  of the  Fund's assets  committed to  the
purchase  of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.

    WHEN, AS AND IF ISSUED  SECURITIES.  The Fund  may purchase securities on  a
"when,  as and if issued" basis under which the issuance of the security depends
upon the  occurrence  of a  subsequent  event, such  as  approval of  a  merger,
corporate  reorganization,  leveraged  buyout  or  debt  restructuring.  If  the
anticipated event does  not occur and  the securities are  not issued, the  Fund
will  have lost  an investment  opportunity. There  is no  overall limit  on the
percentage of  the Fund's  assets which  may  be committed  to the  purchase  of
securities on a "when, as and if issued" basis. An increase in the percentage of
the  Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.

    LENDING OF  PORTFOLIO SECURITIES.    Consistent with  applicable  regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other  financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement  of
Additional  Information),  and  are  at  all  times  secured  by  cash  or  cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least  equal to the market value, determined  daily,
of the loaned securities.

    Except  as  specifically  noted,  all  investment  objectives,  policies and
practices discussed above are not fundamental policies of the Fund and, as such,
may be changed without shareholder approval.

PORTFOLIO MANAGEMENT

    The Fund's portfolio is actively managed  by its Investment Manager and  the
Sub-Advisor  with  a  view  to achieving  the  Fund's  investment  objective. In
determining which securities  to purchase  for the Fund  or hold  in the  Fund's
portfolio,  the Investment Manager and the  Sub-Advisor will rely on information
from various sources, including research, analysis and appraisals of brokers and
dealers, the  views of  Directors  of the  Fund  and others  regarding  economic
developments  and  interest  rate  trends,  and  the  Investment  Manager's  and
Sub-Advisor's own analysis  of factors  they deem relevant.  The Fund's  primary
portfolio  manager  is Jeremy  G. Lodwick,  a Director  of the  Sub-Advisor. Mr.
Lodwick has been the  Fund's primary portfolio manager  since April 1, 1994  and
has  been managing portfolios consisting of equity securities issued by European
issuers for the Sub-Advisor since January, 1992; prior thereto, he was  employed
by the Sub-Advisor in another capacity.

    Personnel  of  the  Investment  Manager  and  Sub-Adviser  have  substantial
experience in the  use of the  investment techniques described  above under  the
heading  "Options  and Futures  Transactions,"  which techniques  require skills
different from  those  needed  to select  the  portfolio  securities  underlying
various options and futures contracts.

                                       13
<PAGE>
    Orders  for  transactions in  portfolio  securities and  commodities  may be
placed for  the  Fund with  a  number of  brokers  and dealers,  including  DWR.
Pursuant  to an order  of the Securities  and Exchange Commission,  the Fund may
effect principal  transactions in  certain money  market instruments  with  Dean
Witter  Reynolds  Inc.  ("DWR").  In  addition,  the  Fund  may  incur brokerage
commissions on transactions conducted through DWR.

    The portfolio trading  engaged in by  the Fund may  result in its  portfolio
turnover  rate exceeding 100%. The Fund is  expected to incur higher than normal
brokerage commission costs due to its portfolio turnover rate. Short-term  gains
and  losses  taxable at  ordinary income  rates may  result from  such portfolio
transactions. See "Dividends, Distributions and Taxes" for a full discussion  of
the  tax implications of the Fund's  trading policy. A more extensive discussion
of the Fund's  portfolio brokerage  policies is set  forth in  the Statement  of
Additional Information.

    The  expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in  securities  issued  by  domestic  issuers  as  custodial  costs,   brokerage
commissions  and  other  transaction  charges related  to  investing  on foreign
markets are generally higher than in the United States.

INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

    The investment restrictions  listed below are  among the restrictions  which
have  been adopted  by the  Fund as  fundamental policies.  Under the Investment
Company Act of 1940,  as amended (the  "Act"), a fundamental  policy may not  be
changed  without the vote of a majority  of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations:  (i)
all  percentage  limitations  apply  immediately  after  a  purchase  or initial
investment,  and  (ii)  any  subsequent  change  in  any  applicable  percentage
resulting  from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.

    The Fund may not:

    1. As to 75% of its total assets, invest more
than 5% of the  value of its total  assets in the securities  of any one  issuer
(other  than obligations issued, or guaranteed by, the United States Government,
its agencies or instrumentalities).

    2. As to 75% of its total assets, purchase more
than 10% of all outstanding voting securities or any class of securities of  any
one issuer.

    3. Invest 25% or more of the value of its total
assets in securities of issuers in any one industry.

    4. Invest more than 5% of the value of its total
assets  in securities of issuers having a record, together with predecessors, of
less than three years of continuous operation. This restriction shall not  apply
to  any obligation  issued or  guaranteed by  the United  States Government, its
agencies or instrumentalities.

    5. Purchase or sell commodities or
commodities contracts except that the Fund may purchase or write interest  rate,
currency and stock and bond index futures contracts and related options thereon.

    6. Pledge its assets or assign or otherwise
encumber  them except to  secure permitted borrowings. (For  the purpose of this
restriction, collateral arrangements with respect to the writing of options  and
collateral  arrangements with respect to initial or variation margin for futures
are not deemed to be pledges of assets.)

    7. Purchase securities on margin (but the
Fund may  obtain  short-term  loans  as  are  necessary  for  the  clearance  of
transactions). The deposit or payment by the Fund of initial or variation margin
in  connection  with  futures  contracts  or  related  options  thereon  is  not
considered the purchase of a security on margin.

                                       14
<PAGE>
    8. Invest more than 10% of its total assets in
"illiquid securities" (securities  for which market  quotations are not  readily
available)  and repurchase agreements which have a maturity of longer than seven
days. In addition, no more than 15% of the Fund's net assets will be invested in
such illiquid  securites  and foreign  securities  not traded  on  a  recognized
domestic or foreign exchange.

    Generally,  OTC  options and  the  assets used  as  "cover" for  written OTC
options are illiquid  securities. However, the  Fund is permitted  to treat  the
securities  it  uses as  cover for  written  OTC options  as liquid  provided it
follows a procedure whereby it will  sell OTC options only to qualified  dealers
who  agree that the  Fund may repurchase such  options at a  maximum price to be
calculated  pursuant  to  a  predetermined  formula  set  forth  in  the  option
agreement.  The formula may  vary from agreement to  agreement, but is generally
based on a multiple of the premium  received by the Fund for writing the  option
plus  the amount,  if any,  of the  option's intrinsic  value. An  OTC option is
considered an illiquid  asset only  to the  extent that  the maximum  repurchase
price under the formula exceeds the intrinsic value of the option.

PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------

    The  Fund offers its  shares for sale  to the public  on a continuous basis.
Pursuant  to  a  Distribution  Agreement  between  the  Fund  and  Dean   Witter
Distributors  Inc. (the "Distributor"), an  affiliate of the Investment Manager,
shares of the Fund  are distributed by  the Distributor and  offered by DWR  and
other  dealers  which  have entered  into  selected dealer  agreements  with the
Distributor ("Selected Broker-Dealers"). The  principal executive office of  the
Distributor is located at Two World Trade Center, New York, New York 10048.

    The minimum initial purchase is $1,000. Subsequent purchases of $100 or more
may  be made  by sending a  check, payable  to Dean Witter  European Growth Fund
Inc., directly to Dean Witter Trust  Company (the "Transfer Agent") at P.O.  Box
1040,  Jersey City, N.J. 07303  or by contacting an  account executive of DWR or
other Selected Broker-Dealer. In the case of investments pursuant to  Systematic
Payroll  Deduction Plans (including  Individual Retirement Plans),  the Fund, in
its discretion, may  accept investments  without regard to  any minimum  amounts
which  would  otherwise be  required, if  the  Fund has  reason to  believe that
additional investments will increase the  investment in all accounts under  such
Plans  to at least $1,000. Certificates for  shares purchased will not be issued
unless a request is made by the shareholder in writing to the Transfer Agent.

    Shares of  the  Fund are  sold  through the  Distributor  on a  normal  five
business day settlement basis; that is, payment is due on the fifth business day
(settlement  date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors'  funds on settlement date  they
will  benefit  from the  temporary use  of the  funds if  payment is  made prior
thereto. As noted above, orders placed directly with the Transfer Agent must  be
accompanied  by  payment.  Such investors  will  be entitled  to  receive income
dividends and capital  gains distributions  if their  order is  received by  the
close  of business on  the day prior  to the record  date for such distributions
(those investing through  the Distributor or  other Selected Broker-Dealer  will
receive  dividends declared the  next business day after  the order is settled).
The offering  price  will be  the  net asset  value  per share  next  determined
following  receipt of an  order (see "Determination of  Net Asset Value" below).
While no sales charge is imposed at the time shares are purchased, a  contingent
deferred sales charge may be imposed at the time of redemption (see "Redemptions
and  Repurchases"). Sales  personnel are compensated  for selling  shares of the
Fund at the time of their sale by the Distributor and/or Selected Broker-Dealer.
In

                                       15
<PAGE>
addition, some  sales  personnel  of the  Selected  Broker-Dealer  will  receive
various  types of non-cash  compensation as special  sales incentives, including
trips, educational and/or business  seminars and merchandise.  The Fund and  the
Distributor reserve the right to reject any purchase orders.

PLAN OF DISTRIBUTION

    The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act  (the "Plan"),  under which the  Fund pays  the Distributor a  fee, which is
accrued daily and payable monthly, at an annual rate of 1% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's shares since the inception
of  the  Fund  (not  including  reinvestments  of  dividends  or  capital  gains
distributions),  less the average daily aggregate  net asset value of the Fund's
shares redeemed  since the  Fund's inception  upon which  a contingent  deferred
sales  charge has been  imposed or waived;  or (b) the  Fund's average daily net
assets. This fee is treated by the Fund as an expense in the year it is accrued.
Amounts paid under the Plan are paid to the Distributor to compensate it for the
services provided and the  expenses borne by the  Distributor and others in  the
distribution  of the  Fund's shares,  including the  payment of  commissions for
sales of the  Fund's shares and  incentive compensation to  and expenses of  DWR
account executives and others who engage in or support distribution of shares or
who  service shareholder  accounts, including  overhead and  telephone expenses;
printing and distribution of  prospectuses and reports  used in connection  with
the  offering  of the  Fund's  shares to  other  than current  shareholders; and
preparation, printing  and  distribution  of sales  literature  and  advertising
materials.  In addition, the  Distributor may utilize fees  paid pursuant to the
Plan to compensate DWR and  other Selected Broker-Dealers for their  opportunity
costs  in advancing such amounts,  which compensation would be  in the form of a
carrying charge  on any  unreimbursed distribution  expenses incurred.  For  the
fiscal  year ended October  31, 1994, the  Fund accrued payments  under the Plan
amounting to $6,035,318, which  amount is equal to  0.95% of the Fund's  average
daily  net assets for the fiscal year.  The payments accrued under the Plan were
calculated pursuant to clause (a) of the compensation formula under the Plan.  A
portion  of the fee payable  pursuant to the Plan, equal  to 0.25% of the Fund's
average daily net assets, is characterized  as a service fee within the  meaning
of NASD guidelines.

    At   any  given  time,  the  Distributor   may  have  incurred  expenses  in
distributing shares of the Fund which may be  in excess of the total of (i)  the
payments  made  by the  Fund  pursuant to  the Plan,  and  (ii) the  proceeds of
contingent deferred  sales charges  paid  by investors  upon the  redemption  of
shares  (see "Redemptions and Repurchases--  Contingent Deferred Sales Charge").
For example, if the Distributor incurred $1 million in expenses in  distributing
shares  of the Fund and $750,000 had been received by the Distributor in (i) and
(ii) above, the  excess expense would  amount to $250,000.  The Distributor  has
advised  the  Fund  that  such excess  amounts,  including  the  carrying charge
described above, totalled $22,163,379 at October 31, 1994, which equalled  2.92%
of the Fund's net assets at such date.

    Because  there  is no  requirement under  the Plan  that the  Distributor be
reimbursed for all  distribution expenses or  any requirement that  the Plan  be
continued  from year to year, this excess amount does not constitute a liability
of the Fund. Although there is no legal obligation for the Fund to pay  expenses
incurred  in excess of payments  made to the Distributor  under the Plan and the
proceeds of  contingent  deferred  sales  charges paid  by  the  investors  upon
redemption  of shares, if  for any reason  the Plan is  terminated the Directors
will consider at  that time  the manner  in which  to treat  such expenses.  Any
cumulative expenses incurred, but not yet recovered through distribution fees or
contingent  deferred sales charges,  may or may not  be recovered through future
distribution fees or contingent deferred sales charges.

                                       16
<PAGE>
DETERMINATION OF NET ASSET VALUE

    The net asset value per share of  the Fund is determined once daily at  4:00
p.m.,  New York time  on each day  that the New  York Stock Exchange  is open by
taking the value  of all assets  of the Fund,  subtracting all its  liabilities,
dividing  by the number of shares outstanding and adjusting to the nearest cent.
The net asset value per share will not be determined on Good Friday and on  such
other  federal and non-federal  holidays as are  observed by the  New York Stock
Exchange.

    In the calculation of  the Fund's net asset  value: (1) an equity  portfolio
security  listed or traded on  the New York or  American Stock Exchange or other
domestic or foreign stock exchange  is valued at its  latest sale price on  that
exchange  prior to the time when assets are  valued; if there were no sales that
day, the security is valued at the  latest bid price (in cases where  securities
are  traded on more than one exchange, the securities are valued on the exchange
designated as the primary market by the Directors); and (2) all other  portfolio
securities  for which  over-the-counter market quotations  are readily available
are valued at the  latest available bid  price prior to  the time of  valuation.
When  market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager or Sub-Advisor that sale or bid
prices are not reflective of a security's market value, portfolio securities are
valued at  their  fair  value  as determined  in  good  faith  under  procedures
established  by and under  the general supervision of  the Fund's Directors. For
valuation purposes, quotations of foreign portfolio securities, other assets and
liabilities and forward contracts stated in foreign currency are translated into
U.S. dollar equivalents at the prevailing market rates prior to the close of the
New York Stock Exchange. Dividends receivable are accrued as of the  ex-dividend
date  or as of  the time that  the relevant ex-dividend  date and amounts become
known.

    Short-term debt securities with remaining  maturities of sixty days or  less
to  maturity at the  time of purchase  are valued at  amortized cost, unless the
Directors determine such does not reflect  the securities' fair value, in  which
case  these securities will be  valued at their fair  value as determined by the
Directors.

    Certain securities  in the  Fund's portfolio  may be  valued by  an  outside
pricing service approved by the Fund's Directors. The pricing service utilizes a
matrix  system  incorporating  security  quality,  maturity  and  coupon  as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the  fair  valuation of  the  portfolio  securities valued  by  such  pricing
service.

SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------

    AUTOMATIC  INVESTMENT OF DIVIDENDS AND  DISTRIBUTIONS.  All income dividends
and capital gains distributions  are automatically paid  in full and  fractional
shares  of the  Fund (or,  if specified by  the shareholder,  any other open-end
investment  company  for  which   InterCapital  serves  as  investment   manager
(collectively,  with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid  in cash. Shares so acquired  are not subject to  the
imposition  of a  contingent deferred  sales charge  upon their  redemption (see
"Redemption and Repurchases").

    EASYINVEST -SM-.   Shareholders may  subscribe to  EasyInvest, an  automatic
purchase  plan  which  provides  for  any  amount  from  $100  to  $5,000  to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis,  to the Transfer Agent  for investment in shares  of
the Fund.

    INVESTMENT  OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH.  Any shareholder
who  receives  a  cash  payment   representing  a  dividend  or  capital   gains
distribution may invest such dividend or
distri-

                                       17
<PAGE>
bution  at the net  asset value per  share next determined  after receipt by the
Transfer Agent, by  returning the check  or the proceeds  to the Transfer  Agent
within thirty days after the payment date. Shares so acquired are not subject to
the  imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases").

    SYSTEMATIC WITHDRAWAL PLAN.  A  systematic withdrawal plan (the  "Withdrawal
Plan")  is available  for shareholders  who own or  purchase shares  of the Fund
having a minimum value of $10,000 based  upon the then current net asset  value.
The  Withdrawal Plan provides  for monthly or  quarterly (March, June, September
and December) checks in any  dollar amount, not less than  $25, or in any  whole
percentage  of the account balance,  on an annualized basis.  The shares will be
redemed at their net asset value determined, at the shareholder's option, on the
tenth or twenty-fifth day (or next following business day) of the relevant month
or quarter and normally a check for the proceeds will be mailed by the  Transfer
Agent,  or amounts  credited to a  shareholder's brokerage  account, within five
business days after the date  of redemption. Any applicable contingent  deferred
sales  charge will be imposed on shares  redeemed under the Withdrawal Plan (See
"Redemptions and Repurchases--Contingent Deferred Sales Charge"). Therefore, any
shareholder participating in  the Withdrawal  Plan will  have sufficient  shares
redeemed  from his or  her account so  that the proceeds  (net of any applicable
contingent deferred  sales charge)  to the  shareholder will  be the  designated
monthly or quarterly amount.

    TAX-SHELTERED  RETIREMENT PLANS.  Retirement plans  are available for use by
corporations, the self-employed,  Individual Retirement  Accounts and  Custodial
Accounts  under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.

    Shareholders should  contact  their  DWR  or  other  Selected  Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.

EXCHANGE PRIVILEGE

    The  Fund  makes  available  to  its  shareholders  an  "Exchange Privilege"
allowing the exchange  of shares of  the Fund  for shares of  other Dean  Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), for shares of
Dean  Witter Short-Term U.S. Treasury Trust,  Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund and for shares of five Dean Witter Funds
which are money market funds (the foregoing eight non-CDSC funds are hereinafter
collectively referred to in this section as the "Exchange Funds"). Exchanges may
be made after the shares  of the Fund acquired by  purchase (not by exchange  or
dividend  reinvestment)  have been  held for  thirty days.  There is  no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment.

    An exchange to another CDSC  fund or any Exchange Fund  that is not a  money
market  fund is on the basis of the next calculated net asset value per share of
each fund after  the exchange order  is received. When  exchanging into a  money
market  fund from the Fund, shares  of the Fund are redeemed  out of the Fund at
their next calculated  net asset value  and the proceeds  of the redemption  are
used  to  purchase shares  of the  money market  fund at  their net  asset value
determined the  following day.  Subsequent exchanges  between any  of the  money
market  funds and any  of the CDSC funds  can be effected on  the same basis. No
contingent deferred  sales  charge  ("CDSC")  is imposed  at  the  time  of  any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund acquired in exchange for shares of another CDSC fund having a
different  CDSC schedule  than that  of this  Fund will  be subject  to the CDSC
schedule of this  Fund, even if  such shares are  subsequently re-exchanged  for
shares  of the  CDSC fund  originally purchased. During  the period  of time the
shareholder remains invested in the Exchange Fund (calculated from the last  day
of the

                                       18
<PAGE>
month  in which the Exchange Fund shares were acquired), the holding period (for
the purpose of determining the rate of the CDSC) is frozen. If those shares  are
subsequently  re-exchanged  for  shares  of  a  CDSC  fund,  the  holding period
previously frozen when the first  exchange was made resumes  on the last day  of
the month in which shares of a CDSC fund are reacquired. Thus, the CDSC is based
upon  the time (calculated as described above) the shareholder was invested in a
CDSC fund (see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
However, in the case of shares exchanged for shares of an Exchange Fund, upon  a
redemption  of shares which  results in a  CDSC being imposed,  a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the  Exchange
Fund  12b-1  distribution  fees  incurred  on  or  after  that  date  which  are
attributable to  those  shares.  (Exchange  Fund  12b-1  distribution  fees  are
described in the prospectuses for those funds.)

    In  addition, shares of the  Fund may be acquired  in exchange for shares of
Dean Witter Funds sold  with a front-end sales  charge ("front-end sales  charge
funds"),  but shares  of the  Fund, however acquired,  may not  be exchanged for
shares of  front-end sales  charge funds.  Shares  of a  CDSC fund  acquired  in
exchange  for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter  Funds for which  shares of a  front-end sales charge  fund
have been exchanged) are not subject to any CDSC upon their redemption.

    Purchases  and  exchanges should  be made  for  investment purposes  only. A
pattern of frequent  exchanges may  be deemed by  the Investment  Manager to  be
abusive and contrary to the best interests of the Fund's other shareholders and,
at  the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/  or exchanges from  the investor. Although  the
Fund  does not  have any  specific definition of  what constitutes  a pattern of
frequent exchanges,  and  will  consider all  relevant  factors  in  determining
whether  a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds  may in their discretion limit or  otherwise
restrict  the number of  times this Exchange  Privilege may be  exercised by any
investor. Any such restriction will be made  by the Fund on a prospective  basis
only,  upon notice  to the  shareholder not later  than ten  days following such
shareholder's most recent exchange.

    The Exchange Privilege may be terminated or revised at any time by the  Fund
and/or  any of  such Dean Witter  Funds for which  shares of the  Fund have been
exchanged, upon  such  notice  as  may  be  required  by  applicable  regulatory
agencies.  Shareholders maintaining margin accounts with DWR or another Selected
Dealer are  referred  to  their  account  executive  regarding  restrictions  on
exchange of shares of the Fund pledged in the margin account.

    The  current prospectus for each  fund describes its investment objective(s)
and policies, and  shareholders should obtain  a copy and  examine it  carefully
before  investing. Exchanges are  subject to the  minimum investment requirement
and any other conditions imposed  by each fund. In  the case of any  shareholder
holding  a share certificate or certificates, no exchanges may be made until all
applicable share  certificates have  been  received by  the Transfer  Agent  and
deposited  in the shareholder's account. An exchange will be treated for federal
income tax purposes the same as a  repurchase or redemption of shares, on  which
the  shareholder may  realize a  capital gain or  loss. However,  the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of  shares within ninety  days after the  shares are purchased.  The
Exchange  Privilege is only available in states where an exchange may legally be
made.

    If DWR or another Selected Broker-Dealer is the current dealer of record and
its account  numbers  are part  of  the account  information,  shareholders  may
initiate  an exchange of shares of the Fund for shares of any of the Dean Witter
Funds  (for  which  the  Exchange  Privilege  is  available)  pursuant  to  this

                                       19
<PAGE>
Exchange  Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders  who
are  clients  of DWR  or another  Selected  Broker-Dealer but  who wish  to make
exchanges directly by writing or  telephoning the Transfer Agent) must  complete
and  forward to  the Transfer  Agent an  Exchange Privilege  Authorization Form,
copies of which may be obtained  from the Distributor, to initiate an  exchange.
If  the  Authorization Form  is used,  exchanges may  be made  in writing  or by
contacting the Transfer Agent at (800) 526-3143 (toll free).

    The  Fund  will  employ  reasonable  procedures  to  confirm  that  exchange
instructions  communicated over the  telephone are genuine.  Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security  or other tax  identification number and  DWR or  other
Selected  Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due  to  unauthorized  or  fraudulent  instructions.  Telephone  exchange
instructions  will be  accepted if received  by the Transfer  Agent between 9:00
a.m. and 4:00  p.m. New York  time, on any  day the New  York Stock Exchange  is
open.  Any shareholder wishing to  make an exchange who  has previously filed an
Exchange Privilege Authorization  Form and who  is unable to  reach the Fund  by
telephone  should contact his or her DWR or other Selected Broker-Dealer account
executive, if appropriate, or make a written exchange request. Shareholders  are
advised  that  during  periods of  drastic  economic  or market  changes,  it is
possible that the telephone exchange  procedures may be difficult to  implement,
although this has not been the case with the Dean Witter Funds in the past.
    For  further  information  regarding  the  Exchange  Privilege, shareholders
should contact their DWR  or other Selected  Broker-Dealer account executive  or
the Transfer Agent.

REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------

    REDEMPTION.   Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds may
be reduced by  the amount of  any applicable contingent  deferred sales  charges
(see  below). If  shares are  held in  a shareholder's  account without  a share
certificate, a written request for redemption sent to the Fund's Transfer  Agent
at  P.O. Box 983, Jersey City, N.J.  07303 is required. If certificates are held
by  the  shareholder(s),  the  shares  may  be  redeemed  by  surrendering   the
certificate(s)  with a written request for redemption, along with any additional
documentation required by the Transfer Agent.

   
    CONTINGENT DEFERRED SALES CHARGE.  Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased)  will not be subject  to any charge upon  redemption.
Shares redeemed sooner than six years after purchase may, however, be subject to
a  charge upon  redemption. This charge  is called a  "contingent deferred sales
charge" ("CDSC"), and it  will be a  percentage of the  dollar amount of  shares
redeemed  and will be assessed  on an amount equal to  the lesser of the current
market value  or  the cost  of  the shares  being  redeemed. The  size  of  this
percentage  will depend upon how long the shares have been held, as set forth in
the following table:
    

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                       CONTINGENT DEFERRED
            YEAR SINCE                    SALES CHARGE
             PURCHASE                  AS A PERCENTAGE OF
           PAYMENT MADE                  AMOUNT REDEEMED
- -----------------------------------  -----------------------
<S>                                  <C>
First..............................              5.0%
Second.............................              4.0%
Third..............................              3.0%
Fourth.............................              2.0%
Fifth..............................              2.0%
Sixth..............................              1.0%
Seventh and thereafter.............           None
</TABLE>

    A  CDSC will not be imposed on:  (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption; (ii)
the current net asset value of shares purchased more than six years prior to the
redemption; and (iii) the  current net asset value  of shares purchased  through
reinvestment  of dividends or  distributions and/or shares  acquired in exchange
for shares of Dean Witter Funds sold  with a front-end sales charge or of  other
Dean Witter Funds acquired in exchange for such shares. Moreover, in determining
whether  a CDSC is applicable it will  be assumed that amounts described in (i),
(ii) and (iii) above (in  that order) are redeemed  first. In addition, no  CDSC
will  be imposed on redemptions  of shares which were  purchased by the employee
benefit plans  established  by  DWR  and  SPS  Transaction  Services,  Inc.  (an
affiliate  of DWR) for their employees as  qualified under Section 401(k) of the
Internal Revenue Code.

    In addition, the CDSC, if otherwise  applicable, will be waived in the  case
of:  (i) redemptions of  shares held at  the time a  shareholder dies or becomes
disabled, only  if the  shares  are (a)  registered either  in  the name  of  an
individual  shareholder (not a trust),  or in the names  of such shareholder and
his or her spouse as joint tenants with right of survivorship, or (b) held in  a
qualified  corporate  or  self-employed retirement  plan,  Individual Retirement
Account or Custodial  Account under  Section 403(b)(7) of  the Internal  Revenue
Code,  provided in either case that the  redemption is requested within one year
of the death  or initial determination  of disability, and  (ii) redemptions  in
connection  with the  following retirement  plan distributions:  (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement  plan
following  retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment  of  age 59  1/2);  (b) distributions  from  an  Individual
Retirement  Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code following attainment of age 59 1/2; and (c) a tax-free return of an
excess contribution to an  IRA. For the purpose  of determining disability,  the
Distributor  utilizes the definition of disability contained in Section 72(m)(7)
of the  Internal Revenue  Code, which  relates  to the  inability to  engage  in
gainful  employment. All waivers  will be granted only  following receipt by the
Distributor of confirmation of the investor's entitlement.

    REPURCHASE.   DWR  and  other  Selected  Broker-Dealers  are  authorized  to
repurchase  shares represented by a share  certificate which is delivered to any
of their  offices.  Shares held  in  a  shareholder's account  without  a  share
certificate  may also  be repurchased by  DWR and  other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the  net
asset  value next computed (see "Purchase of Fund Shares") after such repurchase
order is  received  by DWR  or  other  Selected Broker-Dealer,  reduced  by  any
applicable CDSC.

    The  CDSC, if any, will be the only fee imposed upon repurchase by the Fund,
the Distributor or  other Selected Broker-Dealer.  The offers by  DWR and  other
Selected  Broker-Dealers to repurchase shares may be suspended without notice by
them at any time.  In that event, shareholders  may redeem their shares  through
the Fund's Transfer Agent as set forth above under "Redemption."

    PAYMENT  FOR SHARES REDEEMED  OR REPURCHASED.   Payment for shares presented
for repurchase  or redemption  will be  made by  check within  seven days  after
receipt  by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended  under
unusual circumstances. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed  to verify that the check used  for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer  Agent).
Shareholders   maintaining  margin   accounts  with  DWR   or  another  Selected
Broker-Dealer are referred to their account executive regarding restrictions  on
redemption of shares of the Fund pledged in the margin account.

                                       21
<PAGE>
    REINSTATEMENT  PRIVILEGE.   A  shareholder  who has  had  his or  her shares
redeemed or  repurchased and  has not  previously exercised  this  reinstatement
privilege  may,  within  thirty  days  after  the  date  of  the  redemption  or
repurchase, reinstate any portion or all  of the proceeds of such redemption  or
repurchase  in shares  of the Fund  at net  asset value next  determined after a
reinstatement request, together with the  proceeds, is received by the  Transfer
Agent  and receive a pro-rata  credit for any CDSC  paid in connection with such
redemption or repurchase.

    INVOLUNTARY REDEMPTION.   The Fund reserves  the right to  redeem, on  sixty
days'  notice and at net asset value,  the shares of any shareholder (other than
shares held  in an  Individual  Retirement Account  or custodial  account  under
Section  403(b)(7)  of  the  Code)  whose  shares  due  to  redemptions  by  the
shareholder have a value of less than $100 or such lesser amount as may be fixed
by the Directors.  However, before the  Fund redeems such  shares and sends  the
proceeds to the shareholder it will notify the shareholder that the value of the
shares  is less than $100 and allow him  or her sixty days to make an additional
investment in an amount which will increase  the value of his or her account  to
$100  or more before the redemption is processed. No CDSC will be imposed on any
involuntary redemption.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

    DIVIDENDS AND  DISTRIBUTIONS.   The Fund  intends to  pay dividends  and  to
distribute  substantially  all  of  the Fund's  net  investment  income  and net
realized short-term and  long-term capital  gains, if  any, at  least once  each
year.  The Fund may, however, determine either to distribute or to retain all or
part of any long-term capital gains in any year for reinvestment.

    All dividends and any capital gains distributions will be paid in additional
Fund shares  and automatically  credited to  the shareholder's  account  without
issuance  of a share certificate unless the shareholder requests in writing that
all  dividends  and/or  distributions  be   paid  in  cash.  (See   "Shareholder
Services--Automatic Investment of Dividends and Distributions".)

    TAXES.   Because the  Fund intends to  distribute all of  its net investment
income and  any  net short-term  capital  gains to  shareholders  and  otherwise
qualify  as a regulated investment company under Subchapter M of the Code, it is
not expected that the  Fund will be  required to pay any  federal income tax  on
such income and capital gains.

    Gains  or losses  on the  Fund's transactions  in certain  listed options on
securities and on futures  and options on futures  generally are treated as  60%
long-term gain or loss and 40% short-term gain or loss. When the Fund engages in
options and futures transactions, various tax regulations applicable to the Fund
may  have the effect  of causing the  Fund to recognize  a gain or  loss for tax
purposes before that  gain or loss  is realized,  or to defer  recognition of  a
realized  loss for tax purposes. Recognition, for tax purposes, of an unrealized
loss may  result in  a lesser  amount of  the Fund's  realized net  gains  being
available for distribution.

    As  a regulated investment  company, the Fund is  subject to the requirement
that less than  30% of  its gross  income be derived  from the  sale of  certain
investments  held for  less than  three months.  This requirement  may limit the
Fund's ability to engage in options and futures transactions.

    Shareholders will  normally  have  to  pay federal  income  taxes,  and  any
applicable  state and/or local income taxes,  on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from  net investment income and  net short-term capital  gains,
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. Any
dividends  declared in the last  quarter of any calendar  year which are paid in
the following year prior  to February 1,  will be deemed,  for tax purposes,  to
have been received by the shareholder in the prior year.

    Distributions  of  net  long-term  capital gains,  if  any,  are  taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash.  It is anticipated that  only a small portion,  if
any,    of    the   Fund's    distributions   will    be   eligible    for   the

                                       22
<PAGE>
dividends received deduction to corporate shareholders.

    After the end  of the year,  shareholders will receive  full information  on
their  dividends  and capital  gains distributions  for tax  purposes, including
information as to the portion taxable as ordinary income and the portion taxable
as long-term capital gains.

    To avoid being subject  to a 31% federal  backup withholding tax on  taxable
dividends,  capital  gains distributions  and  the proceeds  of  redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.

    Dividends, interest  and  gains  received  by the  Fund  may  give  rise  to
withholding  and other taxes  imposed by foreign countries.  If it qualifies for
and has made  the appropriate election  with the Internal  Revenue Service,  the
Fund  will report  annually to  its shareholders  the amount  per share  of such
taxes, to enable  shareholders to deduct  their pro rata  portion of such  taxes
from  their  taxable income  or  claim United  States  foreign tax  credits with
respect to such taxes. In the absence of such an election, the Fund would deduct
foreign tax in computing the amount of its distributable income.

    The  foregoing  discussion  relates  solely   to  the  federal  income   tax
consequences  of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his  or
her own tax adviser.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

    From  time to time the  Fund may quote its  "total return" in advertisements
and sales  literature. The  total return  of  the Fund  is based  on  historical
earnings and is not intended to indicate future performance. The "average annual
total  return" of the Fund refers to  a figure reflecting the average annualized
percentage increase (or decrease) in the  value of an initial investment in  the
Fund  of $1,000 over a period of one year  and five years as well as the life of
the Fund. Average annual  total return reflects all  income earned by the  Fund,
any  appreciation or depreciation of the Fund's assets, all expenses incurred by
the  Fund  and  all  sales  charges   which  would  be  incurred  by   redeeming
shareholders,  for  the  stated periods.  It  also assumes  reinvestment  of all
dividends and distributions paid by the Fund.

    In addition to the foregoing, the  Fund may advertise its total return  over
different  periods of time  by means of aggregate,  average, and year-by-year or
other types of total return figures. The  Fund may also advertise the growth  of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
Such  calculations  may  or may  not  reflect  the deduction  of  the contingent
deferred sales charge which, if reflected, would reduce the performance  quoted.
The  Fund  from time  to time  may  also advertise  its performance  relative to
certain performance rankings and  indexes compiled by independent  organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.).

ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

    VOTING  RIGHTS.   All shares of  the Fund are  of common stock  of $0.01 par
value and are equal as to earnings,  assets and voting privileges. There are  no
conversion,   pre-emptive  or  other  subscription   rights.  In  the  event  of
liquidation, each share of common stock of  the Fund is entitled to its  portion
of  all of the  Fund's assets after all  debts and expenses  have been paid. The
shares do not have cumulative voting rights.

    The Fund is  not required to  hold Annual Meetings  of Shareholders and,  in
ordinary  circumstances, the  Fund does  not intend  to hold  such meetings. The
Directors may call Special  Meetings of Shareholders  for action by  shareholder
vote as may be required by the Act or the Fund's By-Laws.

    SHAREHOLDER  INQUIRIES.  All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover  of
this Prospectus.

                                       23
<PAGE>

Dean Witter
European Growth Fund Inc.
Two World Trade Center
New York, New York 10048
DIRECTORS
Jack F. Bennett                     Dean Witter
Michael Bozic                       European
Charles A. Fiumefreddo              Growth Fund
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank N.A.
One Chase Plaza
New York, New York 10005
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUB-ADVISOR
Morgan Grenfell Investment Services
Limited
                                        PROSPECTUS -- DECEMBER 22, 1994
<PAGE>
   
STATEMENT OF ADDITIONAL INFORMATION                            DEAN WITTER
                                                               EUROPEAN GROWTH
DECEMBER 22, 1994                                              FUND INC.
    

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

    Dean  Witter  European  Growth  Fund  Inc.  (the  "Fund")  is  an  open-end,
diversified management  investment company,  whose  investment objective  is  to
maximize  the capital appreciation of its investments. The Fund seeks to achieve
its investment objective by investing primarily in securities issued by  issuers
located in Europe.

   
    A  Prospectus for the Fund dated December 22, 1994, which provides the basic
information you  should know  before  investing in  the  Fund, may  be  obtained
without  charge from the Fund at the address or telephone number listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean  Witter
Reynolds  Inc.  at  any of  its  branch  offices. This  Statement  of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than  that set  forth in  the  Prospectus. It  is intended  to  provide
additional  information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
    

Dean Witter
European Growth Fund Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                                                                                      <C>
The Fund and its Management............................................................          3

Directors and Officers.................................................................          7

Investment Practices and Policies......................................................         10

Investment Restrictions................................................................         23

Portfolio Transactions and Brokerage...................................................         24

The Distributor........................................................................         26

Determination of Net Asset Value.......................................................         29
Shareholder Services...................................................................         29

Redemptions and Repurchases............................................................         33

Dividends, Distributions and Taxes.....................................................         36

Performance Information................................................................         37
Description of Common Stock............................................................         38

Custodian and Transfer Agent...........................................................         39
Independent Accountants................................................................         39

Reports to Shareholders................................................................         39

Legal Counsel..........................................................................         39

Experts................................................................................         39

Registration Statement.................................................................         39

Financial Statements -- October 31, 1994...............................................         40
Report of Independent Accountants......................................................         52
</TABLE>
    

                                       2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------

THE FUND

    The  Fund  was incorporated  under  the laws  of  the state  of  Maryland on
February 13, 1990.

THE INVESTMENT MANAGER

   
    Dean Witter InterCapital Inc. (the "Investment Manager" or  "InterCapital"),
a  Delaware corporation, whose address is Two  World Trade Center, New York, New
York 10048, is  the Fund's  Investment Manager. InterCapital  is a  wholly-owned
subsidiary  of Dean Witter, Discover &  Co. ("DWDC"), a Delaware corporation. In
an internal  reorganization  which took  place  in January,  1993,  InterCapital
assumed  the  investment  advisory,  administrative  and  management  activities
previously performed by the InterCapital  Division of Dean Witter Reynolds  Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement  of Additional  Information, the terms  "InterCapital" and "Investment
Manager"  refer  to   DWR's  InterCapital   Division  prior   to  the   internal
reorganization   and  Dean  Witter  InterCapital  Inc.  thereafter.)  The  daily
management of the Fund is conducted by or under the direction of officers of the
Fund and  of  the Investment  Manager  and  Sub-Advisor, subject  to  review  of
investments by the Fund's Board of Directors. In addition, Directors of the Fund
provide guidance on economic factors and interest rate trends. Information as to
these  Directors  and Officers  is contained  under  the caption  "Directors and
Officers".
    

   
    The Investment Manager is also the investment manager or investment  adviser
of  the  following investment  companies: Dean  Witter  Liquid Asset  Fund Inc.,
InterCapital Income Securities  Inc., Dean  Witter High  Yield Securities  Inc.,
Dean   Witter  Tax-Free  Daily  Income  Trust,  Dean  Witter  Developing  Growth
Securities Trust, Dean Witter Tax-Exempt  Securities Trust, Dean Witter  Natural
Resource  Development Securities  Inc., Dean  Witter Dividend  Growth Securities
Inc., Dean Witter American Value Fund, Dean Witter U.S. Government Money  Market
Trust, Dean Witter Variable Investment Series, Dean Witter World Wide Investment
Trust,  Dean  Witter  Select  Municipal  Reinvestment  Fund,  Dean  Witter  U.S.
Government Securities Trust, Dean Witter  California Tax-Free Income Fund,  Dean
Witter  New York Tax-Free Income Fund, Dean Witter Convertible Securities Trust,
Dean Witter Federal  Securities Trust,  Dean Witter Managed  Assets Trust,  High
Income  Advantage Trust, High  Income Advantage Trust  II, High Income Advantage
Trust III, Dean Witter Government  Income Trust, Dean Witter Value-Added  Market
Series, Dean Witter Utilities Fund, Dean Witter California Tax-Free Daily Income
Trust,  Dean Witter Strategist  Fund, Dean Witter World  Wide Income Trust, Dean
Witter Intermediate Income  Securities, Dean Witter  Capital Growth  Securities,
Dean  Witter New York Municipal Money  Market Trust, Dean Witter Precious Metals
and Minerals Trust, Dean Witter Global Short-Term Income Fund Inc., Dean  Witter
Pacific  Growth Fund Inc., Dean Witter  Multi-State Municipal Series Trust, Dean
Witter Premier  Income  Trust,  Dean  Witter  Short-Term  U.S.  Treasury  Trust,
InterCapital  Insured Municipal Trust, InterCapital Quality Municipal Investment
Trust, Dean  Witter Diversified  Income  Trust, InterCapital  Quality  Municipal
Income  Trust, InterCapital Insured Municipal Income Trust, InterCapital Insured
Municipal Bond Trust,  InterCapital California Insured  Municipal Income  Trust,
Dean  Witter Health Sciences Trust,  Dean Witter Retirement Series, InterCapital
Insured  Municipal   Securities,  InterCapital   Insured  California   Municipal
Securities,  Active  Assets Money  Trust, Active  Assets Tax-Free  Trust, Active
Assets California  Tax-Free Trust,  Active Assets  Government Securities  Trust,
Municipal   Income   Trust,  Municipal   Income   Trust  II,   Municipal  Income
Opportunities Trust, Municipal Income  Opportunities Trust II, Municipal  Income
Opportunities  Trust  III,  Municipal  Income  Trust  III,  Prime  Income Trust,
Municipal Premium Income Trust, Dean Witter High Income Securities, Dean  Witter
National   Municipal  Trust,  Dean  Witter  Mid-Cap  Growth  Fund,  Dean  Witter
International SmallCap Fund.  Dean Witter Select  Dimensions Investment  Series,
InterCapital  Quality  Municipal  Securities,  InterCapital  California  Quality
Municipal Securities, InterCapital New  York Quality Municipal Securities,  Dean
Witter  Global Dividend  Growth Securities,  Dean Witter  Limited Term Municipal
Trust and Dean Witter Short-Term Bond Fund. The foregoing investment  companies,
together  with the Fund, are collectively referred  to as the Dean Witter Funds.
In  addition,  Dean  Witter  Services  Company  Inc.  ("DWSC"),  a  wholly-owned
subsidiary  of InterCapital, serves  as manager for  the following companies for
which  TCW   Funds  Management,   Inc.  is   the  investment   adviser:   TCW/DW
    

                                       3
<PAGE>
   
Core  Equity Trust, TCW/DW North American  Government Income Trust, TCW/DW Latin
American Growth  Fund, TCW/DW  Income  and Growth  Fund, TCW/DW  North  American
Intermediate  Income Trust, TCW/DW Small Cap  Growth Fund, TCW/DW Balanced Fund,
TCW/DW Total Return Trust,  TCW/DW Global Convertible  Trust, TCW/DW Term  Trust
2000, TCW/DW Term Trust 2002, TCW/DW Term Trust 2003 and TCW/DW Emerging Markets
Opportunities  Trust  (the "TCW/DW  Funds").  InterCapital also  serves  as: (i)
sub-adviser to  Templeton Global  Opportunities  Trust, an  open-end  investment
company;  (ii)  administrator  of The  BlackRock  Strategic Term  Trust  Inc., a
closed-end  investment  company;  and  (iii)  sub-administrator  of   MassMutual
Participation   Investors  and   Templeton  Global   Governments  Income  Trust,
closed-end investment companies.
    

    The Investment Manager also serves as an investment adviser for Dean  Witter
World  Wide Investment Fund,  an investment company organized  under the laws of
Luxembourg, shares of which are not available for purchase in the United  States
or by American citizens outside the United States.

    Pursuant  to an Investment Management Agreement (the "Management Agreement")
with the Investment  Manager, the Fund  has retained the  investment Manager  to
supervise  the investment of the Fund's  assets. The Investment Manager, through
consultation with  the  Sub-Advisor and  through  its own  portfolio  management
staff,  obtains  and  evaluates  such information  and  advice  relating  to the
economy, securities markets, and specific  securities as it considers  necessary
or  useful to continuously oversee the management of the assets of the Fund in a
manner consistent with its investment objective.

    Under the terms  of the  Management Agreement, the  Investment Manager  also
maintains  certain of  the Fund's  books and records  and furnishes,  at its own
expense, such office space, facilities, equipment, clerical help and bookkeeping
and certain legal services as the Fund may reasonably require in the conduct  of
its   business,  including  the  preparation   of  prospectuses,  statements  of
additional information, proxy statements and  reports required to be filed  with
federal and state securities commissions (except insofar as the participation or
assistance  of independent accountants  and attorneys is, in  the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
pays the salaries  of all  personnel, including officers  of the  Fund, who  are
employees  of the Investment Manager. The Investment Manager also bears the cost
of telephone service,  heat, light, power  and other utilities  provided to  the
Fund.

   
    Effective  December  31,  1993,  pursuant to  a  Services  Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to  the
Fund  which were  previously performed  directly by  InterCapital. The foregoing
internal reorganization did not result in any  change in the nature or scope  of
the  administrative services being provided to the Fund or any of the fees being
paid by the Fund for the overall services being performed under the terms of the
existing Management Agreement.
    

    Expenses  not  expressly  assumed  by  the  Investment  Manager  under   the
Management  Agreement, by the Sub-Advisor pursuant to the Sub-Advisory Agreement
(see  below),  or  by  the  Distributor  of  the  Fund's  shares,  Dean   Witter
Distributors  Inc. ("Distributors" or the "Distributor") (see "The Distributor")
will be paid by the  Fund. The expenses borne by  the Fund include, but are  not
limited  to: expenses of  the Plan of  Distribution pursuant to  Rule 12b-1 (see
"The Distributor"),  charges and  expenses of  any registrar,  custodian,  stock
transfer  and dividend disbursing agent; brokerage commissions; taxes; engraving
and printing  of share  certificates; registration  costs of  the Fund  and  its
shares  under  federal  and  state  securities laws;  the  cost  and  expense of
printing, including typesetting, and distributing Prospectuses and Statements of
Additional Information  of  the  Fund  and supplements  thereto  to  the  Fund's
shareholders;  all  expenses of  shareholders'  and directors'  meetings  and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and  travel expenses  of directors  or  members of  any advisory  board  or
committee  who are not employees of the Investment Manager or Sub-Advisor or any
corporate affiliate  of  the Investment  Manager  or Sub-Advisor;  all  expenses
incident to any dividend, withdrawal or redemption options; charges and expenses
of  any outside service used for pricing of the Fund's shares; fees and expenses
of the Fund's  legal counsel,  including counsel to  the directors  who are  not
interested  persons of the Fund or of the Investment Manager or Sub-Advisor (not
including compensation  or  expenses  of  attorneys who  are  employees  of  the
Investment  Manager) and  independent accountants;  membership dues  of industry
associations; interest on Fund borrowings;

                                       4
<PAGE>
postage; insurance premiums  on property  or personnel  (including officers  and
directors)  of  the  Fund which  inure  to its  benefit;  extraordinary expenses
(including, but  not limited  to, legal  claims and  liabilities and  litigation
costs  and any  indemnification relating  thereto); and  all other  costs of the
Fund's operation.

    The  Management  Agreement   provides  that  in   the  absence  of   willful
misfeasance,   bad  faith,  gross  negligence   or  reckless  disregard  of  its
obligations thereunder, the Investment Manager is not liable to the Fund or  any
of  its investors for any  act or omission by the  Investment Manager or for any
losses sustained by the  Fund or its investors.  The Management Agreement in  no
way  restricts  the  Investment Manager  from  acting as  investment  manager or
adviser to others.

   
    As full compensation for the services  and facilities furnished to the  Fund
and  expenses of the Fund  assumed by the Investment  Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the  annual
rates of 1.0% of the portion of daily net assets not exceeding $500 million; and
0.95%  of the portion of daily net assets exceeding $500 million. For the fiscal
years ended October 31, 1992, 1993 and 1994, the Fund accrued to the  Investment
Manager  total compensation  under the  Management Agreement  in the  amounts of
$3,185,437, $3,309,245 and $6,274,989, respectively.
    

    Pursuant to  a Sub-Advisory  Agreement between  the Investment  Manager  and
Morgan Grenfell Investment Services Limited (the "Sub-Advisor"), the Sub-Advisor
has  been retained, subject to the overall supervision of the Investment Manager
and the  Directors  of  the  Fund, to  continuously  furnish  investment  advice
concerning   individual  security  selections,  asset  allocations  and  overall
economic trends with respect to Europe and  to manage the portion of the  Fund's
portfolio invested in securities issued by issuers located in Europe, subject to
the  supervision of  the Investment Manager.  On occasion,  the Sub-Advisor will
also provide the Investment Manager with investment advice concerning  potential
investment opportunities for the Fund which are available outside of Europe.

   
    Morgan  Grenfell  Investment Services  Limited ("MGIS")  was organized  as a
British corporation in  1972 and manages,  as of September  30, 1994, assets  of
approximately $9.4 billion for U.S. corporate and public employee benefit plans,
investment  companies,  endowments and  foundations.  MGIS' principal  office is
located at 20 Finsbury Circus, London,  England. MGIS is a subsidiary of  London
based  Morgan Grenfell Asset Management Limited, which is itself a subsidiary of
London-based Morgan Grenfell Group plc (which  is owned by Deutsche Bank AG,  an
international  commercial and investment banking group)  and is registered as an
investment adviser under the  Investment Advisers Act of  1940. In 1838,  Morgan
Grenfell  was  founded to  provide  merchant banking  services,  primarily trade
financing between Great Britain and the  United States. In 1958, its  investment
management  arm began operations. In recent years, Morgan Grenfell Group plc has
achieved a prominent position in the securities industry by providing investment
and  commercial  banking   services,  financial   services,  and   discretionary
management  and advisory services covering all of the world's leading securities
markets.  Morgan  Grenfell  Asset   Management  Limited,  through  its   various
investment  management subsidiaries,  which have extensive  experience in global
investment management,  is managing,  as of  September 30,  1994,  approximately
$43.8 billion worldwide.
    

    Both the Investment Manager and the Sub-Advisor have authorized any of their
directors, officers and employees who have been elected as Directors or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished  by the  Investment Manager  and the  Sub-Advisor may  be furnished by
directors, officers and employees of the Investment Manager and the Sub-Advisor.
In connection with  the services  rendered by the  Sub-Advisor, the  Sub-Advisor
bears  the following expenses:  (a) the salaries and  expenses of its personnel;
and (b) all expenses incurred by  it in connection with performing the  services
provided by it as Sub-Advisor, as described above.

   
    As  full compensation for the services  and facilities furnished to the Fund
and the Investment Manager and expenses  of the Fund and the Investment  Manager
assumed  by the Sub-Advisor, the Investment Manager pays the Sub-Advisor monthly
compensation equal  to  40% of  the  Investment Manager's  monthly  compensation
payable  under the Management Agreement. For  the fiscal years ended October 31,
1992, 1993 and 1994, the Investment Manager informed the Fund that it accrued to
the  Sub-Advisor  total  compensation   under  the  Sub-Advisory  Agreement   of
$1,274,175, $1,323,697 and $2,509,996, respectively.
    

                                       5
<PAGE>
   
    Pursuant  to the  Management Agreement  and the  Sub-Advisory Agreement (the
"Agreements"), total operating expenses  of the Fund  are subject to  applicable
limitations  under rules and regulations of  states where the Fund is authorized
to sell its shares. Therefore, operating expenses are effectively subject to the
most restrictive of such  limitations as the  same may be  amended from time  to
time.  Presently,  the most  restrictive limitation  is as  follows. If,  in any
fiscal year, the Fund's total operating expenses, exclusive of taxes,  interest,
brokerage  fees,  distribution fees  and extraordinary  expenses (to  the extent
permitted by applicable state securities laws and regulations), exceed 2 1/2% of
the first $30,000,000 of  average daily net assets,  2% of the next  $70,000,000
and  1  1/2%  of  any  excess over  $100,000,000,  the  Investment  Manager will
reimburse the Fund for the amount  of such excess. Pursuant to the  Sub-Advisory
Agreement,  if any  such reimbursement  is made  by the  Investment Manager, the
Investment Manager will, in turn, be reimbursed  for 40% of such payment by  the
Sub-Advisor. The reimbursement, if any, will be calculated daily and credited on
a  monthly basis. The above-described expense limitation was not exceeded during
the fiscal years ended October 31, 1992, 1993 and 1994.
    

   
    The Agreements with  InterCapital were  initially approved by  the Board  of
Directors  of the Fund on October 30, 1992  and by the shareholders at a Special
Meeting  of  Shareholders  held  on   January  12,  1993.  The  Agreements   are
substantially identical to the prior agreements which were entered into on March
16,  1990 and originally approved  by DWR as the  then sole shareholder on March
28, 1990. The  Agreements took  effect on  June 30,  1993 upon  the spin-off  by
Sears,  Roebuck and Co. of  its remaining shares of  DWDC. The Agreements may be
terminated at any time, without penalty, on thirty days' notice by the Directors
of the Fund, by the holders of a majority, as defined in the Act, of the  Fund's
shares,  or  by  the  Investment  Manager.  The  Agreements  will  automatically
terminate in the event of  its assignment (as defined in  the Act and the  rules
thereunder).
    

   
    Under  their terms, the Agreements had an  initial term ended April 30, 1994
and will continue  from year  to year  thereafter, provided  continuance of  the
Agreements  are  approved at  least annually  by the  vote of  the holders  of a
majority, as defined in the  Act, of the outstanding shares  of the Fund, or  by
the  Board  of  Directors  of  the Fund;  provided  that  in  either  event such
continuance is approved annually by the vote  of a majority of the Directors  of
the  Fund who  are not  parties to  the Agreements  or "interested  persons" (as
defined in the Act) of any such party (the "Independent Directors"), which votes
must be cast in  person at a meeting  called for the purpose  of voting on  such
approval. At their meeting held on April 8, 1994, the Fund's Board of Directors,
including  all of the Independent Directors,  approved the continuation of these
Agreements until  April  30,  1995  and amended  the  terms  of  the  Investment
Management  Agreement  to lower  management fees  charged  on average  daily net
assets of the Fund to 1.0% of the portion of daily net assets not exceeding $500
million; and 0.95% of the portion of daily net assets exceeding $500 million.
    

   
    The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any  time
permit  others to use, the name "Dean Witter".  The Fund has also agreed that in
the event the investment management  contract between InterCapital and the  Fund
is terminated, or if the affiliation between InterCapital and its parent company
is  terminated, the Fund will eliminate the  name "Dean Witter" from its name if
DWR or its parent company shall so request.
    

                                       6
<PAGE>
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------

    The Directors and Executive Officers  of the Fund, their principal  business
occupations  during the  last five  years and  their affiliations,  if any, with
InterCapital and with the Dean Witter Funds and the
TCW/DW Funds are shown below.

   
<TABLE>
<CAPTION>
    NAME, POSITION WITH FUND AND ADDRESS               PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------------------------------------  ------------------------------------------------------------
<S>                                            <C>
Jack F. Bennett                                Retired; Director  or  Trustee  of the  Dean  Witter  Funds;
Director                                       formerly   Senior  Vice  President  and  Director  of  Exxon
c/o Gordon Altman Butowsky Weitzen Shalov &    Corporation (1975-January 31, 1989)  and Under Secretary  of
Wein                                           the U.S. Treasury for Monetary Affairs (1974-1975); Director
Counsel to the Independent Directors           of  Philips  Electronics  N.V.,  Tandem  Computers  Inc. and
114 West 47th Street                           Massachusetts Mutual Insurance Company; director or  trustee
New York, New York                             of various not-for-profit and business organizations.

Michael Bozic                                  President  and Chief  Executive Officer  of Hills Department
Director                                       Stores  (since  May,  1991);  formerly  Chairman  and  Chief
c/o Hills Stores Inc.                          Executive Officer (January, 1987-August, 1990) and President
15 Dan Road                                    and Chief Operating Officer (August, 1990-February, 1991) of
Canton, Massachusetts                          the  Sears  Merchandise  Group of  Sears,  Roebuck  and Co.;
                                               Director or Trustee  of the Dean  Witter Funds; Director  of
                                               Harley  Davidson Credit Inc., the  United Negro College Fund
                                               and Domain Inc. (home decor retailer).

Charles A. Fiumefreddo*                        Chairman,  Chief   Executive   Officer   and   Director   of
Chairman of the Board, President,              InterCapital,  Distributors and DWSC; Director and Executive
Chief Executive Officer and Director           Vice President of DWR; Chairman, Director or Trustee, Presi-
Two World Trade Center                         dent and Chief Executive Officer  of the Dean Witter  Funds;
New York, New York                             Chairman,  Chief Executive Officer and Trustee of the TCW/DW
                                               Funds; Chairman and  Director of Dean  Witter Trust  Company
                                               ("DWTC");   Director   and/or   officer   of   various  DWDC
                                               subsidiaries; formerly Executive Vice President and Director
                                               of DWDC (until February, 1993).
</TABLE>
    

                                       7
<PAGE>

   
<TABLE>
<CAPTION>
    NAME, POSITION WITH FUND AND ADDRESS               PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------------------------------------  ------------------------------------------------------------
<S>                                            <C>
Edwin J. Garn                                  Director or  Trustee  of  the Dean  Witter  Funds;  formerly
Director                                       United  States  Senator (R-Utah)  (1974-1992)  and Chairman,
c/o Huntsman Chemical Corporation              Senate Banking Committee (1980-1986); formerly Mayor of Salt
2000 Eagle Gate Tower                          Lake  City,  Utah  (1971-1974);  formerly  Astronaut,  Space
Salt Lake City, Utah                           Shuttle   Discovery  (April  12-19,  1985);  Vice  Chairman,
                                               Huntsman Chemical Corporation (since January, 1993);  member
                                               of the board of various civic and charitable organizations.
John R. Haire                                  Chairman   of  the  Audit  Committee  and  Chairman  of  the
Director                                       Committee of  the  Independent  Directors  or  Trustees  and
Two World Trade Center                         Director  or Trustee of the Dean Witter Fund; Trustee of the
New York, New York                             TCW/ DW  Funds;  formerly  President,  Council  for  Aid  to
                                               Education   (1978-October,  1989)  and  Chairman  and  Chief
                                               Executive  Officer  of  Anchor  Corporation,  an  Investment
                                               Advisor   (1964-1978);   Director  of   Washington  National
                                               Corporation (insurance) and Bowne & Co., Inc. (printing).
Dr. Manuel H. Johnson                          Senior  Partner,  Johnson   Smick  International,  Inc.,   a
Director                                       consulting  firm; Koch Professor  of International Economics
c/o Johnson Smick International, Inc.          and Director  of the  Center for  Global Market  Studies  at
1133 Connecticut Avenue, N.W.                  George Mason University (since September, 1990); Co-Chairman
Washington, DC                                 and  a  founder  of the  Group  of Seven  Council  (G7C), an
                                               international economic commission  (since September,  1990);
                                               Director or Trustee of the Dean Witter Funds; Trustee of the
                                               TCW/DW  Funds;  Director of  Greenwich Capital  Markets Inc.
                                               (broker-dealer); formerly  Vice  Chairman of  the  Board  of
                                               Governors   of   the  Federal   Reserve   System  (February,
                                               1986-August, 1990)  and  Assistant  Secretary  of  the  U.S.
                                               Treasury (1982-1986).
Paul Kolton                                    Director  or Trustee of  the Dean Witter  Funds; Chairman of
Director                                       the  Audit  Committee  and  Committee  of  the   Independent
c/o Gordon Altman Butowsky Weitzen Shalov &    Trustees  and Trustee of the TCW/DW Funds; formerly Chairman
Wein                                           of the Financial Accounting  Standards Advisory Council  and
Counsel to the Independent Directors           Chairman  and Chief Executive Officer  of the American Stock
114 West 47th Street                           Exchange; Director of UCC  Investors Holding Inc.  (Uniroyal
New York, New York                             Chemical  Company,  Inc.);  director or  trustee  of various
                                               not-for-profit organizations.
</TABLE>
    

                                       8
<PAGE>

   
<TABLE>
<CAPTION>
    NAME, POSITION WITH FUND AND ADDRESS               PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------------------------------------  ------------------------------------------------------------
<S>                                            <C>
Michael E. Nugent                              General Partner, Triumph Capital, L.P., a private investment
Director                                       partnership (since April, 1988); Director or Trustee of  the
c/o Triumph Capital, L.P.                      Dean  Witter Funds;  Trustee of  the TCW/DW  Funds; formerly
237 Park Avenue                                Vice  President,  Bankers  Trust  Company  and  BT   Capital
New York, New York                             Corporation   (September,  1984-March,  1988);  Director  of
                                               various business organizations.
Philip J. Purcell*                             Chairman of  the  Board  of Directors  and  Chief  Executive
Director                                       Officer  of  DWDC,  DWR  and  Novus  Credit  Services  Inc.;
Two World Trade Center                         Director of InterCapital, DWSC and Distributors; Director or
New York, New York                             Trustee of the Dean Witter Funds; Director and/or officer of
                                               various DWDC subsidiaries.
John L. Schroeder                              Executive Vice Presdient and Chief Investment Officer of the
Director                                       Home Insurance  Company (since  August, 1991);  Director  or
c/o The Home Insurance Company                 Trustee  of  the  Dean Witter  Funds;  Director  of Citizens
59 Maiden Lane                                 Utilities Company;  formerly Chairman  and Chief  Investment
New York, New York                             Officer  of  Axe-Houghton  Management  and  the Axe-Houghton
                                               Funds  (April,  1983-June,  1991)  and  President  of  USF&G
                                               Financial Services, Inc. (June, 1990-June, 1991).
Sheldon Curtis                                 Senior  Vice  President,  Secretary and  General  Counsel of
Vice President, Secretary and General Counsel  InterCapital and DWSC; Senior  Vice President and  Secretary
Two World Trade Center                         of DWTC (since October, 1989); Senior Vice President, Assis-
New York, New York                             tant    Secretary   and   Assistant   General   Counsel   of
                                               Distributors; Assistant  Secretary of  DWR; Vice  President,
                                               Secretary  and General Counsel of  the Dean Witter Funds and
                                               the TCW/DW Funds.
Thomas F. Caloia                               First  Vice  President  (since  May,  1991)  and   Assistant
Treasurer                                      Treasurer  (since January, 1993) of InterCapital; First Vice
Two World Trade Center                         President and Assistant Treasurer  of DWSC and Treasurer  of
New York, New York                             the  Dean  Witter Funds  and  TCW/DW Funds;  previously Vice
                                               President of InterCapital.
<FN>
- ---------
 *Denotes Directors who are "interested persons" of the Fund, as defined in the Act.
</TABLE>
    

   
    In addition, Robert M.  Scanlan, President and  Chief Operating Officer,  of
InterCapital  and DWSC,  Executive Vice President  of Distributors  and DWTC and
Director  of  DWTC,  David  A.  Hughey,  Executive  Vice  President  and   Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and Director
of  DWTC,  Edmund C.  Puckhaber, Executive  Vice  President of  InterCapital and
Director of DWTC and Thomas H. Connelly, Senior Vice President of  InterCapital,
are  Vice Presidents of  the Fund and  Marilyn K. Cranney  and Barry Fink, First
Vice Presidents and  Assistant General  Counsels of InterCapital  and DWSC,  and
Lawrence  S. Lafer,  Lou Anne  D. McInnis  and Ruth  Rossi, Vice  Presidents and
Assistant General Counsels of InterCapital  and DWSC, are Assistant  Secretaries
of the Fund.
    

                                       9
<PAGE>
   
    The  Fund pays each Director  who is not an  employee or retired employee of
the Investment Manager or an affiliated company an annual fee of $1,200  ($1,600
prior  to December 31, 1993) plus $50 for each meeting of the Board of Directors
or any committee of  the Board of  Trustees attended by  the Director in  person
(the  Fund pays the Chairman of the  Audit Committee an additional annual fee of
$1,000 ($1,200  prior  to  December 31,  1993)  and  pays the  Chairman  of  the
Committee  of the Independent  Directors an additional annual  fee of $2,400, in
each case inclusive  of the Committee  meeting fees). The  Fund also  reimburses
such  Directors for travel and other  out-of-pocket expenses incurred by them in
connection with  attending such  meetings.  The Fund  has adopted  a  retirement
program under which an Independent Director who retires after a minimum required
period  of service  would be entitled  to retirement payments  upon reaching the
eligible retirement age (normally, after attaining age 72) based upon length  of
service  and computed  as a  percentage of  one-fifth of  the total compensation
earned by such Director for service to the Fund in the five-year period prior to
the date of the  Director's retirement. Directors and  officers of the Fund  who
are  employed  by the  Investment Manager  or an  affiliated company  receive no
compensation or expense  reimbursement from  the Fund.  The Fund  has adopted  a
retirement  program under which a Director who  is not an "interested person" of
the Fund and who  retires after a  minimum required period  of service would  be
entitled  to  retirement  payments  upon reaching  the  eligible  retirement age
(normally, after attaining age 72) based upon length of service and computed  as
a  percentage of one-fifth of the total compensation earned by such Director for
service to the Fund in the five year period prior to the date of the  Director's
retirement. For the fiscal year ended October 31, 1994, the Fund accrued $27,010
in  Directors' fees, expenses, and benefits under the above-described retirement
program, and its  predecessor. As  of the date  of the  Statement of  Additional
Information,  the aggregate  shares of  common stock  of the  Fund owned  by the
Fund's officers and Directors as a group  was less than 1 percent of the  Fund's
shares of common stock outstanding.
    

INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------

    As  stated in the Prospectus, while the Fund currently anticipates investing
over 25% of  its total assets  in securities  of issuers located  in the  United
Kingdom,  it may also invest more than 25%  of its total assets, at any time, in
the securities of issuers  located in each of  the following countries:  France,
Germany,  the Netherlands and Switzerland. While  it is not anticipated that the
Fund will invest more than 25% of its total assets in the securities of  issuers
located  in any such country, the  Fund's Registration Statement will be amended
to contain disclosure discussing the risks pertaining to a concentration of  the
Fund's assets in such country at such time as the 25% level is exceeded.

    PRIVATE  PLACEMENTS.  The Fund  may invest up to 10%  of its total assets in
securities which are  subject to restrictions  on resale because  they have  not
been  registered under the  Securities Act of 1933,  as amended (the "Securities
Act"), or which are otherwise  not readily marketable. (Securities eligible  for
resale  pursuant to Rule 144A of the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing  restriction.) These  securities are generally  referred to  as
private  placements or restricted securities. Limitations  on the resale of such
securities may have an  adverse effect on their  marketability, and may  prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to  bear the expense of  registering such securities for  resale and the risk of
substantial delays in effecting such registration.

    The Securities  and Exchange  Commission  has adopted  Rule 144A  under  the
Securities  Act,  which  permits  the  Fund  to  sell  restricted  securities to
qualified institutional  buyers  without  limitation.  The  Investment  Manager,
pursuant  to  procedures adopted  by  the Directors  of  the Fund,  will  make a
determination as to the liquidity of  each restricted security pruchased by  the
Fund.  If a restricted secruity is determined to be "liquid", such security will
not be included within the category  "illiquid securities", which is limited  by
the Fund's investment restrictions to 10% of the Fund's total assets.

    CONVERTIBLE  SECURITIES.   The  Fund may  invest in  fixed-income securities
which are convertible into common  stock. Convertible securities rank senior  to
common  stocks in a corporation's capital  structure and, therefore, entail less
risk than the corporation's  common stock. The value  of a convertible  security

                                       10
<PAGE>
is  a function  of its "investment  value" (its  value as if  it did  not have a
conversion privilege), and its  "conversion value" (the  security's worth if  it
were  to be exchanged for the underlying  security, at market value, pursuant to
its conversion privilege).

    To the extent that a convertible security's investment value is greater than
its conversion  value,  its  price  will  be  primarily  a  reflection  of  such
investment  value and its price  will be likely to  increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other  factors may also have an effect on  the
convertible  security's value). If  the conversion value  exceeds the investment
value, the price  of the  convertible security  will rise  above its  investment
value  and, in addition,  will sell at  some premium over  its conversion value.
(This premium  represents  the  price  investors are  willing  to  pay  for  the
privilege  of purchasing a  fixed-income security with  a possibility of capital
appreciation due to the  conversion privilege.) At such  times the price of  the
convertible  security  will tend  to fluctuate  directly with  the price  of the
underlying equity security. Convertible securities may be purchased by the  Fund
at  varying price levels  above their investment  values and/or their conversion
values in keeping with the Fund's objectives.

    WARRANTS.   The Fund  may  acquire warrants,  including warrants  which  are
attached  to fixed-income securities purchased for  its portfolio, and hold such
warrants until the Investment  Manager and/or the  Sub-Advisor determines it  is
prudent  to  sell.  Warrants  are,  in  effect,  an  option  to  purchase equity
securities at a specific price, generally  valid for a specific period of  time,
and  have no voting rights, pay no dividends  and have no rights with respect to
the corporations issuing them.

    U.S. GOVERNMENT SECURITIES.  Securities  issued by the U.S. Government,  its
agencies or instrumentalities in which the Fund may invest include:

        (1)  U.S. Treasury bills (maturities of one year or less), U.S. Treasury
    notes  (maturities of one  to ten years) and  U.S. Treasury bonds (generally
    maturities of greater than ten years),  all of which are direct  obligations
    of  the U.S.  Government and,  as such,  are backed  by the  "full faith and
    credit" of the United States.

        (2)  Securities  issued by  agencies and instrumentalities  of the  U.S.
    Government  which are  backed by  the full  faith and  credit of  the United
    States. Among the  agencies and instrumentalities  issuing such  obligations
    are  the Federal  Housing Administration,  the Government  National Mortgage
    Association ("GNMA"), the Department of  Housing and Urban Development,  the
    Export-Import  Bank, the  Farmers Home Administration,  the General Services
    Administration,  the  Maritime   Administration  and   the  Small   Business
    Administration.  The maturities of such  obligations range from three months
    to 30 years.

    Neither the value nor the yield of the U.S. Government securities which  may
be  invested in by the  Fund are guaranteed by  the U.S. Government. Such values
and yield will  fluctuate with changes  in prevailing interest  rates and  other
factors.  Generally, as  prevailing interest rates  rise, the value  of any U.S.
Government securities held by  the Fund will fall.  Such securities with  longer
maturities  generally tend to  produce higher yields and  are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities.

    ZERO  COUPON  TREASURY  SECURITIES.    A  portion  of  the  U.S.  Government
securities purchased by the Fund may be "zero coupon" Treasury securities. These
are  U.S. Treasury  bills, notes  and bonds  which have  been stripped  of their
unmatured interest coupons and receipts  or which are certificates  representing
interests  in such  stripped debt obligations  and coupons.  Such securities are
purchased at a discount from their  face amount, giving the purchaser the  right
to receive their full value at maturity. A zero coupon security pays no interest
to  its  holder  during its  life.  Its value  to  an investor  consists  of the
difference between its  face value at  the time  of maturity and  the price  for
which  it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price). The Fund  intends
to  invest in such zero coupon treasury securities as STRIPS, Treasury Receipts,
Physical Coupons, and Proprietary Receipts.  However, the Fund does not  intend,
during  its  current  fiscal  year,  to invest  in  such  securities  in amounts
totalling more than 5% of its total assets.

                                       11
<PAGE>
    The  interest  earned  on  such  securities  is,  implicitly,  automatically
compounded  and paid out at maturity. While  such compounding at a constant rate
eliminates the risk of receiving lower  yields upon reinvestment of interest  if
prevailing  interest rates decline, the owner of  a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest  rates rise.  For this  reason, zero  coupon securities  are
subject  to substantially  greater market  price fluctuations  during periods of
changing prevailing interest  rates than  are comparable  debt securities  which
make  current distributions of interest. Current federal tax law requires that a
holder (such as  the Fund) of  a zero coupon  security accrue a  portion of  the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.

    Currently  the only  U.S. Treasury  security issued  without coupons  is the
Treasury bill. However, in the  last few years a  number of banks and  brokerage
firms  have  separated  ("stripped")  the  principal  portions  from  the coupon
portions of the U.S. Treasury  bonds and notes and  sold them separately in  the
form  of  receipts or  certificates  representing undivided  interests  in these
instruments (which instruments are  generally held by a  bank in a custodial  or
trust account).

    As stated in the Prospectus, the money market instruments which the Fund may
purchase  include  U.S.  Government  securities,  bank  obligations,  Eurodollar
certificates of  deposit, obligations  of  savings institutions,  fully  insured
certificates of deposit and commercial paper. Such securities are limited to:

    U.S.  GOVERNMENT  SECURITIES.    Obligations  issued  or  guaranteed  as  to
principal and  interest  by the  United  States or  its  agencies (such  as  the
Export-Import  Bank  of the  United States,  Federal Housing  Administration and
Government National Mortgage Association) or its instrumentalities (such as  the
Federal Home Loan Bank), including Treasury bills, notes and bonds;

    BANK  OBLIGATIONS.    Obligations  (including  certificates  of  deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government  and
having  total assets of $1,000,000,000 or  more, and instruments secured by such
obligations, not including  obligations of  foreign branches  of domestic  banks
except to the extent below;

    EURODOLLAR  CERTIFICATES  OF DEPOSIT.    Eurodollar certificates  of deposit
issued  by  foreign  branches   of  domestic  banks   having  total  assets   of
$1,000,000,000 or more;

    OBLIGATIONS  OF SAVINGS  INSTITUTIONS.   Certificates of  deposit of savings
banks and savings and loan  associations, having total assets of  $1,000,000,000
or more;

    FULLY INSURED CERTIFICATES OF DEPOSIT.  Certificates of deposit of banks and
savings  institutions, having total  assets of less  than $1,000,000,000, if the
principal amount of the obligation is  insured by the Federal Deposit  Insurance
Corporation,  limited to $100,000 principal amount per certificate and to 10% or
less of the  Fund's total assets  in all  such obligations and  in all  illiquid
assets, in the aggregate;

    COMMERCIAL  PAPER.  Commercial paper rated  within the two highest grades by
S&P or the highest grade by Moody's or, if not rated, issued by a company having
an outstanding debt issue rated at least AA by S&P or Aa by Moody's.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

    As discussed in  the Prospectus,  the Fund  may enter  into forward  foreign
currency   exchange  contracts   ("forward  contracts")   as  a   hedge  against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a  spot (i.e., cash) basis at the  spot
rate  prevailing in  the foreign currency  exchange market,  or through entering
into forward  contracts  to  purchase  or sell  foreign  currencies.  A  forward
contract  involves an obligation  to purchase or  sell a specific  currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties,  at a price set at  the time of the contract.  These
contracts are traded in the interbank market conducted directly between currency
traders  (usually  large, commercial  banks) and  their customers.  Such forward
contracts will only be entered into  with United States banks and their  foreign
branches  or foreign  banks whose  assets total  $1 billion  or more.  A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.

                                       12
<PAGE>
    When management  of the  Fund believes  that the  currency of  a  particular
foreign  country may suffer  a substantial movement against  the U.S. dollar, it
may enter into a  forward contract to  purchase or sell, for  a fixed amount  of
dollars  or other  currency, the  amount of  foreign currency  approximating the
value of some  or all  of the Fund's  portfolio securities  denominated in  such
foreign  currency. The Fund will  also not enter into  such forward contracts or
maintain a  net  exposure  to  such contracts  where  the  consummation  of  the
contracts  would obligate the Fund  to deliver an amount  of foreign currency in
excess of  the  value  of  the  Fund's  portfolio  securities  or  other  assets
denominated  in that currency. Under  normal circumstances, consideration of the
prospect for  currency  parities  will  be incorporated  into  the  longer  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 the
best interests of the Fund will be served. The Fund's custodian bank will  place
cash,  U.S. Government  securities or other  appropriate liquid  high grade debt
securities in a segregated account of the  Fund in an amount equal to the  value
of  the Fund's total  assets committed to the  consummation of forward contracts
entered into  under the  circumstances set  forth  above. 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 equal the amount of the Fund's commitments with respect to such
contracts.

    Where,  for example, the Fund is  hedging a portfolio position consisting of
foreign fixed-income  securities  denominated  in  a  foreign  currency  against
adverse  exchange rate moves vis-a-vis  the U.S. dollar, at  the maturity of the
forward contract for delivery by  the Fund of a  foreign currency, the Fund  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 the market value of
portfolio securities at the expiration of  the contract. Accordingly, it may  be
necessary  for  the Fund  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  the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of  the
foreign  currency. Conversely, it  may be necessary  to sell on  the spot market
some of the foreign currency received upon the sale of the portfolio  securities
if its market value exceeds the amount of foreign currency the Fund is obligated
to deliver.

    If  the Fund retains  the portfolio securities and  engages in an offsetting
transaction, the Fund will  incur a gain  or loss to the  extent that there  has
been  movement in  spot or forward  contract prices.  If the Fund  engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the  foreign currency.  Should  forward prices  decline during  the  period
between  the Fund's 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, the Fund  will realize a gain to  the extent the price of
the currency it  has agreed to  sell exceeds the  price of the  currency it  has
agreed  to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price  of the currency it has  agreed to purchase exceeds  the
price of the currency it has agreed to sell.

    If  the Fund purchases a fixed-income  security which is denominated in U.S.
dollars but which will pay  out its principal based upon  a formula tied to  the
exchange  rate between  the U.S.  dollar and  a foreign  currency, it  may hedge
against a decline  in the principal  value of  the security by  entering into  a
forward  contract to sell  an amount of  the relevant foreign  currency equal to
some or all of the principal value of the security.

    At times when the Fund has written a call option on a fixed-income  security
or  the currency in which it is denominated, it may wish to enter into a forward
contract to  purchase or  sell the  foreign currency  in which  the security  is
denominated.  A  forward contract  would,  for example,  hedge  the risk  of the
security on which a call option has been written declining in value to a greater
extent than the  value of the  premium received  for the option.  The Fund  will
maintain  with its Custodian at all  times, cash, U.S. Government securities and
high grade  debt obligations  in a  segregated  account equal  in value  to  all

                                       13
<PAGE>
forward  contract obligations  and option  contract obligations  entered into in
hedge situations such as this.

    Although the Fund values its assets daily in terms of U.S. dollars, it  does
not  intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should  be
aware  of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for  conversion, they do realize a  profit based on the  spread
between  the prices  at which  they are  buying and  selling various currencies.
Thus, a dealer may  offer to sell a  foreign currency to the  Fund at one  rate,
while  offering a lesser rate of exchange  should the Fund desire to resell that
currency to the dealer.

OPTIONS AND FUTURES TRANSACTIONS

    As discussed in  the Prospectus,  the Fund  may write  covered call  options
against securities held in its portfolio and purchase options of the same series
to  effect closing transactions, and may  hedge against potential changes in the
market value of its investments  (or anticipated investments) by purchasing  put
and  call  options  on portfolio  (or  eligible portfolio)  securities  (and the
currencies in which they are denominated) and engaging in transactions involving
futures contracts and options on such contracts.

    OPTIONS ON FOREIGN CURRENCIES.  The  Fund may purchase and write options  on
foreign  currencies for  purposes similar  to those  involved with  investing in
forward foreign currency exchange  contracts. For example,  in order to  protect
against  declines  in  the  dollar  value  of  portfolio  securities  which  are
denominated in  a foreign  currency, the  Fund may  purchase put  options on  an
amount of such foreign currency equivalent to the current value of the portfolio
securities  involved. As a result, the Fund would be enabled to sell the foreign
currency for a  fixed amount of  U.S. dollars, thereby  "locking in" the  dollar
value  of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may  purchase call options on foreign  currencies
in  which securities it  anticipates purchasing are denominated  to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S.  dollar against such  foreign currency. The  Fund may also  purchase
call and put options to close out written option positions.

    The  Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in  foreign
currencies.  If the  U.S. dollar  value of the  portfolio securities  falls as a
result of a decline in the exchange  rate between the foreign currency in  which
it  is denominated and  the U.S. dollar, then  a loss to  the Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the  option
sold.  At the same time, however,  the Fund gives up the  benefit of any rise in
value of  the relevant  portfolio securities  above the  exercise price  of  the
option  and, in fact, only receives a benefit  from the writing of the option to
the extent that the value of the  portfolio securities falls below the price  of
the  premium received. The  Fund may also  write options to  close out long call
option positions.

    The markets in foreign  currency options are relatively  new and the  Fund's
ability  to establish and close out positions  on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless  and until, in  the opinion of  the management of  the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection  with such options are not greater  than the risks in connection with
the underlying  currency, there  can be  no assurance  that a  liquid  secondary
market  will exist for  a particular option  at any specific  time. In addition,
options on  foreign  currencies are  affected  by  all of  those  factors  which
influence foreign exchange rates and investments generally.

    The  value  of a  foreign  currency option  depends  upon the  value  of the
underlying currency relative to the U.S. dollar.  As a result, the price of  the
option  position may vary with changes in the value of either or both currencies
and have  no  relationship to  the  investment  merits of  a  foreign  security,
including  foreign securities held  in a "hedged"  investment portfolio. Because
foreign  currency  transactions  occurring  in  the  interbank  market   involve
substantially  larger amounts  than those  that may  be involved  in the  use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market

                                       14
<PAGE>
(generally  consisting  of  transactions  of  less  than  $1  million)  for  the
underlying  foreign currencies at prices that  are less favorable than for round
lots.

    There is  no  systematic reporting  of  last sale  information  for  foreign
currencies  or  any  regulatory requirement  that  quotations  available through
dealers or other market sources be firm or revised on a timely basis.  Quotation
information  available is generally representative of very large transactions in
the interbank market and  thus may not  reflect relatively smaller  transactions
(i.e.,  less than $1 million)  where rates may be  less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options  markets are closed while  the markets for the  underlying
currencies  remain open, significant price and  rate movements may take place in
the underlying markets that are not reflected in the options market.

    COVERED CALL WRITING.  As stated in the Prospectus, the Fund is permitted to
write covered call options  on portfolio securities and  on the U.S. Dollar  and
foreign  currencies, without limit, in order  to aid in achieving its investment
objectives. Generally, a call option is "covered"  if the Fund owns, or has  the
right  to acquire, without additional cash consideration (or for additional cash
consideration held for the  Fund by its Custodian  in a segregated account)  the
underlying  security (currency) subject to the option except that in the case of
call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from  those underlying the  call option, but  with a  principal
amount  and value  corresponding to  the exercise price  and a  maturity date no
later than that of the security (currency) deliverable under the call option.  A
call option is also covered if the Fund holds a call on the same security as the
underlying  security (currency) of the written  option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the  mark
to  market  difference  is  maintained  by the  Fund  in  cash,  U.S. Government
securities or  other high  grade debt  obligations  which the  Fund holds  in  a
segregated account maintained with its Custodian.

    The  Fund  will receive  from the  purchaser, in  return for  a call  it has
written, a "premium"; i.e., the price  of the option. Receipt of these  premiums
may  better enable  the Fund to  earn a higher  level of current  income than it
would earn from holding the underlying securities (currencies) alone.  Moreover,
the premium received will offset a portion of the potential loss incurred by the
Fund  if the securities  (currencies) underlying the  option are ultimately sold
(exchanged) by the  Fund at  a loss. The  premium received  will fluctuate  with
varying  economic  market  conditions.  If the  market  value  of  the portfolio
securities (or the  currencies in which  they are denominated)  upon which  call
options  have been written increases, the Fund  may receive a lower total return
from the portion of  its portfolio upon  which calls have  been written than  it
would have had such calls not been written.

    As  regards  listed options  and  certain over-the-counter  ("OTC") options,
during the option period, the Fund may be required, at any time, to deliver  the
underlying  security (currency)  against payment  of the  exercise price  on any
calls it has written (exercise of certain listed and OTC options may be  limited
to specific expiration dates). This obligation is terminated upon the expiration
of  the option period or at such earlier  time when the writer effects a closing
purchase  transaction.  A  closing  purchase  transaction  is  accomplished   by
purchasing  an  option of  the  same series  as  the option  previously written.
However, once the Fund has  been assigned an exercise  notice, the Fund will  be
unable to effect a closing purchase transaction.

    Closing purchase transactions are ordinarily effected to realize a profit on
an  outstanding call option,  to prevent an  underlying security (currency) from
being called, to permit the sale of  an underlying security (or the exchange  of
the  underlying currency) or to enable the  Fund to write another call option on
the underlying security  (currency) with  either a different  exercise price  or
expiration  date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether  the amount of the premium  received
on  the call  option is  more or  less than  the cost  of effecting  the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a

                                       15
<PAGE>
gain resulting from a closing purchase  transaction could be offset in whole  or
in  part or exceeded by a decline in the market value of the underlying security
(currency).

    If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset  by  depreciation in  the  market  value of  the  underlying  security
(currency)  during the option  period. If a  call option is  exercised, the Fund
realizes a gain  or loss  from the sale  of the  underlying security  (currency)
equal  to the difference  between the purchase price  of the underlying security
(currency) and the  proceeds of  the sale of  the security  (currency) plus  the
premium received for the option less the commission paid.

    Options  written by the  Fund will normally  have expiration dates  of up to
eighteen months from the date written. The  exercise price of a call option  may
be  below, equal to or above the current market value of the underlying security
at  the  time  the  option  is  written.  See  "Risks  of  Options  and  Futures
Transactions," below.

    PURCHASING  CALL AND PUT OPTIONS.  As stated in the Prospectus, the Fund may
purchase listed and OTC call  and put options in amounts  equalling up to 5%  of
its  total assets. The Fund may  purchase a call option in  order to close out a
covered call position (see "Covered Call Writing" above), to protect against  an
increase  in price of a security it anticipates  purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate  move
of  the currency in which the  security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The  purchase
of  the  call  option  to  effect  a  closing  transaction  on  a  call  written
over-the-counter may be  a listed or  an OTC  option. In either  case, the  call
purchased  is likely to be on the same securities (currencies) and have the same
terms as the  written option.  If purchased over-the-counter,  the option  would
generally  be acquired from the dealer  or financial institution which purchased
the call written by the Fund.

    The Fund may purchase put options on securities (currencies) which it  holds
in  its portfolio only to  protect itself against a decline  in the value of the
security. If the value of the underlying security (currency) were to fall  below
the  exercise price of the  put purchased in an  amount greater than the premium
paid for the option, the Fund would  incur no additional loss. In addition,  the
Fund  may sell a put option which it  has previously purchased prior to the sale
of the securities (currencies) underlying such option. Such a sale would  result
in  a net gain or loss  depending on whether the amount  received on the sale is
more or less than the premium and other transaction costs paid on the put option
which is sold. And such gain  or loss could be offset in  whole or in part by  a
change  in the  market value  of the  underlying security  (currency). If  a put
option purchased  by the  Fund  expired without  being  sold or  exercised,  the
premium would be lost.

    RISKS  OF OPTIONS TRANSACTIONS.  During  the option period, the covered call
writer has, in return for  the premium on the  option, given up the  opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or the value of its denominated currency) increase, but has
retained  the risk of loss  should the price of  the underlying security (or the
value of its denominated currency) decline.  The writer has no control over  the
time  when it  may be  required to  fulfill its  obligation as  a writer  of the
option. Once an option writer has received an exercise notice, it cannot  effect
a  closing purchase transaction  in order to terminate  its obligation under the
option and must  deliver or receive  the underlying securities  at the  exercise
price.

    Prior  to exercise or expiration, an  option position can only be terminated
by entering  into a  closing purchase  or sale  transaction. If  a covered  call
option  writer is unable to effect a closing purchase transaction or to purchase
an offsetting  OTC option,  it cannot  sell the  underlying security  until  the
option  expires or the  option is exercised. Accordingly,  a covered call option
writer may not be able  to sell an underlying security  at a time when it  might
otherwise be advantageous to do so.

    As discussed in the Prospectus, the Fund's ability to close out its position
as  a writer of an option is dependent  upon the existence of a liquid secondary
market on Option Exchanges. There is no assurance that such a market will exist,
particularly in the case of OTC options, as such options will generally only  be
closed  out by entering into a  closing purchase transaction with the purchasing
dealer. However, the  Fund may be  able to purchase  an offsetting option  which
does not close out its position as a writer but

                                       16
<PAGE>
constitutes  an asset of equal value to the obligation under the option written.
If the Fund is not able to  either enter into a closing purchase transaction  or
purchase  an offsetting position, it will be required to maintain the securities
subject to the call, or the collateral underlying the put, even though it  might
not  be advantageous to do  so, until a closing  transaction can be entered into
(or the option is exercised or expires).

    Among the possible reasons for the  absence of a liquid secondary market  on
an  Exchange are:  (i) insufficient  trading interest  in certain  options; (ii)
restrictions on  transactions  imposed  by an  Exchange;  (iii)  trading  halts,
suspensions  or other restrictions imposed with respect to particular classes or
series of  options or  underlying securities;  (iv) interruption  of the  normal
operations  on an Exchange; (v)  inadequacy of the facilities  of an Exchange or
the Options Clearing Corporation  ("OCC") to handle  current trading volume;  or
(vi)  a decision by one or more  Exchanges to discontinue the trading of options
(or a  particular class  or series  of options),  in which  event the  secondary
market  on that Exchange (or in that class  or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as  a result  of trades  on that  Exchange would  generally continue  to  be
excercisable in accordance with their terms.

    In the event of the bankruptcy of a broker through which the Fund engages in
transactions  in  options, the  Fund could  experience  delays and/or  losses in
liquidating open positions purchased or sold  through the broker and/or incur  a
loss  of all or part  of its margin deposits with  the broker. Similarly, in the
event of the bankruptcy of  the writer of an OTC  option purchased by the  Fund,
the  Fund could experience  a loss of  all or part  of the value  of the option.
Transactions are  entered  into by  the  Fund  only with  brokers  or  financial
institutions deemed creditworthy by the Fund's management.

    Each  of  the Exchanges  has established  limitations governing  the maximum
number of options on the same  underlying security or futures contract  (whether
or  not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different Exchanges or  are held or written on  one or more accounts  or
through one or more brokers). An Exchange may order the liquidation of positions
found  to be in violation  of these limits and it  may impose other sanctions or
restrictions. These position limits  may restrict the  number of listed  options
which the Fund may write.

    The  hours of trading for options may  not conform to the hours during which
the underlying securities  are traded.  To the  extent that  the option  markets
close  before the markets  for the underlying  securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.

    FUTURES CONTRACTS.  As stated in  the Prospectus, the Fund may purchase  and
sell interest rate, currency, and index futures contracts ("futures contracts"),
that  are traded  on U.S.  and foreign  commodity exchanges,  on such underlying
securities as U.S. Treasury bonds, notes and bills and/or any foreign government
fixed-income  security  ("interest   rate"  futures),   on  various   currencies
("currency  futures") and on such indexes of  U.S. and foreign securities as may
exist or come into being ("index" futures).

    Although most interest rate  futures contracts call  for actual delivery  or
acceptance  of  securities,  the contracts  usually  are closed  out  before the
settlement date without  the making or  taking of delivery.  A futures  contract
sale  is  closed out  by  effecting a  futures  contract purchase  for  the same
aggregate amount  of the  specific  type of  security  (currency) and  the  same
delivery  date. If  the sale  price exceeds  the offsetting  purchase price, the
seller would be paid the difference and would realize a gain. If the  offsetting
purchase  price exceeds the sale price, the  seller would pay the difference and
would realize a loss.  Similarly, a futures contract  purchase is closed out  by
effecting  a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the  same delivery date. If the offsetting  sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the  purchase  price  exceeds the  offsetting  sale price,  the  purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into a
closing transaction.

                                       17
<PAGE>
    INTEREST RATE FUTURES CONTRACTS.  When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin"  of cash  or U.S.  Government securities  or other  high  grade
short-term obligations equal to approximately 3% of the contract amount. Initial
margin  requirements are established by the Exchanges on which futures contracts
trade and may,  from time to  time, change. In  addition, brokers may  establish
margin deposit requirements in excess of those required by the Exchanges.

    Initial   margin  in  futures  transactions  is  different  from  margin  in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is,  rather, a good faith deposit on the  futures
contract  which will be returned to the  Fund upon the proper termination of the
futures contract. The margin  deposits made are marked  to market daily and  the
Fund  may be  required to  make subsequent deposits  of cash  or U.S. Government
securities called "variation margin", with the Fund's futures contract  clearing
broker,  which are  reflective of  price fluctuations  in the  futures contract.
Currently, interest rate futures contracts  can be purchased on debt  securities
such  as  U.S. Treasury  Bills and  Bonds, U.S.  Treasury Notes  with Maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.

    CURRENCY FUTURES.    Generally, foreign  currency  futures provide  for  the
delivery  of a specified amount of a given currency, on the delivery date, for a
set exercise  price  denominated in  U.S.  dollars or  other  currency.  Foreign
currency  futures contracts would be entered into  for the same reason and under
the same  circumstances  as forward  foreign  currency exchange  contracts.  The
Investment  Manager  will assess  such factors  as  cost spreads,  liquidity and
transaction costs in determining whether to utilize futures contracts or forward
contracts its in foreign currency transactions and hedging strategy.  Currently,
currency  futures exist for,  among other foreign  currencies, the Japanese yen,
German marks, Canadian dollars, British pound, Swiss franc and European currency
unit.

    Purchasers and sellers of foreign currency futures contracts are subject  to
the  same risks that  apply to the  buying and selling  of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use  as a  hedging device  similar  to those  associated with  options  on
foreign  currencies described above.  Further, settlement of  a foreign currency
futures contract must occur within the country issuing the underlying  currency.
Thus,  the Fund must accept or make  delivery of the underlying foreign currency
in accordance with any U.S. or foreign restrictions or regulation regarding  the
maintenance  of  foreign  banking  arrangements by  U.S.  residents  and  may be
required to pay any fees, taxes  or charges associated with such delivery  which
are assessed in the issuing country.

    Options on foreign currency futures contracts may involve certain additional
risks.  Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out  positions on such options is subject  to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not  purchase or write options on  foreign currency futures contracts unless and
until, in the  Investment Manager's  opinion, the  market for  such options  has
developed  sufficiently that the  risks in connection with  such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts.

    INDEX FUTURES  CONTRACTS.   As discussed  in the  Prospectus, the  Fund  may
invest  in index  futures contracts. An  index futures contract  sale creates an
obligation by the Fund, as seller, to  deliver cash at a specified future  time.
An  index futures contract purchase  would create an obligation  by the Fund, as
purchaser, to  take  delivery  of  cash at  a  specified  future  time.  Futures
contracts  on indexes  do not require  the physical delivery  of securities, but
provide for  a final  cash  settlement on  the  expiration date  which  reflects
accumulated profits and losses credited or debited to each party's account.

    The  Fund  is  required to  maintain  margin deposits  with  brokerage firms
through which it  effects index futures  contracts in a  manner similar to  that
described  above  for interest  rate futures  contracts. Currently,  the initial
margin requirements  range from  3% to  10%  of the  contract amount  for  index
futures.  In addition,  due to  current industry  practice, daily  variations in
gains and losses on open contracts are

                                       18
<PAGE>
required to be reflected in cash in  the form of variation margin payments.  The
Fund  may be required to make additional  margin payments during the term of the
contract.

    At any time prior to expiration of the futures contract, the Fund may  elect
to  close the  position by  taking an  opposite position  which will  operate to
terminate the Fund's position in the futures contract. A final determination  of
variation  margin is  then made, additional  cash is  required to be  paid by or
released to the Fund and the Fund realizes a loss or gain.

    OPTIONS ON FUTURES CONTRACTS.  The writer of an option on a futures contract
is required to  deposit initial  and variation margin  pursuant to  requirements
similar  to those  applicable to futures  contracts. Premiums  received from the
writing of  an option  on a  futures  contract are  included in  initial  margin
deposits.

    RISKS  OF TRANSACTIONS IN FUTURES CONTRACTS  AND RELATED OPTIONS.  As stated
in the Prospectus, the Fund may sell  a futures contract to protect against  the
decline  in  the  value  of  securities  (or  the  currency  in  which  they are
denominated) held by the Fund. However,  it is possible that the futures  market
may  advance and  the value  of securities  (or the  currency in  which they are
denominated) held in the  portfolio of the Fund  may decline. If this  occurred,
the  Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a very
brief period or to  a very small  degree, over time the  value of a  diversified
portfolio will tend to move in the same direction as the futures contracts.

    If  the Fund purchases a  futures contract to hedge  against the increase in
value of  securities it  intends  to buy  (or the  currency  in which  they  are
denominated),  and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize a
loss on the futures contract that is not  offset by a reduction in the price  of
the securities.

    In  order to assure that  the Fund is entering  into transactions in futures
contracts for  hedging purposes  as such  is defined  by the  Commodity  Futures
Trading  Commission either: 1) a  substantial majority (i.e., approximately 75%)
of all anticipatory hedge transactions (transactions in which the Fund does  not
own  at the  time of  the transaction,  but expects  to acquire,  the securities
underlying the  relevant futures  contract) involving  the purchase  of  futures
contracts  will be completed by the purchase of securities which are the subject
of the  hedge or  2)  the underlying  value of  all  long positions  in  futures
contracts  will not exceed the total value of a) all short-term debt obligations
held by the Fund; b) cash held by the Fund; c) cash proceeds due to the Fund  on
investments within thirty days; d) the margin deposited on the contracts; and e)
any unrealized appreciation in the value of the contracts.

    If the Fund has sold a call option in a futures contract, it will cover this
position  by holding, in a segregated account maintained at its Custodian, cash,
U.S. Government securities or other high  grade debt obligations equal in  value
(when  added to any initial or variation  margin on deposit) to the market value
of the securities (currencies) underlying  the futures contract or the  exercise
price  of  the  option.  Such a  position  may  also be  covered  by  owning the
securities (currencies) underlying the  futures contract, or  by holding a  call
option  permitting the Fund to  purchase the same contract  at a price no higher
than the price at which the short position was established.

    In addition, if the Fund holds a long position in a futures contract it will
hold cash, U.S. Government securities or other high grade debt obligations equal
to the purchase price of the contract  (less the amount of initial or  variation
margin  on  deposit) in  a segregated  account  maintained for  the Fund  by its
Custodian. Alternatively, the Fund could cover its long position by purchasing a
put option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Fund.

    Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to  make daily  cash payments of  variation margin  on open  futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell  portfolio securities to meet daily variation margin requirements at a time
when it  may  be  disadvantageous  to  do so.  In  addition,  the  Fund  may  be

                                       19
<PAGE>
required  to take or  make delivery of the  instruments underlying interest rate
futures contracts it holds at  a time when it is  disadvantageous to do so.  The
inability  to close out options and futures positions could also have an adverse
impact on the Fund's ability to effectively hedge its portfolio.

    Futures contracts and options thereon which are purchased or sold on foreign
commodities  exchanges  may  have  greater  price  volatility  than  their  U.S.
counterparts.  Furthermore, foreign commodities exchanges  may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs  may be higher on foreign  exchanges.
Greater  margin requirements may limit the  Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in  clearance
and  delivery  requirements  on foreign  exchanges  may occasion  delays  in the
settlement of the Fund's transactions effected on foreign exchanges.

    In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures  or options  thereon, the Fund  could experience  delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or  incur a  loss of  all or part  of its  margin deposits  with the broker.
Similarly, in  the event  of  the bankruptcy  of the  writer  of an  OTC  option
purchased  by the Fund, the Fund  could experience a loss of  all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.

    While the futures contracts and options transactions to be engaged in by the
Fund for  the  purpose  of  hedging the  Fund's  portfolio  securities  are  not
speculative  in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect  against
the  price volatility of portfolio securities  (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby  the futures contract  prices) may correlate  imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies  in which they are denominated). Another  such risk is that prices of
interest rate  futures contracts  may not  move in  tandem with  the changes  in
prevailing  interest rates against  which the Fund seeks  a hedge. A correlation
may also  be distorted  by the  fact that  the futures  market is  dominated  by
short-term  traders seeking to profit from  the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions  are
generally minor and would diminish as the contract approached maturity.

    As  stated  in  the Prospectus,  there  may exist  an  imperfect correlation
between the price movements of futures  contracts purchased by the Fund and  the
movements  in the prices of the securities (currencies) which are the subject of
the hedge.  If participants  in the  futures  market elect  to close  out  their
contracts  through  offsetting  transactions  rather  than  meet  margin deposit
requirements, distortions in the normal relationship between the debt securities
or currency markets and  futures markets could  result. Price distortions  could
also  result if investors in  futures contracts opt to  make or take delivery of
underlying securities  rather than  engage in  closing transactions  due to  the
resultant  reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point  of view of speculators, the deposit  requirements
in  the futures markets  are less onerous  than margin requirements  in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in  the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast  of interest rate trends  may still not result  in a successful hedging
transaction.

    As stated in the Prospectus, there  is no assurance that a liquid  secondary
market  will exist for futures  contracts and related options  in which the Fund
may invest. In the event a liquid market does not exist, it may not be  possible
to  close out a futures  position, and in the  event of adverse price movements,
the Fund would continue to be required to make daily cash payments of  variation
margin.  In addition, limitations  imposed by an  exchange or board  of trade on
which futures contracts are traded may  compel or prevent the Fund from  closing
out  a contract which may result in reduced  gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities (currencies) at a time when it may
be disadvantageous to do so.

                                       20
<PAGE>
    Compared to the purchase or sale of futures contracts, the purchase of  call
or  put options on  futures contracts involves  less potential risk  to the Fund
because the maximum amount  at risk is  the premium paid  for the options  (plus
transaction  costs). However, there may be  circumstances when the purchase of a
call or put  option on a  futures contract would  result in a  loss to the  Fund
notwithstanding that the purchase or sale of a futures contract would not result
in  a loss, as in the  instance where there is no  movement in the prices of the
futures contract or underlying securities (currencies).

OTHER INVESTMENT POLICIES

    REPURCHASE AGREEMENTS.  When cash may be  available for only a few days,  it
may  be invested by the Fund in repurchase  agreements until such time as it may
otherwise be  invested  or used  for  payments of  obligations  of the  Fund.  A
repurchase  agreement may  be viewed as  a type  of secured lending  by the Fund
which typically involves the  acquisition by the  Fund of government  securities
from  a  selling  financial  institution  such  as  a  bank,  savings  and  loan
association or broker-dealer.  The agreement  provides that the  Fund will  sell
back  to  the  institution,  and  that  the  institution  will  repurchase,  the
underlying security ("collateral") at a specified  price and at a fixed time  in
the  future, usually  not more than  seven days  from the date  of purchase. The
collateral  will   be  maintained   in  a   segregated  account   and  will   be
marked-to-market  daily to determine  that the full value  of the collateral, as
specified in the agreement, is always at least equal to the purchase price  plus
accrued  interest.  If  required, additional  collateral  will be  added  to the
account to maintain  full collateralization.  In the event  the original  seller
defaults  on its  obligations to  repurchase, as a  result of  its bankruptcy or
otherwise, the Fund will seek to sell the collateral, which action could involve
costs or delays. In such case, the  Fund's ability to dispose of the  collateral
to recover its investment may be restricted or delayed.

    The  Fund will accrue interest from the  institution until the time when the
repurchase is to  occur. Although  such date  is deemed by  the Fund  to be  the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits and may exceed one year.

    While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such   risks.  Repurchase  agreements  will   be  transacted  only  with  large,
well-capitalized and  well-established  financial institutions  whose  financial
condition  will be continuously monitored by  the management of the Fund subject
to procedures established by the Directors. The procedures also require that the
collateral underlying the agreement be specified.  The Fund has not to date  nor
does  it presently intend to enter into  repurchase agreements so that more than
5% of the Fund's net assets are subject to such agreements.

    REVERSE REPURCHASE AGREEMENTS.   The  Fund may also  use reverse  repurchase
agreements  for purposes  of meeting  redemptions or  as part  of its investment
strategy. Reverse repurchase agreements involve  sales by the Fund of  portfolio
assets  concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund  can recover all  or most of  the cash invested  in the  portfolio
securities  involved during the term of  the reverse repurchase agreement, while
it will be  able to  keep the interest  income associated  with those  portfolio
securities.  Such transactions are only advantageous if the interest cost to the
Fund of the reverse  repurchase transaction is less  than the cost of  obtaining
the  cash otherwise. Opportunities  to achieve this advantage  may not always be
available, and the  Fund intends to  use the reverse  repurchase technique  only
when  it will be to its advantage to do so. The Fund will establish a segregated
account with  its  custodian  bank  in  which it  will  maintain  cash  or  cash
equivalents  or other  portfolio securities  (i.e., U.S.  Government securities)
equal in value to its obligations  in respect of reverse repurchase  agreements.
Reverse  repurchase agreements  are considered  borrowings by  the Fund  and, in
accordance with legal  requirements, the  Fund will maintain  an asset  coverage
(including the proceeds) of at least 300% with respect to all reverse repurchase
agreements. Reverse repurchase agreements may not exceed 10% of the Fund's total
assets.  The Fund  will make  no purchases, during  its current  fiscal year, of
portfolio  securities  while  it  is  still  subject  to  a  reverse  repurchase
agreement.  The Fund has not to date nor  does it presently intend to enter into
any reverse repurchase agreements.

                                       21
<PAGE>
    WHEN-ISSUED AND DELAYED  DELIVERY SECURITIES  AND FORWARD  COMMITMENTS.   As
discussed  in  the Prospectus,  from time  to  time, in  the ordinary  course of
business, the Fund may purchase securities on a when-issued or delayed  delivery
basis  and may purchase or  sell securities on a  forward commitment basis. When
such transactions  are  negotiated,  the price  is  fixed  at the  time  of  the
commitment,  but delivery and payment  can take place a  month or more after the
date of  the commitment.  The  securities so  purchased  are subject  to  market
fluctuation  and no interest accrues to  the purchaser during this period. While
the Fund will  only purchase securities  on a when-issued,  delayed delivery  or
forward  commitment basis  with the intention  of acquiring  the securities, the
Fund may  sell  the securities  before  the settlement  date,  if it  is  deemed
advisable. At the time the Fund makes the commitment to purchase securities on a
when-issued  or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the  net
asset  value of the Fund.  At the time of delivery  of the securities, the value
may be more  or less than  the purchase price.  The Fund will  also establish  a
segregated  account with the Fund's custodian bank in which it will continuously
maintain cash or U.S. Government securities  or other high grade debt  portfolio
securities  equal  in  value  to commitments  for  such  when-issued  or delayed
delivery  securities;  subject  to  this  requirement,  the  Fund  may  purchase
securities  on such basis  without limit. An  increase in the  percentage of the
Fund's assets  committed to  the  purchase of  securities  on a  when-issued  or
delayed  delivery  basis may  increase the  volatility of  the Fund's  net asset
value. The Fund's management  and the Directors do  not believe that the  Fund's
net  asset  value  or income  will  be  adversely affected  by  its  purchase of
securities on such basis.

    WHEN, AS AND IF ISSUED SECURITIES.  As discussed in the Prospectus, the Fund
may purchase securities  on a "when,  as and  if issued" basis  under which  the
issuance of the security depends upon the occurrence of a subsequent event, such
as  approval of  a merger,  corporate reorganization,  leveraged buyout  or debt
restructuring. The commitment for the purchase of any such security will not  be
recognized  in the portfolio of the Fund until the Investment Manager determines
that issuance of the security  is probable. At such  time, the Fund will  record
the  transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time,  the Fund will also establish a  segregated
account  with its custodian bank in which  it will continuously maintain cash or
U.S. Government securities or other  high grade debt portfolio securities  equal
in  value to recognized commitments for such securities. Settlement of the trade
will occur within five business days of the occurrence of the subsequent  event.
The  value  of the  Fund's commitments  to  purchase the  securities of  any one
issuer, together with the value  of all securities of  such issuer owned by  the
Fund,  may not exceed 5% of the value of the Fund's total assets at the time the
initial  commitment  to  purchase  such  securities  is  made  (see  "Investment
Restrictions").  Subject to  the foregoing  restrictions, the  Fund may purchase
securities on such  basis without limit.  An increase in  the percentage of  the
Fund's  assets committed  to the purchase  of securities  on a "when,  as and if
issued" basis may  increase the volatility  of its net  asset value. The  Fund's
management and the Directors do not believe that the net asset value of the Fund
will be adversely affected by its purchase of securities on such basis. The Fund
may  also sell securities on a "when, as  and if issued" basis provided that the
issuance of  the  security  will  result  automatically  from  the  exchange  or
conversion of a security owned by the Fund at the time of the sale.

    LENDING  OF  PORTFOLIO SECURITIES.    Consistent with  applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any  time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or appropriate high-grade debt obligations, which are maintained
in a segregated account pursuant to applicable regulations and that are at least
equal  to  the market  value, determined  daily, of  the loaned  securities. The
advantage of such loans is that the Fund continues to receive the income on  the
loaned  securities while at the  same time earning interest  on the cash amounts
deposited as collateral, which will  be invested in short-term obligations.  The
Fund  will not lend its portfolio securities  if such loans are not permitted by
the laws or regulations of any state in which its shares are qualified for  sale
and  will not lend more than 25% of the value of its total assets. A loan may be
terminated by the borrower on one business  days' notice, or by the Fund on  two
business  days' notice. If  the borrower fails to  deliver the loaned securities
within two days after receipt  of notice, the Fund  could use the collateral  to
replace  the  securities while  holding the  borrower liable  for any  excess of
replacement

                                       22
<PAGE>
cost over collateral. As with any extensions of credit, there are risks of delay
in recovery and in some cases even  loss of rights in the collateral should  the
borrower  of the securities fail financially.  However, these loans of portfolio
securities will only  be made to  firms deemed  by the Fund's  management to  be
creditworthy  and when the income which can  be earned from such loans justifies
the attendant risks. Upon termination of  the loan, the borrower is required  to
return  the securities to the Fund. Any gain  or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to  which
the Fund lends its portfolio securities will be monitored on an ongoing basis by
the Fund's management pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Directors of the Fund.

    When  voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the  policy of calling the loaned securities,  to
be  delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities.  The Fund will  pay reasonable finder's,  administrative
and custodial fees in connection with a loan of its securities. The Fund has not
to date nor does it presently intend to lend any of its portfolio securities.

INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

    In addition to the investment restrictions enumerated in the Prospectus, the
investment   restrictions  listed  below  have  been  adopted  by  the  Fund  as
fundamental  policies,  except  as  otherwise   indicated.  Under  the  Act,   a
fundamental  policy may  not be changed  without the  vote of a  majority of the
outstanding voting  securities  of the  Fund,  as defined  in  the Act.  Such  a
majority  is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of  the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.

    The Fund may not:

        1.  Purchase or sell real estate or interests therein, although the Fund
    may  purchase securities of  issuers which engage  in real estate operations
    and securities secured by real estate or interests therein.

        2.   Purchase  oil, gas  or  other  mineral leases,  rights  or  royalty
    contracts  or exploration or development programs,  except that the Fund may
    invest in the securities of companies  which operate, invest in, or  sponsor
    such programs.

        3.    Purchase  securities  of  other  investment  companies,  except in
    connection with a  merger, consolidation, reorganization  or acquisition  of
    assets  or in accordance with the provisions of Section 12(d) of the Act and
    any  Rules  promulgated  thereunder.  The  Fund,  however,  has  no  present
    intention  to  make  any investments,  during  the current  fiscal  year, in
    securities issued by other investment companies.

        The Fund anticipates that it  will incur any indirect expenses  incurred
    through  investment  in an  investment  company, such  as  the payment  of a
    management fee.  Furthermore, it  should be  noted that  foreign  investment
    companies  are not subject to the U.S. securities laws and may be subject to
    fewer or less stringent regulations than U.S. investment companies.

        4.  Borrow money (except  insofar as to the Fund  may be deemed to  have
    borrowed by entrance into a reverse repurchase agreement up to an amount not
    exceeding  10% of the Fund's total assets),  except that the Fund may borrow
    from a bank for temporary or emergency purposes in amounts not exceeding  5%
    (taken  at the  lower of  cost or  current value)  of its  total assets (not
    including the amount borrowed).

        5.  Issue senior securities as defined in the Act except insofar as  the
    Fund  may  be deemed  to  have issued  a senior  security  by reason  of (a)
    entering into any repurchase or reverse repurchase agreement; (b) purchasing
    any   securities   on   a    when-issued   or   delayed   delivery    basis;

                                       23
<PAGE>
    (c)  purchasing  or  selling  futures  contracts,  forward  foreign exchange
    contracts or options;  (d) borrowing money  in accordance with  restrictions
    described above; or (e) lending portfolio securities.

        6.   Make loans of  money or securities, except:  (a) by the purchase of
    publicly  distributed  debt  obligations  in  which  the  Fund  may   invest
    consistent with its investment objectives and policies; (b) by investment in
    repurchase or reverse repurchase agreements; or (c) by lending its portfolio
    securities.

        7.   Make short sales of securities or maintain a short position, unless
    at all times when a short position is open it either owns an equal amount of
    such securities or  owns securities  which, without payment  of any  further
    consideration,  are convertible into  or exchangeable for  securities of the
    same issue as, and equal in amount to, the securities sold short.

        8.  Engage in the underwriting of securities, except insofar as the Fund
    may be deemed an underwriter under  the Securities Act of 1933 in  disposing
    of a portfolio security.

        9.   Invest for the  purpose of exercising control  or management of any
    other issuer.

    In addition, as a nonfundamental policy, the Fund will not invest more  than
5%  of its net assets in warrants, including  not more than 2% of such assets in
warrants not  listed  on  either  a recognized  domestic  or  foreign  exchange.
However, the acquisition of warrants attached to other securities is not subject
to this restriction.

    If a percentage restriction is adhered to at the time of investment, a later
increase  or  decrease  in  percentage  resulting from  a  change  in  values of
portfolio securities or amount of total or  net assets will not be considered  a
violation of any of the foregoing restrictions.

PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------

   
    Subject  to the general supervision of  the Fund's Directors, the Investment
Manager and  the Sub-Advisor  are  responsible for  decisions  to buy  and  sell
securities  of the  Fund, the  selection of  brokers and  dealers to  effect the
transactions, and the  negotiation of brokerage  commissions, if any.  Purchases
and  sales of securities  on a stock  exchange are effected  through brokers who
charge  a  commission  for  their  services.  In  the  over-the-counter  market,
securities  are generally  traded on a  "net" basis  with non-affiliated dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. The Fund also
expects that securities  will be  purchased at times  in underwritten  offerings
where  the price includes a fixed  amount of compensation, generally referred to
as the  underwriter's concession  or discount.  In the  underwritten  offerings,
securities  are  purchased  at  a  fixed  price  which  includes  an  amount  of
compensation equal to the underwriter's  concession. On occasion, certain  money
market  instruments may be purchased  directly from an issuer,  in which case no
commissions or discounts  are paid. During  the fiscal years  ended October  31,
1992,  1993  and  1994, the  Fund  paid $1,334,039,  $1,404,525  and $1,844,101,
respectively, in brokerage commissions.
    

    The Investment Manager  and the  Sub-Advisor currently  serve as  investment
advisors  to  a number  of clients,  including,  in the  case of  the Investment
Manager, other investment  companies, and may  in the future  act as  investment
manager  or adviser to others. It is  the practice of the Investment Manager and
the Sub-Advisor to cause  purchase and sale transactions  to be allocated  among
the  Fund  and  others  whose assets  it  manages  in such  manner  as  it deems
equitable. In making such allocations among the Fund and other client  accounts,
the  main  factors  considered  are the  respective  investment  objectives, the
relative size of portfolio  holdings of the same  or comparable securities,  the
availability  of  cash  for  investment,  the  size  of  investment  commitments
generally held and  the opinions  of the  persons responsible  for managing  the
portfolios of the Fund and other client accounts.

    The  policy of the Fund regarding purchases  and sales of securities for its
portfolio is that  primary consideration  will be  given to  obtaining the  most
favorable prices and efficient executions of
transac-

                                       24
<PAGE>
tions. 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  Investment Manager and the
Sub-Advisor from obtaining a high quality of brokerage and research services. In
seeking to determine  the reasonableness  of brokerage commissions  paid in  any
transaction,  the  Investment  Manager  and  the  Sub-Advisor  rely  upon  their
experience and  knowledge regarding  commissions  generally charged  by  various
brokers  and on their judgment in evaluating the brokerage and research services
received from  the broker  effecting the  transaction. Such  determinations  are
necessarily subjective and imprecise, as in most cases an exact dollar value for
those services is not ascertainable.

    The  Fund  anticipates that  certain of  its transactions  involving foreign
securities will be effected on  securities exchanges. Fixed commissions on  such
transactions  are  generally  higher  than  negotiated  commissions  on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.

    In seeking to implement the Fund's policies, the Investment Manager and  the
Sub-Advisor   effect  transactions  with  those  brokers  and  dealers  who  the
Investment Manager and the Sub-Advisor believe provide the most favorable prices
and are capable  of providing  efficient executions. If  the Investment  Manager
and/or  the Sub-Advisor 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  the Investment  Manager and/or  the Sub-Advisor. Such
services may include, but are not limited to, any one or more of the  following:
information  as  to  the  availability  of  securities  for  purchase  or  sale;
statistical or factual  information or opinions  pertaining to investment;  wire
services; and appraisals or evaluations of portfolio securities.

    The  information and  services received  by the  Investment Manager  and the
Sub-Advisor from brokers and dealers may be of benefit to the Investment Manager
and the Sub-Advisor in the management of  accounts of some of its other  clients
and  may not in all  cases benefit the Fund directly.  While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Investment Manager
and the Sub-Advisor and thereby reduce  their expenses, it is of  indeterminable
value  and the fees paid  to the Investment Manager  and the Sub-Advisor are not
reduced by any amount that may be attributable to the value of such services.

    Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR.  The
Fund  will limit  its transactions  with DWR  to U.S.  Government and Government
Agency Securities, Bank  Money Instruments  (i.e., Certificates  of Deposit  and
Bankers'  Acceptances) and Commercial Paper.  Such transactions will be effected
with DWR only when the  price available from DWR  is better than that  available
from other dealers.

   
    Consistent  with  the  policy  described  above,  brokerage  transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR. In order for these broker-dealers to effect any  portfolio
transactions  for the Fund, the commissions, fees or other remuneration received
by them must be reasonable and fair  compared to the commissions, fees or  other
remuneration  paid to other  brokers in connection  with comparable transactions
involving similar securities  being purchased or  sold on an  exchange during  a
comparable  period of time.  This standard would  allow them to  receive no more
than the remuneration which would be expected to be received by an  unaffiliated
broker in a commensurate arm's-length transaction. Furthermore, the Directors of
the Fund, including a majority of the Directors who are not "interested" persons
of the Fund, as defined in the Act, have adopted procedures which are reasonably
designed  to provide  that any commissions,  fees or other  remuneration paid to
these broker-dealers are consistent with the foregoing standard.
    

                                       25
<PAGE>
THE DISTRIBUTOR
- --------------------------------------------------------------------------------

   
    As  discussed in the Prospectus, shares of  the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement  with DWR,  which through its  own sales  organization
sells  shares of the Fund. In addition,  the Distributor may enter into selected
dealer  agreements  with  other  selected  broker-dealers.  The  Distributor,  a
Delaware corporation, is a wholly-owned subsidiary of DWDC. The Directors of the
Fund, including a majority of the Trustees who are not, and were not at the time
they  voted,  interested  persons  of  the Fund,  as  defined  in  the  Act (the
"Independent Directors"), approved, at their  meeting held on October 30,  1992,
the  current  Distribution  Agreement appointing  the  Distributor  as exclusive
distributor of  the Fund's  shares and  providing for  the Distributor  to  bear
distribution  expenses not borne by the Fund. The present Distribution Agreement
took effect on June 30, 1993 upon the spin-off by Sears, Roebuck and Co. of  its
remaining  shares of DWDC.  The present Distribution  Agreement is substantively
identical  to  the  Fund's  previous  Distribution  Agreement  in  all  material
respects,  except for the dates of effectiveness. By its terms, the Distribution
Agreement has an initial term ending April  30, 1994, and provides that it  will
remain in effect from year to year thereafter if approved by the Board. At their
meeting  held on April 8, 1994, the  Directors, including all of the Independent
Directors, approved the continuation of  the Distribution Agreement until  April
30, 1995.
    

    The  Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain  expenses in connection  with the distribution  of
the  Fund's shares, including the costs  of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto  used in connection  with the offering  and
sale  of the  Fund's shares.  The Fund bears  the costs  of initial typesetting,
printing  and   distribution  of   prospectuses  and   supplements  thereto   to
shareholders.  The Fund  also bears  the costs of  registering the  Fund and its
shares under federal  and state securities  laws. The Fund  and the  Distributor
have  agreed  to indemnify  each  other against  certain  liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses  its best efforts in  rendering services to  the
Fund,  but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders  for any error of judgment  or mistake of law or  for
any act or omission or for any losses sustained by the Fund or its shareholders.

   
    PLAN  OF DISTRIBUTION.   To compensate  the Distributor for  the services it
provides and for the  expenses borne by the  Distributor or any selected  dealer
under  the Distribution Agreement,  the Fund has adopted  a Plan of Distribution
pursuant to Rule 12b-1  under the Act  (the "Plan") pursuant  to which the  Fund
pays  the  Distributor compensation  accrued daily  and  payable monthly  at the
annual rate of 1% of the lesser of: (a) the average daily aggregate gross  sales
of   the  Fund's  shares  since  the   inception  of  the  Fund  (not  including
reinvestments of dividends  or capital  gains distributions),  less the  average
daily  aggregate net asset value of the  Fund's shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or upon
which such charge has been waived; or  (b) the Fund's average daily net  assets.
The  Distributor also receives the proceeds of contingent deferred sales charges
imposed on certain  redemptions of  shares, which  are separate  and apart  from
payments  made  pursuant  to  the  Plan  (see  "Redemption  and  Repurchases  --
Contingent Deferred  Sales  Charge"  in the  Prospectus).  The  Distributor  has
informed the Fund that it and/or DWR received approximately $1,174,000, $861,000
and  $883,430 in  contingent deferred sales  charges for the  fiscal years ended
October 31, 1992, 1993 and 1994, respectively.
    

   
    Under its terms, the  Plan had an  initial term ending  April 30, 1990,  and
provided  that it will remain  in effect from year  to year thereafter, provided
such continuance is approved  annually by a vote  of the Directors, including  a
majority  of the  Directors who  are not  "interested persons"  of the  Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the  Plan (the "Independent  12b-1 Directors"). The  Plan was  most
recently submitted to and approved for continuance
    

                                       26
<PAGE>
   
by  the Directors  of the  Fund, including a  majority of  the Independent 12b-1
Directors, at their  meeting held  on April 8,  1994, after  evaluating all  the
information  they deemed necessary to make  an informed determination of whether
the Plan should  be continued.  In making  their determination  to continue  the
Plan,  the Directors  considered: (1) the  Fund's experience under  the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtaining and would be likely to  obtain
under  the Plan; and (3) what services  had been provided and were continuing to
be provided under the Plan by DWR  to the Fund and its shareholders. Based  upon
their review, the Directors of the Fund, including each of the Independent 12b-1
Directors,  determined  that  continuation of  the  Plan  would be  in  the best
interest of the  Fund and would  have a reasonable  likelihood of continuing  to
benefit the Fund and its shareholders. In the Directors' quarterly review of the
Plan,  they  will  consider  its  continued  appropriateness  and  the  level of
compensation provided therein.
    

   
    At their  meeting held  on October  30,  1992, the  Directors of  the  Fund,
including   all  of  the  independent  12b-1  Directors,  had  approved  certain
amendments to the Plan which took effect  in January, 1993 and were designed  to
reflect  the  facts that,  upon the  reorganization  described above,  the share
distribution activities theretofore performed for  the Fund by DWR were  assumed
by  the  Distributor and  that DWR's  sales activities  are now  being performed
pursuant to the  terms of a  selected dealer agreement  between the  Distributor
rather  than  to  DWR  as they  had  been  before the  amendment,  and  that the
Distributor in turn  is authorized to  make payments to  DWR, its affiliates  or
other  selected  broker-dealers  (or  direct that  the  Fund  pay  such entities
directly). The Distributor  is also  authorized to retain  part of  such fee  as
compensation for its own distribution-related expenses. At their meeting held on
April  28, 1993,  the Directors, including  a majority of  the independent 12b-1
Directors, had  also  approved  certain  technical amendments  to  the  Plan  in
connection  with amendments  adopted by  the National  Association of Securities
Dealers, Inc. to its Rules of Fair Practice.
    

    The Distributor has informed the Fund that a portion of the fees payable  by
the  Fund each year  pursuant to the Plan  equal to 0.25%  of the Fund's average
daily net assets is  characterized as a  "service fee" under  the Rules of  Fair
Practice  of the National Association of  Securities Dealers, Inc. (of which the
Distributor is a member). Such portion of the fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees  payable by  the Fund is  characterized as  an "asset-based  sales
charge" as defined in the aforementioned Rules of Fair Practice.

   
    Pursuant  to the Plan and  as required by Rule  12b-1, the Directors receive
and review promptly  after the  end of each  calendar quarter  a written  report
provided by the Distributor of the amounts expended by the Distributor under the
Plan  and the purpose  for which such  expenditures were made.  The Fund accrued
amounts payable to the Distributor under the Plan, during the fiscal year  ended
October  31, 1994 of $6,035,318. This amount is equal to payments required to be
paid monthly by the Fund which were computed  at the annual rate of 1.0% of  the
average  daily aggregate gross sales of the Fund's shares since the inception of
the  Fund  (not   including  reinvestments   of  dividends   or  capital   gains
distributions),  less the average daily aggregate  net asset value of the Fund's
shares redeemed  since the  Fund's inception  upon which  a contingent  deferred
sales  charge has been imposed or waived. This  12b-1 fee is treated by the Fund
as an expense in the year it is accrued.
    

    The Plan was  adopted in order  to permit the  implementation of the  Fund's
method  of distribution. Under  this distribution method shares  of the Fund are
sold without a sales load  being deducted at the time  of purchase, so that  the
full amount of an investor's purchase payment will be invested in shares without
any  deduction  for  sales charges.  Shares  of the  Fund  may be  subject  to a
contingent deferred sales charge, payable to the Distributor, if redeemed during
the six years after  their purchase. DWR compensates  its account executives  by
paying  them, from its own funds, commissions for the sale of the Fund's shares,
currently a gross  sales credit of  up to 5%  of the amount  sold and an  annual
residual commission of up to 0.25 of 1% of the current value of the amount sold.
The gross sales credit is a charge which reflects commissions paid by DWR to its
account  executives  and  DWR's Fund  associated  distribution-related expenses,
including sales compensation, and overhead and other branch office distribution-
related expenses including: (a) the  expenses of operating DWR's branch  offices
in  connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales

                                       27
<PAGE>
support  personnel,  utility  costs,  communications  costs  and  the  costs  of
stationery  and supplies;  (b) the  costs of  client sales  seminars; (c) travel
expenses of mutual fund sales coordinators  to promote the sale of Fund  shares;
and  (d) other expenses  relating to branch  promotion of Fund  share sales. The
distribution fee that the Distributor receives from the Fund under the Plan,  in
effect, offsets distribution expenses incurred on behalf of the Fund opportunity
costs,  such as the  gross sales credit  and an assumed  interest charge thereon
("carrying charge"). In the Distributor's reporting of its distribution expenses
to the Fund, such  assumed interest (computed at  the "broker's call rate")  has
been  calculated on the gross sales credit  as it is reduced by amounts received
by the Distributor  under the  Plan and  any contingent  deferred sales  charges
received  by the  Distributor upon  redemption of shares  of the  Fund. No other
interest charge  is included  as  a distribution  expense in  the  Distributor's
calculation  of its distribution costs for  this purpose. The broker's call rate
is the  interest  rate  charged  to  securities  brokers  on  loans  secured  by
exchange-listed securities.

   
    The  Fund paid 100% of the $6,035,318  accrued under the Plan for the fiscal
year ended October 31, 1994 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant  to the Plan, $43,302,728  on behalf of the  Fund
since  the inception of the Fund. It is  estimated that this amount was spent in
approximately the  following ways;  (i) 3.86%  ($1,671,952) --  advertising  and
promotional  expenses;  (ii) 0.56%  ($240,601) --  printing of  prospectuses for
distribution to other than current shareholders; and (iii) 95.58%  ($41,390,175)
- --  other expenses, including the gross sales credit and the carrying charge, of
which 7.66%  ($3,168,601)  represents  carrying  charges,  36.05%  ($14,921,702)
represents  commission credits to DWR branch offices for payments of commissions
to account executives  and 56.29%  ($23,299,872) represents  overhead and  other
branch office distribution-related expenses.
    

   
    At  any given time, the  expenses of distributing shares  of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to the
Plan and  (ii)  the  proceeds  of contingent  deferred  sales  charges  paid  by
investors  upon redemption of shares. DWR has  advised the Fund that such excess
amount, including the  carrying charge designed  to approximate the  opportunity
costs  incurred by DWR which arise from it having advanced monies without having
received the amount  of any sales  charges imposed at  the time of  sale of  the
Fund's  shares, totalled $22,163,379 as of October 31, 1994. Because there is no
requirement under  the Plan  that the  Distribution be  reimbursed for  all  its
expenses  or any requirement that the Plan  be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is  no
legal  obligation for the Fund to pay expenses in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales charges
paid by investors  upon redemption  of shares,  if for  any reason  the Plan  is
terminated,  the Directors  will consider  at that time  the manner  in which to
treat such expenses.  Any cumulative  expenses incurred, but  not yet  recovered
through  future distribution fees  or contingent deferred  sales charges, may or
may not be  recovered through  future distribution fees  or contingent  deferred
sales charges.
    

    No interested person of the Fund, nor any Director of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial  interest in the operation  of the Plan except  to the extent that the
Distributor, InterCapital, DWR or certain of its employees may be deemed to have
such an interest as a result  of benefits derived from the successful  operation
of  the Plan  or as  a result  of receiving  a portion  of the  amounts expended
thereunder by the Fund.

    The Plan may not be  amended to increase materially  the amount to be  spent
for  the services described therein without  approval of the shareholders of the
Fund, and all  material amendments  of the  Plan must  also be  approved by  the
Directors in the manner described above. The Plan may be terminated at any time,
without  payment of any penalty, by vote  of a majority of the Independent 12b-1
Directors or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act) on not more than thirty days' written notice to any
other party to  the Plan. So  long as the  Plan is in  effect, the election  and
nomination  of Independent Directors shall be committed to the discretion of the
Independent Directors.

                                       28
<PAGE>
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

   
    The net asset value per share of  the Fund is determined once daily at  4:00
p.m.,  New York time  on each day  that the New  York Stock Exchange  is open by
taking the  value  of all  assets  of  the Fund,  subtracting  its  liabilities,
dividing  by the number of shares outstanding and adjusting to the nearest cent.
The New  York Stock  Exchange  currently observes  the following  holidays:  New
Year's  Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
    

   
    Short-term debt securities with remaining  maturities of sixty days or  less
to  maturity at the  time of purchase  are valued at  amortized cost, unless the
Directors determine such does not reflect  the securities' fair value, in  which
case  these securities will be  valued at their fair  value as determined by the
Directors. Other short-term debt securities  will be valued on a  mark-to-market
basis  until such time as they reach  a remaining maturity of 60 days, whereupon
they will be valued at amortized cost  using their value on the 61st day  unless
the  Directors determine  such does not  reflect the securities'  fair value, in
which case these securities will be valued at their fair value as determined  by
the Directors. Options are valued at the mean between their latest bid and asked
prices.  Futures  are valued  at the  last sale  price  as of  the close  of the
commodities exchange on  which they  trade unless the  Directors determine  that
such  price does  not reflect  their market  value, in  which case  they will be
valued at their fair value as determined by the Directors. All other  securities
and  other assets  are valued at  their fair  value as determined  in good faith
under procedures established by and under the supervision of the Directors.
    

    Generally, trading in foreign securities, as well as corporate bonds, United
States government  securities and  money  market instruments,  is  substantially
completed  each day  at various  times prior  to 4:00  p.m., New  York time. The
values of such securities used  in computing the net  asset value of the  Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally  determined prior  to 4:00 p.m.,  New York  time. Occasionally, events
which affect the  values of such  securities and such  exchange rates may  occur
between the times at which they are determined and 4:00 p.m., New York time, and
will  therefore not  be reflected  in the  computation of  the Fund's  net asset
value. If events materially affecting the value of such securities occur  during
such  period,  then these  securities  will be  valued  at their  fair  value as
determined  in  good  faith  under  procedures  established  by  and  under  the
supervision of the Directors.

SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------

    Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened  for the investor on  the books of the Fund  and maintained by the Fund's
Transfer Agent, Dean  Witter Trust Company  (the "Transfer Agent").  This is  an
open  account in which shares owned by the investor are credited by the Transfer
Agent in lieu  of issuance of  a share  certificate. If a  share certificate  is
desired,  it must be requested in writing for each transaction. Certificates are
issued only for full shares and may  be redeposited in the account at any  time.
There  is no charge  to the investor  for issuance of  a certificate. Whenever a
shareholder instituted  transaction takes  place in  the Shareholder  Investment
Account,  the shareholder will be mailed  a confirmation of the transaction from
the Fund or from DWR or other selected broker-dealer.

    AUTOMATIC INVESTMENT  OF DIVIDENDS  AND  DISTRIBUTIONS.   As stated  in  the
Prospectus,   all  income   dividends  and   capital  gains   distributions  are
automatically paid  in  full and  fractional  shares  of the  Fund,  unless  the
shareholder  requests that they be paid in  cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of  the investor to receive  all dividends and capital  gains
distributions  on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share in shares of the Fund (or in cash
if the shareholder so requests) as of the close of business on the record  date.
At  any time  an investor may  request the  Transfer Agent, in  writing, to have
subsequent dividends and/or capital  gains distributions paid to  him or her  in
cash  rather than shares. To assure sufficient  time to process the change, such
request should be  received by the  Transfer Agent at  least five business  days
prior to the record date of

                                       29
<PAGE>
the dividend or distribution. In the case of recently purchased shares for which
registration  instructions  have  not been  received  on the  record  date, cash
payments will  be made  to DWR  or  other selected  broker-dealer, and  will  be
forwarded to the shareholder, upon the receipt of proper instructions.

    TARGETED  DIVIDENDS.SM        In states  where  it  is  legally permissible,
shareholders may also have all income dividends and capital gains  distributions
automatically invested in shares of an open-end Dean Witter Fund other than Dean
Witter European Growth Fund Inc. Such investment will be made as described above
for automatic investment in shares of the Fund, at the net asset value per share
of the selected Dean Witter Fund as of the close of business on the payment date
of the dividend or distribution and will begin to earn dividends, if any, in the
selected  Dean Witter Fund the next business day. To participate in the Targeted
Dividends program,  shareholders  should contact  their  DWR or  other  selected
broker-dealer  account executive or the Transfer Agent. Shareholders of the Fund
must be shareholders  of the Dean  Witter Fund targeted  to receive  investments
from  dividends at the time they enter the Targeted Dividends program. Investors
should review the prospectus  of the targeted Dean  Witter Fund before  entering
the program.

    EASYINVEST.SM      Shareholders  may subscribe  to EasyInvest,  an automatic
purchase plan  which  provides  for  any  amount  from  $100  to  $5,000  to  be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly  or quarterly basis, to  the Transfer Agent for  investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at  the net asset  value calculated the  same business day  the
transfer  of  funds is  effected.  For further  information  or to  subscribe to
EasyInvest,  shareholders   should  contact   their   DWR  or   other   selected
broker-dealer account executive or the Transfer Agent.

    INVESTMENT  OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH.  As discussed in
the Prospectus,  any shareholder  who  receives a  cash payment  representing  a
dividend  or distribution  may invest such  dividend or distribution  at the net
asset value next  determined after receipt  by the Transfer  Agent, without  the
imposition  of a contingent deferred sales  charge upon redemption, by returning
the check or the proceeds to the Transfer Agent within 30 days after the payment
date. If the  shareholder returns the  proceeds of a  dividend or  distribution,
such  funds  must  be accompanied  by  a  signed statement  indicating  that the
proceeds constitute a dividend or  distribution to be invested. Such  investment
will  be made at the net asset value  per share next determined after receipt of
the check or proceeds by the Transfer Agent.

    SYSTEMATIC WITHDRAWAL PLAN.   As discussed in  the Prospectus, a  withdrawal
plan  (the "Withdrawal Plan") is available  for shareholders who own or purchase
shares of the Fund having a minimum value of $10,000 based upon the then current
net asset value. The Withdrawal Plan  provides for monthly or quarterly  (March,
June, September and December) checks in any dollar amount, not less than $25, or
in any whole percentage of the account balance, on an annualized basis.

    The  Transfer Agent acts  as agent for  the shareholder in  tendering to the
Fund for redemption sufficient full and fractional shares to provide the  amount
of  the periodic  withdrawal payment designated  in the  application. The shares
will be  redeemed at  their net  asset value  determined, at  the  shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant  month or quarter and normally a  check for the proceeds will be mailed
by the Transfer Agent  within five business days  after the date of  redemption.
The Withdrawal Plan may be terminated at any time by the Fund.

    Withdrawal  Plan payments should  not be considered  as dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net  investment
income  and net  capital gains,  the shareholder's  original investment  will be
correspondingly reduced and ultimately exhausted.

    Each withdrawal constitutes  a redemption  of shares  and any  gain or  loss
realized  must  be  recognized for  federal  income tax  purposes.  Although the
shareholder may  make  additional  investments  of  $2,500  or  more  under  the
Withdrawal  Plan,  withdrawals made  concurrently  with purchases  of additional
shares may  be  inadvisable because  of  the contingent  deferred  sales  charge
applicable to the
redemp-

                                       30
<PAGE>
tion  of shares purchased  during the preceding six  years (see "Redemptions and
Repurchases -- Contingent Deferred Sales Charge").

    Any shareholder who wishes to have  payments under the Withdrawal Plan  made
to  a third party or sent to an address other than the one listed on the account
must send complete written instructions to  the Transfer Agent to enroll in  the
Withdrawal  Plan.  The  shareholder's  signature on  such  instructions  must be
guaranteed by a commercial bank or trust  company (not a savings bank), or by  a
member of a national securities exchange. A shareholder may, at any time, change
the  amount  and interval  of  withdrawal payments  through  his or  her Account
Executive or by  written notification to  the Transfer Agent.  In addition,  the
party  and/or the address to  which checks are mailed  may be changed by written
notification to the Transfer  Agent, with signature  guarantees required in  the
manner  described above. The shareholder may  also terminate the Withdrawal Plan
at any  time by  written notice  to the  Transfer Agent.  In the  event of  such
termination,  the account will be continued  as a regular shareholder investment
account.

    DIRECT INVESTMENTS THROUGH TRANSFER AGENT.  As discussed in the  Prospectus,
a  shareholder may  make additional  investments in Fund  shares at  any time by
sending a  check in  any amount,  not less  than $100,  payable to  Dean  Witter
European  Growth Fund Inc., directly to  the Fund's Transfer Agent. Such amounts
will be applied to the purchase of Fund shares at the net asset value per  share
next  computed after receipt  of the check  or purchase payment  by the Transfer
Agent. The shares so purchased will be credited to the investor's account.

EXCHANGE PRIVILEGE

    As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for shares of  other Dean  Witter Funds sold  with a  contingent deferred  sales
charge ("CDSC funds"), for shares of Dean Witter Short-Term U.S. Treasury Trust,
Dean  Witter Limited Term Municipal Trust,  Dean Witter Short-Term Bond Fund and
for shares of five Dean Witter Funds which are money market funds (the foregoing
eight non-CDSC funds are referred to hereinafter as "Exchange Funds"). Exchanges
may be made after the shares of  the Fund acquired by purchase (not by  exchange
or  dividend reinvestment) have been  held for thirty days.  There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment. An
exchange will  be  treated  for  federal  income tax  purposes  the  same  as  a
repurchase  or  redemption of  shares, on  which the  shareholder may  realize a
capital gain or loss.

    Any new account  established through  the Exchange Privilege  will have  the
same registration and cash dividend or dividend reinvestment plan as the present
account,  unless  the  Transfer  Agent  receives  written  notification  to  the
contrary. For  telephone  exchanges,  the exact  registration  of  the  existing
account and the account number must be provided.

    Any  shares  held  in  certificate  form cannot  be  exchanged  but  must be
forwarded to the  Transfer Agent  and deposited into  the shareholder's  account
before  being eligible for exchange. (Certificates  mailed in for deposit should
not be endorsed.)

    As described  below, and  in  the Prospectus  under the  captions  "Exchange
Privilege"  and "Contingent Deferred Sales  Charge," a contingent deferred sales
charge ("CDSC")  may be  imposed upon  a redemption,  depending on  a number  of
factors,  including the number of years from the time of purchase until the time
of redemption or  exchange ("holding period").  When shares of  the Fund or  any
other  CDSC fund are exchanged  for shares of an  Exchange Fund, the exchange is
executed at no charge to the shareholder  without the imposition of the CDSC  at
the  time of the exchange. During the  period of time the shareholder remains in
the Exchange  Fund (calculated  from the  last day  of the  month in  which  the
Exchange  Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject  to a  CDSC which would  be based  upon the period  of time  the
shareholder held shares in a CDSC fund. However, in the case of shares exchanged
for  shares of an Exchange Fund on or after April 23, 1990, upon a redemption of
shares which results in a CDSC being imposed, a credit (not to exceed the amount
of the CDSC) will

                                       31
<PAGE>
be given  in  an amount  equal  to the  Exchange  Fund 12b-1  distribution  fees
incurred  on  or  after  that  date  which  are  attributable  to  those shares.
Shareholders acquiring shares  of the  Exchange Fund pursuant  to this  exchange
privilege  may exchange those shares back into a CDSC fund from the money market
fund, with  no  CDSC being  imposed  on  such exchange.  The  investment  period
previously  frozen when shares  were first exchanged for  shares of the Exchange
Fund resumes on the  last day of the  month in which shares  of a CDSC fund  are
reacquired.  A CDSC is imposed only upon  an ultimate redemption, based upon the
time (calculated as  described above)  the shareholder  was invested  in a  CDSC
fund.

    In  addition, shares of the  Fund may be acquired  in exchange for shares of
Dean Witter Funds sold  with a front-end sales  charge ("front-end sales  charge
funds"),  but shares  of the  Fund, however acquired,  may not  be exchanged for
shares of  front-end sales  charge funds.  Shares  of a  CDSC fund  acquired  in
exchange  for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter  Funds for which  shares of a  front-end sales charge  fund
have been exchanged) are not subject to any CDSC upon their redemption.

    When  shares initially purchased in a CDSC  fund are exchanged for shares of
another CDSC fund, or for  shares of an Exchange Fund,  the date of purchase  of
the shares of the fund exchanged into, for purposes of the CDSC upon redemption,
will  be the  last day  of the month  in which  the shares  being exchanged were
originally purchased.  In allocating  the purchase  payments between  funds  for
purposes of the CDSC, the amount which represents the current net asset value of
shares  at the time of the exchange which were (i) purchased more than six years
(depending on the CDSC schedule applicable to the shares) prior to the exchange,
(ii) originally acquired through reinvestment of dividends or distributions  and
(iii)  acquired in exchange for  shares of front-end sales  charge funds, or for
shares of other  Dean Witter Funds  for which shares  of front-end sales  charge
funds  have  been exchanged  (all  such shares  called  "Free Shares"),  will be
exchanged first.  Shares  of  Dean  Witter Strategist  Fund  acquired  prior  to
November  8, 1989, shares of  Dean Witter American Value  Fund acquired prior to
April 30, 1984, and  shares of Dean Witter  Dividend Growth Securities Inc.  and
Dean  Witter Natural Resource Development Securities Inc. acquired prior to July
2, 1984, will be the first Free  Shares to be exchanged. After an exchange,  all
dividends  earned on shares in an Exchange  Fund will be considered Free Shares.
If the exchanged amount exceeds  the value of such  Free Shares, an exchange  is
made,  on a block-by-block basis, of non-Free Shares held for the longest period
of time (except that if shares held for identical periods of time but subject to
different CDSC schedules are  held in the same  Exchange Privilege account,  the
shares  of that block  that are subject to  a lower CDSC  rate will be exchanged
prior to the  shares of  that block  that are subject  to a  higher CDSC  rate).
Shares  equal to any appreciation in the value of non-Free Shares exchanged will
be treated as  Free Shares,  and the  amount of  the purchase  payments for  the
non-Free  Shares of the fund  exchanged into will be equal  to the lesser of (a)
the purchase payments for, or (b) the current net asset value of, the  exchanged
non-Free  Shares. If an exchange between funds  would result in exchange of only
part of  a  particular  block of  non-Free  Shares,  then shares  equal  to  any
appreciation  in the value of the block (up  to the amount of the exchange) will
be treated as Free Shares and exchanged first, and the purchase payment for that
block will be allocated on a pro rata basis between the non-Free Shares of  that
block  to be  retained and  the non-Free  Shares to  be exchanged.  The prorated
amount of such  purchase payment  attributable to the  retained non-Free  Shares
will  remain as the purchase payment for such shares, and the amount of purchase
payment for the exchanged non-Free Shares will be equal to the lesser of (a) the
prorated amount of the purchase payment for, or (b) the current net asset  value
of,  those exchanged non-Free Shares. Based upon the procedures described in the
Prospectus under the caption "Contingent Deferred Sales Charge", any  applicable
CDSC  will  be imposed  upon  the ultimate  redemption  of shares  of  any fund,
regardless of  the  number  of  exchanges since  those  shares  were  originally
purchased.

    The  Transfer Agent acts as agent for  shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In  the absence  of negligence on  its part,  neither the  Transfer
Agent  nor the Fund shall be liable for  any redemption of Fund shares caused by
unauthorized telephone instructions. Accordingly, in such an event, the investor
shall bear the

                                       32
<PAGE>
risk of loss. The staff of  the Securities and Exchange Commission is  currently
considering the propriety of such a policy.

    With  respect to  the redemption  or repurchase of  shares of  the Fund, the
application of proceeds to the purchase of  new shares in the Fund or any  other
of  the  funds and  the general  administration of  the Exchange  Privilege, the
Transfer Agent  acts as  agent for  the Distributor  and for  the  shareholder's
selected  broker-dealer,  if any,  in the  performance  of such  functions. With
respect to exchanges, redemptions  or repurchases, the  Transfer Agent shall  be
liable  for its  own negligence  and not  for the  default or  negligence of its
correspondents or for losses in  transit. The Fund shall  not be liable for  any
default  or negligence  of the Transfer  Agent, the Distributor  or any selected
broker-dealer.

    The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their  agent in connection with the application  of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund  and the general administration of the Exchange Privilege. No commission or
discounts will  be  paid to  the  Distributor or  any  selected dealer  for  any
transactions pursuant to this Exchange Privilege.

    Exchanges  are subject to  the minimum investment  requirement and any other
conditions imposed by each fund. (The  minimum initial investment is $5,000  for
Dean  Witter Liquid Asset Fund Inc., Dean Witter New York Municipal Money Market
Trust, Dean  Witter  Tax-Free Daily  Income  Trust and  Dean  Witter  California
Tax-Free  Daily  Income Trust  although those  funds  may, at  their discretion,
accept initial investments of as low  as $1,000. The minimum initial  investment
is  $10,000 for Dean Witter Short-Term  U.S. Treasury Trust, although that fund,
in its discretion, may accept initial purchases of as low as $5,000. The minimum
initial investment  for all  other  Dean Witter  Funds  for which  the  Exchange
Privilege  is available  is $1,000.)  Upon exchange  into an  Exchange Fund, the
shares of  that  fund will  be  held in  a  special Exchange  Privilege  Account
separately  from accounts of  those shareholders who  have acquired their shares
directly from that  fund. As a  result, certain services  normally available  to
shareholders  of money market  funds, including the  check writing feature, will
not be available for funds held in that account.

    The Fund and each  of the other  Dean Witter Funds may  limit the number  of
times  this  Exchange  Privilege  may  be exercised  by  any  investor  within a
specified period of  time. Also,  the Exchange  Privilege may  be terminated  or
revised  at any time by the  Fund and/or any of the  Dean Witter Funds for which
shares of the Fund have been exchanged,  upon such notice as may be required  by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that six months' prior written notice of termination will be
given  to the shareholders  who hold shares  of Exchange Funds,  pursuant to the
Exchange Privilege,  and provided  further that  the Exchange  Privilege may  be
terminated  or materially revised without notice at  times (a) when the New York
Stock Exchange is  closed for other  than customary weekends  and holidays,  (b)
when  trading on that Exchange is restricted,  (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, (d) during any other period when the Securities and
Exchange Commission  by order  so permits  (provided that  applicable rules  and
regulations of the Securities and Exchange Commission shall govern as to whether
the  conditions prescribed  in (b)  or (c) exist)  or (e)  if the  Fund would be
unable  to  invest  amounts  effectively  in  accordance  with  its   investment
objective(s), policies and restrictions.

    For  further  information  regarding  the  Exchange  Privilege, shareholders
should contact  their DWR  or other  selected dealer  account executive  or  the
Transfer Agent.

REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------

    REDEMPTION.  As stated in the Prospectus, shares of the Fund can be redeemed
for  cash at any time at the net asset value per share next determined; however,
such redemption  proceeds  may  be  reduced by  the  amount  of  any  applicable
contingent  deferred  sales  charges  (see  below).  If  shares  are  held  in a
shareholder's account  without  a  share  certificate,  a  written  request  for
redemption to the Fund's

                                       33
<PAGE>
Transfer  Agent  at  P.O.  Box  983,  Jersey  City,  NJ  07303  is  required. If
certificates are  held  by  the  shareholder, the  shares  may  be  redeemed  by
surrendering  the certificates with a written  request for redemption. The share
certificate, or an  accompanying stock  power, and the  request for  redemption,
must  be signed  by the  shareholder or shareholders  exactly as  the shares are
registered. Each request for redemption, whether  or not accompanied by a  share
certificate,  must be sent to  the Fund's Transfer Agent,  which will redeem the
shares at their net  asset value next computed  (see "Purchase of Fund  Shares")
after  it receives  the request,  and certificate,  if any,  in good  order. Any
redemption request received after such computation will be redeemed at the  next
determined  net  asset  value.  The  term  "good  order"  means  that  the share
certificate, if any, and request for redemption are properly signed, accompanied
by any  documentation  required  by  the  Transfer  Agent,  and  bear  signature
guarantees  when required by  the Fund or  the Transfer Agent.  If redemption is
requested by a corporation, partnership, trust or fiduciary, the Transfer  Agent
may  require that written evidence of authority acceptable to the Transfer Agent
be submitted before such request is accepted.

    Whether certificates are  held by the  shareholder or shares  are held in  a
shareholder's  account, if the proceeds are to  be paid to any person other than
the record owner, or it the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address  other
than  the  registered  address, signatures  must  be guaranteed  by  an eligible
guarantor acceptable  to the  Transfer Agent  (shareholders should  contact  the
Transfer  Agent for  a determination as  to whether a  particular institution is
such an eligible guarantor). A  stock power may be  obtained from any dealer  or
commercial  bank. The Fund may change  the signature guarantee requirements from
time to  time upon  notice to  shareholders,  which may  be by  means of  a  new
prospectus.

    CONTINGENT DEFERRED SALES CHARGE.  As stated in the Prospectus, a contingent
deferred  sales charge ("CDSC") will be imposed on any redemption by an investor
if after such redemption the current value of the investor's shares of the  Fund
is  less  than the  dollar amount  of all  payments by  the shareholder  for the
purchase of Fund shares during the preceding six years. However, no CDSC will be
imposed to the extent that the net  asset value of the shares redeemed does  not
exceed:  (a) the current net asset value of shares purchased more than six years
prior to  the  redemption,  plus (b)  the  current  net asset  value  of  shares
purchased  through reinvestment  of dividends  or distributions  of the  Fund or
another Dean Witter Fund (See "Shareholder Services--Targeted Dividends"),  plus
(c) the current net asset value of shares acquired in exchange for (i) shares of
Dean  Witter front-end sales charge  funds, or (ii) shares  of other Dean Witter
Funds for which shares of front-end sales charge funds have been exchanged  (See
"Shareholder Services--Exchange Privilege"), plus (d) increases in the net asset
value  of  the investor's  shares above  the  total amount  of payments  for the
purchase of Fund shares made  during the preceding six  years. The CDSC will  be
paid  to the Distributor. In addition, no CDSC will be imposed on redemptions of
shares which were purchased by the employee benefit plans established by DWR and
SPS Transaction Services,  Inc. (an  affiliate of  DWR) for  their employees  as
qualified under Section 401(k) of the Internal Revenue Code.

    In  determining the applicability  of a CDSC to  each redemption, the amount
which represents an  increase in the  net asset value  of the investor's  shares
above  the amount of  the total payments  for the purchase  of shares within the
last six  years will  be redeemed  first.  In the  event the  redemption  amount
exceeds  such increase in value, the next portion of the amount redeemed will be
the amount  which  represents the  net  asset  value of  the  investor's  shares
purchased  more than six  years prior to the  redemption and/or shares purchased
through reinvestment of  dividends or  distributions and/or  shares acquired  in
exchange  for shares of Dean Witter front-end  sales charge funds, or for shares
of other Dean Witter funds for which shares of front-end sales charge funds have
been exchanged. A portion of the  amount redeemed which exceeds an amount  which
represents  both such increase in  value and the value  of shares purchased more
than  six  years  prior  to  the  redemption  and/or  shares  purchased  through
reinvestment  of  dividends  or  distributions  and/or  shares  acquired  in the
above-described exchanges will be subject to CDSC.

                                       34
<PAGE>
    The amount of the CDSC, if any,  will vary depending on the number of  years
from  the time  of payment  for the purchase  of Fund  shares until  the time of
redemption of such shares. For purposes of determining the number of years  from
the  time of any payments for the purchase of shares, all payments made during a
month will be aggregated  and deemed to have  been made on the  last day of  the
month. The following table sets forth the rates of the CDSC:

<TABLE>
<CAPTION>
                                                                      CONTINGENT DEFERRED
                             YEAR SINCE                                SALES CHARGE AS A
                              PURCHASE                                PERCENTAGE OF AMOUNT
                            PAYMENT MADE                                    REDEEMED
- --------------------------------------------------------------------  --------------------
<S>                                                                   <C>
First...............................................................          5.0%
Second..............................................................          4.0%
Third...............................................................          3.0%
Fourth..............................................................          2.0%
Fifth...............................................................          2.0%
Sixth...............................................................          1.0%
Seventh and thereafter..............................................          None
</TABLE>

    In determining the rate of the CDSC, it will be assumed that a redemption is
made  of shares held by  the investor for the longest  period of time within the
applicable six-year period. This will result  in any such CDSC being imposed  at
the   lowest  possible  rate.  Accordingly,  shareholders  may  redeem,  without
incurring any CDSC,  amounts equal to  any net  increase in the  value of  their
shares  above the  amount of  their purchase payments  made within  the past six
years and amounts equal to the current  value of shares purchased more than  six
years  prior  to the  redemption and  shares  purchased through  reinvestment of
dividends or distributions  or acquired in  exchange for shares  of Dean  Witter
front-end sales charge funds, or for shares of other Dean Witter funds for which
shares  of front-end sales  charge funds have  been exchanged. The  CDSC will be
imposed, in accordance with the table shown above, on any redemptions within six
years of purchase which are in excess of these amounts and which redemptions are
not (a)  requested  within  one  year  of  death  or  initial  determination  of
disability   of  a  shareholder,  or  (b)   made  pursuant  to  certain  taxable
distributions from retirement plans or retirement accounts, as described in  the
Prospectus.

    PAYMENT FOR SHARES REDEEMED OR REPURCHASED.  As discussed in the Prospectus,
payment  for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate  and/or
written  request  in  good order.  The  term  good order  means  that  the share
certificate, if any, and request for redemption are properly signed, accompanied
by any  documentation  required  by  the  Transfer  Agent,  and  bear  signature
guarantees  when required by the Fund or the Transfer Agent. Such payment may be
postponed or the right of  redemption suspended at times  (a) when the New  York
Stock  Exchange is  closed for other  than customary weekends  and holidays, (b)
when trading on that Exchange is restricted,  (c) when an emergency exists as  a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the  value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules  and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently  been purchased  by check,  payment of  the redemption  proceeds may be
delayed for the minimum time needed to verify that the check used for investment
has been honored (not  more than fifteen  days from the time  of receipt of  the
check  by the Transfer Agent). Shareholders maintaining margin accounts with DWR
or another  selected  broker-dealer  are referred  to  their  account  executive
regarding restrictions on redemption of shares of the Fund pledged in the margin
account.

    TRANSFERS  OF SHARES.  In the event a shareholder requests a transfer of any
shares to a  new registration,  such shares  will be  transferred without  sales
charge  at the time of  transfer. With regard to the  status of shares which are
either subject to the  contingent deferred sales charge  or free of such  charge
(and  with regard to the  length of time shares subject  to the charge have been
held), any transfer involving less than all of the shares in an account will  be
made on a pro-rata basis (that is, by transferring

                                       35
<PAGE>
shares  in the  same proportion  that the transferred  shares bear  to the total
shares in the account immediately prior to the transfer). The transferred shares
will continue to be subject to  any applicable contingent deferred sales  charge
as if they had not been so transferred.

    REINSTATEMENT  PRIVILEGE.  As discussed in the Prospectus, a shareholder who
has had  his  or her  shares  redeemed or  repurchased  and has  not  previously
exercised  this reinstatement privilege may within thirty days after the date of
redemption or repurchase reinstate  any portion of all  of the proceeds of  such
redemption  or repurchase  in shares  of the  Fund at  the net  asset value next
determined after  a  reinstatement  request, together  with  such  proceeds,  is
received by the Transfer Agent.

    Exercise  of the reinstatement privilege will  not affect the federal income
tax treatment of any  gain or loss realized  upon the redemption or  repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is  made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax  purposes,
but  will  be applied  to  adjust the  cost basis  of  the shares  acquired upon
reinstatement.

    INVOLUNTARY REDEMPTION.  As discussed  in the Prospectus, the Fund  reserves
the  right, on  sixty days'  notice, to  redeem, at  their net  asset value, the
shares of any  shareholder whose shares  due to redemptions  by the  shareholder
have  a value of  less than $100  or such lesser  amount as may  be fixed by the
Directors. However, before the Fund redeems  such shares and sends the  proceeds
to  the shareholder, it will notify the shareholder that the value of the shares
is less  than $100  and  allow him  or  her sixty  days  to make  an  additional
investment  in an amount which will increase the  value of his or her account to
$100 or more before the redemption is processed. No CDSC will be imposed on  any
involuntary redemption.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

    As discussed in the Prospectus, the Fund will determine either to distribute
or  to retain all  or part of  any net long-term  capital gains in  any year for
reinvestment. If any such gains are  retained, the Fund will pay federal  income
tax  thereon, and, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to  claim
their  share of the  tax paid by the  Fund as a  credit against their individual
federal income tax.

   
    Gains or  losses  on sales  of  securities by  the  Fund will  generally  be
long-term  capital gains or losses if the  securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held  for
twelve months or less will be generally short-term gains or losses.
    

    The  Fund  intends  to  qualify  as  a  regulated  investment  company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). If so qualified,
the Fund will not be subject to federal income tax on its net investment  income
and  capital  gains,  if  any,  realized during  any  fiscal  year  in  which it
distributes such income and capital gains to its shareholders.

    Any dividend or capital  gains distribution received  by a shareholder  from
any  investment company will have the effect  of reducing the net asset value of
the shareholder's stock in that company by  the exact amount of the dividend  or
capital   gains  distribution.  Furthermore,  capital  gains  distributions  and
dividends are subject to  federal income taxes.  If the net  asset value of  the
shares  should be reduced below a shareholder's  cost as a result of the payment
of dividends or the distribution of  realized net long-term capital gains,  such
payment  or  distribution  would  be  in  part  a  return  of  the shareholder's
investment to the  extent of such  reduction below the  shareholder's cost,  but
nonetheless  would be fully taxable. Therefore,  an investor should consider the
tax implications of purchasing Fund  shares immediately prior to a  distribution
record date.

    Dividends,  interest and capital gains received by the Fund may give rise to
withhholding and  other  taxes imposed  by  foreign countries.  Tax  conventions
between  certain countries  and the United  States may reduce  or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits with
respect to such taxes, subject  to certain provisions and limitations  contained
in the Code. If more

                                       36
<PAGE>
than  50% of the Fund's total assets at  the close of its fiscal year consist of
securities of  foreign  corporations,  the  Fund would  be  eligible  and  would
determine  whether or not to file an  election with the Internal Revenue Service
pursuant to which  shareholders of the  Fund will be  required to include  their
respective  pro rata portions  of such withholding taxes  in their United States
income tax returns as gross income,  treat such respective pro rata portions  as
taxes  paid by them, and  deduct such respective pro  rata portions in computing
their taxable income or, alternatively, use them as foreign tax credits  against
their  United States income taxes.  If the Fund does  elect to file the election
with the  Internal  Revenue  Service,  the Fund  will  report  annually  to  its
shareholders the amount per share of such withholding.

   
    SPECIAL  RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS.  In general, gains
from foreign  currencies and  from foreign  currency options,  foreign  currency
futures and forward foreign exchange contracts relating to investments in stock,
securities  or  foreign currencies  are  currently considered  to  be qualifying
income for purposes  of determining whether  the Fund qualifies  as a  regulated
investment company. It is currently unclear, however, who will be treated as the
issuer  of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign  currency contracts will be  valued for purposes  of
the  regulated investment company diversification requirements applicable to the
Fund.
    

    Under Code Section 988, special rules are provided for certain  transactions
in  a  foreign currency  other than  the  taxpayer's functional  currency (I.E.,
unless certain special rules apply, currencies  other than the U.S. dollar).  In
general,  foreign currency gains or losses  from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted  options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign  exchange gains or  losses derived with  respect to foreign fixed-income
securities are also  subject to  Section 988 treatment.  In general,  therefore,
Code  Section 988 gains  or losses will  increase or decrease  the amount of the
Fund's  investment  company  taxable  income  available  to  be  distributed  to
shareholders as ordinary income, rather than increasing or decreasing the amount
of  the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable  income during a taxable  year, the Fund  would
not be able to make any ordinary dividend distributions.

    The  Fund may be subject to taxes  in foreign countries in which it invests.
In addition, if the Fund were deemed to be a resident of the United Kingdom  for
United  Kingdom tax purposes or  if the Fund were treated  as being engaged in a
trading activity through an agent  in the United Kingdom,  there is a risk  that
the  United Kingdom would attempt to tax all or a portion of the Fund's gains or
income. In light of the  structure of the Fund and  the terms and conditions  of
the  Investment Management and Sub-Advisory Agreements,  it is believed that any
such risk is minimal.

    If the Fund invests in an entity  which is classified as a "passive  foreign
investment  company" ("PFIC") for U.S. tax  purposes, the application of certain
technical tax  provisions  applying  to  such  companies  could  result  in  the
imposition  of federal income tax  with respect to such  investments at the Fund
level which could not be eliminated  by distributions to shareholders. The  U.S.
Treasury  issued  proposed  regulation  section  1.1291-8  which  establishes  a
mark-to-market regime which allows investment  companies investing in PFIC's  to
avoid  most, if  not all  of the difficulties  posed by  the PFIC  rules. In any
event, it  is  not anticipated  that  any taxes  on  the Fund  with  respect  to
investments in PFIC's would be significant.

    Shareholders  are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

    As discussed in the  Prospectus, from time  to time the  Fund may quote  its
"total  return"  in advertisements  and  sales literature.  The  Fund's "average
annual total return" represents an annualization of the Fund's total return over
a particular period and is computed by finding the annual percentage rate  which
will  result in the ending redeemable  value of a hypothetical $1,000 investment
made at the beginning of a one, five or ten year period, or for the period  from
the  date of commencement of  the Fund's operations, if  shorter than any of the
foregoing. The ending  redeemable value  is reduced by  any contingent  deferred

                                       37
<PAGE>
   
sales  charge at the end of  the one, five or ten  year or other period. For the
purpose of this calculation, it is assumed that all dividends and  distributions
are  reinvested.  The  formula for  computing  the average  annual  total return
involves a percentage obtained  by dividing the ending  redeemable value by  the
amount  of the initial investment, taking a root of the quotient (where the root
is equivalent to the number of years  in the period) and subtracting 1 from  the
result.  The average annual total return of the Fund for the period June 1, 1990
through October 31,  1994 and for  the fiscal  year ended October  31, 1994  was
8.68% and 10.61%, respectively.
    

   
    In  addition to the foregoing, the Fund  may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or  other
types  of total  return figures.  Such calculations may  or may  not reflect the
deduction of the  contingent deferred  sales charge which,  if reflected,  would
reduce  the performance quoted. For example,  the average annual total return of
the Fund may be calculated in the manner described above, but without  deduction
for  any applicable contingent deferred sales charge. Based on this calculation,
the average annual total return of the Fund for the period June 1, 1990  through
October  31, 1994 and for  the fiscal year ended October  31, 1994 was 9.02% and
15.61%, respectively.
    

   
    In addition, the Fund may compute  its aggregate total return for  specified
periods  by determining the  aggregate percentage rate which  will result in the
ending value of a  hypothetical $1,000 investment made  at the beginning of  the
period.  For the purpose of  this calculation, it is  assumed that all dividends
and distributions  are reinvested.  The formula  for computing  aggregate  total
return  involves a percentage obtained by dividing the ending value (without the
reduction for  any  contingent deferred  sales  charge) by  the  initial  $1,000
investment   and  subtracting  1  from  the   result.  Based  on  the  foregoing
calculation, the Fund's total return for the period June 1, 1990 through October
31, 1994 and for the fiscal year  ended October 31, 1994 was 46.43% and  15.61%,
respectively.
    

   
    The  Fund  may  also advertise  the  growth of  hypothetical  investments of
$10,000, $50,000 and $100,000 in  shares of the Fund by  adding 1 to the  Fund's
aggregate  total return to date (expressed as  a decimal and without taking into
account the effect of any applicable  CDSC) and multiplying by $10,000,  $50,000
or $100,000, as the case may be. Investments of $10,000, $50,000 and $100,000 in
the  Fund  at  inception would  have  grown  to $14,643,  $73,215  and $146,430,
respectively, at October 31, 1994.
    

    The Fund from time  to time may also  advertise its performance relative  to
certain performance rankings and indexes compiled by independent organizations.

DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------

    The  Fund is authorized to issue 200,000,000 shares of common stock of $0.01
par value. Shares  of the  Fund, when  issued, are  fully paid,  non-assessable,
fully  transferable and redeemable at  the option of the  holder. All shares are
equal as to  earnings, assets and  voting privileges. There  are no  conversion,
preemptive or other subscription rights. In the event of liquidation, each share
of  common stock of  the Fund is  entitled to its  portion of all  of the Fund's
assets after  all debts  and  expenses have  been  paid. Except  for  agreements
entered  into  by  the  Fund  in its  ordinary  course  of  business  within the
limitations of the Fund's fundamental investment policies (which may be modified
only by shareholder  vote), the Fund  will not issue  any securities other  than
common stock.

    The  shares of the  Fund do not  have 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, and in such
event, the holders of the remaining less  than 50% of the shares voting for  the
election  of directors will  not be able to  elect any person  or persons to the
Board of Directors.

    The Fund's By-Laws provide that one or  more of the Fund's Directors may  be
removed,  either with or without  cause, at any time  by the affirmative vote of
the Fund's shareholders holding a majority of the outstanding shares entitled to
vote for the election of Directors. A special meeting of the shareholders of the
Fund will  be  called  by the  Fund's  Secretary  upon the  written  request  of
shareholders entitled to vote at least 25% of the Fund's outstanding shares.

                                       38
<PAGE>
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------

    The Chase Manhattan Bank, N.A., One Chase Plaza, New York, New York 10005 is
the Custodian of the Fund's assets in the United States and around the world. As
Custodian,  The Chase Manhattan  Bank has contracted  with various foreign banks
and depositaries to hold portfolio securities  of non-U.S. issuers on behalf  of
the  Fund.  Any of  the Fund's  cash balances  with the  Custodian in  excess of
$100,000 are unprotected  by federal  deposit insurance. Such  balances may,  at
times, be substantial.

   
    Dean  Witter Trust Company,  Harborside Financial Center,  Plaza Two, Jersey
City, New Jersey 07311 is the Transfer  Agent of the Fund's shares and  Dividend
Disbursing  Agent for payment of dividends  and distributions on Fund shares and
Agent for shareholders  under various  investment plans  described herein.  Dean
Witter  Trust  Company is  an affiliate  of Dean  Witter InterCapital  Inc., the
Fund's  Investment  Manager  and  Dean  Witter  Distributors  Inc.,  the  Fund's
Distributor.  As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts;  disbursing
cash  dividends  and  reinvesting  dividends;  processing  account  registration
changes; handling purchase and redemption transactions; mailing prospectuses and
reports;  mailing   and  tabulating   proxies;  processing   share   certificate
transactions;  and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee.
    

INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

   
    Price Waterhouse LLP serves as the independent accountants of the Fund.  The
independent  accountants  are  responsible  for  auditing  the  annual financial
statements of the Fund.
    

REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------

    The Fund will send to shareholders, at least semi-annually, reports  showing
the  Fund's  portfolio  and  other  information.  An  annual  report  containing
financial  statements  audited  by  independent  accountants  will  be  sent  to
shareholders each year.

    The  Fund's fiscal year ends on October  31. The financial statements of the
Fund must  be audited  at least  once a  year by  independent accountants  whose
selection is made annually by the Fund's Board of Directors.

LEGAL COUNSEL
- --------------------------------------------------------------------------------

    Sheldon  Curtis, Esq.,  who is  an officer  and the  General Counsel  of the
Investment Manager, is an officer and the General Counsel of the Fund.

EXPERTS
- --------------------------------------------------------------------------------

   
    The  financial  statements  of  the  Fund  included  in  this  Statement  of
Additional Information and incorporated by reference in the Prospectus have been
so  included and incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants,  given on  the authority  of said  firm as  experts  in
auditing and accounting.
    

REGISTRATION STATEMENT
- --------------------------------------------------------------------------------

    This  Statement of Additional Information and  the Prospectus do not contain
all of the  information set  forth in the  Registration Statement  the Fund  has
filed  with the  Securities and  Exchange Commission.  The complete Registration
Statement may  be obtained  from  the Securities  and Exchange  Commission  upon
payment of the fee prescribed by the rules and regulations of the Commission.

                                       39
<PAGE>
   
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
- --------------------------------------------------------------------------------
    
   
<TABLE>
<CAPTION>
  SHARES                                               VALUE
- -----------                                       ---------------
<C>          <S>                                  <C>
             COMMON AND PREFERRED STOCKS, WARRANTS AND RIGHTS
               (97.4%)
             AUSTRIA (2.6%)
             BANKING
     75,000  Oester Elex (A Shares).............  $     4,690,806
                                                  ---------------
             BUILDING & CONSTRUCTION
     60,000  Va Technologie AG..................        6,156,595
                                                  ---------------
             OIL & GAS
     95,000  OMV AG*............................        8,648,954
                                                  ---------------
             TOTAL AUSTRIA......................       19,496,355
                                                  ---------------
             BELGIUM (2.0%)
             FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
     26,100  Colruyt SA.........................        5,970,753
    342,920  Quilmes............................        9,001,650
                                                  ---------------
             TOTAL BELGIUM......................       14,972,403
                                                  ---------------

             FINLAND (3.3%)
             ELECTRONICS
     96,500  Nokia AB...........................       14,446,233
     70,500  Nokia AB (Pref.)...................       10,584,442
                                                  ---------------
             TOTAL FINLAND......................       25,030,675
                                                  ---------------

             FRANCE (9.5%)
             AUTOMOBILES
     50,000  Psa Peugeot Citroen*...............        7,455,038
                                                  ---------------
             BANKING
     35,000  Societe Generale Paris.............        3,932,508
                                                  ---------------
             BUILDING MATERIALS
     40,300  CIE Saint Gobain...................        5,089,132
                                                  ---------------
             ELECTRICAL EQUIPMENT
     20,000  Alcatel Cable......................        2,320,634
                                                  ---------------
             FINANCIAL SERVICES
    117,335  Credit Local de France.............        8,942,511
                                                  ---------------
             FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
     55,450  LVMH Moet Hennessey Louis..........        8,900,309
                                                  ---------------
             INSURANCE
    222,209  Scor SA............................        4,855,852
     66,890  Ste Cen Group Assur Nat............        3,693,114
                                                  ---------------
                                                        8,548,966
                                                  ---------------
             MERCHANDISING
      6,100  Agache (Societe Financiere)........        1,578,379
                                                  ---------------
             MULTI - INDUSTRY
      6,125  Au Bon Marche......................        1,044,721
                                                  ---------------
             OIL & RELATED
     97,101  Societe National Elf-Aquitaine.....        7,145,026
                                                  ---------------

<CAPTION>
  SHARES                                               VALUE
- -----------                                       ---------------
<C>          <S>                                  <C>
             RETAIL
      9,000  Carrefour Supermarche..............  $     3,950,880
     23,000  Castorama Dubois Invest............        3,335,912
                                                  ---------------
                                                        7,286,792
                                                  ---------------
             TEXTILES
     32,666  Christian Dior.....................        2,444,738
      4,666  Christian Dior (Warrants due
               6/30/98)*........................           41,327
     59,452  Hermes International...............        7,013,290
                                                  ---------------
                                                        9,499,355
                                                  ---------------
             TOTAL FRANCE.......................       71,743,371
                                                  ---------------

             GERMANY (10.2%)
             AUTOMOTIVE
     10,727  Bayerische Motoren Werke...........        5,504,121
                                                  ---------------
             BANKING
     18,205  Dt. Pfandbrief U. Hypothekenbank...        8,437,169
                                                  ---------------
             BUILDING & CONSTRUCTION
      2,024  Baywa-Bayerische Waren-Liq.........          556,118
                                                  ---------------
             BUSINESS SERVICES
     27,750  Sap AG (Pref.).....................       15,965,804
                                                  ---------------
             CHEMICALS
     27,750  Basf AG............................        5,848,004
     15,000  Henkel Kgaa-Vorzug (Pref.).........        5,859,375
                                                  ---------------
                                                       11,707,379
                                                  ---------------
             ELECTRIC UTILITIES
     29,000  Veba AG............................        9,676,907
                                                  ---------------
             FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
     19,408  Holsten Brauerei AG................        4,497,352
                                                  ---------------
             HEALTH & PERSONAL CARE
      5,000  Rhoen Klinikum.....................        4,462,394
      2,883  Rhoen Klinikum (Pref.).............        1,908,766
                                                  ---------------
                                                        6,371,160
                                                  ---------------
             MANUFACTURING
     11,600  KSB AG-Vorzug......................        2,726,430
                                                  ---------------
             PHARMACEUTICALS
     11,740  Gehe AG............................        3,995,207
                                                  ---------------
             RETAIL
     14,813  Hornbach Baumarkt Holdings.........        7,992,979
                                                  ---------------
             TOTAL GERMANY......................       77,430,626
                                                  ---------------

             ITALY (3.1%)
             ELECTRICAL EQUIPMENT
  1,860,000  Ansaldo Trans......................        8,084,810
                                                  ---------------
             MANUFACTURING
    150,000  Fila Holdings SPA (ADR)............        2,437,500
                                                  ---------------
</TABLE>
    
                                       40
<PAGE>
   
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
    
   
<TABLE>
<CAPTION>
  SHARES                                               VALUE
- -----------                                       ---------------
<C>          <S>                                  <C>
             TELECOMMUNICATIONS
        760  Stet SPA...........................  $         2,286
  4,866,850  Telecom Italia.....................       13,248,017
                                                  ---------------
                                                       13,250,303
                                                  ---------------
             TOTAL ITALY........................       23,772,613
                                                  ---------------
             LUXEMBOURG (0.9%)
             BANKING
      4,400  Banque Generale du Luxembourg......        3,227,799
                                                  ---------------
             METALS & MINING
     22,000  Arbed (Acier Reun) NVP*............        3,539,254
                                                  ---------------
             TOTAL LUXEMBOURG...................        6,767,053
                                                  ---------------
             NETHERLANDS (6.5%)
             BUSINESS SERVICES
    191,050  Randstad Holdings..................        9,848,054
                                                  ---------------
             INSURANCE
     57,509  Aegon NV...........................        3,534,888
                                                  ---------------
             MACHINERY - DIVERSIFIED
    170,000  Boskalis Westminster...............        3,844,473
                                                  ---------------
             MULTI - INDUSTRY
    187,500  Hunter Douglas NV..................        8,247,963
                                                  ---------------
             PUBLISHING
    700,000  Elsevier NV........................        7,109,117
     70,000  VNU - Ver Ned Uitgev...............        7,439,773
    137,700  Wegener NV.........................        9,594,119
                                                  ---------------
                                                       24,143,009
                                                  ---------------
             TOTAL NETHERLANDS..................       49,618,387
                                                  ---------------

             NORWAY (2.9%)
             BANKING
    322,390  Sparebanken More...................        6,086,998
                                                  ---------------
             BUILDING & CONSTRUCTION
    150,000  Rieber & Son (Class A).............        3,129,045
    100,000  Rieber & Son (Class B).............        1,994,670
                                                  ---------------
                                                        5,123,715
                                                  ---------------
             BUSINESS SERVICES
    200,000  Sysdeco Group AS*..................        1,370,384
                                                  ---------------
             OIL & RELATED
    467,000  Smedvig Tankships*.................        3,626,494
                                                  ---------------
             TRANSPORTATION
    418,750  Helikopter Service.................        5,196,517
     35,000  Storli AS (B Shares)...............          543,587
                                                  ---------------
                                                        5,740,104
                                                  ---------------
             TOTAL NORWAY.......................       21,947,695
                                                  ---------------

             SPAIN (3.1%)
             BUILDING & CONSTRUCTION
     25,500  Fomento de Constructiones y
               Contratas SA.....................        2,526,661
                                                  ---------------
<CAPTION>
  SHARES                                               VALUE
- -----------                                       ---------------
<C>          <S>                                  <C>
             ENGINEERING & CONSTRUCTION
    600,000  Uralita SA*........................  $     6,255,472
                                                  ---------------
             OIL & RELATED
     83,750  Gas Natural SDG....................        7,005,273
                                                  ---------------
             TELECOMMUNICATIONS
    600,000  Telefonica de Espana...............        8,046,160
                                                  ---------------
             TOTAL SPAIN........................       23,833,566
                                                  ---------------

             SWEDEN (9.6%)
             AEROSPACE & DEFENSE
    211,550  Securitas (B Shares)...............        5,864,497
                                                  ---------------
             AUTOMOBILES
    340,000  Volvo AB (Series B Free)...........        6,691,986
                                                  ---------------
             AUTOMOTIVE
    140,000  Autoliv AB.........................        4,773,653
                                                  ---------------
             FOREST PRODUCTS, PAPER & PACKAGING
    200,000  Mo Och Domsjoe*....................        9,037,230
                                                  ---------------
             HEALTH & PERSONAL CARE
    281,830  Astra AB (A Shares)................        7,597,917
                                                  ---------------
             HOUSEHOLD FURNISHINGS & APPLIANCES
    160,000  Electrolux (Series B Free).........        8,272,115
                                                  ---------------
             INTERNATIONAL TRADE
    251,700  Kinnevik Industriforvatnings (B
               Shares)..........................        8,338,134
                                                  ---------------
             METALS & MINING
    318,000  Atlas Copco AB (Series B Free).....        4,297,536
    282,000  Atlas Copco AB (Series A Free).....        3,830,566
    200,000  Ssab  Svenskt  Stal  AB  (Series  A
               Free)............................        9,369,889
                                                  ---------------
                                                       17,497,991
                                                  ---------------
             RETAIL
     92,000  Hennes & Mauritz...................        5,062,512
                                                  ---------------
             TOTAL SWEDEN.......................       73,136,035
                                                  ---------------

             SWITZERLAND (7.5%)
             BANKING
     45,000  Safra Republic Holdings SA.........        3,572,846
                                                  ---------------
             BUSINESS SERVICES
      4,780  Soc Gen Surveillance...............        6,907,185
                                                  ---------------
             CEMENT
     13,750  Holderbank Financiere Glarus AG (B
               Shares)..........................       10,578,603
                                                  ---------------
             ELECTRICAL EQUIPMENT
     10,550  Swisslog Holdings AG...............        2,940,095
                                                  ---------------
             FINANCIAL SERVICES
        700  SBSI Holding SA (Bearer)...........          855,895
                                                  ---------------
             INDUSTRIALS
     14,000  Hilti AG PTG Certs.................       10,670,901
                                                  ---------------
</TABLE>
    
                                       41
<PAGE>
   
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
    
   
<TABLE>
<CAPTION>
  SHARES                                               VALUE
- -----------                                       ---------------
<C>          <S>                                  <C>
             LEISURE
         92  Reiseburo Kuoni (Bearer)...........  $     2,629,615
        895  Reiseburo Kuoni....................        1,200,913
                                                  ---------------
                                                        3,830,528
                                                  ---------------
             MACHINERY
      5,800  Danzas Holding AG..................        7,068,678
      6,230  Schinder Holdings..................        6,924,970
                                                  ---------------
                                                       13,993,648
                                                  ---------------
             PHARMACEUTICALS
        820  Roche Holdings AG..................        3,636,125
                                                  ---------------
             TOTAL SWITZERLAND..................       56,985,826
                                                  ---------------
             UNITED KINGDOM (36.2%)
             AEROSPACE & DEFENSE
    515,000  British Aerospace..................        3,720,198
    658,000  Smiths Industries, PLC.............        4,763,866
                                                  ---------------
                                                        8,484,064
                                                  ---------------
             BANKING
    850,000  Abbey National, PLC................        5,726,191
  1,335,000  TSB Group, PLC.....................        4,875,987
                                                  ---------------
                                                       10,602,178
                                                  ---------------
             BUILDING & CONSTRUCTION
  1,200,000  Blue Circle Industries, PLC........        5,493,247
  1,605,200  John Mowlem & Co., PLC.............        2,657,836
  1,366,200  Williams Holdings, PLC.............        7,606,891
                                                  ---------------
                                                       15,757,974
                                                  ---------------
             BUSINESS SERVICES
    648,000  Reuters Holdings, PLC..............        5,007,036
                                                  ---------------
             CONGLOMERATES
  2,496,857  BTR, PLC...........................       12,402,633
  1,800,000  Harrison & Crosfield...............        4,733,543
                                                  ---------------
                                                       17,136,176
                                                  ---------------
             CONSTRUCTION PLANT & EQUIPMENT
  1,320,000  CRH, PLC...........................        7,285,370
                                                  ---------------
             ELECTRIC UTILITIES
    475,000  Powergen, PLC......................        4,364,242
    985,000  Scottish Power, PLC................        5,724,243
                                                  ---------------
                                                       10,088,485
                                                  ---------------
             FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
    663,461  Allied Lyons, PLC..................        6,418,898
  1,115,000  Argyll Group, PLC..................        4,724,048
    711,153  BAT Industries, PLC................        5,056,336
    680,000  Dalgety, PLC.......................        4,724,452
    780,000  Grand Metropolitan, PLC............        5,254,622
  1,405,100  Rothmans International (Units)+....        9,465,730
    820,000  Tate & Lyle, PLC...................        5,643,888
                                                  ---------------
                                                       41,287,974
                                                  ---------------
             FOREST PRODUCTS, PAPER & PACKAGING
    300,000  De La Rue Co.......................        4,748,153
                                                  ---------------
<CAPTION>
  SHARES                                               VALUE
- -----------                                       ---------------
<C>          <S>                                  <C>
             HEALTH & PERSONAL CARE
  1,129,000  Glaxo Holdings.....................  $    10,941,253
  1,470,300  Smithkline Beecham.................        8,878,665
                                                  ---------------
                                                       19,819,918
                                                  ---------------
             INSURANCE
    460,000  Britannic Assurance, PLC...........        3,061,544
    561,884  Commercial Union Assurance Co.,
               PLC..............................        4,952,738
  1,209,800  Prudential Corp., PLC..............        6,205,824
    535,000  Refuge Group.......................        2,362,226
  1,121,666  Royal Insurance, PLC...............        5,280,321
                                                  ---------------
                                                       21,862,653
                                                  ---------------
             LEISURE
    960,000  Granada Group, PLC.................        8,072,346
                                                  ---------------
             METALS & MINING
    563,500  English China Clays................        3,293,026
                                                  ---------------
             OIL & RELATED
  2,680,000  British Petroleum Co., PLC.........       18,880,927
  1,917,000  Lasmo, PLC.........................        4,636,680
                                                  ---------------
                                                       23,517,607
                                                  ---------------
             PHARMACEUTICALS
    630,000  Reckitt & Colman, PLC..............        5,962,219
     78,750  Reckitt & Colman, PLC (Rights)*....          419,298
                                                  ---------------
                                                        6,381,517
                                                  ---------------
             PUBLISHING
    325,000  Daily Mail & General...............        5,091,075
    625,000  Pearson, PLC.......................        6,391,744
                                                  ---------------
                                                       11,482,819
                                                  ---------------
             REAL ESTATE
    726,900  Hammerson Prop. Inv. & Dev., PLC...        3,964,722
    600,000  MEPC, PLC..........................        4,090,716
                                                  ---------------
                                                        8,055,438
                                                  ---------------
             RETAIL STORES
    668,000  Great Universal Stores.............        6,072,441
    985,000  Kingfisher, PLC....................        7,515,067
  2,211,000  Morrison Supermarkets..............        4,737,634
  1,525,000  Next, PLC..........................        6,040,299
                                                  ---------------
                                                       24,365,441
                                                  ---------------
             TELECOMMUNICATIONS
  2,260,000  British Telecomm, PLC..............       14,417,826
                                                  ---------------
             TRANSPORTATION
  1,129,300  British Airways, PLC...............        6,434,506
                                                  ---------------
             UTILITIES
    700,000  Anglican Water, PLC................        6,192,891
                                                  ---------------
             TOTAL UNITED KINGDOM...............      274,293,398
                                                  ---------------
             TOTAL COMMON AND PREFERRED STOCKS,
               WARRANTS AND RIGHTS (IDENTIFIED
               COST $656,367,473)...............      739,028,003
                                                  ---------------
</TABLE>
    
                                       42
<PAGE>
   
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
    
   
<TABLE>
<CAPTION>
  PRINCIPAL
   AMOUNT
     (IN
 THOUSANDS)                                            VALUE
- -------------                                     ---------------
<C>            <S>                                <C>
               COMMERCIAL PAPER (A) (2.0%)
               AUTOMOTIVE FINANCE
    US$15,000  Ford Motor Credit Company 4.7%
                 due 11/1/94 (Amortized Cost
                 $15,000,000)...................  $    15,000,000

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

TOTAL INVESTMENTS (IDENTIFIED
  COST $671,367,473)(B)..........       99.4%    754,028,003
CASH AND OTHER ASSETS IN EXCESS
  OF LIABILITIES.................        0.6       4,473,822
                                   ----------  -------------

NET ASSETS.......................      100.0%  $ 758,501,825
                                   ----------  -------------
                                   ----------  -------------
<FN>
- ------------------
 ADR   AMERICAN DEPOSITORY RECEIPTS.
  *    NON-INCOME PRODUCING SECURITY.
  +    CONSISTS OF MORE THAN ONE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
       GENERALLY BONDS WITH ATTACHED STOCKS/WARRANTS.
 (A)   COMMERCIAL PAPER WAS  PURCHASED ON A  DISCOUNT BASIS. THE  RATE SHOWN  HAS
       BEEN ADJUSTED TO REFLECT A BOND EQUIVALENT YIELD.
 (B)   THE  AGGREGATE COST FOR  FEDERAL INCOME TAX  PURPOSES IS $671,620,773; THE
       AGGREGATE GROSS UNREALIZED APPRECIATION IS $101,193,872 AND THE  AGGREGATE
       GROSS  UNREALIZED DEPRECIATION IS $18,786,642, RESULTING IN NET UNREALIZED
       APPRECIATION OF $82,407,230.
</TABLE>
    
   
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1994:
    
   
<TABLE>
<CAPTION>
                                            UNREALIZED
  CONTRACTS      IN EXCHANGE    DELIVERY   APPRECIATION/
  TO RECEIVE         FOR          DATE     (DEPRECIATION)
- --------------  --------------  ---------  -------------
<S>             <C>             <C>        <C>
 DEM 2,608,000   US$ 1,733,716  11/ 2/94     $  (6,543)
  US$  230,130   FRF 1,178,957  11/ 2/94         2,136
  US$  254,691   FRF 1,317,387  11/ 3/94           (74)
  US$  543,863   FRF 2,790,180  11/30/94         4,280
  US$  333,872   FRF 1,711,094  11/30/94         2,970
                                           -------------
                Net Unrealized
                Appreciation ............    $   2,769
                                           -------------
                                           -------------
</TABLE>
    
   
                       SEE NOTES TO FINANCIAL STATEMENTS
    

                                       43
<PAGE>
   
DEAN WITTER EUROPEAN GROWTH FUND INC.
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION OCTOBER 31, 1994
- --------------------------------------------------------------------------------
    
   
<TABLE>
<CAPTION>
                                                                        PERCENT OF
INDUSTRY                                                  VALUE         NET ASSETS
- --------------------------------------------------     ------------     -----------
<S>                                                    <C>              <C>
Aerospace & Defense...............................     $ 14,348,561            1.9%
Automobiles.......................................       14,147,024            1.9
Automotive Finance................................       15,000,000            2.0
Automotive........................................       10,277,774            1.4
Banking...........................................       40,550,304            5.3
Building & Construction...........................       30,121,063            4.0
Building Materials................................        5,089,132            0.7
Business Services.................................       39,098,463            5.2
Cement............................................       10,578,603            1.4
Chemicals.........................................       11,707,379            1.5
Conglomerates.....................................       17,136,176            2.3
Construction Plant & Equipment....................        7,285,370            1.0
Electronics.......................................       25,030,675            3.3
Electric Utilities................................       19,765,392            2.6
Electrical Equipment..............................       13,345,539            1.8
Engineering & Construction........................        6,255,472            0.8
Financial Services................................        9,798,406            1.3
Food, Beverage, Tobacco & Household Products......       69,658,038            9.2
Forest Products, Paper & Packaging................       13,785,383            1.8
Health & Personal Care............................       33,788,995            4.5
Household Furnishings & Appliances................        8,272,115            1.1
Industrials.......................................       10,670,901            1.4
Insurance.........................................       33,946,507            4.4
International Trade...............................        8,338,134            1.1
Leisure...........................................       11,902,874            1.6
Machinery.........................................       13,993,648            1.8
Machinery Diversified.............................        3,844,473            0.5
Manufacturing.....................................        5,163,930            0.7
Merchandising.....................................        1,578,379            0.2
Metal & Mining....................................       24,330,271            3.1
Multi-Industry....................................        9,292,684            1.2
Oil & Gas.........................................        8,648,954            1.1
Oil & Related.....................................       41,294,400            5.4
Pharmaceuticals...................................       14,012,849            1.8
Publishing........................................       35,625,828            4.7
Real Estate.......................................        8,055,438            1.1
Retail............................................       20,342,283            2.7
Retail Stores.....................................       24,365,441            3.2
Telecommunications................................       35,714,289            4.7
Textiles..........................................        9,499,355            1.3
Transportation....................................       12,174,610            1.6
Utilities.........................................        6,192,891            0.8
                                                       ------------        -----
                                                       $754,028,003           99.4%
                                                       ------------        -----
                                                       ------------        -----
</TABLE>
    
   
SUMMARY OF INVESTMENTS BY TYPE OCTOBER 31, 1994
- --------------------------------------------------------------------------------
    
   
<TABLE>
<CAPTION>
TYPE OF INVESTMENT
- --------------------------------------------------
<S>                                                    <C>              <C>
Commercial Paper..................................     $ 15,000,000            2.0%
Common Stocks.....................................      704,248,991           92.8
Preferred Stocks..................................       34,318,387            4.5
Rights............................................          419,298            0.1
Warrants..........................................           41,327            0.0
                                                       ------------        -----
                                                       $754,028,003           99.4%
                                                       ------------        -----
                                                       ------------        -----
</TABLE>
    
                                       44
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
   
STATEMENT OF ASSETS AND LIABILITIES
    
   
OCTOBER 31, 1994
    
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                                         <C>
ASSETS:
Investments in securities, at value
  (identified cost $671,367,473) (Note
  1)......................................  $ 754,028,003
Unrealized appreciation on foreign
  currency contracts......................          9,386
Cash (including $800,000 in foreign
  currency)...............................      1,138,484
Receivable for:
  Investments sold........................      2,569,060
  Capital stock sold......................      2,471,457
  Dividends...............................      1,615,865
  Foreign withholding tax reclaimed.......      1,330,066
  Interest................................         20,460
Deferred organizational expenses (Note
  1)......................................         17,416
Prepaid expenses and other assets.........         36,346
                                            -------------
        TOTAL ASSETS......................    763,236,543
                                            -------------
LIABILITIES:
Unrealized depreciation on foreign
  currency contracts......................          6,617
Payable for:
  Investments purchased...................      1,961,654
  Capital stock repurchased...............        801,820
  Investment management fees (Note 2).....        616,653
  Plan of distribution fee (Note 3).......        596,671
Accrued expenses and other payables (Note
  4)......................................        751,303
                                            -------------
        TOTAL LIABILITIES.................      4,734,718
                                            -------------
NET ASSETS:
Paid-in-capital...........................    615,900,691
Net unrealized appreciation...............     82,796,795
Accumulated net investment loss...........       (302,165)
Accumulated undistributed net realized
  gains...................................     60,106,504
                                            -------------
        NET ASSETS........................  $ 758,501,825
                                            -------------
                                            -------------
NET ASSET VALUE PER SHARE, 56,224,657
  shares outstanding (200,000,000 shares
  authorized of $.01 par value)...........
                                                   $13.49
                                            -------------
                                            -------------
</TABLE>
    

   
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1994
    

   
<TABLE>
<S>                                          <C>
INVESTMENT INCOME:
  INCOME
    Dividends (net of $1,900,894 foreign
      withholding tax).....................  $ 14,358,254
    Interest (net of $67,819 foreign
      withholding tax).....................     1,300,528
                                             ------------
        TOTAL INCOME.......................    15,658,782
                                             ------------
  EXPENSES
    Investment management fees (Note 2)....     6,274,989
    Plan of distribution fee (Note 3)......     6,035,318
    Transfer agent fees and expenses.......     1,103,554
    Custodian fees.........................       575,133
    Registration fees......................       145,673
    Shareholder reports and notices........        96,789
    Professional fees......................        57,339
    Organizational expenses (Note 1).......        29,985
    Directors' fees and expenses (Note
      4)...................................        27,010
    Other..................................         7,152
                                             ------------
        TOTAL EXPENSES.....................    14,352,942
                                             ------------
          NET INVESTMENT INCOME............     1,305,840
                                             ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
  (Note 1):
    Net realized gain (loss) on:
      Investments..........................    68,463,482
      Foreign exchange transactions........    (6,983,497)
                                             ------------
                                               61,479,985
                                             ------------
    Net change in unrealized appreciation
      (depreciation) on:
      Investments..........................    27,150,630
      Translation of other assets and
        liabilities denominated in foreign
        currencies.........................       (12,320)
                                             ------------
                                               27,138,310
                                             ------------
        NET GAIN...........................    88,618,295
                                             ------------
          NET INCREASE IN NET ASSETS
            RESULTING FROM OPERATIONS......  $ 89,924,135
                                             ------------
                                             ------------
</TABLE>
    

   
STATEMENT OF CHANGES IN NET ASSETS
    
- --------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                                FOR THE YEAR       FOR THE YEAR
                                                                                    ENDED              ENDED
                                                                              OCTOBER 31, 1994   OCTOBER 31, 1993
                                                                              -----------------  -----------------
<S>                                                                           <C>                <C>
INCREASE (DECREASE) IN NET ASSETS:
  Operations:
    Net investment income (loss)............................................   $     1,305,840    $      (305,766)
    Net realized gain.......................................................        61,479,985         33,990,114
    Net change in unrealized appreciation...................................        27,138,310         76,682,042
                                                                              -----------------  -----------------
        Net increase in net assets resulting from operations................        89,924,135        110,366,390
                                                                              -----------------  -----------------
  Distributions to shareholders from net realized gain......................        (9,695,849)         -0-
                                                                              -----------------  -----------------
  Net increase from capital stock transactions (Note 5).....................       219,072,953         52,286,155
                                                                              -----------------  -----------------
        Total increase......................................................       299,301,239        162,652,545
NET ASSETS:
  Beginning of period.......................................................       459,200,586        296,548,041
                                                                              -----------------  -----------------
  END OF PERIOD (including accumulated net investment loss of $302,165 and
   $7,088,050, respectively)................................................   $   758,501,825    $   459,200,586
                                                                              -----------------  -----------------
                                                                              -----------------  -----------------
</TABLE>
    

   
                       SEE NOTES TO FINANCIAL STATEMENTS
    

                                       45
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

   
1. ORGANIZATION AND ACCOUNTING POLICIES -- Dean Witter European Growth Fund Inc.
(the  "Fund") is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified, open-end management investment company. The  Fund
was  incorporated in Maryland  on February 13, 1990  and commenced operations on
May 31, 1990.
    

   
    The following is a summary of significant accounting policies:
    

   
    A.__VALUATION OF INVESTMENTS_--_(1) an equity  security listed or traded  on
    the  New York or American Stock Exchange  or other domestic or foreign stock
    exchanges is valued at its latest sale  price on that exchange prior to  the
    time  when assets are valued; if there  were no sales that day, the security
    is valued at the latest bid price  (in cases where securities are traded  on
    more than one exchange; the securities are valued on the exchange designated
    as  the primary market by  the Directors); (2) listed  options are valued at
    the latest sale price  on the exchange  on which they  are listed unless  no
    sales  of such options have taken place that day, in which case they will be
    valued  at   the  mean   between   their  latest   bid  and   asked   price.
    Over-the-counter  options are valued under fair value procedures established
    by and  under  the general  supervision  of  the Directors;  (3)  all  other
    portfolio  securities  for  which  over-the-counter  market  quotations  are
    readily available are valued at the latest available bid price prior to  the
    time  of valuation;  (4) when market  quotations are  not readily available,
    including circumstances  under  which it  is  determined by  the  Investment
    Manager  that sale and bid prices are  not reflective of a security's market
    value, portfolio securities are valued at their fair value as determined  in
    good faith under procedures established by and under the general supervision
    of  the Directors (valuation of debt  securities for which market quotations
    are not  readily  available may  be  based  upon current  market  prices  of
    securities  which  are  comparable  in coupon,  rating  and  maturity  or an
    appropriate matrix  utilizing  similar  factors); and  (5)  short-term  debt
    securities  having a maturity  date of more  than sixty days  at the time of
    purchase are valued  on a  mark-to-market basis  until sixty  days prior  to
    maturity  and thereafter at amortized cost based  on their value on the 61st
    day. Short-term debt securities having a maturity date of sixty days or less
    at the time of purchase are valued at amortized cost.
    

   
    B.__ACCOUNTING FOR INVESTMENTS_--_Security transactions are accounted for on
    the trade date (date the order to  buy or sell is executed). Realized  gains
    and  losses on security  transactions are determined  on the identified cost
    method.  Dividend  income  and  other  distributions  are  recorded  on  the
    ex-dividend  date except for certain dividends from foreign securities which
    are recorded as  soon as the  Fund is informed  after the ex-dividend  date.
    Interest  income is accrued daily and  includes amortization of discounts of
    certain short-term securities.
    

   
    C.__OPTION ACCOUNTING PRINCIPLES_--_When the Fund  writes a call option,  an
    amount  equal to the premium received is included in the Fund's Statement of
    Assets and Liabilities as a liability which is subsequently marked-to-market
    to reflect the  current market  value of the  option written.  If a  written
    option   either  expires  or  the  Fund   enters  into  a  closing  purchase
    transaction, the Fund realizes a capital gain or loss without regard to  any
    unrealized  gain  or loss  on the  underlying security  or currency  and the
    liability related to such option is  extinguished. If a written call  option
    is  exercised, the Fund realizes a capital gain or loss from the sale of the
    underlying security  or  currency  and  the  proceeds  from  such  sale  are
    increased by the premium originally received.
    

   
          When  the Fund  purchases a call  or put  option, the  premium paid is
    recorded as an  investment and is  subsequently marked-to-market to  reflect
    the current market value. If a purchased
    

                                       46
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
   
    option  expires, the Fund will  realize a loss to  the extent of the premium
    paid. If the Fund enters into a closing sale transaction, a gain or loss  is
    realized  for the difference between the proceeds from the sale and the cost
    of the option. If  a put option  is exercised, the cost  of the security  or
    currency  sold upon  exercise will  be increased  by the  premium originally
    paid. If a call option is exercised, the cost of the security purchased upon
    exercise will be increased by the premium originally paid.
    

   
    D.__FOREIGN CURRENCY TRANSLATION_--_The  books and records  of the Fund  are
    maintained in U.S. dollars as follows: (1) the foreign currency market value
    of investment securities, other assets and liabilities and forward contracts
    are  translated at the exchange  rates prevailing at the  end of the period;
    and (2) purchases, sales, income and expenses are translated at the exchange
    rates prevailing on the respective dates of such transactions. The resultant
    exchange gains and  losses are included  in the Statement  of Operations  as
    realized and unrealized gain/loss on foreign exchange transactions. Pursuant
    to   U.S.  Federal   income  tax   regulations,  certain   foreign  exchange
    gains/losses included in realized and  unrealized gain/loss are included  in
    or  are a reduction of ordinary income  for federal income tax purposes. The
    Fund does not isolate that portion of the results of operations arising as a
    result of changes  in the  foreign exchange rates  from the  changes in  the
    market prices of the securities.
    

   
    E.__FORWARD  FOREIGN CURRENCY EXCHANGE CONTRACTS_--_The  Fund may enter into
    forward foreign currency exchange contracts as a hedge against  fluctuations
    in  foreign  exchange  rates.  Forward contracts  are  valued  daily  at the
    appropriate exchange  rates. The  resultant exchange  gains and  losses  are
    included  in the Statement of Operations  as unrealized gain/loss on foreign
    exchange transactions. The Fund records realized gains or losses on delivery
    of the  currency  or  at  the time  the  forward  contract  is  extinguished
    (compensated) by entering into a closing transaction prior to delivery.
    

   
    F.__FEDERAL  INCOME TAX STATUS_--_It is the Fund's policy to comply with the
    requirements of the Internal Revenue Code applicable to regulated investment
    companies and to distribute all of  its taxable income to its  shareholders.
    Accordingly, no federal income tax provision is required.
    

   
    G.__DIVIDENDS   AND  DISTRIBUTIONS   TO  SHAREHOLDERS_--_The   Fund  records
    dividends and distributions to its shareholders on the ex-dividend date. The
    amount of dividends  and distributions  from net investment  income and  net
    realized  capital gains are determined in accordance with federal income tax
    regulations which may differ from generally accepted accounting  principles.
    These "book/tax" differences are either considered temporary or permanent in
    nature.  To  the  extent these  differences  are permanent  in  nature, such
    amounts are reclassified within the capital accounts based on their  federal
    tax-basis  treatment; temporary differences do not require reclassification.
    Dividends and  distributions  which exceed  net  investment income  and  net
    realized  capital gains  for financial  reporting purposes  but not  for tax
    purposes are reported  as dividends in  excess of net  investment income  or
    distributions  in excess of  net realized capital gains.  To the extent they
    exceed net  investment  income  and  net  realized  capital  gains  for  tax
    purposes, they are reported as distributions of paid-in-capital.
    

   
    H.__ORGANIZATIONAL    EXPENSES_--_Dean   Witter   InterCapital   Inc.   (the
    "Investment Manager") paid the  organizational expenses of  the Fund in  the
    amount of approximately $150,000 which have
    

                                       47
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
   
    been  reimbursed by the Fund for the full amount thereof. Such expenses have
    been deferred  and are  being amortized  by the  Fund on  the straight  line
    method  over a  period not  to exceed  five years  from the  commencement of
    operations.
    

   
2.  INVESTMENT  MANAGEMENT  AND  SUB-ADVISORY  AGREEMENTS  --  Pursuant  to   an
Investment  Management  Agreement,  the  Fund  pays  its  Investment  Manager  a
management fee, accrued daily and payable  monthly, by applying the annual  rate
of  1.0% to the daily net assets of the  Fund determined as of the close of each
business day. Effective  May 1, 1994,  the Agreement was  amended to reduce  the
annual  fee  to 0.95%  of the  portion of  daily  net assets  in excess  of $500
million.
    

   
    Under the  terms  of the  Agreement,  in  addition to  managing  the  Fund's
investments,  the Investment Manager  maintains certain of  the Fund's books and
records and furnishes, at its own expense, office space, facilities,  equipment,
clerical,  bookkeeping and certain  legal services and pays  the salaries of all
personnel, including officers of  the Fund who are  employees of the  Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
    

   
    Under  a Sub-Advisory Agreement between  Morgan Grenfell Investment Services
Limited (the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides
the Fund with investment advice and portfolio management relating to the  Fund's
investments  in securities, subject to the overall supervision of the Investment
Manager. As compensation for its services provided pursuant to the  Sub-Advisory
Agreement,  the  Investment Manager  pays  the Sub-Advisor  monthly compensation
equal to 40% of its monthly compensation.
    

   
3. PLAN OF DISTRIBUTION  -- Shares of  the Fund are  distributed by Dean  Witter
Distributors  Inc. (the "Distributor"), an  affiliate of the Investment Manager.
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule  12b-1
under  the Act  pursuant to  which the  Fund pays  the Distributor compensation,
accrued daily and payable monthly, at an  annual rate of 1.0% of the lesser  of:
(a)  the average  daily aggregate  gross sales  of the  Fund's shares  since the
inception of the Fund (not including  reinvestment of dividends or capital  gain
distributions)  less the average  daily aggregate net asset  value of the Fund's
shares redeemed  since the  Fund's inception  upon which  a contingent  deferred
sales  charge has been imposed or upon which such charge has been waived; or (b)
the Fund's average daily net assets. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne by
it and others in the distribution of the Fund's shares, including the payment of
commissions for sales  of the Fund's  shares and incentive  compensation to  and
expenses of the account executives of Dean Witter Reynolds Inc., an affiliate of
the  Investment Manager and Distributor, and other employees or selected dealers
who engage  in or  support distribution  of  the Fund's  shares or  who  service
shareholder  accounts, including  overhead and telephone  expenses, printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's  shares  to  other  than current  shareholders  and  preparation  and
printing  and  distribution of  sales literature  and advertising  materials. In
addition, the Distributor may be compensated under the Plan for its  opportunity
costs  in advancing such amounts,  which compensation would be  in the form of a
carrying charge on any unreimbursed expenses incurred by the Distributor.
    

                                       48
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

   
    Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered,  may be recovered through  future distribution fees  from
the Fund and contingent deferred sales charges from the Fund's shareholders.
    

   
    The  Distributor has informed the  Fund that for the  year ended October 31,
1994, it received  approximately $883,000 in  contingent deferred sales  charges
from  certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
    

   
4. SECURITY  TRANSACTIONS  AND  TRANSACTIONS  WITH AFFILIATES  --  The  cost  of
purchases  and  the  proceeds  from  sales  of  portfolio  securities, excluding
short-term investments, for the year ended October 31, 1994 were as follows:
    

   
<TABLE>
<CAPTION>
                                                                                PURCHASES           SALES
                                                                             ----------------  ----------------
<S>                                                                          <C>               <C>
Common and Preferred Stocks, Warrants and Rights...........................  $    646,930,226  $    434,008,943
Currency Put Options.......................................................        15,600,450        19,314,150
</TABLE>
    

   
    Dean Witter  Trust  Company, an  affiliate  of the  Investment  Manager  and
Distributor,  is the Fund's  transfer agent. At  October 31, 1994,  the Fund had
transfer agent fees and expenses payable of approximately $197,000.
    

   
    On April 1, 1991, the  Fund established an unfunded noncontributory  defined
benefit  pension plan  covering all independent  Directors of the  Fund who will
have served as  independent Directors for  at least  five years at  the time  of
retirement.  Benefits  under  this  plan  are  based  on  years  of  service and
compensation during the last five years of service. Aggregate pension costs  for
the year ended October 31, 1994, included in Directors' fees and expenses in the
Statement  of Operations, amounted to $8,840. At  October 31, 1994, the Fund had
an accrued pension liability of $45,909,  which is included in accrued  expenses
in the Statement of Assets and Liabilities.
    

   
5. CAPITAL STOCK -- Transactions in capital stock were as follows:
    

   
<TABLE>
<CAPTION>
                                                        FOR THE YEAR                     FOR THE YEAR
                                                           ENDED                             ENDED
                                                      OCTOBER 31, 1994                 OCTOBER 31, 1993
                                              --------------------------------  -------------------------------
                                                  SHARES           AMOUNT          SHARES           AMOUNT
                                              --------------  ----------------  -------------  ----------------
<S>                                           <C>             <C>               <C>            <C>
Sold........................................      29,930,054  $    375,870,856     13,094,625  $    138,741,550
Reinvestment of distributions...............         746,489         9,137,027       --               --
                                              --------------  ----------------  -------------  ----------------
                                                  30,676,543       385,007,883     13,094,625       138,741,550
Repurchased.................................     (13,166,728)     (165,934,930)    (8,986,819)      (86,455,395)
                                              --------------  ----------------  -------------  ----------------
Net increase................................      17,509,815  $    219,072,953      4,107,806  $     52,286,155
                                              --------------  ----------------  -------------  ----------------
                                              --------------  ----------------  -------------  ----------------
</TABLE>
    

   
6.  FEDERAL INCOME TAX STATUS -- During the year ended October 31,1994, the Fund
utilized its net capital loss carryover of approximately $207,000. As of October
31, 1994, the Fund had temporary book/tax differences primarily attributable  to
the  mark-to-market  of  a  passive  foreign  investment  company  ("PFIC")  and
permanent book/tax differences primarily attributable to foreign currency gains,
dividend redesignations, net operating losses and tax adjustments on PFICs  sold
by  the  Fund. To  reflect cumulative  reclassifications arising  from permanent
book/tax differences  as  of  October  31,  1993,  paid-in-capital  was  charged
$3,363,184 accumulated undistributed net realized gains was
    

                                       49
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
   
charged $3,698,638, and accumulated net investment loss was credited $7,061,822.
To reflect reclassifications arising from permanent book/tax differences for the
year  ended October  31, 1994, accumulated  net investment loss  was charged and
accumulated undistributed net realized gains was credited $8,696,055.
    

   
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK -- As of October 31,  1994,
the  Fund had outstanding forward  foreign currency exchange contracts ("forward
contracts") as  a  hedge against  changes  in foreign  exchange  rates.  Forward
contracts  involve elements of market risk in  excess of the amount reflected in
the Statement  of  Assets  and  Liabilities.  The Fund  bears  the  risk  of  an
unfavorable  change  in  the  foreign  exchange  rates  underlying  the  forward
contracts. Risks may  also arise  upon entering  into these  contracts from  the
potential inability of the counterparties to meet the terms of their contracts.
    

                                       50
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
   
Selected  data and  ratios for a  share of capital  stock outstanding throughout
each period:
    
   
<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED OCTOBER 31,
                                                  ------------------------------------------------------------------
                                                      1994              1993              1992              1991
                                                  ------------      ------------      ------------      ------------
<S>                                               <C>               <C>               <C>               <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.........         $11.86             $8.57             $9.22             $9.23
                                                  ------------      ------------      ------------      ------------
Net investment income (loss).................           0.02             (0.01)             0.01              0.05
Net realized and unrealized gain (loss) on
  investments................................           1.84              3.30             (0.23)             0.07
                                                  ------------      ------------      ------------      ------------
Total from investment operations.............           1.86              3.29             (0.22)             0.12
                                                  ------------      ------------      ------------      ------------
Less dividends and distributions from:
  Net investment income......................         --                --                 (0.03)            (0.07)
  Net realized capital gains.................          (0.23)           --                 (0.40)            (0.06)
                                                  ------------      ------------      ------------      ------------
Total dividends and distributions............          (0.23)           --                 (0.43)            (0.13)
                                                  ------------      ------------      ------------      ------------
Net asset value, end of period...............         $13.49            $11.86             $8.57             $9.22
                                                  ------------      ------------      ------------      ------------
                                                  ------------      ------------      ------------      ------------
TOTAL INVESTMENT RETURN +....................          15.61%            38.74%            (2.39)%            1.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).....     $  758,502        $  459,201        $  296,548        $  315,944
Ratios to average net assets:
  Expenses...................................           2.27%             2.38%             2.40%             2.44%
  Net investment income (loss)...............           0.21%            (0.09)%            0.11%             0.51%
Portfolio turnover rate......................             72%              120%              116%              111%

<CAPTION>
                                                  FOR THE PERIOD
                                                   MAY 31, 1990*
                                                      THROUGH
                                                 OCTOBER 31, 1990
                                               ---------------------
<S>                                               <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.........            $10.00
                                                     ----------
Net investment income (loss).................              0.05
Net realized and unrealized gain (loss) on
  investments................................             (0.82)
                                                     ----------
Total from investment operations.............             (0.77)
                                                     ----------
Less dividends and distributions from:
  Net investment income......................         --
  Net realized capital gains.................         --
                                                     ----------
Total dividends and distributions............         --
                                                     ----------
Net asset value, end of period...............             $9.23
                                                     ----------
                                                     ----------
TOTAL INVESTMENT RETURN +....................             (7.70)%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).....  $        303,872
Ratios to average net assets:
  Expenses...................................              2.45%(2)
  Net investment income (loss)...............              1.52%(2)
Portfolio turnover rate......................                36%(1)
<FN>
- ------------------------------
 *  COMMENCEMENT OF OPERATIONS.
 +  DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
</TABLE>
    

   
                       SEE NOTES TO FINANCIAL STATEMENTS
    

                                       51
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Shareholders and Board of Directors of Dean Witter European Growth Fund
Inc.

In our opinion, the accompanying statement of assets and liabilities,  including
the  portfolio of investments,  and the related statements  of operations and of
changes in  net assets  and  the financial  highlights  present fairly,  in  all
material  respects, the financial  position of Dean  Witter European Growth Fund
Inc. (the "Fund") at  October 31, 1994,  the results of  its operations for  the
year  then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended and for the  period May 31, 1990 (commencement of  operations)
through  October  31, 1990,  in  conformity with  generally  accepted accounting
principles. These  financial  statements  and  financial  highlights  (hereafter
referred  to as  "financial statements")  are the  responsibility of  the Fund's
management; our  responsibility is  to  express an  opinion on  these  financial
statements  based  on our  audits. We  conducted our  audits of  these financial
statements in  accordance  with  generally  accepted  auditing  standards  which
require  that we plan and perform the audit to obtain reasonable assurance about
whether the financial  statements are  free of material  misstatement. An  audit
includes  examining,  on  a  test basis,  evidence  supporting  the  amounts and
disclosures in  the financial  statements, assessing  the accounting  principles
used  and significant estimates  made by management,  and evaluating the overall
financial statement presentation.  We believe  that our  audits, which  included
confirmation  of securities owned at October 31, 1994 by correspondence with the
custodian and brokers  and the  application of  alternative auditing  procedures
where  confirmations from brokers were not  received, provide a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE LLP
New York, New York
December 13, 1994

                                       52


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