<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC. TWO WORLD TRADE CENTER,
NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1997
DEAR SHAREHOLDER:
The economic environment across Europe improved during the fiscal year ended
October 31, 1997. For the second year in a row, the United Kingdom was the
strongest performing economy due to a combination of low interest rates and low
inflation. The Bank of England did tighten monetary policy following the General
Election on May 1, but this had limited apparent impact on the strong consumer
spending environment of this economy. The strength of the British pound relative
to the Deutsche mark did, however, make conditions tougher for the exporting and
trade-dependant sectors of the British economy.
In Germany and the Deutsche mark bloc, the weakness of the mark relative to the
U.S. dollar through the third quarter produced an export-led recovery. This was
coupled with an easy monetary policy across most of Continental Europe and
short-term interest rates continued declining, particularly in Italy and Spain.
The European economies will always be a mosaic with varying strengths and
weaknesses, but in 1997 there was a sustained convergence (in inflation rates,
interest rates, falling budget deficits, etc.), engineered, to an extent, in
preparation for monetary union in 1999.
Politics generally exerted little influence in 1997 on the economies and stock
markets of Europe. In the United Kingdom, the election of a Labour government on
May 1, was widely forecasted and, given the obvious competence of the incoming
administration, was met with equanimity by the U.K. bond and stock markets. In
France, the return of a Socialist government on June 1 was not expected and
undermined French stocks for an extended period. However, the Socialist party's
policies turned out to be more centrist and moderate than feared and, crucially,
more pro-European than expected. Elsewhere the political environment was stable.
Overall, Europe's equity markets turned in strong performances, continuing the
bull market that has run for nearly three years. Cyclical stocks in Continental
Europe were notably strong performers during
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1997, CONTINUED
early 1997, supported by sharply stronger economies and the competitive level of
the German mark. In the United Kingdom, the strength of the British pound
limited the performance of export-related cyclicals. Financials performed well
both on the Continent and in the United Kingdom. In the United Kingdom, it was
the strong domestic economy that allowed for the outperformance of blue-chip,
high-quality banks and growth sectors like pharmaceuticals, while on the
Continent performance was driven by restructuring and mergers and acquisitions
(both actual and rumored). In contrast to the United Kingdom, Continental
European growth stocks -- which in many cases had reached high levels during
1996 -- typically underperformed the broad market indices in 1997 as market
leadership switched to more economically sensitive stocks and sectors.
PERFORMANCE AND PORTFOLIO
Against this backdrop, Dean Witter
European Growth Fund Class B produced a
total return of 19.40 percent versus
15.13 percent for the Morgan Stanley
Capital International (MSCI) World
Index and 20.38 percent for the Lipper
European Region Funds Average. The
accompanying chart illustrates the
growth of a hypothetical $10,000
investment in the Fund from inception
(June 1, 1990) through October 31,
1997, versus investments in the
companies that comprise the MSCI World
Index and the Lipper European Region
Fund's Average.
The Fund slightly underperformed its
Lipper benchmark index during fiscal
1997 because of the portfolio's
emphasis on blue-chip growth stocks and
its underweighting in financials and
Continental cyclicals. Many first- and
second-line financial stocks in
Continental Europe rose amid
expectations of takeovers and mergers.
While these takeovers and mergers are,
in some cases, materializing, we remain
wary of the sector-wide share price
rises that we believe may well unwind
in due course as fundamental valuations
return to more reasonable
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000 - Class B
($ in Thousands)
Average Annual Total Return
(Fund)
Life of
1 Year 5 Years Fund
<S> <C> <C> <C>
19.40%(1) 22.30%(1) 13.14%(1)
14.40%(2) 22.12%(2) 13.14%(2)
Fund MSCI(4) Lipper(5)
June-1990 $10,000 $10,000 $10,000
October-1990 $9,230 $8,742 $8,749
October-1991 $9,353 $9,921 $9,011
October-1992 $9,129 $9,212 $8,593
October-1993 $12,666 $11,492 $10,839
October-1994 $14,643 $12,170 $12,160
October-1995 $17,108 $13,099 $13,425
October-1996 $20,918 $14,995 $15,732
October-1997 $24,976(3) $17,265 $18,939
</TABLE>
PAST PERFORMANCE IS NOT PREDICTION OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-5%, 5
years-2%, since inception-0%). See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on October 31, 1997.
(4) The Morgan Stanley Capital International World Index (MSCI) measures
performance from a diverse range of global stock markets including the U.S.,
Europe, Australia, New Zealand, and the Far East. The Index does not include
any expenses, fees or charges, or reinvestment of dividends. The Index is
unmanaged and should not be considered an investment.
(5) The Lipper European Region Funds Average tracks the performance of the funds
which primarily invest in equity securities whose primary trading markets or
operations are concentrated in the European region or a single country
within this region, as reported by Lipper Analytical Services.
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1997, CONTINUED
levels. We believe that the Fund is currently well positioned for 1998 when
visibility and delivery of earnings will be rewarded by the market. Stocks such
as Societe Bic S.A. (France/food, beverage, tobacco & household products),
Wolters Kluwer NV (Netherlands/publishing) and Securitas AB (Series "B" Free)
(Sweden/business services) are examples of the types of growth companies that
form the core of the Fund's portfolio.
While the Fund's country weightings normally derive from and are driven by stock
decisions, it is worth noting that the Fund is currently overweighted in the
Swedish and Dutch markets relative to the benchmark index. The United Kingdom
remains the largest single country position. The Fund currently has no currency
hedges in place given the relatively stable outlook for the dollar compared to
European currencies.
On July 28, 1997, the Fund began offering four classes of shares: A, B, C and D,
each with its own sales charge and distribution fee structure. A revised
prospectus, which includes complete details regarding the Fund's conversion to
multiple classes of shares, was mailed to shareholders in mid-summer.
OUTLOOK
The outlook for the European stock markets remains positive for 1998, although
there are a number of issues that we will be carefully monitoring. The
transition to monetary union and the introduction of the Euro begins with the
passing of monetary policy powers to the European Central Bank on January 2,
1999. We continue to believe that the actual impact of monetary union on the
equity markets will be limited. However, we believe that cross-border merger and
acquisition activity will be stimulated and accelerated by the prospect of a
single currency and this should provide an important support to the markets.
Over the near term, the economies are likely to continue to strengthen and
companies should deliver rising earnings. As the economic cycle extends, the
markets will be more discerning about the quality and sustainability of
earnings, which should favor the Fund's growth oriented strategy.
We appreciate your support of Dean Witter European Growth Fund and look forward
to continuing to serve your investment needs.
Sincerely,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
RESULTS OF SPECIAL MEETING (UNAUDITED)
On May 21, 1997, a special meeting of shareholders of Dean Witter European
Growth Fund was held for the purpose of voting on five separate matters, the
results of which are as follows:
1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC., IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<CAPTION>
NO. OF
VOTE SHARES
- ------------------------------------------- ----------
<S> <C>
For........................................ 43,306,931
Against.................................... 1,104,824
Abstain.................................... 4,071,773
</TABLE>
2) APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN DEAN WITTER INTERCAPITAL
INC. AND MORGAN GRENFELL INVESTMENT SERVICES LIMITED:
<TABLE>
<S> <C>
For........................................ 42,959,722
Against.................................... 1,299,056
Abstain.................................... 4,224,750
</TABLE>
3) ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
Michael Bozic
For..................................... 45,490,384
Withheld................................ 2,993,144
Charles A. Fiumefreddo
For..................................... 45,509,682
Withheld................................ 2,973,846
Edwin J. Garn
For..................................... 45,502,389
Withheld................................ 2,981,139
John R. Haire
For..................................... 45,372,618
Withheld................................ 3,110,910
Wayne E. Hedien
For..................................... 45,482,933
Withheld................................ 3,000,595
Dr. Manuel H. Johnson
For..................................... 45,500,389
Withheld................................ 2,983,139
Michael E. Nugent
For..................................... 45,548,519
Withheld................................ 2,935,009
Philip J. Purcell
For..................................... 45,565,353
Withheld................................ 2,918,175
John L. Schroeder
For..................................... 45,507,678
Withheld................................ 2,975,850
</TABLE>
4) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN CERTAIN
OTHER INVESTMENT COMPANIES:
<TABLE>
<CAPTION>
NO. OF
VOTE SHARES
- ------------------------------------------- ----------
<S> <C>
For........................................ 41,356,116
Against.................................... 2,495,652
Abstain.................................... 4,631,760
</TABLE>
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
RESULTS OF SPECIAL MEETING (UNAUDITED), CONTINUED
5) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
NO. OF
VOTE SHARES
- ------------------------------------------- ----------
<S> <C>
For........................................ 44,447,226
Against.................................... 705,260
Abstain.................................... 3,331,042
</TABLE>
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (96.8%)
DENMARK (2.3%)
PHARMACEUTICALS
195,300 Novo-Nordisk AS (Series B)........................................................ $ 21,123,162
--------------
TRANSPORTATION
150,375 Kobenhavns Lufthavne AS........................................................... 17,982,234
--------------
TOTAL DENMARK..................................................................... 39,105,396
--------------
FINLAND (1.7%)
INSURANCE
223,558 Pohjola Insurance Co. "B"......................................................... 8,548,568
--------------
PAPER PRODUCTS
920,200 UPM-Kymmene Oy.................................................................... 20,454,813
--------------
TOTAL FINLAND..................................................................... 29,003,381
--------------
FRANCE (14.1%)
BANKING
298,931 Banque Nationale De Paris......................................................... 13,201,837
223,559 Credit Commercial de France....................................................... 12,653,114
--------------
25,854,951
--------------
ELECTRICAL EQUIPMENT
219,400 Alcatel Alsthom................................................................... 26,446,553
--------------
ELECTRONICS - SEMICONDUCTORS
286,900 SGS-Thomson Microelectronics N.V.*................................................ 20,397,030
--------------
FINANCIAL SERVICES
81,969 Cetelem........................................................................... 9,085,584
--------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
174,610 Societe BIC S.A................................................................... 11,932,994
--------------
INSURANCE
454,100 AXA-UAP........................................................................... 31,065,033
--------------
LEISURE
114,900 Accor S.A......................................................................... 21,372,116
110,000 Canal Plus........................................................................ 19,127,122
--------------
40,499,238
--------------
OIL RELATED
197,400 Elf Aquitaine S.A................................................................. 24,410,045
192,000 Total S.A. (B Shares)............................................................. 21,281,607
--------------
45,691,652
--------------
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS
89,000 Sanofi S.A........................................................................ $ 8,446,831
--------------
STEEL & IRON
591,000 Usinor Sacilor.................................................................... 9,774,939
--------------
TIRE & RUBBER GOODS
241,914 Michelin (C.G.D.E.) Class "B"..................................................... 12,397,359
--------------
TOTAL FRANCE...................................................................... 241,592,164
--------------
GERMANY (6.2%)
APPAREL
5,457 Hugo Boss AG (Pref.).............................................................. 6,896,383
--------------
AUTOMOTIVE
22,724 Bayerische Motoren Werke (BMW) AG................................................. 16,427,147
--------------
CHEMICALS
536,000 Hoechst AG........................................................................ 20,383,536
--------------
HEALTH & PERSONAL CARE
452 Rhoen-Klinikum AG................................................................. 43,235
534 Rhoen-Klinikum AG (Pref.)......................................................... 50,459
--------------
93,694
--------------
STEEL & IRON
130,715 SGL Carbon AG..................................................................... 18,337,988
92,515 Thyssen AG........................................................................ 20,406,932
--------------
38,744,920
--------------
UTILITIES
410,600 Veba AG........................................................................... 22,874,585
--------------
TOTAL GERMANY..................................................................... 105,420,265
--------------
ITALY (4.8%)
HOUSEHOLD FURNISHINGS & APPLIANCES
408,000 Industrie Natuzzi SpA (ADR)....................................................... 9,129,000
--------------
OIL & GAS PRODUCTS
2,825,500 Ente Nazionale Idrocarburi SpA.................................................... 15,891,601
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS
6,034,050 Telecom Italia Mobile SpA......................................................... $ 22,387,415
5,500,750 Telecom Italia SpA................................................................ 34,480,432
--------------
56,867,847
--------------
TOTAL ITALY....................................................................... 81,888,448
--------------
NETHERLANDS (13.7%)
CHEMICALS
140,615 Akzo Nobel NV..................................................................... 24,745,057
--------------
ELECTRICAL EQUIPMENT
497,150 Philips Electronics NV............................................................ 38,871,811
--------------
INSURANCE
298,056 Aegon NV.......................................................................... 23,458,111
621,502 ING Groep NV...................................................................... 26,055,768
--------------
49,513,879
--------------
MEDIA
435,000 PolyGram NV....................................................................... 24,703,704
--------------
PUBLISHING
1,115,000 Ver Ned Uitgev Ver Bezit NV....................................................... 26,383,745
204,230 Wolters Kluwer NV................................................................. 25,045,490
--------------
51,429,235
--------------
RETAIL
847,515 Koninklijke Ahold NV.............................................................. 21,667,436
--------------
SEMICONDUCTOR EQUIPMENT
169,000 ASM Lithography Holding NV*....................................................... 12,257,716
--------------
STEEL & IRON
269,986 Koninklijke Hoogovens NV.......................................................... 12,360,470
--------------
TOTAL NETHERLANDS................................................................. 235,549,308
--------------
SPAIN (4.0%)
BANKS
876,503 Banco Bilbao Vizcaya S.A.......................................................... 23,398,275
438,408 Banco Popular Espanol S.A......................................................... 25,843,568
--------------
49,241,843
--------------
TELECOMMUNICATIONS
686,291 Telefonica de Espana.............................................................. 18,697,333
--------------
TOTAL SPAIN....................................................................... 67,939,176
--------------
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SWEDEN (7.9%)
BUSINESS SERVICES
759,650 Securitas AB
(Series "B" Free)............................................................... $ 20,247,884
--------------
INSURANCE
696,992 Scandia Forsakrings AB............................................................ 32,511,122
--------------
MULTI-INDUSTRY
550,000 Assa Abloy AB (Series B).......................................................... 12,534,151
--------------
PHARMACEUTICALS
920,000 Astra AB (B Shares)............................................................... 14,222,696
513,100 Astra AB (Series "A" Free)........................................................ 8,274,152
--------------
22,496,848
--------------
RETAIL
279,685 Hennes & Mauritz AB (B Shares).................................................... 11,424,462
--------------
TELECOMMUNICATION EQUIPMENT
826,730 Ericsson (L.M.) Telephone Co. AB (Series "B" Free)................................ 36,359,152
--------------
TOTAL SWEDEN...................................................................... 135,573,619
--------------
SWITZERLAND (7.5%)
FOODS & BEVERAGES
13,685 Nestle S.A........................................................................ 19,299,861
--------------
MULTI-INDUSTRY
17,187 ABB AG - Bearer................................................................... 22,420,497
--------------
PHARMACEUTICALS
22,281 Novartis AG....................................................................... 34,926,542
6,000 Novartis AG - Bearer.............................................................. 9,469,621
3,877 Roche Holdings AG................................................................. 34,100,418
--------------
78,496,581
--------------
TRANSPORTATION
6,800 Sairgroup*........................................................................ 9,123,374
--------------
TOTAL SWITZERLAND................................................................. 129,340,313
--------------
UNITED KINGDOM (34.6%)
AEROSPACE & DEFENSE
572,222 British Aerospace PLC............................................................. 15,144,920
3,550,000 Rolls-Royce PLC*.................................................................. 12,709,781
498,000 Smiths Industries PLC............................................................. 7,206,782
--------------
35,061,483
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE
2,096,910 BBA Group PLC..................................................................... $ 14,102,684
--------------
BANKING
1,553,000 Abbey National PLC................................................................ 24,630,642
728,000 Barclays Bank PLC................................................................. 18,183,904
94,124 HSBC Holdings PLC................................................................. 2,338,421
925,000 Lloyds TSB Group PLC.............................................................. 11,529,061
635,060 Northern Rock PLC*................................................................ 5,099,786
--------------
61,781,814
--------------
BREWERS
815,000 Scottish & Newcastle Breweries PLC................................................ 9,196,774
828,042 Vaux Group PLC.................................................................... 3,324,754
--------------
12,521,528
--------------
BROADCAST MEDIA
761,274 Flextech PLC*..................................................................... 7,450,627
--------------
BUILDING & CONSTRUCTION
1,626,000 Blue Circle Industries PLC........................................................ 9,521,043
2,249,000 Redland PLC....................................................................... 12,868,013
--------------
22,389,056
--------------
BUSINESS SERVICES
905,000 Reuters Holdings PLC.............................................................. 9,796,001
--------------
CHEMICALS
1,326,000 Albright & Wilson PLC............................................................. 3,604,897
--------------
COMPUTER SOFTWARE & SERVICES
1,000,000 Sage Group (The) PLC.............................................................. 12,045,600
--------------
COMPUTERS
568,090 SEMA Group PLC.................................................................... 12,726,051
--------------
CONGLOMERATES
1,871,857 BTR PLC........................................................................... 6,302,379
2,020,000 Tomkins PLC....................................................................... 10,341,148
--------------
16,643,527
--------------
ELECTRICAL EQUIPMENT
1,481,818 BICC Group (The) PLC.............................................................. 4,115,275
979,000 General Electric Co. PLC.......................................................... 6,236,179
--------------
10,351,454
--------------
FOOD PROCESSING
950,000 Associated British Foods PLC...................................................... 7,628,880
--------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
684,600 Grand Metropolitan PLC............................................................ 6,161,907
900,000 Guinness PLC...................................................................... 8,025,381
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
836,000 Tate & Lyle PLC................................................................... $ 6,356,764
--------------
20,544,052
--------------
FOREST PRODUCTS, PAPER & PACKING
489,000 De La Rue PLC..................................................................... 3,460,550
--------------
HEALTH & PERSONAL CARE
4,008,000 London International Group PLC.................................................... 10,259,238
--------------
INSURANCE
319,000 Britannic Assurance PLC........................................................... 5,062,021
619,884 Commercial Union PLC.............................................................. 8,711,354
1,519,800 Prudential Corp. PLC.............................................................. 16,171,098
1,526,246 Royal & Sun Alliance Insurance Group PLC.......................................... 14,592,736
--------------
44,537,209
--------------
LEISURE
777,000 Granada Group PLC................................................................. 10,685,351
2,445,000 Ladbroke Group PLC................................................................ 10,921,595
2,338,000 Rank Group PLC.................................................................... 13,025,208
--------------
34,632,154
--------------
NATURAL GAS
1,904,110 BG PLC*........................................................................... 8,346,209
--------------
OIL RELATED
3,630,000 Lasmo PLC......................................................................... 16,700,722
5,664,000 Shell Transport & Trading Co. PLC................................................. 40,059,249
--------------
56,759,971
--------------
PHARMACEUTICALS
959,620 British Biotech PLC*.............................................................. 1,669,662
1,529,325 Glaxo Wellcome PLC................................................................ 32,698,406
1,351,823 SmithKline Beecham PLC............................................................ 12,778,039
--------------
47,146,107
--------------
PUBLISHING
911,000 United News & Media PLC........................................................... 11,430,772
--------------
REAL ESTATE
1,000,000 Hammerson PLC..................................................................... 8,080,590
--------------
RETAIL
685,000 Great Universal Stores PLC........................................................ 8,096,525
2,211,000 Morrison (W.M.) Supermarkets PLC.................................................. 7,287,036
1,030,000 Next PLC.......................................................................... 12,234,649
803,194 Tesco PLC......................................................................... 6,412,344
--------------
34,030,554
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - DEPARTMENT STORES
914,000 Kingfisher PLC.................................................................... $ 13,119,867
--------------
RETAIL - MERCHANDISING
1,258,000 Vendome Luxury Group PLC (Units)++................................................ 7,639,821
--------------
TELECOMMUNICATIONS
3,798,000 British Telecommunications PLC.................................................... 28,783,865
2,099,000 General Cable PLC*................................................................ 4,284,185
1,776,330 Securicor PLC..................................................................... 8,009,001
820,000 Vodafone Group PLC................................................................ 4,458,545
--------------
45,535,596
--------------
TRANSPORTATION
1,032,800 British Airways PLC............................................................... 10,056,229
--------------
UTILITIES - ELECTRIC
1,293,000 National Power PLC................................................................ 10,751,049
--------------
TOTAL UNITED KINGDOM.............................................................. 592,433,570
--------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $1,294,119,006).................................................. 1,657,845,640
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (1.0%)
U.S. GOVERNMENT AGENCY
$ 17,000 Federal Home Loan Mortgage Corp. 5.65% due 11/03/97 (AMORTIZED COST
$16,994,664)................................................................. $ 16,994,664
--------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,311,113,670) (b)................................................... 97.8 % 1,674,840,304
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES......................................... 2.2 37,389,240
------ ---------------
NET ASSETS............................................................................. 100.0 % $ 1,712,229,544
------ ---------------
------ ---------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
++ Consists of more than one class of securities traded together as a unit;
stocks with attached warrants.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $403,550,792 and the
aggregate gross unrealized depreciation is $39,824,158, resulting in net
unrealized appreciation of $363,726,634.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION
RECEIVE EXCHANGE FOR DATE (DEPRECIATION)
- --------------------------------------------------------------
<S> <C> <C> <C>
GBP 172,288 $ 287,893 11/03/97 $ 345
$ 3,307,933 DEM 5,692,292 11/04/97 $ 8,054
FIM 7,691,000 $ 1,486,614 11/04/97 $(1,292)
GBP 1,738,761 $ 2,896,480 11/04/97 $12,466
$ 259,017 SEK 1,942,914 11/04/97 $ 83
-------
Net unrealized appreciation...... $19,656
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
SUMMARY OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense......................................................................... $ 35,061,483 2.0%
Apparel..................................................................................... 6,896,383 0.4
Automotive.................................................................................. 30,529,831 1.8
Banking..................................................................................... 87,636,765 5.1
Banks....................................................................................... 49,241,843 2.9
Brewers..................................................................................... 12,521,528 0.7
Broadcast Media............................................................................. 7,450,627 0.4
Building & Construction..................................................................... 22,389,056 1.3
Business Services........................................................................... 30,043,885 1.8
Chemicals................................................................................... 48,733,490 2.8
Computer Software & Services................................................................ 12,045,600 0.7
Computers................................................................................... 12,726,051 0.7
Conglomerates............................................................................... 16,643,527 1.0
Electrical Equipment........................................................................ 75,669,818 4.4
Electronics - Semiconductors................................................................ 20,397,030 1.2
Financial Services.......................................................................... 9,085,584 0.5
Food Processing............................................................................. 7,628,880 0.5
Food, Beverage, Tobacco & Household Products................................................ 32,477,046 1.9
Foods & Beverages........................................................................... 19,299,861 1.1
Forest Products, Paper & Packing............................................................ 3,460,550 0.2
Health & Personal Care...................................................................... 10,352,932 0.6
Household Furnishings & Appliances.......................................................... 9,129,000 0.5
Insurance................................................................................... 166,175,811 9.7
Leisure..................................................................................... 75,131,392 4.4
Media....................................................................................... 24,703,704 1.5
Multi-Industry.............................................................................. 34,954,648 2.0
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas................................................................................. $ 8,346,209 0.5%
Oil & Gas Products.......................................................................... 15,891,601 0.9
Oil Related................................................................................. 102,451,623 6.0
Paper Products.............................................................................. 20,454,813 1.2
Pharmaceuticals............................................................................. 177,709,529 10.4
Publishing.................................................................................. 62,860,007 3.7
Real Estate................................................................................. 8,080,590 0.5
Retail...................................................................................... 67,122,452 4.0
Retail - Department Stores.................................................................. 13,119,867 0.8
Retail - Merchandising...................................................................... 7,639,821 0.5
Semiconductor Equipment..................................................................... 12,257,716 0.7
Steel & Iron................................................................................ 60,880,329 3.5
Telecommunication Equipment................................................................. 36,359,152 2.1
Telecommunications.......................................................................... 121,100,776 7.1
Tire & Rubber Goods......................................................................... 12,397,359 0.7
Transportation.............................................................................. 37,161,837 2.2
U.S. Government Agency...................................................................... 16,994,664 1.0
Utilities................................................................................... 22,874,585 1.3
Utilities - Electric........................................................................ 10,751,049 0.6
-------------- -----
$1,674,840,304 97.8%
-------------- -----
-------------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Common Stocks............................................................................... $1,650,898,798 96.4%
Preferred Stocks............................................................................ 6,946,842 0.4
Short-Term Investments...................................................................... 16,994,664 1.0
-------------- -----
$1,674,840,304 97.8%
-------------- -----
-------------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,311,113,670).......................................................... $1,674,840,304
Cash (including $1,204,232 in foreign currency)............................................. 2,061,597
Receivable for:
Investments sold........................................................................ 40,295,758
Capital stock sold...................................................................... 4,319,844
Foreign withholding taxes reclaimed..................................................... 3,324,008
Dividends............................................................................... 2,446,190
Prepaid expenses and other assets........................................................... 147,212
--------------
TOTAL ASSETS........................................................................... 1,727,434,913
--------------
LIABILITIES:
Payable for:
Investments purchased................................................................... 10,146,253
Capital stock repurchased............................................................... 1,695,292
Investment management fee............................................................... 1,472,814
Plan of distribution fee................................................................ 1,317,493
Accrued expenses and other payables......................................................... 573,517
--------------
TOTAL LIABILITIES...................................................................... 15,205,369
--------------
NET ASSETS............................................................................. $1,712,229,544
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $1,187,357,588
Net unrealized appreciation................................................................. 363,905,991
Accumulated undistributed net investment income............................................. 14,361,039
Accumulated undistributed net realized gain................................................. 146,604,926
--------------
NET ASSETS............................................................................. $1,712,229,544
--------------
--------------
CLASS A SHARES:
Net Assets.................................................................................. $1,862,434
Shares Outstanding (500,000,000 authorized, $.01 par value)................................. 100,883
NET ASSET VALUE PER SHARE.............................................................. $18.46
--------------
--------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)............................... $19.48
--------------
--------------
CLASS B SHARES:
Net Assets.................................................................................. $1,707,433,455
Shares Outstanding (500,000,000 authorized, $.01 par value)................................. 92,665,249
NET ASSET VALUE PER SHARE.............................................................. $18.43
--------------
--------------
CLASS C SHARES:
Net Assets.................................................................................. $2,888,969
Shares Outstanding (500,000,000 authorized, $.01 par value)................................. 156,779
NET ASSET VALUE PER SHARE.............................................................. $18.43
--------------
--------------
CLASS D SHARES:
Net Assets.................................................................................. $44,686
Shares Outstanding (500,000,000 authorized, $.01 par value)................................. 2,419
NET ASSET VALUE PER SHARE.............................................................. $18.47
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $5,733,956 foreign withholding tax)......................................... $ 33,003,757
Interest...................................................................................... 2,676,462
------------
TOTAL INCOME............................................................................. 35,680,219
------------
EXPENSES
Investment management fee..................................................................... 15,130,951
Plan of distribution fee (Class A shares)..................................................... 678
Plan of distribution fee (Class B shares)..................................................... 13,514,335
Plan of distribution fee (Class C shares)..................................................... 4,641
Transfer agent fees and expenses.............................................................. 1,779,397
Custodian fees................................................................................ 1,249,937
Professional fees............................................................................. 201,870
Registration fees............................................................................. 168,133
Shareholder reports and notices............................................................... 139,751
Directors' fees and expenses.................................................................. 15,444
Other......................................................................................... 26,225
------------
TOTAL EXPENSES........................................................................... 32,231,362
------------
NET INVESTMENT INCOME.................................................................... 3,448,857
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments............................................................................... 156,158,183
Foreign exchange transactions............................................................. 7,713,210
------------
NET GAIN................................................................................. 163,871,393
------------
Net change in unrealized appreciation on:
Investments............................................................................... 93,587,684
Translation of forward foreign currency contracts, other assets and liabilities
denominated in foreign currencies....................................................... 1,635,677
------------
NET APPRECIATION......................................................................... 95,223,361
------------
NET GAIN................................................................................. 259,094,754
------------
NET INCREASE.................................................................................. $262,543,611
------------
------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31,1997* OCTOBER 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................... $ 3,448,857 $ 1,415,101
Net realized gain....................................................... 163,871,393 98,442,961
Net change in unrealized appreciation................................... 95,223,361 106,832,263
---------------- ----------------
NET INCREASE....................................................... 262,543,611 206,690,325
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares........................................................ (8,287,857) --
Net realized gain
Class B shares........................................................ (97,160,987) (44,251,712)
---------------- ----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.................................. (105,448,844) (44,251,712)
---------------- ----------------
Net increase from capital stock transactions............................ 327,284,817 197,680,851
---------------- ----------------
NET INCREASE....................................................... 484,379,584 360,119,464
---------------- ----------------
NET ASSETS:
Beginning of period..................................................... 1,227,849,960 867,730,496
---------------- ----------------
END OF PERIOD
(INCLUDING AN ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$14,361,039 AND $1,933,547, RESPECTIVELY)........................... $ 1,712,229,544 $ 1,227,849,960
---------------- ----------------
---------------- ----------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997
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's investment objective is to
maximize the capital appreciation of its investments. The Fund was incorporated
in Maryland on February 13, 1990 and commenced operations on May 31, 1990. On
July 28, 1997, the Fund commenced offering three classes of shares, with the
then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American 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 pursuant to procedures
adopted 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 are valued at the mean between
their latest bid and asked price; (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 Dean Witter InterCapital Inc. (the "Investment Manager") or Morgan
Grenfell Investment Services Limited (the "Sub-Adviser") 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
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
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 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 by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted over the
life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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 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 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 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.
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
E. 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 foreign currency
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.
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.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized 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.
G. 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.
H. 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.
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 1.0% of the portion of net assets not exceeding $500
million and 0.95% to the portion of daily net assets exceeding $500 million.
Effective May 1, 1997, the Agreement was amended to reduce the annual rate to
0.90% of the portion of daily net assets in excess of $2 billion.
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 the Sub-Adviser and the Investment
Manager, the Sub-Adviser 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-Adviser 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. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since inception of
the Fund (not including reinvestment of dividends or capital gain distributions)
less the average net asset value of the Class B shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C -- up
to 1.0% of the average daily net assets of Class C. In the case of Class A
shares, amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the Plan
are paid to the Distributor for services provided and the expenses borne by it
and others in the distribution of the shares of these Classes, including the
payment of commissions
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
for sales of these Classes and incentive compensation to, and expenses of, the
account executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and others who engage in or support
distribution of the 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 these 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, in the case of Class B shares, 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 expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. 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 investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $34,179,807 at October 31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended October 31, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended October 31, 1997,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $1,853,492 and $440, respectively,
and received approximately $34,000 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1997 aggregated
$873,504,950 and $662,190,848, respectively.
For the period May 31, 1997 through October 31, 1997, the Fund incurred
brokerage commissions of $21,602 with Morgan Stanley & Co., Inc., an affiliate
of the Investment Manager since May 31, 1997, for portfolio transactions
executed on behalf of the Fund. At October 31, 1997, the Fund's payable for
investments purchased included unsettled trades with Morgan Stanley & Co., Inc.,
of $3,576,164.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At October 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $100.
The Fund has 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, 1997 included
in Directors' fees and expenses in the Statement of Operations amounted to
$1,925. At October 31, 1997, the Fund had an accrued pension liability of
$47,077 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
As of October 31, 1997, the Fund had temporary book/tax differences primarily
attributable to income from the mark-to-market of passive foreign investment
companies ("PFICs") and permanent book/tax differences attributable to tax
adjustments on PFICs sold by the Fund and foreign currency gains. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged and accumulated undistributed net
investment income was credited $17,266,492.
6. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
Forward contracts involve elements of market risk in excess of the amounts
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.
At October 31, 1997, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
At October 31, 1997, investments in securities of issuers in the United Kingdom
represented 34.6% of the Fund's net assets. These investments, which involve
risks and considerations not present with respect to U.S. securities, may be
affected by economic or political developments in this region.
7. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 102,145 $ 1,884,214 -- --
Redeemed......................................................... (1,262) (23,880) -- --
----------- -------------- ----------- ------------
Net increase -- Class A.......................................... 100,883 1,860,334 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 42,082,583 738,349,917 24,444,448 $371,386,556
Reinvestment of dividends and distributions...................... 6,087,300 98,796,887 3,030,461 41,577,920
Redeemed......................................................... (28,751,620) (514,693,020) (14,340,465) (215,283,625)
----------- -------------- ----------- ------------
Net increase -- Class B.......................................... 19,418,263 322,453,784 13,134,444 197,680,851
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 168,016 3,136,766 -- --
Redeemed......................................................... (11,237) (210,091) -- --
----------- -------------- ----------- ------------
Net increase -- Class C.......................................... 156,779 2,926,675 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 2,419 44,024 -- --
Redeemed......................................................... -- -- -- --
----------- -------------- ----------- ------------
Net increase -- Class D.......................................... 2,419 44,024 -- --
----------- -------------- ----------- ------------
Net increase in Fund............................................. 19,678,344 $ 327,284,817 13,134,444 $197,680,851
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
* For the period July 28, 1997 (issue date) through October 31, 1997.
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31 MAY 31, 1990*
--------------------------------------------------------------------- THROUGH
1997**++ 1996 1995 1994 1993 1992 1991 OCTOBER 31, 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 16.76 $ 14.44 $13.49 $11.86 $ 8.57 $ 9.22 $ 9.23 $10.00
-------- -------- ------- ------- ------- ------- ------- ------
Net investment income (loss)....... 0.04 0.02 0.02 0.02 (0.01) 0.01 0.05 0.05
Net realized and unrealized gain
(loss)............................ 3.02 3.03 2.00 1.84 3.30 (0.23) 0.07 (0.82)
-------- -------- ------- ------- ------- ------- ------- ------
Total from investment operations... 3.06 3.05 2.02 1.86 3.29 (0.22) 0.12 (0.77)
-------- -------- ------- ------- ------- ------- ------- ------
Less dividends and distributions
from:
Net investment income........... (0.11) -- -- -- -- (0.03) (0.07) --
Net realized gain............... (1.28) (0.73) (1.07) (0.23) -- (0.40) (0.06) --
-------- -------- ------- ------- ------- ------- ------- ------
Total dividends and
distributions..................... (1.39) (0.73) (1.07) (0.23) -- (0.43) (0.13) --
-------- -------- ------- ------- ------- ------- ------- ------
Net asset value, end of period..... $ 18.43 $ 16.76 $14.44 $13.49 $11.86 $ 8.57 $ 9.22 $ 9.23
-------- -------- ------- ------- ------- ------- ------- ------
-------- -------- ------- ------- ------- ------- ------- ------
TOTAL INVESTMENT RETURN+........... 19.40% 22.27% 16.83% 15.61% 38.74% (2.39)% 1.33% (7.70)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.42% 2.13% 2.23% 2.27% 2.38% 2.40% 2.44% 2.45%(2)
Net investment income (loss)....... 0.22% 0.14% 0.13% 0.21% (0.09)% 0.11% 0.51% 1.52%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions $1,707 $1,228 $868 $759 $459 $297 $316 $304
Portfolio turnover rate............ 44% 49% 61% 72% 120% 116% 111% 36%(1)
Average commission rate paid....... $0.0559 $0.0448 -- -- -- -- -- --
</TABLE>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.64
------
Net investment loss................................................... (0.02)
Net realized and unrealized loss...................................... (0.16)
------
Total from investment operations...................................... (0.18)
------
Net asset value, end of period........................................ $ 18.46
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.97)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.70% (2)
Net investment loss................................................... (0.33)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 1,862
Portfolio turnover rate............................................... 44%
Average commission rate paid.......................................... $0.0559
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.64
------
Net investment loss................................................... (0.04)
Net realized and unrealized loss...................................... (0.17)
------
Total from investment operations...................................... (0.21)
------
Net asset value, end of period........................................ $ 18.43
------
------
TOTAL INVESTMENT RETURN+.............................................. (1.13)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.50% (2)
Net investment loss................................................... (0.76)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 2,889
Portfolio turnover rate............................................... 44%
Average commission rate paid.......................................... $0.0559
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.64
------
Net investment income................................................. 0.02
Net realized and unrealized loss...................................... (0.19)
------
Total from investment operations...................................... (0.17)
------
Net asset value, end of period........................................ $ 18.47
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.91)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.51% (2)
Net investment income................................................. 0.33% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $45
Portfolio turnover rate............................................... 44%
Average commission rate paid.......................................... $0.0559
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<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, 1997, 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 periods
presented, 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 at October
31, 1997 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
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 17, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 1997, the Fund paid to
shareholders $1.28 per share from long-term capital gains. For the
year ended October 31, 1997, the Fund has elected, pursuant to
Section 853 of the Internal Revenue Code, to pass through foreign
taxes of $0.04 per share. The Fund generated net foreign source
income of $0.06 per share with respect to this election.
<PAGE>
BOARD OF DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
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.
Two World Trade Center
New York, New York 10048
SUB-ADVISOR
Morgan Grenfell Investment Services Limited
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and
directors, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER EUROPEAN GROWTH FUND
[GRAPHIC]
ANNUAL REPORT
OCTOBER 31, 1997
