<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND TWO WORLD TRADE CENTER,
INC. NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998
DEAR SHAREHOLDER:
The fiscal year ended October 31, 1998, concluded with mixed results overall for
the European region. There was evidence of a marked improvement in the economic
environment across continental Europe, despite the negative drag of emerging
market crises in Asia, Latin America and Russia. In addition, the period saw
growing evidence of a slowdown in the economic cycle of the United Kingdom.
Continental European economies experienced a largely stable period of recovery
and growth. In the core economies of France and Germany, subdued but recovering
domestic consumption was offset by strong export growth, aided by weakness of
the deutsche mark relative to the U.S. dollar. In southern Europe, particularly
Italy and Spain, domestic consumption was boosted by falling interest rates and
buoyant investment demand. Inflation across Europe remained low and stable
throughout the period, reflecting relatively high levels of unemployment and
excess industrial capacity.
In the United Kingdom, robust consumer demand during the first part of the year
contributed to growing inflationary pressure and led to successive increases in
interest rates. However, the consequent strength of the pound, combined with a
slowdown in the emerging economies, had a negative impact on the U.K.'s
exporters and its manufacturing sector. This effect contributed to a slowdown in
consumer demand during the second half of the year. After repeated calls for a
reduction in interest rates, the Bank of England eventually cut rates in
September following an earlier Federal Reserve move.
Other than the turbulence in the emerging markets, the key factor in both
economics and politics during the year was preparation for European Monetary
Union (EMU). The 11 first-wave members of EMU -- Germany, France, Italy, Spain,
the Netherlands, Belgium, Austria, Luxembourg, Portugal, Ireland and Finland --
were selected in May. Economic policy for most European countries during the
year was
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998, CONTINUED
driven by meeting the Maastricht treaty criteria for membership. This criteria
required tight fiscal policies with strict controls on government spending,
together with disciplined monetary policies designed to ensure the convergence
of short-term interest rates. Hence, while interest rates remained largely
stable in Germany and France, where domestic economies remained subdued, rates
in Italy and Spain were cut sharply during the year, stimulating strong growth
and some inflationary pressure.
MARKET OVERVIEW
In equity market terms, the fiscal year ended October 31, 1998 saw volatile
performance. In the nine months to July, European equity markets delivered
extremely strong returns, boosted by recovering domestic demand, falling
interest rates and low inflation. In this environment, sectors with a close
correlation to GDP growth, such as consumer goods, media and publishing, and
telecommunications industries, fared best. However, the European equity markets
fell sharply in August and September, undermined by the problems in the emerging
markets. Companies and sectors exposed to the emerging markets were the worst
hit, with some stocks falling nearly 50 percent from the highs reached in July.
The uncertainty of the outlook for the emerging markets, together with political
concerns in the United States, resulted in high volatility and low liquidity. By
October, however, the markets had bounced back strongly, regaining some of the
ground lost in the earlier sharp falls.
PERFORMANCE AND PORTFOLIO COMPOSITION
In this mixed environment, Morgan Stanley Dean Witter European Growth Fund's
Class B shares produced a total return of 15.67 percent versus 13.78 percent for
the Morgan Stanley Capital International (MSCI) World Index and 15.45 percent
for the Lipper European Region Funds Average. For the same period, the Fund's
Class A, C and D shares had total returns of 16.50 percent, 15.57 percent and
18.12 percent, respectively. The performance of the Fund's four share classes
varies because of differing expenses.
During the second half of the year, the Fund's overall performance was tempered
by the ongoing slowdown in Southeast Asia and Latin America and the Russian
crisis. These events triggered a sharp correction in the European equity markets
in August and September. The sectors most sensitive to a downturn in the
emerging economies, such as steel, forestry, chemicals and technology, were
sharply penalized. Banking and financial stocks, where the portfolio's weighting
had been increased toward a neutral position, were also hit in August and
September following the Russian crisis. The crisis in emerging markets also
triggered a marked increase in European market volatility
2
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998, CONTINUED
and outperformance by stocks and sectors perceived as defensive, such as
utilities and telecommunications. The portfolio's focus on growth stocks, which
have historically offered a more attractive combination of valuation and
earnings growth, had a negative impact on Fund performance during the second
half of the year, because the markets came to see many of these stocks as
vulnerable to a slowdown in economic growth.
OUTLOOK
The near-term outlook for the European equity markets also remains uncertain. We
believe that in this environment equity investors will probably continue to pay
a premium for solid, visible earnings growth. The portfolio's holdings have
therefore been tilted toward more defensive sectors such as telecommunications
and pharmaceuticals.
In the short to medium-term, the prospects for the European equity markets
remain uncertain. Although the markets rallied strongly during October, this
bounce seems to have been more sentiment driven than a sign of any major
improvement in outlook. We expect that concerns of a further deterioration in
the emerging economies, which would affect corporate earnings and reduce
European growth, will continue to weigh on the region's markets.
Despite these uncertainties, however, the overall long-term outlook for the
European equity markets remains fairly reassuring, supported by positive
economic fundamentals. Although the slowdown in other regions has reduced the
forecasted European growth, GDP for the region is still expected to grow by some
2 percent in the coming year. These growth projections have been buoyed by
strong domestic demand in a number of countries (particularly France, Italy and
Spain), which should offset slower exports from the region. Ongoing
interest-rate cuts in Spain, Italy and Portugal as part of the EMU convergence
process should also support growth.
NEW SUB-ADVISER APPROVED
During the period under review, the Fund's Board of Trustees approved the
selection of Morgan Stanley Asset Management Inc. (MSAM), an affiliate of Morgan
Stanley Dean Witter Advisors Inc., to
3
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998, CONTINUED
act as sub-adviser to the Fund. The new sub-advisory agreement was approved by
shareholders at a special meeting held on August 18, 1998, and is expected to
take effect on December 1, 1998. The results of the vote are as follows:
<TABLE>
<S> <C>
For........................................ 50,230,967
Against.................................... 1,695,969
Abstain.................................... 7,350,432
</TABLE>
MSAM, like MSDW Advisors Inc., is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co., a preeminent global financial services firm that maintains
leading market positions in each of three primary businesses -- securities,
asset management and credit services. The firm serves in various portfolio
management and similar capacities to investment companies and pension plans and
other institutional and individual investors. MSAM replaces Morgan Grenfell
Investment Services Limited as the Fund's sub-adviser and, going forward, will
provide the Fund with investment advice and portfolio management relating to the
Fund's investments, subject to the overall supervision of Morgan Stanley Dean
Witter Advisors, the Fund's Investment Manager.
We appreciate your ongoing support of Morgan Stanley Dean Witter European Growth
Fund and look forward to continuing to serve your investment needs and
objectives.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
- --------------------------
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
4
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND
FUND PERFORMANCE OCTOBER 31, 1998
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 -- CLASS B
($ in Thousands)
FUND MSCI(4) LIPPER(5)
<S> <C> <C> <C>
June-90 $10,000 $10,000 $10,000
October-1990 $9,230 $8,742 $8,749
October-1991 $9,345 $9,021 $9,011
October-1992 $9,129 $9,212 $8,583
October-1993 $12,688 $11,492 $10,839
October-1994 $14,643 $12,170 $12,160
October-1995 $17,108 $13,000 $19,421
October-1996 $20,918 $14,885 $15,824
October-1997 $24,976 $17,265 $19,205
October-1998 $28,891(3) $19,644 $22,172
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------------------
CLASS B SHARES** CLASS A SHARES+
- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 15.67%(1) 10.67%(2) 1 Year 16.50%(1) 10.38%(2)
5 Years 17.93(1) 17.72(2) Since Inception (7/28/97) 12.02(1) 7.33(2)
Since Inception (6/1/90) 13.44(1) 13.44(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES++
- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 15.57%(1) 14.57%(2) 1 Year 18.12%
Since Inception (7/28/97) 11.17(1) 11.17(2) Since Inception (7/28/97) 13.31
</TABLE>
- ------------------------
(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 sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on October 31, 1998.
(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.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
++ Class D shares have no sales charge.
5
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (97.4%)
DENMARK (0.8%)
MAJOR PHARMACEUTICALS
149,180 Novo-Nordisk AS (Series B).......................................................... $ 17,440,876
--------------
FINLAND (2.2%)
PAPER
200 UPM-Kymmene Oyj..................................................................... 4,793
--------------
TELECOMMUNICATION EQUIPMENT
495,000 Nokia Oyj (A Shares)................................................................ 45,135,132
--------------
TOTAL FINLAND....................................................................... 45,139,925
--------------
FRANCE (16.0%)
BROADCASTING
173,657 Societe Television Francaise 1...................................................... 28,742,969
--------------
CONSUMER SPECIALITIES
237,004 Societe BIC S.A..................................................................... 14,614,314
--------------
DIVERSIFIED MANUFACTURING
130,203 Compagnie de Saint-Gobain........................................................... 19,296,985
--------------
ELECTRICAL PRODUCTS
248,808 Alcatel............................................................................. 27,768,450
--------------
FOOD CHAINS
35,051 Carrefour S.A....................................................................... 23,307,085
207,051 Etablissements Economiques du Casino Guichard-Perrachon S.A......................... 20,644,250
--------------
43,951,335
--------------
HOTELS/RESORTS
135,150 Accor S.A........................................................................... 28,436,985
--------------
INTEGRATED OIL COMPANIES
107,595 Elf Aquitaine S.A................................................................... 12,473,827
186,540 Total S.A. (B Shares)............................................................... 21,558,902
--------------
34,032,729
--------------
MAJOR BANKS
394,571 Banque Nationale de Paris........................................................... 25,034,624
--------------
MAJOR PHARMACEUTICALS
263,561 Sanofi S.A.......................................................................... 41,342,529
--------------
MULTI-LINE INSURANCE
330,000 Axa*................................................................................ 37,365,451
--------------
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-SECTOR COMPANIES
285,467 Lagardere S.C.A..................................................................... $ 11,508,649
--------------
SEMICONDUCTORS
210,000 STMicroelectronics*................................................................. 12,873,447
--------------
SPECIALTY CHEMICALS
580,000 Rhodia S.A.*........................................................................ 9,673,115
--------------
TOTAL FRANCE........................................................................ 334,641,582
--------------
GERMANY (11.2%)
APPAREL
6,938 Hugo Boss AG (Pref.)................................................................ 10,826,855
--------------
DIVERSIFIED MANUFACTURING
379,442 Mannesmann AG....................................................................... 37,409,452
--------------
MAJOR BANKS
423,185 Bayerische Vereinsbank AG........................................................... 33,659,244
494,833 Dresdner Bank AG.................................................................... 19,304,862
--------------
52,964,106
--------------
MAJOR CHEMICALS
545,154 Hoechst AG.......................................................................... 22,817,793
--------------
MEDICAL/NURSING SERVICES
452 Rhoen-Klinikum AG................................................................... 45,110
534 Rhoen-Klinikum AG (Pref.)........................................................... 54,908
--------------
100,018
--------------
MOTOR VEHICLES
23,200 Bayerische Motoren Werke (BMW) AG................................................... 16,375,975
436,690 Volkswagen AG....................................................................... 32,884,477
--------------
49,260,452
--------------
MULTI-LINE INSURANCE
104,444 Allianz AG (Reg).................................................................... 35,882,291
--------------
MULTI-SECTOR COMPANIES
443,034 Veba AG............................................................................. 24,787,180
--------------
TOTAL GERMANY....................................................................... 234,048,147
--------------
ITALY (4.8%)
BROADCASTING
3,608,156 Mediaset SpA*....................................................................... 22,917,859
--------------
HOME FURNISHINGS
249,634 Industrie Natuzzi SpA (ADR)......................................................... 4,540,218
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR BANKS
9,278,116 Banca di Roma*...................................................................... $ 16,229,610
2,930,000 Unicredito Italiano SpA............................................................. 15,770,031
--------------
31,999,641
--------------
TELECOMMUNICATIONS
5,670,733 Telecom Italia SpA.................................................................. 41,099,808
--------------
TOTAL ITALY......................................................................... 100,557,526
--------------
NETHERLANDS (10.8%)
BOOKS/MAGAZINE
891,730 Ver Ned Uitgev Ver Bezit NV......................................................... 30,867,944
--------------
DIVERSIFIED ELECTRONIC PRODUCTS
540,313 Philips Electronics NV.............................................................. 28,778,862
--------------
DIVERSIFIED FINANCIAL SERVICES
728,705 ING Groep NV........................................................................ 35,298,967
--------------
E.D.P. SERVICES
430,000 Getronics NV........................................................................ 17,857,143
--------------
FOOD CHAINS
1,084,325 Koninklijke Ahold NV................................................................ 36,082,190
--------------
INTEGRATED OIL COMPANIES
471,854 Royal Dutch Petroleum Co............................................................ 22,806,361
--------------
LIFE INSURANCE
419,853 Aegon NV............................................................................ 36,468,852
--------------
TELECOMMUNICATIONS
490,000 Koninklijke KPN NV.................................................................. 19,062,265
--------------
TOTAL NETHERLANDS................................................................... 227,222,584
--------------
SPAIN (4.3%)
MAJOR BANKS
1,909,509 Banco Bilbao Vizcaya, S.A........................................................... 25,795,003
282,996 Banco Popular Espanol S.A........................................................... 17,504,907
--------------
43,299,910
--------------
TELECOMMUNICATIONS
1,059,532 Telefonica S.A...................................................................... 47,910,583
--------------
TOTAL SPAIN......................................................................... 91,210,493
--------------
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SWEDEN (8.4%)
CLOTHING/SHOE/ACCESSORY CHAINS
279,685 Hennes & Mauritz AB (B Shares)...................................................... $ 19,789,882
--------------
DIVERSIFIED COMMERCIAL SERVICES
2,852,500 Securitas AB (Series "B" Free)...................................................... 35,229,641
--------------
INDUSTRIAL MACHINERY/COMPONENTS
495,000 Assa Abloy AB (Series B)............................................................ 19,805,095
--------------
LIFE INSURANCE
2,383,960 Skandia Forsakrings AB.............................................................. 30,516,405
--------------
MAJOR BANKS
1,625,000 Nordbanken Holding AB............................................................... 9,783,867
--------------
MAJOR PHARMACEUTICALS
1,174,094 Astra AB (B Shares)................................................................. 18,503,347
528,956 Astra AB (Series "A" Free).......................................................... 8,608,379
--------------
27,111,726
--------------
MOTOR VEHICLES
963,893 Volvo AB (B Shares)................................................................. 20,894,889
--------------
TELECOMMUNICATION EQUIPMENT
595,000 Ericsson (L.M.) Telephone Co. AB (Series "B" Free).................................. 13,472,276
--------------
TOTAL SWEDEN........................................................................ 176,603,781
--------------
SWITZERLAND (9.5%)
MAJOR BANKS
71,000 Credit Suisse Group................................................................. 10,932,163
130,000 UBS AG*............................................................................. 35,707,948
--------------
46,640,111
--------------
MAJOR PHARMACEUTICALS
21,581 Novartis AG......................................................................... 38,933,560
6,000 Novartis AG - Bearer................................................................ 10,815,527
2,713 Roche Holdings AG................................................................... 31,693,456
--------------
81,442,543
--------------
PACKAGED FOODS
22,792 Nestle S.A.......................................................................... 48,533,057
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TOBACCO
17,010 Compagnie Financiere Richemont AG (Series A)........................................ $ 22,638,078
--------------
TOTAL SWITZERLAND................................................................... 199,253,789
--------------
UNITED KINGDOM (29.4%)
AEROSPACE
1,838,128 British Aerospace PLC............................................................... 13,685,552
3,550,000 Rolls-Royce PLC..................................................................... 13,111,481
544,060 Smiths Industries PLC............................................................... 7,290,404
--------------
34,087,437
--------------
AIRLINES
699,830 British Airways PLC................................................................. 5,087,414
--------------
ALCOHOLIC BEVERAGES
573,000 Bass PLC............................................................................ 6,958,369
924,828 Diageo PLC.......................................................................... 9,991,611
--------------
16,949,980
--------------
AUTO PARTS: O.E.M.
1,835,910 BBA Group PLC....................................................................... 11,439,555
--------------
BOOKS/MAGAZINE
399,000 EMAP PLC............................................................................ 6,816,915
874,000 Reed International PLC.............................................................. 7,400,267
--------------
14,217,182
--------------
BROADCASTING
979,000 Granada Group PLC................................................................... 14,766,624
--------------
BUILDING MATERIALS
1,626,000 Blue Circle Industries PLC.......................................................... 8,878,773
--------------
CATALOG/SPECIALTY DISTRIBUTION
949,000 Great Universal Stores PLC.......................................................... 10,205,071
--------------
CELLULAR TELEPHONE
820,000 Vodafone Group PLC.................................................................. 10,988,000
--------------
E.D.P. SERVICES
1,496,360 SEMA Group PLC...................................................................... 12,130,991
--------------
ELECTRICAL PRODUCTS
1,494,000 General Electric Co. PLC............................................................ 11,949,199
--------------
ENGINEERING & CONSTRUCTION
112,975 Atkins (WS) PLC..................................................................... 1,135,399
1,481,818 BICC Group (The) PLC................................................................ 1,290,663
--------------
2,426,062
--------------
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL PUBLISHING/SERVICES
718,243 Reuters Group PLC................................................................... $ 7,398,801
--------------
FOOD CHAINS
2,211,000 Morrison (W.M.) Supermarkets PLC.................................................... 9,943,696
--------------
FOODS & BEVERAGES
950,000 Associated British Foods PLC........................................................ 8,911,000
836,000 Tate & Lyle PLC..................................................................... 4,901,050
1,244,000 Unilever PLC........................................................................ 12,502,200
--------------
26,314,250
--------------
HEALTHCARE
4,008,000 London International Group PLC...................................................... 13,695,336
--------------
INSURANCE
605,710 Allied Zurich PLC*.................................................................. 7,243,989
1,526,246 Royal & Sun Alliance Insurance Group PLC............................................ 13,983,847
--------------
21,227,836
--------------
INTEGRATED OIL COMPANIES
2,781,128 British Petroleum Co. PLC........................................................... 40,854,075
--------------
LIFE INSURANCE
1,097,800 Prudential Corp. PLC................................................................ 14,287,593
--------------
MAJOR BANKS
1,365,000 Abbey National PLC.................................................................. 26,567,677
904,000 Barclays PLC........................................................................ 19,487,754
492,324 HSBC Holdings PLC................................................................... 11,544,998
925,000 Lloyds TSB Group PLC................................................................ 11,426,641
1,312,000 Standard Chartered PLC.............................................................. 14,119,580
--------------
83,146,650
--------------
MAJOR PHARMACEUTICALS
1,529,325 Glaxo Wellcome PLC.................................................................. 47,543,656
2,100,323 SmithKline Beecham PLC.............................................................. 26,279,766
--------------
73,823,422
--------------
MOVIES/ENTERTAINMENT
761,274 Flextech PLC*....................................................................... 7,140,750
--------------
MULTI-SECTOR COMPANIES
2,020,000 Tomkins PLC......................................................................... 9,355,378
--------------
NEWSPAPERS
911,000 United News & Media PLC............................................................. 10,086,364
--------------
OIL & GAS PRODUCTION
3,630,000 Lasmo PLC........................................................................... 10,336,425
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL/GAS TRANSMISSION
2,669,097 BG PLC.............................................................................. $ 17,502,937
--------------
OTHER SPECIALTY STORES
1,432,000 Kingfisher PLC...................................................................... 12,580,657
--------------
RAILROADS
401,434 Railtrack Group PLC................................................................. 10,792,051
--------------
REAL ESTATE
1,000,000 Hammerson PLC....................................................................... 6,088,526
--------------
TELECOMMUNICATIONS
3,388,000 British Telecommunications PLC...................................................... 43,810,228
757,000 Cable & Wireless PLC................................................................ 8,495,433
2,609,057 TeleWest Communications PLC*........................................................ 6,118,239
--------------
58,423,900
--------------
UTILITIES - ELECTRIC
1,093,000 British Energy PLC.................................................................. 10,691,726
753,222 National Power PLC.................................................................. 6,547,947
--------------
17,239,673
--------------
WIRELESS COMMUNICATION
1,776,330 Securicor PLC....................................................................... 13,151,059
--------------
TOTAL UNITED KINGDOM................................................................ 616,515,667
--------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST
$1,639,050,360)..................................................................... 2,042,634,370
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.6%)
COMMERCIAL PAPER
$ 55,000 Ford Motor Credit Co. 5.51% due 11/02/98 (AMORTIZED COST $54,991,582)................ $ 54,991,582
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,694,041,942) (b)................................................................... 100.0% 2,097,625,952
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................ 0.0 612,831
------ ---------------
NET ASSETS............................................................................ 100.0% $ 2,098,238,783
------ ---------------
------ ---------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(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 $501,479,964 and the
aggregate gross unrealized depreciation is $97,895,954, resulting in net
unrealized appreciation of $403,584,010.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION
RECEIVE EXCHANGE FOR DATE (DEPRECIATION)
- ------------------------------------------------------
<S> <C> <C> <C>
$ 1,579,590 GBP 943,715 11/02/98 $(1,132)
$ 1,772,081 GBP 1,055,690 11/03/98 3,800
$ 845,926 GBP 504,579 11/04/98 757
-------
Net unrealized appreciation..... $ 3,425
-------
-------
</TABLE>
CURRENCY ABBREVIATION:
<TABLE>
<S> <C>
GBP British Pound.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
SUMMARY OF INVESTMENTS OCTOBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Aerospace....................................................................... $ 34,087,437 1.6%
Airlines........................................................................ 5,087,414 0.2
Alcoholic Beverages............................................................. 16,949,980 0.8
Apparel......................................................................... 10,826,855 0.5
Auto Parts: O.E.M............................................................... 11,439,555 0.5
Books/Magazine.................................................................. 45,085,126 2.1
Broadcasting.................................................................... 66,427,452 3.2
Building Materials.............................................................. 8,878,773 0.4
Catalog/Specialty Distribution.................................................. 10,205,071 0.5
Cellular Telephone.............................................................. 10,988,000 0.5
Clothing/Shoe/Accessory Chains.................................................. 19,789,882 0.9
Commercial Paper................................................................ 54,991,582 2.6
Consumer Specialities........................................................... 14,614,314 0.7
Diversified Commercial Services................................................. 35,229,641 1.7
Diversified Electronic Products................................................. 28,778,862 1.4
Diversified Financial Services.................................................. 35,298,967 1.7
Diversified Manufacturing....................................................... 56,706,437 2.7
E.D.P. Services................................................................. 29,988,134 1.4
Electrical Products............................................................. 39,717,649 1.9
Engineering & Construction...................................................... 2,426,062 0.1
Financial Publishing/Services................................................... 7,398,801 0.4
Food Chains..................................................................... 89,977,221 4.3
Foods & Beverages............................................................... 26,314,250 1.3
Healthcare...................................................................... 13,695,336 0.7
Home Furnishings................................................................ 4,540,218 0.2
Hotels/Resorts.................................................................. 28,436,985 1.4
Industrial Machinery/Components 19,805,095 1.0
Insurance....................................................................... 21,227,836 1.0
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Integrated Oil Companies........................................................ $ 97,693,165 4.7%
Life Insurance.................................................................. 81,272,850 3.9
Major Banks..................................................................... 292,868,909 14.0
Major Chemicals................................................................. 22,817,793 1.1
Major Pharmaceuticals........................................................... 241,161,096 11.5
Medical/Nursing Services........................................................ 100,018 0.0
Motor Vehicles.................................................................. 70,155,341 3.3
Movies/Entertainment............................................................ 7,140,750 0.3
Multi-Line Insurance............................................................ 73,247,742 3.5
Multi-Sector Companies.......................................................... 45,651,207 2.2
Newspapers...................................................................... 10,086,364 0.5
Oil & Gas Production............................................................ 10,336,425 0.5
Oil/Gas Transmission............................................................ 17,502,937 0.8
Other Specialty Stores.......................................................... 12,580,657 0.6
Packaged Foods.................................................................. 48,533,057 2.3
Paper........................................................................... 4,793 0.0
Railroads....................................................................... 10,792,051 0.5
Real Estate..................................................................... 6,088,526 0.3
Semiconductors.................................................................. 12,873,447 0.6
Specialty Chemicals............................................................. 9,673,115 0.5
Telecommunication Equipment..................................................... 58,607,408 2.8
Telecommunications.............................................................. 166,496,556 7.9
Tobacco......................................................................... 22,638,078 1.1
Utilities - Electric............................................................ 17,239,673 0.8
Wireless Communication.......................................................... 13,151,059 0.6
--------------- -----
$ 2,097,625,952 100.0%
--------------- -----
--------------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Common Stocks................................................................... $ 2,031,752,607 96.9%
Preferred Stocks................................................................ 10,881,763 0.5
Short-Term Investment........................................................... 54,991,582 2.6
--------------- -----
$ 2,097,625,952 100.0%
--------------- -----
--------------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,694,041,942).......................................................... $2,097,625,952
Cash........................................................................................ 722,190
Receivable for:
Capital stock sold...................................................................... 6,610,592
Investments sold........................................................................ 4,194,172
Foreign withholding taxes reclaimed..................................................... 3,314,728
Dividends............................................................................... 1,876,296
Prepaid expenses and other assets........................................................... 164,918
--------------
TOTAL ASSETS........................................................................... 2,114,508,848
--------------
LIABILITIES:
Payable for:
Capital stock repurchased............................................................... 12,260,523
Plan of distribution fee................................................................ 1,881,574
Investment management fee............................................................... 1,598,771
Accrued expenses and other payables......................................................... 529,197
--------------
TOTAL LIABILITIES...................................................................... 16,270,065
--------------
NET ASSETS............................................................................. $2,098,238,783
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $1,491,497,683
Net unrealized appreciation................................................................. 403,819,903
Accumulated net investment loss............................................................. (53,755)
Accumulated undistributed net realized gain................................................. 202,974,952
--------------
NET ASSETS............................................................................. $2,098,238,783
--------------
--------------
CLASS A SHARES:
Net Assets.................................................................................. $14,133,185
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 726,684
NET ASSET VALUE PER SHARE.............................................................. $19.45
--------------
--------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET
ASSET VALUE)......................................................................... $20.53
--------------
--------------
CLASS B SHARES:
Net Assets.................................................................................. $2,059,371,946
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 106,473,448
NET ASSET VALUE PER SHARE.............................................................. $19.34
--------------
--------------
CLASS C SHARES:
Net Assets.................................................................................. $22,158,776
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 1,147,376
NET ASSET VALUE PER SHARE.............................................................. $19.31
--------------
--------------
CLASS D SHARES:
Net Assets.................................................................................. $2,574,876
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 130,539
NET ASSET VALUE PER SHARE.............................................................. $19.72
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $5,383,364 foreign withholding tax)......................................... $ 34,849,169
Interest...................................................................................... 2,485,932
------------
TOTAL INCOME............................................................................. 37,335,101
------------
EXPENSES
Investment management fee..................................................................... 19,493,248
Plan of distribution fee (Class A shares)..................................................... 18,999
Plan of distribution fee (Class B shares)..................................................... 18,215,583
Plan of distribution fee (Class C shares)..................................................... 110,728
Transfer agent fees and expenses.............................................................. 2,575,055
Custodian fees................................................................................ 1,547,914
Registration fees............................................................................. 286,145
Shareholder reports and notices............................................................... 224,592
Professional fees............................................................................. 64,709
Directors' fees and expenses.................................................................. 22,263
Other......................................................................................... 31,078
------------
TOTAL EXPENSES........................................................................... 42,590,314
------------
NET INVESTMENT LOSS...................................................................... (5,255,213)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments............................................................................... 203,714,565
Foreign exchange transactions............................................................. 40,043
------------
NET GAIN................................................................................. 203,754,608
------------
Net change in unrealized appreciation on:
Investments............................................................................... 39,857,376
Translation of forward foreign currency contracts, other assets and liabilities
denominated in foreign currencies....................................................... 56,536
------------
NET APPRECIATION......................................................................... 39,913,912
------------
NET GAIN................................................................................. 243,668,520
------------
NET INCREASE.................................................................................. $238,413,307
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY 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, 1998 OCTOBER 31, 1997*
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss)................................ $ (5,255,213) $ 3,448,857
Net realized gain........................................... 203,754,608 163,871,393
Net change in unrealized appreciation....................... 39,913,912 95,223,361
---------------- -----------------
NET INCREASE........................................... 238,413,307 262,543,611
---------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares.......................................... (30,346) --
Class B shares.......................................... (15,068,038) (8,287,857)
Class C shares.......................................... (31,106) --
Class D shares.......................................... (374,194) --
Net realized gain
Class A shares.......................................... (215,076) --
Class B shares.......................................... (143,682,142) (97,160,987)
Class C shares.......................................... (276,452) --
Class D shares.......................................... (2,520,602) --
---------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................... (162,197,956) (105,448,844)
---------------- -----------------
Net increase from capital stock transactions................ 309,793,888 327,284,817
---------------- -----------------
NET INCREASE........................................... 386,009,239 484,379,584
NET ASSETS:
Beginning of period......................................... 1,712,229,544 1,227,849,960
---------------- -----------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $53,755 AND
UNDISTRIBUTED NET INVESTMENT INCOME OF $14,361,039,
RESPECTIVELY)........................................... $ 2,098,238,783 $ 1,712,229,544
---------------- -----------------
---------------- -----------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter European Growth Fund Inc. (the "Fund"), formerly Dean
Witter European Growth Fund Inc., 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 additional 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 and 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., or Morgan Grenfell Investment
Services Limited (the "Sub-Advisor") that sale and bid prices are not reflective
of a security's market value, portfolio securities are valued
14
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
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 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
15
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
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.
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
16
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
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.
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; 0.95% to the portion of daily net assets exceeding $500 million but not
exceeding $2 billion; and 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-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 compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley 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
17
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
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 (1) services provided and the expenses borne by it and
others in the distribution of the shares of these Classes, including the payment
of commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who engage
in or support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; (2) printing and distribution of
prospectuses and reports used in connection with the offering of these shares to
other than current shareholders; and (3) 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 Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, 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 $35,030,919 at October 31, 1998.
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 Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended October 31, 1998, 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, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C
18
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
shares of $2,146,084 and $9,527, respectively and received $246,622 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.
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, 1998 aggregated
$1,101,763,696 and $948,333,706, respectively.
For the year ended October 31, 1998, the Fund incurred brokerage commissions of
$119,777 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund.
For the year ended October 31, 1998, the Fund incurred brokerage commissions of
$23,934 with Deutsche Morgan Grenfell, an affiliate of the Sub Advisor.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent.
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, 1998 included
in Directors' fees and expenses in the Statement of Operations amounted to
$6,017. At October 31, 1998, the Fund had an accrued pension liability of
$50,330 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
As of October 31, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to tax adjustments on passive foreign
investment companies sold by the Fund and a net operating loss. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged $690,310, paid-in-capital was
charged $5,653,793 and accumulated net investment loss was credited $6,344,103.
19
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
6. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997*
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 972,628 $ 19,445,361 102,145 $ 1,884,214
Reinvestment of dividends and distributions................. 13,548 229,902 -- --
Redeemed.................................................... (360,375) (6,702,611) (1,262) (23,880)
------------ ---------------- ------------ --------------
Net increase - Class A...................................... 625,801 12,972,652 100,883 1,860,334
------------ ---------------- ------------ --------------
CLASS B SHARES
Sold........................................................ 63,396,156 1,273,279,806 42,082,583 738,349,917
Reinvestment of dividends and distributions................. 8,774,632 148,905,493 6,087,300 98,796,887
Redeemed.................................................... (58,362,589) (1,150,703,310) (28,751,620) (514,693,020)
------------ ---------------- ------------ --------------
Net increase - Class B...................................... 13,808,199 271,481,989 19,418,263 322,453,784
------------ ---------------- ------------ --------------
CLASS C SHARES
Sold........................................................ 2,310,164 46,726,072 168,016 3,136,766
Reinvestment of dividends and distributions................. 17,786 301,660 -- --
Redeemed.................................................... (1,337,353) (26,487,758) (11,237) (210,091)
------------ ---------------- ------------ --------------
Net increase - Class C...................................... 990,597 20,539,974 156,779 2,926,675
------------ ---------------- ------------ --------------
CLASS D SHARES
Sold........................................................ 2,115,452 39,819,014 2,419 44,024
Reinvestment of dividends and distributions................. 231 3,921 -- --
Redeemed.................................................... (1,987,563) (35,023,662) -- --
------------ ---------------- ------------ --------------
Net increase - Class D...................................... 128,120 4,799,273 2,419 44,024
------------ ---------------- ------------ --------------
Net increase in Fund........................................ 15,552,717 $ 309,793,888 19,678,344 $ 327,284,817
------------ ---------------- ------------ --------------
------------ ---------------- ------------ --------------
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through October 31, 1997.
7. 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.
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.
20
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
At October 31, 1998, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
At October 31, 1998, investments in securities of issuers in the United Kingdom
represented 29.4% of the Fund's net assets. These investments, as well as other
non-U.S. 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.
8. CHANGE IN SUB-ADVISOR AND INVESTMENT MANAGEMENT FEE
On August 18, 1998, the Fund's shareholders approved a new Sub-Advisory
Agreement with Morgan Stanley Asset Management Inc., an affiliate of the
Investment Manager and Distributor. The new Sub-Advisory Agreement will take
effect on December 1, 1998. Additionally, the Investment Manager and the Fund
have amended the Investment Management Agreement to reduce each tier of the
annual rate paid by the Fund to the Investment Manager by 0.05%. This rate
change will also take effect on December 1, 1998.
21
<PAGE>
MORGAN STANLEY 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 OCTOBER
1998++ 1997*++ 1996 1995 1994 1993 1992 1991 31, 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 18.43 $ 16.76 $ 14.44 $ 13.49 $ 11.86 $ 8.57 $ 9.22 $ 9.23 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income
(loss).................... (0.05) 0.04 0.02 0.02 0.02 (0.01) 0.01 0.05 0.05
Net realized and unrealized
gain (loss)............... 2.69 3.02 3.03 2.00 1.84 3.30 (0.23) 0.07 (0.82)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations................ 2.64 3.06 3.05 2.02 1.86 3.29 (0.22) 0.12 (0.77)
------- ------- ------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions from:
Net investment income... (0.16) (0.11) -- -- -- -- (0.03) (0.07) --
Net realized gain....... (1.57) (1.28) (0.73) (1.07) (0.23) -- (0.40) (0.06) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions............. (1.73) (1.39) (0.73) (1.07) (0.23) -- (0.43) (0.13) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period.................... $ 19.34 $ 18.43 $ 16.76 $ 14.44 $ 13.49 $ 11.86 $ 8.57 $ 9.22 $ 9.23
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN+... 15.67% 19.40% 22.27% 16.83% 15.61% 38.74% (2.39)% 1.33% (7.70)%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses................... 2.10%(3) 2.06%** 2.13% 2.23% 2.27% 2.38% 2.40% 2.44% 2.45%(2)
Net investment income
(loss).................... (0.26)%(3) 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............... $2,059 $1,707 $1,228 $868 $759 $459 $297 $316 $304
Portfolio turnover rate.... 50% 44% 49% 61% 72% 120% 116% 111% 36%(1)
</TABLE>
- ---------------------
* 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.
** Restated.
++ 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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES++
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.46 $18.64
------ ------
Net investment income (loss).......................................... 0.08 (0.02)
Net realized and unrealized gain (loss)............................... 2.70 (0.16)
------ ------
Total from investment operations...................................... 2.78 (0.18)
------ ------
Less dividends and distributions from:
Net investment income.............................................. (0.22) --
Net realized gain.................................................. (1.57) --
------ ------
Total dividends and distributions..................................... (1.79) --
------ ------
Net asset value, end of period........................................ $ 19.45 $18.46
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 16.50% (0.97)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.44%(3) 1.48%(2)**
Net investment income (loss).......................................... 0.40%(3) (0.33)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $14,133 $1,862
Portfolio turnover rate............................................... 50% 44%
CLASS C SHARES++
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.43 $18.64
------ ------
Net investment loss................................................... (0.08) (0.04)
Net realized and unrealized gain (loss)............................... 2.71 (0.17)
------ ------
Total from investment operations...................................... 2.63 (0.21)
------ ------
Less dividends and distributions from:
Net investment income.............................................. (0.18) --
Net realized gain.................................................. (1.57) --
------ ------
Total dividends and distributions..................................... (1.75) --
------ ------
Net asset value, end of period........................................ $ 19.31 $18.43
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 15.57% (1.13)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.19%(3) 2.24%(2)**
Net investment loss................................................... (0.35)%(3) (0.76)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $22,159 $2,889
Portfolio turnover rate............................................... 50% 44%
</TABLE>
- ---------------------
* The date shares were first issued.
** Restated.
++ 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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES++
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $18.47 $18.64
------ ------
Net investment income................................................. 0.16 0.02
Net realized and unrealized gain (loss)............................... 2.89 (0.19)
------ ------
Total from investment operations...................................... 3.05 (0.17)
------ ------
Less dividends and distributions from:
Net investment income.............................................. (0.23) --
Net realized gain.................................................. (1.57) --
------ ------
Total dividends and distributions..................................... (1.80) --
------ ------
Net asset value, end of period........................................ $19.72 $18.47
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 18.12% (0.91)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.19%(3) 1.23%(2)**
Net investment income................................................. 0.65%(3) 0.33%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $2,575 $ 45
Portfolio turnover rate............................................... 50% 44%
</TABLE>
- ---------------------
* The date shares were first issued.
** Restated.
++ 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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND
INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF MORGAN STANLEY 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 Morgan Stanley Dean Witter European
Growth Fund Inc. (the "Fund"), formerly Dean Witter European Growth Fund Inc.,
at October 31, 1998, 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 20, 1998
1998 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 1998, the Fund paid to its
shareholders $1.40 per share from long-term capital gains. Of this
$1.40 distribution, $0.67 is taxable as 28% rate gain and $0.73 is
taxable as 20% rate gain.
In addition, the Fund has elected, pursuant to section 853 of the
Internal Revenue Code, to pass through foreign taxes of $0.06 per
share to its shareholders, of which 100% would be allowable as a
credit. The Fund generated net foreign source income of $0.09 per
share with respect to this election.
25
<PAGE>
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
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
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.
MORGAN STANLEY
DEAN WITTER
EUROPEAN
GROWTH FUND
[GRAPHIC]
ANNUAL REPORT
OCTOBER 31, 1998