<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1998
FILE NOS.: 33-33530
811-6044
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 11 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 12 /X/
------------------
MORGAN STANLEY DEAN WITTER
EUROPEAN GROWTH FUND INC.
(FORMERLY NAMED DEAN WITTER EUROPEAN GROWTH FUND INC.)
(A MARYLAND CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
_X_ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- --------------------------------------------- -------------------------------------------------------------------
<S> <C>
PART A PROSPECTUS
1. ........................................ Cover Page
2. ........................................ Prospectus Summary
3. ........................................ Financial Highlights
4. ........................................ Prospectus Summary; Investment Objective and Policies; Risk
Considerations; The Fund and its Management, Cover Page;
Investment Restrictions
5. ........................................ The Fund and Its Management; Back Cover; Investment Objective and
Policies
6. ........................................ Dividends, Distributions and Taxes; Additional Information
7. ........................................ Purchase of Fund Shares; Shareholder Services; Prospectus Summary
8. ........................................ Purchase of Fund Shares; Redemptions and Repurchases; Shareholder
Services
9. ........................................ Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ........................................ Cover Page
11. ........................................ Table of Contents
12. ........................................ The Fund and Its Management
13. ........................................ Investment Practices and Policies; Investment Restrictions;
Portfolio Transactions and Brokerage
14. ........................................ The Fund and Its Management; Directors and Officers
15. ........................................ The Fund and Its Management; Directors and Officers
16. ........................................ The Fund and Its Management; The Distributor; Shareholder Services;
Custodian and Transfer Agent; Independent Accountants
17. ........................................ Portfolio Transactions and Brokerage
18. ........................................ Description of Shares of the Fund
19. ........................................ The Distributor; Purchase of Fund Shares; Redemptions and
Repurchases; Financial Statements; Shareholder Services
20. ........................................ Dividends, Distributions and Taxes; Financial Statements
21. ........................................ Not applicable
22. ........................................ Performance Information
23. ........................................ Experts; Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
DECEMBER 1, 1998
Morgan Stanley Dean Witter European Growth Fund Inc. (the "Fund")
is an open-end, diversified management investment company whose investment
objective is to maximize the capital appreciation of its investments. The Fund
seeks to achieve this objective by investing primarily in securities issued by
issuers located in Europe.
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated December 1, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.,
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and its Management/9
Investment Objective and Policies/10
Risk Considerations/11
Investment Restrictions/19
Purchase of Fund Shares/20
Shareholder Services/32
Redemptions and Repurchases/35
Dividends, Distributions and Taxes/36
Performance Information/38
Additional Information/38
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
European Growth Fund Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
The The Fund is an open-end, diversified management investment company investing primarily in securities issued by
Fund issuers located in Europe.
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Shares Offered Shares of common stock with $0.01 par value (see page 38). The Fund offers four Classes of shares, each with a
different combination of sales charges, ongoing fees and other features (see pages 20-31).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest-SM-).
Purchase Class D shares are only available to persons investing $5 million ($25 million for certain qualified plans) or
more and to certain other limited categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) investment for Class D shares, and subject to the $1,000 minimum initial investment for each Class
of the Fund, an investor's existing holdings of Class A and Class D shares and shares of funds for which Morgan
Stanley Dean Witter Advisors Inc. serves as investment manager ("Morgan Stanley Dean Witter Funds") that are
sold with a front-end sales charge, and concurrent investments in Class D shares of the Fund and other Morgan
Stanley Dean Witter Funds that are multiple class funds, will be aggregated. The minimum subsequent investment
is $100 (see page 20).
- ------------------------------------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to maximize the capital appreciation of its investments (see page 9).
Objective
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary,
Manager and Morgan Stanley Dean Witter Services Company Inc., serve in various investment management, advisory, management
Sub-Advisor and administrative capacities to 100 investment companies and other portfolios with net assets under management
of approximately $117.3 billion at October 31, 1998. Morgan Stanley Dean Witter Investment Management Inc.
("MSDW Investment Management"), an affiliate of the Investment Manager, has been retained by the Investment
Manager as Sub-Advisor to provide investment advice and manage the Fund's portfolio. MSDW Investment Management
conducts a worldwide investment advisory business. As of October 31, 1998, MSDW Investment Management, together
with its institutional investment management affiliates, managed assets of approximately $156.1 billion (see
page 9).
- ------------------------------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee from the Fund at the annual rate of 0.95% of daily net assets on
Fee assets not exceeding $500 million; 0.90% of the daily net assets exceeding $500 million but not exceeding $2
billion; and 0.85% of the daily net assets exceeding $2 billion. The Sub-Advisor receives a monthly fee from the
Investment Manager equal to 40% of the Investment Manager's monthly fee (see page 10). Although the management
fee is higher than that paid by most other investment companies, the fee reflects the specialized nature of the
Fund's investment policies.
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Distributor and Morgan Stanley Dean Witter Distributors Inc. is the Distributor of the Fund's shares. The Fund has adopted a
Distribution Fee distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the
distribution fees paid by the Class A, Class B and Class C shares of the Fund to the Distributor. The entire
12b-1 fee payable by Class A and a portion of the 12b-1 fee payable by each of Class B and Class C equal to
0.25% of the average daily net assets of the Class are currently each characterized as a service fee within the
meaning of the National Association of Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1
fee, if any, is characterized as an asset-based sales charge (see pages 20 and 30).
- ------------------------------------------------------------------------------------------------------------------------------------
Alternative Four classes of shares are offered:
Purchase
Arrangements - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class A shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 0.25% of average daily net assets of the Class (see pages 20, 24 and 30).
</TABLE>
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2
<PAGE>
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<TABLE>
<S> <C>
- Class B shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC
(scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the aggregate current value of a Class B account with the Fund
falls below the aggregate amount of the investor's purchase payments made during the six years preceding the
redemption. A different CDSC schedule applies to investments by certain qualified plans. Class B shares are also
subject to a 12b-1 fee assessed at the annual rate of 1.0% of the lesser of: (a) the average daily net sales of
the Fund's Class B shares or (b) the average daily net assets of Class B. All shares of the Fund held prior to
July 28, 1997 have been designated Class B shares. Shares held before May 1, 1997 will convert to Class A shares
in May, 2007. In all other instances, Class B shares convert to Class A shares approximately ten years after the
date of the original purchase (see pages 20, 26 and 30).
- Class C shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class C shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 1.0% of average daily net assets of the Class (see pages 20, 29 and 30).
- Class D shares are offered only to investors meeting an initial investment minimum of $5 million ($25 million
for certain qualified plans) and to certain other limited categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not subject to any 12b-1 fee (see pages 20, 29 and 30).
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid at least once
Capital Gains each year. The Fund may, however, determine to retain all or part of any net long-term capital gains in any year
Distributions for reinvestment. Dividends and capital gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset value unless the shareholder elects to receive
cash. Shares acquired by dividend and distribution reinvestment will not be subject to any sales charge or CDSC
(see pages 32 and 37).
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account (see page 35).
- ------------------------------------------------------------------------------------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate with changes in the market value of its portfolio
Considerations securities. It should be recognized that the foreign securities and markets in which the Fund invests pose
different and greater risks than those customarily associated with domestic securities and their markets.
Furthermore, investors should consider other risks associated with a portfolio of international securities,
including fluctuations in foreign currency exchange rates (i.e., if a substantial portion of the Fund's assets
is denominated in foreign currencies which decrease in value with respect to the U.S. dollar, the value of the
investor's shares and the distributions made on those shares will, likewise, decrease in value), foreign
securities exchange controls and foreign tax rates, as well as investments in forward currency contracts,
options and futures contracts, repurchase agreements, when-issued and delayed delivery securities and forward
commitments, when, as and if issued securities and lending of portfolio securities (see pages 11-18). The
investor should also note that the Fund intends to invest over 25% of its total assets in securities of issuers
located in the United Kingdom.
</TABLE>
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are based on
the expenses and fees for the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds)................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Management Fees*................................................................ 0.91% 0.91% 0.91% 0.91%
12b-1 Fees (5) (6).............................................................. 0.25% 0.91% 1.00% None
Other Expenses.................................................................. 0.23% 0.23% 0.23% 0.23%
Total Fund Operating Expenses*.................................................. 1.39% 2.05% 2.14% 1.14%
</TABLE>
- ------------
(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES--LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.25% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS ARE
CURRENTLY EACH CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS
MADE FOR PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE
REMAINDER OF THE 12b-1 FEE, IF ANY, IS AN ASSET-BASED SALES CHARGE, AND IS A
DISTRIBUTION FEE PAID TO THE DISTRIBUTOR TO COMPENSATE IT FOR THE SERVICES
PROVIDED AND THE EXPENSES BORNE BY THE DISTRIBUTOR AND OTHERS IN THE
DISTRIBUTION OF THE FUND'S SHARES (SEE "PURCHASE OF FUND SHARES--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
* EFFECTIVE DECEMBER 1, 1998, THE INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE
INVESTMENT MANAGER AND THE FUND WAS AMENDED TO REDUCE THE FEE PAID BY THE
FUND TO THE INVESTMENT MANAGER FROM AN ANNUAL RATE OF 1.00% OF DAILY NET
ASSETS NOT EXCEEDING $500 MILLION; 0.95% OF DAILY NET ASSETS EXCEEDING $500
MILLION BUT NOT EXCEEDING $2 BILLION; AND 0.90% OF THE PORTION OF DAILY NET
ASSETS EXCEEDING $2 BILLION, TO 0.95% OF DAILY NET ASSETS NOT EXCEEDING $500
MILLION; 0.90% OF DAILY NET ASSETS EXCEEDING $500 MILLION BUT NOT EXCEEDING
$2 BILLION; AND 0.85% OF THE PORTION OF DAILY NET ASSETS EXCEEDING $2
BILLION. "MANAGEMENT FEES" AND "TOTAL FUND OPERATING EXPENSES" HAVE BEEN
RESTATED TO REFLECT THE LOWER FEE.
4
<PAGE>
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<TABLE>
<CAPTION>
EXAMPLES 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming (1) a 5% annual
return and (2) redemption at the end of
each time period:
Class A................................. $66 $94 $125 $211
Class B................................. $71 $94 $130 $238
Class C................................. $32 $67 $115 $247
Class D................................. $12 $36 $ 63 $139
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of the period:
Class A................................. $66 $94 $125 $211
Class B................................. $21 $64 $110 $238
Class C................................. $22 $67 $115 $247
Class D................................. $12 $36 $ 63 $139
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"Purchase of Fund Shares--Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following data and ratios and per share data for a share of capital
stock outstanding throughout each period have been audited by
PricewaterhouseCoopers LLP, independent accountants. This data should be read in
conjunction with the financial statements, notes thereto, and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information. Further information about the performance of the Fund is
contained in the Fund's Annual Report to Shareholders, which may be obtained
without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31, MAY 31, 1990*
----------------------------------------------------------------------------------- THROUGH
CLASS B SHARES 1998++ 1997*++ 1996 1995 1994 1993 1992 1991 OCTOBER 31, 1990
------- --------- ------ ------ ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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.
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
CLASS A SHARES OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
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.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
CLASS D SHARES OCTOBER 31, 1998 AUGUST 31, 1997
---------------- ----------------
<S> <C> <C>
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.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter European Growth Fund Inc. (formerly named Dean
Witter European Growth Fund Inc.) (the "Fund") is an open-end, diversified
management investment company incorporated in the state of Maryland on February
13, 1990.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048, is
the Fund's Investment Manager. The Investment Manager 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 its three
primary businesses--securities, asset management and credit services. The
Investment Manager, which was incorporated in July, 1992 under the name Dean
Witter InterCapital Inc., changed its name to Morgan Stanley Dean Witter
Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 100 investment companies
(the "Morgan Stanley Dean Witter Funds"), 28 of which are listed on the New York
Stock Exchange, with combined assets of approximately $112.9 billion at October
31, 1998. The Investment Manager also manages and advises portfolios of pension
plans, other institutions and individuals which aggregated approximately $4.5
billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and supervise the investment of the Fund's
assets. MSDW Advisors has retained MSDW Services to perform the aforementioned
administrative services for the Fund.
Under a Sub-Advisory Agreement between Morgan Stanley Dean Witter Investment
Management Inc. ("MSDW Investment Management" or the "Sub-Advisor") and the
Investment Manager, the Sub-Advisor provides the Fund with investment advice and
portfolio management relating to the Fund's investments in securities issued by
issuers located in Europe and in other countries located elsewhere around the
world, subject to the overall supervision of the Investment Manager. The Fund's
Directors review the various services provided by the Investment Manager and the
Sub-Advisor to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
MSDW Investment Management, whose address is 1221 Avenue of the Americas,
New York, New York, together with its institutional investment management
affiliates manages, as of October 31, 1998, assets of approximately $156.1
billion primarily for U.S. corporate and public employee benefit plans,
investment companies, endowments, foundations and wealthy individuals. MSDW
Investment Management, like MSDW Advisors, is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. On December 1, 1998 the Sub-Advisor changed its
name from Morgan Stanley Asset Management Inc. to Morgan Stanley Dean Witter
Investment Management Inc.
Prior to December 1998, the Fund was sub-advised by another sub-advisor (the
"Former Sub-Advisor"). In May 1998, the Former Sub-Advisor indicated its
intention to resign and on June 2, 1998, the Board of Directors recommended that
a new Sub-Advisory Agreement with MSDW Investment Management be submitted to
shareholders of the Fund for approval. The shareholders approved the new
Sub-Advisory Agreement with MSDW Investment Management on August 18, 1998 and
the new Sub-Advisory Agreement became effective on December 1, 1998.
At the same time that the Sub-Advisory Agreement took effect, the Investment
Manager and the Fund amended the Investment Management Agreement between the
Investment Manager and the Fund to reduce the fee paid by the Fund to the
Investment Manager as full compensation for the
9
<PAGE>
services and facilities furnished to the Fund and for expenses of the Fund
assumed by the Investment Manager from an annual rate of 1.00% of the portion of
the Fund's daily net assets not exceeding $500 million; 0.95% of the portion of
the daily net assets exceeding $500 million but not exceeding $2 billion; and
0.90% of the portion of the daily net assets exceeding $2 billion, to the annual
rate of 0.95% of the portion of the Fund's daily net assets not exceeding $500
million; 0.90% of the portion of daily net assets exceeding $500 million but not
exceeding $2 billion; and 0.85% of the portion of daily net assets exceeding $2
billion. As compensation for its services provided pursuant to the Sub-Advisory
Agreement, the Investment Manager pays the Sub-Advisor monthly compensation
equal to 40% of its monthly compensation. For the fiscal year ended October 31,
1998 (prior to the amendment of the Investment Management Agreement and the
effectiveness of the lower fee), the Fund accrued total compensation to the
Investment Manager amounting to 1.0% of the Fund's average daily net assets and
the total expenses of each Class amounted to 1.44%, 2.10%, 2.19%, and 1.19% of
the average daily net assets of Class A, Class B, Class C and Class D,
respectively.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to maximize the capital appreciation
of its investments. There is no assurance that the objective will be achieved.
This objective is fundamental and may not be changed without shareholder
approval. The following policies may be changed by the Board of Directors
without shareholder approval.
The Fund seeks to achieve its investment objective by investing at least 65%
of its total assets in securities issued by issuers located in countries located
in Europe. Such issuers will include companies (i) which are organized under the
laws of a European country and have a principal office in a European country, or
(ii) which derive 50% or more of their total revenues from business in Europe,
or (iii) the equity securities of which are traded principally on a stock
exchange in Europe.
The principal countries in which such issuers will be located are France;
the United Kingdom; Germany; the Netherlands; Spain; Sweden; Switzerland and
Italy. The Fund currently intends to invest more than 25% of its total assets in
the United Kingdom. As such, the investment performance of the Fund will be
subject to social, political and economic events occurring in the United Kingdom
to a greater extent than those occurring in other European countries.
The securities invested in will primarily consist of equity securities
issued by companies based in European countries, but may also include fixed-
income securities issued or guaranteed by European governments (including zero
coupon treasury securities), when it is deemed that such investments are
consistent with the Fund's investment objective. For example, there may be times
when the Sub-Advisor determines that the prices of government securities are
more likely to appreciate than those of equity securities. Such an occasion
might arise when inflation concerns have led to general increases in interest
rates. Such fixed-income securities which will be purchased by the Fund are
likely to be obligations of the treasuries of one of the major European nations.
In addition, the Fund may invest in fixed-income securities which are, either
alone or in combination with a warrant, option or other right, convertible into
the common stock of a European issuer, when the Investment Manager or the
Sub-Advisor determines that such securities are more likely to appreciate in
value than the common stock of such issuers or when the Investment Manager or
Sub-Advisor wishes to hedge the risk inherent in the direct purchase of the
equity of a given issuer. The Fund will select convertible securities of issuers
whose common stock has, in the opinion of the Investment Manager or Sub-Advisor,
a superior investment potential. The Fund may also purchase equity and
fixed-income securities which are issued in private placements and warrants or
other securities conveying the right to purchase common stock.
10
<PAGE>
The remainder of the Fund's portfolio equalling, at times, up to 35% of the
Fund's total assets, may be invested in equity and/or government and convertible
securities issued by issuers located anywhere in the world, including the United
States, subject to the Fund's investment objective. In addition, this portion of
the Fund's portfolio will consist of various other financial instruments such as
forward foreign exchange contracts, futures contracts and options (see below).
It is anticipated that the securities held by the Fund in its portfolio will
be denominated, principally, in liquid European currencies. Such currencies
include the German mark, French franc, British pound, Dutch guilder, Swiss
franc, Swedish krona, Italian lira, and Spanish peseta. In addition, the Fund
may hold securities denominated in a single European Currency Unit (a weighted
composite of the currencies of member states of the European Monetary System)
and, scheduled to begin on January 1, 1999, the euro (a single currency expected
to be adopted by many European countries). Securities of issuers within a given
country may be denominated in the currency of a different country.
The Fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
There may be periods during which market conditions warrant reduction of
some or all of the Fund's securities holdings. During such periods, the Fund may
adopt a temporary "defensive" posture in which greater than 35% of its net
assets are invested in cash or money market instruments. Under such
circumstances, the money market instruments in which the Fund may invest are
securities issued or guaranteed by the U.S. Government; American bank
obligations; Eurodollar certificates of deposit; obligations of American savings
institutions; fully insured certificates of deposit; and commercial paper of
American issuers rated within the two highest grades by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") or, if not
rated, issued by a company having an outstanding debt issue rated at least AA by
S&P or Aa by Moody's.
RISK CONSIDERATIONS
FOREIGN SECURITIES. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between
different currencies will affect the value of the Fund's investments denominated
in foreign currencies. Changes in foreign currency exchange rates relative to
the U.S. dollar will affect the U.S. dollar value of the Fund's assets
denominated in that currency and thereby impact upon the Fund's total return on
such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (see below). The Fund may incur certain costs in connection
with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Political and economic developments in Europe,
11
<PAGE>
especially as they relate to changes in the structure of the European Economic
Community and the further development of a unified common market, may have
profound effects upon the value of a large segment of the Fund's portfolio.
Continued progress in the evolution of, for example, a united European common
market may be slowed by unanticipated political or social events and may,
therefore, adversely affect the value of certain of the securities held in the
Fund's portfolio. Foreign companies are not subject to the regulatory
requirements of U.S. companies and, as such, there may be less publicly
available information about such companies. Moreover, foreign companies are not
subject to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
Many European countries are about to adopt a single European currency, the
euro (the "Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European securities
eligible for purchase by the Fund are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of securities held by
the Fund.
------------
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures contracts and options on futures
contracts on securities, currencies and indexes. The Fund may also purchase
options on securities to facilitate its participation in the potential
appreciation of the value of the underlying securities. A discussion of these
transactions follows and is supplemented by further disclosure in the Statement
of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") involves an obligation to purchase or
sell a currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund may enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.
12
<PAGE>
At other times, when, for example, it is believed that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount of
foreign currency approximating the value of some or all of the Fund's portfolio
securities (or securities which the Fund has purchased for its portfolio)
denominated in such foreign currency. Under identical circumstances, the Fund
may enter into a forward contract to sell, for a fixed amount of U.S. dollars or
other currency, an amount of foreign currency other than the currency in which
the securities to be hedged are denominated approximating the value of some or
all of the portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time in
the future, and wishes to lock in the current exchange rate of the currency in
which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency. The Fund may, however, close out
the forward contract without purchasing the security which was the subject of
the "anticipatory" hedge.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager and/or Sub-Advisor.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. To the extent that the Fund enters into forward foreign
currency contracts to hedge against a decline in the value of portfolio holdings
denominated in a particular foreign currency resulting from currency
fluctuations, there is a risk that the Fund may nevertheless realize a gain or
loss as a result of currency fluctuations after such portfolio holdings are sold
if the Fund is unable to enter into an "offsetting" forward foreign currency
contract with the same party or another party. The Fund may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Internal Revenue Code of 1986 (the "Code") requirements relating to
qualifications as a regulated investment company (see "Dividends, Distributions
and Taxes").
YEAR 2000. The investment management and advisory services provided to the
Fund by the Investment Manager and the Sub-Advisor and the services provided to
shareholders by the Distributor and the Transfer Agent depend on the smooth
functioning of their computer systems. Many computer software systems in use
today cannot recognize the year 2000, but revert to 1900 or some other date, due
to the manner in which dates were encoded and calculated. That failure could
have a negative impact on the handling of securities trades, pricing
13
<PAGE>
and account services. The Investment Manager, the Sub-Advisor, the Distributor
and the Transfer Agent have been actively working on necessary changes to their
own computer systems to prepare for the year 2000 and expect that their systems
will be adapted before that date, but there can be no assurance that they will
be successful, or that interaction with other non-complying computer systems
will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
OPTIONS AND FUTURES TRANSACTIONS
Call and put options on U.S. Treasury notes, bonds and bills, on various
foreign currencies and on equity securities are listed on several U.S. and
foreign securities exchanges and are written in over-the-counter transactions
("OTC options"). Listed options are issued or guaranteed by the exchange on
which they trade or by a clearing corporation such as the Options Clearing
Corporation ("OCC"). Ownership of a listed call option gives the Fund the right
to buy from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security or currency) by filing an
exercise notice prior to the expiration date of the option. The writer (seller)
of the option would then have the obligation to sell, to the OCC (in the U.S.)
or other clearing corporation or exchange, the underlying security or currency
at that exercise price prior to the expiration date of the option, regardless of
its then current market price. Ownership of a listed put option would give the
Fund the right to sell the underlying security or currency to the OCC (in the
U.S.) or other clearing corporation or exchange at the stated exercise price.
Upon notice of exercise of the put option, the writer of the option would have
the obligation to purchase the underlying security or currency from the OCC (in
the U.S.) or other clearing corporation or exchange at the exercise price.
OTC OPTIONS. Exchange-listed options are issued by the OCC (in the U.S.) or
other clearing corporation or exchange which assures that all transactions in
such options are properly executed. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities or
amount of foreign currency underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with member banks of the Federal Reserve
System or primary dealers in U.S. Government securities or with affiliates of
such banks or dealers which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities which are denominated in either U.S. dollars or foreign
currencies and on the U.S. dollar and foreign currencies, without limit, in
order to hedge against the decline in the value of a security or currency and to
close out long call option positions. Generally, a call option is "covered" if
the Fund owns the security or the currency underlying the option it has written,
holds a call option on the same underlying security or currency with a similar
exercise price or
14
<PAGE>
maintains a sufficient amount of cash, cash equivalents or liquid securities to
purchase the underlying security or to exchange for the underlying currency. As
a writer of a call option, the Fund has the obligation, upon notice of exercise
of the option, to deliver the security or amount of currency underlying the
option (certain listed and OTC call options written by the Fund will be
exercisable by the purchaser only on a specific date).
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. The premium received will
offset a portion of the potential loss incurred by the Fund if the securities
underlying the option are ultimately sold by the Fund at a loss. Furthermore, a
premium received on a call written on a foreign currency will ameliorate any
potential loss of value on the portfolio security due to a decline in the value
of the currency. However, during the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security (or the exchange rate of the currency in which it is denominated)
increase, but has retained the risk of loss should the price of the underlying
security (or the exchange rate of the currency in which it is denominated)
decline. The size of premiums will fluctuate with varying market conditions.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing or, in the case
of call options on a foreign currency, to hedge against an adverse exchange rate
change of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is denominated.
The Fund may purchase put options on securities which it holds in its portfolio
only to protect itself against a decline in the value of the security. If the
value of the underlying security were to fall below the exercise price of the
put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. Similarly, the Fund may purchase put
options on currencies in which securities which it holds are denominated only to
protect itself against a decline in value of such currency vis-a-vis the
currency in which the exercise price is denominated. If the value of the
currency underlying the option were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the Fund
would incur no additional loss. There are no other limits on the Fund's ability
to purchase call and put options.
FUTURES CONTRACTS. The Fund may purchase and sell futures contracts that
are currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on common stocks, such underlying fixed-income securities as
U.S. Treasury bonds, notes, and bills and/or any foreign government fixed-income
security ("interest rate" futures), on various currencies ("currency" futures)
and on such indexes of U.S. or foreign equity and fixed-income securities as may
exist or come into being, such as the Standard & Poor's 500 Index or the
Financial Times Equity Index ("index" futures). As a futures contract purchaser,
the Fund incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If it is anticipated that interest rates may rise and, concomitantly, the price
of certain of its portfolio securities fall, the Fund may sell an interest rate
futures contract. If declining interest rates are anticipated, the Fund may
purchase an interest rate futures contract to protect against a
15
<PAGE>
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) against changes
in their prices. If it is anticipated that the prices of securities held by the
Fund may fall, the Fund may sell an index futures contract. Conversely, if the
Fund wishes to hedge against anticipated price rises in those securities which
the Fund intends to purchase, the Fund may purchase an index futures contract.
The Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated for
the purposes of hedging against anticipated changes in currency exchange rates.
The Fund will enter into currency futures contracts for the same reasons as set
forth above for entering into forward foreign currency contracts; namely, to
"lock-in" the value of a security purchased or sold in a given currency
vis-a-vis a different currency or to hedge against an adverse currency exchange
rate movement of a portfolio security's (or anticipated portfolio security's)
denominated currency vis-a-vis a different currency.
In addition to the above, interest rate, index and currency futures will be
bought or sold in order to close out a short or long position maintained by the
Fund in a corresponding futures contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option) and the sale of a futures contract (purchase of a
put option or sale of a call option), or to close out a long or short position
in futures contracts. If, for example, the Investment Manager or Sub-Advisor
wished to protect against an increase in interest rates and the resulting
negative impact on the value of a portion of its fixed-income portfolio, it
might write a call option on an interest rate futures contract, the underlying
security of which correlates with the portion of the portfolio the Investment
Manager or Sub-Advisor seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, provide a further hedge against
losses resulting from price declines in portions of the Fund's portfolio.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be
16
<PAGE>
subject to a hedge position. Except as described above, there are no other
limitations on the use of futures and options thereon by the Fund.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Code's requirements for
qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Fund's management could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the Fund's portfolio securities and their denominated
currencies. Another such risk is that prices of interest rate futures contracts
may not move in tandem with the changes in prevailing interest rates against
which the Fund seeks a hedge. A correlation may also be distorted by the fact
that the futures market is dominated by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds. Such distortions are generally minor and would diminish
as the contract approached maturity.
The Fund, by entering into transactions in foreign futures and options
markets, will also incur risks similar to those discussed above under the
section entitled "Foreign Securities."
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when a purchase of a
call or put option on a futures contract would result in a loss to the Fund when
the purchase or sale of a futures contract would not result in a loss, such as
when there is no movement in the prices of the underlying securities. The
writing of a put or call option on a futures contract involves risks similar to
those relating to transactions in futures contracts, as are described above.
OTHER INVESTMENT POLICIES
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future,
17
<PAGE>
usually not more than seven days from the date of purchase. While repurchase
agreements involve certain risks not associated with direct investments in debt
securities, including the risks of default or bankruptcy of the selling
financial institution, the Fund follows procedures to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as such,
may be changed without shareholder approval.
18
<PAGE>
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and the
Sub-Advisor with a view to achieving the Fund's investment objective. In
determining which securities to purchase for the Fund or hold in the Fund's
portfolio, the Investment Manager and the Sub-Advisor will rely on information
from various sources, including research, analysis and appraisals of brokers and
dealers, including Dean Witter Reynolds Inc., Morgan Stanley and Co.
Incorporated and other broker-dealers that are affiliates of the Investment
Manager and the Sub-Advisor, and the Investment Manager's and Sub-Advisor's own
analysis of factors they deem relevant. The Fund's primary portfolio manager is
Jeremy G. Lodwick, a Principal of the Sub-Advisor. Mr. Lodwick has been the
Fund's primary portfolio manager since December 1, 1998 and has been a Principal
for the Sub-Advisor since July, 1998. Prior to joining the Sub-Advisor, Mr.
Lodwick was a portfolio manager with the Former Sub-Advisor for over five years
where he was the Fund's primary portfolio manager from April 1994 to April 1998.
Personnel of the Investment Manager and Sub-Advisor have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley and Co. Incorporated and other broker-dealer
affiliates of the Investment Manager and the Sub-Advisor. Pursuant to an order
of the Securities and Exchange Commission, the Fund may effect principal
transactions in
certain money market instruments with Dean Witter Reynolds Inc. In addition, the
Fund may incur brokerage commissions on transactions conducted through Dean
Witter Reynolds Inc., Morgan Stanley and Co. Incorporated and other brokers and
dealers that are affiliates of the Investment Manager.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding 100%. The Fund is expected to incur higher than normal
brokerage commission costs due to its portfolio turnover rate. Short-term gains
and losses taxable at ordinary income rates may result from such portfolio
transactions. See "Dividends, Distributions and Taxes" for a full discussion of
the tax implications of the Fund's trading policy. A more extensive discussion
of the Fund's portfolio brokerage policies is set forth in the Statement of
Additional Information.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in securities issued by domestic issuers as custodial costs, brokerage
commissions and other transaction charges related to investing in foreign
markets are generally higher than in the United States.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
19
<PAGE>
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued,
or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. As to 75% of its total assets, purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
5. Purchase or sell commodities or commodities contracts except that the Fund
may purchase or write interest rate, currency and stock and bond index futures
contracts and related options thereon.
6. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral arrangements
with respect to initial or variation margin for futures are not deemed to be
pledges of assets.)
7. Purchase securities on margin (but the Fund may obtain short-term loans as
are necessary for the clearance of transactions). The deposit or payment by the
Fund of initial or variation margin in connection with futures contracts or
related options thereon is not considered the purchase of a security on margin.
8. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days. In
addition, no more than 15% of the Fund's net assets will be invested in such
illiquid securities and foreign securities not traded on a recognized domestic
or foreign exchange.
Generally, OTC options and the assets used as "cover" for written OTC
options are illiquid securities. However, the Fund is permitted to treat the
securities it uses as cover for written OTC options as liquid provided it
follows a procedure whereby it will sell OTC options only to qualified dealers
who agree that the Fund may repurchase such options at a maximum price to be
calculated pursuant to a predetermined formula set forth in the option
agreement. The formula may vary from agreement to agreement, but is generally
based on a multiple of the premium received by the Fund for writing the option
plus the amount, if any, of the option's intrinsic value. An OTC option is
considered an illiquid asset only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund are
distributed by the Distributor and offered by Dean Witter Reynolds Inc. ("DWR"),
a selected dealer and subsidiary of Morgan Stanley Dean Witter & Co., and other
dealers which have entered into selected dealer agreements with the Distributor
("Selected Broker-Dealers"). It is anticipated that DWR will undergo a change of
corporate name which is expected to incorporate the brand name of
20
<PAGE>
"Morgan Stanley Dean Witter," pending approval of various regulatory
authorities. The principal executive office of the Distributor is located at Two
World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are subject
to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years after
purchase.) Class C shares are sold without an initial sales charge but are
subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Directors of the
Fund, Class A shares may be sold to categories of investors in addition to those
set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of investors,
in each case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements--Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A and Class D shares of the Fund and other Morgan Stanley Dean Witter Funds that
are multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") and
shares of Morgan Stanley Dean Witter Funds sold with a front-end sales charge
("FSC Funds") and concurrent investments in Class D shares of the Fund and other
Morgan Stanley Dean Witter Multi-Class Funds will be aggregated. Subsequent
purchases of $100 or more may be made by sending a check, payable to Morgan
Stanley Dean Witter European Growth Fund Inc., directly to Morgan Stanley Dean
Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box 1040, Jersey
City, NJ 07303 or by contacting a Morgan Stanley Dean Witter Financial Advisor
or other Selected Broker-Dealer representative. When purchasing shares of the
Fund, investors must specify whether the purchase is for Class A, Class B, Class
C or Class D shares. If no Class is specified, the Transfer Agent will not
process the transaction until the proper Class is identified. The minimum
initial purchase, in the case of investments through EasyInvest-SM-, an
automatic purchase plan (see "Shareholder Services"), is $100, provided that the
schedule of automatic investments will result in investments totalling at least
$1,000 within the first twelve months. The minimum initial purchase in the case
of an "Education IRA" is $500, if the Distributor has reason to believe that
additional investments will increase the investment in the account to $1,000
within three years. In the case of investments pursuant to (i) Systematic
Payroll Deduction Plans (including Individual Retirement Plans), (ii) the MSDW
Advisors mutual fund asset allocation program and (iii) fee-based programs
approved by the Distributor, pursuant to which participants pay an asset based
fee for services in the nature of investment advisory, administrative and/or
brokerage services, the Fund, in its discretion, may accept investments without
regard to any minimum amounts which would otherwise be required, provided, in
the case of Systematic Payroll Deduction Plans, that the Distributor has reason
to believe that additional investments will increase the investment
21
<PAGE>
in all accounts under such Plans to at least $1,000. Certificates for shares
purchased will not be issued unless a request is made by the shareholder in
writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gain distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund at the time of their sale by the Distributor or any
of its affiliates and/or the Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1
22
<PAGE>
fee of 1.0% of the lesser of: (a) the average daily aggregate gross sales of the
Fund's Class B shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The Class B shares' distribution fee will
cause that Class to have higher expenses and pay lower dividends than Class A or
Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A and Class D shares in
all Morgan Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares
of
23
<PAGE>
Morgan Stanley Dean Witter Funds for which such shares have been exchanged will
be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<C> <S> <C> <C>
- -----------------------------------------------------------------
A Maximum 5.25% initial 0.25% No
sales charge reduced
for purchases of
$25,000 and over;
shares sold without an
initial sales charge
generally subject to a
1.0% CDSC during first
year.
- -----------------------------------------------------------------
B Maximum 5.0% CDSC 1.0% B shares convert
during the first year to A shares
decreasing to 0 after automatically
six years after
approximately ten
years
- -----------------------------------------------------------------
C 1.0% CDSC during first 1.0% No
year
- -----------------------------------------------------------------
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 5.25% 5.54%
$25,000 but less
than $50,000........ 4.75% 4.99%
$50,000 but less
than $100,000....... 4.00% 4.17%
$100,000 but less
than $250,000....... 3.00% 3.09%
$250,000 but less
than $1 million..... 2.00% 2.04%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed,
24
<PAGE>
such Selected Broker-Dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Fund, the Class A shares of the other Morgan Stanley Dean Witter Multi-Class
Funds and the shares of the FSC Funds will be at their respective rates
applicable to the total amount of the combined concurrent purchases of such
shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of such
transaction, amounts to $25,000 or more. If such investor has a cumulative net
asset value of shares of FSC Funds and Class A and Class D shares that, together
with the current investment amount, is equal to at least $5 million ($25 million
for certain qualified plans), such investor is eligible to purchase Class D
shares subject to the $1,000 minimum initial investment requirement of that
Class of the Fund. See "No Load Alternative-- Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Morgan Stanley Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day period
prior to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or shares of other Morgan Stanley Dean
25
<PAGE>
Witter Funds acquired in exchange for shares of such funds purchased during such
period at a price including a front-end sales charge, which are still owned by
the shareholder, may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which MSDW Trust (which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a redemption
of shares of an open-end proprietary mutual fund of the Financial Advisor's
previous firm which imposed either a front-end or deferred sales charge,
provided such purchase was made within sixty days after the redemption and the
proceeds of the redemption had been maintained in the interim in cash or a money
market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund (not
including reinvestments of dividends or capital gains distributions), less the
average daily aggregate net asset value of the Fund's Class B shares redeemed
since the Fund's inception upon which a CDSC has been imposed or waived, or (b)
the average daily net assets of Class B.
26
<PAGE>
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 5.0%
Second................................ 4.0%
Third................................. 3.0%
Fourth................................ 2.0%
Fifth................................. 2.0%
Sixth................................. 1.0%
Seventh and thereafter................ None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject to
any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 2.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of FSC Funds or of
other Morgan Stanley Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA;
27
<PAGE>
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed investment
alternatives and for which MSDW Trust serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("Eligible Plan"), provided that either: (a) the plan continues to be
an Eligible Plan after the redemption; or (b) the redemption is in connection
with the complete termination of the plan involving the distribution of all plan
assets to participants; and
(4) certain redemptions pursuant to the Fund's Systematic Withdrawal Plan
(see "Shareholder Services--Systematic Withdrawal Plan")
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will
convert to Class A shares in May, 2007. In all other instances Class B shares
will convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange or
a series of exchanges, from the last day of the month in which the original
Class B shares were purchased, provided that shares originally purchased before
May 1, 1997 will convert to Class A shares in May, 2007. The conversion of
shares purchased on or after May 1, 1997 will take place in the month following
the tenth anniversary of the purchase. There will also be converted at that time
such proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a Qualified Retirement Plan for which MSDW Trust
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, the plan is treated as a
single investor and all Class B shares will convert to Class A shares on the
conversion date of the first shares of a Morgan Stanley Dean Witter Multi-Class
Fund purchased by that plan. In the case of Class B shares previously exchanged
for shares of an "Exchange Fund" (see "Shareholder Services-- Exchange
Privilege"), the period of time the shares were held in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired) is excluded from the holding period for conversion. If those
shares are subsequently re-exchanged for Class B shares of a Morgan Stanley Dean
Witter Multi-Class Fund, the holding period resumes on the last day of the month
in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the
28
<PAGE>
Internal Revenue Service or an opinion of counsel that (i) the conversion of
shares does not constitute a taxable event under the Internal Revenue Code, (ii)
Class A shares received on conversion will have a basis equal to the
shareholder's basis in the converted Class B shares immediately prior to the
conversion, and (iii) Class A shares received on conversion will have a holding
period that includes the holding period of the converted Class B shares. The
conversion feature may be suspended if the ruling or opinion is no longer
available. In such event, Class B shares would continue to be subject to Class B
12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Directors and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors: (i)
investors participating in the MSDW Advisors mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory, administrative and/or brokerage services (subject to all of
the terms and conditions of such programs referred to in (i) and (ii) above,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares); (iii) employee benefit plans
maintained by Morgan Stanley Dean Witter & Co. or any of its subsidiaries for
the benefit of certain employees of Morgan Stanley Dean Witter & Co. and its
subsidiaries; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain
other open-end investment companies whose shares are distributed by the
Distributor; (vi) investors who were shareholders of Dean Witter Retirement
Series on September 11, 1998 (with respect to additional purchases for their
former Dean Witter Retirement Series accounts); and (vii) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. Investors who require a $5 million (or $25 million)
minimum initial investment to qualify to purchase Class D shares may satisfy
that requirement by investing that amount in a single transaction in Class D
shares of the Fund and other Morgan Stanley Dean Witter Multi-Class Funds,
subject to the $1,000 minimum initial investment required for that Class of the
Fund. In addition, for the purpose of meeting the $5 million (or $25 million)
minimum investment amount, holdings of Class A and Class D shares in all Morgan
Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan
Stanley Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount. If a shareholder redeems
Class A shares
29
<PAGE>
and purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 1.0% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B. The fee is treated by
the Fund as an expense in the year it is accrued. In the case of Class A shares,
the entire amount of the fee currently represents a service fee within the
meaning of the NASD guidelines. In the case of Class B and Class C shares, a
portion of the fee payable pursuant to the Plan, equal to 0.25% of the average
daily net assets of each of these Classes, is currently characterized as a
service fee. A service fee is a payment made for personal service and/or the
maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of Morgan Stanley Dean Witter
Financial Advisors and others who engage in or support distribution of shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan 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.
For the fiscal year ended October 31, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $18,215,583, which amount is equal
to 0.91% of the average daily net assets of Class B for the fiscal year. These
payments were calculated pursuant to clause (a) of the compensation formula
under the Plan. For the fiscal year ended October 31, 1998, Class A and Class C
shares of the Fund accrued payments under the Plan amounting to $18,999 and
$110,728, respectively, which amounts are equal to 0.25% and 1.0% of the average
daily net assets of Class A and Class C, respectively, for the fiscal year.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that such
excess amounts, including the carrying charge described above, totalled
$35,030,919 at October 31, 1998, which was equal to 1.70% of the net assets of
Class B on such
30
<PAGE>
date. Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount does not constitute a liability
of the Fund. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan, and the
proceeds of CDSCs paid by investors upon redemption of shares, if for any reason
the Plan is terminated the Directors will consider at that time the manner in
which to treat such expenses. Any cumulative expenses incurred, but not yet
recovered through distribution fees or CDSCs, may or may not be recovered
through future distribution fees or CDSCs.
In the case of Class A 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 commission credited to Morgan Stanley Dean Witter Financial Advisors
or other Selected Broker-Dealer representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed expenses representing a gross sales commission credited to
Morgan Stanley Dean Witter Financial Advisors and other Selected Broker-Dealer
representatives at the time of sale may be reimbursed in the subsequent calendar
year. The Distributor has advised the Fund that unreimbursed expenses
representing a gross sales commission credited to Morgan Stanley Dean Witter
Financial Advisors and other Selected Broker-Dealer representatives at the time
of sale totalled $24,888 in the case of Class C at December 31, 1997, which
amount was equal to 0.74% of the net assets of Class C on such date, and that
there were no such expenses that may be reimbursed in the subsequent year in the
case of Class A on such date. No interest or other financing charges will be
incurred on any Class A or Class C distribution expenses incurred by the
Distributor under the Plan or on any unreimbursed expenses due to the
Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. The net
asset value per share will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued (if there were no sales that
day, the security is valued at the latest bid price); and (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest available bid price prior to the time of
valuation. When market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager or
Sub-Advisor that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Directors. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in foreign
currency are translated into U.S. dollar equivalents at the prevailing market
rates prior to the close of the New York Stock Exchange. Dividends receivable
are accrued as of
31
<PAGE>
the ex-dividend date or as of the time that the relevant ex-dividend date and
amounts become known.
Short-term debt securities with remaining maturities of sixty days or less
to maturity at the time of purchase are valued at amortized cost, unless the
Directors determine such does not reflect the securities' market value, in which
case these securities will be valued at their fair value as determined by the
Directors.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Morgan Stanley Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemption and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders whose shares of Morgan Stanley Dean Witter
Funds have an aggregate value of $10,000 or more. Shares of any Fund from which
redemptions will be made pursuant to the Plan must have a value of $1,000 or
more (referred to as a "SWP Fund"). The required share values are determined on
the date the shareholder establishes the Withdrawal Plan. The Withdrawal Plan
provides for monthly, quarterly, semi-annual or annual payments in any amount
not less than $25, or in any whole percentage of the value of the SWP Funds'
shares, on an annualized basis. Any applicable CDSC will be imposed on shares
redeemed under the Withdrawal Plan (see "Purchase of Fund Shares"), except that
the CDSC, if any, will be waived on redemptions under the Withdrawal Plan of up
to 12% annually of the value of each SWP Fund account, based on the share values
next determined after the shareholder establishes the Withdrawal Plan.
Redemptions for which this CDSC waiver policy applies may be in amounts up to 1%
per month, 3% per quarter, 6% semi-annually or 12% annually. Under this CDSC
waiver policy, amounts withdrawn each period will be paid by first redeeming
shares not subject to a CDSC because the shares were purchased by the
reinvestment of dividends or capital gains distributions, the CDSC period has
elapsed or some other waiver of the
32
<PAGE>
CDSC applies. If shares subject to a CDSC must be redeemed, shares held for the
longest period of time will be redeemed first and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Any shareholder participating in the Withdrawal Plan will have
sufficient shares redeemed from his or her account so that the proceeds (net of
any applicable CDSC) to the shareholder will be the designated monthly,
quarterly, semi-annual or annual amount.
A shareholder may suspend or terminate participation in the Withdrawal Plan
at any time. A shareholder who has suspended participation may resume payments
under the Withdrawal Plan, without requiring a new determination of the account
value for the 12% CDSC waiver. The Withdrawal Plan may be terminated or revised
at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan, the
required $10,000/$1,000 share values must be met, to be calculated on the date
the shareholder adds the additional SWP Fund. However, the addition of a new SWP
Fund will not change the account value for the 12% CDSC waiver for the SWP Funds
already participating in the Withdrawal Plan.
Withdrawal Plan payments should not be considered dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax advisor.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent for
further information about any of the above services.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of any
exchange fee. Shares may also be exchanged for shares of the following funds:
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley Dean
Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter Short-Term Bond
Fund and five Morgan Stanley Dean Witter Funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Morgan
Stanley Dean Witter Multi-State Municipal Series Trust and Morgan Stanley Dean
Witter Hawaii Municipal Trust, which are Morgan Stanley Dean Witter Funds sold
with a front-end sales charge ("FSC Funds"). Exchanges may be made after the
shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any FSC
Fund or any Exchange Fund that is not a money market fund is on the basis of the
next calculated net asset value per share of each fund after the exchange order
is received. When exchanging into a money market fund from the Fund, shares of
the Fund are redeemed out of the Fund at their next calculated net asset value
and the proceeds of the redemption are used to purchase shares of the money
market fund at their net asset value determined the following business day.
Subsequent exchanges between any of the money market funds and any of the Morgan
Stanley Dean Witter Multi-Class Funds, FSC
33
<PAGE>
Funds or any Exchange Fund that is not a money market fund can be effected on
the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains invested in an Exchange Fund (calculated from the
last day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is frozen.
If those shares are subsequently re-exchanged for shares of a Morgan Stanley
Dean Witter Multi-Class Fund, the holding period previously frozen when the
first exchange was made resumes on the last day of the month in which shares of
a Morgan Stanley Dean Witter Multi-Class Fund are reacquired. Thus, the CDSC is
based upon the time (calculated as described above) the shareholder was invested
in shares of a Morgan Stanley Dean Witter Multi-Class Fund (see "Purchase of
Fund Shares"). In the case of exchanges of Class A shares which are subject to a
CDSC, the holding period also includes the time (calculated as described above)
the shareholder was invested in shares of a FSC Fund. In the case of shares
exchanged for shares of an Exchange Fund on or after April 23, 1990, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for Class B shares of another Morgan Stanley Dean Witter
Multi-Class Fund having a different CDSC schedule than that of this Fund will be
subject to the higher CDSC schedule, even if such shares are subsequently re-
exchanged for shares of the fund with the lower CDSC schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/ or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular situation
is abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other
Morgan Stanley Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies. Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their Morgan Stanley Dean Witter Financial Advisor or other Selected
Broker-Dealer representative regarding restrictions on exchange of shares of the
Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the
34
<PAGE>
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Distributor, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Telephone exchange
instructions will be accepted if received by the Transfer Agent between 9:00
a.m. and 4:00 p.m. New York time, on any day the New York Stock Exchange is
open. Any shareholder wishing to make an exchange who has previously filed an
Exchange Privilege Authorization Form and who is unable to reach the Fund by
telephone should contact his or her Morgan Stanley Dean Witter Financial Advisor
or other Selected Broker-Dealer representative, if appropriate, or make a
written exchange request. Shareholders are advised that during periods of
drastic economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Morgan Stanley Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption, along with any additional documentation required
by the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be
35
<PAGE>
repurchased by DWR and other Selected Broker-Dealers upon the telephonic request
of the shareholder. The repurchase price is the net asset value next computed
(see "Purchase of Fund Shares") after such repurchase order is received by DWR
or other Selected Broker-Dealer reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offers by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check (including a government, certified or bank cashier's check), payment of
the redemption proceeds may be delayed for the minimum time needed to verify
that the check used for investment has been honored (not more than fifteen days
from the time of receipt of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their Morgan Stanley Dean Witter Financial Advisor or other Selected
Broker-Dealer representative regarding restrictions on redemption of shares of
the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at net asset value next determined after a reinstatement request,
together with the proceeds, is received by the Transfer Agent and receive a pro-
rata credit for any CDSC paid in connection with such redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Code) whose shares due to redemptions by the
shareholder have a value of less than $100 or such lesser amount as may be fixed
by the Directors or, in the case of an account opened through EasyInvest, if
after twelve months the shareholder has invested less than $1,000 in the
account. However, before the Fund redeems such shares and sends the proceeds to
the shareholder, it will notify the shareholder that the value of the shares is
less than the applicable amount and allow the shareholder sixty days to make an
additional investment in an amount which will increase the value of the account
to at least the applicable amount before the redemption is processed. No CDSC
will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay dividends and to distribute
substantially all of the Fund's net investment
36
<PAGE>
income and net realized short-term and long-term capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services--Automatic Investment of
Dividends and Distributions.")
TAXES. Because the Fund intends to continue to distribute all of its net
investment income and any net short-term capital gains to shareholders and
otherwise qualify as a regulated investment company under Subchapter M of the
Code, it is not expected that the Fund will be required to pay any federal
income tax on such income and capital gains.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures generally are treated as 60%
long-term gain or loss and 40% short-term gain or loss. When the Fund engages in
options and futures transactions, various tax regulations applicable to the Fund
may have the effect of causing the Fund to recognize a gain or loss for tax
purposes before that gain or loss is realized, or to defer recognition of a
realized loss for tax purposes. Recognition, for tax purposes, of an unrealized
loss may result in a lesser amount of the Fund's realized net gains being
available for distribution.
Shareholders will normally have to pay federal income taxes, and any
applicable state and/or local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income and net short-term capital gains,
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following calendar year prior to February 1, will be deemed, for tax
purposes, to have been received by the shareholder in the prior calendar year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. It is anticipated that only a small portion, if
any, of the Fund's distributions will be eligible for the dividends received
deduction to corporate shareholders.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the year, shareholders will receive full information on
their dividends and capital gains distributions for tax purposes. Shareholders
will also be notified of their proportionate share of long-term capital gains
distributions that are eligible for a reduced rate of tax under the Taxpayer
Relief Act of 1997.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
37
<PAGE>
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to deduct their pro rata portion of such taxes
from their taxable income or claim United States foreign tax credits with
respect to such taxes. In the absence of such an election, the Fund would deduct
foreign tax in computing the amount of its distributable income.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax advisor.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in a Class of the Fund of $1,000 over a period of one year and five
years, as well as over the life of the Fund. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the applicable Class and all sales
charges which would be incurred by shareholders, for the stated periods. It also
assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. The Fund may also advertise
the growth of hypothetical investments of $10,000, $50,000 and $100,000 in each
Class of shares of the Fund. Such calculations may or may not reflect the
deduction of any sales charge which, if reflected, would reduce the performance
quoted. The Fund from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations (such as mutual fund performance rankings of Lipper Analytical
Services, Inc.).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of the Fund are of common stock of $0.01 par
value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares. There are no conversion, pre-emptive or other subscription rights. In
the event of liquidation, each share of common stock of the Fund is entitled to
its portion of all of the Fund's assets after all debts and expenses have been
paid. The shares do not have cumulative voting rights.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such
38
<PAGE>
meetings. The Directors may call Special Meetings of Shareholders for action by
shareholder vote as may be required by the Act or the Fund's By-Laws.
CODE OF ETHICS. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted by
those companies. The Code of Ethics is intended to ensure that the interests of
shareholders and other clients are placed ahead of any personal interest, that
no undue personal benefit is obtained from a person's employment activities and
that actual and potential conflicts of interest are avoided. To achieve these
goals and comply with regulatory requirements, the Code of Ethics requires,
among other things, that personal securities transactions by employees of the
companies be subject to an advance clearance process to monitor that no Morgan
Stanley Dean Witter Fund is engaged at the same time in a purchase or sale of
the same security. The Code of Ethics bans the purchase of securities in an
initial public offering, and also prohibits engaging in futures and options
transactions and profiting on short-term trading (that is, a purchase within
sixty days of a sale or a sale within sixty days of a purchase) of a security.
In addition, investment personnel may not purchase or sell a security for their
personal account within thirty days before or after any transaction in any
Morgan Stanley Dean Witter Fund managed by them. Any violations of the Code of
Ethics are subject to sanctions, including reprimand, demotion or suspension or
termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
The Fund's Sub-Advisor also has a Code of Ethics which complies with
regulatory requirements and, insofar as it relates to persons associated with
the Fund, the 1994 report by the Investment Company Institute Advisory Group on
Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
39
<PAGE>
Morgan Stanley Dean Witter
European Growth Fund Inc.
Two World Trade Center
New York, New York 10048
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
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, New York 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
SUB-ADVISOR
Morgan Stanley Dean Witter
Investment Management Inc.
MORGAN STANLEY
DEAN WITTER
EUROPEAN
GROWTH FUND
[PHOTO]
PROSPECTUS -- DECEMBER 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY
DECEMBER 1, 1998 DEAN WITTER
EUROPEAN GROWTH
FUND INC.
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter European Growth Fund Inc. (the "Fund") is an
open-end, diversified management investment company, whose investment objective
is to maximize the capital appreciation of its investments. The Fund seeks to
achieve its investment objective by investing primarily in securities issued by
issuers located in Europe.
A Prospectus for the Fund dated December 1, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc., or
from Dean Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter
European Growth Fund Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Directors and Officers................................................................. 8
Investment Practices and Policies...................................................... 13
Investment Restrictions................................................................ 26
Portfolio Transactions and Brokerage................................................... 28
The Distributor........................................................................ 30
Determination of Net Asset Value....................................................... 34
Purchase of Fund Shares................................................................ 35
Shareholder Services................................................................... 38
Redemptions and Repurchases............................................................ 43
Dividends, Distributions and Taxes..................................................... 44
Performance Information................................................................ 46
Description of Common Stock............................................................ 47
Custodian and Transfer Agent........................................................... 48
Independent Accountants................................................................ 48
Reports to Shareholders................................................................ 48
Legal Counsel.......................................................................... 48
Experts................................................................................ 48
Registration Statement................................................................. 48
Financial Statements -- October 31, 1998............................................... 49
Report of Independent Accountants...................................................... 68
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was incorporated under the laws of the state of Maryland on
February 13, 1990. The Fund was incorporated under Maryland Law on February 13,
1990, under the name Dean Witter European Growth Fund Inc. Its name was changed
to Morgan Stanley Dean Witter European Growth Fund Inc. on June 22, 1998.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or "MSDW
Advisors"), a Delaware corporation, whose address is Two World Trade Center, New
York, New York 10048, is the Fund's Investment Manager. MSDW Advisors is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a Delaware
corporation. The daily management of the Fund is conducted by or under the
direction of officers of the Fund and of the Investment Manager and Morgan
Stanley Dean Witter Investment Management Inc. ("MSDW Investment Management" or
the "Sub-Advisor"), subject to review by the Fund's Board of Directors.
Information as to these Directors and Officers is contained under the caption
"Directors and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Morgan Stanley Dean Witter Global Dividend Growth Securities
23 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
24 Morgan Stanley Dean Witter Global Utilities Fund
25 Morgan Stanley Dean Witter Growth Fund
26 Morgan Stanley Dean Witter Hawaii Municipal Trust
27 Morgan Stanley Dean Witter Health Sciences Trust
28 Morgan Stanley Dean Witter High Yield Securities Inc.
29 Morgan Stanley Dean Witter Income Builder Fund
30 Morgan Stanley Dean Witter Information Fund
31 Morgan Stanley Dean Witter Intermediate Income Securities
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
32 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
33 Morgan Stanley Dean Witter International SmallCap Fund
34 Morgan Stanley Dean Witter Japan Fund
35 Morgan Stanley Dean Witter Limited Term Municipal Trust
36 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
37 Morgan Stanley Dean Witter Market Leader Trust
38 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
39 Morgan Stanley Dean Witter Mid-Cap Growth Fund
40 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
41 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
42 Morgan Stanley Dean Witter New York Municipal Money Market Trust
43 Morgan Stanley Dean Witter New York Tax-Free Income Fund
44 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
45 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
46 Morgan Stanley Dean Witter Select Dimensions Investment Series
47 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
48 Morgan Stanley Dean Witter Short-Term Bond Fund
49 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
50 Morgan Stanley Dean Witter Special Value Fund
51 Morgan Stanley Dean Witter S&P 500 Index Fund
52 Morgan Stanley Dean Witter S&P 500 Select Fund
53 Morgan Stanley Dean Witter Strategist Fund
54 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
55 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
56 Morgan Stanley Dean Witter U.S. Government Money Market Trust
57 Morgan Stanley Dean Witter U.S. Government Securities Trust
58 Morgan Stanley Dean Witter Utilities Fund
59 Morgan Stanley Dean Witter Value-Added Market Series
60 Morgan Stanley Dean Witter Value Fund
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the investment Manager to
supervise the investment of the Fund's assets. The Investment Manager, through
consultation with Morgan Stanley Dean Witter Investment Management Inc. (the
"Sub-Advisor") and through its own portfolio management staff, obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously oversee the management of the assets of the Fund in a manner
consistent with its investment objective.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help and bookkeeping
and certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Investment Manager. The Investment Manager also bears the cost
of telephone service, heat, light, power and other utilities provided to the
Fund. The Investment Manager has retained MSDW Services to provide its
administrative services under the Management Agreement.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Advisor pursuant to the Sub-Advisory Agreement
(see below), or by the Distributor of the Fund's shares, Morgan Stanley Dean
Witter Distributors Inc. ("MSDW Distributors" or the "Distributor")
5
<PAGE>
(see "The Distributor") will be paid by the Fund. These expenses will be
allocated among the four classes of shares of the Fund (each, a "Class") pro
rata based on the net assets of the Fund attributable to each Class, except as
described below. Such expenses include, but are not limited to: expenses of the
Plan of Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The
Distributor"), charges and expenses of any registrar, custodian, stock transfer
and dividend disbursing agent; brokerage commissions; taxes; engraving and
printing of share certificates; registration costs of the Fund and its shares
under federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing Prospectuses and Statements of
Additional Information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of directors or members of any advisory board or
committee who are not employees of the Investment Manager or Sub-Advisor or any
corporate affiliate of the Investment Manager or Sub-Advisor; all expenses
incident to any dividend, withdrawal or redemption options; charges and expenses
of any outside service used for pricing of the Fund's shares; fees and expenses
of the Fund's legal counsel, including counsel to the directors who are not
interested persons of the Fund or of the Investment Manager or Sub-Advisor (not
including compensation or expenses of attorneys who are employees of the
Investment Manager) and independent accountants; membership dues of industry
associations; interest on Fund borrowings; postage; insurance premiums on
property or personnel (including officers and directors) of the Fund which inure
to its benefit; extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification relating
thereto); and all other costs of the Fund's operation. The 12b-1 fees relating
to a particular Class will be allocated directly to that Class. In addition,
other expenses associated with a particular Class (except advisory or custodial
fees) may be allocated directly to that Class, provided that such expenses are
reasonably identified as specifically attributable to that Class and the direct
allocation to that Class is approved by the Directors.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors. The Management Agreement in no
way restricts the Investment Manager from acting as investment manager or
advisor to others.
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management" or the "Sub-Advisor"), a subsidiary of Morgan Stanley Dean Witter &
Co. and an affiliate of the Investment Manager, whose address is 1221 Avenue of
the Americas, New York, New York 10020, became the Fund's Sub-Advisor effective
December 1, 1998. MSDW Investment Management, together with its affiliated asset
management companies, conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to customers in the
United States and abroad. As of October 31, 1998, MSDW Investment Management,
together with its affiliated asset management companies, had approximately
$156.1 billion in assets under management as an investment manager or as a
fiduciary advisor. MSDW Investment Management has been managing international
securities since 1986.
Prior to December, 1998 the Fund was sub-advised by Morgan Grenfell
Investment Services Limited (the "Former Sub-Advisor") pursuant to a
sub-advisory agreement between the Investment Manager and the Former Sub-Advisor
(the "Prior Sub-Advisory Agreement"). In May 1998, the Former Sub-Advisor
indicated its intention to resign and on June 2, 1998, the Board of Directors
recommended that the Sub-Advisory Agreement with MSDW Investment Management
described above be submitted to shareholders for approval. The shareholders of
the Fund approved the Sub-Advisory Agreement on August 18, 1998 and the
Sub-Advisory Agreement became effective on December 1, 1998.
At the same time that the Sub-Advisory Agreement took effect, the Investment
Manager and the Fund amended the Management Agreement between the Investment
Manager and the Fund to reduce the fee paid by the Fund to the Investment
Manager as full compensation for the services and facilities furnished to the
Fund and expenses of the Fund assumed by the Investment Manager from an annual
rate of 1.0% of the portion of daily net assets not exceeding $500 million;
0.95% of the portion of daily net
6
<PAGE>
assets exceeding $500 million but not exceeding $2 billion; and 0.90% of the
portion of daily net assets exceeding $2 billion, to an annual rate of 0.95% of
the portion of daily net assets not exceeding $500 million; 0.90% of the portion
of daily net assets exceeding $500 million but not exceeding $2 billion; and
0.85% of the portion of daily net assets exceeding $2 billion. The management
fee is allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. For the fiscal years ended October 31, 1996, 1997
and 1998 the Fund accrued to the Investment Manager total compensation under the
Management Agreement in the amounts of $9,903,670, $15,130,951 and $19,493,248,
respectively (of which $5,942,202, $9,078,571 and $11,695,949 was retained by
the Investment Manager, respectively).
Both the Investment Manager and the Sub-Advisor have authorized any of their
directors, officers and employees who have been elected as Directors or officers
of the Fund to serve in the capacities in which they have been elected. Services
furnished by the Investment Manager and the Sub-Advisor may be furnished by
directors, officers and employees of the Investment Manager and the Sub-Advisor.
In connection with the services rendered by the Sub-Advisor, the Sub-Advisor
bears the following expenses: (a) the salaries and expenses of its personnel;
and (b) all expenses incurred by it in connection with performing the services
provided by it as Sub-Advisor, as described above.
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment Manager
assumed by the Sub-Advisor, the Investment Manager paid the Former Sub-Advisor
and will pay the Sub-Advisor monthly compensation equal to 40% of the Investment
Manager's monthly compensation payable under the Management Agreement. For the
fiscal years ended October 31, 1996, 1997 and 1998, the Investment Manager
informed the Fund that it accrued to the Former Sub-Advisor total compensation
of $3,961,468, $6,052,380 and $7,797,299, respectively.
The Management Agreement and the Former Sub-Advisory Agreement (the
"Agreements") were initially approved by the Board of Directors on February 21,
1997 and by the shareholders of the Fund at a Special Meeting of Shareholders
held on May 21, 1997. The Agreements are substantially identical to prior
investment management and sub-advisory agreements which were initially approved
by the Board of Directors on October 30, 1992 and by the shareholders of the
Fund at a Special Meeting of Shareholders held on January 12, 1993 and amended
by the Board of Directors on April 24, 1997 to reduce the compensation received
by the Investment Manager. The Agreements took effect on May 31, 1997 upon the
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. The Management Agreement and the Sub-Advisory Agreement may be
terminated at any time, without penalty, on thirty days' notice by the Board of
Directors of the Fund, by the holders of a majority, as defined in the
Investment Company Act of 1940 (the "Act"), of the outstanding shares of the
Fund, or by the Investment Manager. The Management Agreement and the
Sub-Advisory Agreement will automatically terminate in the event of their
assignment (as defined in the Act).
Under their terms, the Investment Management Agreement will continue in
effect until April 30, 1999 and the new Sub-Advisory Agreement will continue in
effect until April 30, 2000, and provide that each will continue from year to
year thereafter, provided continuance of the Agreements are approved at least
annually by the vote of the holders of a majority, as defined in the Act, of the
outstanding shares of the Fund, or by the Board of Directors of the Fund;
provided that in either event such continuance is approved annually by the vote
of a majority of the Directors of the Fund who are not parties to the Agreements
or "interested persons" (as defined in the Act) of any such party (the
"Independent Directors"), which votes must be cast in person at a meeting called
for the purpose of voting on such approval.
The following owned 5% or more of the outstanding shares of Class A on
October 31, 1998: Helen K. Copley as Trustee of the Helen K. Coley Rev Trust
DTD, P.O. Box 1530, La Jolla, CA 92038-1530 -- 8.1%; and Morgan Stanley Dean
Witter Trust FSB, Trustee of the U.S. Holdings Inc. Et Al Profit Sharing Plan,
P.O. Box 957, Jersey City, NJ 07303-0957 -- 8.3%. The following owned 25% or
more of the outstanding
7
<PAGE>
shares of Class D on October 31, 1998: Hare & Co., c/o The Bank of New York,
P.O. Box 11203, New York, NY 10286-1203 -- 49.2%.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use, or at any time permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
investment management contract is terminated, or if the affiliation between MSDW
Advisors and its parent company is terminated, the Fund will eliminate the name
"Morgan Stanley Dean Witter" from its name if MSDW, or any corporate affiliate
of MSDW, shall so request.
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with MSDW
Advisors and with the 86 Morgan Stanley Dean Witter Funds and the 11 TCW/DW
Funds are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -------------------------------------------------------------------
<S> <C>
Michael Bozic (57) Vice Chairman of Kmart Corporation (commencing December, 1998);
Director Director or Trustee of the Morgan Stanley Dean Witter Funds;
c/o Kmart Corporation formerly Chairman and Chief Executive Officer of Levitz Furniture
3100 West Big Beaver Road Corporation (November, 1995-November, 1998) and President and Chief
Troy, Michigan Executive Officer of Hills Department Stores (May, 1991-July,
1995); formerly variously Chairman, Chief Executive Officer,
President and Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.; Director of Eaglemark
Financial Services, Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (65) Chairman, Director or Trustee, President and Chief Executive
Chairman of the Board, Officer of the Morgan Stanley Dean Witter Funds; Chairman, Chief
President and Chief Executive Executive Officer and Trustee of the TCW/DW Funds; formerly
Officer and Director Chairman, Chief Executive Officer and Director of MSDW Advisors,
Two World Trade Center MSDW Distributors and MSDW Services, Executive Vice President and
New York, New York Director of Dean Witter Reynolds Inc. ("DWR"), Chairman and
Director of Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"),
and Director and/or officer of various MSDW subsidiaries (until
June, 1998).
Edwin J. Garn (65) Director or Trustee of the Morgan Stanley Dean Witter Funds;
Director formerly United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of Salt Lake
500 Huntsman Way City, Utah (1972-1974); formerly Astronaut, Space Shuttle Discovery
Salt Lake City, Utah (April 12-19, 1985); Vice Chairman, Huntsman Corporation (since
January, 1993); Director of Franklin Covey (time management
systems), John Alden Financial Corp. (health insurance), United
Space Alliance (joint venture between Lockheed Martin and the
Boeing Company) and Nuskin Asia Pacific (multilevel marketing);
member of the board of various civic and charitable organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -------------------------------------------------------------------
<S> <C>
John R. Haire (73) Chairman of the Audit Committee and Director or Trustee of the
Director Morgan Stanley Dean Witter Funds; Chairman of the Audit Committee
Two World Trade Center and Trustee of the TCW/DW Funds; formerly Chairman of the
New York, New York Independent Directors or Trustees of the Morgan Stanley Dean Witter
Funds and the TCW/DW Funds (until June, 1998); formerly President,
Council for Aid to Education (1978-1989) and Chairman and Chief
Executive Officer of Anchor Corporation, an Investment Adviser
(1964-1978).
Wayne E. Hedien (64) Retired; Director or Trustee of the Morgan Stanley Dean Witter
Director Funds; Director of The PMI Group, Inc. (private mortgage
c/o Gordon Altman Butowsky insurance); Trustee and Vice Chairman of The Field Museum of
Weitzen Shalov & Wein Natural History; formerly associated with the Allstate Companies
Counsel to the Independent Directors (1966-1994), most recently as Chairman of The Allstate Corporation
114 West 47th Street (March, 1993-December, 1994) and Chairman and Chief Executive
New York, New York Officer of its wholly-owned subsidiary, Allstate Insurance Company
(July, 1989-December, 1994); director of various other business and
charitable organizations.
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc., a consulting
Director firm; Co-Chairman and a founder of the Group of Seven Council
c/o Johnson Smick International, Inc. (G7C), an international economic commission; Director or Trustee of
1133 Connecticut Avenue, N.W. the Morgan Stanley Dean Witter Funds; Trustee of the TCW/DW Funds;
Washington, DC Director of NASDAQ (since June, 1995); Director of Greenwich
Capital Markets, Inc. (broker-dealer) and NVR, Inc. (home
construction); Trustee of the Financial Accounting Foundation
(oversight organization for the Financial Accounting Standards
Board); formerly Vice Chairman of the Board of Governors of the
Federal Reserve System (1986-1990) and Assistant Secretary of the
U.S. Treasury (1982-1986).
Michael E. Nugent (62) General Partner, Triumph Capital, L.P., a private investment
Director partnership; Director or Trustee of the Morgan Stanley Dean Witter
c/o Triumph Capital, L.P. Funds; Trustee of the TCW/DW Funds; formerly Vice President,
237 Park Avenue Bankers Trust Company and BT Capital Corporation (1984-1988);
New York, New York Director of various business organizations.
Philip J. Purcell* (55) Chairman of the Board of Directors and Chief Executive Officer of
Director MSDW, DWR and Novus Credit Services Inc.; Director of MSDW
1585 Broadway Distributors; Director or Trustee of the Morgan Stanley Dean Witter
New York, New York Funds; Director and/or officer of various MSDW subsidiaries.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -------------------------------------------------------------------
<S> <C>
John L. Schroeder (68) Retired; Director or Trustee of the Morgan Stanley Dean Witter
Director Funds; Trustee of the TCW/DW Funds; Director of Citizens Utilities
c/o Gordon Altman Butowsky Company; formerly Executive Vice President and Chief Investment
Weitzen Shalov & Wein Officer of the Home Insurance Company (August, 1991-September,
Counsel to the Independent Directors 1995).
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997), Secretary and General
Vice President, Secretary Counsel (since February, 1997) and Director (since July, 1998) of
and General Counsel MSDW Advisors and MSDW Services; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant General Counsel
New York, New York (since February, 1997) of MSDW Distributors; Assistant Secretary of
DWR (since August, 1996); Vice President, Secretary and General
Counsel of the Morgan Stanley Dean Witter Funds and the TCW/DW
Funds (since February, 1997); previously First Vice President
(June, 1993-February, 1997), Vice President (until June, 1993) and
Assistant Secretary and Assistant General Counsel of MSDW Advisors
and MSDW Services and Assistant Secretary of the Morgan Stanley
Dean Witter Funds and the TCW/DW Funds.
Thomas F. Caloia (52) First Vice President and Assistant Treasurer of MSDW Advisors and
Treasurer MSDW Services; Treasurer of the Morgan Stanley Dean Witter Funds
Two World Trade Center and the TCW/DW Funds.
New York, New York
</TABLE>
- ------------------------
* Denotes Directors who are "interested persons" of the Fund, as defined in the
Act.
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR, and
Director of various MSDW subsidiaries, Robert M. Scanlan, President, Chief
Operating Officer and Director of MSDW Advisors and MSDW Services, Executive
Vice President of MSDW Distributors and MSDW Trust and Director of MSDW Trust,
Ronald E. Robison, Executive Vice President and Chief Administrative Officer of
MSDW Advisors and MSDW Services, Robert S. Giambrone, Senior Vice President of
MSDW Advisors, MSDW Services, MSDW Distributors and MSDW Trust and Director of
MSDW Trust, Joseph J. McAlinden, Executive Vice President and Chief Investment
Officer of MSDW Advisors and Director of MSDW Trust and Mark Bavoso, Kenton J.
Hinchliffe, Ira N. Ross and Paul D. Vance, Senior Vice Presidents of MSDW
Advisors, are Vice Presidents of the Fund, and Marilyn K. Cranney and Carsten
Otto, First Vice Presidents and Assistant General Counsels of MSDW Advisors and
MSDW Services, Frank Bruttomesso, LouAnne D. McInnis and Ruth Rossi, Vice
Presidents and Assistant General Counsels of MSDW Advisors and MSDW Services,
and Todd Lebo, a staff attorney with MSDW Advisors, are Assistant Secretaries of
the Fund.
THE BOARD OF DIRECTORS, THE INDEPENDENT DIRECTORS, AND THE COMMITTEES
The Board of Directors consists of nine (9) directors. These same
individuals also serve as directors or trustees for all of the Morgan Stanley
Dean Witter Funds, and are referred to in this section as Directors. As of the
date of this Statement of Additional Information, there are a total of 86 Morgan
Stanley Dean Witter Funds, comprised of 122 portfolios. As of October 31, 1998,
the Morgan Stanley Dean Witter Funds had total net assets of approximately
$109.2 billion and more than six million shareholders.
10
<PAGE>
Seven Directors (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Directors. Four of the seven
Independent Directors are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Directors. The Morgan Stanley Dean Witter Funds seek as
Independent Directors individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
Indeed, by serving on the Funds' Boards, certain Directors who would otherwise
be qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Directors serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. In addition,
three of the Directors, including two Independent Directors, serve as members of
the Insurance Committee. During the calendar year ended December 31, 1997, the
Audit Committee, the Derivatives Committee and the Independent Directors held a
combined total of seventeen meetings.
The Independent Directors are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Directors are required to select and nominate individuals to fill
any Independent Director vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Morgan Stanley Dean Witter Funds have such a
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; and reviewing the adequacy of the Fund's system of internal
controls.
The Board of each Fund has formed a Derivatives Committee to approve
parameters for and monitor the activities of the Fund with respect to derivative
investments, if any, made by the Fund.
Finally, the Board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Directors and the Funds' management believe that having the
same Independent Directors for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Directors for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Directors of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Directors arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Directors serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Directors of the caliber, experience and
business acumen of the individuals who serve as Independent Directors of the
Morgan Stanley Dean Witter Funds.
11
<PAGE>
COMPENSATION OF INDEPENDENT DIRECTORS
The Fund pays each Independent Director an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Directors, the Independent
Directors or Committees of the Board of Directors attended by the Director (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750).
If a Board meeting and a meeting of the Independent Directors or a Committee
meeting, or a meeting of the Independent Directors and/or more than one
Committee meeting, take place on a single day, the Directors are paid a single
meeting fee by the Fund. The Fund also reimburses such Directors for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Directors and officers of the Fund who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Fund for their services as Director. Mr. Haire
currently serves as Chairman of the Audit Committee. Prior to June 1, 1998, Mr.
Haire also served as Chairman of the Independent Directors, for which services
the Fund paid him an additional annual fee of $1,200.
The following table illustrates the compensation paid to the Fund's
Independent Directors by the Fund for the fiscal year ended October 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,450
Edwin J. Garn................................................. 1,600
John R. Haire................................................. 2,850
Wayne E. Hedien............................................... 1,550
Dr. Manuel H. Johnson......................................... 1,550
Michael E. Nugent............................................. 1,600
John L. Schroeder............................................. 1,600
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Directors for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1, 1998,
also served as Chairman of the Independent Directors or Trustees of those Funds.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Morgan Stanley Dean Witter Money Market Funds.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE FOR SERVICE AS TOTAL CASH
AS DIRECTOR OR CHAIRMAN OF FOR SERVICE AS COMPENSATION
TRUSTEE AND INDEPENDENT CHAIRMAN OF FOR
COMMITTEE FOR SERVICE AS DIRECTORS/TRUSTEES INDEPENDENT SERVICES TO 84
MEMBER OF 84 TRUSTEE AND AND AUDIT TRUSTEES MORGAN STANLEY
MORGAN STANLEY COMMITTEE COMMITTEES OF 84 AND AUDIT DEAN WITTER
NAME OF DEAN WITTER MEMBER OF 14 MORGAN STANLEY COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT DIRECTOR FUNDS TCW/DW FUNDS DEAN WITTER FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------------- ---------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an Independent Director who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the
12
<PAGE>
retirement program (each such Fund referred to as an "Adopting Fund" and each
such Director referred to as an "Eligible Director") is entitled to retirement
payments upon reaching the eligible retirement age (normally, after attaining
age 72). Annual payments are based upon length of service. Currently, upon
retirement, each Eligible Director is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 29.41% of his or her Eligible Compensation plus 0.4901667% of
such Eligible Compensation for each full month of service as an Independent
Director or Trustee of any Adopting Fund in excess of five years up to a maximum
of 58.82% after ten years of service. The foregoing percentages may be changed
by the Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Director for service to the Adopting Fund in the five
year period prior to the date of the Eligible Director's retirement. Benefits
under the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Directors by the Fund for the fiscal year ended October 31,
1998 and by the 57 Morgan Stanley Dean Witter Funds (including the Fund) for the
year ended December 31, 1997, and the estimated retirement benefits for the
Fund's Independent Directors, to commence upon their retirement, from the Fund
as of October 31, 1998 and from the 57 Morgan Stanley Dean Witter Funds as of
December 31, 1997.
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
---------------------------
ESTIMATED
CREDITED ESTIMATED ANNUAL
YEARS RETIREMENT BENEFITS BENEFITS
OF SERVICE ACCRUED AS UPON RETIREMENT(2)
AT ESTIMATED EXPENSES ------------------------
RETIREMENT PERCENTAGE OF --------------------------------- FROM FROM ALL
(MAXIMUM ELIGIBLE BY THE BY ALL THE ADOPTING
NAME OF INDEPENDENT DIRECTOR 10) COMPENSATION FUND ADOPTING FUNDS FUND FUNDS
- ------------------------------ ----------- ------------- -------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic................. 10 58.82% $ 412 $ 20,499 $ 1,029 $ 55,026
Edwin J. Garn................. 10 58.82 623 30,878 1,029 55,026
John R. Haire................. 10 58.82 29 (19,823)(3) 2,418 132,002
Wayne E. Hedien............... 9 50.00 654 0 875 46,772
Dr. Manuel H. Johnson......... 10 58.82 251 12,832 1,029 55,026
Michael E. Nugent............. 10 58.82 441 22,546 1,029 55,026
John L. Schroeder............. 8 49.02 828 39,350 861 46,123
</TABLE>
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(1) An Eligible Director may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Director
and his or her spouse on the date of such Eligible Director's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Director and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Director may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Director's elections described in Footnote (1)
above.
(3) This number also reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Directors as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
As stated in the Prospectus, while the Fund currently anticipates investing
over 25% of its total assets in securities of issuers located in the United
Kingdom, it may also invest more than 25% of its total assets, at any time, in
the securities of issuers located in each of the following countries: France,
Germany, the Netherlands and Switzerland. While it is not anticipated that the
Fund will invest more than 25% of its total assets in the securities of issuers
located in any such country, the Fund's Registration Statement will be amended
to contain disclosure discussing the risks pertaining to a concentration of the
Fund's assets in such country at such time as the 25% level is exceeded.
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<PAGE>
PRIVATE PLACEMENTS. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A of the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing restriction.) These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Directors of the Fund, will make a
determination as to the liquidity of each restricted security pruchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which is limited by
the Fund's investment restrictions to 10% of the Fund's total assets.
CONVERTIBLE SECURITIES. The Fund may invest in fixed-income securities
which are convertible into common stock. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by the Fund
at varying price levels above their investment values and/or their conversion
values in keeping with the Fund's objective.
WARRANTS. The Fund may acquire warrants, including warrants which are
attached to fixed-income securities purchased for its portfolio, and hold such
warrants until the Investment Manager and/or the Sub-Advisor determines it is
prudent to sell. Warrants are, in effect, an option to purchase equity
securities at a specific price, generally valid for a specific period of time,
and have no voting rights, pay no dividends and have no rights with respect to
the corporations issuing them.
U.S. GOVERNMENT SECURITIES. Securities issued by the U.S. Government, its
agencies or instrumentalities in which the Fund may invest include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime
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Administration and the Small Business Administration. The maturities of such
obligations range from three months to 30 years.
Neither the value nor the yield of the U.S. Government securities which may
be invested in by the Fund are guaranteed by the U.S. Government. Such values
and yield will fluctuate with changes in prevailing interest rates and other
factors. Generally, as prevailing interest rates rise, the value of any U.S.
Government securities held by the Fund will fall. Such securities with longer
maturities generally tend to produce higher yields and are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities.
ZERO COUPON TREASURY SECURITIES. A portion of the U.S. Government
securities purchased by the Fund may be "zero coupon" Treasury securities. These
are U.S. Treasury bills, notes and bonds which have been stripped of their
unmatured interest coupons and receipts or which are certificates representing
interests in such stripped debt obligations and coupons. Such securities are
purchased at a discount from their face amount, giving the purchaser the right
to receive their full value at maturity. A zero coupon security pays no interest
to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price). The Fund intends
to invest in such zero coupon treasury securities as STRIPS, Treasury Receipts,
Physical Coupons, and Proprietary Receipts. However, the Fund does not intend,
during its current fiscal year, to invest in such securities in amounts
totalling more than 5% of its total assets.
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
As stated in the Prospectus, the money market instruments which the Fund may
purchase include U.S. Government securities, bank obligations, Eurodollar
certificates of deposit, obligations of savings institutions, fully insured
certificates of deposit and commercial paper. Such securities are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1,000,000,000 or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of
$1,000,000,000 or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1,000,000,000
or more;
15
<PAGE>
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1,000,000,000, if the
principal amount of the obligation is insured by the Federal Deposit Insurance
Corporation, limited to $100,000 principal amount per certificate and to 10% or
less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's") or, if
not rated, issued by a company having an outstanding debt issue rated at least
AA by S&P or Aa by Moody's.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks and investment banks) and their
customers. Such forward contracts will only be entered into with United States
banks and their foreign branches or foreign banks whose assets total $1 billion
or more. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will place
cash, U.S. Government securities or other appropriate liquid portfolio
securities in a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward contracts
entered into under the circumstances set forth above. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency. It is impossible to forecast the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio securities
if its market value exceeds the amount of foreign currency the Fund is obligated
to deliver.
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<PAGE>
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a fixed-income security
or the currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times cash, U.S. Government securities and
liquid portfolio securities in a segregated account equal in value to all
forward contract obligations and option contract obligations entered into in
hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and purchase options of the same series
to effect closing transactions, and may hedge against potential changes in the
market value of its investments (or anticipated investments) by purchasing put
and call options on portfolio (or eligible portfolio) securities (and the
currencies in which they are denominated) and engaging in transactions involving
futures contracts and options on such contracts.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which
it is
17
<PAGE>
denominated and the U.S. dollar, then a loss to the Fund occasioned by such
value decline would be ameliorated by receipt of the premium on the option sold.
At the same time, however, the Fund gives up the benefit of any rise in value of
the relevant portfolio securities above the exercise price of the option and, in
fact, only receives a benefit from the writing of the option to the extent that
the value of the portfolio securities falls below the price of the premium
received. The Fund may also write options to close out long call option
positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities and on the U.S. Dollar and
foreign currencies, without limit, in order to aid in achieving its investment
objectives. Generally, a call option is "covered" if the Fund owns, or has the
right to acquire, without additional cash consideration (or for additional cash
consideration held for the Fund by its Custodian in a segregated account) the
underlying security (currency) subject to the option except that in the case of
call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount and value corresponding to the exercise price and a maturity date no
later than that of the security (currency) deliverable under the call option. A
call option is also covered if the Fund holds a call on the same security as the
underlying security (currency) of the written option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the
mark-to-market difference is maintained by the Fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
the premium received will offset a portion of the potential loss incurred by the
Fund if the securities (currencies) underlying the option are ultimately sold
(exchanged) by the Fund at a loss. The premium received will fluctuate with
varying economic market conditions. If the market value of the portfolio
18
<PAGE>
securities (or the currencies in which they are denominated) upon which call
options have been written increases, the Fund may receive a lower total return
from the portion of its portfolio upon which calls have been written than it
would have had such calls not been written.
As regards listed options and certain over-the-counter ("OTC") options,
during the option period, the Fund may be required, at any time, to deliver the
underlying security (currency) against payment of the exercise price on any
calls it has written (exercise of certain listed and OTC options may be limited
to specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received for the option less the commission paid.
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it holds
in its portfolio only to protect itself against a decline in the value of the
security. If the value of the underlying security (currency) were to fall below
the exercise price of the put purchased in an amount greater than the premium
paid for the option, the Fund would incur no additional loss. In addition, the
Fund may sell a put option which it has previously purchased prior to the sale
of the securities (currencies) underlying such option. Such a sale would result
in a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put option
which is sold. And such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security (currency). If a put
option purchased by the Fund expired without being sold or exercised, the
premium would be lost.
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<PAGE>
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates and
market movements. If the market value of the portfolio securities upon which
call options have been written increases, the Fund may receive a lower total
return from the portion of its portfolio upon which calls have been written than
it would have had such calls not been written. In writing puts, the Fund assumes
the risk of loss should the market value of the underlying securities decline
below the exercise price of the option (any loss being decreased by the receipt
of the premium on the option written). During the option period, the covered
call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security (or the value of its denominated currency)
increase, but has retained the risk of loss should the price of the underlying
security (or the value of its denominated currency) decline. The writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so.
As discussed in the Prospectus, the Fund's ability to close out its position
as a writer of an option is dependent upon the existence of a liquid secondary
market on Option Exchanges. There is no assurance that such a market will exist,
particularly in the case of OTC options, as such options will generally only be
closed out by entering into a closing purchase transaction with the purchasing
dealer. However, the Fund may be able to purchase an offsetting option which
does not close out its position as a writer but constitutes an asset of equal
value to the obligation under the option written. If the Fund is not able to
either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to maintain the securities subject to the call, or
the collateral underlying the put, even though it might not be advantageous to
do so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
excercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
Each of the exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different exchange or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of positions
found to be in violation of these
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limits and it may impose other sanctions or restrictions. These position limits
may restrict the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures contracts"),
that are traded on U.S. and foreign commodity exchanges, on such underlying
securities as U.S. Treasury bonds, notes and bills and/or any foreign government
fixed-income security ("interest rate" futures), on various currencies
("currency futures") and on such indexes of U.S. and foreign securities as may
exist or come into being ("index" futures).
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into a
closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 3% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
In addition, if the Fund holds a long position in a futures contract it will
hold cash, U.S. Government securities or other liquid portfolio securities equal
to the purchase price of the contract (less the amount of initial or variation
margin on deposit) in a segregated account maintained for the Fund by its
Custodian. Alternatively, the Fund could cover its long position by purchasing a
put option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Fund.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities called "variation margin," with the Fund's futures contract clearing
broker, which are reflective of price fluctuations in the futures contract.
Currently, interest rate futures contracts can be purchased on debt securities
such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with Maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the delivery date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Investment Manager will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to
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utilize futures contracts or forward contracts its in foreign currency
transactions and hedging strategy. Currently, currency futures exist for, among
other foreign currencies, the Japanese yen, German marks, Canadian dollars,
British pound, Swiss franc and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Fund must accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign restrictions or regulation regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. To reduce this risk,
the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the Investment Manager's opinion, the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. The writer of an option on a futures contract
is required to deposit initial and variation margin pursuant to requirements
similar to those applicable to futures contracts. Premiums received from the
writing of an option on a futures contract are included in initial margin
deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
successful use of futures and related options depends on the ability of the
Investment Manager to accurately predict market and interest rate movements. As
stated in the Prospectus, the Fund may sell a futures contract to protect
against the decline in the value of securities (or the currency in which they
are denominated) held by the Fund. However, it is possible that the futures
market may advance and the value of securities (or the currency in which they
are denominated) held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities
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<PAGE>
(currencies) decreases, then the Fund may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the Commodity Futures
Trading Commission either: 1) a substantial majority (i.e., approximately 75%)
of all anticipatory hedge transactions (transactions in which the Fund does not
own at the time of the transaction, but expects to acquire, the securities
underlying the relevant futures contract) involving the purchase of futures
contracts will be completed by the purchase of securities which are the subject
of the hedge or 2) the underlying value of all long positions in futures
contracts will not exceed the total value of a) all short-term debt obligations
held by the Fund; b) cash held by the Fund; c) cash proceeds due to the Fund on
investments within thirty days; d) the margin deposited on the contracts; and e)
any unrealized appreciation in the value of the contracts.
If the Fund has sold a call option on a futures contract, it will cover this
position by holding, in a segregated account maintained at its Custodian, cash,
U.S. Government securities or other liquid portfolio securities equal in value
(when added to any initial or variation margin on deposit) to the market value
of the securities (currencies) underlying the futures contract or the exercise
price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund
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<PAGE>
seeks a hedge. A correlation may also be distorted by the fact that the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price objective and their cost of borrowed funds.
Such distortions are generally minor and would diminish as the contract
approached maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities (currencies) which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt securities
or currency markets and futures markets could result. Price distortions could
also result if investors in futures contracts opt to make or take delivery of
underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities (currencies) at a time when it may
be disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities (currencies).
OTHER INVESTMENT POLICIES
REPURCHASE AGREEMENTS. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Fund. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be
marked-to-market daily to determine that the full value of the collateral, as
specified in the agreement, is always at least equal to the purchase price plus
accrued interest. If required, additional collateral will be added to the
account to maintain full collateralization. In the event the original seller
defaults on its obligations to repurchase, as a result of its bankruptcy or
otherwise, the Fund will seek to sell the collateral, which action could involve
costs or delays. In such case, the Fund's ability to dispose of the collateral
to recover its investment may be restricted or delayed.
The Fund will accrue interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Fund to be the
maturity date of a repurchase agreement, the
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<PAGE>
maturities of securities subject to repurchase agreements are not subject to any
limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continuously monitored by the management of the Fund subject
to procedures established by the Directors. The procedures also require that the
collateral underlying the agreement be specified. The Fund has not to date nor
does it presently intend to enter into repurchase agreements so that more than
5% of the Fund's net assets are subject to such agreements.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements for purposes of meeting redemptions or as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise. Opportunities to achieve this advantage may not always be
available, and the Fund intends to use the reverse repurchase technique only
when it will be to its advantage to do so. The Fund will establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other portfolio securities (i.e., U.S. Government securities)
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements are considered borrowings by the Fund and, in
accordance with legal requirements, the Fund will maintain an asset coverage
(including the proceeds) of at least 300% with respect to all reverse repurchase
agreements. Reverse repurchase agreements may not exceed 10% of the Fund's total
assets. The Fund will make no purchases, during its current fiscal year, of
portfolio securities while it is still subject to a reverse repurchase
agreement. The Fund has not to date nor does it presently intend to enter into
any reverse repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. As
discussed in the Prospectus, from time to time, in the ordinary course of
business, the Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis. When
such transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of the commitment. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period. While
the Fund will only purchase securities on a when-issued, delayed delivery or
forward commitment basis with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date, if it is deemed
advisable. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which it will continuously
maintain cash or U.S. Government securities or other liquid portfolio securities
equal in value to commitments for such when-issued or delayed delivery
securities; subject to this requirement, the Fund may purchase securities on
such basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset
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<PAGE>
value, will reflect the value of the security daily. At such time, the Fund will
also establish a segregated account with its custodian bank in which it will
continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to recognized commitments for such
securities. Settlement of the trade will occur within five business days of the
occurrence of the subsequent event. The value of the Fund's commitments to
purchase the securities of any one issuer, together with the value of all
securities of such issuer owned by the Fund, may not exceed 5% of the value of
the Fund's total assets at the time the initial commitment to purchase such
securities is made (see "Investment Restrictions"). Subject to the foregoing
restrictions, the Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. The Fund may also sell securities on a "when, as and if
issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the Fund at
the time of the sale.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or appropriate high-grade debt obligations, which are maintained
in a segregated account pursuant to applicable regulations and that are at least
equal to the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the income on the
loaned securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations. The
Fund will not lend its portfolio securities if such loans are not permitted by
the laws or regulations of any state in which its shares are qualified for sale
and will not lend more than 25% of the value of its total assets. A loan may be
terminated by the borrower on one business days' notice, or by the Fund on two
business days' notice. If the borrower fails to deliver the loaned securities
within two days after receipt of notice, the Fund could use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks. Upon termination of the loan, the
borrower is required to return the securities to the Fund. Any gain or loss in
the market price during the loan period would inure to the Fund. The
creditworthiness of firms to which the Fund lends its portfolio securities will
be monitored on an ongoing basis by the Fund's management pursuant to procedures
adopted and reviewed, on an ongoing basis, by the Board of Directors of the
Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. The Fund has not
to date nor does it presently intend to lend any of its portfolio securities.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
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<PAGE>
The Fund may not:
1. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or in accordance with the provisions of Section 12(d) of the Act and
any Rules promulgated thereunder. The Fund, however, has no present
intention to make any investments, during the current fiscal year, in
securities issued by other investment companies.
The Fund anticipates that it will incur any indirect expenses incurred
through investment in an investment company, such as the payment of a
management fee. Furthermore, it should be noted that foreign investment
companies are not subject to the U.S. securities laws and may be subject to
fewer or less stringent regulations than U.S. investment companies.
4. Borrow money (except insofar as the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement up to an amount not
exceeding 10% of the Fund's total assets), except that the Fund may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not
including the amount borrowed).
5. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options;
(d) borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b) by investment in
repurchase or reverse repurchase agreements; or (c) by lending its portfolio
securities.
7. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it either owns an equal amount of
such securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the
same issue as, and equal in amount to, the securities sold short.
8. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
9. Invest for the purpose of exercising control or management of any
other issuer.
As a nonfundamental policy, the Fund will not invest in other investment
companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of the
Act.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Directors, the Investment
Manager and the Sub-Advisor are responsible for decisions to buy and sell
securities of the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with non-affiliated dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred to
as the underwriter's concession or discount. In the underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation equal to the underwriter's concession. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. During the fiscal years ended October 31,
1996, 1997 and 1998, the Fund paid $2,545,689, $3,392,662 and $4,553,450,
respectively, in brokerage commissions.
The Investment Manager and the Sub-Advisor currently serve as investment
advisors to a number of clients, including, in the case of the Investment
Manager, other investment companies, and may in the future act as investment
manager or adviser to others. It is the practice of each of the Investment
Manager and the Sub-Advisor to cause purchase and sale transactions to be
allocated among the Fund and others whose assets it manages in such manner as it
deems equitable. In making such allocations among the Fund and other client
accounts, various factors may be considered, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts. In the case of
certain initial and secondary public offerings, the Investment Manager utilizes
a pro rata allocation process based on the size of the Morgan Stanley Dean
Witter Funds involved and the number of shares available from the public
offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager and the Sub-Advisor from obtaining
a high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager and the Sub-Advisor rely upon their experience and knowledge regarding
commissions generally charged by various brokers and on their judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
In seeking to implement the Fund's policies, the Investment Manager and the
Sub-Advisor effect transactions with those brokers and dealers who the
Investment Manager and the Sub-Advisor believe provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager
and/or the Sub-Advisor believe such prices and executions are obtainable from
more than one broker or dealer, they may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Investment Manager and/or the
28
<PAGE>
Sub-Advisor. Such services may include, but are not limited to, any one or more
of the following: information as to the availability of securities for purchase
or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities.
The information and services received by the Investment Manager and the
Sub-Advisor from brokers and dealers may be of benefit to the Investment Manager
and the Sub-Advisor in the management of accounts of some of their other clients
and may not in all cases benefit the Fund directly. While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Investment Manager
and the Sub-Advisor and thereby reduce their expenses, it is of indeterminable
value and the fees paid to the Investment Manager and the Sub-Advisor are not
reduced by any amount that may be attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR, Morgan Stanley and Co. Incorporated ("MS & Co.") and other
affiliated brokers and dealers and/or affiliated broker-dealers of the
Sub-Advisor. In order for an affiliated broker or dealer to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by the affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Directors of the Fund, including a
majority of the Directors who are not "interested" persons of the Fund, as
defined in the Act, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an affiliated
broker or dealer are consistent with the foregoing standard. The Fund does not
reduce the management fee it pays to the Investment Manager by any amount of the
brokerage commissions it may pay to an affiliated broker or dealer. During the
period June 1, 1997 through October 31, 1997 and the year ended October 31,
1998, the Fund paid a total of $21,602 and $119,777, respectively, in brokerage
commissions to MS & Co., which broker-dealer became an affiliate of the
Investment Manager on May 31, 1997 upon consummation of the merger of Dean
Witter, Discover & Co. with Morgan Stanley Group Inc. During the fiscal year
ended October 31, 1998 the brokerage commissions paid to MS & Co. represented
approximately 2.63% of the total brokerage commissions paid by the Fund for this
period and were paid on account of transactions having an aggregate dollar value
equal to approximately 2.80% of the aggregate dollar value of all portfolio
transactions of the Fund during the period for which commissions were paid.
The Fund paid brokerage commission to affiliates of the Former Sub-Advisor,
Morgan Grenfell Investment Services Ltd., in the amount of $20,677 and
$23,934.50 for the fiscal years ended October 31, 1997 and 1998, respectively.
The Fund did not pay any brokerage commissions to affiliates of the Former
Sub-Advisor during the fiscal year ended October 31, 1996. During the fiscal
year ended
29
<PAGE>
October 31, 1998, the Fund paid affiliated broker-dealers of the Former
Sub-Advisor for transactions as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
BROKERAGE EXECUTED TRADES
COMMISSIONS PAID PERCENTAGE OF ON WHICH
TO AFFILIATED AGGREGATE BROKERAGE
BROKER OF FORMER BROKERAGE COMMISSIONS
SUB-ADVISOR COMMISSIONS FOR WERE PAID FOR
FOR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
NAME OF BROKER 10/31/98 10/31/98 10/31/98
- ---------------------------------------------------- ---------------------- ------------------- -------------------
<S> <C> <C> <C>
Deutsche Morgan Grenfell Securities................. $ 23,934.50 0.53% 0.66%
</TABLE>
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Morgan
Stanley Dean Witter Distributors Inc. (the "Distributor"). The Distributor has
entered into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into selected dealer agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDW. The
Directors of the Fund, including a majority of the Directors who are not, and
were not at the time they voted, interested persons of the Fund, as defined in
the Act (the "Independent Directors"), approved, at their meeting held on June
30, 1997, the current Distribution Agreement appointing the Distributor as
exclusive distributor of the Fund's shares and providing for the Distributor to
bear distribution expenses not borne by the Fund. By its terms, the Distribution
Agreement had an initial term ending April 30, 1998 and will remain in effect
from year to year thereafter if approved by the Board. At their meeting held on
April 30, 1998, the Directors of the Fund, including a majority of the
Independent Directors, approved the continuation of the Distribution Agreement
until April 30, 1999.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to Morgan Stanley Dean
Witter Financial Advisors and other selected broker-dealer representatives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal securities laws and pays filing fees in accordance with
state securities laws. The Fund and the Distributor have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Under the Distribution Agreement, the
Distributor uses its best efforts in rendering services to the Fund, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations, the Distributor is not liable to the Fund or any
of its shareholders for any error of judgment or mistake of law or for any act
or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived; or (b) the
30
<PAGE>
average daily net assets of Class B. The Distributor also receives the proceeds
of front-end sales charges and of contingent deferred sales charges imposed on
certain redemptions of shares, which are separate and apart from payments made
pursuant to the Plan (see "Purchase of Fund Shares" in the Prospectus).
The Distributor has informed the Fund that it and/or DWR received (a)
approximately $1,047,000, $1,853,492 and $2,146,084 in contingent deferred sales
charges from Class B for the fiscal years ended October 31, 1996, 1997 and 1998,
respectively, (b) approximately $0 and $0 in contingent deferred sales charges
from Class A for the fiscal years ended October 31, 1997 and 1998, respectively,
(c) approximately $440 and $9,527 in contingent deferred sales charges from
Class C for the fiscal years ended October 31, 1997 and 1998, respectively, and
(d) approximately $34,000 and $246,622 in front-end sales charges from Class A
for the fiscal years ended October 31, 1997 and 1998, respectively, none of
which was retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets are
currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by a Class, if any, is characterized as an "asset-based
sales charge" as defined in the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Directors, including
all of the Directors of the Fund who are not "interested persons" of the Fund
(as defined in the Act) and who have no direct or indirect financial interest in
the operation of the Plan (the "Independent 12b-1 Directors"), cast in person at
a meeting called for the purpose of voting on the Plan, on March 16, 1990 and by
MSDW Advisors, as sole stockholder of the Fund on March 28, 1990.
At their meeting held on October 30, 1992, the Directors of the Fund,
including all of the independent 12b-1 Directors, had approved certain
amendments to the Plan which took effect in January, 1993 and were designed to
reflect the facts that, upon an internal reorganization, the share distribution
activities theretofore performed for the Fund by DWR were assumed by the
Distributor and that DWR's sales activities are now being performed pursuant to
the terms of a selected dealer agreement between the Distributor rather than by
DWR as they had been before the amendment, and that the Distributor in turn is
authorized to make payments to DWR, its affiliates or other selected
broker-dealers (or direct that the Fund pay such entities directly). The
Distributor is also authorized to retain part of such fee as compensation for
its own distribution-related expenses. At their meeting held on April 28, 1993,
the Directors, including a majority of the independent 12b-1 Directors, had also
approved certain technical amendments to the Plan in connection with amendments
adopted by the National Association of Securities Dealers, Inc. to its Rules of
the Association. At their meeting held on October 26, 1995, the Directors of the
Fund, including all of the Independent 12b-1 Directors, approved an amendment to
the Plan to permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization. At their meeting held on June 30, 1997, the Directors,
including a majority of the Independent 12b-1 Directors, approved amendments to
the Plan to reflect the multiple-class structure for the Fund, which took effect
on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Directors receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan and
the purpose for which such expenditures were made. Class B shares of the Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended October 31, 1998 of $18,215,583. This amount is equal to 0.91% of the
average daily net assets of Class B for the fiscal year and was calculated
pursuant to clause (a) of the compensation formula under the Plan. For the
fiscal year ended October 31, 1998, Class A and Class C shares of the Fund
accrued
31
<PAGE>
payments under the Plan amounting to $18,999 and $110,728, respectively, which
amounts are equal to 0.25% and 1.00% of the average daily net assets of Class A
and Class C, respectively, for the fiscal year.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust")
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds, a gross
sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.25% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares purchased on or after July 28, 1997 by Qualified Retirement Plans
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its Financial Advisors by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.
With respect to Class D shares other than shares held by participants in the
MSDW Advisors mutual fund asset allocation program, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the Financial Advisors of record (not including accounts of
participants in the MSDW Advisors mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its Financial Advisors and DWR's Fund associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including: (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies; (b) the costs of client sales seminars; (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares; and (d) other
expenses relating to branch promotion of Fund share sales. The distribution fee
that the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred on behalf of the Fund and, in the case of Class B
shares, opportunity costs, such as the gross sales credit and an assumed
interest charge thereon ("carrying charge"). In the Distributor's reporting of
its distribution expenses to the Fund, in the case of
32
<PAGE>
Class B shares, such assumed interest (computed at the "broker's call rate") has
been calculated on the gross sales credit as it is reduced by amounts received
by the Distributor under the Plan and any contingent deferred sales charges
received by the Distributor upon redemption of shares of the Fund. No other
interest charge is included as a distribution expense in the Distributor's
calculation of its distribution costs for this purpose. The broker's call rate
is the interest rate charged to securities brokers on loans secured by
exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 1.0%, in the case of Class C, of the average net assets of the respective
Class during the month. No interest or other financing charges, if any, incurred
on any distribution expenses on behalf of Class A and Class C will be
reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to Morgan Stanley Dean Witter Financial Advisors and
other selected broker-dealer representatives, such amounts shall be determined
at the beginning of each calendar quarter by the Directors, including a majority
of the Independent 12b-1 Directors. Expenses representing the service fee (for
Class A) or a gross sales credit or a residual to Morgan Stanley Dean Witter
Financial Advisors and other selected broker-dealer representatives (for Class
C) may be reimbursed without prior determination. In the event that the
Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
reimbursed by the Fund, the Distributor will provide and the Directors will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Directors will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended October 31, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$111,400,606 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways; (i)
6.98% ($7,773,157) -- advertising and promotional expenses; (ii) 0.39%
($430,385) -- printing of prospectuses for distribution to other than current
shareholders; and (iii) 92.63% ($103,197,064) -- other expenses, including the
gross sales credit and the carrying charge, of which 7.70% ($7,951,016)
represents carrying charges, 37.75% ($38,955,634) represents commission credits
to DWR branch offices and other selected broker-dealers for payments of
commissions to Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives, and 54.55% ($56,290,414) represents overhead and
other branch office distribution-related expenses. The amounts accrued by Class
A and Class C for distribution during the fiscal year ended October 31, 1998
were for expenses which relate to compensation of sales personnel and associated
overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares such
excess amount, including the carrying charge designed to approximate the
opportunity costs incurred by DWR which arise from it having advanced monies
without having received the amount of any sales charges imposed at the time of
sale of the Fund's Class B shares, totalled $35,030,919 as of October 31, 1998.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses with respect to Class B shares or any
requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses in excess of payments made to the
Distributor under the Plan and the proceeds of contingent
33
<PAGE>
deferred sales charges paid by investors upon redemption of shares, if for any
reason the Plan is terminated, the Directors will consider at that time the
manner in which to treat such expenses. Any cumulative expenses incurred, but
not yet recovered through future distribution fees or contingent deferred sales
charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
No interested person of the Fund, nor any Director of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor, MSDW Advisors, MSDW Services, DWR or certain of its employees may
be deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1990, and
provided that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Directors in the manner
described above. The most recent continuance of the Plan for one year, until
April 30, 1999, was approved by the Directors of the Fund, including a majority
of the Independent 12b-1 Directors, at a meeting of the Directors held on April
30, 1998. Prior to approving the continuation of the Plan, the Directors
requested and received from the Distributor and reviewed all information which
they deemed necessary to arrive at an informed determination. In making their
determination to continue the Plan, the Directors considered: (1) the Fund's
experience under the Plan and whether such experience indicates that the Plan is
operating as anticipated; (2) the benefits the Fund had obtained, was obtaining
and would be likely to obtain under the Plan; and (3) what services had been
provided and were continuing to be provided under the Plan to the Fund and its
shareholders. Based upon their review, the Directors of the Fund, including each
of the Independent 12b-1 Directors, determined that continuation of the Plan
would be in the best interest of the Fund and would have a reasonable likelihood
of continuing to benefit the Fund and its shareholders. In the Directors'
quarterly review of the Plan, they will consider its continued appropriateness
and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Directors in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent Directors shall be
committed to the discretion of the Independent 12b-1 Directors.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time) on each day that
the New York Stock Exchange is open. The New York Stock Exchange currently
observes the following holidays: New Year's Day, Reverend Dr. Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Directors
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their fair value as determined by the Directors.
Other short-term debt securities will be valued on a mark-to-market basis until
such time as they reach a remaining maturity of 60 days, whereupon they will be
valued at amortized cost using their value on the 61st day unless the Directors
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their fair value as determined by the Directors.
Options are valued at the mean between their latest bid and asked prices.
Futures are valued at the last sale price as of the close of the commodities
exchange on which they trade unless the Directors determine that such price does
not
34
<PAGE>
reflect their market value, in which case they will be valued at their fair
value as determined by the Directors. All other securities and other assets are
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Directors.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which may affect the values of such securities
and such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange, and will therefore not be
reflected in the computation of the Fund's net asset value. If events that may
affect the value of such securities occur during such period, then these
securities may be valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Directors.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares
of other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including a front-end sales charge having a current value
of $5,000, and purchases $20,000 of additional shares of the Fund, the sales
charge applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Morgan Stanley Dean Witter Trust FSB (the
"Transfer Agent") fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the
35
<PAGE>
purchases made during this period and sales charges actually paid. Such payment
may be made directly to the Distributor or, if not paid, the Distributor is
authorized by the shareholder to liquidate a sufficient number of his or her
escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Morgan Stanley Dean
Witter Funds held by the shareholder which were previously purchased at a price
including a front-end sales charge (including shares of the Fund and other
Morgan Stanley Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions) will be added to the cost or net asset value of shares of the
Fund owned by the investor. However, shares of "Exchange Funds" (see
"Shareholder Services--Exchange Privilege") and the purchase of shares of other
Morgan Stanley Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another Morgan Stanley Dean Witter Fund (see
"Shareholder Services-- Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Morgan Stanley Dean
Witter front-end sales charge funds, or (ii) shares of other Morgan Stanley Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding six (three)
years. The CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Morgan Stanley Dean Witter front-end sales
charge funds, or for shares of other Morgan Stanley Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged. A portion of the
amount redeemed which exceeds an amount which represents both such increase in
36
<PAGE>
value and the value of shares purchased more than six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years) prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in the above-described exchanges will be
subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PERCENTAGE
PURCHASE OF AMOUNT
PAYMENT MADE REDEEMED
- ---------------------------------------- ------------
<S> <C>
First................................... 5.0%
Second.................................. 4.0%
Third................................... 3.0%
Fourth.................................. 2.0%
Fifth................................... 2.0%
Sixth................................... 1.0%
Seventh and thereafter.................. None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PERCENTAGE
PURCHASE OF AMOUNT
PAYMENT MADE REDEEMED
- ---------------------------------------- ------------
<S> <C>
First................................... 2.0%
Second.................................. 2.0%
Third................................... 1.0%
Fourth and thereafter................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
37
<PAGE>
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a share certificate. If a
share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be redeposited
in the account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a shareholder instituted transaction takes place in the
Shareholder Investment Account, the shareholder will be mailed a confirmation of
the transaction from the Fund or from DWR or other selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or other selected
broker-dealer, and will be forwarded to the shareholder, upon the receipt of
proper instructions. It has been and remains the Fund's policy and practice
that, if checks for dividends or distributions paid in cash remain uncashed, no
interest will accrue on amounts represented by such uncashed checks.
TARGETED DIVIDENDS-SM-. In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Morgan Stanley Dean
Witter Fund other than Morgan Stanley Dean Witter European Growth Fund Inc. or
in another Class of Morgan Stanley Dean Witter European Growth Fund Inc. Such
investment will be made as described above for automatic investment in shares of
the applicable Class of the Fund, at the net asset value per share of the
selected Morgan Stanley Dean Witter Fund as of the close of business on the
payment date of the dividend or distribution and will begin to earn dividends,
if any, in the selected Morgan Stanley Dean Witter Fund the next business day.
To participate in the Targeted Dividends program, shareholders should contact
their Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or the Transfer Agent. Shareholders of the Fund
must be shareholders of the selected Class of the Morgan Stanley Dean Witter
Fund targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Morgan Stanley Dean Witter Fund before entering the program.
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable sales
charges). Shares of the Morgan Stanley Dean Witter money market funds redeemed
in connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their Morgan Stanley Dean Witter Financial Advisor
or other selected broker-dealer representative or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such
38
<PAGE>
dividend or distribution in shares of the applicable Class at the net asset
value next determined after receipt by the Transfer Agent, without the
imposition of a CDSC upon redemption, by returning the check or the proceeds to
the Transfer Agent within 30 days after the payment date. If the shareholder
returns the proceeds of a dividend or distribution, such funds must be
accompanied by a signed statement indicating that the proceeds constitute a
dividend or distribution to be invested. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds by
the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders whose
shares of Morgan Stanley Dean Witter Funds have an aggregate value of $10,000 or
more. Shares of any Fund from which redemptions will be made pursuant to the
Plan must have a value of $1,000 or more (referred to as a "SWP Fund"). The
required share values are determined on the date the shareholder establishes the
Withdrawal Plan. The Withdrawal Plan provides for monthly, quarterly,
semi-annual or annual payments in any amount not less than $25, or in any whole
percentage of the value of the SWP Funds' shares, on an annualized basis. Any
applicable Contingent Deferred Sales Charge ("CDSC") will be imposed on shares
redeemed under the Withdrawal Plan (see "Purchase of Fund Shares"), except that
the CDSC, if any, will be waived on redemptions under the Withdrawal Plan of up
to 12% annually of the value of each SWP Fund account, based on the share values
next determined after the shareholder establishes the Withdrawal Plan.
Redemptions for which this CDSC waiver policy applies may be in amounts up to 1%
per month, 3% per quarter, 6% semi-annually or 12% annually. Under this CDSC
waiver policy, amounts withdrawn each period will be paid by first redeeming
shares not subject to a CDSC because the shares were purchased by the
reinvestment of dividends or capital gains distributions, the CDSC period has
elapsed or some other waiver of the CDSC applies. If shares subject to a CDSC
must be redeemed, shares held for the longest period of time will be redeemed
first and continuing with shares held the next longest period of time until
shares held the shortest period of time are redeemed. Any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly, quarterly, semi-annual or annual
amount.
A shareholder may suspend or terminate participation in the Withdrawal Plan
at any time. A shareholder who has suspended participation may resume payments
under the Withdrawal Plan, without requiring a new determination of the account
value for the 12% CDSC waiver. The Withdrawal Plan may be terminated or revised
at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan, the
required $10,000/$1,000 share values must be met, to be calculated on the date
the shareholder adds the additional SWP Fund. However, the addition of a new SWP
Fund will not change the account value for the 12% CDSC waiver for the SWP Funds
already participating in the Withdrawal Plan.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month, quarter, or semi-annual or annual period and normally a check
for the proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's Dean Witter Reynolds Inc. or other selected broker-dealer
brokerage account, or amounts deposited electronically into the shareholder's
bank account via the Automated Clearing House, within five business days after
the date of redemption.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes. Although a shareholder may make additional
investments while participating in the Withdrawal Plan, withdrawals made
concurrently with purchases of additional shares are
39
<PAGE>
inadvisable because of sales charges applicable to purchases or redemptions of
shares (see "Purchase of Fund Shares" in the Prospectus).
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
Shareholder Investment Account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Morgan Stanley Dean Witter European Growth Fund Inc., and
indicating the selected Class, directly to the Fund's Transfer Agent. In the
case of Class A shares, after deduction of any applicable sales charge, the
balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount will be applied to the purchase
of Fund shares, at the net asset value per share next computed after receipt of
the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
Morgan Stanley Dean Witter Multi-Class Fund without the imposition of any
exchange fee. Shares may also be exchanged for shares of any of the following
funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley
Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter Short-Term
Bond Fund, and five Morgan Stanley Dean Witter Funds which are money market
funds (the foregoing eight funds are referred to hereinafter as "Exchange
Funds"). Class A shares may also be exchanged for shares of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust, which are Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years
40
<PAGE>
from the time of purchase until the time of redemption or exchange ("holding
period"). When shares of a Morgan Stanley Dean Witter Multi-Class Fund are
exchanged for shares of an Exchange Fund, the exchange is executed at no charge
to the shareholder without the imposition of the CDSC at the time of the
exchange. During the period of time the shareholder remains in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired), the holding period or "year since purchase payment made" is
frozen. When shares are redeemed out of the Exchange Fund, they will be subject
to a CDSC which would be based upon the period of time the shareholder held
shares in a Morgan Stanley Dean Witter Multi-Class Fund. However, in the case of
shares exchanged for shares of an Exchange Fund on or after April 23, 1990, upon
a redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees incurred on or after that date which are
attributable to those shares. Shareholders acquiring shares of the Exchange Fund
pursuant to this exchange privilege may exchange those shares back into a Morgan
Stanley Dean Witter Multi-Class Fund from the Exchange Fund, with no CDSC being
imposed on such exchange. The investment period previously frozen when shares
were first exchanged for shares of the Exchange Fund resumes on the last day of
the month in which shares of a Morgan Stanley Dean Witter Multi-Class Fund are
reacquired. A CDSC is imposed only upon an ultimate redemption, based upon the
time (calculated as described above) the shareholder was invested in a Morgan
Stanley Dean Witter Multi-Class Fund. In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter Multi-Class
Fund are exchanged for shares of a Morgan Stanley Dean Witter Multi-Class Fund,
shares of a FSC Fund, or for shares of an Exchange Fund, the date of purchase of
the shares of the fund exchanged into, for purposes of the CDSC upon redemption,
will be the last day of the month in which the shares being exchanged were
originally purchased. In allocating the purchase payments between funds for
purposes of the CDSC, the amount which represents the current net asset value of
shares at the time of the exchange which were (i) purchased more than one, three
or six years (depending on the CDSC schedule applicable to the shares) prior to
the exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of FSC Funds, or for
shares of other Dean Witter Funds for which shares of FSC Funds have been
exchanged (all such shares called "Free Shares"), will be exchanged first.
Shares of Morgan Stanley Dean Witter Strategist Fund acquired prior to November
8, 1989, shares of Morgan Stanley Dean Witter American Value Fund acquired prior
to April 30, 1984, and shares of Morgan Stanley Dean Witter Dividend Growth
Securities Inc. and Morgan Stanley Dean Witter Natural Resource Development
Securities Inc. acquired prior to July 2, 1984, will be the first Free Shares to
be exchanged. After an exchange, all dividends earned on shares in an Exchange
Fund will be considered Free Shares. If the exchanged amount exceeds the value
of such Free Shares, an exchange is made, on a block-by-block basis, of non-Free
Shares held for the longest period of time (except that, with respect to Class B
shares, if shares held for identical periods of time but subject to different
CDSC schedules are held in the same Exchange Privilege account, the shares of
that block that are subject to a lower CDSC rate will be exchanged prior to the
shares of that block that are subject to a higher CDSC rate). Shares equal to
any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares of
the fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro-rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"Purchase
41
<PAGE>
of Fund Shares," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Liquid Asset Fund Inc., Morgan Stanley Dean Witter New York Municipal
Money Market Trust, Morgan Stanley Dean Witter Tax-Free Daily Income Trust and
Morgan Stanley Dean Witter California Tax-Free Daily Income Trust although those
funds may, at their discretion, accept initial investments of as low as $1,000.
The minimum initial investment for the Exchange Privilege account of each Class
is $10,000 for Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust,
although that fund, in its discretion, may accept initial purchases of as low as
$5,000. The minimum investment for the Exchange Privilege account of each Class
is $5,000 for Morgan Stanley Dean Witter Special Value Fund. The minimum initial
investment for the Exchange Privilege account of each Class for all other Morgan
Stanley Dean Witter Funds for which the Exchange Privilege is available is
$1,000.) Upon exchange into an Exchange Fund, the shares of that fund will be
held in a special Exchange Privilege Account separately from accounts of those
shareholders who have acquired their shares directly from that fund. As a
result, certain services normally available to shareholders of money market
funds, including the check writing feature, will not be available for funds held
in that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by any investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of the Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies (presently sixty
days for termination or material revision), provided that six months' prior
written notice of termination will be given to the shareholders who hold shares
of Exchange Funds, pursuant to the Exchange Privilege, and provided further that
the Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(s), policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.
42
<PAGE>
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent to
the Fund's Transfer Agent, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares") after it receives the request, and
certificate, if any, in good order. Any redemption request received after such
computation will be redeemed at the next determined net asset value. The term
"good order" means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by the
Transfer Agent, and bear signature guarantees when required by the Fund or the
Transfer Agent. If redemption is requested by a corporation, partnership, trust
or fiduciary, the Transfer Agent may require that written evidence of authority
acceptable to the Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a supplement
to the prospectus or a new prospectus.
REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. Such payment may be postponed
or the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified or bank cashier's
check), payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
It has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. Shareholders maintaining margin accounts
with DWR or another selected broker-dealer are referred to their Morgan Stanley
Dean Witter Financial Advisor or other selected broker-dealer
43
<PAGE>
representative regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within 35 days after the date of
redemption or repurchase reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes,
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
Gains or losses on the Fund's transactions, if any, in futures and
non-equity options generally are treated as 60% long-term and 40% short-term
capital gains or losses. When the Fund engages in futures transactions, various
tax regulations applicable to the Fund may have the effect of causing the Fund
to recognize a gain or loss for tax purposes before that gain or loss is
realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for tax purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized net gains being available for distribution.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be generally short-term gains or losses.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. The Taxpayer Relief Act reduces the maximum tax
rate on long-term capital gains from 28% to 20%. The lower rates do not apply to
collectibles and certain other assets. Additionally, the maximum capital gain
rate for assets that are held more than five years and that are acquired after
December 31, 2000 is 18%.
The Fund intends to remain qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). As such, the
Fund will not be subject to federal income tax on its net investment income and
capital gains, if any, realized during any fiscal year in which it distributes
such income and capital gains to its shareholders. In addition, the Fund intends
to distribute to its shareholders each calendar year a sufficient amount of
ordinary income and capital gains to avoid
44
<PAGE>
the imposition of a 4% excise tax. Shareholders will normally have to pay
federal income taxes, and any state and/or local income taxes, on the dividends
and distributions they receive from the Fund. Such dividends and distributions,
to the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in cash.
Any dividends declared in the last quarter of any calendar year which are paid
in the following year prior to February 1 will be deemed received by the
shareholder in the prior year.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the
six-month period.
Dividends, interest and capital gains received by the Fund may give rise to
withhholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits with
respect to such taxes, subject to certain provisions and limitations contained
in the Code. If more than 50% of the Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, the Fund would be
eligible and would determine whether or not to file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their respective pro rata portions of such withholding taxes
in their United States income tax returns as gross income, treat such respective
pro rata portions as taxes paid by them, and deduct such respective pro rata
portions in computing their taxable income or, alternatively, use them as
foreign tax credits against their United States income taxes. If the Fund does
elect to file the election with the Internal Revenue Service, the Fund will
report annually to its shareholders the amount per share of such withholding.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions.
45
<PAGE>
The Fund may be subject to taxes in foreign countries in which it invests.
In addition, if the Fund were deemed to be a resident of the United Kingdom for
United Kingdom tax purposes or if the Fund were treated as being engaged in a
trading activity through an agent in the United Kingdom, there is a risk that
the United Kingdom would attempt to tax all or a portion of the Fund's gains or
income. In light of the structure of the Fund and the terms and conditions of
the Investment Management and Sub-Advisory Agreements, it is believed that any
such risk is minimal.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The
Taxpayer Relief Act of 1997 establishes a mark-to-market regime which allows
taxpayers investing in PFIC's to avoid most, if not all of the difficulties
posed by the PFIC rules. In any event, it is not anticipated that any taxes on
the Fund with respect to investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The Fund's
"average annual total return" represents an annualization of the Fund's total
return over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any CDSC at the
end of the one, five or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment (which in the case of Class A shares is reduced by the Class A
initial sales charge), taking a root of the quotient (where the root is
equivalent to the number of years in the period) and subtracting 1 from the
result. The average annual total returns of Class B for the fiscal year ended
October 31, 1998, for the five year period ended October 31, 1998 and for the
period June 1, 1990 (commencement of operations) through October 31, 1998 were
10.67%, 17.72% and 13.44%, respectively. The average annual total returns of
Class A for the fiscal year ended October 31, 1998 and for the period July 28,
1997 (inception of the Class) through October 31, 1998 were 10.38% and 7.33%,
respectively. The average annual total returns of Class C for the fiscal year
ended October 31, 1998 and for the period July 28, 1997 (inception of the Class)
through October 31, 1998 were 14.57% and 11.17%, respectively. The average
annual total returns of Class D for the fiscal year ended October 31, 1998 and
for the period July 28, 1997 (inception of the Class) through October 31, 1998
were 18.12% and 13.31%, respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average annual
total return of the Fund may be calculated in the manner described above, but
without deduction for any applicable sales charge. Based on this calculation,
the average annual total returns of Class B for the fiscal year ended October
31, 1998, for the five year period ended October 31, 1998 and for the period
June 1, 1990 through October 31, 1998 were 15.67%, 17.93% and 13.44%,
respectively. Based on this calculation, the average annual total returns of
Class A for the fiscal year ended October 31, 1998 and for the period July 28,
1997 through October 31, 1998 were 16.50% and 12.02%, respectively, the average
annual total returns of Class C for the fiscal year ended October 31, 1998 and
for the period July 28, 1997 through October 31, 1998 were 15.57%
46
<PAGE>
and 11.17%, respectively, and the average annual total returns of Class D for
the fiscal year ended October 31, 1998 and for the period July 28, 1997 through
October 31, 1998 were 18.12% and 13.31%, respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns for Class B for the fiscal year ending October
31, 1998, for the five year period ended October 31, 1998 and for the period
June 1, 1990 through October 31, 1998 were 15.67%, 128.10% and 188.91%,
respectively. Based on the foregoing calculations, the total returns for Class A
for the fiscal year ended October 31, 1998 and for the period July 28, 1997
through October 31, 1998 were 16.50% and 15.37%, respectively, the total returns
of Class C for the fiscal year ended October 31, 1998 and for the period July
28, 1997 through October 31, 1998 were 15.57% and 14.27%, respectively, and the
total returns of Class D for the fiscal year ended October 31, 1998 and for the
period July 28, 1997 through October 31, 1998 were 18.12% and 17.04%,
respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at October 31,
1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------------
CLASS DATE $10,000 $50,000 $100,000
- ------------------------ ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Class A................. 7/28/97 $ 10,931 $ 55,378 $ 111,909
Class B................. 6/1/90 28,891 144,455 288,910
Class C................. 7/28/97 11,427 57,135 114,270
Class D................. 7/28/97 11,704 58,520 117,040
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
The Fund is authorized to issue 2,000,000,000 shares of common stock of
$0.01 par value. Shares of the Fund, when issued, are fully paid,
non-assessable, fully transferable and redeemable at the option of the holder.
All shares are equal as to earnings, assets and voting privileges. There are no
conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses have been paid. Except
for agreements entered into by the Fund in its ordinary course of business
within the limitations of the Fund's fundamental investment policies (which may
be modified only by shareholder vote), the Fund will not issue any securities
other than common stock.
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and in such
event, the holders of the remaining less than 50% of the shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors.
The Fund's By-Laws provide that one or more of the Fund's Directors may be
removed, either with or without cause, at any time by the affirmative vote of
the Fund's shareholders holding a majority of the outstanding shares entitled to
vote for the election of Directors. A special meeting of the shareholders of
47
<PAGE>
the Fund will be called by the Fund's Secretary upon the written request of
shareholders entitled to vote at least 25% of the Fund's outstanding shares.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets in the United States and around the world. As
Custodian, The Chase Manhattan Bank has contracted with various foreign banks
and depositaries to hold portfolio securities of non-U.S. issuers on behalf of
the Fund. Any of the Fund's cash balances with the Custodian in excess of
$100,000 are unprotected by federal deposit insurance. Such balances may, at
times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans described herein. MSDW Trust is an affiliate of Morgan Stanley Dean Witter
Advisors Inc., the Fund's Investment Manager and Morgan Stanley Dean Witter
Distributors Inc., the Fund's Distributor. As Transfer Agent and Dividend
Disbursing Agent, MSDW Trust's responsibilities include maintaining shareholder
accounts, disbursing cash dividends and reinvesting dividends, processing
account registration changes, handling purchase and redemption transactions,
mailing prospectuses and reports, mailing and tabulating proxies, processing
share certificate transactions, and maintaining shareholder records and lists.
For these services MSDW Trust receives a per shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP serves as the independent accountants of the
Fund. The independent accountants are responsible for auditing the annual
financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on October 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Directors.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the fiscal year ended October 31,
1998 included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of PricewaterhouseCoopers LLP independent accountants, given on
the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
48
<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
49
<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
50
<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
51
<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
52
<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
53
<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
54
<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
55
<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
56
<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
57
<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
58
<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
59
<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
60
<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
61
<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.
62
<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.
63
<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.
64
<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
65
<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
66
<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
67
<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.
68
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A):
<TABLE>
<CAPTION>
Page in
Prospectus
<S> <C> <C>
Financial highlights for the period May 31, 1990 (commencement
of operations) through October 31, 1990 and for the years ended
October 31, 1991, 1992, 1993, 1994, 1995, 1996, 1997 and 1998 (Class B)............. 6
Financial Highlights for the period July 28, 1997 through October
31, 1997 and for the year ended October 31, 1998 (Class A, C and D)................. 7
(2) Financial statements included in the Statement
of Additional Information (Part B):
Page in
SAI
Portfolio of Investments at October 31, 1998........................................ 49
Statement of Assets and Liabilities at October 31, 1998............................. 54
Statement of Operations for the year ended October 31, 1998......................... 55
Statement of Changes in Net Assets for the years ended
October 31, 1997 and 1998........................................................... 56
Notes to Financial Statements at October 31,1998.................................... 57
Financial highlights for the period May 31, 1990 (commencement
of operations) through October 31, 1990 and for the years ended
October 31, 1991, 1992, 1993, 1994, 1995, 1996, 1997 and 1998 (Class B)............. 65
Financial Highlights for the period July 28, 1997 through October
31, 1997 and for the year ended October 31, 1998 (Class A, C and D)................. 66
(3) Financial statements included in Part C:
None
</TABLE>
1
<PAGE>
(b) EXHIBITS
5(a) Amended Investment Management Agreement between the Registrant
and Morgan Stanley Dean Witter Advisors Inc.
5(b) Sub-Advisory Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Investment
Management Inc.
6. Form of Selected Dealer Agreement.
11. Consent of Independent Accountants.
16. Schedules for Computation of Performance Quotations.
27. Financial Data Schedules.
- --------------------------------------------------------------------------------
All other exhibits were previously filed via EDGAR and are hereby
incorporated by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
(1) (2)
Number of Record Holders
Title of Class at October 31, 1998
-------------- ------------------------
<S> <C>
Class A 1,310
Class B 174,710
Class C 2,949
Class D 122
</TABLE>
Item 27. INDEMNIFICATION
Reference is made to Section 3.15 of the Registrant's By-Laws and Section
2-418 of the Maryland General Corporation Law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in connection with
the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the shares being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling
2
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act,
and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company
Act of 1940, so long as the interpretation of Sections 17(h) and 17(i) of
such Act remains in effect.
Registrant, in conjunction with the Investment Manager,
Registrant's Directors, and other registered investment management companies
managed by the Investment Manager, maintains insurance on behalf of any
person who is or was a Director, officer, employee, or agent of Registrant,
or who is or was serving at the request of Registrant as a trustee, director,
officer, employee or agent of another trust or corporation, against any
liability asserted against him and incurred by him or arising out of his
position. However, in no event will Registrant maintain insurance to
indemnify any such person for any act for which Registrant itself is not
permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment advisor. The following information is given
regarding officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors"). MSDW Advisors is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co. The principal address of the Morgan Stanley Dean Witter
Funds is Two World Trade Center, New York, New York 10048.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) Dean Witter Government Income Trust
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) InterCapital California Insured Municipal Income Trust
(6) InterCapital California Quality Municipal Securities
(7) InterCapital Income Securities Inc.
(8) InterCapital Insured California Municipal Securities
(9) InterCapital Insured Municipal Bond Trust
(10) InterCapital Insured Municipal Income Trust
(11) InterCapital Insured Municipal Securities
(12) InterCapital Insured Municipal Trust
(13) InterCapital New York Quality Municipal Securities
(14) InterCapital Quality Municipal Income Trust
(15) InterCapital Quality Municipal Investment Trust
(16) InterCapital Quality Municipal Securities
(17) Municipal Income Opportunities Trust
(18) Municipal Income Opportunities Trust II
(19) Municipal Income Opportunities Trust III
(20) Municipal Income Trust
3
<PAGE>
(21) Municipal Income Trust II
(22) Municipal Income Trust III
(23) Municipal Premium Income Trust
(24) Morgan Stanley Dean Witter Prime Income Trust
OPEN-END INVESTMENT COMPANIES
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter American Value Fund
(6) Morgan Stanley Dean Witter Balanced Growth Fund
(7) Morgan Stanley Dean Witter Balanced Income Fund
(8) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(9) Morgan Stanley Dean Witter California Tax-Free Income Fund
(10) Morgan Stanley Dean Witter Capital Appreciation Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(24) Morgan Stanley Dean Witter Global Utilities Fund
(25) Morgan Stanley Dean Witter Growth Fund
(26) Morgan Stanley Dean Witter Hawaii Municipal Trust
(27) Morgan Stanley Dean Witter Health Sciences Trust
(28) Morgan Stanley Dean Witter High Yield Securities Inc.
(29) Morgan Stanley Dean Witter Income Builder Fund
(30) Morgan Stanley Dean Witter Information Fund
(31) Morgan Stanley Dean Witter Intermediate Income Securities
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Limited Term Municipal Trust
(35) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(36) Morgan Stanley Dean Witter Market Leader Trust
(37) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(38) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(39) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(40) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(41) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(42) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(43) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
4
<PAGE>
(44) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(45) Morgan Stanley Dean Witter S&P 500 Index Fund
(46) Morgan Stanley Dean Witter S&P 500 Select Fund
(47) Morgan Stanley Dean Witter Select Dimensions Investment Series
(48) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(49) Morgan Stanley Dean Witter Short-Term Bond Fund
(50) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(51) Morgan Stanley Dean Witter Special Value Fund
(52) Morgan Stanley Dean Witter Strategist Fund
(53) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(54) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(55) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(56) Morgan Stanley Dean Witter U.S. Government Securities Trust
(57) Morgan Stanley Dean Witter Utilities Fund
(58) Morgan Stanley Dean Witter Value-Added Market Series
(59) Morgan Stanley Dean Witter Value Fund
(60) Morgan Stanley Dean Witter Variable Investment Series
(61) Morgan Stanley Dean Witter World Wide Income Trust
The term "TCW/DW Funds" refers to the following registered investment
companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
Mitchell M. Merin Chairman and Director of Morgan Stanley Dean Witter
President, Chief Distributors Inc. ("MSDW Distributors") and Morgan
Executive Officer and Stanley Dean Witter Trust FSB ("MSDW Trust"); President,
Director Chief Executive Officer and Director of Morgan Stanley
Dean Witter Services Company Inc. ("MSDW Services");
Executive Vice President and Director of Dean Witter
Reynolds Inc. ("DWR"); Director of various Morgan Stanley
Dean Witter & Co. ("MSDW") subsidiaries.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
Thomas C. Schneider Executive Vice President and Chief Strategic and
Executive Vice Administrative Officer of MSDW; Executive Vice
President and Chief President and Chief Financial Officer of MSDW Services;
Financial Officer Director of DWR and MSDW.
Robert M. Scanlan President, Chief Operating Officer and Director of MSDW
President, Chief Services, Executive Vice President of MSDW Distributors;
Operating Officer Executive Vice President and Director of MSDW Trust;
and Director Vice President of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds
Executive Vice President and Director of MSDW Trust.
and Chief Investment
Officer
Ronald E. Robison Executive Vice President and Chief Administrative Officer
Executive Vice President of MSDW Services; Vice President of the Morgan Stanley
and Chief Administrative Dean Witter Funds.
Officer
Edward C. Oelsner, III
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary
Counsel and Director and Assistant General Counsel of MSDW Distributors;
Vice President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds.
Rajesh Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ronald J. Worobel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial Officer of the
Treasurer Morgan Stanley Dean Witter Funds and the TCW/DW
Funds.
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds.
Salvatore DeSteno Vice President of MSDW Services.
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of the Morgan Stanley
and Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Frank Bruttomesso Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean
Assistant Secretary Witter Funds and the TCW/DW Funds.
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Philip Casparius
Vice President
David Dineen
Vice President
Bruce Dunn
Vice President
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
Michael Durbin
Vice President
Sheila Finnerty
Vice President
Jeffrey D. Geffen
Vice President
Michael Geringer
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Sandra Grossman
Vice President
Peter W. Gurman
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
Kevin Jung
Vice President
Carol Espejo Kane
Vice President
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean
Assistant Secretary Witter Funds and the TCW/DW Funds.
Teresa McRoberts
Vice President
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Richard Norris
Vice President
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
George Paoletti
Vice President
Anne Pickrell Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Michael Roan
Vice President
John Roscoe
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Ruth Rossi Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley
Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Robert Vanden Assem
Vice President
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------
<S> <C>
James P. Wallin
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter American Value Fund
(6) Morgan Stanley Dean Witter Balanced Growth Fund
(7) Morgan Stanley Dean Witter Balanced Income Fund
(8) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(9) Morgan Stanley Dean Witter California Tax-Free Income Fund
(10) Morgan Stanley Dean Witter Capital Appreciation Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(24) Morgan Stanley Dean Witter Global Utilities Fund
(25) Morgan Stanley Dean Witter Growth Fund
(26) Morgan Stanley Dean Witter Hawaii Municipal Trust
(27) Morgan Stanley Dean Witter Health Sciences Trust
(28) Morgan Stanley Dean Witter High Yield Securities Inc.
(29) Morgan Stanley Dean Witter Income Builder Fund
(30) Morgan Stanley Dean Witter Information Fund
13
<PAGE>
(31) Morgan Stanley Dean Witter Intermediate Income Securities
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Limited Term Municipal Trust
(35) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(36) Morgan Stanley Dean Witter Market Leader Trust
(37) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(38) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(39) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(40) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(41) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(42) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(43) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(44) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(45) Morgan Stanley Dean Witter Prime Income Trust
(46) Morgan Stanley Dean Witter S&P 500 Index Fund
(47) Morgan Stanley Dean Witter S&P 500 Select Fund
(48) Morgan Stanley Dean Witter Short-Term Bond Fund
(49) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(50) Morgan Stanley Dean Witter Special Value Fund
(51) Morgan Stanley Dean Witter Strategist Fund
(52) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(53) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(54) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(55) Morgan Stanley Dean Witter U.S. Government Securities Trust
(56) Morgan Stanley Dean Witter Utilities Fund
(57) Morgan Stanley Dean Witter Value-Added Market Series
(58) Morgan Stanley Dean Witter Value Fund
(59) Morgan Stanley Dean Witter Variable Investment Series
(60) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 28 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Christine Edwards Executive Vice President, Secretary, Director and Chief
Legal Officer.
14
<PAGE>
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.
Philip J. Purcell Director
John Schaeffer Director
Charles Vidala Senior Vice President and Financial Principal
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are maintained by the Investment Manager at its offices, except records
relating to holders of shares issued by the Registrant, which are maintained
by the Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 1st day of December, 1998.
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
By /s/ Barry Fink
---------------------------
Barry Fink
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 11 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Director and Chairman
By /s/ Charles A. Fiumefreddo 12/1/98
-----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia
- --------------------------------- 12/1/98
Thomas F. Caloia
(3) Majority of the Directors
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 12/1/98
-----------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Wayne E. Hedien
By /s/ Stuart M. Strauss 12/1/98
-----------------------------
Stuart M. Strauss
Attorney-in-Fact
<PAGE>
MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC.
EXHIBIT INDEX
5(a) Amended Investment Management Agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
5(b) Sub-Advisory Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Investment
Management Inc.
6. Form of Selected Dealer Agreement.
11. Consent of Independent Accountants.
16. Schedules for Computations of Performance Quotations.
27. Financial Data Schedules.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of April 30,
1998 and December 1, 1998, by and between Morgan Stanley Dean Witter European
Growth Fund Inc., a Maryland corporation (hereinafter called the "Fund"), and
Morgan Stanley Dean Witter Advisors Inc., a Delaware corporation (hereinafter
called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Directors, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously
supervise the management of the assets of the Fund in a manner consistent with
the investment objectives and policies of the Fund and subject to such other
limitations and directions as the Directors of the Fund may from time to time
prescribe; and shall take such further action as the Investment Manager shall
deem necessary or appropriate. The Investment Manager shall also furnish to or
place at the disposal of the Fund such of the information, evaluations, analyses
and opinions formulated or obtained by the Investment Manager in the discharge
of its duties as the Fund may, from time to time, reasonably request.
2. The Investment Manager shall, at its own expense, enter into a
Sub-Advisory Agreement with a Sub-Advisor to make determinations as to the
securities and commodities to be purchased, sold or otherwise disposed of by the
Fund and the timing of such purchases, sales and dispositions and to take such
further action, including the placing of purchase and sale orders on behalf of
the Fund, as the Sub-Advisor, in consultation with the Investment Manager, shall
deem necessary or appropriate; provided that the Investment Manager shall be
responsible for monitoring compliance by such Sub-Advisor with the investment
policies and restrictions of the Fund and with such other limitations or
directions as the Directors of the Fund may from time to time prescribe.
3. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Investment
Manager shall be deemed to include persons employed or otherwise retained by
the Investment Manager to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical
and scientific developments, and such other information, advice and
assistance as the Investment Manager may desire. The Investment Manager
shall, as agent for the Fund, maintain the Fund's records and books of
account (other than those maintained by the Fund's transfer agent, registrar,
custodian and other agencies). All such books and records so maintained shall
be the property of the Fund and, upon request therefor, the Investment
Manager shall surrender to the Fund such of the books and records so
requested.
<PAGE>
4. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund who are also directors, officers or employees of
the Investment Manager, and provide such office space, facilities and equipment
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also bear
the cost of telephone service, heat, light, power and other utilities provided
to the Fund.
6. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities or commodities and other property, and any stock
transfer or dividend agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio transactions to which the
Fund is a party; all taxes, including securities or commodities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the cost and expense of printing (including typesetting) and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Directors or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto); and all other charges and costs of the
Fund's operation unless otherwise explicitly provided herein.
7. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the Investment
Manager monthly compensation determined by applying the following annual rates
to the Fund's daily net assets: 0.95% of daily net assets up to $500 million;
0.90% of the next $1.5 billion; and 0.85% of daily net assets over $2 billion.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. Such calculations shall be made by applying 1/365ths of the annual
rates to the Fund's net assets each day determined as of the close of business
on that day or the last previous business day. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above.
Subject to the provisions of paragraph 8 hereof, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 8
hereof.
8. In the event the operating expenses of the Fund, including amounts
payable to the Investment Manager pursuant to paragraph 7 hereof, for any fiscal
year ending on a date on which this Agreement is in
2
<PAGE>
effect, exceed the expense limitations applicable to the Fund imposed by
state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, the Investment Manager shall reduce its
management fee to the extent of such excess and, if required, pursuant to any
such laws or regulations, will reimburse the Fund for annual operating
expenses in excess of any expense limitation that may be applicable;
provided, however, there shall be excluded from such expenses the amount of
any interest, taxes, brokerage commissions, distribution fees and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto)
paid or payable by the Fund. Such reduction, if any, shall be computed and
accrued daily, shall be settled on a monthly basis, and shall be based upon
the expense limitation applicable to the Fund as at the end of the last
business day of the month. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Investment Manager's
fee shall be applicable.
For purposes of this provision, should any applicable expense limitation be
based upon the gross income of the Fund, such gross income shall include, but
not be limited to, interest on debt securities in the Fund's portfolio accrued
to and including the last day of the Fund's fiscal year, and dividends declared
on equity securities in the Fund's portfolio, the record dates for which fall on
or prior to the last day of such fiscal year, but shall not include gains from
the sale of securities.
9. The Investment Manager will use its best efforts in the supervision and
management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund or
any of its investors for any error of judgment or mistake of law or for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors.
10. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as investment
adviser or manager for any other person, firm or corporation and shall not in
any way bind or restrict the Investment Manager or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom they may be acting. Nothing in
this Agreement shall limit or restrict the right of any Director, officer or
employee of the Investment Manager to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business whether of a similar or dissimilar nature.
11. This Agreement shall remain in effect until April 30, 1999 and from
year to year thereafter provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act (the "Act"), of the outstanding voting securities of the Fund or
by the Directors of the Fund; provided that in either event such continuance
is also approved annually by the vote of a majority of the Directors of the
Fund who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that (a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon thirty days' written notice to the Investment
Manager, either by majority vote of the Directors of the Fund or by the vote
of a majority of the outstanding voting securities of the Fund; (b) this
Agreement shall immediately terminate in the event of its assignment (to the
extent required by the Act and the rules thereunder) unless such automatic
terminations shall be prevented by an exemptive order of the Securities and
Exchange Commission; and (c) the Investment Manager may terminate this
Agreement without payment of penalty on thirty days' written notice to the
Fund. Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed post-paid, to the other party at the principal
office of such party.
12. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
3
<PAGE>
13. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
14. The Investment Manager and the Fund each agree that the name "Morgan
Stanley Dean Witter," which comprises a component of the Fund's name, is a
property right of Morgan Stanley Dean Witter & Co. ("MSDW"), the parent of the
Investment Manager. The Fund agrees and consents that (i) it will only use the
name "Morgan Stanley Dean Witter" as a component of its name and for no other
purpose, (ii) it will not purport to grant to any third party the right to use
the name "Morgan Stanley Dean Witter" for any purpose, (iii) MSDW, or any
corporate affiliate of MSDW, may use or grant to others the right to use the
name "Morgan Stanley Dean Witter," or any combination or abbreviation thereof,
as all or a portion of a corporate or business name or for any commercial
purpose, including a grant of such right to any other investment company, (iv)
at the request of MSDW or any corporate affiliate of MSDW, the Fund will take
such action as may be required to provide its consent to the use of the name
"Morgan Stanley Dean Witter," or any combination or abbreviation thereof, by
MSDW or any corporate affiliate of MSDW, or by any person to whom MSDW or a
corporate affiliate of MSDW shall have granted the right to such use, and (v)
upon the termination of any investment advisory agreement into which a corporate
affiliate of MSDW and the Fund may enter, or upon termination of affiliation of
the Investment Manager with its parent, the Fund shall, upon request of MSDW or
any corporate affiliate of MSDW, cease to use the name "Morgan Stanley Dean
Witter" as a component of its name, and shall not use the name, or any
combination or abbreviation thereof, as a part of its name or for any other
commercial purpose, and shall cause its officers, directors and shareholders to
take any and all actions which MSDW or any corporate affiliate of MSDW, may
request to effect the foregoing and to reconvey to MSDW any and all rights to
such name.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on December 1, 1998 in New York, New York.
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER EUROPEAN
GROWTH FUND INC.
By: /s/ Barry Fink
..............................................
Attest:
/s/ Frank Bruttomesso
.............................................
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By:
/s/ Mitchell M. Merin
..............................................
Attest:
/s/ Todd Lebo
.............................................
</TABLE>
4
<PAGE>
SUB-ADVISORY AGREEMENT
AGREEMENT made as of December 1, 1998 by and between Morgan Stanley Dean
Witter Advisors Inc., a Delaware corporation (herein referred to as the
"Investment Manager"), and Morgan Stanley Dean Witter Investment Management
Inc., a Delaware Corporation, (herein referred to as the "Sub-Advisor").
WHEREAS, Morgan Stanley Dean Witter European Growth Fund Inc. (herein
referred to as the "Fund") is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Investment Manager has entered into an Investment Management
Agreement with the Fund (the "Investment Management Agreement") wherein the
Investment Manager has agreed to provide investment management services to the
Fund; and
WHEREAS, the Sub-Advisor is registered as an investment advisor under the
Investment Advisors Act of 1940, and engages in the business of acting as an
investment advisor; and
WHEREAS, the Investment Manager desires to retain the services of the
Sub-Advisor to render investment advisory services for the Fund in the manner
and on the terms and conditions hereinafter set forth; and
WHEREAS, the Sub-Advisor desires to be retained by the Investment Manager to
perform services on said terms and conditions:
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Subject to the supervision of the Fund, its officers and Directors, and
the Investment Manager, and in accordance with the investment objectives,
policies and restrictions set forth in the then-current Registration Statement
relating to the Fund, and such investment objectives, policies and restrictions
from time to time prescribed by the Directors of the Fund and communicated by
the Investment Manager to the Sub-Advisor, the Sub-Advisor agrees to provide the
Fund with investment advisory services with respect to the Fund's investments to
obtain and evaluate such information and advice relating to the economy,
securities markets and securities as it deems necessary or useful to discharge
its duties hereunder; to continuously manage the assets of the Fund in a manner
consistent with the investment objective and policies of the Fund; to make
decisions as to foreign currency matters and make determinations as to forward
foreign exchange contracts and options and futures contracts in foreign
currencies; shall determine the securities to be purchased, sold or otherwise
disposed of by the Fund and the timing of such purchases, sales and
dispositions; to take such further action, including the placing of purchase and
sale orders on behalf of the Fund, as it shall deem necessary or appropriate; to
furnish to or place at the disposal of the Fund and the Investment Manager such
of the information, evaluations, analyses and opinions formulated or obtained by
it in the discharge of its duties as the Fund and the Investment Manager may,
from time to time, reasonably request. The Investment Manager and the
Sub-Advisor shall each make its officers and employees available to the other
from time to time at reasonable times to review investment policies of the Fund
and to consult with each other.
2. The Sub-Advisor shall, at its own expense, maintain such staff and
employ or retain such personnel and consult with such other persons as it shall
from time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Sub-Advisor shall be deemed to include
persons employed or otherwise retained by the
1
<PAGE>
Sub-Advisor to furnish statistical and other factual data, advice regarding
economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Investment Manager may desire. The Sub-Advisor shall maintain whatever
records as may be required to be maintained by it under the Act. All such
records so maintained shall be made available to the Fund, upon the request of
the Investment Manager or the Fund.
3. The Fund will, from time to time, furnish or otherwise make available to
the Sub-Advisor such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as the Sub-Advisor may
reasonably require in order to discharge its duties and obligations hereunder or
to comply with any applicable law and regulations and the investment objectives,
policies and restrictions from time to time prescribed by the Directors of the
Fund.
4. The Sub-Advisor shall bear the cost of rendering the investment advisory
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the
Fund, employed by the Sub-Advisor, and such clerical help and bookkeeping
services as the Sub-Advisor shall reasonably require in performing its duties
hereunder.
5. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including, without limitation: any fees paid to the Investment
Manager; fees pursuant to any plan of distribution that the Fund may adopt; the
charges and expenses of any registrar, any custodian, sub-custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer or dividend agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies or pursuant to any
foreign laws; the cost and expense of engraving or printing certificates
representing shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its shares with the
Securities and Exchange Commission and various states and other jurisdictions or
pursuant to any foreign laws (including filing fees and legal fees and
disbursements of counsel); the cost and expense of printing (including
typesetting) and distributing prospectuses of the Fund and supplements thereto
to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of Directors or members of any advisory
board or committee who are not employees of the Investment Manager or
Sub-Advisor; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption whether in shares or in cash; charges and expenses of
any outside service used for pricing of the Fund's shares; charges and expenses
of legal counsel, including counsel to the Directors of the Fund who are not
interested persons (as defined in the Act) of the Fund, the Investment Manager
or the Sub-Advisor, and of independent accountants, in connection with any
matter relating to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Sub-Advisor, the Investment Manager shall pay to the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation
receivable pursuant to the Investment Management Agreement. Any subsequent
change in the Investment Management Agreement which has the effect of raising or
lowering the compensation of the Investment Manager will have the concomitant
effect of raising or lowering the fee payable to the Sub-Advisor under this
Agreement. In addition, if the Investment Manager has undertaken in the Fund's
Registration Statement as
2
<PAGE>
filed under the Act (the "Registration Statement") or elsewhere to waive all or
part of its fee under the Investment Management Agreement, the Sub-Advisor's fee
payable under this Agreement will be proportionately waived in whole or in part.
The calculation of the fee payable to the Sub-Advisor pursuant to this Agreement
will be made, each month, at the time designated for the monthly calculation of
the fee payable to the Investment Manager pursuant to the Investment Management
Agreement. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for the
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above.
7. In the event the operating expenses of the Fund, including amounts
payable to the Investment Manager pursuant to the Investment Management
Agreement, for any fiscal year ending on a date on which this Agreement is in
effect, exceed the expense limitations applicable to the Fund imposed by state
securities laws or regulations thereunder, as such limitations may be raised or
lowered from time to time, the Sub-Advisor shall reduce its advisory fee to the
extent of 40% of such excess and, if required, pursuant to any such laws or
regulations, will reimburse the Investment Manager for annual operating expenses
in the amount of 40% of such excess of any expense limitation that may be
applicable, it being understood that the Investment Manager has agreed to effect
a reduction and reimbursement of 100% of such excess in accordance with the
terms of the Investment Management Agreement; provided, however, there shall be
excluded from such expenses the amount of any interest, taxes, brokerage
commissions, distribution fees and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund. Such reduction, if
any, shall be computed and accrued daily, shall be settled on a monthly basis,
and shall be based upon the expense limitation applicable to the Fund as at the
end of the last business day of the month. Should two or more such expense
limitations be applicable as at the end of the last business day of the month,
that expense limitation which results in the largest reduction in the Investment
Manager's fee or the largest expense reimbursement shall be applicable.
For purposes of this provision, should any applicable expense limitation be
based upon the gross income of the Fund, such gross income shall include, but
not be limited to, interest on debt securities in the Fund's portfolio accrued
to and including the last day of the Fund's fiscal year, and dividends declared
on equity securities in the Fund's portfolio, the record dates for which fall on
or prior to the last day of such fiscal year, but shall not include gains from
the sale of securities.
8. The Sub-Advisor will use its best efforts in the performance of
investment activities on behalf of the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Sub-Advisor shall not be liable to the Investment
Manager or the Fund or any of its investors for any error of judgment or mistake
of law or for any act or omission by the Sub-Advisor or for any losses sustained
by the Fund or its investors.
9. It is understood that any of the shareholders, Directors, officers
and employees of the Fund may be a shareholder, director, officer or employee
of, or be otherwise interested in, the Sub-Advisor, and in any person
controlled by or under common control with the Sub-Advisor, and that the
Sub-Advisor and any person controlled by or under common control with the
Sub-Advisor may have an interest in the Fund. It is also understood that the
Sub-Advisor and any affiliated persons thereof or any persons controlled by
or under common control with the Sub-Advisor have and may have advisory,
management service or other contracts with other organizations and persons,
and may have other interests and businesses, and further may purchase, sell
or trade any securities or commodities for their own accounts or for the
account of others for whom they may be acting.
3
<PAGE>
10. This Agreement shall remain in effect until April 30, 2000 and from year
to year thereafter provided such continuance is approved at least annually by
the vote of holders of a majority, as defined in the Act, of the outstanding
voting securities of the Fund or by the Directors of the Fund; provided, that in
either event such continuance is also approved annually by the vote of a
majority of the Directors of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote must
be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon thirty days' written
notice to the Investment Manager and the Sub-Advisor, either by majority vote of
the Directors of the Fund or by the vote of a majority of the outstanding voting
securities of the Fund; (b) this Agreement shall immediately terminate in the
event of its assignment (within the meaning of the Act) unless such automatic
termination shall be prevented by an exemptive order of the Securities and
Exchange Commission; (c) this Agreement shall immediately terminate in the event
of the termination of the Investment Management Agreement; (d) the Investment
Manager may terminate this Agreement without payment of penalty on thirty days'
written notice to the Fund and the Sub-Advisor and; (e) the Sub-Advisor may
terminate this Agreement without the payment of penalty on thirty days' written
notice to the Fund and the Investment Manager. Any notice under this Agreement
shall be given in writing, addressed and delivered, or mailed post-paid, to the
other party at the principal office of such party.
11. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund, the Investment Manager nor
the Sub-Advisor shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the law of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall control.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
MORGAN STANLEY DEAN WITTER
ADVISORS INC.
By: /s/ Mitchell M. Merin
..................................
Attest: /s/ Carsten Otto
..............................
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By: /s/ Harold Shaft
..................................
Attest: /s/ Joseph Benedetti
..............................
Accepted and agreed to as of
the day and year first above written:
MORGAN STANLEY DEAN WITTER
EUROPEAN GROWTH FUND INC.
By: /s/ Barry Fink
..................................
Attest: /s/ Frank Bruttomesso
..............................
5
<PAGE>
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
OMNIBUS SELECTED DEALER AGREEMENT
Dear Sir or Madam:
We, Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") have a
distribution agreement (the "Distribution Agreement") with each of the open-end
investment companies listed in Schedule A attached hereto (each, a "Fund"),
pursuant to which we act as the Distributor for the sale of each Fund's shares
of common stock or beneficial interest, as the case may be, (the "Shares").
Under the Distribution Agreement, we have the right to distribute Shares for
resale.
Each Fund is an open-end management investment company registered under the
Investment Company Act of 1940, as amended, and the Shares being offered to the
public are registered under the Securities Act of 1933, as amended (the
"Securities Act"). You have received a copy of the Distribution Agreements
between us and each Fund and reference is made herein to certain provisions of
such Distribution Agreements. The terms used herein, including "Prospectus" and
"Registration Statement" of each Fund and "Selected Dealer" shall have the same
meaning in this Agreement as in the Distribution Agreements. As principal, we
offer to sell Shares to your customers, upon the following terms and conditions:
1. In all sales of Shares to the public you shall act on behalf of your
customers which for purposes of this Agreement are limited to customers for
which Nations Banc Investments, Inc. is the Introducing Broker, and in no
transaction shall you have any authority to act as agent for a Fund, for us or
for any Selected Dealer.
2. Orders received from you will be accepted through us or on our behalf
only at the public offering price applicable to each order, as set forth in the
applicable current Prospectus. The procedure relating to the handling of orders
shall be subject to written instructions which we or the applicable Fund shall
forward from time to time to you. All orders are subject to acceptance or
rejection by us or a Fund in the sole discretion of either. The Distributor of
the Fund will promptly notify you in writing of any such rejection.
3. You shall not place orders for any Shares unless you have already
received purchase orders for such Shares at the applicable public offering price
and subject to the terms hereof and of the applicable Distribution Agreement and
Prospectus. In connection herewith, you agree to abide by the terms of the
applicable Distribution Agreement and Prospectus to the extent required
hereunder. Furthermore, you agree that (i) you will offer or sell any of the
Shares only under circumstances that will result in compliance with all
applicable Federal and state securities laws; (ii) you will not furnish or cause
to be furnished to any person any information relating to the Shares which is
inconsistent in any respect with the information contained in the applicable
Prospectus (as then amended or supplemented) or cause any advertisements to be
published by radio or television or in any newspaper or posted in any public
place or use any sales promotional material without our consent and the consent
of the applicable Fund; and (iii) you will endeavor to obtain proxies from
purchasers of Shares. You also agree that you will be liable to Distributor for
payment of the purchase price for Shares purchased by customers and that you
shall make payment for such shares when due.
4. We will compensate you for sales of shares of the Funds and personal
services to Fund shareholders by paying you a sales charge and/or other
commission (which may be in the form of a gross sales credit and/or an annual
residual commission) and/or a service fee, each as separately agreed by you and
us with respect to each Fund.
5. If any Shares sold to your customers under the terms of this Agreement
are repurchased by us for the account of a Fund or are tendered for redemption
within seven business days after the date of the confirmation of the original
purchase by you, it is agreed that you shall forfeit your right to, and refund
to us, any commission received by you with respect to such Shares.
6. No person is authorized to make any representations concerning the Shares
or the Funds except those contained in the current applicable Prospectus and in
such printed information subsequently issued by us or a Fund as information
supplemental to such Prospectus. In selling Shares, you shall rely solely on the
representations contained in the applicable Prospectus and supplemental
information mentioned above. Any printed information which we furnish you other
than the Prospectus and the Funds' periodic reports and
<PAGE>
proxy solicitation materials are our sole responsibility and not the
responsibility of the Funds, and you agree that the Funds shall have no
liability or responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You are hereby authorized (i) to place orders directly with a Fund or its
agent for shares of the Fund to be sold by us subject to the applicable terms
and conditions governing the placement of orders for the purchase of Fund
Shares, as set forth in the Distribution Agreement, and (ii) to tender Shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in the Distribution Agreement. We will provide you with
copies of any updates to the Distribution Agreement.
8. We reserve the right in our discretion, without notice, to suspend sales
or withdraw the offering of Shares entirely. Each party hereto has the right to
cancel this agreement with respect to one or more Funds upon fifteen days prior
written notice to the other party.
9. I. You shall indemnify and hold us harmless from and against any and all
losses, costs, (including reasonable attorney's fees) claims, damages and
liabilities which arise as a result of action taken pursuant to instructions
from you, or on your behalf to: (a)(i) place orders for Shares of a Fund with
the Fund's transfer agent or direct the transfer agent to receive instructions
for the order of Shares, and (ii) accept monies or direct that the transfer
agent accept monies as payment for the order of such Shares, all as contemplated
by and in accordance with Section 3 of the applicable Distribution Agreement;
(b)(i) place orders for the redemption of Shares of a Fund with the Fund's
transfer agent or direct the transfer agent to receive instruction for the
redemption of such Shares and (ii) to pay redemption proceeds or to direct that
the transfer agent pay redemption proceeds in connection with orders for the
redemption of Shares, all as contemplated by and in accordance with Section 4 of
the applicable Distribution Agreement; Distributor agrees to indemnify and hold
harmless you and your affiliates, officers, directors, control persons and
employees from and against any and all losses, costs (including reasonable
attorney's fees), claims, damages and liabilities which arise as a result of
Distributor's failure to fulfill its obligations hereunder and from any alleged
inaccuracy, omission or misrepresentation contained in any prospectus or any
advertising, or sales literature prepared by Distributor or the Fund provided,
however, that in no case, (i) is this indemnity in favor of you or us and any of
other party's such controlling persons to be deemed to protect us or any such
controlling persons against any liability to which we or any such controlling
persons would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of our duties or by reason of reckless
disregard of our obligations and duties under this Agreement or the applicable
Distribution Agreement; or (ii) are you to be liable under the indemnity
agreement contained in this paragraph with respect to any claim made against us
or any such controlling persons, unless we or any such controlling persons, as
the case may be, shall have notified you in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon us or such controlling persons (or
after we or such controlling persons shall have received notice of such service
on any designated agent), notwithstanding the failure to notify you of any such
claim shall not relieve you from any liability which you may have to the person
against whom such action is brought otherwise than on account of the indemnity
agreement contained in this paragraph.
II. You will be entitled to participate at your own expense in the defense,
or, if you so elect, to assume the defense, of any suit brought to enforce any
such liability, but if you elect to assume the defense, such defense shall be
conducted by counsel chosen by you and reasonably satisfactory to us or such
controlling person or persons, defendant or defendants in the suit. In the event
you elect to assume the defense of any such suit and retain such counsel, we or
such controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but, in
case you do not elect to assume the defense of any such suit, you will reimburse
us or such controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. Each party
shall promptly notify the other party to this Agreement of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Shares pursuant to this Agreement.
2
<PAGE>
III. If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless the Distributor, as provided above in respect of
any losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to herein, then you shall contribute to the amount paid or
payable by us as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by you on the one hand and us on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then you
shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits but
also your relative fault on the one hand and our relative fault on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. You and we agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above. The amount paid or payable by us
as a result of the losses, claims, damages, liabilities or expenses (or actions
in respect thereof) referred to above shall be deemed to include any legal or
other expenses reasonably incurred by us in connection with investigating or
defending any such claim. Notwithstanding the provisions of this subsection
(III), you shall not be required to contribute any amount in excess of the
amount by which the total price at which the Shares distributed by you to the
public were offered to the public exceeds the amount of any damages which you
have otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
IV. Notwithstanding the provisions of subsections (I), (II) and (III), we
shall indemnify, defend and hold harmless you and your officers, directors,
employees, affiliates, agents, successors and assigns from and against any and
all claims and all related losses, expenses, damages, cost and liabilities
including reasonable attorneys' fees and expenses incurred in investigation or
defense, arising out of or related to any breach of any representation, warranty
or covenant by us contained in Section 15 of this Agreement.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the distribution and
redemption of Shares. Neither party shall be under any liability to the other
party except for lack of good faith and for obligations expressly assumed
herein. Nothing contained in this paragraph is intended to operate as, and the
provisions of this paragraph shall not in any way whatsoever constitute, a
waiver by you of compliance with any provision of the Securities Act, or of the
rules and regulations of the Securities and Exchange Commission issued
thereunder.
12. Each party represents that it is a member in good standing of the
National Association of Securities Dealers, Inc. and, with respect to any sales
in the United States, each party hereby agrees to abide by the Rules of Fair
Practice of such Association relating to the performance of the obligations
hereunder.
13. We will inform you in writing as to the states in which we believe the
Shares have been qualified for sale under, or are exempt from the requirements
of, the respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Shares in any
jurisdiction.
14. Notwithstanding any other provision of this Agreement to the contrary,
we represent and warrant that the names and addresses of your customers (or
customers of your affiliates) which have or which may come to our attention in
connection with this Agreement are confidential and are your exclusive property
and shall not be utilized by us except in connection with the functions
performed by us in connection with this Agreement. Notwithstanding the
foregoing, should a customer request, that we or an organization affiliated with
us, provide services to such customer, we or such affiliated organization shall
in no way violate this representation and warranty, nor be considered in breach
of this Agreement.
15. We represent, warrant, and covenant to you that the marketing materials,
any communications distributed to the public and training materials designed by
us or our agents relating to the product sold under this Agreement are true and
accurate and do not omit to state a fact necessary to make the
3
<PAGE>
information contained therein not misleading and comply with applicable federal
and state laws. We further represent, warrant, and covenant to you that the
performance by us of our obligations under this Agreement in no way constitutes
an infringement on or other violation of copyright, trade secret, trademark,
proprietary information or non-disclosure rights of any other party.
16. We shall maintain a contingency disaster recovery plan, and, in the
event you are so required by any regulatory or governmental agency, we shall
make such plan available to you for inspection at your office upon reasonable
advance notice by you. Each party agrees that it will at all times conduct its
activities under this Agreement in an equitable, legal and professional manner.
17. We understand that the performance of your and our obligations under
this Agreement is subject to examination during business hours by your
authorized representatives and auditors and by federal and state regulatory
agencies, and we agree that upon being given reasonable notice and proper
identification we shall submit or furnish at a reasonable time and place to any
such representative or regulatory agency reports, information, or other data
relating to this Agreement as may reasonably be required or requested by you. We
shall maintain and make available to you upon reasonable notice all material,
data, files, and records relating to this Agreement for a period of not less
than three years after the termination of this Agreement.
18. The sales, advertising and promotional materials designed by either
party or its agents relating to products sold under this Agreement shall comply
with applicable federal and state laws. Each party agrees that the sales,
advertising and promotional materials shall be made available to the other party
prior to distribution to your employees or customers.
19. Any controversy or claim between or among the parties hereto arising out
of or relating to this Agreement, including any claim based on or arising from
an alleged tort, shall be determined by binding arbitration in accordance with
the rules of the National Association of Securities Dealers, Inc. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any party
to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such action.
20. All notices or other communications under this Agreement shall be in
writing and given as follows:
If to us: Morgan Stanley Dean Witter Distributors Inc.
Attn: Barry Fink,
Two World Trade Center
New York, NY 10048
If to you: National Financial
Services Corporation
Attn:
4201 Congress Street, Suite 245
Boston, MA
or such other address as the parties may hereafter specify in writing. Each such
notice to any party shall be either hand-delivered or transmitted, postage
prepaid, by registered or certified United States mail with return receipt
requested, and shall be deemed effective only upon receipt.
4
<PAGE>
21. This Agreement shall become effective as of the date of your acceptance
hereof, provided that you return to us promptly a signed and dated copy.
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.
By ...................................
(Authorized Signature)
Please return one signed copy
of this agreement to:
Morgan Stanley Dean Witter Distributors Inc.
Two World Trade Center
New York, New York 10048
Accepted:
Firm Name: .............................
By: ......................................
Address: ...............................
.......................
Date: October , 1998
.......................
5
<PAGE>
SCHEDULE A
<TABLE>
<C> <S>
Dean Witter Global Asset Allocation Fund
Morgan Stanley Dean Witter American Value Fund
Morgan Stanley Dean Witter Balanced Growth Fund
Morgan Stanley Dean Witter Balanced Income Fund
Morgan Stanley Dean Witter California Tax-Free Income Fund
Morgan Stanley Dean Witter Capital Appreciation Fund
Morgan Stanley Dean Witter Capital Growth Securities
Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas" Portfolio
Morgan Stanley Dean Witter Convertible Securities Trust
Morgan Stanley Dean Witter Developing Growth Securities Trust
Morgan Stanley Dean Witter Diversified Income Trust
Morgan Stanley Dean Witter Dividend Growth Securities Inc.
Morgan Stanley Dean Witter Equity Fund
Morgan Stanley Dean Witter European Growth Fund Inc.
Morgan Stanley Dean Witter Federal Securities Trust
Morgan Stanley Dean Witter Financial Services Trust
Morgan Stanley Dean Witter Fund of Funds
Morgan Stanley Dean Witter Global Dividend Growth Securities
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
Morgan Stanley Dean Witter Global Utilities Fund
Morgan Stanley Dean Witter Growth Fund
Morgan Stanley Dean Witter Hawaii Municipal Trust
Morgan Stanley Dean Witter Health Sciences Trust
Morgan Stanley Dean Witter High Yield Securities Inc.
Morgan Stanley Dean Witter Income Builder Fund
Morgan Stanley Dean Witter Information Fund
Morgan Stanley Dean Witter Intermediate Income Securities Inc.
Morgan Stanley Dean Witter International SmallCap Fund
Morgan Stanley Dean Witter Japan Fund
Morgan Stanley Dean Witter Limited Term Municipal Trust
Morgan Stanley Dean Witter Market Leader Trust
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Morgan Stanley Dean Witter Multi-State Municipal Series Trust
Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
Morgan Stanley Dean Witter New York Tax-Free Income Fund
Morgan Stanley Dean Witter Pacific Growth Fund Inc.
Morgan Stanley Dean Witter Precious Metals and Minerals Trust
Morgan Stanley Dean Witter S&P 500 Index Fund
Morgan Stanley Dean Witter S&P 500 Select Fund
Morgan Stanley Dean Witter Short-Term Bond Fund
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
Morgan Stanley Dean Witter Special Value Fund
Morgan Stanley Dean Witter Strategist Fund
Morgan Stanley Dean Witter Tax-Exempt Securities Trust
Morgan Stanley Dean Witter U.S. Government Securities Trust
Morgan Stanley Dean Witter Utilities Fund
Morgan Stanley Dean Witter Value-Added Market Series
Morgan Stanley Dean Witter Value Fund
Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
A-1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 11 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 20, 1998, relating to the financial statements and financial highlights
of Morgan Stanley Dean Witter European Growth Fund Inc., formerly Dean Witter
European Growth Fund Inc. which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Independent Accountants" and
"Experts" in such Statement of Additional Information and to the reference to us
under the heading "Financial Highlights" in such Prospectus.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 25, 1998
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
EUROPEAN GROWTH SECURITIES (A)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-98 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------- ----------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
31-Oct-97 $1,103.80 10.38% 1.00 10.38%
28-Jul-97 $1,093.10 9.31% 1.26 7.33%
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-98 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------- ----------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
31-Oct-97 $1,165.00 16.50% 1.00 16.50%
28-Jul-97 $1,153.70 15.37% 1.26 12.02%
</TABLE>
(D) GROWTH OF $10,000*
(E) GROWTH OF $50,000*
(F) GROWTH OF $100,000*
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (D) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ------------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
28-Jul-97 15.37 $10,931 $55,378 $111,909
</TABLE>
*INITIAL INVESTMENT $9,475, $48,000 & 97,000 RESPECTIVELY REFLECTS
A 5.25%, 4% & 3% SALES CHARGE
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
EUROPEAN GROWTH SECURITIES (B)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-98 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------- ----------- -------------- ----------------------------
<S> <C> <C> <C> <C>
31-Oct-97 $1,106.70 10.67% 1.00 10.67%
31-Oct-93 $2,261.00 126.10% 5.00 17.72%
01-Jun-90 $2,889.10 188.91% 8.42 13.44%
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-98 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------- ----------- ----------- ----------------------------
<S> <C> <C> <C> <C>
31-Oct-97 $1,156.70 15.67% 1.00 15.67%
31-Oct-93 $2,281.00 128.10% 5.00 17.93%
01-Jun-90 $2,889.10 188.91% 8.42 13.44%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT -G $50,000 INVESTMENT - G $100,000 INVESTM
- ----------- ----------- --------------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
01-Jun-90 188.91 $28,891 $144,455 $288,910
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
EUROPEAN GROWTH SECURITIES (C)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-98 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------- ----------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
31-Oct-97 $1,145.70 14.57% 1.00 14.57%
28-Jul-97 $1,142.70 14.27% 1.26 11.17%
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-98 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------- ----------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
31-Oct-97 $1,155.70 15.57% 1.00 15.57%
28-Jul-97 $1,142.70 14.27% 1.26 11.17%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (D) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
28-Jul-97 14.27 $11,427 $57,135 $114,270
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
EUROPEAN GROWTH SECURITIES (D)
(A) TOTAL RETURN (NO LOAD FUND)
(B) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(A) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------- ----------- ----------- ----------------- ------------------------
<S> <C> <C> <C> <C>
31-Oct-97 $1,181.20 18.12% 1.00 18.12%
28-Jul-97 $1,170.40 17.04% 1.26 13.31%
</TABLE>
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (C) GROWTH OF (D) GROWTH OF (E) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT- G $50,000 INVESTMENT- G $100,000 INVESTMENT- G
- ----------- ----------- --------------------------------------- -------------------------
<S> <C> <C> <C> <C>
28-Jul-97 17.04 $11,704 $58,520 $117,040
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 1,694,041,942
<INVESTMENTS-AT-VALUE> 2,097,625,952
<RECEIVABLES> 15,995,788
<ASSETS-OTHER> 887,108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,114,508,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,270,065
<TOTAL-LIABILITIES> 16,270,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,491,497,683
<SHARES-COMMON-STOCK> 726,684
<SHARES-COMMON-PRIOR> 100,883
<ACCUMULATED-NII-CURRENT> (53,755)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 202,974,952
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 403,819,903
<NET-ASSETS> 14,133,185
<DIVIDEND-INCOME> 34,849,169
<INTEREST-INCOME> 2,485,932
<OTHER-INCOME> 0
<EXPENSES-NET> 42,590,314
<NET-INVESTMENT-INCOME> (5,255,213)
<REALIZED-GAINS-CURRENT> 203,754,608
<APPREC-INCREASE-CURRENT> 39,913,912
<NET-CHANGE-FROM-OPS> 238,413,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30,346
<DISTRIBUTIONS-OF-GAINS> 215,076
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 972,628
<NUMBER-OF-SHARES-REDEEMED> 360,375
<SHARES-REINVESTED> 13,548
<NET-CHANGE-IN-ASSETS> 386,009,239
<ACCUMULATED-NII-PRIOR> 14,361,039
<ACCUMULATED-GAINS-PRIOR> 146,604,926
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,493,248
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42,590,314
<AVERAGE-NET-ASSETS> 7,606,346
<PER-SHARE-NAV-BEGIN> 18.46
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 2.70
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (1.57)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.45
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 1,694,041,942
<INVESTMENTS-AT-VALUE> 2,097,625,952
<RECEIVABLES> 15,995,788
<ASSETS-OTHER> 887,108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,114,508,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,270,065
<TOTAL-LIABILITIES> 16,270,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,491,497,683
<SHARES-COMMON-STOCK> 106,473,448
<SHARES-COMMON-PRIOR> 92,665,249
<ACCUMULATED-NII-CURRENT> (53,755)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 202,974,952
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 403,819,903
<NET-ASSETS> 2,059,371,946
<DIVIDEND-INCOME> 34,849,169
<INTEREST-INCOME> 2,485,932
<OTHER-INCOME> 0
<EXPENSES-NET> 42,590,314
<NET-INVESTMENT-INCOME> (5,255,213)
<REALIZED-GAINS-CURRENT> 203,754,608
<APPREC-INCREASE-CURRENT> 39,913,912
<NET-CHANGE-FROM-OPS> 238,413,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15,068,038
<DISTRIBUTIONS-OF-GAINS> 143,682,142
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63,396,156
<NUMBER-OF-SHARES-REDEEMED> 58,362,589
<SHARES-REINVESTED> 8,774,632
<NET-CHANGE-IN-ASSETS> 386,009,239
<ACCUMULATED-NII-PRIOR> 14,361,039
<ACCUMULATED-GAINS-PRIOR> 146,604,926
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,493,248
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42,590,314
<AVERAGE-NET-ASSETS> 2,010,785,057
<PER-SHARE-NAV-BEGIN> 18.43
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 2.69
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> (1.57)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.34
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 1,694,041,942
<INVESTMENTS-AT-VALUE> 2,097,625,952
<RECEIVABLES> 15,995,788
<ASSETS-OTHER> 887,108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,114,508,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,270,065
<TOTAL-LIABILITIES> 16,270,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,491,497,683
<SHARES-COMMON-STOCK> 1,147,376
<SHARES-COMMON-PRIOR> 156,779
<ACCUMULATED-NII-CURRENT> (53,755)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 202,974,952
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 403,819,903
<NET-ASSETS> 22,158,776
<DIVIDEND-INCOME> 34,849,169
<INTEREST-INCOME> 2,485,932
<OTHER-INCOME> 0
<EXPENSES-NET> 42,590,314
<NET-INVESTMENT-INCOME> (5,255,213)
<REALIZED-GAINS-CURRENT> 203,754,608
<APPREC-INCREASE-CURRENT> 39,913,912
<NET-CHANGE-FROM-OPS> 238,413,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31,106
<DISTRIBUTIONS-OF-GAINS> 276,452
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,310,164
<NUMBER-OF-SHARES-REDEEMED> 1,337,353
<SHARES-REINVESTED> 17,786
<NET-CHANGE-IN-ASSETS> 386,009,239
<ACCUMULATED-NII-PRIOR> 14,361,039
<ACCUMULATED-GAINS-PRIOR> 146,604,926
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,493,248
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42,590,314
<AVERAGE-NET-ASSETS> 11,072,793
<PER-SHARE-NAV-BEGIN> 18.43
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 2.71
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> (1.57)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.31
<EXPENSE-RATIO> 2.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND CLASS D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 1,694,041,942
<INVESTMENTS-AT-VALUE> 2,097,625,952
<RECEIVABLES> 15,995,788
<ASSETS-OTHER> 887,108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,114,508,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,270,065
<TOTAL-LIABILITIES> 16,270,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,491,497,683
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<OVERDISTRIBUTION-GAINS> 0
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<NET-CHANGE-IN-ASSETS> 386,009,239
<ACCUMULATED-NII-PRIOR> 14,361,039
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<OVERDISTRIB-NII-PRIOR> 0
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<EXPENSE-RATIO> 1.19
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</TABLE>
