<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
FILE NOS.: 33-35541
811-6121
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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. 10 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 11 /X/
-------------------
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
(A MARYLAND CORPORATION)
(FORMERLY NAMED DEAN WITTER PACIFIC GROWTH FUND INC.)
(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)
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
_X_ on November 1, 1998 pursuant to paragraph (a) of rule 485.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC 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. ........................................ Investment Objective and Policies; Risk Considerations; The Fund
and its Management, Cover Page; Investment Restrictions;
Prospectus Summary; Financial Highlights
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
NOVEMBER 1, 1998
Morgan Stanley Dean Witter Pacific 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 Asia, Australia and New Zealand.
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 November 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/12
Investment Restrictions/19
Purchase of Fund Shares/19
Shareholder Services/31
Redemptions and Repurchases/34
Dividends, Distributions and Taxes/35
Performance Information/37
Additional Information/37
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
Pacific 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 Asia, Australia and New Zealand.
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Shares Shares of common stock with $0.01 par value (see page 37). The Fund offers four classes of shares, each with a
Offered different combination of sales charges, ongoing fees and other features (see pages 19-30).
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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 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 19).
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Investment The investment objective of the Fund is to maximize the capital appreciation of its investments (see page 10).
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 investment companies and other portfolios with assets of approximately $
billion at September 30, 1998. Morgan Stanley Asset Management Inc. ("MSAM"), 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. MSAM conducts a worldwide investment advisory business. As of September 30, 1998, MSAM,
together with its institutional investment management affiliates, managed assets of approximately $ billion
(see page 9).
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Management The Investment Manager receives a monthly fee from the Fund at the annual rate of 0.95% of daily net assets not
Fee exceeding $1 billion; 0.90% of the daily net assets exceeding $1 billion 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 9). 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 is the distributor of the Fund. The Fund has adopted a distribution plan
Distribution Fee 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 19 and 29).
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Alternative Four classes of shares are offered:
Purchase - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Arrangements 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 19, 23 and 29).
</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 19, 25 and 29).
- 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 19, 28 and 29).
- 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 19, 28 and 29).
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income and distributions from net capital gains are paid at least once each year.
Distributions The Fund may, however, determine to retain all or part of any net long-term capital gains in any year 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 31
and 35).
- ------------------------------------------------------------------------------------------------------------------------------------
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 34).
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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 will invest 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 transactions in forward currency contracts,
options and futures contracts (see pages 12-18). The investor should also note that the Fund may invest over 25%
of its total assets in securities of Japanese, Hong Kong, Malaysian, South Korean and Taiwanese issuers (see
page 10).
</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, 1997.
<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*................................................................ 0.94% 0.94% 0.94% 0.94%
12b-1 Fees (5) (6).............................................................. 0.25% 1.00% 1.00% None
Other Expenses.................................................................. 0.45% 0.45% 0.45% 0.45%
Total Fund Operating Expenses* (7).............................................. 1.64% 2.39% 2.39% 1.39%
</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").
(7) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO
JULY 28, 1997. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE
WITH RESPECT TO THOSE CLASSES, ARE ESTIMATES BASED UPON THE SUM OF 12b-1
FEES, MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
* EFFECTIVE NOVEMBER 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 $1 BILLION; 0.95% OF DAILY NET ASSETS EXCEEDING $1
BILLION 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 $1
BILLION; 0.90% OF DAILY NET ASSETS EXCEEDING $1 BILLION 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>
10
EXAMPLES 1 Year 3 Years 5 Years 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....................................... $68 $102 $137 $237
Class B....................................... $74 $105 $148 $273
Class C....................................... $34 $75 $128 $273
Class D....................................... $14 $44 $76 $167
You would pay the following expenses on the same
$1,000 investment assuming no redemption at the
end of the period:
Class A....................................... $68 $102 $137 $237
Class B....................................... $24 $75 $128 $273
Class C....................................... $24 $75 $128 $273
Class D....................................... $14 $44 $76 $167
</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
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The following per share data and ratios for a share of capital stock
outstanding throughout each of the periods through October 31, 1997 have been
audited by PricewaterhouseCoopers LLP, independent accountants. The information
for the six-month period ended April 30, 1998 is unaudited. The financial
highlights should be read in conjunction with the financial statements, notes
thereto, and the unqualified report of independent accountants which are
contained in the Statement of Additional Information. Further information about
the performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request of the Fund.
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
SIX NOVEMBER 30,
MONTHS 1990*
ENDED FOR THE YEAR ENDED OCTOBER 31, THROUGH
APRIL 30, ---------------------------------------------------------- OCTOBER 31,
CLASS B SHARES 1998++ 1997***++ 1996 1995 1994 1993 1992** 1991
---------- -------- -------- -------- -------- -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $12.83 $18.89 $18.77 $21.60 $19.80 $12.69 $11.72 $10.00
---------- -------- -------- -------- -------- -------- -------- ------------
Net investment income
(loss)................... (0.01) 0.01 0.05 0.08 (0.10) (0.04) (0.01) 0.06
Net realized and
unrealized gain (loss)... (1.56) (5.77) 0.50 (1.94) 2.22 7.15 1.14 1.69
---------- -------- -------- -------- -------- -------- -------- ------------
Total from investment
operations............... (1.57) (5.76) 0.55 (1.86) 2.12 7.11 1.13 1.75
---------- -------- -------- -------- -------- -------- -------- ------------
Less dividends and
distributions from:
Net investment
income................. (0.19) (0.30) (0.43) -- -- -- (0.01) (0.03)
Net realized gain...... -- -- -- (0.97) (0.32) -- (0.15) --
---------- -------- -------- -------- -------- -------- -------- ------------
Total dividends and
distributions............ (0.19) (0.30) (0.43) (0.97) (0.32) -- (0.16) (0.03)
---------- -------- -------- -------- -------- -------- -------- ------------
Net asset value, end of
period................... $11.07 $12.83 $18.89 $18.77 $21.60 $19.80 $12.69 $11.72
---------- -------- -------- -------- -------- -------- -------- ------------
---------- -------- -------- -------- -------- -------- -------- ------------
TOTAL INVESTMENT
RETURN+.................. (12.25)%(1) (31.01)% 3.00% (8.65)% 10.69% 56.13% 9.86% 17.54% (1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses.................. 2.83%(2) 2.44% 2.39% 2.45% 2.41% 2.38% 2.77% 2.43% (2)(3)
Net investment income
(loss)................... (0.23)%(2) 0.03% 0.18% 0.35% (0.70)% (0.46)% (0.30)% 0.61% (2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions.............. $562 $744 $1,624 $1,442 $1,571 $694 $177 $86
Portfolio turnover rate... 38%(1) 42% 49% 50% 35% 30% 73% 70% (1)
Average commission rate
paid..................... $0.0059 $0.0075 $0.0095 -- -- -- -- --
</TABLE>
- ---------------
* COMMENCEMENT OF OPERATIONS.
** NET INVESTMENT LOSS WAS COMPUTED BASED UPON THE MONTHLY AVERAGE SHARES
OUTSTANDING.
*** PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF
THE FUND HELD PRIOR TO THAT DATE HAVE BEEN DESIGNATED CLASS B SHARES.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN 2.83% AND 0.22%, RESPECTIVELY.
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
FOR THE SIX THROUGH
MONTHS ENDED OCTOBER 31,
CLASS A SHARES APRIL 30, 1998++ 1997++
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 12.86 $ 19.39
------- -------
Net investment income................................................. 0.03 --
------- -------
Net realized and unrealized loss...................................... (1.56) (6.53)
------- -------
Total from investment operations...................................... (1.53) (6.53)
------- -------
Less dividends from net investment income............................. (0.26) --
------- -------
Net asset value, end of period........................................ $ 11.07 $ 12.86
------- -------
------- -------
TOTAL INVESTMENT RETURN+.............................................. (11.93)%(1) (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.05%(2) 1.92%(2)
Net investment loss................................................... 0.48%(2) (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $2,651 $622
Portfolio turnover rate............................................... 38%(1) 42%
Average commission rate paid.......................................... $0.0059 $0.0075
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 12.83 $ 19.39
------- -------
Net investment loss................................................... (0.03) (0.04)
Net realized and unrealized loss...................................... (1.52) (6.52)
------- -------
Total from investment operations...................................... (1.55) (6.56)
------- -------
Less dividends from net investment income............................. (0.23) --
------- -------
Net asset value, end of period........................................ $ 11.05 $ 12.83
------- -------
------- -------
TOTAL INVESTMENT RETURN+.............................................. (12.11)%(1) (33.83)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.83%(2) 2.62%(2)
Net investment loss................................................... (0.57)%(2) (0.77)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,300 $819
Portfolio turnover rate............................................... 38%(1) 42%
Average commission rate paid.......................................... $0.0059 $0.0075
</TABLE>
- -------------
* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
7
<PAGE>
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
FOR THE SIX THROUGH
MONTHS ENDED OCTOBER 31,
CLASS D SHARES APRIL 30, 1998++ 1997++
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 12.86 $ 19.39
------- -------
Net investment income................... 0.02 0.02
Net realized and unrealized loss........ (1.53) (6.55)
------- -------
Total from investment operations........ (1.51) (6.53)
------- -------
Less dividends from net investment
income................................. (0.27) --
------- -------
Net asset value, end of period.......... $ 11.08 $ 12.86
------- -------
------- -------
TOTAL INVESTMENT RETURN+................ (11.79)%(1) (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.84%(2) 1.62%(2)
Net investment income................... 0.35%(2) 0.42%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $1,517 $118
Portfolio turnover rate................. 38%(1) 42%
Average commission rate paid............ $0.0059 $0.0075
</TABLE>
- -------------
* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Pacific Growth Fund Inc. (the "Fund") (formerly
named Dean Witter Pacific Growth Fund Inc.) is an open-end, diversified
management investment company incorporated in the state of Maryland on June 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., serve in various investment management, advisory,
management and administrative capacities to investment companies, of which
are listed on the New York Stock Exchange, with combined assets of approximately
$ billion as of September 30, 1998. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $ 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 Asset Management Inc.
("MSAM" 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 Asia,
Australia and New Zealand and in countries located elsewhere around the world,
subject to the overall supervision of the Investment Manager. The Fund's
Directors review the various services provided by the Investment Manager and the
Sub-Advisor to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
The Sub-Advisor, whose address is 1221 Avenue of the Americas, New York, New
York, together with its institutional investment management affiliates manages,
as of September 30, 1998, assets of approximately $ billion primarily for U.S.
corporate and public employee benefit plans, investment companies, endowments,
foundations and wealthy individuals. MSAM, like MSDW Advisors, is a wholly-owned
subsidiary of MSDW.
Prior to November, 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 MSAM be submitted to shareholders of the Fund
for approval. The shareholders approved the new Sub-Advisory Agreement with MSAM
on [August 18, 1998] and the new Sub-Advisory Agreement became effective on
[November 1, 1998].
At the same time that the new 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 services and facilities
furnished to the Fund and for expenses of the Fund assumed by the Investment
Manager under the Investment Management Agreement by 0.05% of the Fund's average
daily net assets. The new fee paid by the Fund to the Investment Manager is
0.95% of the portion of daily net assets not exceeding $1 billion; 0.90% of the
portion of daily net assets
9
<PAGE>
exceeding $1 billion 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, 1997, and therefore 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 0.99% of the Fund's average daily net assets (of which 40% was
accrued to the Sub-Advisor by the Investment Manager) and the total expenses of
Class B amounted to 2.44% of the average daily net assets of Class B. Shares of
Class A, Class C and Class D were first issued on July 28, 1997. The expenses of
the Fund include: the fee of the Investment Manager; the fee pursuant to the
Plan of Distribution (see "Purchase of Fund Shares"); taxes; transfer agent,
custodian and auditing fees; certain legal fees; and printing and other expenses
relating to the Fund's operations which are not expressly assumed by the
Investment Manager under its Investment Management Agreement with the Fund.
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 Asia, Australia
and New Zealand. Such issuers will include companies which are organized under
the laws of an Asian country, Australia or New Zealand and have a principal
office in an Asian country, Australia or New Zealand, or which derive 50% or
more of their total revenues from business in an Asian country, Australia or New
Zealand.
The principal countries in which such issuers will be located are Japan,
Australia, Malaysia, Singapore, Hong Kong, Thailand, the Philippines, Indonesia,
Taiwan, South Korea and India. The Fund's investment portfolio will be invested
in at least three separate countries.
The Fund may invest more than 25% of its total assets in Japan, reflecting
the dominance of the Japanese stock market in the Pacific Basin. The
concentration of the Fund's assets in Japanese issuers will subject the Fund to
the risks of adverse social, political or economic events which occur in Japan.
Specifically, investments in the Japanese stock market may entail a higher
degree of risk than investments in other markets as, by fundamental measures of
corporate valuation such as its high price-earnings ratios and low dividend
yields, the Japanese market as a whole may appear expensive relative to other
world stock markets (I.E., the prices of Japanese stocks may be relatively
high). In addition, the prices of securities traded on the Japanese markets may
be more volatile than many other markets.
The Fund also may invest over 25% of its total assets in securities issued
by issuers located in Hong Kong. In common with the other stock markets of the
Pacific Basin, the Hong Kong stock market is more volatile, as measured by
standard deviation, than the major equity markets of North America and Europe.
On July 1, 1997, Hong Kong became part of the People's Republic of China, and
now forms a Special Administrative Region within that country. The Government of
China has indicated that it will not seek to alter the free market-oriented
economic system of Hong Kong for at least fifty years following 1997.
The Fund may also invest over 25% of its total assets in securities issued
by issuers located in each of Malaysia, South Korea and Taiwan. These markets
may also be more volatile than many other markets and, as in the case of other
international
10
<PAGE>
equity markets, the value of equities can be impacted by unforeseen, adverse
developments in the macro-economy or currency, political and/or social
instability, government regulatory changes or individual corporate developments.
The securities invested in will primarily consist of equity securities
issued by companies based in Asian countries, Australia and New Zealand which
the Investment Manager and/or Sub-Advisor believe are most likely to help the
Fund meet its investment objective, but may also include fixed-income securities
issued or guaranteed by (or the direct obligations of) the governments of such
countries (including zero coupon treasury securities), when it is deemed by the
Investment Manager or Sub-Advisor that such investments are consistent with the
Fund's investment objective. For example, there may be times when the Investment
Manager or 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 Australia or Japan. 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 an 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,
by receiving a steady stream of interest payments. The Fund will select
convertible securities of issuers whose common stock has, in the opinion of the
Investment Manager or Sub-Advisor, a potential to appreciate in price. The Fund
may also purchase equity and fixed-income securities which are issued in private
placements and warrants or other securities conveying the right to purchase
common stock.
The decisions of the Investment Manager and Sub-Advisor to invest in
securities for the Fund will be based on a general strategy of selecting those
issuers which they believe have shown a high rate of growth in earnings.
Moreover, securities will primarily be selected which possess, on both an
absolute basis and as compared with other securities in their region and around
the world, attractive price/earnings, price/cash flow and price/revenue ratios.
The Fund may also purchase securities issued by various agencies and
instrumentalities of the U.S. Government. These will include obligations backed
by the full faith and credit of the United States (such as those issued by the
Government National Mortgage Association); obligations whose issuing agency or
instrumentality has the right to borrow, to meet its obligations, from an
existing line of credit with the U.S. Treasury (such as those issued by the
Federal National Mortgage Association); and obligations backed by the credit of
the issuing agency or instrumentality (such as those issued by the Federal Farm
Credit System).
The Fund may be investing up to 10% of its total assets in securities issued
by other investment companies. Such investments are necessary in order to
participate in certain foreign markets where foreigners are prohibited from
investing directly in the securities of individual issuers. The Fund will incur
any indirect expenses incurred through investment in an investment company, such
as the payment of a management fee (which may result in the payment of an
additional advisory 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.
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 fixed-income 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
11
<PAGE>
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 the liquid Asian currencies and the Australian
dollar. Such currencies include the Japanese yen, Malaysian ringgit, Singapore
dollar, Hong Kong dollar, Thai baht, Philippine peso, Indonesia rupiah, Taiwan
dollar, South Korean won and Indian rupee. 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) 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. Generally, ADRs, in
registered form, are designed for use in United States 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, such as certificates of deposit; Eurodollar certificates of
deposit; obligations of American savings institutions; 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 the
currencies of different nations will affect the value of the Fund's investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar 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 Asia may have profound
effects upon the value of a large segment of 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
12
<PAGE>
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.
The foreign securities in which the Fund will be investing may be issued by
issuers located in developing countries. Compared to the United States and other
developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
which trade a small number of securities. Prices of these securities tend to be
especially volatile and, in the past, securities in these countries have offered
greater potential for gain (as well as loss) than securities of companies
located in developed countries.
------------
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures contracts and options on futures
contracts on securities, currencies and indexes. The Fund may also purchase
options on securities to facilitate its participation in the potential
appreciation of the value of the underlying securities. A discussion of these
transactions follows and is supplemented by further disclosure in the Statement
of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract ("forward contract") involves
an obligation to purchase or sell a currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. The Fund may enter into forward
contracts as a hedge against fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.
At other times, when, for example, the Investment Manager or Sub-Advisor
believes 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
13
<PAGE>
portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected when it is determined by the Investment
Manager or Sub-Advisor 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").
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. 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.
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,
14
<PAGE>
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.
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. 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).
Given the Fund's objective of seeking capital appreciation, it should be
recognized that the writing of covered call options on portfolio securities will
reduce the potential for the Fund to realize capital appreciation on such
securities unless and until such time as the option expires unexercised or the
Fund enters into an "offsetting" transaction. For this reason, it is expected
that, under normal market conditions, the Fund will not write covered call
options on all or substantially all of its portfolio securities. The Fund,
however, may write covered call options on currencies in amounts representing
substantially all of the value of its foreign holdings if determined by the
Investment Manager to be appro priate to protect the Fund against the risks of
adverse fluctuations in the values of foreign currencies.
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 (see "Covered Call
Writing" above) 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 to protect itself against a decline
in the value of the security or may purchase put options on currencies in which
such securities are denominated or a different related foreign currency to
protect itself against a decline in the value of the currency in which the
securities are denominated. 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 Nikkei 225 Stock 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.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices.
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
15
<PAGE>
(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.
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.
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.
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."
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, 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.
16
<PAGE>
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.
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
17
<PAGE>
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing 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.
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 & Co. Incorporated
and other broker-dealers that are affiliates of the Investment Manager, and the
Investment Manager's and Sub-Advisor's own analysis of factors they deem
relevant.
Timothy Jensen, Principal of the Sub-Advisor, and Ashutosh Sinha, Vice
President of the Sub-Advisor, each a member of the Sub-Advisor's emerging
markets group, are the primary portfolio managers of the Fund. Prior to joining
the Sub-Advisor in January 1998, Mr. Jensen was a Partner at Ardsley Partners
(July, 1994-December, 1997) and prior thereto was a Vice President of Bankers
Trust (June, 1993-June, 1994). Prior to joining the Sub-Advisor in June, 1995,
Mr. Sinha was an analyst at SBI Funds Management Ltd. (1993-1995).
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 DWR, Morgan
Stanley & Co. Incorporated, other broker-dealer affiliates of the Investment
Manager and 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 & Co. Incorporated, other brokers and dealers that are
affiliates of the Investment Manager and the Sub-Advisor.
Although the Fund does not intend to engage in short-term trading, it may
sell portfolio securities without regard to the length of time that they have
been held when such sale will, in the opinion of the Investment Manager or
Sub-Advisor, contribute to the Fund's investment objective. It is not
anticipated that the Fund's portfolio turnover rate will exceed 100% in any one
year.
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.
18
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued,
or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. As to 75% of its total assets, purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
5. Purchase 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 (e.g., the Fund may not invest in more than 3% of the
outstanding voting securities of any investment company).
6. Invest more than 10% of its total assets in illiquid securities and
repurchase agreements which have a maturity of longer than seven days.
Generally, OTC options and the assets used as "cover" for written OTC
options are "illiquid securities" (securities for which no active and
substantial secondary market exists). 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
19
<PAGE>
Witter & Co., and other dealers which have entered into 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
"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 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 Pacific 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, 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
20
<PAGE>
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 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."
21
<PAGE>
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 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
22
<PAGE>
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 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.
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% 0.25% No
initial 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 to A shares
year decreasing to automatically
0 after six years after
approximately
ten years
- -----------------------------------------------------------
C 1.0% CDSC during 1.0% No
first 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:
23
<PAGE>
<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, 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
24
<PAGE>
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 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
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<PAGE>
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.
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>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF 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
26
<PAGE>
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; and
(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.
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
27
<PAGE>
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 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) 401(k) plans established
by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for their
employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain
other open-end investment companies whose shares are distributed by the
Distributor; and (vi) 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
28
<PAGE>
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 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 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, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $14,155,635, which amount is equal
to 1.0% of the average daily net assets of Class B for the fiscal year. These
payments were calculated pursuant to clause (b) of the compensation formula
under the Plan. All shares held prior to July 28, 1997 have been designated
Class B shares. For the fiscal period July 28 through October 31, 1997, Class A
and Class C shares of the Fund accrued payments under the Plan amounting to $278
and $1,074, respectively, which amounts on an annualized
29
<PAGE>
basis are equal to 0.25% and 1.00% of the average daily net assets of Class A
and Class C, respectively, for such period.
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
$41,117,586 at October 31, 1997, which was equal to 5.53% of the net assets of
Class B on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, 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
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
account executives at the time of sale totalled $11,148 in the case of Class C
at December 31, 1997, which amount was equal to 1.67% 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 value of 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 (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); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the
30
<PAGE>
latest available bid price prior to the time of valuation. When market
quotations are not readily available, including circumstances under which it is
determined by the Investment Manager or Sub-Advisor that sale or bid prices are
not reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Fund's Directors. For valuation purposes,
quotations of foreign portfolio securities, other assets and liabilities and
forward contracts stated in foreign currency are translated into U.S. dollar
equivalents at the prevailing market rates prior to the close of the New York
Stock Exchange. Dividends receivable are accrued as of the ex-dividend date or
as of the time that the relevant ex-dividend date and amounts become known.
Short-term debt securities with remaining maturities of sixty days or less
to maturity at the time of purchase are valued at amortized cost, unless the
Directors determine such does not reflect the securities' 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.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to 4:00 p.m., New York time. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to 4:00 p.m., New York time. Occasionally, events
which may affect the values of such securities and such exchange rates may occur
between the times at which they are determined and 4:00 p.m., New York time, and
will therefore not be reflected in the computation of the Fund's net asset
value. If events 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.
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 "Redemptions 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
31
<PAGE>
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").
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.
For further information regarding plan administration, custodial fees and
other details, investors should contact their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative or the Transfer
Agent.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September,
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount. 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.
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"). Class B shares may also be
exchanged for shares of Morgan Stanley Dean Witter Global Short-Term Income Fund
Inc. ("Global Short-Term"), which is a Morgan Stanley Dean Witter Fund offered
with a CDSC. 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, Global Short-Term 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
32
<PAGE>
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 Funds, Global Short-Term 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 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 or shares of Global Short-Term, 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 or shares of
Global Short-Term 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 or in shares of Global Short-Term
(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 of the Fund exchanged into an Exchange Fund, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees incurred on or after that date which are
attributable to those shares (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for shares of Global Short-Term or 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
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<PAGE>
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. 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 Transfer Agent, 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 sent to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, N.J. 07303 is required. If certificates are held
by the shareholder, the shares may be redeemed by surrendering the certificates
with a written request
34
<PAGE>
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 repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund
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 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.
35
<PAGE>
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 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 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 traded on U.S. exchanges
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 not anticipated that any portion 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
36
<PAGE>
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.
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 claim United States foreign tax credits or
deductions 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
37
<PAGE>
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.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Directors may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Fund's By-Laws. Under certain
circumstances, the Directors may be removed by action of the Directors or by the
Shareholders.
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.
38
<PAGE>
Morgan Stanley Dean Witter
Pacific 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, NY 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
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
SUB-ADVISOR
Morgan Stanley Asset Management Inc.
MORGAN STANLEY
DEAN WITTER
PACIFIC GROWTH
FUND
[PHOTO]
PROSPECTUS -- NOVEMBER 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1998 MORGAN STANLEY
DEAN WITTER
PACIFIC GROWTH
FUND INC.
- ------------------------------------------------------------
Morgan Stanley Dean Witter Pacific 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 Asia, Australia and New Zealand.
A Prospectus for the Fund dated November 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
Pacific 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................................................................ 28
Portfolio Transactions and Brokerage................................................... 29
The Distributor........................................................................ 31
Determination of Net Asset Value....................................................... 36
Purchase of Fund Shares................................................................ 37
Shareholder Services................................................................... 39
Redemptions and Repurchases............................................................ 44
Dividends, Distributions and Taxes..................................................... 46
Performance Information................................................................ 47
Description of Common Stock............................................................ 49
Custodian and Transfer Agent........................................................... 49
Independent Accountants................................................................ 50
Reports to Shareholders................................................................ 50
Legal Counsel.......................................................................... 50
Experts................................................................................ 50
Registration Statement................................................................. 50
Financial Statements--October 31, 1997................................................. 51
Report of Independent Accountants...................................................... 75
Financial Statements--April 30, 1998 (unaudited)....................................... 76
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was incorporated under the laws of the state of Maryland on June
13, 1990 under the name "Dean Witter Pacific Growth Fund Inc." On June 22, 1998,
the Directors of the Fund adopted an Amendment to the Certificate of
Incorporation of the Fund changing the name of the Fund to Morgan Stanley Dean
Witter Pacific Growth Fund Inc.
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 and research relating to the
Fund's portfolio are conducted by or under the direction of officers of the Fund
and of the Investment Manager and 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
32 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
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 Dean Witter Retirement Series
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 S&P 500 Index 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 Variable Investment Series
61 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
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
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 Asset 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 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"), (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
5
<PAGE>
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.
Pursuant to a sub-advisory agreement between the Investment Manager and
Sub-Advisor (the "Sub-Advisory Agreement"), the Sub-Advisor has been retained,
subject to the overall supervision of the Investment Manager and the Directors
of the Fund, to continuously furnish investment advice concerning individual
security selections, asset allocations and overall economic trends with respect
to Pacific basin issuers and to manage the portion of the Fund's portfolio
invested in securities issued by issuers located in Asia, Australia and New
Zealand, subject to the supervision of the Investment Manager. On occasion, the
Sub-Advisor will also provide the Investment Manager with investment advice
concerning potential investment opportunities for the Fund which are available
outside of Asia, Australia and New Zealand.
Morgan Stanley Asset Management Inc. ("MSAM"), 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 [November 1, 1998]. MSAM, 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 September 30, 1998 MSAM,
together with its affiliated asset management companies, had approximately $
billion in assets under management as an investment manager or as a fiduciary
advisor. MSAM has been managing international securities since 1986.
Prior to November, 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 MSAM 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 [November 1, 1998].
6
<PAGE>
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 for expenses of the Fund assumed by the Investment Manager under the
Management Agreement from an annual rate of 1.00% of the portion of daily net
assets not exceeding $1 billion; 0.95% of the portion of daily net assets
exceeding $1 billion 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 $1 billion; 0.90% of daily net assets
exceeding $1 billion 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, 1995, 1996 and 1997, the Fund accrued to
the Investment Manager total compensation under the Investment Management
Agreement of $14,008,538, $16,242,482 and $13,946,846, 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, 1995, 1996 and 1997, the Investment Manager
informed the Fund that it accrued to the Former Sub-Advisor total compensation
under the Sub-Advisory Agreement of $5,603,415, $6,496,993 and $5,578,738,
respectively.
Under their terms, both Agreements had an initial term ending April 30,
1999, and provide that each will continue from year to year thereafter, provided
continuance of each Agreement is 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 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
August 5, 1998: Warren W. Youel & Linda S. Youel Jt ten, 7810 N. Sendero De
Juana, Tucson, AZ 85718-7518 -- 36.813%; MSDW Trust Trustee, Cygnus, Inc., P.O.
Box 957, Jersey City, N.J. 07303-0957 -- 10.721%; Beatus Pension Trust, U/A
dated 3/1/71 B.L. Beatus MD TTEE, 55 Humphreys Center, Suite 300, Memphis, TN
38120-2353 -- 5.489%. The following owned 5% or more of the outstanding shares
of Class C on August 5, 1998: Rita Ross Mahmood, 500 Ruby Drive, Mesquite, NV
89027-2921 -- 6.862%. The following owned 5% or more of the outstanding shares
of Class D on August 5, 1998: Hare & Company, c/o the Bank of New York, P.O. Box
11203, New York, N.Y. 10286-1203 -- 79.637%; Joseph & Patricia Reinkemeyer,
Trustees for the Reinkemeyer Family Trust dated 5/8/86, 1281 Skyline Boulevard,
Reno, N.V. 89509-3585 -- 7.227%; IAM & AW Local Lodge PM#2848, Multi-Emp Wage
Reduction 401K Psp, 3/6/86 Trustee J. Winterhalter, P.O. Box 3039, Birmingham,
MI 48012-3039 -- 6.318%. The following owned 25% or more of the outstanding
shares of Class A on August 5, 1998: Warren W. Youel & Linda S. Youel Jt TEN,
7810 N. Sendero De Juana, Tucson, AZ 85718-7518 -- 36.813%; The following owned
25% or more of the outstanding shares of Class D on August 5, 1998: Hare &
Company, c/o The Bank of New York, P.O. Box 11203, New York, N.Y. 10286-1203 --
79.637%.
7
<PAGE>
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 between MSDW Advisors and the Fund 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 or its parent company 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 87 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) Chairman and Chief Executive Officer of Levitz
Director Furniture Corporation (since November, 1995);
c/o Levitz Furniture Director or Trustee of the Morgan Stanley Dean
Corporation Witter Funds; formerly President and Chief
7887 N. Federal Highway Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 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
Chairman, President, Chief Executive Officer of the Morgan Stanley Dean
Executive Officer and Witter Funds; Chairman, Chief Executive Officer
Director and Trustee of the TCW/DW Funds; formerly
Two World Trade Center Chairman, Chief Executive Officer and Director of
New York, New York MSDW Advisors, MSDW Distributors and MSDW
Services, Executive Vice President and 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
Director Witter Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah) (1974-1992) and Chairman, Senate Banking
500 Huntsman Way Committee (1980-1986); formerly Mayor of Salt Lake
Salt Lake City, Utah 84111 City, Utah (1971-1974); formerly Astronaut, Space
Shuttle Discovery (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
Director Trustee of the Morgan Stanley Dean Witter Funds;
Two World Trade Center Chairman of the Audit Committee and Trustee of the
New York, New York TCW/DW Funds; formerly Chairman of the 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 Advisor (1964-1978).
Wayne E. Hedien (64) Retired; Director or Trustee of the Morgan Stanley
Director Dean Witter Funds; Director of The PMI Group, Inc.
c/o Gordon Altman Butowsky (private mortgage insurance); Trustee and Vice
Weitzen Shalov & Wein Chairman of The Field Museum of Natural History;
Counsel to the Independent formerly associated with the Allstate Companies
Director (1966-1994), most recently as Chairman of The
114 West 47th Street Allstate Corporation (March, 1993-December, 1994)
New York, New York and Chairman and Chief Executive 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.,
Director a consulting firm; Co-Chairman and a founder of
c/o Johnson Smick the Group of Seven Council (G7C), an international
International, Inc. economic commission; Director or Trustee of the
1133 Connecticut Avenue, N.W. Morgan Stanley Dean Witter Funds; Trustee of the
Washington, D.C. TCW/DW Funds; Director of NASDAQ (since June,
1995); Director of Greenwich Capital Markets, Inc.
(broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization of 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
Director investment partnership; Director or Trustee of the
Triumph Capital, L.P. Morgan Stanley Dean Witter Funds; Trustee of the
237 Park Avenue TCW/DW Funds; formerly Vice President, Bankers
New York, New York Trust Company and BT Capital Corporation
(1984-1988); Director of various business
organizations.
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, DWR and Novus Credit
1585 Broadway Services Inc.; Director of MSDW Distributors;
New York, New York Director or Trustee of the Morgan Stanley Dean
Witter 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 (67) Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Director of Citizens Utilities Company; formerly
Weitzen Shalov & Wein Executive Vice President and Chief Investment
Counsel to the Independent Officer of the Home Insurance Company (August,
Trustees 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997) and
Vice President, Secretary Secretary and General Counsel (since February,
and General Counsel 1997) and Director (since July, 1998) of MSDW
Two World Trade Center Advisors and MSDW Services; Senior Vice President
New York, New York (since March, 1997) and Assistant Secretary and
Assistant General Counsel (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
Treasurer InterCapital and DWSC; Treasurer of the Dean
Two World Trade Center Witter Funds 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 SPS Transaction Services, Inc. and various other 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, 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 Trustees consists of nine (9) trustees. 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 87 Morgan Stanley Dean
Witter Funds, comprised of 133 portfolios. As of September 30, 1998, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $ 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. 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 Trustee 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.
Finally, 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.
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, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,900
John R. Haire................................................. 3,850
Wayne E. Hedien............................................... 482
Dr. Manuel H. Johnson......................................... 1,850
Michael E. Nugent............................................. 1,900
John L. Schroeder............................................. 1,900
</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. Mr. Hedien's term as
Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
CHAIRMAN OF FOR SERVICE COMPENSATION
INDEPENDENT AS FOR
FOR SERVICE DIRECTORS/TRUSTEES CHAIRMAN OF SERVICES TO
AS DIRECTOR AND AND AUDIT INDEPENDENT 84
COMMITTEE FOR SERVICE AS COMMITTEES OF TRUSTEES MORGAN
MEMBER OF 84 TRUSTEE AND 84 AND AUDIT STANLEY
MORGAN STANLEY COMMITTEE MORGAN STANLEY COMMITTEES OF DEAN WITTER
NAME OF DEAN WITTER MEMBER OF 14 DEAN WITTER 14 FUNDS AND 14
INDEPENDENT DIRECTOR FUNDS TCW/DW FUNDS 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
12
<PAGE>
who retires after serving for at least five years (or such lesser period as may
be determined by the Board) as an Independent Director of any Morgan Stanley
Dean Witter Fund that has adopted the 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 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,
1997 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, 1997 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 RETIREMENT BENEFITS ESTIMATED ANNUAL
------------------------------------ ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT DIRECTOR (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ----------------------------------- ------------------- --------------- ---------------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic...................... 10 58.82% $ 372 $ 20,499 $ 925 $ 55,026
Edwin J. Garn...................... 10 58.82 620 30,878 925 55,026
John R. Haire...................... 10 58.82 228 (19,823)(3) 2,246 132,002
Wayne E. Hedien.................... 9 50.00 0 0 794 46,772
Dr. Manuel H. Johnson.............. 10 58.82 250 12,832 925 55,026
Michael E. Nugent.................. 10 58.82 468 22,546 925 55,026
John L. Schroeder.................. 8 49.02 714 39,350 771 46,123
</TABLE>
- ------------------------
(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 reflects the effect of the extension of Mr. Haire's term as
Director 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 Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
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,
13
<PAGE>
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 purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category of "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 Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
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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. As a
result, the Fund may be forced to liquidate portfolio securities at a time which
may be disadvantageous to the Fund, in order to have sufficient cash to make
requisite distributions.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However 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;
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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 Corporation ("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 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 (however, the ability of the Fund to terminate a
contract is contingent upon the willingness of the currency trader with whom the
contract has been entered into to permit an offsetting transaction). 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
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security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a fixed-income security
or the currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other appropriate 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.
Call and put options on U.S. Treasury notes, bonds and bills and on various
foreign currencies 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
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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.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which
it is denominated and the U.S. dollar, then a loss to the Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, the Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. While in the opinion of the management
of the Fund, the market for such options 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.
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
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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
the 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. 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. Furthermore, a premium received on a call
written or a foreign currency will ameliorate any potential loss of value on the
portfolio security due to a decline in the value of the currency. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, the Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
As regards listed options and certain 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).
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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 on 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 and currencies (or related
currencies) which it holds in its portfolio only to protect itself against a
decline in the value of the security. If the value of the underlying security
(currency) were to fall below the exercise price of the put purchased in an
amount greater than the premium paid for the option, the Fund would incur no
additional loss. In addition, the Fund may sell a put option which it has
previously purchased prior to the sale of the securities (currencies) underlying
such option. Such a sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold. And such gain or loss
could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. 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.
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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
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
Each of the exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different exchanges or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
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).
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
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portfolio securities fall, the Fund may sell an interest rate futures contract.
If declining interest rates are anticipated, the Fund may purchase an interest
rate futures contract to protect against a potential increase in the price of
securities the Fund intends to purchase. Subsequently, appropriate 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) securities
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.
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 2% of the contract amount. Initial margin
requirements are established by the exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities called "variation margin," with the Fund's futures contract clearing
broker, which are reflective of price fluctuations in the futures contract.
Currently, interest rate futures contracts can be purchased on debt securities
such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with Maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise 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
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the same circumstances as forward foreign currency exchange contracts. The
Investment Manager will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to utilize futures contracts or forward
contracts its in foreign currency transactions and hedging strategy. Currently,
currency futures exist for, among other foreign currencies, the Japanese yen,
German mark, Canadian dollar, 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 regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Investment Manager's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are 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 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 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.
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<PAGE>
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 or sale of a put 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 Fund's
management 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, the Fund might write a call option on an interest rate futures
contract, the underlying security of which correlates with the portion of the
portfolio the Fund 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 portfolio.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
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 (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.
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.
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.
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<PAGE>
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 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.
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<PAGE>
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.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
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 requested from the
counterparty and when received, added to the account to maintain full
collateralization. In the event the original seller defaults on its obligations
to repurchase, as a result of its bankruptcy or otherwise, the Fund will seek to
sell the collateral, which action could involve costs or delays. In such case,
the Fund's ability to dispose of the collateral to recover its investment may be
restricted or delayed.
The Fund will accrue interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Fund to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continuously monitored by the management of the Fund subject
to procedures established by the Directors. The procedures also require that the
collateral underlying the agreement be specified. The Fund does not 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
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<PAGE>
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, U.S. Government securities or
other appropriate liquid portfolio 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 of portfolio securities while it is still subject to a reverse
repurchase agreement. The Fund has not to date entered into any reverse
repurchase agreements and presently has no intention of entering into reverse
repurchase agreements during the coming year.
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 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.
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<PAGE>
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 day's 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, lent any of its portfolio securities and it does not presently
intend to lend any of its portfolio securities in the foreseeable future.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein (including real
estate limited partnerships), 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. Borrow money (except insofar as to the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement up to an amount not
exceeding 10% of the Fund's total assets), except that the Fund may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not
including the amount borrowed).
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<PAGE>
4. 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.
5. 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.
6. Make short sales of securities.
7. 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.
8. Invest for the purpose of exercising control or management of any
other issuer.
9. 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.
10. 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.)
11. 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.
In addition, 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.
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,
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<PAGE>
in which case no commissions or discounts are paid. The Fund paid $7,683,917,
$8,295,697 and $6,754,100 in brokerage commissions during the fiscal years ended
October 31, 1995, 1996 and 1997, respectively.
The Investment Manager and the Sub-Advisor currently serve as investment
advisers to a number of clients, including, in the case of the Investment
Manager, other investment companies, and may in the future act as investment
manager or adviser to others. It is the practice of the Investment Manager and
the Sub-Advisor to cause purchase and sale transactions to be allocated among
the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client accounts,
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 its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
In seeking to implement the Fund's policies, the Investment Manager and the
Sub-Advisor effect transactions with those brokers and dealers who the
Investment Manager and the Sub-Advisor believe provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager
and/or the Sub-Advisor believe such prices and executions are obtainable from
more than one broker or dealer, they may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Investment Manager and/or the Sub-Advisor. Such
services may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager and the
Sub-Advisor from brokers and dealers may be of benefit to the Investment Manager
and the Sub-Advisor in the management of accounts of some of 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.
30
<PAGE>
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 & Co. Incorporated ("MS & Co."), other
affiliated brokers and dealers. In order for an affiliated broker-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 May 31 through October 31, 1997, the Fund paid a total
of $119,132 in brokerage commissions to Morgan Stanley & Co., Inc., 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. The brokerage commissions paid to MS & Co. represented approximately
1.76% of the total brokerage commissions paid by the Fund for the year and were
paid on account of transactions having an aggregate dollar value equal to
approximately 1.83% of the aggregate dollar value of all portfolio transactions
of the Fund during the period for which commissions were paid. The Fund paid
brokerage commissions to affiliates of the Former Sub-Advisor in the amounts of
$750,676 and $177,930 for the fiscal years ended October 31, 1995 and October
31, 1996, respectively. During the fiscal year ended October 31, 1996 and 1997,
the Fund paid affiliated broker-dealers of the Former Sub-Advisor for
transactions as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
EXECUTED TRADES
BROKERAGE PERCENTAGE OF ON WHICH
COMMISSIONS PAID AGGREGATE BROKERAGE
TO AFFILIATED BROKERAGE COMMISSIONS
BROKER OF SUB-ADVISOR COMMISSIONS FOR WERE PAID FOR
FOR FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
NAME OF BROKER 10/31/97 10/31/97 10/31/97
- ---------------------------------------- --------------------- ---------------- ----------------
<S> <C> <C> <C>
Deutsche Morgan Grenfell Securities Hong
Kong Ltd............................... $ 42,441 0.63% 0.90%
Deutsche Morgan Grenfell & Partners
Securities Pte. Ltd.................... 135,489 2.01 1.65
</TABLE>
PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
100% in any one year. A 100% turnover rate would occur, for example, if 100% of
the securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
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
31
<PAGE>
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 has 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 Fund's 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 $4,234,570, $3,770,779 and $4,821,220 in contingent
deferred sales charges from Class B for the fiscal years ended October 31, 1995,
1996 and 1997, respectively, (b) approximately $0 and $650 in contingent
deferred sales charges from Class A and Class C, respectively, for the fiscal
year ended October 31, 1997, and (c) approximately $11,000 in front-end sales
charges from Class A for the fiscal year ended October 31, 1997, 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.
32
<PAGE>
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 July 19, 1990 and by
DWR, as the then sole stockholder of the Fund on September 27, 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 and DWR. The
amendments provide that payments under the Plan will be made to the Distributor
rather than to DWR as they had been before the amendment, and that the
Distributor in turn is authorized to make payments to DWR, its affiliates or
other selected broker-dealers (or direct that the Fund pay such entities
directly). The Distributor is also authorized to retain part of such fee as
compensation for its own distribution-related expenses. At their meeting held on
April 28, 1993, the Directors, including a majority of the Independent 12b-1
Directors, had also approved certain technical amendments to the Plan in
connection with amendments adopted by the National Association of Securities
Dealers, Inc. to its Rules of 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, 1997 of $14,155,635. This amount is equal to payments
required to be paid monthly by the Fund which were computed at the annual rate
of 1.0% of the average daily aggregate gross sales of 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 Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived. This 12b-1 fee is treated by the Fund
as an expense in the year it is accrued. For the fiscal period July 28 through
October 31, 1997, Class A and Class C shares of the Fund accrued payments under
the Plan amounting to $278 and $1,074, 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 such period.
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 account executives 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"
or the "Transfer
33
<PAGE>
Agent") 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 account executives 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
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 sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan 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 the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross 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
34
<PAGE>
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, 1997 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$117,676,867 on behalf of Class B since the inception of the Fund. It is
estimated that this amount was spent in approximately the following ways: (i)
3.09% ($3,631,997)--advertising and promotional expenses; (ii) 0.33%
($385,170)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 96.58% ($113,659,700)--other expenses, including the
gross sales credit and the carrying charge, of which 7.75% ($8,809,628)
represents carrying charges, 37.06% ($42,118,274) represents commission credits
to DWR branch offices for payments of commissions to account executives and
55.19% ($62,731,798) represents overhead and other branch office
distribution-related expenses. The amounts accrued by Class A and Class C for
distribution during the fiscal period July 28 through October 31, 1997 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 the
excess distribution expenses, 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 $41,117,586 as of
October 31, 1997. Because there is no requirement under the Plan that the
Distributor be reimbursed for all its 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 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 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, 1991, and
provided that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Directors, including a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the
35
<PAGE>
"Independent 12b-1 Directors"). The Plan was most recently submitted to and
approved for continuance for one year, until April 30, 1999, by the Directors of
the Fund, including a majority of the Independent 12b-1 Directors, at their
meeting held on April 30, 1998, after evaluating all the information they deemed
necessary to make an informed determination of whether the Plan should be
continued. In making their determination to continue the Plan, the Directors
considered: (1) the Fund's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits the Fund
had obtained, was obtaining and would be likely to obtain under the Plan; and
(3) what services had been provided and were continuing to be provided under the
Plan by DWR to the Fund and its shareholders. Based upon their review, the
Directors of the Fund, including each of the Independent 12b-1 Directors,
determined that continuation of the Plan would be in the best interest of the
Fund and would have a reasonable likelihood of continuing to benefit the Fund
and its shareholders. In the Directors' quarterly review of the Plan, they will
consider its continued appropriateness and the level of compensation provided
therein.
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 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 and on each other day in which there is a
sufficient degree of trading in the Fund's investments to affect the net asset
value, except that the net asset value may not be computed on a day on which no
orders to purchase, or tenders to sell or redeem, Fund shares have been
received, by taking the value of all assets of the Fund, subtracting its
liabilities, dividing by the number of shares outstanding and adjusting to the
nearest cent. The New York Stock Exchange currently observes the following
holidays: New Year's Day; 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 sixty days, whereupon they will
be valued at amortized cost using their value on the 61st day unless the
Directors determine such does not reflect the securities' fair value, in which
case these securities will be valued at their fair value as determined by the
Directors. Options are valued at the mean between their latest bid and asked
prices. Futures are valued at the last sale price as of the close of the
commodities exchange on which they trade unless the Directors determine that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined by the Directors. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Directors.
36
<PAGE>
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 ("MSDW
Trust" or "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 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
37
<PAGE>
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
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,
38
<PAGE>
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>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF 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>
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>
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>
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.
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
39
<PAGE>
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 another 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 Pacific Growth Fund Inc. or in
another Class of Morgan Stanley Dean Witter Pacific 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 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 dividend or distribution in shares of
the applicable Class at the net asset value, 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 who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) check in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable CDSC will be imposed on shares redeemed under
the Withdrawal Plan (see "Purchase of Fund
40
<PAGE>
Shares"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable CDSC) to the shareholder will be the designated monthly
or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
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.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
shareholders 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 Pacific 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 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 non-CDSC 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"). Class B shares may also
41
<PAGE>
be exchanged for shares of Morgan Stanley Dean Witter Global Short-Term Income
Fund Inc. ("Global Short-Term"), which is a Morgan Stanley Dean Witter Fund
offered with a CDSC. 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 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 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 or Global Short-Term 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 investment
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 or in Global Short-Term. 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 which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a Morgan Stanley Dean Witter
Multi-Class Fund or Global Short-Term from the money market fund, with no CDSC
being imposed on such exchange. The investment period previously frozen when
shares were first exchanged for shares of the Exchange Fund resumes on the last
day of the month in which shares of a Morgan Stanley Dean Witter Multi-Class
Fund or of Global Short-Term are reacquired. Thus, 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 or in
Global Short-Term. 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 or in Global Short-Term are exchanged for shares of a Morgan Stanley Dean
Witter Multi-Class Fund, shares of Global Short-Term, shares of a FSC Fund, or
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 (of the
Fund or another Morgan Stanley Dean Witter Fund) and (iii) acquired in exchange
for shares of FSC Funds, or for shares of other Morgan Stanley 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
42
<PAGE>
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 a block 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 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
43
<PAGE>
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.
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. 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.
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. 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
44
<PAGE>
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 check 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 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.
45
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be generally short-term capital 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. Capital gains distributions are not eligible for
the dividends received deduction. The Taxpayer Relief Act reduces the maximum
tax rate on long-term capital gains from 28% to 20%; it also lengthens the
required holding period to obtain the lower rate from more than 12 months to
more than 18 months. However, the IRS Restructuring and Reform Act of 1998
reduces the holding period requirement for the lower capital gain rate to more
than 12 months for transactions occurring after January 1, 1998. 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. 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 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
withholding 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 or
deductions 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
46
<PAGE>
with the Internal Revenue Service pursuant to which shareholders of the Fund
will be required to include their respective pro rata portions of such
withholding taxes in their United States income tax returns as gross income,
treat such respective pro rata portions as taxes paid by them, and deduct such
respective pro rata portions in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. If the Fund does elect to file the election with the Internal
Revenue Service, the Fund will report annually to its shareholders the amount
per share of such withholding.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions.
The Fund may be subject to taxes in foreign countries in which it invests.
In addition, if the Fund were deemed to be a resident of the United Kingdom for
United Kingdom tax purposes or if the Fund were treated as being engaged in a
trading activity through an agent in the United Kingdom, there is a risk that
the United Kingdom would attempt to tax all or a portion of the Fund's gains or
income. In light of the structure of the Fund and the terms and conditions of
the Investment Management and Sub-Advisory Agreements, it is believed by the
Investment Manager 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,
47
<PAGE>
five or ten year or other period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing the average annual total return involves a percentage obtained by
dividing the ending redeemable value by the amount of the initial investment,
taking a root of the quotient (where the root is equivalent to the number of
years in the period) and subtracting 1 from the result. The average annual total
returns of Class B for the one year and five year period ended October 31, 1997
and for the period from November 30, 1990 (commencement of operations) through
October 31, 1997 were -34.41%, 1.96% and 5.50%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D 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 by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value is
reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through October 31,
1997 were -37.16%, -34.49% and -33.68% for Class A, Class C and Class D,
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 one year and five year
period ended October 31, 1997 and the period from November 30, 1990
(commencement of operations) through October 31, 1997 were -31.01%, 2.33% and
5.50%, 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 one year and five year period
ended October 31, 1997 and the period from November 30, 1990 (commencement of
operations) through October 31, 1997 were -31.01%, 12.18% and 44.86%,
respectively. Based on the foregoing calculations, the total returns for Class
A, Class C and Class D for the period July 28 through October 31, 1997 were
- -33.68%, -33.83% and -33.68%, 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
48
<PAGE>
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
(or declined) to the following amounts at October 31, 1997:
<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 $ 6,284 $ 31,834 $ 64,330
Class B.......................................................... 11/30/90 14,486 72,430 144,860
Class C.......................................................... 7/28/97 6,617 33,085 66,170
Class D.......................................................... 7/28/97 6,632 33,160 66,320
</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 billion shares of common stock of $0.01
par value. Shares of the Fund, when issued, are fully paid, non-assessable,
fully transferable and redeemable at the option of the holder. All shares are
equal as to earnings, assets and voting privileges. There are no conversion,
preemptive or other subscription rights. In the event of liquidation, each share
of common stock of the Fund is entitled to its portion of all of the Fund's
assets after all debts and expenses have been paid. Except for agreements
entered into by the Fund in its ordinary course of business within the
limitations of the Fund's fundamental investment policies (which may be modified
only by shareholder vote), the Fund will not issue any securities other than
common stock.
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and in such
event, the holders of the remaining less than 50% of the shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors.
The Fund's By-Laws provide that one or more of the Fund's Directors may be
removed, either with or without cause, at any time by the affirmative vote of
the Fund's shareholders holding a majority of the outstanding shares entitled to
vote for the election of Directors. A special meeting of the shareholders of the
Fund will be called by the Fund's Secretary upon the written request of
shareholders entitled to vote at least 10% of the Fund's outstanding shares. The
Fund will also comply with the provisions of Section 16(c) of the Act.
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. Morgan Stanley Dean Witter Trust FSB is an affiliate of
Morgan Stanley Dean Witter Advisors Inc., the Fund's Investment Manager and
Morgan Stanley Dean Witter Distributor 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,
49
<PAGE>
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,
1997 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.
50
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS, WARRANTS, RIGHTS AND BONDS (95.2)
AUSTRALIA (6.3%)
BANKING
700,000 Australia & New Zealand Banking Group Ltd....................................... $ 4,867,050
1,500,000 Westpac Banking Corp., Ltd...................................................... 8,705,178
------------
13,572,228
------------
BUILDING & CONSTRUCTION
1,666,000 Boral Ltd....................................................................... 4,367,196
------------
ENERGY
500,000 Woodside Petroleum Ltd.......................................................... 4,208,904
------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
1,200,000 Foster's Brewing Group Ltd...................................................... 2,270,916
6,000,000 Goodman Fielder Ltd............................................................. 9,167,772
------------
11,438,688
------------
METALS & MINING
450,000 Broken Hill Proprietary Co., Ltd................................................ 4,447,211
------------
MULTI-INDUSTRY
1,750,000 Pacific Dunlop Ltd.............................................................. 3,725,108
------------
RETAIL STORES
1,000,000 Coles Myer Ltd.................................................................. 4,794,156
------------
TOTAL AUSTRALIA................................................................. 46,553,491
------------
CHINA (0.8%)
AUTOMOTIVE
2,200,000 Qingling Motors Co.............................................................. 1,437,537
------------
TRANSPORTATION
1,700,000 Jinhui Shipping and Transportation Ltd.......................................... 1,210,964
------------
UTILITIES - ELECTRIC
10,350,000 Zhejiang Southeast Electric Power Co., Ltd. (B Shares).......................... 3,332,700
------------
TOTAL CHINA..................................................................... 5,981,201
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HONG KONG (33.7%)
BANKING
750,400 Bank of East Asia, Ltd.......................................................... $ 1,679,746
450,200 Dah Sing Financial Group........................................................ 1,130,087
1,285,838 Dao Heng Bank Group Ltd......................................................... 2,961,495
504,000 Guoco Group Ltd................................................................. 1,102,103
1,600,000 Hang Seng Bank Ltd.............................................................. 13,922,495
230,000 HSBC Holdings PLC............................................................... 5,207,996
156,000 International Bank of Asia...................................................... 72,666
------------
26,076,588
------------
CONGLOMERATES
250,000 Citic Pacific Ltd............................................................... 1,196,869
6,568,000 Hutchison Whampoa, Ltd.......................................................... 45,466,520
514,800 Jardine Matheson Holdings Ltd................................................... 3,294,720
920,000 Shanghai Industrial Holdings Ltd................................................ 4,094,973
1,500,000 Swire Pacific Ltd. (Class A).................................................... 8,015,786
------------
62,068,868
------------
ELECTRONIC & ELECTRICAL EQUIPMENT
1,500,000 ASM Pacific Technology Ltd...................................................... 1,125,704
6,700,000 Elec & Eltek International Holdings Ltd......................................... 2,470,725
843,000 Johnson Electric Holdings Ltd................................................... 2,301,520
------------
5,897,949
------------
ENGINEERING & CONSTRUCTION
673,000 Cheung Kong Infrastructure Holdings............................................. 1,741,606
1,000,000 Road King Infrastructure Ltd.*.................................................. 646,956
------------
2,388,562
------------
HOTELS/MOTELS
6,000,000 CDL Hotels International, Ltd................................................... 1,727,373
------------
INVESTMENT COMPANIES
100,000 Investment Co. of China*** *.................................................... 494,000
------------
LIFE INSURANCE
999,000 National Mutual Asia Ltd........................................................ 904,833
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PUBLISHING
3,000,000 South China Morning Post (Holdings) Ltd......................................... $ 2,600,763
------------
REAL ESTATE
1,500,000 Amoy Properties, Ltd............................................................ 1,290,677
4,215,000 Cheung Kong (Holdings) Ltd...................................................... 29,314,388
1,300,000 China Resources Enterprise Ltd.................................................. 3,566,022
1,260,000 Great Eagle Holdings Ltd........................................................ 1,923,789
600,000 Henderson Land Development Co., Ltd............................................. 3,322,766
2,100,000 Hong Kong Land Holdings Ltd..................................................... 4,788,000
400,200 Hysan Development Co., Ltd...................................................... 836,285
4,333,000 New World Development Co., Ltd.................................................. 15,249,738
3,222,500 Sun Hung Kai Properties Ltd..................................................... 23,766,902
3,074,000 Wharf (Holdings) Ltd............................................................ 6,284,428
------------
90,342,995
------------
RETAIL - SPECIALTY APPAREL
412,000 Dickson Concepts International Ltd. (New)....................................... 887,598
------------
TELECOMMUNICATIONS
11,500,400 Hong Kong Telecommunications Ltd................................................ 22,023,151
------------
TRANSPORTATION
3,450,000 Cosco Pacific Ltd............................................................... 4,017,597
------------
UTILITIES
2,209,000 China Light & Power Co., Ltd.................................................... 11,633,085
5,850,000 Hong Kong & China Gas Co., Ltd.................................................. 11,051,304
2,700,000 Hong Kong Electric Holdings Ltd................................................. 9,153,135
------------
31,837,524
------------
TOTAL HONG KONG................................................................. 251,267,801
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDIA (1.3%)
ALUMINUM
91,000 Hindalco Industries Ltd. (GDR)*................................................. $ 2,502,500
------------
BANKS
213,000 State Bank of India (GDR)*...................................................... 3,780,750
------------
TEXTILES
70,000 Reliance Industries Ltd. (GDR).................................................. 1,426,250
$ 2,000 K Reliance Industries Ltd. 3.50% due 11/03/99 (Conv.)............................. 2,270,000
------------
3,696,250
------------
TOTAL INDIA..................................................................... 9,979,500
------------
INDONESIA (5.7%)
AUTO PARTS
16,000,000 PT Gajah Tunggal................................................................ 2,681,564
------------
BANKING
13,730,200 Pt Bank Bira.................................................................... 1,917,626
1,000,000 PT Bank Dagang Nasional Indonesia (Rights)*..................................... 30,447
906,730 PT Bank Internasional Indonesia (Warrants due 01/17/00)*........................ 51,668
6,997,500 PT Pan Indonesia Bank........................................................... 1,563,687
999,642 PT Pan Indonesia Bank (Warrants due 06/26/00)*.................................. 25,131
------------
3,588,559
------------
BUILDING MATERIALS
10,333,096 PT Mulia Industrindo*........................................................... 1,876,121
------------
CONGLOMERATES
2,500,000 PT Bimantara Citra.............................................................. 2,304,469
------------
CONSTRUCTION EQUIPMENT
1,900,000 PT United Tractors.............................................................. 1,326,816
------------
CONSTRUCTION PLANT & EQUIPMENT
11,000,000 PT Citra Marga Nusaphala Persada................................................ 3,149,441
------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
568,000 PT Hanjaya Mandala Sampoerna.................................................... 995,587
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOREST PRODUCTS, PAPER & PACKING
34,874 PT Indah Kiat Pulp & Paper Corp................................................. $ 13,394
993,175 PT Pabrik Kertas Tjiwi Kimia.................................................... 367,586
310,300 PT Pabrik Kertas Tjiwi Kimia (Warrants due 07/15/02)*........................... 39,004
------------
419,984
------------
INVESTMENT COMPANIES
2,500,000 Peregrine Indonesia Fund Ltd. (Units)++**....................................... 2,387,750
------------
METALS
3,523,000 PT Tambang Timah................................................................ 4,231,536
------------
OIL & GAS EXPLORATION
100,000 Gulf Indonesia Resources Ltd.*.................................................. 2,100,000
------------
PHARMACEUTICALS
3,000,000 PT Kalbe Farma.................................................................. 1,843,576
------------
PLANTATION
3,530,100 PT London Sumatra Indonesia..................................................... 3,820,988
------------
PROPERTY
200,000 PT Kawasan Jababeka - 144A** (GDR)*............................................. 776,000
------------
RETAIL - DEPARTMENT STORES
2,710,000 PT Ramayana Lestari Sentosa*.................................................... 4,617,598
------------
TELECOMMUNICATIONS
7,058,000 PT Telekomunikasi Indonesia..................................................... 6,604,553
------------
TOTAL INDONESIA................................................................. 42,724,542
------------
JAPAN (22.0%)
AGRICULTURE
2,500 Hokuto Corp..................................................................... 70,865
------------
APPAREL
41,000 World Co., Ltd.................................................................. 1,516,625
------------
AUTO TRUCKS & PARTS
110,000 NGK Spark Plug Co., Ltd......................................................... 765,337
55,000 Yasunaga Corp................................................................... 457,190
------------
1,222,527
------------
AUTOMOTIVE
97,000 Honda Motor Co.................................................................. 3,265,586
112,000 Toyota Motor Corp............................................................... 3,118,870
------------
6,384,456
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BANKING
217,000 Asahi Bank, Ltd................................................................. $ 1,125,586
246,000 Bank of Tokyo-Mitsubishi Ltd.................................................... 3,210,474
196,000 Mitsui Trust & Banking Co., Ltd................................................. 681,031
158,000 Sanwa Bank, Ltd................................................................. 1,589,194
157,000 Sumitomo Bank................................................................... 1,670,490
164,000 Sumitomo Trust & Banking........................................................ 1,250,108
------------
9,526,883
------------
BUILDING & CONSTRUCTION
55,000 Kaneshita Construction.......................................................... 368,038
------------
BUILDING MATERIALS
94,000 Ibiden Co., Ltd................................................................. 1,562,760
276,000 Sanwa Shutter................................................................... 1,734,464
------------
3,297,224
------------
BUSINESS SERVICES
185,000 Ricoh Co., Ltd.................................................................. 2,383,624
36,000 Secom Co........................................................................ 2,328,180
------------
4,711,804
------------
CHEMICALS
707,000 Mitsubishi Chemical Corp........................................................ 1,592,660
132,000 Mitsubishi Gas Chemical Co...................................................... 459,751
489,000 Nippon Zeon Co., Ltd............................................................ 1,772,269
104,000 Shin-Etsu Chemical Co........................................................... 2,541,646
225,000 Sumitomo Bakelite Co., Ltd...................................................... 1,569,202
------------
7,935,528
------------
COMMERCIAL SERVICES
30,000 Nichii Gakkan Co................................................................ 1,221,945
------------
COMPUTER SOFTWARE & SERVICES
84,000 Hitachi Software Engineering Co., Ltd........................................... 2,283,292
13,000 Ines Corp....................................................................... 184,788
53,000 Meitec Corp..................................................................... 1,564,007
16,000 Nintendo Co., Ltd............................................................... 1,383,209
62 NTT Data Corp................................................................... 2,963,425
34,000 Ricoh Elemex.................................................................... 276,974
------------
8,655,695
------------
COMPUTERS
21,000 Nidec Corp...................................................................... 820,449
------------
ELECTRIC
80,000 Tokyo Electric Power Co......................................................... 1,529,510
------------
ELECTRONIC & ELECTRICAL EQUIPMENT
27,000 Advantest Corp.................................................................. 2,233,167
130,000 Aiwa Co., Ltd................................................................... 2,906,899
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Y 100,000 K Canon, Inc. 1.20% due 12/20/05 (Conv.).......................................... $ 1,828,761
Y 50,000 K Canon, Inc. 1.30% due 12/19/08 (Conv.).......................................... 813,383
224,000 Fujitsu, Ltd.................................................................... 2,457,855
176,000 Hitachi, Ltd.................................................................... 1,353,283
60,000 Mitsui High-Tec................................................................. 1,366,584
37,000 Murata Manufacturing Co., Ltd................................................... 1,500,914
33,600 Sony Corp....................................................................... 2,790,224
135,000 Sumitomo Electric Industries.................................................... 1,784,289
34,000 TDK Corp........................................................................ 2,820,615
------------
21,855,974
------------
ELECTRONIC COMPONENTS
155,000 Dainippon Screen Manufacturing Co., Ltd......................................... 1,257,523
70,000 Mitsumi Electric Co., Ltd....................................................... 1,373,234
2,000 Sunx Ltd........................................................................ 20,948
------------
2,651,705
------------
ELECTRONICS
29,000 Rohm Co., Ltd................................................................... 2,868,662
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
33,000 Shinko Electric Industries Co., Ltd............................................. 1,399,003
100,000 Toshiba Ceramics Co., Ltd....................................................... 642,560
------------
2,041,563
------------
ELECTRONICS - SPECIALTY
90,000 Taiyo Yuden Co., Ltd............................................................ 1,039,900
------------
ENGINEERING & CONSTRUCTION
364,000 Kajima Corp..................................................................... 1,630,889
55,500 Nitto Kohki Co., Ltd............................................................ 991,895
------------
2,622,784
------------
ENTERTAINMENT
33,000 H.I.S. Co., Ltd................................................................. 1,072,569
37,700 Sony Music Entertainment Inc.................................................... 1,325,611
------------
2,398,180
------------
FINANCIAL SERVICES
15,400 Nichiei Co., Ltd. (Kyoto)....................................................... 1,689,776
156,000 Nomura Securities Co., Ltd...................................................... 1,815,461
27,500 Orix Corp....................................................................... 1,879,052
------------
5,384,289
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
163,000 Nippon Meat Packers, Inc........................................................ $ 2,276,309
------------
HAND TOOLS
16,000 Disco Corp...................................................................... 514,713
------------
INDUSTRIALS
Y 43,000 K Nippon Densan Corp. 1.00% 09/30/03 (Conv.)...................................... 482,544
------------
INSURANCE
249,000 Tokio Marine & Fire Insurance Co................................................ 2,483,791
------------
MACHINERY
212,000 Daifuku Co., Ltd................................................................ 1,589,559
88,000 Fuji Machine Manufacturing Co., Ltd............................................. 2,552,951
16,500 Keyence Corp.................................................................... 2,468,828
250,000 Minebea Co., Ltd................................................................ 2,493,766
Y 21,000 K Minebea Co., Ltd. 0.80% due 03/31/03 (Conv.).................................... 247,880
356,000 Mitsubishi Heavy Industries, Ltd................................................ 1,748,928
171,000 Nippon Thompson Co.............................................................. 1,172,693
270,000 OSG Corp........................................................................ 1,571,072
100,000 Tsudakoma....................................................................... 332,502
------------
14,178,179
------------
MANUFACTURING
61,000 Nichiha Corp.................................................................... 689,609
------------
MERCHANDISING
50,000 Shimamura Co., Ltd.............................................................. 1,350,790
------------
METALS & MINING
919,000 Nippon Steel Co................................................................. 1,894,530
87,000 Sumitomo Sitix Corp............................................................. 1,533,167
80,000 Sumitomo Special Metals......................................................... 1,536,160
------------
4,963,857
------------
METALS NON-FERROUS
234,000 Fujikura Ltd.................................................................... 1,604,738
582,000 Mitsui Mining & Smelting........................................................ 2,568,928
------------
4,173,666
------------
NATURAL GAS
620,000 Tokyo Gas Co., Ltd.............................................................. 1,422,444
------------
OFFICE EQUIPMENT
13,000 Riso Kagaku..................................................................... 766,168
------------
PHARMACEUTICALS
103,000 Eisai Co., Ltd.................................................................. 1,618,204
79,000 Takeda Chemical Industries...................................................... 2,153,948
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
49,000 Terumo Corp..................................................................... $ 806,484
------------
4,578,636
------------
REAL ESTATE
43,700 Chubu Sekiwa Real Estate, Ltd................................................... 345,096
124,000 Mitsubishi Estate Co., Ltd...................................................... 1,566,750
223,000 Mitsui Fudosan Co............................................................... 2,521,031
------------
4,432,877
------------
RETAIL
45,300 Ministop Co., Ltd............................................................... 1,317,955
23,200 Otsuka Kagu Ltd................................................................. 1,523,525
29,000 Shimachu Co., Ltd............................................................... 617,124
203,000 Tokyo Style Co., Ltd............................................................ 2,143,059
------------
5,601,663
------------
RETAIL - DEPARTMENT STORES
183,000 Hankyu Department Stores........................................................ 1,461,870
------------
RETAIL - GENERAL MERCHANDISE
28,200 Circle K Japan Co., Ltd......................................................... 1,448,678
37,000 Seven - Eleven Japan............................................................ 2,768,080
------------
4,216,758
------------
RETAIL - SPECIALTY
60,000 Aderans Co., Ltd................................................................ 1,615,960
------------
STEEL
1,013,000 Sumitomo Metal Industries....................................................... 2,029,368
100,000 Yamato Kogyo Co., Ltd........................................................... 789,692
------------
2,819,060
------------
TELECOMMUNICATIONS
392 DDI Corp........................................................................ 1,309,925
127,000 Nippon Comsys Corp.............................................................. 1,541,313
358 Nippon Telegraph & Telephone Corp............................................... 3,035,411
------------
5,886,649
------------
TEXTILES
768,000 Mitsubishi Rayon Co., Ltd....................................................... 2,464,239
560,000 Nitto Boseki Co., Ltd........................................................... 1,526,850
------------
3,991,089
------------
TRANSPORTATION
19,000 Kanto Seino Transportation...................................................... 401,164
303,000 Tokyu Corp...................................................................... 1,259,352
------------
1,660,516
------------
UTILITIES - ELECTRIC
69,300 Hokkaido Electric Power......................................................... 1,134,838
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
WHOLESALE & INTERNATIONAL TRADE
359,000 Mitsui & Co..................................................................... $ 2,724,580
7,000 Satori Electric Co., Ltd........................................................ 124,522
------------
2,849,102
------------
WHOLESALE DISTRIBUTOR
31,200 Fujimi, Inc.*................................................................... 1,716,908
49,500 Misumi Corp..................................................................... 806,484
------------
2,523,392
------------
TOTAL JAPAN..................................................................... 164,199,086
------------
MALAYSIA (6.2%)
AUTOMOTIVE
370,000 Edaran Otomobil Nasional Berhad................................................. 1,159,701
455,000 Oriental Holdings Berhad........................................................ 923,582
99,000 UMW Holdings Berhad............................................................. 115,254
------------
2,198,537
------------
BANKING
1,100,000 Affin Holdings Berhad........................................................... 837,313
34,000 Hong Leong Credit Berhad........................................................ 47,296
701,000 Malayan Banking Berhad.......................................................... 2,699,373
2,200,333 Public Bank Berhad.............................................................. 1,372,745
------------
4,956,727
------------
BUILDING & CONSTRUCTION
60,000 Dialog Group Berhad............................................................. 240,000
700,000 Gamuda Berhad................................................................... 1,065,672
134,000 Gamuda Berhad (Warrants due 12/29/01)*.......................................... 33,600
1,500,000 Lingkaran Trans Kota Holdings Berhad*........................................... 1,432,836
1,750 Sungei Way Holdings Berhad (Warrants due 06/29/99)*............................. 345
956,968 United Engineers Malaysia Berhad................................................ 2,256,731
273,000 YTL Corp. Berhad................................................................ 301,522
------------
5,330,706
------------
CONGLOMERATES
650,000 Sime Darby Berhad............................................................... 931,343
------------
ELECTRONICS
475,000 Malaysian Pacific Industries Berhad............................................. 1,474,627
------------
INSURANCE
605,000 Malaysian Assurance Alliance Berhad............................................. 1,083,582
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LEISURE
460,000 Berjaya Sports Toto Berhad...................................................... $ 1,249,552
2,332,800 Magnum Corporation Berhad....................................................... 1,817,495
3,161,000 Metroplex Berhad................................................................ 1,094,555
500,000 Resorts World Berhad............................................................ 888,060
------------
5,049,662
------------
PLANTATION
1,800,000 Highlands & Lowlands Berhad..................................................... 2,031,045
2,695,000 IOI Corporated Berhad........................................................... 2,284,716
900,000 Kuala Lumpur Kepong Berhad...................................................... 2,149,254
------------
6,465,015
------------
PUBLISHING
702,000 Star Publications............................................................... 1,299,224
------------
REAL ESTATE
1,200,000 Pelangi Berhad.................................................................. 576,716
900,000 Sime UEP Properties Berhad...................................................... 832,836
------------
1,409,552
------------
TELECOMMUNICATIONS
1,850,000 Telekom Malaysia Berhad......................................................... 4,776,866
------------
TOBACCO
600,000 RJ Reynolds Berhad.............................................................. 922,388
------------
UTILITIES
229,000 Prime Utilities Berhad.......................................................... 676,746
147,000 Prime Utilities Berhad (Warrants due 03/11/01)*................................. 71,964
294,000 Prime Utilities Berhad 1.00% due 03/01/01 (Loan Stock).......................... 52,657
2,650,000 Tenaga Nasional Berhad.......................................................... 5,695,522
------------
6,496,889
------------
WATER
2,207,000 Puncak Niaga Holdings Berhad.................................................... 2,595,696
------------
WIRE & CABLE
1,400,000 Leader Universal Holdings Berhad................................................ 852,537
------------
TOTAL MALAYSIA.................................................................. 45,843,351
------------
PHILIPPINES (1.2%)
BUILDING MATERIALS
341,400 Bacnotan Consolidated Industries................................................ 229,882
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONGLOMERATES
2,700,000 First Philippine Holdings Corp. (B Shares)...................................... $ 2,282,235
------------
ENGINEERING & CONSTRUCTION
14,334,000 DMCI Holdings, Inc.*............................................................ 1,150,006
------------
LEISURE
14,000,000 Belle Corp.*.................................................................... 1,283,668
2,800,000 Belle Corp. (Warrants due 10/06/00)*............................................ 521
------------
1,284,189
------------
TELECOMMUNICATIONS
80,000 Philippine Long Distance Telephone Co. (ADR).................................... 1,940,000
------------
UTILITIES
782,963 Manila Electric Co. (B Shares).................................................. 2,422,923
------------
TOTAL PHILIPPINES............................................................... 9,309,235
------------
SINGAPORE (8.1%)
BANKING
583,250 Development Bank of Singapore, Ltd.............................................. 5,450,588
1,198,200 Overseas Chinese Banking Corp., Ltd............................................. 6,665,130
600,000 Overseas Union Bank, Ltd........................................................ 2,002,543
1,028,000 United Overseas Bank, Ltd....................................................... 5,685,696
------------
19,803,957
------------
CONGLOMERATES
659,000 Jardine Strategic Holdings Ltd.................................................. 2,108,800
988,750 Keppel Corp., Ltd.*............................................................. 3,130,308
1,430,000 Natsteel Ltd.................................................................... 2,318,182
1,016,000 Sembawang Corp., Ltd............................................................ 3,126,154
------------
10,683,444
------------
ELECTRONIC & ELECTRICAL EQUIPMENT
260,000 Elec & Eltek International Co., Ltd............................................. 1,872,000
1,308,000 Venture Manufacturing Ltd....................................................... 4,490,273
------------
6,362,273
------------
ELECTRONICS
300,000 GP Batteries International Ltd.................................................. 877,305
------------
FINANCE
240,000 Hong Leong Finance Ltd. (Warrants due 09/15/98)*................................ 15,258
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE
326,000 Parkway Holdings Ltd............................................................ $ 824,844
------------
METALS - MISCELLANEOUS
2,000,500 Amtek Engineering Ltd........................................................... 1,576,999
------------
PUBLISHING
150,000 Singapore Press Holdings Ltd.................................................... 2,069,294
------------
REAL ESTATE
850,400 City Developments, Ltd.......................................................... 3,568,112
1,000,000 DBS Land Ltd.................................................................... 1,703,751
400,000 Singapore Land Ltd.............................................................. 1,139,224
1,700,000 United Overseas Land, Ltd....................................................... 1,469,803
240,000 United Overseas Land, Ltd. (Warrants due 05/28/01)*............................. 51,875
------------
7,932,765
------------
SHIPBUILDING
700,000 Keppel Fels Ltd................................................................. 1,886,841
------------
TRANSPORTATION
750,000 Singapore Airlines Ltd.......................................................... 5,626,192
------------
UTILITIES - TELECOMMUNICATIONS
1,600,000 Singapore Telecom............................................................... 2,542,912
------------
TOTAL SINGAPORE................................................................. 60,202,084
------------
SOUTH KOREA (2.4%)
AUTOMOTIVE
57,000 Hyundai Motor Co., Ltd.......................................................... 944,063
36,000 Hyundai Motor Co., Ltd. (GDR)................................................... 126,000
------------
1,070,063
------------
BANKING
7,003 Shinhan Bank.................................................................... 53,982
------------
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS
27,249 LG Information & Communication Ltd.............................................. 1,566,818
------------
ELECTRONIC & ELECTRICAL EQUIPMENT
40,000 Samsung Display Devices Co...................................................... 1,229,167
80,118 Samsung Electronics Co. (GDR)................................................... 3,162,992
------------
4,392,159
------------
ENGINEERING & CONSTRUCTION
39,990 Hyundai Engineering & Construction Co........................................... 595,684
------------
INSURANCE
30,840 Oriental Fire & Marine Insurance................................................ 359,800
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANIES
234,000 Atlantis Korean Smaller Companies*.............................................. $ 760,500
65,000 Clemente Korea Emerging Growth Fund*............................................ 276,250
------------
1,036,750
------------
SHIPBUILDING
200,650 Daewoo Heavy Industries......................................................... 1,170,458
------------
STEEL & IRON
110,685 Pohang Iron & Steel Co., Ltd.................................................... 4,942,085
------------
UTILITIES
90,640 Korea Electric Power Corp....................................................... 1,293,508
46,838 Seoul City Gas Go Ltd........................................................... 1,122,160
------------
2,415,668
------------
TOTAL SOUTH KOREA............................................................... 17,603,467
------------
TAIWAN (5.4%)
BANKS
705,000 China Development Corp.......................................................... 2,015,931
846,400 China Trust Commercial Bank*.................................................... 1,178,321
372,960 International Commercial Bank of China.......................................... 688,635
614,900 United World Chinese Commercial Bank*........................................... 1,165,497
------------
5,048,384
------------
BUILDING & CONSTRUCTION
802,420 Cathay Construction Corp........................................................ 865,355
------------
BUILDING MATERIALS
307,491 Asia Cement Corp. (GDR)......................................................... 3,305,528
------------
CHEMICALS
56,000 Formosa Chemical & Fibre Corp................................................... 52,157
1,013,700 Formosa Plastic Corp............................................................ 1,629,871
$ 2,925 K Nan Ya Plastics Corp. 1.75% due 07/19/01 (Conv.)................................ 3,188,250
------------
4,870,278
------------
COMPUTERS
52,750 Acer Inc........................................................................ 73,092
$ 1,900 K Acer Peripherals Inc. 1.25% due 11/27/06 (Conv.)................................ 2,090,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 2,100 K Compal Electronics 1.00% due 11/21/03 (Conv.)................................... $ 2,625,000
780,000 Microtek International, Inc.*................................................... 917,647
$ 1,000 K Yageo Corp. 1.25% due 07/24/03 (Conv.).......................................... 1,450,000
------------
7,155,739
------------
ELECTRONICS - SEMICONDUCTORS/ COMPONENTS
541,800 Siliconware Precision Industries Co.*........................................... 1,062,353
$ 230 K Siliconware Precision Industries Co. 0.50% due 07/21/04 (Conv.)................. 219,650
811,500 Taiwan Semiconductor Manufacturing Co.*......................................... 2,585,662
$ 1,800 K United Microelectronics Corp. - 144A** 0.25% due 05/16/04 (Conv.)............... 1,944,000
------------
5,811,665
------------
INVESTMENT COMPANIES
600 Taipei Fund*.................................................................... 5,100,000
------------
LIFE INSURANCE
509,350 Cathay Life Insurance Co., Ltd.................................................. 2,297,068
------------
MANUFACTURING
1,032,000 President Enterprises Corp.*.................................................... 1,197,254
------------
STEEL & IRON
2,548,000 China Steel Corp................................................................ 1,973,451
63,000 China Steel Corp. (GDR)......................................................... 913,500
------------
2,886,951
------------
TRANSPORTATION
$ 2,000 K U-Ming Marine Transport 1.50% due 02/07/01 (Conv.).............................. 1,625,000
------------
TOTAL TAIWAN.................................................................... 40,163,222
------------
THAILAND (2.1%)
BANKING
320,000 Bangkok Bank PCL................................................................ 1,092,683
------------
ENERGY
124,900 Ban Pu Coal Co., Ltd............................................................ 859,068
258,500 Lanna Lignite Public Co., Ltd................................................... 895,293
------------
1,754,361
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANIES
7,896,100 Ruang Khao 2 Fund (Units)++..................................................... $ 1,117,009
------------
OIL RELATED
570,000 PTT Exploration & Production PCL................................................ 5,700,000
------------
TELECOMMUNICATIONS
270,000 Advanced Info Service Public Co., Ltd........................................... 1,422,439
------------
TELEVISION
250,000 BEC World Public Co., Ltd....................................................... 1,256,097
------------
TRANSPORTATION
3,300,000 Bangkok Expressway Public Co., Ltd.*............................................ 2,173,171
312,000 Regional Container Line Co., Ltd................................................ 502,244
------------
2,675,415
------------
UTILITIES - ELECTRIC
800,000 Cogeneration Public Co.*........................................................ 790,244
------------
TOTAL THAILAND.................................................................. 15,808,248
------------
TOTAL COMMON STOCKS, WARRANTS, RIGHTS AND BONDS
(IDENTIFIED COST $911,863,478).................................................. 709,635,228
------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS
- -----------
<C> <S> <C>
PURCHASED PUT OPTIONS ON FOREIGN CURRENCY (0.7%)
HKD 257,760 April 24, 1998/HKD 8.055............................................................. 947,200
HKD 290,520 April 24, 1998/HKD 8.07.............................................................. 1,058,400
Y 6,613,322 February 10, 1998/YEN 115.82......................................................... 2,192,640
Y 5,914,300 February 10, 1998/YEN 120.70......................................................... 877,100
------------
TOTAL PURCHASED PUT OPTIONS ON FOREIGN CURRENCY
(IDENTIFIED COST $5,029,510)......................................................... 5,075,340
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (a) (1.2%)
COMMERCIAL PAPER
AUTOMOTIVE - FINANCE
$ 350 Ford Motor Credit Co. 5.50% due 11/26/97............................................. $ 348,663
------------
U.S. GOVERNMENT AGENCY
9,000 Federal Home Loan Mortgage Corp. 5.65% due 11/03/97.................................. 8,997,175
------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $9,345,838).......................................................... 9,345,838
------------
TOTAL INVESTMENTS
(IDENTIFIED COST $926,238,826)....................................................... 724,056,406
------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS
- -----------
<C> <S> <C>
WRITTEN OPTIONS ON FOREIGN CURRENCY (0.4%)
HKD 290,520 April 24, 1998/HKD 8.07.............................................................. (1,420,200)
HKD 257,760 April 24, 1998/HKD 8.05.............................................................. (1,228,800)
------------
TOTAL WRITTEN OPTIONS ON FOREIGN CURRENCY
(PREMIUM RECEIVED $2,594,840)........................................................ (2,649,000)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $926,238,826) (B)........................................................ 97.1 % 724,056,406
TOTAL WRITTEN OPTIONS OUTSTANDING......................................................... (0.4) (2,649,000)
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 3.3 24,284,164
------ -------------
NET ASSETS................................................................................ 100.0 % $ 745,691,570
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
*** Partially paid shares. Resale is restricted to qualified institutional
investors.
++ Consists of one or more class of securities traded together as a unit;
stocks with attached warrants.
(a) Securities were purchased on a discount basis. The interest rates shown
have 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 $47,368,650 and the
aggregate gross unrealized depreciation is $249,551,070, resulting in net
unrealized depreciation of $202,182,420.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (DEPRECIATION)
- -------------------------------------------------------
<S> <C> <C> <C>
$ 3,870,634 HKD29,929,677 11/03/97 $ 2,003
MYR 4,283,151 $ 1,254,768 11/03/97 (23,784)
JPY 29,990,882 $ 249,238 11/04/97 (62)
SGD 2,883,450 $ 1,831,227 11/04/97 (1,863)
JPY 20,597,489 $ 171,246 11/05/97 28
MYR 6,850,446 $ 1,984,486 11/05/97 (60,423)
MYR 977,094 $ 288,654 11/05/97 (3,016)
SGD 4,295,384 $ 2,715,161 11/05/97 (15,535)
---------------
Net unrealized
depreciation.......................... $(102,652)
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
SUMMARY OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Agriculture....................................................................... $ 70,864 0.0 %
Aluminum.......................................................................... 2,502,500 0.3
Apparel........................................................................... 1,516,625 0.2
Auto Parts........................................................................ 2,681,564 0.3
Auto Trucks & Parts............................................................... 1,222,527 0.2
Automotive........................................................................ 11,090,592 1.5
Automotive - Finance.............................................................. 348,663 0.1
Banking........................................................................... 78,671,607 10.6
Banks............................................................................. 8,829,134 1.2
Building & Construction........................................................... 10,931,294 1.5
Building Materials................................................................ 8,708,755 1.2
Business Services................................................................. 4,711,804 0.6
Chemicals......................................................................... 12,805,806 1.7
Commercial Services............................................................... 1,221,945 0.1
Communications - Equipment/Manufacturers.......................................... 1,566,818 0.2
Computer Software & Services...................................................... 8,655,694 1.2
Computers......................................................................... 7,976,188 1.1
Conglomerates..................................................................... 78,270,359 10.5
Construction Equipment............................................................ 1,326,816 0.2
Construction Plant & Equipment.................................................... 3,149,441 0.4
Currency Options.................................................................. 5,075,340 0.7
Electric.......................................................................... 1,529,510 0.2
Electronic & Electrical Equipment................................................. 38,508,358 5.2
Electronic Components............................................................. 2,651,704 0.3
Electronics....................................................................... 5,220,593 0.7
Electronics - Semiconductors/Components........................................... 7,853,228 1.0
Electronics - Specialty........................................................... 1,039,900 0.1
Energy............................................................................ 5,963,265 0.8
Engineering & Construction........................................................ 6,757,037 0.9
Entertainment..................................................................... 2,398,180 0.3
Finance........................................................................... 15,257 0.0
Financial Services................................................................ 5,384,289 0.7
Food, Beverage, Tobacco & Household Products...................................... 14,710,584 2.0
Forest Products, Paper & Packing.................................................. 419,984 0.1
Hand Tools........................................................................ 514,713 0.1
Healthcare........................................................................ 824,844 0.1
Hotels/Motels..................................................................... 1,727,373 0.2
Industrials....................................................................... 482,544 0.1
Insurance......................................................................... 3,927,173 0.5
Investment Companies.............................................................. 10,135,509 1.3
Leisure........................................................................... 6,333,851 0.9
Life Insurance.................................................................... 3,201,901 0.4
Machinery......................................................................... 14,178,180 1.9
Manufacturing..................................................................... 1,886,863 0.3
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Merchandising..................................................................... $ 1,350,790 0.2 %
Metals............................................................................ 4,231,536 0.6
Metals & Mining................................................................... 9,411,068 1.2
Metals - Miscellaneous............................................................ 1,576,999 0.2
Metals - Non-Ferrous.............................................................. 4,173,666 0.6
Multi-Industry.................................................................... 3,725,108 0.5
Natural Gas....................................................................... 1,422,444 0.2
Office Equipment.................................................................. 766,168 0.1
Oil & Gas Exploration............................................................. 2,100,000 0.3
Oil Related....................................................................... 5,700,000 0.8
Pharmaceuticals................................................................... 6,422,212 0.9
Plantation........................................................................ 10,286,003 1.4
Property.......................................................................... 776,000 0.1
Publishing........................................................................ 5,969,282 0.8
Real Estate....................................................................... 104,118,189 14.0
Retail............................................................................ 5,601,663 0.8
Retail - Department Stores........................................................ 6,079,468 0.8
Retail - General Merchandise...................................................... 4,216,758 0.6
Retail - Specialty................................................................ 1,615,960 0.2
Retail - Specialty Apparel........................................................ 887,598 0.1
Retail Stores..................................................................... 4,794,156 0.6
Shipbuilding...................................................................... 3,057,299 0.4
Steel............................................................................. 2,819,061 0.4
Steel & Iron...................................................................... 7,829,036 1.0
Telecommunications................................................................ 42,653,658 5.7
Television........................................................................ 1,256,098 0.2
Textiles.......................................................................... 7,687,339 1.0
Tobacco........................................................................... 922,388 0.1
Transportation.................................................................... 16,815,683 2.3
U.S. Government Agency............................................................ 8,997,175 1.2
Utilities......................................................................... 43,173,004 5.8
Utilities - Electric.............................................................. 5,257,782 0.7
Utilities - Telecommunications.................................................... 2,542,912 0.3
Water............................................................................. 2,595,696 0.3
Wholesale & International Trade................................................... 2,849,102 0.4
Wholesale Distributor............................................................. 2,523,392 0.3
Wire & Cable...................................................................... 852,537 0.1
------------ ---
$724,056,406 97.1 %
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $690,530,946 92.7 %
Convertible Bonds................................................................. 18,784,469 2.5
Foreign Currency Put Options...................................................... 5,075,340 0.7
Short-Term Investments............................................................ 9,345,838 1.2
Warrants & Rights................................................................. 319,813 0.0
------------ ---
$724,056,406 97.1 %
------------ ---
------------ ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $926,238,826)............................................................ $ 724,056,406
Cash (including $7,592,446 in foreign currency)............................................. 11,905,736
Receivable for:
Investments sold........................................................................ 17,570,446
Capital stock sold...................................................................... 2,506,157
Dividends............................................................................... 1,016,602
Interest................................................................................ 129,180
Prepaid expenses and other assets........................................................... 86,201
--------------
TOTAL ASSETS........................................................................... 757,270,728
--------------
LIABILITIES:
Written call options outstanding, at value
(premiums received $2,594,840)............................................................ 2,649,000
Payable for:
Investments purchased................................................................... 4,400,209
Capital stock repurchased............................................................... 1,837,702
Plan of distribution fee................................................................ 799,956
Investment management fee............................................................... 799,585
Accrued expenses and other payables......................................................... 1,092,706
--------------
TOTAL LIABILITIES...................................................................... 11,579,158
--------------
NET ASSETS............................................................................. $ 745,691,570
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $1,079,062,994
Net unrealized depreciation................................................................. (202,672,283)
Dividends in excess of net investment income................................................ (3,880,806)
Accumulated net realized loss............................................................... (126,818,335)
--------------
NET ASSETS............................................................................. $ 745,691,570
--------------
--------------
CLASS A SHARES:
Net Assets.................................................................................. $622,202
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 48,394
NET ASSET VALUE PER SHARE.............................................................. $12.86
--------------
--------------
Maximum Offering Price Per Share
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)......................................... $13.57
--------------
--------------
CLASS B SHARES:
Net Assets.................................................................................. $744,132,621
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 57,991,437
NET ASSET VALUE PER SHARE.............................................................. $12.83
--------------
--------------
CLASS C SHARES:
Net Assets.................................................................................. $819,243
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 63,853
NET ASSET VALUE PER SHARE.............................................................. $12.83
--------------
--------------
CLASS D SHARES:
Net Assets.................................................................................. $117,504
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 9,137
NET ASSET VALUE PER SHARE.............................................................. $12.86
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $2,126,874 foreign withholding tax)........................................ $ 33,599,748
Interest..................................................................................... 1,282,514
-------------
TOTAL INCOME............................................................................ 34,882,262
-------------
EXPENSES
Plan of distribution fee (Class A shares).................................................... 278
Plan of distribution fee (Class B shares).................................................... 14,155,635
Plan of distribution fee (Class C shares).................................................... 1,074
Investment management fee.................................................................... 13,946,846
Custodian fees............................................................................... 3,270,864
Transfer agent fees and expenses............................................................. 2,507,387
Professional fees............................................................................ 245,395
Shareholder reports and notices.............................................................. 223,412
Registration fees............................................................................ 92,743
Directors' fees and expenses................................................................. 6,994
Other........................................................................................ 44,740
-------------
TOTAL EXPENSES.......................................................................... 34,495,368
-------------
NET INVESTMENT INCOME................................................................... 386,894
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.............................................................................. (79,085,850)
Options written.......................................................................... 718,720
Foreign exchange transactions............................................................ (2,636,120)
-------------
NET LOSS................................................................................ (81,003,250)
-------------
Net change in unrealized appreciation/depreciation on:
Investments.............................................................................. (280,418,627)
Translation of forward foreign currency contracts, other assets and liabilities
denominated in foreign currencies...................................................... (406,090)
-------------
NET DEPRECIATION........................................................................ (280,824,717)
-------------
NET LOSS................................................................................ (361,827,967)
-------------
NET DECREASE................................................................................. $(361,441,073)
-------------
-------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997* OCTOBER 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................. $ 386,894 $ 2,914,418
Net realized gain (loss)............................................... (81,003,250) 2,758,084
Net change in unrealized appreciation.................................. (280,824,717) 28,304,565
----------------- ----------------
NET INCREASE (DECREASE)........................................... (361,441,073) 33,977,067
Dividends to shareholders from net investment income - Class B
shares............................................................... (25,258,274) (33,521,569)
Net increase (decrease) from capital stock transactions................ (492,076,963) 182,463,571
----------------- ----------------
NET INCREASE (DECREASE)........................................... (878,776,310) 182,919,069
NET ASSETS:
Beginning of period.................................................... 1,624,467,880 1,441,548,811
----------------- ----------------
END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF
$3,880,806 AND UNDISTRIBUTED NET INVESTMENT INCOME OF $1,241,493,
RESPECTIVELY)...................................................... $ 745,691,570 $ 1,624,467,880
----------------- ----------------
----------------- ----------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Pacific Growth Fund Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
maximize capital appreciation of its investments. The Fund was incorporated in
Maryland on June 13, 1990 and commenced operations on November 30, 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, 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 reported amounts and disclosures. Actual results could differ from those
estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Directors); (2) listed options are valued at the latest sale
price on the exchange on which they are listed unless no sales of such options
have taken place that day, in which case they are valued at the mean between
their latest bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (4) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") or Morgan
Grenfell Investment Services Limited (the "Sub-Adviser") that sale and bid
prices are not reflective of a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Directors (valuation of
debt securities for which market quotations are not readily available may be
based upon current
64
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); and (5) short-term debt
securities having a maturity date of more than sixty days at the time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. 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 which is subsequently marked-to-market to reflect the current market
value. If a purchased option expires, the Fund will realize a loss to the extent
of the premium paid. If the Fund enters into a closing sale transaction, a gain
or loss is realized for the difference between the proceeds from the sale and
the cost of the option. If a put option is exercised, the cost of the security
or currency sold upon exercise will be increased by the premium originally paid.
If a call option is exercised, the cost of the security purchased upon exercise
will be increased by the premium originally paid.
65
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
E. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
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 record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
66
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 1.0% to the portion of daily net assets not exceeding $1
billion and 0.95% to the portion of daily net assets in excess of $1 billion.
Effective May 1, 1997, the Agreement was amended to reduce the annual rate to
0.90% to the portion of daily net assets in excess of $2 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the Sub-Adviser and the Investment
Manager, the Sub-Adviser provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Adviser monthly compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. 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 the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of
Class C. In the case of Class A shares, amounts paid under the Plan are paid to
the Distributor for services provided. In the case of Class B and Class C
shares, amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including
67
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
the payment of commissions for sales of these Classes and incentive compensation
to, and expenses of, the account executives of Dean Witter Reynolds Inc.
("DWR"), an affiliate of the Investment Manager and Distributor, and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; printing and distribution
of prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $41,117,586 at October 31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended October 31, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended October 31, 1997,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $4,821,220, and $650, respectively
and approximately $11,000 in front-end sales charges from sales of the Fund's
Class A shares. The respective shareholders pay such charges which are not an
expense of the Fund.
68
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1997 aggregated
$576,215,868 and $1,113,880,798, respectively.
For the year ended October 31, 1997, the Fund incurred $177,930 in brokerage
commissions with affiliates of the Sub-Adviser for portfolio transactions
executed on behalf of the Fund.
For the period May 31, 1997 through October 31, 1997, the Fund incurred
brokerage commissions of $119,132 with Morgan Stanley & Co., Inc., an affiliate
of the Investment Manager since May 31, 1997, for portfolio transactions
executed on behalf of the Fund. At October 31, 1997, the Fund's receivable for
investments sold included unsettled trades with Morgan Stanley & Co., Inc., of
$385,903.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At October 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $56,508.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 1997 included
in Directors' fees and expenses in the Statement of Operations, amounted to
$4,186. At October 31, 1997, the Fund had an accrued pension liability of
$39,918 which is included in accrued expenses in the Statement of Assets and
Liabilities.
69
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
5. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 63,214 $ 998,769 -- --
Redeemed......................................................... (14,820) (235,608) -- --
----------- -------------- ----------- ------------
Net increase - Class A 48,394 763,161 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 28,630,560 521,923,627 38,199,038 $744,616,070
Reinvestment of dividends........................................ 1,228,090 23,456,516 1,685,192 31,243,453
Redeemed......................................................... (57,878,288) (1,039,376,437) (30,677,011) (593,395,952)
----------- -------------- ----------- ------------
Net increase (decrease) - Class B................................ (28,019,638) (493,996,294) 9,207,219 182,463,571
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 76,313 1,169,997 -- --
Redeemed......................................................... (12,460) (171,011) -- --
----------- -------------- ----------- ------------
Net increase - Class C........................................... 63,853 998,986 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 9,137 157,184 -- --
----------- -------------- ----------- ------------
Net increase (decrease) in Fund.................................. (27,898,254) $ (492,076,963) 9,207,219 $182,463,571
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
<TABLE>
<C> <S>
<FN>
- ---------------------
* For the period July 28, 1997 (issue date) through October 31, 1997.
</TABLE>
6. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Fund had an approximate net capital loss carryover of
$116,663,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through October 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
------------------------------
2003 2004 2005
-------- -------- --------
<S> <C> <C>
$ 3,193 $ 15,875 $ 97,595
-------- -------- --------
-------- -------- --------
</TABLE>
As of October 31, 1997, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of passive foreign investment companies
("PFICs") and capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to foreign currency losses and tax
adjustments on PFICs sold by the Fund. To reflect reclassifications arising from
the permanent differences, accumulated net realized loss was charged
$19,755,676, paid-in-capital was credited $6,595, and dividends in excess of net
investment income was credited $19,749,081.
70
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
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.
At October 31, 1997, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
At October 31, 1997, the Fund's cash balance consisted principally of interest
bearing deposits with Chase Manhattan Bank N.A., the Fund's custodian.
8. COMMITMENTS
As of October 31, 1997, the Fund has purchased shares which are subject to
installment payments. At October 31, 1997, the Fund had outstanding commitments
as follows:
<TABLE>
<CAPTION>
TOTAL OUTSTANDING
ISSUER COMMITMENT INSTALLMENT PAYMENT TERMS
- ---------------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Investment Co. of China $158,000 Balance payable in one
installment upon notification
by the issuer.
</TABLE>
71
<PAGE>
DEAN WITTER PACIFIC 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
NOVEMBER
30, 1990*
FOR THE YEAR ENDED OCTOBER 31 THROUGH
------------------------------------------------------------------ OCTOBER
1997***++ 1996 1995 1994 1993 1992** 31, 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 18.89 $ 18.77 $ 21.60 $ 19.80 $ 12.69 $ 11.72 $ 10.00
---------- --------- --------- ---------- --------- --------- ----------
Net investment
income (loss)... 0.01 0.05 0.08 (0.10) (0.04) (0.01) 0.06
Net realized and
unrealized gain
(loss).......... (5.77) 0.50 (1.94) 2.22 7.15 1.14 1.69
---------- --------- --------- ---------- --------- --------- ----------
Total from
investment
operations...... (5.76) 0.55 (1.86) 2.12 7.11 1.13 1.75
---------- --------- --------- ---------- --------- --------- ----------
Less dividends
and
distributions
from:
Net investment
income........ (0.30) (0.43) -- -- -- (0.01) (0.03)
Net realized
gain.......... -- -- (0.97) (0.32) -- (0.15) --
---------- --------- --------- ---------- --------- --------- ----------
Total dividends
and
distributions... (0.30) (0.43) (0.97) (0.32) -- (0.16) (0.03)
---------- --------- --------- ---------- --------- --------- ----------
Net asset value,
end of period... $ 12.83 $ 18.89 $ 18.77 $ 21.60 $ 19.80 $ 12.69 $ 11.72
---------- --------- --------- ---------- --------- --------- ----------
---------- --------- --------- ---------- --------- --------- ----------
TOTAL INVESTMENT
RETURN+.......... (31.01)% 3.00% (8.65)% 10.69% 56.13% 9.86% 17.54%(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 2.44% 2.39% 2.45% 2.41% 2.38% 2.77% 2.43%(2)(3)
Net investment
income (loss)... 0.03% 0.18% 0.35% (0.70)% (0.46)% (0.30)% 0.61%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $744 $1,624 $1,442 $1,571 $694 $177 $86
Portfolio
turnover rate... 42% 49% 50% 35% 30% 73% 70%(1)
Average
commission rate
paid............ $0.0075 $0.0095 -- -- -- -- --
- ---------------------
* Commencement of operations.
** Net investment loss was computed based upon the monthly average shares
outstanding.
*** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment income
ratios would have been 2.83% and 0.22%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 19.39
Net realized and unrealized loss...................................... (6.53)
------
Net asset value, end of period........................................ $ 12.86
------
------
TOTAL INVESTMENT RETURN+.............................................. (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.92% (2)
Net investment loss................................................... (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $622
Portfolio turnover rate............................................... 42%
Average commission rate paid.......................................... $0.0075
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 19.39
------
Net investment loss................................................... (0.04)
Net realized and unrealized loss...................................... (6.52)
------
Total from investment operations...................................... (6.56)
------
Net asset value, end of period........................................ $ 12.83
------
------
TOTAL INVESTMENT RETURN+.............................................. (33.83)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.62% (2)
Net investment loss................................................... (0.77)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $819
Portfolio turnover rate............................................... 42%
Average commission rate paid.......................................... $0.0075
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 19.39
------
Net investment income................................................. 0.02
Net realized and unrealized loss...................................... (6.55)
------
Total from investment operations...................................... (6.53)
------
Net asset value, end of period........................................ $ 12.86
------
------
TOTAL INVESTMENT RETURN+.............................................. (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.62% (2)
Net investment income................................................. 0.42% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $118
Portfolio turnover rate............................................... 42%
Average commission rate paid.......................................... $0.0075
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DEAN WITTER PACIFIC GROWTH FUND INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Pacific Growth Fund
Inc. (the "Fund") at October 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 17, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended October 31, 1997, the Fund has elected,
pursuant to Section 853 of the Internal Revenue Code, to
pass-through foreign taxes of $0.04 per share to its shareholders.
The Fund generated net foreign source income of $0.04 per share
with respect to this election.
75
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS, BONDS, RIGHTS
AND WARRANTS (94.0%)
AUSTRALIA (4.6%)
BANKING
1,187,700 Westpac Banking Corp., Ltd...................................................... $ 7,943,088
------------
COMMERCIAL SERVICES
100,000 Mayne Nickless Ltd.............................................................. 537,750
------------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
1,200,000 Foster's Brewing Group Ltd...................................................... 2,602,395
5,131,000 Goodman Fielder Ltd............................................................. 7,929,109
------------
10,531,504
------------
MULTI-INDUSTRY
1,050,000 Pacific Dunlop Ltd.............................................................. 1,936,213
------------
OIL - EXPLORATION & PRODUCTION
1,100,000 Oil Search Ltd.................................................................. 2,414,097
------------
RETAIL STORES
502,200 Coles Myer Ltd.................................................................. 2,419,502
------------
TOTAL AUSTRALIA................................................................. 25,782,154
------------
CHINA (1.3%)
INVESTMENT COMPANIES
100,000 Investment Co. of China* ***.................................................... 494,000
------------
METALS & MINING
6,000,000 Yanzhou Coal Mining Co. Ltd.*................................................... 1,568,146
------------
MISCELLANEOUS
3,920,000 China Resources Beijing Land.................................................... 2,074,342
------------
UTILITIES - ELECTRIC
2,950,000 Huaneng Power International, Inc.*.............................................. 1,656,234
4,000,000 Zhejiang Southeast Electric Power Co., Ltd. (B Shares).......................... 1,376,000
------------
3,032,234
------------
TOTAL CHINA..................................................................... 7,168,722
------------
HONG KONG (29.4%)
BANKING
750,000 Dah Sing Financial Group........................................................ 1,829,504
1,575,838 Dao Heng Bank Group Ltd......................................................... 4,657,549
1,150,000 Hang Seng Bank Ltd.............................................................. 9,684,757
244,400 HSBC Holdings PLC............................................................... 6,971,141
------------
23,142,951
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONGLOMERATES
1,200,000 Citic Pacific Ltd............................................................... $ 3,686,113
4,142,000 Hutchison Whampoa, Ltd.......................................................... 25,606,840
769,000 Swire Pacific Ltd. (Class A).................................................... 3,841,030
------------
33,133,983
------------
ELECTRONIC & ELECTRICAL EQUIPMENT
1,500,000 ASM Pacific Technology Ltd...................................................... 1,161,590
4,000,000 Elec & Eltek International Holdings Ltd......................................... 1,135,777
1,125,000 Johnson Electric Holdings Ltd................................................... 3,811,468
------------
6,108,835
------------
ENGINEERING & CONSTRUCTION
1,381,000 Road King Infrastructure Ltd.*.................................................. 1,283,325
------------
HOTELS/MOTELS
1,036,000 CDL Hotels International, Ltd................................................... 317,566
------------
MISCELLANEOUS
716,000 New World Infrastructure Ltd.*.................................................. 1,538,642
------------
REAL ESTATE
3,250,000 Cheung Kong (Holdings) Ltd...................................................... 21,602,349
700,000 China Resources Enterprise Ltd.................................................. 1,201,600
3,853,000 New World Development Co., Ltd.................................................. 10,965,236
2,600,000 Sun Hung Kai Properties Ltd..................................................... 15,436,242
3,300,000 Wharf (Holdings) Ltd............................................................ 5,281,363
------------
54,486,790
------------
RETAIL - FOOD CHAINS
2,250,000 Dairy Farm International Holdings Ltd........................................... 2,880,000
------------
TELECOMMUNICATIONS
2,968,000 China Telecom Ltd.*............................................................. 5,631,079
9,200,000 Hong Kong Telecommunications Ltd................................................ 17,217,346
------------
22,848,425
------------
UTILITIES
2,375,000 CLP Holdings Ltd................................................................ 11,402,943
3,000,000 Hong Kong & China Gas Co., Ltd.................................................. 4,084,925
1,855,000 Hong Kong Electric Holdings Ltd................................................. 5,698,116
------------
21,185,984
------------
TOTAL HONG KONG................................................................. 166,926,501
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDIA (1.6%)
ALUMINUM
91,000 Hindalco Industries Ltd. (GDR)*................................................. $ 1,751,750
------------
BANKS
162,000 State Bank of India (GDR)*...................................................... 3,078,000
------------
TELECOMMUNICATIONS
134,900 Mahanagar Telephone Nigam Ltd. (GDR)*........................................... 2,175,262
------------
TEXTILES
85,000 Reliance Industries Ltd. (GDR).................................................. 775,625
------------
TOBACCO
65,000 ITC Ltd. (GDR).................................................................. 1,495,000
------------
TOTAL INDIA..................................................................... 9,275,637
------------
INDONESIA (1.3%)
AUTO RELATED
11,404,500 PT Astra International Inc...................................................... 2,259,383
------------
BUILDING MATERIALS
11,598 PT Mulia Industrindo*........................................................... 875
------------
FOREST PRODUCTS, PAPER & PACKING
310,300 PT Pabrik Kertas Tjiwi Kimia (Warrants due 07/15/02)*........................... 38,095
------------
INVESTMENT COMPANIES
2,500,000 Peregrine Indonesia Fund Ltd.**................................................. 422,000
------------
OIL & GAS EXPLORATION
200,600 Gulf Indonesia Resources Ltd.*.................................................. 3,084,225
------------
PLANTATION
100 PT London Sumatra Indonesia..................................................... 25
------------
TELECOMMUNICATIONS
231,200 PT Telekomunikasi Indonesia..................................................... 1,849,600
------------
TOTAL INDONESIA................................................................. 7,654,203
------------
JAPAN (18.6%)
APPAREL
36,000 World Co., Ltd.................................................................. 834,688
------------
AUTO TRUCKS & PARTS
39,000 NGK Spark Plug Co., Ltd......................................................... 305,330
54,000 Yasunaga Corp................................................................... 341,463
------------
646,793
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
AUTOMOTIVE
75,000 Honda Motor Co.................................................................. $ 2,710,027
79,000 Toyota Motor Corp............................................................... 2,051,716
------------
4,761,743
------------
BANKING
184,000 Asahi Bank, Ltd................................................................. 706,414
209,000 Bank of Tokyo-Mitsubishi Ltd.................................................... 2,578,674
167,000 Mitsui Trust & Banking Co., Ltd................................................. 360,802
134,000 Sanwa Bank, Ltd................................................................. 1,180,217
133,000 Sumitomo Bank................................................................... 1,251,506
140,000 Sumitomo Trust & Banking........................................................ 729,298
------------
6,806,911
------------
BEVERAGES
31,000 Itoen, Ltd...................................................................... 903,117
------------
BUILDING & CONSTRUCTION
51,000 Kaneshita Construction.......................................................... 264,905
------------
BUILDING MATERIALS
77,000 Ibiden Co., Ltd................................................................. 1,211,457
238,000 Sanwa Shutter................................................................... 1,101,852
Y 63,000 K Sanwa Shutter Corp. 0.90% due 03/31/06 (Conv.).................................. 424,458
------------
2,737,767
------------
BUSINESS SERVICES
158,000 Ricoh Co., Ltd.................................................................. 1,630,669
28,000 Secom Co........................................................................ 1,644,083
------------
3,274,752
------------
CHEMICALS
605,000 Mitsubishi Chemical Corp........................................................ 1,093,044
356,000 Nippon Zeon Co., Ltd............................................................ 830,774
89,000 Shin-Etsu Chemical Co........................................................... 1,728,546
155,000 Sumitomo Bakelite Co., Ltd...................................................... 1,071,138
------------
4,723,502
------------
CHEMICALS - SPECIALTY
70,000 Sanyo Chemical Industries, Ltd.................................................. 583,860
------------
COMMERCIAL SERVICES
29,000 Nichii Gakkan Co................................................................ 938,723
------------
COMPUTER SOFTWARE & SERVICES
53,000 Hitachi Software Engineering Co., Ltd........................................... 1,452,273
29,000 Meitec Corp..................................................................... 949,639
14,000 Nintendo Co., Ltd............................................................... 1,279,434
50 NTT Data Corp................................................................... 2,152,966
------------
5,834,312
------------
COMPUTERS
7,000 Nidec Corp...................................................................... 374,134
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC & ELECTRICAL EQUIPMENT
86,000 Aiwa Co., Ltd................................................................... $ 2,557,212
Y 99,000 K Canon, Inc. 1.20% due 12/20/05 (Conv.).......................................... 1,559,824
Y 49,000 K Canon, Inc. 1.30% due 12/19/08 (Conv.).......................................... 769,083
151,000 Hitachi, Ltd.................................................................... 1,078,734
49,000 Mitsui High-Tec................................................................. 1,161,924
29,600 Sony Corp....................................................................... 2,453,297
116,000 Sumitomo Electric Industries.................................................... 1,377,085
14,000 TDK Corp........................................................................ 1,102,379
------------
12,059,538
------------
ELECTRONICS
17,000 Rohm Co., Ltd................................................................... 1,911,924
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
22,800 Shinko Electric Industries Co., Ltd............................................. 990,334
39,000 Tokyo Seimitsu Co., Ltd......................................................... 1,142,051
------------
2,132,385
------------
ENGINEERING & CONSTRUCTION
312,000 Kajima Corp..................................................................... 904,246
------------
ENTERTAINMENT
33,700 Sony Music Entertainment Inc.................................................... 1,314,107
------------
FINANCIAL SERVICES
14,740 Nichiei Co., Ltd. (Kyoto)....................................................... 1,142,894
132,000 Nomura Securities Co., Ltd...................................................... 1,604,788
19,500 Orix Corp....................................................................... 1,343,157
------------
4,090,839
------------
FOOD, BEVERAGE, TOBACCO, & HOUSEHOLD PRODUCTS
127,000 Nippon Meat Packers, Inc........................................................ 1,720,867
------------
HAND TOOLS
39,000 Disco Corp...................................................................... 1,115,628
------------
HEALTH & PERSONAL CARE
70,000 Sankyo Co., Ltd................................................................. 1,728,395
------------
INDUSTRIALS
Y 26,000 K Nippon Densan Corp. 1.00% 09/30/03 (Conv.)...................................... 369,332
------------
INSURANCE
212,000 Tokio Marine & Fire Insurance Co................................................ 2,298,103
------------
MACHINERY
133,000 Daifuku Co., Ltd................................................................ 523,630
74,000 Fuji Machine Manufacturing Co., Ltd............................................. 2,105,691
12,100 Keyence Corp.................................................................... 1,623,171
91,000 Kurita Water Industries Ltd..................................................... 998,095
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
91,000 Minebea Co., Ltd................................................................ $ 1,013,851
Y 21,000 K Minebea Co., Ltd. 0.80% due 03/31/03 (Conv.).................................... 276,649
165,000 OSG Corp........................................................................ 968,835
30,700 Shima Seiki Manufacturing, Ltd.................................................. 1,028,418
------------
8,538,340
------------
MANUFACTURING
54,000 Nichiha Corp.................................................................... 443,902
------------
MERCHANDISING
38,800 Shimamura Co., Ltd.............................................................. 958,025
------------
METALS & MINING
786,000 Nippon Steel Co................................................................. 1,260,298
39,000 Sumitomo Special Metals......................................................... 870,483
------------
2,130,781
------------
METALS - NON-FERROUS
200,000 Fujikura Ltd.................................................................... 1,026,799
384,000 Mitsui Mining & Smelting........................................................ 1,589,883
------------
2,616,682
------------
OFFICE EQUIPMENT
5,900 Riso Kagaku..................................................................... 306,903
------------
PAPER PRODUCTS
209,000 Tomoegawa Paper Co. Ltd......................................................... 621,462
------------
PHARMACEUTICALS
61,000 Eisai Co., Ltd.................................................................. 872,478
88,000 Takeda Chemical Industries...................................................... 2,504,065
------------
3,376,543
------------
REAL ESTATE
45,700 Chubu Sekiwa Real Estate, Ltd................................................... 216,734
20,000 Heiwa Real Estate Co., Ltd...................................................... 150,557
Y 190,000 K Heiwa Real Estate Co., Ltd. 2.50% due 03/29/02 (Conv.).......................... 572,117
105,000 Mitsubishi Estate Co., Ltd...................................................... 1,011,743
154,000 Mitsui Fudosan Co., Ltd......................................................... 1,400,422
------------
3,351,573
------------
RETAIL
19,700 Otsuka Kagu Ltd................................................................. 897,207
156,000 Tokyo Style Co., Ltd............................................................ 1,409,214
------------
2,306,421
------------
RETAIL - DEPARTMENT STORES
156,000 Hankyu Department Stores........................................................ 967,660
------------
RETAIL - GENERAL MERCHANDISE
24,500 Circle K Japan Co., Ltd......................................................... 1,005,157
28,000 Seven-Eleven Japan Co., Ltd..................................................... 1,865,402
------------
2,870,559
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - SPECIALTY
23,000 Aderans Co., Ltd................................................................ $ 541,930
------------
STEEL
866,000 Sumitomo Metal Industries....................................................... 1,427,687
123,000 Yamato Kogyo Co., Ltd........................................................... 912,963
------------
2,340,650
------------
TELECOMMUNICATIONS
315 DDI Corp........................................................................ 794,377
277 Nippon Telegraph & Telephone Corp............................................... 2,418,850
------------
3,213,227
------------
TELECOMMUNICATIONS EQUIPMENT
108,000 Nippon Comsys Corp.............................................................. 1,263,415
------------
TEXTILES
520,000 Mitsubishi Rayon Co., Ltd....................................................... 1,409,214
384,000 Nitto Boseki Co., Ltd........................................................... 881,662
------------
2,290,876
------------
TRANSPORTATION
260,000 Tokyu Corp...................................................................... 1,031,466
------------
UTILITIES - ELECTRIC
69,000 Tokyo Electric Power Co......................................................... 1,316,734
------------
UTILITIES - GAS
434,000 Tokyo Gas Co., Ltd.............................................................. 976,859
------------
WHOLESALE & INTERNATIONAL TRADE
76,000 Mitsui & Co..................................................................... 469,136
------------
WHOLESALE DISTRIBUTOR
17,100 Fujimi, Inc.*................................................................... 683,537
43,000 Misumi Corp..................................................................... 757,453
------------
1,440,990
------------
TOTAL JAPAN..................................................................... 105,704,705
------------
MALAYSIA (8.1%)
AUTOMOTIVE
450,000 Edaran Otomobil Nasional Berhad................................................. 773,154
1,065,000 Oriental Holdings Berhad........................................................ 2,230,067
------------
3,003,221
------------
BANKING
1,299,000 Commerce Asset-Holding Berhad................................................... 976,429
950,000 Malayan Banking Berhad.......................................................... 2,805,369
3,000,399 Public Bank Berhad.............................................................. 1,433,748
------------
5,215,546
------------
BUILDING & CONSTRUCTION
750,000 Gamuda Berhad................................................................... 849,664
1,300,000 Lingkaran Trans Kota Holdings Berhad*........................................... 1,221,476
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
1,750 Sungei Way Holdings Berhad (Warrants due 06/29/99)*............................. $ 106
------------
2,071,246
------------
ELECTRONICS
475,000 Malaysian Pacific Industries Berhad............................................. 1,364,430
------------
INSURANCE
1,305,000 Malaysian Assurance Alliance Berhad............................................. 2,277,181
------------
LEISURE
1,238,000 Berjaya Sports Toto Berhad...................................................... 2,941,289
4,161,000 Metroplex Berhad................................................................ 1,150,558
1,018,000 Resorts World Berhad............................................................ 1,967,678
------------
6,059,525
------------
MULTI-INDUSTRY
1,250,000 Hong Leong Industries Berhad.................................................... 1,328,859
------------
PLANTATION
1,300,000 Highlands & Lowlands Berhad..................................................... 1,458,792
3,894,000 IOI Corporated Berhad........................................................... 2,927,034
750,000 Kuala Lumpur Kepong Berhad...................................................... 1,741,611
------------
6,127,437
------------
PUBLISHING
752,000 Star Publications............................................................... 1,069,960
------------
TELECOMMUNICATIONS
2,325,000 Telekom Malaysia Berhad......................................................... 6,990,604
------------
TOBACCO
600,000 RJ Reynolds Berhad.............................................................. 958,389
------------
UTILITIES
2,875,000 Tenaga Nasional Berhad.......................................................... 5,750,000
------------
UTILITIES - ELECTRIC
853,000 Malakoff Berhad................................................................. 2,244,134
------------
WATER
1,800,000 Puncak Niaga Holdings Berhad*................................................... 1,613,960
------------
TOTAL MALAYSIA.................................................................. 46,074,492
------------
PHILIPPINES (2.0%)
BUILDING MATERIALS
46,260 Bacnotan Consolidated Industries................................................ 69,131
------------
CONGLOMERATES
2,400,000 First Philippine Holdings Corp. (B Shares)...................................... 1,763,387
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE
5,288,400 Ayala Land, Inc. (B Shares)..................................................... $ 2,074,528
------------
TELECOMMUNICATIONS
184,800 Philippine Long Distance Telephone Co. (ADR).................................... 4,989,600
------------
UTILITIES
892,963 Manila Electric Co. (B Shares).................................................. 2,535,437
------------
TOTAL PHILIPPINES............................................................... 11,432,083
------------
SINGAPORE (11.0%)
BANKING
512,500 Development Bank of Singapore, Ltd.............................................. 3,400,474
1,256,200 Overseas Chinese Banking Corp., Ltd............................................. 6,628,291
1,210,000 Overseas Union Bank, Ltd........................................................ 4,587,678
1,011,000 United Overseas Bank, Ltd....................................................... 4,791,469
------------
19,407,912
------------
CONGLOMERATES
765,750 Keppel Corp., Ltd.*............................................................. 2,061,356
1,830,000 Natsteel Ltd.................................................................... 2,405,308
420,000 Sembawang Corp., Ltd............................................................ 838,673
------------
5,305,337
------------
ELECTRONIC & ELECTRICAL EQUIPMENT
450,000 Elec & Eltek International Co., Ltd............................................. 2,610,000
1,408,000 Venture Manufacturing Ltd....................................................... 5,115,956
------------
7,725,956
------------
ELECTRONICS
300,000 GP Batteries International Ltd.................................................. 830,332
------------
ENGINEERING
3,371,243 Singapore Technologies Engineering Ltd.*........................................ 2,897,245
------------
PUBLISHING
413,424 Singapore Press Holdings Ltd.................................................... 4,571,829
------------
REAL ESTATE
950,400 City Developments, Ltd.......................................................... 4,113,896
1,277,000 DBS Land Ltd.................................................................... 1,928,613
1,000,000 Keppel Land Ltd................................................................. 1,187,994
------------
7,230,503
------------
SHIPBUILDING
390,000 Jurong Shipyard Ltd............................................................. 1,946,919
560,000 Keppel Fels Ltd................................................................. 1,649,036
------------
3,595,955
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION
1,175,000 Singapore Airlines Ltd.......................................................... $ 7,647,709
------------
UTILITIES - TELECOMMUNICATIONS
1,680,000 Singapore Telecommunications, Ltd............................................... 2,887,583
------------
TOTAL SINGAPORE................................................................. 62,100,361
------------
SOUTH KOREA (4.1%)
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS
1 LG Information & Communication Ltd.............................................. 30
------------
ELECTRONIC & ELECTRICAL EQUIPMENT
50,000 Samsung Display Devices Co...................................................... 2,490,637
9,769 Samsung Display Devices Co. (Rights)............................................ 169,768
131,118 Samsung Electronics Co.......................................................... 7,267,964
10,431 Samsung Electronics Co. (GDR) (Rights).......................................... 201,588
------------
10,129,957
------------
INVESTMENT COMPANIES
234,000 Atlantis Korean Smaller Companies*.............................................. 1,200,420
65,000 Clemente Korea Emerging Growth Fund*............................................ 220,350
------------
1,420,770
------------
SHIPBUILDING
360,000 Daewoo Heavy Industries......................................................... 1,782,472
------------
STEEL & IRON
133,685 Pohang Iron & Steel Co., Ltd.................................................... 7,239,218
------------
UTILITIES
207,000 Korea Electric Power Corp....................................................... 2,822,023
------------
TOTAL SOUTH KOREA............................................................... 23,394,470
------------
TAIWAN (8.7%)
BANKS
705,000 China Development Corp.......................................................... 1,913,785
846,400 China Trust Commercial Bank*.................................................... 993,499
372,960 International Commercial Bank of China.......................................... 542,981
737,880 United World Chinese Commercial Bank*........................................... 1,018,306
------------
4,468,571
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
BUILDING & CONSTRUCTION
802,420 Cathay Construction Corp........................................................ $ 744,739
------------
BUILDING MATERIALS
307,590 Asia Cement Corp. (GDR)......................................................... 3,268,144
------------
CHEMICALS
56,000 Formosa Chemical & Fibre Corp................................................... 57,749
1,013,700 Formosa Plastic Corp............................................................ 1,737,156
$ 2,925 K Nan Ya Plastics Corp. 1.75% due 07/09/01 (Conv.)................................ 3,393,000
------------
5,187,905
------------
COMPUTERS
52,750 Acer Inc.*...................................................................... 87,997
183,000 Acer Inc. (GDR)*................................................................ 1,619,550
$ 1,900 K Acer Peripherals Inc. 1.25% due 11/27/06 (Conv.)................................ 2,147,000
$ 2,100 K Compal Electronics 1.00% due 11/21/03 (Conv.)................................... 4,515,000
780,000 Microtek International, Inc.*................................................... 1,111,920
$ 1,000 K Yageo Corp. 1.25% due 07/24/03 (Conv.).......................................... 1,620,000
------------
11,101,467
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
541,800 Siliconware Precision Industries Co.*........................................... 1,314,650
$ 230 K Siliconware Precision Industries Co. 0.50% due 07/21/04 (Conv.)................. 232,300
1,212,500 Taiwan Semiconductor Manufacturing Co.*......................................... 5,240,560
40,000 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)*.............................. 970,000
$ 1,800 K United Microelectronics Corp. - 144A ** 0.25% due 05/16/04 (Conv.).............. 1,998,000
------------
9,755,510
------------
INVESTMENT COMPANIES
600 Taipei Fund*.................................................................... 6,079,200
------------
LIFE INSURANCE
842,350 Cathay Life Insurance Co., Ltd.................................................. 3,372,466
------------
MANUFACTURING
1,032,000 President Enterprises Corp.*.................................................... 1,083,021
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STEEL & IRON
2,802,800 China Steel Corp................................................................ $ 1,768,221
69,300 China Steel Corp. (GDS)......................................................... 874,912
------------
2,643,133
------------
TRANSPORTATION
$ 2,000 K U-Ming Marine Transport 1.50% due 02/07/01 (Conv.).............................. 1,720,000
------------
TOTAL TAIWAN.................................................................... 49,424,156
------------
THAILAND (3.3%)
BANKING
1,226,100 Bangkok Bank PCL................................................................ 3,097,180
1,755,000 Thai Farmers Bank PCL........................................................... 4,044,727
------------
7,141,907
------------
OIL RELATED
8,400 PTT Exploration & Production PCL................................................ 89,250
------------
TELECOMMUNICATIONS
460,000 Advanced Info Service PCL....................................................... 3,114,583
------------
TELEVISION
410,000 BEC World PCL................................................................... 2,178,125
------------
TRANSPORTATION
3,814,000 Bangkok Expressway PCL*......................................................... 3,029,349
312,000 Regional Container Line Co., Ltd................................................ 365,625
------------
3,394,974
------------
UTILITIES - ELECTRIC
2,200,000 Cogeneration PCL*............................................................... 1,317,708
800,200 Electricity Generating PCL*..................................................... 1,562,890
------------
2,880,598
------------
TOTAL THAILAND.................................................................. 18,799,437
------------
TOTAL COMMON STOCKS, BONDS, RIGHTS AND WARRANTS
(IDENTIFIED COST $639,845,023).................................................. 533,736,921
------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS
- ----------------
<C> <S> <C>
PURCHASED PUT OPTION ON FOREIGN CURRENCY (0.6%)
Y 6,964,310 August 11, 1998/Yen 123.70 (IDENTIFIED COST $1,522,915)......................... 3,349,850
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (a) (3.6%)
COMMERCIAL PAPER
FINANCE - DIVERSIFIED
$ 350 General Electric Capital Corp. 5.56% due 05/18/98............................... $ 349,089
------------
U.S. GOVERNMENT AGENCY
20,000 Federal Home Loan Mortgage Corp. 5.43% due 05/01/98............................. 20,000,000
------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $20,349,089).................................................... 20,349,089
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $661,717,027)(B)......................................................... 98.2 % 557,435,860
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 1.8 10,062,927
------ -------------
NET ASSETS................................................................................ 100.0 % $ 567,498,787
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
GDS Global Depository Shares.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
*** Partially paid shares. Resale is restricted to qualified institutional
investors.
(a) Securities were purchased on a discount basis. The interest rates shown
have 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 $29,948,082 and the
aggregate gross unrealized depreciation is $134,229,249, resulting in net
unrealized depreciation of $104,281,167.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT APRIL 30, 1998
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS TO IN DELIVERY APPRECIATION/
DELIVER EXCHANGE FOR DATE (DEPRECIATION)
- ----------------------------------------------------
<S> <C> <C> <C>
SGD 448,455 $ 281,428 05/04/98 ($1,956)
HKD 1,435,586 $ 185,309 05/04/98 24
MYR 1,130,645 $ 299,509 05/05/98 (4,020)
$ 1,452,883 Y 192,216,370 05/06/98 (5,906)
SGD 8,806,250 $ 4,591,012 07/13/98 (963,510)
--------------
Net unrealized depreciation... (97$5,368)
--------------
--------------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
HKD Hong Kong Dollar
Y Japanese Yen
MYR Malaysian Ringgit
SGD Singapore Dollar
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
SUMMARY OF INVESTMENTS APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Aluminum.......................................................................... $ 1,751,750 0.3 %
Apparel........................................................................... 834,688 0.1
Auto Related...................................................................... 2,259,382 0.4
Auto Trucks & Parts............................................................... 646,793 0.1
Automotive........................................................................ 7,764,964 1.4
Banking........................................................................... 69,658,316 12.3
Banks............................................................................. 7,546,571 1.3
Beverages......................................................................... 903,117 0.2
Building & Construction........................................................... 3,080,890 0.5
Building Materials................................................................ 6,075,917 1.1
Business Services................................................................. 3,274,752 0.6
Chemicals......................................................................... 9,911,407 1.7
Chemicals - Specialty............................................................. 583,860 0.1
Commercial Services............................................................... 1,476,473 0.3
Communications - Equipment/Manufacturers.......................................... 30 0.0
Computer Software & Services...................................................... 5,834,312 1.0
Computers......................................................................... 11,475,601 2.0
Conglomerates..................................................................... 40,202,706 7.1
Currency Options.................................................................. 3,349,850 0.6
Electronic & Electrical Equipment................................................. 36,024,285 6.3
Electronics....................................................................... 4,106,686 0.7
Electronics - Semiconductors/Components........................................... 11,887,895 2.1
Engineering....................................................................... 2,897,245 0.5
Engineering & Construction........................................................ 2,187,571 0.4
Entertainment..................................................................... 1,314,107 0.2
Finance - Diversified............................................................. 349,089 0.1
Financial Services................................................................ 4,090,839 0.7
Food, Beverage, Tobacco, & Household Products..................................... 12,252,371 2.2
Forest Products, Paper & Packing.................................................. 38,095 0.0
Hand Tools........................................................................ 1,115,628 0.2
Health & Personal Care............................................................ 1,728,395 0.3
Hotels/Motels..................................................................... 317,566 0.1
Industrials....................................................................... 369,332 0.1
Insurance......................................................................... 4,575,284 0.8
Investment Companies.............................................................. 8,415,970 1.5
Leisure........................................................................... 6,059,525 1.1
Life Insurance.................................................................... 3,372,466 0.6
Machinery......................................................................... 8,538,340 1.5
Manufacturing..................................................................... 1,526,923 0.3
Merchandising..................................................................... 958,025 0.2
Metals & Mining................................................................... 3,698,928 0.7
Metals - Non-Ferrous.............................................................. 2,616,682 0.5
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous..................................................................... $ 3,612,984 0.6 %
Multi-Industry.................................................................... 3,265,072 0.6
Office Equipment.................................................................. 306,903 0.1
Oil & Gas Exploration............................................................. 3,084,225 0.5
Oil - Exploration & Production.................................................... 2,414,097 0.4
Oil Related....................................................................... 89,250 0.0
Paper Products.................................................................... 621,462 0.1
Pharmaceuticals................................................................... 3,376,543 0.6
Plantation........................................................................ 6,127,462 1.1
Publishing........................................................................ 5,641,789 1.0
Real Estate....................................................................... 67,143,394 11.8
Retail............................................................................ 2,306,421 0.4
Retail - Department Stores........................................................ 967,660 0.2
Retail - Food Chains.............................................................. 2,880,000 0.5
Retail - General Merchandise...................................................... 2,870,559 0.5
Retail - Specialty................................................................ 541,930 0.1
Retail Stores..................................................................... 2,419,502 0.4
Shipbuilding...................................................................... 5,378,427 0.9
Steel............................................................................. 2,340,650 0.4
Steel & Iron...................................................................... 9,882,351 1.7
Telecommunications................................................................ 45,181,302 8.0
Telecommunications Equipment...................................................... 1,263,415 0.2
Television........................................................................ 2,178,125 0.4
Textiles.......................................................................... 3,066,501 0.5
Tobacco........................................................................... 2,453,389 0.4
Transportation.................................................................... 13,794,149 2.4
U.S. Government Agency............................................................ 20,000,000 3.5
Utilities......................................................................... 32,293,444 5.7
Utilities - Electric.............................................................. 9,473,700 1.7
Utilities - Gas................................................................... 976,859 0.2
Utilities - Telecommunications.................................................... 2,887,583 0.5
Water............................................................................. 1,613,960 0.3
Wholesale & International Trade................................................... 469,136 0.1
Wholesale Distributor............................................................. 1,440,990 0.3
------------ ---
$557,435,860 98.2 %
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $513,730,600 90.5 %
Convertible Bonds................................................................. 19,596,763 3.4
Foreign Currency Put Options...................................................... 3,349,850 0.6
Rights & Warrants................................................................. 409,557 0.1
Short-Term Investments............................................................ 20,349,090 3.6
------------ ---
$557,435,860 98.2 %
------------ ---
------------ ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $661,717,027)............................................................. $ 557,435,860
Cash......................................................................................... 2,638,171
Receivable for:
Investments sold......................................................................... 7,954,856
Capital stock sold....................................................................... 5,220,768
Dividends................................................................................ 1,264,905
Prepaid expenses and other assets............................................................ 190,000
-------------
TOTAL ASSETS............................................................................ 574,704,560
-------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts........................... 975,368
Payable for:
Investments purchased.................................................................... 1,681,860
Compensated forward foreign currency contracts........................................... 1,500,543
Capital stock repurchased................................................................ 788,849
Investment management fee................................................................ 479,403
Plan of distribution fee................................................................. 476,465
Accrued expenses and other payables.......................................................... 1,303,285
-------------
TOTAL LIABILITIES....................................................................... 7,205,773
-------------
NET ASSETS.............................................................................. $ 567,498,787
-------------
-------------
COMPOSITION OF NET ASSETS:
Paid-in-capital.............................................................................. $ 993,129,825
Net unrealized depreciation.................................................................. (105,257,909)
Dividends in excess of net investment income................................................. (14,915,526)
Accumulated net realized loss................................................................ (305,457,603)
-------------
NET ASSETS.............................................................................. $ 567,498,787
-------------
-------------
CLASS A SHARES:
Net Assets................................................................................... $2,651,013
Shares Outstanding (500,000,000
AUTHORIZED, $.01 PAR VALUE)................................................................ 239,467
NET ASSET VALUE PER SHARE............................................................... $11.07
-------------
-------------
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS 5.54% OF
NET ASSET VALUE)....................................................................... $11.68
-------------
-------------
CLASS B SHARES:
Net Assets................................................................................... $ 562,030,970
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE).................................. 50,758,692
NET ASSET VALUE PER SHARE............................................................... $11.07
-------------
-------------
CLASS C SHARES:
Net Assets................................................................................... $1,299,562
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE).................................. 117,631
NET ASSET VALUE PER SHARE............................................................... $11.05
-------------
-------------
CLASS D SHARES:
Net Assets................................................................................... $1,517,242
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE).................................. 136,975
NET ASSET VALUE PER SHARE............................................................... $11.08
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $230,066 foreign withholding tax)........................................... $ 7,208,017
Interest (net of $862 foreign withholding tax)................................................ 881,833
------------
TOTAL INCOME............................................................................. 8,089,850
------------
EXPENSES
Investment management fee..................................................................... 3,110,945
Plan of distribution fee (Class A shares)..................................................... 1,942
Plan of distribution fee (Class B shares)..................................................... 3,092,601
Plan of distribution fee (Class C shares)..................................................... 5,399
Transfer agent fees and expenses.............................................................. 1,321,600
Custodian fees................................................................................ 1,008,909
Shareholder reports and notices............................................................... 116,183
Registration fees............................................................................. 81,230
Professional fees............................................................................. 38,653
Directors' fees and expenses.................................................................. 7,592
Other......................................................................................... 18,182
------------
TOTAL EXPENSES........................................................................... 8,803,236
------------
NET INVESTMENT LOSS...................................................................... (713,386)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments............................................................................... (173,720,457)
Foreign exchange transactions............................................................. (4,918,811)
------------
NET LOSS................................................................................. (178,639,268)
------------
Net change in unrealized appreciation/depreciation on:
Investments............................................................................... 97,955,412
Translation of forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies....................................................... (541,038)
------------
NET APPRECIATION......................................................................... 97,414,374
------------
NET LOSS................................................................................. (81,224,894)
------------
NET DECREASE.................................................................................. $(81,938,280)
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
APRIL 30, ENDED
1998 OCTOBER 31, 1997*
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss).......................................... $ (713,386) $ 386,894
Net realized loss..................................................... (178,639,268) (81,003,250)
Net change in unrealized appreciation/depreciation.................... 97,414,374 (280,824,717)
------------- ---------------------
NET DECREASE..................................................... (81,938,280) (361,441,073)
------------- ---------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A shares........................................................ (18,402) --
Class B shares........................................................ (10,272,862) (25,258,274)
Class C shares........................................................ (13,025) --
Class D shares........................................................ (17,045) --
------------- ---------------------
TOTAL DIVIDENDS.................................................. (10,321,334) (25,258,274)
------------- ---------------------
Net decrease from capital stock transactions.......................... (85,933,169) (492,076,963)
------------- ---------------------
NET DECREASE..................................................... (178,192,783) (878,776,310)
NET ASSETS:
Beginning of period................................................... 745,691,570 1,624,467,880
------------- ---------------------
END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF
$14,915,526 AND $3,880,806, RESPECTIVELY)......................... $ 567,498,787 $ 745,691,570
------------- ---------------------
------------- ---------------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Pacific Growth Fund Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
maximize capital appreciation of its investments. The Fund was incorporated in
Maryland on June 13, 1990 and commenced operations on November 30, 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, 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 reported amounts and disclosures. Actual results could differ from those
estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Directors); (2) listed options are valued at the latest sale
price on the exchange on which they are listed unless no sales of such options
have taken place that day, in which case they are valued at the mean between
their latest bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (4) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") or Morgan
Grenfell Investment Services Limited (the "Sub-Adviser") that sale and bid
prices are not reflective of a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Directors (valuation of
87
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); and (5)
short-term debt securities having a maturity date of more than sixty days at the
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. 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 which 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
88
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) 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
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
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 record 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
89
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
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% to the portion of daily net assets not exceeding $1
billion; 0.95% to the portion of daily net assets exceeding $1 billion but not
exceeding $2 billion; and 0.90% to the portion of daily net assets in excess of
$2 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the Sub-Adviser and the Investment
Manager, the Sub-Adviser provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Adviser monthly compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. 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 the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been
90
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
imposed or waived; or (b) the average daily net assets of Class B; and (iii)
Class C - up to 1.0% of the average daily net assets of Class C. In the case of
Class A shares, amounts paid under the Plan are paid to the Distributor for
services provided. In the case of Class B and Class C shares, amounts paid under
the Plan are paid to the Distributor for services provided and the expenses
borne by it and others in the distribution of the shares of these Classes,
including the payment of commissions for sales of these Classes and incentive
compensation to, and expenses of, the account executives of Dean Witter Reynolds
Inc. ("DWR"), an affiliate of the Investment Manager and Distributor, and others
who engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; printing and distribution
of prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $40,157,545 at April 30, 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 account executives may be reimbursed in the subsequent
calendar year. For the six months ended April 30, 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 six months ended April 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C
91
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
shares of $1,057,699, and $3,944, respectively and received $23,122 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 six months ended April 30, 1998 aggregated
$226,308,265 and $324,716,616, respectively.
For the six months ended April 30, 1998, the Fund incurred $3,477 in brokerage
commissions with affiliates of the Sub-Adviser for portfolio transactions
executed on behalf of the Fund.
For the six months ended April 30, 1998, the Fund incurred brokerage commissions
of $8,951 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund. At April 30,
1998, the Fund's payable for investments purchased included unsettled trades
with Morgan Stanley & Co., Inc., of $192,748.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At April 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $289,000.
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 six months ended April 30, 1998
included in Directors' fees and expenses in the Statement of Operations,
amounted to $1,918. At April 30, 1998, the Fund had an accrued pension liability
of $39,401 which is included in accrued expenses in the Statement of Assets and
Liabilities.
92
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
5. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, 1998 FOR THE YEAR
---------------------------- ENDED
OCTOBER 31, 1997*
(UNAUDITED) --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 206,285 $ 2,394,173 63,214 $ 998,769
Reinvestment of dividends........................................ 1,152 13,083 -- --
Redeemed......................................................... (16,364) (198,320) (14,820) (235,608)
----------- -------------- ----------- ------------
Net increase - Class A........................................... 191,073 2,208,936 48,394 763,161
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 19,667,769 226,782,835 28,630,560 521,923,627
Reinvestment of dividends........................................ 840,396 9,572,097 1,228,090 23,456,516
Redeemed......................................................... (27,740,910) (326,335,838) (57,878,288) (1,039,376,437)
----------- -------------- ----------- ------------
Net decrease - Class B........................................... (7,232,745) (89,980,906) (28,019,638) (493,996,294)
----------- -------------- ----------- ------------
CLASS C SHARES
Sold............................................................. 356,674 3,904,510 76,313 1,169,997
Reinvestment of dividends........................................ 1,046 11,869 -- --
Redeemed......................................................... (303,942) (3,559,600) (12,460) (171,011)
----------- -------------- ----------- ------------
Net increase - Class C........................................... 53,778 356,779 63,853 998,986
----------- -------------- ----------- ------------
CLASS D SHARES
Sold............................................................. 130,295 1,510,805 9,137 157,184
Reinvestment of dividends........................................ 222 2,523 -- --
Redeemed......................................................... (2,679) (31,306) -- --
----------- -------------- ----------- ------------
Net increase - Class D........................................... 127,838 1,482,022 9,137 157,184
----------- -------------- ----------- ------------
Net decrease in Fund............................................. (6,860,056) $ (85,933,169) (27,898,254) $(492,076,963)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through October 31, 1997.
93
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
6. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Fund had an approximate net capital loss carryover of
$116,663,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through October 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- -----------------------------------
2003 2004 2005
- --------- ----------- -----------
<S> <C> <C>
$ 3,193 $ 15,875 $ 97,595
- --------- ----------- -----------
- --------- ----------- -----------
</TABLE>
As of October 31, 1997, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of passive foreign investment companies and
capital loss deferrals on wash sales.
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.
At April 30, 1998, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
At April 30, 1998, the Fund's cash balance consisted principally of interest
bearing deposits with Chase Manhattan Bank N.A., the Fund's custodian.
8. SUBSEQUENT EVENT
In May 1998, the sub-adviser advised the Fund's Board of Directors and the
Investment Manager of its resignation as sub-adviser, effective at the close of
business on October 31, 1998. On June 2, the Board of Directors unanimously
recommended that a new sub-advisory agreement with Morgan Stanley Asset
Management Inc., an affiliate of the Investment Manager, be submitted to
shareholders for approval at a special meeting expected to be held in August
1998.
94
<PAGE>
DEAN WITTER PACIFIC 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
SIX
MONTHS
ENDED
APRIL 30, FOR THE YEAR ENDED OCTOBER 31
1998++ --------------------------------------------------------
(UNAUDITED) 1997* 1996 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 12.83 $ 18.89 $ 18.77 $ 21.60 $ 19.80 $ 12.69
---------- ---------- ---------- ---------- --------- ---------
Net investment
income (loss)... (0.01) 0.01 0.05 0.08 (0.10) (0.04)
Net realized and
unrealized gain
(loss).......... (1.56) (5.77) 0.50 (1.94) 2.22 7.15
---------- ---------- ---------- ---------- --------- ---------
Total from
investment
operations...... (1.57) (5.76) 0.55 (1.86) 2.12 7.11
---------- ---------- ---------- ---------- --------- ---------
Less dividends
and
distributions
from:
Net investment
income........ (0.19) (0.30) (0.43) -- -- --
Net realized
gain.......... -- -- -- (0.97) (0.32) --
---------- ---------- ---------- ---------- --------- ---------
Total dividends
and
distributions... (0.19) (0.30) (0.43) (0.97) (0.32) --
---------- ---------- ---------- ---------- --------- ---------
Net asset value,
end of period... $ 11.07 $ 12.83 $ 18.89 $ 18.77 $ 21.60 $ 19.80
---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- --------- ---------
TOTAL INVESTMENT
RETURN+.......... (12.25) (1) (31.01)% 3.00% (8.65)% 10.69% 56.13%
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 2.83%(2) 2.44% 2.39% 2.45% 2.41% 2.38%
Net investment
income (loss)... (0.23) (2) 0.03% 0.18% 0.35% (0.70)% (0.46)%
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $562 $744 $1,624 $1,442 $1,571 $694
Portfolio
turnover rate... 38%(1) 42% 49% 50% 35% 30%
Average
commission rate
paid............ $0.0059 $0.0075 $0.0095 -- -- --
</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.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
95
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28,1997*
MONTHS ENDED THROUGH
APRIL 30, 1998++ OCTOBER 31,
(UNAUDITED) 1997++
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 12.86 $ 19.39
------ ------
Net investment income................................................. 0.03 --
Net realized and unrealized loss...................................... (1.56) (6.53)
------ ------
Total from investment operations...................................... (1.53) (6.53)
------ ------
Less dividends from net investment income............................. (0.26) --
------ ------
Net asset value, end of period........................................ $ 11.07 12.86
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (11.93)%(1) (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.05%(2) 1.92%(2)
Net investment income (loss).......................................... 0.48%(2) (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $2,651 $622
Portfolio turnover rate............................................... 38%(1) 42%
Average commission rate paid.......................................... $0.0059 $0.0075
</TABLE>
<TABLE>
<S> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 12.83 $ 19.39
------ ------
Net investment loss................................................... (0.03) (0.04)
Net realized and unrealized loss...................................... (1.52) (6.52)
------ ------
Total from investment operations...................................... (1.55) (6.56)
------ ------
Less dividends from net investment income............................. (0.23) --
------ ------
Net asset value, end of period........................................ $ 11.05 12.83
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (12.11)%(1) (33.83)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.83%(2) 2.62%(2)
Net investment loss................................................... (0.57)%(2) (0.77)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 1,300 $ 819
Portfolio turnover rate............................................... 38%(1) 42%
Average commission rate paid.......................................... $0.0059 $0.0075
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JULY 28, 1997*
APRIL 30, 1998++ THROUGH OCTOBER
(UNAUDITED) 31, 1997++
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 12.86 $ 19.39
------ ------
Net investment income................................................. 0.02 0.02
Net realized and unrealized loss...................................... (1.53) (6.55)
------ ------
Total from investment operations...................................... (1.51) (6.53)
------ ------
Less dividends from net investment income............................. (0.27) --
------ ------
Net asset value, end of period........................................ $ 11.08 $ 12.86
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (11.79)%(1) (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.84%(2) 1.62%(2)
Net investment income................................................. 0.35%(2) 0.42%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,517 $118
Portfolio turnover rate............................................... 38%(1) 42%
Average commission rate paid.......................................... $0.0059 $0.0075
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
97
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PARTC OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A):
Page in
Prospectus
----------
Financial Highlights for the period November 30,
1990 through October 31, 1991 and for the fiscal
years ended October 31, 1992, 1993, 1994, 1995, 1996,
1997, and for the six months ended April 30, 1998
(unaudited) (Class B). . . . . . . . . . . . . . . . . . . . . 6
Financial Highlights for the period July 28, 1997
through October 31, 1997 and for the six months ended
April 30, 1998 (unaudited) (Classes 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, 1997 . . . . . . . . . 51
Statement of Assets and Liabilities at October 31, 1997. . . . 61
Statement of Operations for the year ended October 31, 1997. . 62
Statement of Changes in Net Assets for the years ended
October 31, 1996 and 1997. . . . . . . . . . . . . . . . . . . 63
Notes to Financial Statements at October 31, 1997. . . . . . . 64
Financial Highlights for the period November 30, 1990
through October 31, 1991, and for the years ended October
31, 1992, 1993, 1994, 1995, 1996 and 1997 (Class B). . . . . . 72
Financial Highlights for the period July 28, 1997 through
October 31, 1997 (Classes A, C, and D) . . . . . . . . . . . . 73
Portfolio of Investments at April 30, 1998 (unaudited) . . . . 76
Statement of Assets and Liabilities at April 30, 1998
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . 84
<PAGE>
Page in
SAI
---
Statement of Operations for the six months ended
April 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . . 85
Statement of Changes in Net Assets for the year ended
October 31, 1997 and for the six months ended
April 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . . 86
Notes to Financial Statements at April 30, 1998
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . 87
(3) Financial statements included in Part C:
None
(b) EXHIBITS
1. Form of Articles of Amendment to the Articles of Incorporation of
Registrant.
5 (a) Form of Amended Investment Management agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
5 (b) Form of Sub-Advisory Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Asset Management Inc.
6. Form of Amended Distribution Agreement between Registrant and
Morgan Stanley Dean Witter Distributors Inc.
8. Form of Amended and Restated Transfer Agency and Service Agreement
between Registrant and Morgan Stanley Dean Witter Trust FSB.
9. Form of Amended Services Agreement between Morgan Stanley Dean
Witter Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc.
11. Consent of Independent Accountants.
18. Amended Multiple-Class Plan pursuant to Rule 18f-3.
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
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
Number of Record Holders
Title of Class at July 31, 1998
-------------- ----------------
Class A 424
Class B 125,266
Class C 252
Class D 12
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 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
<PAGE>
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
(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) Dean Witter Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
<PAGE>
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(49) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter S&P 500 Index Fund
(49) Morgan Stanley Dean Witter Select Dimensions Investment Series
(50) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(51) Morgan Stanley Dean Witter Short-Term Bond Fund
(52) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(53) Morgan Stanley Dean Witter Special Value Fund
(54) Morgan Stanley Dean Witter Strategist Fund
(55) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(56) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(57) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(58) Morgan Stanley Dean Witter U.S. Government Securities Trust
(59) Morgan Stanley Dean Witter Utilities Fund
(60) Morgan Stanley Dean Witter Value-Added Market Series
(61) Morgan Stanley Dean Witter Variable Investment Series
(62) 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
<PAGE>
(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
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
- -------------------- ------------------------------------------------
Mitchell M. Merin Chairman and Director of Morgan Stanley Dean
President, Chief Witter Distributors Inc. ("MSDW Distributors") and
Executive Officer and Morgan Stanley Dean Witter Trust FSB ("MSDW
Director Trust"); President, 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 SPS Transaction
Services, Inc. and various other Morgan Stanley
Dean Witter & Co. ("MSDW") subsidiaries.
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
Financial Officer Services and MSDW Distributors; Director of DWR,
MSDW Distributors and MSDW.
Robert M. Scanlan President, Chief Operating Officer and Director of
President, Chief MSDW Services, Executive Vice President of MSDW
Operating Officer Distributors; Executive Vice President and
and Director Director of MSDW Trust; 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
Executive Vice President Funds and Director of MSDW Trust.
and Chief Investment
Officer
Edward C. Oelsner, III
Executive Vice President
<PAGE>
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
- -------------------- ------------------------------------------------
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
Counsel and Director Secretary 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
Senior Vice President Witter Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean
Senior Vice President Witter 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
Senior Vice President Witter Funds.
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
<PAGE>
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
- -------------------- ------------------------------------------------
Jonathan R. Page Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Rochelle G. Siegel Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Ronald J. Worobel Vice President of various Morgan Stanley Dean
Senior Vice President Witter 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 Treasurer the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of MSDW Services;
and Assistant Secretary Assistant Secretary of the Morgan Stanley Dean
Witter Funds and the TCW/DW Funds.
<PAGE>
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
- -------------------- ------------------------------------------------
Salvatore DeSteno Vice President of MSDW Services.
First Vice President
Michael Interrante First Vice President and Controller of MSDW
First Vice President Services; Assistant Treasurer of MSDW
and Controller Distributors;First Vice President and Treasurer of
MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Carsten Otto First Vice President and Assistant Secretary of
First Vice President MSDW Services; Assistant Secretary of the Morgan
and Assistant Secretary Stanley 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
Vice President Witter 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
Assistant Secretary Stanley Dean Witter Funds and the TCW/DW Funds.
Ronald Caldwell
Vice President
<PAGE>
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
- -------------------- ------------------------------------------------
Joseph Cardwell
Vice President
Philip Casparius
Vice President
David Dineen Vice President of Dean Witter Global Asset
Vice President Allocation Fund.
Bruce Dunn
Vice President
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
<PAGE>
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
- -------------------- ------------------------------------------------
Christopher Jones
Vice President
Kevin Jung
Vice President
Carol Espejo Kane
Vice President
James P. Kastberg
Vice President
Michelle Kaufman Vice President of various Morgan Stanley Dean Vice
President Witter Funds.
Paula LaCosta Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Nancy Login
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter
Vice President Natural 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
Assistant Secretary Stanley Dean Witter Funds and the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
<PAGE>
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
- -------------------- ------------------------------------------------
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter
Vice President Natural Resource Development Securities Inc.
Richard Norris
Vice President
George Paoletti
Vice President
Anne Pickrell Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Michael Roan
Vice President
John Roscoe
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Ruth Rossi Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan
Assistant Secretary Stanley 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
Vice President Witter Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
<PAGE>
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
- -------------------- ------------------------------------------------
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Marybeth Swisher
Vice President
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
John Wong
Vice President
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) Dean Witter Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
<PAGE>
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Prime Income Trust
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter Short-Term Bond Fund
(51) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(52) Morgan Stanley Dean Witter Special Value 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 Variable Investment Series
(61) 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.
<PAGE>
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Richard M. DeMartini Director.
Christine Edwards Executive Vice President, Secretary
Director and Chief Legal Officer.
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.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it 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 20th day of August, 1998.
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
By /s/ Barry Fink
-------------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 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 08/20/98
---------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 08/20/98
---------------------------
Thomas F. Caloia
(3) Majority of the Directors
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 08/20/98
---------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/ David M. Butowsky 08/20/98
---------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBITS
1. Form of Articles of Amendment to the Articles of Incorporation of
the Registrant.
5 (a) Form of Amended Investment Management agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
5 (b) Form of Sub-Advisory Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Asset Management Inc.
6. Form of Amended Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors Inc.
8. Form of Amended and Restated Transfer Agency and Service Agreement
between Registrant and Morgan Stanley Dean Witter Trust FSB.
9. Form of Amended Services Agreement between Morgan Stanley Dean
Witter Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc.
11. Consent of Independent Accountants.
18. Amended Multiple-Class Plan pursuant to Rule 18f-3.
27. Financial Data Schedules.
<PAGE>
Exhibit 99.1
DEAN WITTER PACIFIC GROWTH FUND INC.
ARTICLES OF AMENDMENT
CHANGING NAME OF CORPORATION
PURSUANT TO MGCL SECTION 2-605(a)(4)
Dean Witter Pacific Growth Fund Inc., a Maryland corporation, having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by striking out
ARTICLE II of the Articles of Incorporation and inserting in lieu thereof the
following:
"ARTICLE II
The name of the Corporation is Morgan Stanley Dean Witter Pacific Growth
Fund Inc."
SECOND: The foregoing amendment to the Charter of the Corporation has
been approved by the Board of Directors and is limited to a change expressly
permitted by Section 2-605 of the Maryland General Corporation Law.
THIRD: The Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940.
FOURTH: These Articles of Amendment shall become effective at 9:00 a.m.,
Eastern Time, on June 22, 1998.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and attested by its
Secretary on this 19th day of June 1998.
DEAN WITTER PACIFIC GROWTH
FUND INC.
By: /s/ Charles A. Fiumefreddo
---------------------------
Name: Charles A. Fiumefreddo
Title: President
ATTESTED:
/s/ Barry Fink
- -----------------------
Name: Barry Fink
Title: Secretary
THE UNDERSIGNED, the president of Dean Witter Pacific Growth Fund
Inc. who executed on behalf of the Corporation the foregoing Articles of
Amendment of which this certificate is made a part, hereby acknowledges in
the name and on behalf of the Corporation the foregoing Articles of Amendment
to be the corporate act of the Corporation and hereby certifies that to the
best of his knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in
all material respects under the penalties of perjury.
/s/Charles A. Fiumefreddo
-----------------------------
Name: Charles A. Fiumefreddo
Title: President
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of April
30, 1998, and November 1, 1998, by and between Morgan Stanley Dean
Witter Pacific 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
$1 billion; 0.90% of the next $1 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, trustees 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 November 1, 1998 in New York, New York.
MORGAN STANLEY DEAN WITTER
PACIFIC GROWTH FUND INC.
By:
-----------------------------
Attest:
- ------------------------------------
MORGAN STANLEY DEAN WITTER
ADVISORS INC.
By:
-----------------------------
Attest:
- ------------------------------------
4
<PAGE>
EXHIBIT A
FORM OF NEW SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of November, 1998 by and between Morgan
Stanley Dean Witter Advisors Inc., a Delaware corporation (herein referred to as
the "Investment Manager"), and Morgan Stanley Asset Management Inc., a Delaware
Corporation, (herein referred to as the "Sub-Advisor").
WHEREAS, Morgan Stanley Dean Witter Pacific 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
1
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and personnel of the Sub-Advisor shall be deemed to include persons employed or
otherwise retained by the 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 Trustees 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 Trustees 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 Trustees) 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
2
<PAGE>
this Agreement. In addition, if the Investment Manager has undertaken in the
Fund's Registration Statement as 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. Subject to the provisions of
paragraph 7 hereof, payment of the Sub-Advisor's compensation for the preceding
month shall be made as promptly as possible after completion of the computations
contemplated by paragraph 7 hereof.
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
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<PAGE>
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.
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: ..................................
Attest: ..............................
MORGAN STANLEY
ASSET MANAGEMENT INC.
By: ..................................
Attest: ..............................
Accepted and agreed to as of
the day and year first above written:
MORGAN STANLEY DEAN WITTER
PACIFIC GROWTH FUND INC.
By: ..................................
Attest: ..............................
5
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1997, and amended as of June 22,
1998, between each of the open-end investment companies to which Morgan Stanley
Dean Witter Advisors Inc. acts as investment manager, that are listed on
Schedule A, as may be amended from time to time (each, a "Fund" and
collectively, the "Funds"), and Morgan Stanley Dean Witter Distributors Inc., a
Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and it is in the
interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of each Fund's transferable
shares, of $0.01 par value (the "Shares"), to commence on the date listed above,
in order to promote the growth of each Fund and facilitate the distribution of
its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. APPOINTMENT OF THE DISTRIBUTOR.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set forth
in this Agreement and that Fund's prospectus and the Distributor hereby accepts
such appointment and agrees to act hereunder. Each Fund, during the term of this
Agreement, shall sell Shares to the Distributor upon the terms and conditions
set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Distributor, upon the terms described herein and in that Fund's prospectus
(the "Prospectus") and statement of additional information included in the
Fund's registration statement (the "Registration Statement") most recently filed
from time to time with the Securities and Exchange Commission (the "SEC") and
effective under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act or as the Prospectus may be otherwise amended or supplemented and filed
with the SEC pursuant to Rule 497 under the 1933 Act.
SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by each Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company with
the Fund or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Fund; (ii)
pursuant to reinvestment of dividends or capital gains distributions; or (iii)
pursuant to the reinstatement privilege afforded redeeming shareholders.
SECTION 3. PURCHASE OF SHARES FROM EACH FUND. The Shares are offered in
four classes (each, a "Class"), as described in the Prospectus, as amended or
supplemented from time to time.
(a) The Distributor shall have the right to buy from each Fund the Shares of
the particular class needed, but not more than the Shares needed (except for
clerical errors in transmission), to fill unconditional orders for Shares of the
applicable class placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the Shares so purchased from the
Fund shall be the net asset value, determined as set forth in the Prospectus,
used in determining the public offering price on which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares of the applicable class as set forth in the Prospectus, to
investors or to securities dealers, including DWR, who
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have entered into selected dealer agreements with the Distributor upon the terms
and conditions set forth in Section 7 hereof ("Selected Dealers").
(c) Each Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(f) hereof. Each Fund shall also have the right to suspend the sale of
the Shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other extraordinary event which,
in the judgment of a Fund, makes it impracticable to sell its Shares.
(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a Fund
will not arbitrarily or without reasonable cause refuse to accept orders for the
purchase of Shares. The Distributor will confirm orders upon their receipt, and
each Fund (or its agent) upon receipt of payment therefor and instructions will
deliver share certificates for such Shares or a statement confirming the
issuance of Shares. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions directly
from the Selected Dealer on behalf of the Distributor as to registration of
Shares in the names of investors and to confirm issuance of the Shares to such
investors. The Distributor is also authorized to instruct the transfer agent to
receive payment directly from the Selected Dealer on behalf of the Distributor,
for prompt transmittal to each Fund's custodian, of the purchase price of the
Shares. In such event the Distributor shall obtain from the Selected Dealer and
maintain a record of such registration instructions and payments.
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES.
(a) Any of the outstanding Shares of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in accordance
with the applicable provisions set forth in its Prospectus. The price to be paid
to redeem the Shares shall be equal to the net asset value determined as set
forth in the Prospectus less any applicable contingent deferred sales charge
("CDSC"). Upon any redemption of Shares the Fund shall pay the total amount of
the redemption price in New York Clearing House funds in accordance with
applicable provisions of the Prospectus.
(b) The redemption by a Fund of any of its Class A Shares purchased by or
through the Distributor will not affect the applicable front-end sales charge
secured by the Distributor or any Selected Dealer in the course of the original
sale, except that if any Class A Shares are tendered for redemption within seven
business days after the date of the confirmation of the original purchase, the
right to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.
(c) The proceeds of any redemption of Class A, Class B or Class C Shares
shall be paid by each Fund as follows: (i) any applicable CDSC shall be paid to
the Distributor or to the Selected Dealer, or, when applicable, pursuant to the
Rules of the Association of the National Association of Securities Dealers, Inc.
("NASD"), retained by the Fund and (ii) the balance shall be paid to the
redeeming shareholders, in each case in accordance with applicable provisions of
its Prospectus in New York Clearing House funds. The Distributor is authorized
to direct a Fund to pay directly to the Selected Dealer any CDSC payable by a
Fund to the Distributor in respect of Class A, Class B, or Class C Shares sold
by the Selected Dealer to the redeeming shareholders.
(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office of
the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer agent
of the Fund for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
2
<PAGE>
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders, or
at the discretion of the Distributor. The Distributor shall promptly transmit to
the transfer agent of the Fund, for redemption, all such orders for repurchase
of Shares. Payment for Shares repurchased may be made by a Fund to the
Distributor for the account of the shareholder. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
(f) Redemption of its Shares or payment by a Fund may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or
during any other period when the SEC, by order, so permits.
(g) With respect to its Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and to
instruct the Fund to transmit payments for such redemptions and repurchases
directly to the Selected Dealer on behalf of the Distributor for the account of
the shareholder. The Distributor shall obtain from the Selected Dealer, and
shall maintain, a record of such orders. The Distributor is further authorized
to obtain from the Fund, and shall maintain, a record of payment made directly
to the Selected Dealer on behalf of the Distributor.
SECTION 5. DUTIES OF THE FUND.
(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including one
certified copy, upon request by the Distributor, of all financial statements
prepared by the Fund and examined by independent accountants. Each Fund shall,
at the expense of the Distributor, make available to the Distributor such number
of copies of its Prospectus as the Distributor shall reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at any
time in its discretion. As provided in Section 8(c) hereof, such filing fees
shall be paid by the Fund. The Distributor shall furnish any information and
other material relating to its affairs and activities as may be required by a
Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual and
interim reports.
SECTION 6. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall sell shares of each Fund through DWR and may sell
shares through other securities dealers and its own Financial Advisors, and
shall devote reasonable time and effort to promote sales of the Shares, but
shall not be obligated to sell any specific number of Shares. The services of
the Distributor hereunder are not exclusive and it is understood that the
Distributor may act as principal underwriter for other registered investment
companies, so long as the performance of its obligations hereunder is not
impaired thereby. It is also understood that Selected Dealers, including DWR,
may also sell shares for other registered investment companies.
3
<PAGE>
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
SECTION 7. SELECTED DEALERS AGREEMENTS.
(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Class A Shares, in such agreement the Distributor shall have the
right to fix the portion of the applicable front-end sales charge which may be
allocated to the Selected Dealers.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD, as such requirements may from time
to time exist.
SECTION 8. PAYMENT OF EXPENSES.
(a) Each Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Directors/Trustees
of each Fund who are not interested persons (as defined in the 1940 Act) of the
Fund or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and Prospectuses
and all amendments and supplements thereto, and the expense of preparing,
printing, mailing and otherwise distributing prospectuses and statements of
additional information, annual or interim reports or proxy materials to
shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses for
sales of a Fund's Shares (except such expenses as are specifically undertaken
herein by a Fund) incurred or paid by Selected Dealers, including DWR. The
Distributor shall bear the costs and expenses of preparing, printing and
distributing any supplementary sales literature used by the Distributor or
furnished by it for use by Selected Dealers in connection with the offering of
the Shares for sale. Any expenses of advertising incurred in connection with
such offering will also be the obligation of the Distributor. It is understood
and agreed that, so long as a Fund's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plan") continues in effect, any expenses
incurred by the Distributor hereunder may be paid in accordance with the terms
of such Rule 12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. INDEMNIFICATION.
(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) arising by reason of any person acquiring
any Shares, which may be based upon the 1933 Act, or on any other statute or at
common law, on the ground that the Registration Statement or related Prospectus
and Statement of Additional Information, as from time to time amended
4
<PAGE>
and supplemented, or the annual or interim reports to shareholders of a Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of a Fund in favor of the Distributor and any such
controlling persons to be deemed to protect the Distributor or any such
controlling persons thereof against any liability to a Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement; or (ii) is a Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or any such controlling persons, as the case may be, shall have
notified the Fund 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 the Distributor or uch controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. Each Fund will be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the defense,
of any such suit brought to enforce any such liability, but if a Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor 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 the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor 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 Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors/Trustees in connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and
each of its Directors/Trustees and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage, or expense
described in the indemnity contained in subsection (a) of this Section, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to a Fund in writing by or on behalf
of the Distributor for use in connection with the Registration Statement or
related Prospectus and Statement of Additional Information, as from time to
time amended, or the annual or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which arise
as a result of actions taken pursuant to instructions from, or on behalf of, the
Distributor to: (1) redeem all or a part of shareholder accounts in the Fund
pursuant to Section 4(g) hereof and pay the proceeds to, or as directed by, the
Distributor for the account of each shareholder whose Shares are so redeemed;
and (2) register Shares in the names of investors, confirm the issuance thereof
and receive payment therefor pursuant to Section 3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to a Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor, by the provisions of subsection (a) of this
Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifiying party
shall contribute to the amount paid or payable by such indemnified party 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 a Fund on the one hand and the Distributor on the other
from the
5
<PAGE>
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party 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 the relative fault of a Fund on the one hand and the Distributor 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. The relative
benefits received by a Fund on the one hand and the Distributor on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Fund bear to the total
compensation received by the Distributor, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by a Fund or the Distributor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Each Fund and the Distributor agree that it would not be
just and equitable ifcontribution 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 an indemnified
party 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 such indemnified party in
connection with investigating or defending any such claim. Notwithstanding the
provisions of this subsection (c), the Distributor shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares distributed by it to the public were offered to the public exceeds
the amount of any damages which it has 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 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall remain in force until April 30, 1999, and thereafter, but only so long
as such continuance is specifically approved at least annually by (i) the
Board of Directors/Trustees of each Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, cast in person or by proxy, and
(ii) a majority of those Directors/Trustees who are not parties to this
Agreement or interested persons of any such party and who have no direct or
indirect financial interest in this Agreement or in the operation of the
Fund's Rule 12b-1 Plan or in any agreement related thereto, cast in person at
a meeting called for the purpose of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and
who have no direct or indirect financial interest in this Agreement, or by
vote of a majority of the outstanding voting securities of a Fund, or by the
Distributor, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding voting
securities of a Fund, and (ii) a majority of those Directors/Trustees of a Fund
who are not parties to this Agreement or interested persons of any such party
and who have no direct or indirect financial interest in this Agreement or in
any Agreement related to the Fund's Rule 12b-1 Plan, cast in person at a meeting
called for the purpose of voting on such approval.
SECTION 12. ADDITIONAL FUNDS. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under this
Agreement, it shall notify the Distributor in writing. If the Distributor is
willing to serve as the Fund's principal underwriter and distributor under this
Agreement, it shall notify the Fund in writing, whereupon such other Fund shall
become a Fund hereunder.
SECTION 13. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
Act. To the extent the applicable law of the
6
<PAGE>
State of New York, or any of the provisions herein, conflicts with the
applicable provisions of the 1940 Act, the latter shall control.
SECTION 14. PERSONAL LIABILITY. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on file
in the office of the Secretary of the Commonwealth of Massachusetts. Each
Declaration provides that the name of the Fund refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of any Fund shall be held to
any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with the
affairs of any Fund, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By: ..................................
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.
By: ..................................
7
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT JULY 22, 1998
<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter S&P 500 Select Fund
39) Morgan Stanley Dean Witter Strategist Fund
40) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
41) Morgan Stanley Dean Witter U.S. Government Securities Trust
42) Morgan Stanley Dean Witter Utilities Fund
43) Morgan Stanley Dean Witter Value-Added Market Series
44) Morgan Stanley Dean Witter Value Fund
45) Morgan Stanley Dean Witter Worldwide High Income Fund
46) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
8
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
MORGAN STANLEY DEAN WITTER TRUST FSB
[open-end funds]
<PAGE>
TABLE OF CONTENTS
PAGE
Article 1 Terms of Appointment. . . . . . . . . . . . . . . . . . . . 1
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 5
Article 3 Representations and Warranties of MSDW TRUST. . . . . . . . 6
Article 4 Representations and Warranties of the Fund. . . . . . . . . 7
Article 5 Duty of Care and Indemnification. . . . . . . . . . . . . . 7
Article 6 Documents and Covenants of the Fund and MSDW TRUST. . . . . 10
Article 7 Duration and Termination of Agreement . . . . . . . . . . . 13
Article 8 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 14
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . . . . . . 14
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 15
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . 15
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 15
Article 13 Merger of Agreement . . . . . . . . . . . . . . . . . . . . 17
Article 14 Personal Liability. . . . . . . . . . . . . . . . . . . . . 17
-i-
<PAGE>
AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 22nd day of June, 1998
by and between each of the Funds listed on the signature pages hereof, each of
such Funds acting severally on its own behalf and not jointly with any of such
other Funds (each such Fund hereinafter referred to as the "Fund"), each such
Fund having its principal office and place of business at Two World Trade
Center, New York, New York, 10048, and MORGAN STANLEY DEAN WITTER TRUST FSB
("MSDW TRUST"), a federally chartered savings bank, having its principal office
and place of business at Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311.
WHEREAS, the Fund desires to appoint MSDW TRUST as its transfer agent,
dividend disbursing agent and shareholder servicing agent and MSDW TRUST desires
to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF MSDW TRUST
1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints MSDW TRUST to act as, and MSDW
TRUST agrees to act as, the transfer agent for each series and class of shares
of the Fund, whether now or hereafter authorized or issued ("Shares"), dividend
disbursing agent and shareholder servicing agent in
-1-
<PAGE>
connection with any accumulation, open-account or similar plans provided to the
holders of such Shares ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund,
including without limitation any periodic investment plan or periodic withdrawal
program.
1.2 MSDW TRUST agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Fund and MSDW TRUST, MSDW TRUST shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and issue certificates therefor or hold such Shares in book form in
the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
-2-
<PAGE>
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934
Act") a record of the total number of Shares of the Fund which are authorized,
based upon data provided to it by the Fund, and issued and outstanding. MSDW
TRUST shall also provide to the Fund on a regular basis the total number of
Shares that are authorized, issued and outstanding and shall notify the Fund in
case any proposed issue of Shares by the Fund would result in an overissue. In
case any issue of Shares would result in an overissue, MSDW TRUST shall refuse
to issue such Shares and shall not countersign and issue any certificates
requested for such Shares. When recording the issuance of Shares, MSDW TRUST
shall have no obligation to take cognizance of any Blue Sky laws relating to the
issue of sale of such Shares, which functions shall be the sole responsibility
of the Fund.
(b) In addition to and not in lieu of the services set forth
in the above paragraph (a), MSDW TRUST shall:
-3-
<PAGE>
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing agent in
connection with dividend reinvestment, accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders and providing Shareholder account information;
(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to monitor the
total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to MSDW TRUST in writing those transactions and
assets to be treated as exempt from Blue Sky reporting for each State; and
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(ii) verify the inclusion on the system prior to activation of
each State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility of MSDW
TRUST for the Fund's status under the securities laws of any State or other
jurisdiction is limited to the inclusion on the system of each State as to which
the Fund has informed MSDW TRUST that shares may be sold in compliance with
state securities laws and the reporting of purchases and sales in each such
State to the Fund as provided above and as agreed from time to time by the Fund
and MSDW TRUST.
(d) MSDW TRUST shall provide such additional services and
functions not specifically described herein as may be mutually agreed between
MSDW TRUST and the Fund. Procedures applicable to such services may be
established from time to time by agreement between the Fund and MSDW TRUST.
Article 2 FEES AND EXPENSES
2.1 For performance by MSDW TRUST pursuant to this Agreement,
each Fund agrees to pay MSDW TRUST an annual maintenance fee for each
Shareholder account and certain transactional fees, if applicable, as set out in
the respective fee schedule attached hereto as Schedule A. Such fees and
out-of-pocket expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between the Fund
and MSDW TRUST.
2.2 In addition to the fees paid under Section 2.1 above, the
Fund agrees to reimburse MSDW TRUST for out of pocket expenses in connection
with the services rendered
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by MSDW TRUST hereunder. In addition, any other expenses incurred by MSDW TRUST
at the request or with the consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to MSDW TRUST by
the Fund upon request prior to the mailing date of such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF MSDW TRUST
MSDW TRUST represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal
office is in New Jersey.
3.2 It is and will remain registered with the U.S. Securities
and Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements
of Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter
and By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
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Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MSDW TRUST that:
4.1 It is a corporation duly organized and existing and in
good standing under the laws of Delaware or Maryland or a trust duly organized
and existing and in good standing under the laws of Massachusetts, as the case
may be.
4.2 It is empowered under applicable laws and by its Articles
of Incorporation or Declaration of Trust, as the case may be, and under its
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it to
enter into and perform this Agreement have been taken.
4.4 It is an investment company registered with the SEC under
the Investment Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities Act of 1933
(the "1933 Act") is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.1 MSDW TRUST shall not be responsible for, and the Fund
shall indemnify and hold MSDW TRUST harmless from and against, any and all
losses, damages, costs,
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charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of MSDW TRUST or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of
this Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by MSDW TRUST or its agents or
subcontractors of information, records and documents which (i) are received by
MSDW TRUST or its agents or subcontractors and furnished to it by or on behalf
of the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MSDW TRUST or its
agents or subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
or Blue Sky laws of any State or other jurisdiction that notice of offering of
such Shares in such State or other jurisdiction or in violation of any stop
order or other determination or ruling by any federal agency or any State or
other jurisdiction with respect to the offer or sale of such Shares in such
State or other jurisdiction.
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<PAGE>
5.2 MSDW TRUST shall indemnify and hold the Fund harmless from
or against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by MSDW TRUST as a result of the lack of good faith,
negligence or willful misconduct of MSDW TRUST, its officers, employees or
agents.
5.3 At any time, MSDW TRUST may apply to any officer of the
Fund for instructions, and may consult with legal counsel to the Fund, with
respect to any matter arising in connection with the services to be performed by
MSDW TRUST under this Agreement, and MSDW TRUST and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of such
counsel. MSDW TRUST, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to MSDW TRUST or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by the
Fund, and shall not be held to have notice of any change of authority of any
person, until receipt of written notice thereof from the Fund. MSDW TRUST, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
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<PAGE>
5.4 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
5.5 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any act or failure to act hereunder.
5.6 In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND MSDW TRUST
6.1 The Fund shall promptly furnish to MSDW TRUST the
following, unless previously furnished to Dean Witter Trust Company, the prior
transfer agent of the Fund:
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(a) If a corporation:
(i) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of MSDW TRUST and the
execution and delivery of this Agreement;
(ii) A certified copy of the Articles of Incorporation and By-
Laws of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Directors
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in
the form approved by the Board of Directors, with a certificate of the Secretary
of the Fund as to such approval;
(b) If a business trust:
(i) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of MSDW TRUST and the execution
and delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust and By-Laws
of the Fund and all amendments thereto;
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<PAGE>
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in
the form approved by the Board of Trustees, with a certificate of the Secretary
of the Fund as to such approval;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act or the 1940 Act;
(d) All account application forms or other documents relating
to Shareholder accounts and/or relating to any plan, program or service offered
or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as MSDW
TRUST deems to be appropriate or necessary for the proper performance of its
duties.
6.2 MSDW TRUST hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping of
Share certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
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<PAGE>
6.3 MSDW TRUST shall prepare and keep records relating to the
services to be performed hereunder, in the form and manner as it may deem
advisable and as required by applicable laws and regulations. To the extent
required by Section 31 of the 1940 Act, and the rules and regulations
thereunder, MSDW TRUST agrees that all such records prepared or maintained by
MSDW TRUST relating to the services performed by MSDW TRUST hereunder are the
property of the Fund and will be preserved, maintained and made available in
accordance with such Section 31 of the 1940 Act, and the rules and regulations
thereunder, and will be surrendered promptly to the Fund on and in accordance
with its request.
6.4 MSDW TRUST and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential and shall not be voluntarily disclosed to
any other person except as may be required by law or with the prior consent of
MSDW TRUST and the Fund.
6.5 In case of any request or demands for the inspection of
the Shareholder records of the Fund, MSDW TRUST will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. MSDW TRUST reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until
August 1,
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<PAGE>
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days
written notice, and by MSDW TRUST on 90 days written notice, to the other party
without payment of any penalty.
7.3 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and other
materials will be borne by the Fund. Additionally, MSDW TRUST reserves the
right to charge for any other reasonable fees and expenses associated with such
termination.
Article 8 ASSIGNMENT
8.1 Except as provided in Section 8.3 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.2 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
8.3 MSDW TRUST may, in its sole discretion and without further
consent by the Fund, subcontract, in whole or in part, for the performance of
its obligations and duties hereunder with any person or entity including but not
limited to companies which are affiliated with MSDW TRUST; PROVIDED, HOWEVER,
that such person or entity has and maintains the qualifications, if any,
required to perform such obligations and duties, and that MSDW TRUST
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<PAGE>
shall be as fully responsible to the Fund for the acts and omissions of any
agent or subcontractor as it is for its own acts or omissions under this
Agreement.
Article 9 AFFILIATIONS
9.1 MSDW TRUST may now or hereafter, without the consent of or
notice to the Fund, function as transfer agent and/or shareholder servicing
agent for any other investment company registered with the SEC under the 1940
Act and for any other issuer, including without limitation any investment
company whose adviser, administrator, sponsor or principal underwriter is or may
become affiliated with Morgan Stanley Dean Witter & Co. or any of its direct or
indirect subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or Trustees
(as the case may be), officers, employees, agents and shareholders of the Fund,
and the directors, officers, employees, agents and shareholders of the Fund's
investment adviser and/or distributor, are or may be interested in MSDW TRUST as
directors, officers, employees, agents and shareholders or otherwise, and that
the directors, officers, employees, agents and shareholders of MSDW TRUST may be
interested in the Fund as Directors or Trustees (as the case may be), officers,
employees, agents and shareholders or otherwise, or in the investment adviser
and/or distributor as directors, officers, employees, agents, shareholders or
otherwise.
Article 10 AMENDMENT
10.1 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors or the Board of Trustees (as the case may be) of the
Fund.
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<PAGE>
Article 11 APPLICABLE LAW
11.1 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of New
York.
Article 12 MISCELLANEOUS
12.1 In the event that one or more additional investment
companies managed or administered by Morgan Stanley Dean Witter Advisors Inc. or
any of its affiliates ("Additional Funds") desires to retain MSDW TRUST to act
as transfer agent, dividend disbursing agent and/or shareholder servicing agent,
and MSDW TRUST desires to render such services, such services shall be provided
pursuant to a letter agreement, substantially in the form of Exhibit A hereto,
between MSDW TRUST and each Additional Fund.
12.2 In the event of an alleged loss or destruction of any
Share certificate, no new certificate shall be issued in lieu thereof, unless
there shall first be furnished to MSDW TRUST an affidavit of loss or non-receipt
by the holder of Shares with respect to which a certificate has been lost or
destroyed, supported by an appropriate bond satisfactory to MSDW TRUST and the
Fund issued by a surety company satisfactory to MSDW TRUST, except that MSDW
TRUST may accept an affidavit of loss and indemnity agreement executed by the
registered holder (or legal representative) without surety in such form as MSDW
TRUST deems appropriate indemnifying MSDW TRUST and the Fund for the issuance of
a replacement certificate, in cases where the alleged loss is in the amount of
$1,000 or less.
12.3 In the event that any check or other order for payment of
money on the
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account of any Shareholder or new investor is returned unpaid for any reason,
MSDW TRUST will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as MSDW TRUST may, in its sole
discretion, deem appropriate or as the Fund and, if applicable, the Distributor
may instruct MSDW TRUST.
12.4 Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Fund or to MSDW TRUST shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To MSDW TRUST:
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 MERGER OF AGREEMENT
13.1 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
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Article 14 PERSONAL LIABILITY
14.1 In the case of a Fund organized as a Massachusetts
business trust, a copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Board of Trustees of the Fund
as Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against, a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.
MORGAN STANLEY DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Morgan Stanley Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
8. Morgan Stanley Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
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EQUITY FUNDS
10. Morgan Stanley Dean Witter American Value Fund
11. Morgan Stanley Dean Witter Mid-Cap Growth Fund
12. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
13. Morgan Stanley Dean Witter Capital Growth Securities
14. Morgan Stanley Dean Witter Global Dividend Growth Securities
15. Morgan Stanley Dean Witter Income Builder Fund
16. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
17. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
18. Morgan Stanley Dean Witter Developing Growth Securities Trust
19. Morgan Stanley Dean Witter Health Sciences Trust
20. Morgan Stanley Dean Witter Capital Appreciation Fund
21. Morgan Stanley Dean Witter Information Fund
22. Morgan Stanley Dean Witter Value-Added Market Series
23. Morgan Stanley Dean Witter European Growth Fund Inc.
24. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
25. Morgan Stanley Dean Witter International SmallCap Fund
26. Morgan Stanley Dean Witter Pacific Growth Fund
27. Morgan Stanley Dean Witter Utilities Fund
28. Morgan Stanley Dean Witter Global Utilities Fund
29. Morgan Stanley Dean Witter Special Value Fund
30. Morgan Stanley Dean Witter Financial Services Trust
31. Morgan Stanley Dean Witter Market Leader Trust
32. Morgan Stanley Dean Witter Fund of Funds
33. Morgan Stanley Dean Witter S&P 500 Index Fund
34. Morgan Stanley Dean Witter Competitive Edge Fund
35. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
36. Morgan Stanley Dean Witter Equity Fund
37. Morgan Stanley Dean Witter Growth Fund
BALANCED FUNDS
38. Morgan Stanley Dean Witter Balanced Growth Fund
39. Morgan Stanley Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
40. Morgan Stanley Dean Witter Strategist Fund
41. Dean Witter Global Asset Allocation Fund
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FIXED INCOME FUNDS
42. Morgan Stanley Dean Witter High Yield Securities Inc.
43. Morgan Stanley Dean Witter High Income Securities
44. Morgan Stanley Dean Witter Convertible Securities Trust
45. Morgan Stanley Dean Witter Intermediate Income Securities
46. Morgan Stanley Dean Witter Short-Term Bond Fund
47. Morgan Stanley Dean Witter World Wide Income Trust
48. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
49. Morgan Stanley Dean Witter Diversified Income Trust
50. Morgan Stanley Dean Witter U.S. Government Securities Trust
51. Morgan Stanley Dean Witter Federal Securities Trust
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
55. Morgan Stanley Dean Witter Limited Term Municipal Trust
56. Morgan Stanley Dean Witter California Tax-Free Income Fund
57. Morgan Stanley Dean Witter New York Tax-Free Income Fund
58. Morgan Stanley Dean Witter Hawaii Municipal Trust
59. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
60. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
SPECIAL PURPOSE FUNDS
61. Dean Witter Retirement Series
62. Morgan Stanley Dean Witter Variable Investment Series
63. Morgan Stanley Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Total Return Trust
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69. TCW/DW Global Telecom Trust
70. TCW/DW Mid-Cap Equity Trust
71. TCW/DW Emerging Markets Opportunities Trust
By:
----------------------------------
Barry Fink
Vice President and General Counsel
ATTEST:
- -----------------------
Assistant Secretary
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
--------------------------
John Van Heuvelen
President
ATTEST:
- -----------------------
Executive Vice President
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<PAGE>
EXHIBIT A
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, Morgan Stanley Dean Witter Pacific Growth Fund a
Maryland corporation (the "Fund"), desires to employ and appoint Morgan Stanley
Dean Witter Trust FSB ("MSDW TRUST") to act as transfer agent for each series
and class of shares of the Fund, whether now or hereafter authorized or issued
("Shares"), dividend disbursing agent and shareholder servicing agent,
registrar and agent in connection with any accumulation, open-account or
similar plan provided to the holders of Shares, including without limitation
any periodic investment plan or periodic withdrawal plan.
The Fund hereby agrees that, in consideration for the payment by
the Fund to MSDW TRUST of fees as set out in the fee schedule attached hereto
as Schedule A, MSDW TRUST shall provide such services to the Fund pursuant to
the terms and conditions set forth in the Transfer Agency and Service
Agreement annexed hereto, as if the Fund was a signatory thereto.
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Please indicate MSDW TRUST's acceptance of employment and appointment
by the Fund in the capacities set forth above by so indicating in the space
provided below.
Very truly yours,
Morgan Stanley Dean Witter
Pacific Growth Fund
By:
----------------------------------
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
-----------------------
Its:
----------------------
Date:
---------------------
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SCHEDULE A
Fund: Morgan Stanley Dean Witter Pacific Growth Fund Inc.
Fees: (1) Annual maintenance fee of $12.65 per shareholder account, payable
monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable
following the end of the calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(4) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June 22,
1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which MSDW Advisors is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));
WHEREAS, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors to perform
such administrative services:
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. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services shall (i) administer the Fund's business affairs and supervise the
overall day-to-day operations of the Fund (other than rendering investment
advice); (ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts and
other records required under the Investment Company Act of 1940, as amended (the
"Act"), the notification to the Fund and MSDW Advisors of available funds for
investment, the reconciliation of account information and balances among the
Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, and the calculation of the net asset value of the Fund's shares; (iii)
provide the Fund with the services of persons competent to perform such
supervisory, administrative and clerical functions as are necessary to provide
effective operation of the Fund; (iv) oversee the performance of administrative
and professional services rendered to the Fund by others, including its
custodian, transfer agent and dividend disbursing agent, as well as accounting,
auditing and other services; (v) provide the Fund with adequate general office
space and facilities; (vi) assist in the preparation and the printing of the
periodic updating of the Fund's registration statement and prospectus (and, in
the case of an open-end Fund, the statement of additional information), tax
returns, proxy statements, and reports to its shareholders and the Securities
and Exchange Commission; and (vii) monitor the compliance of the Fund's
investment policies and restrictions.
In the event that MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services to
perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services 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 MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent of
MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account
1
<PAGE>
(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, MSDW Services shall surrender
to MSDW Advisors or to the Fund such of the books and records so requested.
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
monthly compensation calculated daily (in the case of an open-end Fund) or
weekly (in the case of a closed-end Fund) by applying the annual rate or rates
set forth on Schedule B to the net assets of each Fund. Except as hereinafter
set forth, (i) in the case of an open-end Fund, compensation under this
Agreement shall be calculated by applying 1/365th of the annual rate or rates to
the Fund's or the Series' daily net assets determined as of the close of
business on that day or the last previous business day and (ii) in the case of a
closed-end Fund, compensation under this Agreement shall be calculated by
applying the annual rate or rates to the Fund's average weekly net assets
determined as of the close of the last business day of each week. 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 on Schedule B. Subject to the
provisions of paragraph 5 hereof, payment of MSDW Services' compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to MSDW Advisors 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 and/or any Series thereof imposed
by state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Morgan Stanley Dean Witter Variable Investment Series or any
Series thereof, the expense limitation specified in the Fund's Investment
Management Agreement, the fee payable hereunder shall be reduced on a pro rata
basis in the same proportion as the fee payable by the Fund under the Investment
Management Agreement is reduced.
6. MSDW Services shall bear the cost of rendering the administrative
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 MSDW Services, and such clerical help and bookkeeping services as
MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services will use its best efforts in the performance of
administrative activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, MSDW Services 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 MSDW Services or for any losses sustained by the Fund or its
investors. It is understood that, subject to the terms and conditions of the
Investment Management Agreement between each Fund and MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and hold
it harmless from any liability that MSDW Advisors may incur arising out of any
act or failure to act by MSDW Services in carrying out its responsibilities
hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW
2
<PAGE>
Services may have an interest in the Fund. It is also understood that MSDW
Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services have and may have
advisory, management, administration 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.
9. This Agreement shall continue until April 30, 1999, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the event that the Investment Management
Agreement between any Fund and MSDW Advisors is terminated, this Agreement will
automatically terminate with respect to such Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
11. This Agreement may be assigned by either party with the written consent
of the other party.
12. This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
MORGAN STANLEY DEAN WITTER SERVICES COMPANY
INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULE A
MORGAN STANLEY DEAN WITTER FUNDS
AS AMENDED AS OF JULY 22, 1998
OPEN-END FUNDS
<TABLE>
<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. Dean Witter Retirement Series
6. Morgan Stanley Dean Witter American Value Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Appreciation Fund
12. Morgan Stanley Dean Witter Capital Growth Securities
13. Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
14. Morgan Stanley Dean Witter Convertible Securities Trust
15. Morgan Stanley Dean Witter Developing Growth Securities Trust
16. Morgan Stanley Dean Witter Diversified Income Trust
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
18. Morgan Stanley Dean Witter Equity Fund
19. Morgan Stanley Dean Witter European Growth Fund Inc.
20. Morgan Stanley Dean Witter Federal Securities Trust
21. Morgan Stanley Dean Witter Financial Services Trust
22. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
23. Morgan Stanley Dean Witter Global Dividend Growth Securities
24. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25. Morgan Stanley Dean Witter Global Utilities Fund
26. Morgan Stanley Dean Witter Growth Fund
27. Morgan Stanley Dean Witter Hawaii Municipal Trust
28. Morgan Stanley Dean Witter Health Sciences Trust
29. Morgan Stanley Dean Witter High Yield Securities Inc.
30. Morgan Stanley Dean Witter Income Builder Fund
31. Morgan Stanley Dean Witter Information Fund
32. Morgan Stanley Dean Witter Intermediate Income Securities
33. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34. Morgan Stanley Dean Witter International SmallCap Fund
35. Morgan Stanley Dean Witter Japan Fund
36. Morgan Stanley Dean Witter Limited Term Municipal Trust
37. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38. Morgan Stanley Dean Witter Market Leader Trust
39. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40. Morgan Stanley Dean Witter Mid-Cap Growth Fund
41. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43. Morgan Stanley Dean Witter New York Municipal Money Market Trust
</TABLE>
A-1
<PAGE>
<TABLE>
<C> <S>
44. Morgan Stanley Dean Witter New York Tax-Free Income Fund
45. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Value Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
48. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
49. Morgan Stanley Dean Witter U.S. Government Money Market Trust
50. Morgan Stanley Dean Witter Utilities Fund
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Special Value Fund
54. Morgan Stanley Dean Witter Strategist Fund
55. Morgan Stanley Dean Witter S&P 500 Index Fund
56. Morgan Stanley Dean Witter S&P 500 Select Fund
57. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
58. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
59. Morgan Stanley Dean Witter U.S. Government Securities Trust
60. Morgan Stanley Dean Witter Value Fund
61. Morgan Stanley Dean Witter Value-Added Market Series
62. Morgan Stanley Dean Witter Variable Investment Series
(i) Capital Appreciation Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Strategist Portfolio
(xv) Utilities Portfolio
63. Morgan Stanley Dean Witter World Wide Income Trust
64. Morgan Stanley Dean Witter Worldwide High Income Fund
65. Dean Witter Global Asset Allocation Fund
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<C> <S>
66. High Income Advantage Trust
67. High Income Advantage Trust II
68. High Income Advantage Trust III
69. InterCapital Income Securities Inc.
70. Dean Witter Government Income Trust
71. InterCapital Insured Municipal Bond Trust
72. InterCapital Insured Municipal Trust
73. InterCapital Insured Municipal Income Trust
74. InterCapital California Insured Municipal Income Trust
75. InterCapital Insured Municipal Securities
76. InterCapital Insured California Municipal Securities
77. InterCapital Quality Municipal Investment Trust
78. InterCapital Quality Municipal Income Trust
79. InterCapital Quality Municipal Securities
80. InterCapital California Quality Municipal Securities
81. InterCapital New York Quality Municipal Securities
</TABLE>
A-3
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF JUNE 22, 1998
Monthly compensation calculated daily by applying the following annual rates
to a fund's daily net assets:
<TABLE>
<S> <C>
FIXED INCOME FUNDS
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Income Fund
Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not exceeding
California Tax-Free Income Fund $500 million; 0.0525% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.050% of the portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.0475% of the portion
of the daily net assets exceeding $1 billion but not
exceeding $1.25 billion; and 0.045% of the portion of the
daily net assets exceeding $1.25 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Convertible Securities Trust $750 million; 0.055% of the portion of the daily net assets
exceeding $750 million but not exceeding $1 billion; 0.050%
of the portion of the daily net assets of the exceeding $1
billion but not exceeding $1.5 billion; 0.0475% of the
portion of the daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.045% of the portion of the daily
net assets exceeding $2 billion but not exceeding $3
billion; and 0.0425% of the portion of the daily net assets
exceeding $3 billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
Diversified Income Trust
Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not exceeding
Federal Securities Trust $1 billion; 0.0525% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.050%
of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.0475% of the portion
of the daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.045% of the portion of the daily
net assets exceeding $2.5 billion but not exceeding $5
billion; 0.0425% of the portion of the daily net assets
exceeding $5 billion but not exceeding $7.5 billion; 0.040%
of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0375% of the
portion of the daily net assets exceeding $10 billion but
not exceeding $12.5 billion; and 0.035% of the portion of
the daily net assets exceeding $12.5 billion.
Morgan Stanley Dean Witter Global 0.055% of the portion of the daily net assets not exceeding
Short-Term Income Fund Inc. $500 million; and 0.050% of the portion of the daily net
assets exceeding $500 million.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Hawaii 0.035% of the daily net assets.
Municipal Trust
Morgan Stanley Dean Witter High 0.050% of the portion of the daily net assets not exceeding
Yield Securities Inc. $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $2 billion; 0.0325% of the portion of the daily
net assets exceeding $2 billion but not exceeding $3
billion; and 0.030% of the portion of daily net assets
exceeding $3 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Intermediate Income Securities $500 million; 0.050% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.040% of the portion of the daily net assets exceeding $750
million but not exceeding $1 billion; and 0.030% of the
portion of the daily net assets exceeding $1 billion.
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Intermediate Term
U.S. Treasury Trust
Morgan Stanley Dean Witter 0.050% of the daily net assets.
Limited Term Municipal Trust
Morgan Stanley Dean Witter Multi- 0.035% of the daily net assets.
State Municipal Series Trust
(10 Series)
Morgan Stanley Dean Witter New 0.055% of the portion of the daily net assets not exceeding
York Tax-Free Income Fund $500 million; and 0.0525% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter 0.065% of the daily net assets.
Retirement Series--Intermediate
Income Securities Series
U.S. Government Securities 0.065% of the daily net assets.
Series
Morgan Stanley Dean Witter Select 0.039% of the daily net assets.
Dimensions Investment Series--
North American Government
Securities Portfolio
Morgan Stanley Dean Witter Select 0.050% of the daily net assets.
Municipal Reinvestment Fund
Morgan Stanley Dean Witter Short- 0.070% of the daily net assets.
Term Bond Fund
Morgan Stanley Dean Witter Short- 0.035% of the daily net assets.
Term U.S. Treasury Trust
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Tax- 0.050% of the portion of the daily net assets not exceeding
Exempt Securities Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; and 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $1.25 billion; .0325% of the portion of the daily
net assets exceeding $1.25 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not exceeding
Government Securities Trust $1 billion; 0.0475% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.045%
of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.0425% of the portion
of the daily net assets exceeding $2 billion but not
exceeding $2.5 billion; 0.040% of the portion of the daily
net assets exceeding $2.5 billion but not exceeding $5
billion; 0.0375% of the portion of the daily net assets
exceeding $5 billion but not exceeding $7.5 billion; 0.035%
of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0325% of the
portion of the daily net assets exceeding $10 billion but
not exceeding $12.5 billion; and 0.030% of the portion of
the daily net assets exceeding $12.5 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Variable Investment Series--High $500 million; and 0.0425% of the daily net assets exceeding
Yield Portfolio $500 million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to $500
million; and 0.045% of the portion of the daily net assets
exceeds $500 million.
Morgan Stanley Dean Witter World 0.075% of the portion of the daily net assets up to $250
Wide Income Trust million; 0.060% of the portion of the daily net assets
exceeding $250 million but not exceeding $500 million;
0.050% of the portion of the daily net assets of the
exceeding $500 million but not exceeding $750 million;
0.040% of the portion of the daily net assets exceeding $750
million but not exceeding $1 billion; and 0.030% of the
portion of the daily net assets exceeding $1 billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Worldwide High Income Fund
EQUITY FUNDS
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not exceeding
American Value Fund $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $2.25 billion;
0.0475% of the portion of the daily net assets exceeding
$2.25 billion but not exceeding $3.5 billion; 0.0450% of the
portion of the daily net assets exceeding $3.5 billion but
not exceeding $4.5 billion; and 0.0425% of the portion of
the daily net assets exceeding $4.5 billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Growth Fund
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Capital Appreciation Fund $500 million; and 0.0725% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding
Capital Growth Securities $500 million; 0.055% of the portion exceeding $500 million
but not exceeding $1 billion; 0.050% of the portion of the
daily net assets exceeding $1 billion but not exceeding $1.5
billion; and 0.0475% of the portion of the daily net assets
exceeding $1.5 billion.
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding
Competitive Edge Fund, "BEST $1.5 billion; and 0.0625% of the portion of the daily net
IDEAS" Portfolio assets exceeding $1.5 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Developing Growth Securities $500 million; and 0.0475% of the portion of the daily net
Trust assets exceeding $500 million.
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not exceeding
Dividend Growth Securities Inc. $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $1 billion; 0.0475%
of the portion of the daily net assets exceeding $1 billion
but not exceeding $2 billion; 0.045% of the portion of the
daily net assets exceeding $2 billion but not exceeding $3
billion; 0.0425% of the portion of the daily net assets
exceeding $3 billion but not exceeding $4 billion; 0.040% of
the portion of the daily net assets exceeding $4 billion but
not exceeding $5 billion; 0.0375% of the portion of the
daily net assets exceeding $5 billion but not exceeding $6
billion; 0.035% of the portion of the daily net assets
exceeding $6 billion but not exceeding $8 billion; 0.0325%
of the portion of the daily net assets exceeding $8 billion
but not exceeding $10 billion; 0.030% of the portion of the
daily net assets exceeding $10 billion but not exceeding $15
billion; and 0.0275% of the portion of the daily net assets
exceeding $15 billion.
Morgan Stanley Dean 0.051% of the daily net assets.
Witter Equity Fund
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
European Growth Fund Inc. $500 million; 0.057% of the portion of the daily net assets
exceeding $500 million but not exceeding $2 billion; and
0.054% of the portion of the daily net assets exceeding $2
billion.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Financial Services Trust
Morgan Stanley Dean Witter Fund
of Funds-
Domestic Portfolio None
International Portfolio None
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Dean Witter Global Asset 0.070% of the daily net assets.
Allocation Fund
Morgan Stanley Dean Witter Global 0.075% of the portion of the daily net assets not exceeding
Dividend Growth Securities $1 billion; 0.0725% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.070%
of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2.5 billion; 0.0675% of the
portion of the daily net assets exceeding $2.5 billion but
not exceeding $3.5 billion; 0.0650% of the portion of the
daily net assets exceeding $3.5 billion but not exceeding
$4.5 billion; and 0.0625% of the portion of the daily net
assets exceeding $4.5 billion.
Morgan Stanley Dean Witter Global 0.065% of the portion of the daily net assets not exceeding
Utilities Fund $500 million; and 0.0625% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter 0.048% of the portion of daily net assets not exceeding $750
Growth Fund million; 0.045% of the portion of daily net assets exceeding
$750 million but not exceeding $1.5 billion; and 0.042% of
the portion of daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter Health 0.10% of the portion of daily net assets not exceeding $500
Sciences Trust million; and 0.095% of the portion of daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the portion of the net assets not exceeding $500
Income Builder Fund million; and 0.0725% of the portion of daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Information Fund $500 million; and 0.0725% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
International SmallCap Fund
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Japan Fund
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Market Leader Trust
Morgan Stanley Dean Witter 0.075 of the daily net assets.
Mid-Cap Dividend Growth
Securities
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Mid-Cap Growth Fund $500 million; and 0.0725% of the portion of the daily net
assets exceeding $500 million.
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not exceeding
Natural Resource Development $250 million and 0.050% of the portion of the daily net
Securities Inc. assets exceeding $250 million.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Pacific 0.060% of the portion of the daily net assets not exceeding
Growth Fund Inc. $1 billion; 0.057% of the portion of the daily net assets
exceeding $1 billion but not exceeding $2 billion; and
0.054% of the portion of the daily net assets exceeding $2
billion.
Morgan Stanley Dean Witter 0.080% of the daily net assets.
Precious Metals and
Minerals Trust
Dean Witter Retirement Series--
American Value Series 0.085% of the daily net assets.
Capital Growth Series 0.085% of the daily net assets.
Dividend Growth Series 0.075% of the daily net assets.
Global Equity Series 0.10% of the daily net assets.
Strategist Series 0.085% of the daily net assets.
Utilities Series 0.075% of the daily net assets.
Value Added Market Series 0.050% of the daily net assets.
Morgan Stanley Dean Witter Select
Dimensions Investment Series--
American Value Portfolio 0.0625% of the daily net assets.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Diversified Income Portfolio 0.040% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding
$500 million; and 0.050% of the portion of the daily net
assets exceeding $500 million.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Special Value Fund
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Strategist Fund $500 million; 0.055% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.050%
of the portion of the daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0475% of the portion of
the daily net assets exceeding $1.5 billion but not
exceeding $2.0 billion; and 0.045% of the portion of the
daily net assets exceeding $2.0 billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
S&P 500 Index Fund
Morgan Stanley Dean Witter 0.060% of the daily net assets.
S&P 500 Select Fund
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding
Utilities Fund $500 million; 0.055% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0525%
of the portion of the daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.050% of the portion of the
daily net assets exceeding $1.5 billion but not exceeding
$2.5 billion; 0.0475% of the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3.5 billion;
0.045% of the portion of the daily net assets exceeding $3.5
but not exceeding $5 billion; and 0.0425% of the daily net
assets exceeding $5 billion.
Morgan Stanley Dean Witter Value 0.10% of the daily net assets.
Fund
Morgan Stanley Dean Witter Value- 0.050% of the portion of the daily net assets not exceeding
Added Market Series $500 million; 0.45% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0425%
of the portion of the daily net assets exceeding $1.0
billion but not exceeding $2.0 billion; and 0.040% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter
Variable Investment Series--
Capital Appreciation Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" Portfolio 0.065% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding
$500 million; and 0.050% of the portion of the daily net
assets exceeding $500 million but not exceeding $1 billion;
0.0475% of the portion of the daily net assets exceeding
$1.0 billion but not exceeding $2.0 billion; and 0.045% of
the portion of the daily net assets exceeding $2 billion.
Equity Portfolio 0.050% of the portion of the daily net assets not exceeding
$1 billion; and 0.0475% of the portion of the daily net
assets exceeding $1 billion.
European Growth Portfolio 0.060% of the portion of the daily net assets not exceeding
$500 million; and 0.057% of the portion of the daily net
assets exceeding $500 million.
Income Builder Portfolio 0.075% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the daily net assets.
Utilities Portfolio 0.065% of the portion of the daily net assets not exceeding
$500 million and 0.055% of the portion of the daily net
assets exceeding $500 million.
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
MONEY MARKET FUNDS
Active Assets Trusts: 0.050% of the portion of the daily net assets not exceeding
(1) Active Assets Money Trust $500 million; 0.0425% of the portion of the daily net assets
(2) Active Assets Tax-Free Trust exceeding $500 million but not exceeding $750 million;
(3) Active Assets California Tax- 0.0375% of the portion of the daily net assets exceeding
Free Trust $750 million but not exceeding $1 billion; 0.035% of the
(4) Active Assets Government portion of the daily net assets exceeding $1 billion but not
Securities Trust exceeding $1.5 billion; 0.0325% of the portion of the daily
net assets exceeding $1.5 billion but not exceeding $2
billion; 0.030% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
California Tax-Free Daily $500 million; 0.0425% of the portion of the daily net assets
Income Trust exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of the daily
net assets exceeding $1.5 billion but not exceeding $2
billion; 0.030% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Liquid 0.050% of the portion of the daily net assets not exceeding
Asset Fund Inc. $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $1.35 billion; 0.0325% of the portion of the daily
net assets exceeding $1.35 billion but not exceeding $1.75
billion; 0.030% of the portion of the daily net assets
exceeding $1.75 billion but not exceeding $2.15 billion;
0.0275% of the portion of the daily net assets exceeding
$2.15 billion but not exceeding $2.5 billion; 0.025% of the
portion of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion of the
daily net assets exceeding $15 billion but not exceeding
$17.5 billion; and 0.0248% of the portion of the daily net
assets exceeding $17.5 billion.
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
New York Municipal Money $500 million; 0.0425% of the portion of the daily net assets
Market Trust exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of the daily
net assets exceeding $1.5 billion but not exceeding $2
billion; 0.030% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Dean Witter Retirement Series--
Liquid Asset Series 0.050% of the daily net assets.
U.S. Government Money 0.050% of the daily net assets.
Market Series
Morgan Stanley Dean Witter Select
Dimensions Investment Series--
Money Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Tax-Free Daily Income Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of the daily
net assets exceeding $1.5 billion but not exceeding $2
billion; 0.030% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not exceeding
Government Money Market Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million;
0.0375% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0325% of the portion of the daily
net assets exceeding $1.5 billion but not exceeding $2
billion; 0.030% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the daily net assets.
Variable Investment Series--
Money Market Portfolio
</TABLE>
B-9
<PAGE>
Monthly compensation calculated weekly by applying the following annual
rates to a fund's weekly net assets:
<TABLE>
<S> <C>
CLOSED-END FUNDS
Dean Witter Government 0.060% of the average weekly net assets.
Income Trust
High Income Advantage Trust 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750
million; 0.040% of the portion of average weekly net assets
exceeding $750 million and not exceeding $1 billion; and
0.030% of the portion of average weekly net assets exceeding
$1 billion.
High Income Advantage Trust II 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750
million; 0.040% of the portion of average weekly net assets
exceeding $750 million and not exceeding $1 billion; and
0.030% of the portion of average weekly net assets exceeding
$1 billion.
High Income Advantage Trust III 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750
million; 0.040% of the portion of the average weekly net
assets exceeding $750 million and not exceeding $1 billion;
and 0.030% of the portion of average weekly net assets
exceeding $1 billion.
InterCapital Income Securities Inc. 0.050% of the average weekly net assets.
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% of the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Income Trust
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C>
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital California Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Insured California 0.035% of the average weekly net assets.
Municipal Securities
</TABLE>
B-11
<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. 10 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 17, 1997, relating to the financial statements and financial
highlights of Morgan Stanley Dean Witter Pacific Growth Fund Inc., formerly
Dean Witter Pacific 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.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
August 13, 1998
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), effective as of
July 28, 1997, and amended as of June 22, 1998. The Plan relates to shares of
the open-end investment companies to which Morgan Stanley Dean Witter Advisors
Inc. acts as investment manager, that are listed on Schedule A, as may be
amended from time to time (each, a "Fund" and collectively, the "Funds"). The
Funds are distributed pursuant to a system (the "Multiple Class System") in
which each class of shares (each, a "Class" and collectively, the "Classes") of
a Fund represents a pro rata interest in the same portfolio of investments of
the Fund and differs only to the extent outlined below.
I. DISTRIBUTION ARRANGEMENTS
One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition, pursuant
to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan of
Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described below.
1. CLASS A SHARES
Class A shares are offered with a front-end sales load ("FESL"). The
schedule of sales charges applicable to a Fund and the circumstances under which
the sales charges are subject to reduction are set forth in each Fund's current
prospectus. As stated in each Fund's current prospectus, Class A shares may be
purchased at net asset value (without a FESL): (i) in the case of certain large
purchases of such shares; and (ii) by certain limited categories of investors,
in each case, under the circumstances and conditions set forth in each Fund's
current prospectus. Class A shares purchased at net asset value may be subject
to a contingent deferred sales charge ("CDSC") on redemptions made within one
year of purchase. Further information relating to the CDSC, including the manner
in which it is calculated, is set forth in paragraph 6 below. Class A shares are
also subject to payments under each Fund's 12b-1 Plan to reimburse Morgan
Stanley Dean Witter Distributors Inc., Dean Witter Reynolds Inc. ("DWR"), its
affiliates and other broker-dealers for distribution expenses incurred by them
specifically on behalf of the Class, assessed at an annual rate of up to 0.25%
of average daily net assets. The entire amount of the 12b-1 fee represents a
service fee within the meaning of National Association of Securities Dealers,
Inc. ("NASD") guidelines.
2. CLASS B SHARES
Class B shares are offered without a FESL, but will in most cases be subject
to a six-year declining CDSC which is calculated in the manner set forth in
paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The schedule
of CDSC charges applicable to each Fund is set forth in each Fund's current
prospectus. With the exception of certain of the Funds which have a different
formula described below (Morgan Stanley Dean Witter American Value Fund, Morgan
Stanley Dean Witter Natural Resource Development Securities Inc., Morgan Stanley
Dean Witter Strategist Fund and Morgan
1
<PAGE>
Stanley Dean Witter Dividend Growth Securities Inc.)(1), Class B shares are also
subject to a fee under each Fund's respective 12b-1 Plan, assessed at the annual
rate of up to 1.0% of either: (a) the lesser of (i) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund (not
including reinvestment 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 (ii)
the average daily net assets of Class B; or (b) the average daily net assets of
Class B. A portion of the 12b-1 fee equal to up to 0.25% of the Fund's average
daily net assets is characterized as a service fee within the meaning of the
NASD guidelines and the remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge. Also, Class B shares have a
conversion feature ("Conversion Feature") under which such shares convert to
Class A shares after a certain holding period. Details of the Conversion Feature
are set forth in Section IV below.
3. CLASS C SHARES
Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph 6
below. In addition, Class C shares, under each Fund's 12b-1 Plan, are subject to
12b-1 payments to reimburse Morgan Stanley Dean Witter Distributors Inc., DWR,
its affiliates and other broker-dealers for distribution expenses incurred by
them specifically on behalf of the Class, assessed at the annual rate of up to
1.0% of the average daily net assets of the Class. A portion of the 12b-1 fee
equal to up to 0.25% of the Fund's average daily net assets is characterized as
a service fee within the meaning of NASD guidelines. Unlike Class B shares,
Class C shares do not have the Conversion Feature.
4. CLASS D SHARES
Class D shares are offered without imposition of a FESL, CDSC or a 12b-1 fee
for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of investors,
in each case, as may be approved by the Boards of Directors/Trustees of the
Funds and as disclosed in each Fund's current prospectus.
5. ADDITIONAL CLASSES OF SHARES
The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in accordance
with Rule 18f-3 under the 1940 Act.
- ------------
(1)The payments under the 12b-1 Plan for each of Morgan Stanley Dean Witter
American Value Fund, Morgan Stanley Dean Witter Natural Resource Development
Securities Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc.
are assessed 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's Plan (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Plan's inception upon which a contingent
deferred sales charge has been imposed or waived, or (b) the average daily net
assets of Class B attributable to shares issued, net of related shares redeemed,
since inception of the Plan. The payments under the 12b-1 Plan for the Morgan
Stanley Dean Witter Strategist Fund are assessed at the annual rate of: (i) 1%
of the lesser of (a) the average daily aggregate gross sales of the Fund's Class
B shares since the effectiveness of the first amendment of the Plan on November
8, 1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the effectiveness of the first amended Plan, upon
which a contingent deferred sales charge has been imposed or waived, or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the effectiveness of the first amended Plan; plus
(ii) 0.25% of the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, prior to effectiveness of the first
amended Plan.
2
<PAGE>
6. CALCULATION OF THE CDSC
Any applicable CDSC is calculated based upon the lesser of net asset value
of the shares at the time of purchase or at the time of redemption. The CDSC
does not apply to amounts representing an increase in share value due to capital
appreciation and shares acquired through the reinvestment of dividends or
capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Fund are allocated among the various Classes of
shares pro rata based on the net assets of the Fund attributable to each Class,
except that 12b-1 fees relating to a particular Class are 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 Fund's Board of Directors/Trustees.
III. CLASS DESIGNATION
All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate, SPS
Transaction Services, Inc., shares of Funds offered with a FESL, and shares of
Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley Dean Witter
Balanced Income Fund) have been designated Class B shares. Shares held prior to
July 28, 1997 by such employee benefit plans have been designated Class D
shares. Shares held prior to July 28, 1997 of Funds offered with a FESL have
been designated Class D shares. In addition, shares of Morgan Stanley Dean
Witter American Value Fund purchased prior to April 30, 1984, shares of Morgan
Stanley Dean Witter Strategist Fund purchased prior to November 8, 1989 and
shares of Morgan Stanley Dean Witter Natural Resource Development Securities
Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc. purchased
prior to July 2, 1984 (with respect to such shares of each Fund, including such
proportion of shares acquired through reinvestment of dividends and capital
gains distributions as the total number of shares acquired prior to each of the
preceding dates in this sentence bears to the total number of shares purchased
and owned by the shareholder of that Fund) have been designated Class D shares.
Shares of Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley
Dean Witter Balanced Income Fund held prior to July 28, 1997 have been
designated Class C shares except that shares of Morgan Stanley Dean Witter
Balanced Growth Fund and Morgan Stanley Dean Witter Balanced Income Fund held
prior to July 28, 1997 that were acquired in exchange for shares of an
investment company offered with a CDSC have been designated Class B shares and
those that were acquired in exchange for shares of an investment company offered
with a FESL have been designated Class A shares.
IV. THE CONVERSION FEATURE
Class B shares held before May 1, 1997 will convert to Class A shares in
May, 2007, except that Class B shares which were purchased before July 28, 1997
by trusts for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust") provides
discretionary trustee services converted to Class A shares on August 29, 1997
(the CDSC was not applicable to such shares upon the conversion). In all other
instances, Class B shares of each Fund will automatically convert 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. Conversions will be effected once a month. The 10
year period will be 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. Except
as set forth below, 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 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 401(k) plan or other plan
qualified under Section 401(a) of the Internal Revenue Code (the "Code") and
3
<PAGE>
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, all
Class B shares will convert to Class A shares on the conversion date of the
first shares of a Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (as such term is defined
in the prospectus of each Fund), 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 Fund, the
holding period resumes on the last day of the month in which Class B shares are
reacquired.
Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the 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 fees under the applicable Fund's 12b-1 Plan.
V. EXCHANGE PRIVILEGES
Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements of
additional information of the Funds. The exchange privilege of each Fund may be
terminated or revised at any time by the Fund upon such notice as may be
required by applicable regulatory agencies as described in each Fund's
prospectus.
VI. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the right
to vote on any proposed material increase in Class A's expenses, including
payments under the Class A 12b-1 Plan, if such proposal is submitted separately
to Class A shareholders. If the amount of expenses, including payments under the
Class A 12b-1 Plan, is increased materially without the approval of Class B
shareholders, the Fund will establish a new Class A for Class B shareholders
whose shares automatically convert on the same terms as applied to Class A
before the increase. In addition, each Class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one Class
differ from the interests of any other Class.
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
SCHEDULE A
AT JULY 22, 1998
<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter S&P 500 Select Fund
39) Morgan Stanley Dean Witter Strategist Fund
40) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
41) Morgan Stanley Dean Witter U.S. Government Securities Trust
42) Morgan Stanley Dean Witter Utilities Fund
43) Morgan Stanley Dean Witter Value-Added Market Series
44) Morgan Stanley Dean Witter Value Fund
45) Morgan Stanley Dean Witter Worldwide High Income Fund
46) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 661,717,027
<INVESTMENTS-AT-VALUE> 557,435,860
<RECEIVABLES> 14,544,939
<ASSETS-OTHER> 2,723,761
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 574,704,560
<PAYABLE-FOR-SECURITIES> 1,681,860
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,523,913
<TOTAL-LIABILITIES> 7,205,773
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 993,129,825
<SHARES-COMMON-STOCK> 239,467
<SHARES-COMMON-PRIOR> 48,394
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (14,915,526)
<ACCUMULATED-NET-GAINS> (305,457,603)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (105,257,909)
<NET-ASSETS> 2,651,013
<DIVIDEND-INCOME> 7,208,017
<INTEREST-INCOME> 881,833
<OTHER-INCOME> 0
<EXPENSES-NET> 8,803,236
<NET-INVESTMENT-INCOME> (713,386)
<REALIZED-GAINS-CURRENT> (178,639,268)
<APPREC-INCREASE-CURRENT> 97,414,374
<NET-CHANGE-FROM-OPS> (81,938,280)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,402)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 206,285
<NUMBER-OF-SHARES-REDEEMED> (16,364)
<SHARES-REINVESTED> 1,152
<NET-CHANGE-IN-ASSETS> (178,192,783)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (126,818,335)
<OVERDISTRIB-NII-PRIOR> (3,880,806)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,110,945
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,803,236
<AVERAGE-NET-ASSETS> 1,579,848
<PER-SHARE-NAV-BEGIN> 12.86
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> (1.56)
<PER-SHARE-DIVIDEND> (.26)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.07
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 661,717,027
<INVESTMENTS-AT-VALUE> 557,435,860
<RECEIVABLES> 14,544,939
<ASSETS-OTHER> 2,723,761
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 574,704,560
<PAYABLE-FOR-SECURITIES> 1,681,860
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,523,913
<TOTAL-LIABILITIES> 7,205,773
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 993,129,825
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<TABLE> <S> <C>
<PAGE>
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<NAME> CLASS C
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<TABLE> <S> <C>
<PAGE>
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<NAME> CLASS D
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