<PAGE>
PROSPECTUS - FEBRUARY 22, 1999
Morgan Stanley Dean Witter
PACIFIC GROWTH FUND
[COVER PHOTO]
A MUTUAL FUND THAT SEEKS TO MAXIMIZE THE
CAPITAL APPRECIATION OF ITS INVESTMENTS
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this PROSPECTUS. Any representation
to the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
The Fund Investment Objective........................................ 1
Principal Investment Strategies............................. 1
Principal Risks............................................. 1
Past Performance............................................ 3
Fees and Expenses........................................... 4
Additional Investment Strategy Information.................. 5
Additional Risk Information................................. 6
Fund Management............................................. 7
Shareholder Information Pricing Fund Shares......................................... 8
How to Buy Shares........................................... 8
How to Exchange Shares...................................... 10
How to Sell Shares.......................................... 11
Distributions............................................... 13
Tax Consequences............................................ 14
Share Class Arrangements.................................... 14
Financial Highlights ............................................................ 22
Our Family of Funds ............................................................ Inside Back Cover
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUND.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
</TABLE>
FUND CATEGORY
---------------------------
/X/ GROWTH
/ / Growth and Income
/ / Income
/ / Money Market
<PAGE>
(Sidebar)
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in value rather than pay out income.
(End Sidebar)
THE FUND
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Pacific Growth Fund is a mutual
fund that seeks to maximize the capital appreciation of its
investments. There is no guarantee that the Fund will
achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will normally invest at least 65% of its assets in
common stocks and other securities of companies which have a
principal place of business in, or which derive a majority
of their revenues from business in, Asia, Australia and New
Zealand. The principal Asian countries include: Japan,
Malaysia, Singapore, Hong Kong, Thailand, the Philippines,
India, Indonesia, Taiwan and South Korea. The Fund's assets
will be invested in at least three countries. The Fund,
however, may invest more than 25% of its assets in Japan,
Hong Kong, Malaysia, South Korea and/or Taiwan. Thus, the
investment performance of the Fund may be subject to the
social, political and economic events occurring in those
countries to a greater extent than other countries.
The Fund's "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., and its "Sub-Advisor" -- Morgan Stanley Dean
Witter Investment Management Inc. -- generally invest Fund
assets in companies they believe have a high rate of
earnings growth potential. They also will select securities,
which in their view, possess both on an absolute basis and
as compared with other securities around the world,
attractive price/earnings, price/cash flow and price/revenue
ratios.
Common stock is a share ownership or equity interest in a
corporation. It may or may not pay dividends, as some
companies reinvest all of their profits back into their
businesses, while others pay out some of their profits to
shareholders as dividends.
In pursuing the Fund's investment objective, the Investment
Manager and/or Sub-Advisor have considerable leeway in
deciding which investments it buys, holds or sells on a
day-to-day basis -- and which trading strategies they use.
For example, the Investment Manager and/or Sub-Advisor in
their discretion may determine to use some permitted trading
strategies while not using others. In addition to the
securities discussed above, the Fund may also invest in
securities of other investment companies, forward currency
contracts, options and futures.
ICON PRINCIPAL RISKS
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The Fund's share price will fluctuate with changes in the
market value of the Fund's portfolio securities. When you
sell Fund shares, they may be worth less than what you paid
for them and, accordingly, you can lose money investing in
this Fund.
A principal risk of investing in the Fund is associated with
its foreign stock investments. In general, stock values
fluctuate in response to activities specific to the company
as well as general market, economic and political
conditions. Stock prices can fluctuate widely in response to
these factors.
1
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FOREIGN SECURITIES. The Fund's investments in foreign
securities (including depository receipts) involve risks
that are in addition to the risks associated with domestic
securities. One additional risk is currency risk. While the
price of Fund shares is quoted in U.S. dollars, the Fund
generally converts U.S. dollars to a foreign market's local
currency to purchase a security in that market. If the value
of that local currency falls relative to the U.S. dollar,
the U.S. dollar value of the foreign security will decrease.
This is true even if the foreign security's local price
remains unchanged.
Foreign securities also have risks related to economic and
political developments abroad, including expropriations,
confiscatory taxation, exchange control regulation,
limitation on the use or transfer of Fund assets and any
effects of foreign social, economic or political
instability. In particular, adverse political or economic
developments in the Pacific region and/or a particular
country in which the Fund invests could cause a substantial
decline in value of the portfolio. Foreign companies, in
general, are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly
available information about these companies. Moreover,
foreign accounting, auditing and financial reporting
standards generally are different from those applicable to
U.S. companies. Finally, in the event of a default of any
foreign debt obligations, it may be more difficult for the
Fund to obtain or enforce a judgment against the issuers of
the securities.
Securities of foreign issuers may be less liquid than
comparable securities of U.S. issuers and, as such, their
price changes may be more volatile. Furthermore, foreign
exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their
U.S. counterparts. In addition, differences in clearance and
settlement procedures in foreign markets may occasion delays
in settlements of the Fund's trades effected in those
markets. Delays in purchasing securities may result in the
Fund losing investment opportunities. The inability to
dispose of foreign securities due to settlement delays could
result in losses to the Fund due to subsequent declines in
value of the securities.
The foreign securities in which the Fund invests may be
issued by companies 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 that trade a small number of securities.
Prices of these securities tend to be especially volatile
and, in the past, securities in these countries have been
characterized by greater potential loss (as well as gain)
than securities of companies located in developed countries.
OTHER RISKS. The performance of the Fund also will depend on
whether the Investment Manager and/or Sub-Advisor is
successful in pursuing the Fund's investment strategy. The
Fund is also subject to other risks from its permissible
investments, including the risks associated with its
investments in the securities of other investment companies,
forward currency contracts, options and futures. For more
information about these risks, see the "Additional Risk
Information" section.
Shares of the Fund are not bank deposits and are not
guaranteed or insured by any bank, governmental entity, or
the FDIC.
2
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(Sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class B shares has varied
from year to year during the life of the Fund.
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Fund's average annual returns with those of a broad
measure of market performance over time. The Fund's returns include the maximum
applicable sales charge for each Class and assume you sold your shares at the
end of each period.
(End Sidebar)
ICON PAST
PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication
of the risks of investing in the Fund. The Fund's past
performance does not indicate how the Fund will
perform in the future.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED
GRAPHIC
<TABLE>
<S> <C>
1990* -1.11%
'91 20.40%
'92 4.46%
'93 94.71%
'94 -17.52%
'95 3.96%
'96 4.83%
'97 -38.81%
'98 -10.52%
</TABLE>
* For the period November 30, 1990 through December 31,
1990.
The bar chart reflects the performance of Class B shares;
the performance of the other Classes will differ because the
Classes have different ongoing fees. The performance
information in the bar chart does not reflect the deduction
of sales charges; if these amounts were reflected, returns
would be less than shown.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 35.58% (quarter ended
December 31, 1993) and the lowest return for a calendar
quarter was -28.63% (quarter ended December 31, 1997).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIOD ENDED THE 1998 CALENDAR
YEAR)
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PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
(SINCE 11/30/90)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Class A -14.59% -- --
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Class B(1) -14.99% -13.53% 2.20%
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Class C -11.11% -- --
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Class D -9.68% -- --
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MSCI World Index(2) 24.80% 16.19% 14.65%
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Lipper Pacific Region Funds Average(3) -5.87% -7.21% 2.70%
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</TABLE>
1 Prior to July 28, 1997, the Fund only issued Class B shares.
2 The Morgan Stanley Capital International (MSCI) World Index measures
performance from a diverse range of global stock markets including the
U.S., Europe, Australia, New Zealand and the Far East. The performance of
the Index does not include expenes or fees, and should not be considered an
investment.
3 The Lipper Pacific Region Funds Average tracks the performance of funds
that invest in equity securities whose primary trading markets or
operations are concentrated in the Western Pacific basin region or a single
country within this region, as reported by Lipper Analytical Services.
3
<PAGE>
(Sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
ANNUAL FUND
OPERATING EXPENSES
These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended October 31, 1998, restated to reflect a
management fee reduction.
(End Sidebar)
ICON FEES AND EXPENSES
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The Fund offers four Classes of shares: Classes A, B, C and
D. Each Class has a different combination of fees, expenses
and other features. The table below briefly describes the
fees and expenses that you may pay if you buy and hold
shares of the Fund. The Fund does not charge account or
exchange fees. See the "Share Class Arrangements" section
for further fee and expense information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
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SHAREHOLDER FEES
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Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 5.25%(1) None None None
- ----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None(2) 5.00%(3) 1.00%(4) None
- ----------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(5)
- ----------------------------------------------------------------------------------------------------
Management fee 0.95% 0.95% 0.95% 0.95%
- ----------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
- ----------------------------------------------------------------------------------------------------
Other expenses 0.65% 0.65% 0.65% 0.65%
- ----------------------------------------------------------------------------------------------------
Total annual Fund operating expenses 1.85% 2.60% 2.60% 1.60%
- ----------------------------------------------------------------------------------------------------
</TABLE>
1 Reduced for purchases of $25,000 and over.
2 Investments that are not subject to any sales charge at the time of
purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% that will be imposed on sales made within one year after purchase,
except for certain specific circumstances.
3 The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.
4 Only applicable to sales made within one year after purchase.
5 Restated to reflect a reduction in the management fee by 0.05% of the
average daily net assets which took effect when the Sub-Advisor became the
sub-advisor to the Fund.
EXAMPLE
This example is intended to help you compare the costs of
investing in the Fund with the costs of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Fund,
your investment has a 5% return each year, and the Fund's
operating expenses remain the same. Although your actual
costs may be higher or lower, the tables below show your
costs at the end of each period based on these assumptions
depending upon whether or not you sell your shares at the
end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
----------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------- -----------------------------------------
CLASS A $703 $1076 $1473 $2580 $703 $1076 $1473 $2580
- ---------------------------------------------------------- -----------------------------------------
CLASS B $763 $1108 $1550 $2934 $263 $ 808 $1380 $2934
- ---------------------------------------------------------- -----------------------------------------
CLASS C $363 $ 808 $1380 $2934 $263 $ 808 $1380 $2934
- ---------------------------------------------------------- -----------------------------------------
CLASS D $163 $ 505 $ 871 $1900 $163 $ 505 $ 871 $1900
- ---------------------------------------------------------- -----------------------------------------
</TABLE>
4
<PAGE>
ICON ADDITIONAL INVESTMENT STRATEGY INFORMATION
- --------------------------------------------------------------------------------
This section provides additional information concerning the
Fund's principal strategies.
As discussed in the "Principal Investment Strategies"
section, the Fund will normally invest at least 65% of its
assets in common stocks and other securities of companies
which have a principal place of business in, or which derive
a majority of their revenues from business in, Asia,
Australia and New Zealand. These securities mainly will
consist of equity securities, but may also include
fixed-income securities. The fixed-income securities
(including zero coupon securities) may be issued or
guaranteed by the governments of Australia, New Zealand and
countries in Asia. In addition, the Fund may invest in
fixed-income securities that are, either alone or in
combination with warrants, options or other rights,
convertible to the common stock of a company.
OTHER GLOBAL SECURITIES. The Fund also may invest up to 35%
of its assets in equity and/or fixed-income and convertible
securities of companies located anywhere in the world,
including the United States. The Fund furthermore may
purchase securities issued by various agencies and
instrumentalities of the U.S. Government.
INVESTMENT COMPANIES. The Fund may invest up to 10% of its
assets in securities issued by other investment companies.
The Investment Manager and/or Sub-Advisor may view these
investments as necessary to participate in certain foreign
markets where foreigners are prohibited from investing
directly in the securities of individual companies.
FORWARD CURRENCY CONTRACTS. The Fund's investments also may
include forward currency contracts, which involve the
purchase or sale of a specific amount of foreign currency at
the current price with delivery at a specified future date.
The Fund may use these contracts to hedge against adverse
price movements in its portfolio securities and the
currencies in which they are denominated.
OPTIONS AND FUTURES. The Fund may invest in put and call
options and futures with respect to financial instruments,
stock and interest rate indexes, and foreign currencies.
Options and futures may be used to facilitate allocation of
the Fund's investments among asset classes, to increase or
decrease the Fund's exposure to the stock or bond markets,
to generate income or to seek to protect against a decline
in securities or currency prices or an increase in prices of
securities or currencies that may be purchased.
DEFENSIVE INVESTING. The Fund may take temporary "defensive"
positions in attempting to respond to adverse market
conditions. The Fund may invest any amount of its assets in
cash or money market instruments in a defensive posture when
the Investment Manager and/or Sub-Advisor believes it is
advisable to do so. Although taking a defensive posture is
designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit
from any upswing in the market.
The percentage limitations relating to the composition of
the Fund's portfolio apply at the time the Fund acquires an
investment. Subsequent percentage changes that result from
market fluctuations or changes in assets will not require
the Fund to sell any portfolio security. The Fund may change
its principal investment strategies without shareholder
approval; however, you would be notified of any changes.
5
<PAGE>
ICON ADDITIONAL RISK INFORMATION
- --------------------------------------------------------------------------------
As discussed in the "Principal Risks" section, a principal
risk of investing in the Fund is associated with its foreign
stock investments. This section provides additional
information regarding the principal risks of investing in
the Fund.
FIXED-INCOME SECURITIES. Principal risks of investing in the
Fund are associated with its fixed-income investments. All
fixed-income securities, such as corporate debt, are subject
to two types of risk: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and/or
repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general
level of interest rates. When the general level of interest
rates goes up, the prices of most fixed-income securities go
down. When the general level of interest rates goes down,
the prices of most fixed-income securities go up. (Zero
coupon securities are typically subject to greater price
fluctuations than comparable securities that pay interest.)
FORWARD CURRENCY CONTRACTS. The Fund's participation in
forward currency contracts also involves risks. If the
Investment Manager and/or Sub-Advisor employ a strategy that
does not correlate well with the Fund's investments or the
currencies in which the investments are denominated,
currency contracts could result in a loss. The contracts
also may increase the Fund's volatility and may involve a
significant risk.
OPTIONS AND FUTURES. If the Fund invests in options and/or
futures, its participation in these markets would subject
the Fund's portfolio to certain risks. The Investment
Manager's and/or Sub-Advisor's predictions of movements in
the direction of the stock, currency or interest rate
markets may be inaccurate, and the adverse consequences to
the Fund (e.g., a reduction in the Fund's net asset value or
a reduction in the amount of income available for
distribution) may leave the Fund in a worse position than if
these strategies were not used. Other risks inherent in the
use of options and futures include, for example, the
possible imperfect correlation between the price of options
and futures contracts and movements in the prices of the
securities being hedged, and the possible absence of a
liquid secondary market for any particular instrument.
Certain options may be over-the-counter options, which are
options negotiated with dealers; there is no secondary
market for these investments.
YEAR 2000. The Fund could be adversely affected if the
computer systems necessary for the efficient operation of
the Investment Manager, the Sub-Advisor, the Fund's other
service providers and the markets and individual and
governmental issuers in which the Fund invests do not
properly process and calculate date-related information from
and after January 1, 2000. While year 2000-related computer
6
<PAGE>
problems could have a negative effect on the Fund, the
Investment Manager, the Sub-Advisor and affiliates are
working hard to avoid any problems and to obtain assurances
from their service providers that they are taking similar
steps.
(Sidebar)
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc., its
wholly-owned subsidiary, has more than $127 billion in assets under management
or administration as of January 31, 1999.
(End Sidebar)
ICON FUND MANAGEMENT
- --------------------------------------------------------------------------------
The Fund has retained the Investment Manager -- Morgan
Stanley Dean Witter Advisors Inc. -- to provide
administrative services, manage its business affairs and
supervise the investment of its assets. The Investment
Manager has, in turn, contracted with the Sub-Advisor --
Morgan Stanley Dean Witter Investment Management Inc. - to
invest the Fund's assets, including the placing of orders
for the purchase and sale of portfolio securities. Morgan
Stanley Dean Witter Investment Management Inc. has been the
Sub-Advisor of the Fund since November 1, 1998. Prior to
that, Morgan Grenfell Investment Services Limited was the
Fund's Sub-Advisor. 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. Its main
business office is located at Two World Trade Center, New
York, New York 10048.
The Sub-Advisor, together with its institutional investment
management affiliates, manages more than $150 billion
primarily for employee benefit plans, investment companies,
endowments, foundations and wealthy individuals. The
Sub-Advisor also is a subsidiary of Morgan Stanley Dean
Witter & Co. Its main business office is located at 1221
Avenue of the Americas, New York, New York 10020.
Timothy Jensen, Principal of the Sub-Advisor, Ashutosh
Sinha, Vice President of the Sub-Advisor, and John R.
Alkire, Managing Director of the Sub-Advisor and President
of Morgan Stanley Investment Advisory, Japan, 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 earlier 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).
The Fund pays the Investment Manager a monthly management
fee as full compensation for the services and facilities
furnished to the Fund, and for Fund expenses assumed by the
Investment Manager. The fee is based on the Fund's average
daily net assets. The Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of this fee.
For the fiscal year ended October 31, 1998, the Fund accrued
total compensation to the Investment Manager amounting to
1.00% of the Fund's average daily net assets. (When the
Sub-Advisor became an investment adviser to the Fund, the
fee rate was reduced by 0.05% of the Fund's average daily
net assets.)
7
<PAGE>
(Sidebar)
CONTACTING A FINANCIAL ADVISOR
If you are new to the Morgan Stanley Dean Witter Family of Funds and would like
to contact a Financial Advisor, call (800) THE-DEAN for the telephone number of
the Morgan Stanley Dean Witter office nearest you. You may also access our
office locator on our Internet site at:
www.deanwitter.com/funds
(End Sidebar)
SHAREHOLDER INFORMATION
ICON PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of Fund shares (excluding sales charges), called
"net asset value," is based on the value of the Fund's
portfolio securities. While the assets of each Class are
invested in a single portfolio of securities, the net asset
value of each Class will differ because the Classes have
different ongoing distribution fees.
The net asset value per share of the Fund is determined once
daily at 4 p.m. Eastern time on each day that the New York
Stock Exchange is open (or, on days when the New York Stock
Exchange closes prior to 4:00 p.m., at such earlier time).
Shares will not be priced on days that the New York Stock
Exchange is closed.
The value of the Fund's portfolio securities is based on the
securities' market price when available. When a market price
is not readily available, including circumstances under
which the Investment Manager and/or Sub-Advisor determines
that a security's market price is not accurate, a portfolio
security is valued at its fair value, as determined under
procedures established by the Fund's Board of Directors. In
these cases, the Fund's net asset value will reflect certain
portfolio securities' fair value rather than their market
price. Due to the Fund's holdings of securities that are
primarily listed on foreign exchanges, the values of the
Fund's portfolio securities may change on days when you will
not be able to purchase or sell your shares.
An exception to the Fund's general policy of using market
prices concerns its short-term debt portfolio securities.
Debt securities with remaining maturities of sixty days or
less at the time of purchase are valued at amortized cost.
However, if the cost does not reflect the securities' market
value, these securities will be valued at their fair value.
ICON HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may open a new account to buy Fund shares or buy
additional Fund shares for an existing account by contacting
your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative. Your Financial Advisor
will assist you, step-by-step, with the procedures to invest
in the Fund. You may also purchase shares directly by
calling the Fund's transfer agent and requesting an
application.
Because every investor has different immediate financial
needs and long-term investment goals, the Fund offers
investors four Classes of shares: Classes A, B, C and D.
Class D shares are only offered to a limited group of
investors. Each Class of shares offers a distinct structure
of sales charges, distribution and service fees, and other
features that are designed to address a variety of needs.
Your Financial Advisor or other authorized financial
representative can help you decide which Class may be most
appropriate for you. When purchasing Fund shares, you must
specify which Class of shares you wish to purchase.
8
<PAGE>
When you buy Fund shares, the shares are purchased at the
next share price calculated (less any applicable front-end
sales charge for Class A shares) after we receive your
investment order in proper form. We reserve the right to
reject any order for the purchase of Fund shares.
(Sidebar)
EASYINVEST-SM-
A purchase plan that allows you to transfer money automatically from your
checking or savings account or from a Money Market Fund on a semi-monthly,
monthly or quarterly basis. Contact your Morgan Stanley Dean Witter Financial
Advisor for further information about this service.
(End Sidebar)
<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
- ------------------------------------------------------------------------------------------------
MINIMUM INVESTMENT
----------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Regular Accounts $ 1,000 $ 100
- ------------------------------------------------------------------------------------------------
Individual Retirement Accounts: Regular IRAs $ 1,000 $ 100
Education IRAs $500 $ 100
- ------------------------------------------------------------------------------------------------
EASYINVEST-SM- (Automatically from your checking
or savings account or Money Market
Fund) $100* $ 100*
- ------------------------------------------------------------------------------------------------
</TABLE>
* Provided your schedule of investments totals $1,000 in twelve months.
There is no minimum investment amount if you purchase Fund
shares through: (1) the Investment Manager's mutual fund
asset allocation plan, (2) a program, approved by the Fund's
distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services, or (3)
employer-sponsored employee benefit plan accounts.
INVESTMENT OPTIONS FOR CERTAIN INSTITUTIONAL AND OTHER
INVESTORS/CLASS D SHARES. To be eligible to purchase Class D
shares, you must qualify under one of the investor
categories specified in the "Share Class Arrangements"
section of this PROSPECTUS.
THREE DAY SETTLEMENT. Fund shares are sold through the
Fund's distributor, Morgan Stanley Dean Witter Distributors
Inc., on a normal three business day basis; that is, your
payment for Fund shares is due on the third business day
(settlement day) after you place a purchase order.
SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In
addition to buying additional Fund shares for an existing
account by contacting your Morgan Stanley Dean Witter
Financial Advisor, you may send a check directly to the
Fund. To buy additional shares in this manner:
- Write a "letter of instruction" to the Fund specifying the
name(s) on the account, the account number, the social
security or tax identification number, the Class of shares
you wish to purchase and the investment amount (which
would include any applicable front-end sales charge). The
letter must be signed by the account owner(s).
- Make out a check for the total amount payable to: Morgan
Stanley Dean Witter Pacific Growth Fund.
- Mail the letter and check to Morgan Stanley Dean Witter
Trust FSB at P.O. Box 1040, Jersey City, NJ 07303.
ICON HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
PERMISSIBLE FUND EXCHANGES. You may exchange shares of any
Class of the Fund for the same Class of any other
continuously offered Multi-Class Fund, or for shares of a
No-Load Fund, Money Market Fund or Short-Term U.S. Treasury
Trust, without the imposition of an exchange fee. See the
inside back cover of this PROSPECTUS for each Morgan Stanley
Dean Witter Fund's designation as a Multi-Class Fund, No-
9
<PAGE>
Load Fund or Money Market Fund. If a Morgan Stanley Dean
Witter Fund is not listed, consult the inside back cover of
that Fund's PROSPECTUS for its designation. For purposes of
exchanges, shares of FSC Funds (subject to a front-end sales
charge) are treated as Class A shares of a Multi-Class Fund.
Exchanges may be made after shares of the Fund acquired by
purchase have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or
dividend reinvestment. The current PROSPECTUS for each fund
describes its investment objective(s), policies and
investment minimums, and should be read before investment.
EXCHANGE PROCEDURES. You can process an exchange by
contacting your Morgan Stanley Dean Witter Financial Advisor
or other authorized financial representative. Otherwise, you
must forward an exchange privilege authorization form to the
Fund's transfer agent -- Morgan Stanley Dean Witter Trust
FSB -- and then write the transfer agent or call (800)
869-NEWS to place an exchange order. You can obtain an
exchange privilege authorization form by contacting your
Financial Advisor or other authorized financial
representative or by calling (800) 869-NEWS. If you hold
share certificates, no exchanges may be processed until we
have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a
Money Market Fund) is made on the basis of the next
calculated net asset values of the Funds involved after the
exchange instructions are accepted. When exchanging into a
Money Market Fund, the Fund's shares are sold at their next
calculated net asset value and the Money Market Fund's
shares are purchased at their net asset value on the
following business day.
The Fund may terminate or revise the exchange privilege upon
required notice. Certain services normally available to
shareholders of Money Market Funds, including the check
writing privilege, are not available for Money Market Fund
shares you acquire in an exchange.
TELEPHONE EXCHANGES. For your protection when calling Morgan
Stanley Dean Witter Trust FSB, we will employ reasonable
procedures to confirm that exchange instructions
communicated over the telephone are genuine. These
procedures may include requiring various forms of personal
identification such as name, mailing address, social
security or other tax identification number. Telephone
instructions also may be recorded.
Telephone instructions will be accepted if received by the
Fund's transfer agent between 9:00 a.m. and 4:00 p.m.
Eastern time, on any day the New York Stock Exchange is open
for business. 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 Fund in the past.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a
margin account, contact your Morgan Stanley Dean Witter
Financial Advisor or other authorized financial
representative regarding restrictions on the exchange of
such shares.
10
<PAGE>
TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of
the Fund for shares of another Morgan Stanley Dean Witter
Fund there are important tax considerations. For tax
purposes, the exchange out of the Fund is considered a sale
of Fund shares -- and the exchange into the other Fund is
considered a purchase. As a result, you may realize a
capital gain or loss.
You should review the "Tax Consequences" section and consult
your own tax professional about the tax consequences of an
exchange.
FREQUENT EXCHANGES. A pattern of frequent exchanges may
result in the Fund limiting or prohibiting, at its
discretion, additional purchases and/or exchanges. The Fund
will notify you in advance of limiting your exchange
privileges.
CDSC CALCULATIONS ON EXCHANGES. See the "Share Class
Arrangements" section of this PROSPECTUS for a discussion of
how applicable contingent deferred sales charges (CDSCs) are
calculated for shares of one Morgan Stanley Dean Witter Fund
that are exchanged for shares of another.
FOR FURTHER INFORMATION REGARDING EXCHANGE PRIVILEGES, YOU
SHOULD CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR OR CALL (800) 869-NEWS.
ICON HOW TO SELL SHARES
- --------------------------------------------------------------------------------
You can sell some or all of your Fund shares at any time. If
you sell Class A, Class B or Class C shares, your net sale
proceeds are reduced by the amount of any applicable CDSC.
Your shares will be sold at the next price calculated after
we receive your order to sell as described below.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
- --------------------------------------------------------------------------------
Contact your To sell (redeem) your shares, simply call your Morgan
Financial Advisor Stanley Dean Witter Financial Advisor or other authorized
financial representative.
------------------------------------------------------------
ICON Payment will be sent to the address to which the account is
registered or deposited in your brokerage account.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of
instruction" that includes:
- your account number;
- the dollar amount or the number of shares you wish to
sell;
- the Class of shares you wish to sell; and
- the signature of each owner as it appears on the account.
------------------------------------------------------------
If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Dean Witter
Trust FSB. (You should contact Morgan Stanley Dean Witter
Trust FSB at (800) 869-NEWS for a determination as to
whether a particular institution is an eligible guarantor.)
A notary public CANNOT provide a signature guarantee.
Additional documentation may be required for shares held by
a corporation, partnership, trustee or executor.
------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at
P.O. Box 983, Jersey City, New Jersey 07303. If you hold
share certificates, you must return the certificates, along
with the letter and any required additional documentation.
------------------------------------------------------------
A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.
- --------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter
Withdrawal Plan Family of Funds has a total market value of at least
$10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a Fund's balance (provided the
amount is at least $25), on a monthly, quarterly,
semi-annual or annual basis, from any Fund with a balance of
at least $1,000. Each time you add a Fund to the plan, you
must meet the plan requirements.
------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC
may be waived under certain circumstances. See the Class B
waiver categories listed in the "Share Class Arrangements"
section of this PROSPECTUS.
------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your
Morgan Stanley Dean Witter Financial Advisor or call (800)
869-NEWS. You may terminate or suspend your plan at any
time. Please remember that withdrawals from the plan are
sales of shares, not Fund "distributions," and ultimately
may exhaust your account balance. The Fund may terminate or
revise the plan at any time.
- --------------------------------------------------------------------------------
</TABLE>
(Sidebar)
SYSTEMATIC
WITHDRAWAL PLAN
This plan
allows you to withdraw money automatically from your Fund account at regular
intervals. Contact your Morgan Stanley Dean Witter Financial Advisor for more
details.
(End Sidebar)
PAYMENT FOR SOLD SHARES. After we receive your complete
instructions to sell as described above, a check will be
mailed to you within seven days, although we will attempt to
make payment within one business day. Payment may also be
sent to your brokerage account.
Payment may be postponed or the right to sell your shares
suspended under unusual circumstances. If you request to
sell shares that were recently purchased by check, payment
of the sale proceeds may be delayed for the minimum time
needed to verify that the check has been honored (not more
than fifteen days from the time we receive the check).
TAX CONSIDERATIONS. Normally, your sale of Fund shares is
subject to federal and state income tax. You should review
the "Tax Consequences" section of this PROSPECTUS and
consult your own tax professional about the tax consequences
of a sale.
12
<PAGE>
REINSTATEMENT PRIVILEGE. If you sell Fund shares and have
not previously exercised the reinstatement privilege, you
may, within 35 days after the date of sale, invest any
portion of the proceeds in the same Class of Fund shares at
their net asset value and receive a pro rata credit for any
CDSC paid in connection with the sale.
INVOLUNTARY SALES. The Fund reserves the right, on sixty
days' notice, to sell the shares of any shareholder (other
than shares held in an IRA or 403(b) Custodial Account)
whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through
EASYINVEST-SM-, if after 12 months the shareholder has
invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner,
we will notify you and allow you sixty days to make an
additional investment in an amount that will increase the
value of your account to at least the required amount before
the sale is processed. No CDSC will be imposed on any
involuntary sale.
MARGIN ACCOUNTS. Certain restrictions may apply to Fund
shares pledged in margin accounts with Dean Witter Reynolds
or another authorized broker-dealer of Fund shares. If you
hold Fund shares in this manner, please contact your Morgan
Stanley Dean Witter Financial Advisor or other authorized
financial representative for more details.
ICON DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund passes substantially all of its earnings from
income and capital gains along to its investors as
"distributions." The Fund earns income from stocks and
interest from fixed-income investments. These amounts are
passed along to Fund shareholders as "income dividend
distributions." The Fund realizes capital gains whenever it
sells securities for a higher price than it paid for them.
These amounts may be passed along as "capital gain
distributions."
The Fund declares income dividends separately for each
Class. Distributions paid on Class A and Class D shares
usually will be higher than for Class B and Class C because
distribution fees that Class B and Class C pay are higher.
Normally, income dividends and capital gains are distributed
annually in December. The Fund may at times make payments
from sources other than income or capital gains that
represent a return of a portion of your investment.
(Sidebar)
TARGETED DIVIDENDS-SM-
You may select to have your Fund distributions automatically invested in other
Classes of Fund shares or Classes of another Morgan Stanley Dean Witter Fund
that you own. Contact your Morgan Stanley Dean Witter Financial Advisor for
further information about this service.
(End Sidebar)
Distributions are reinvested automatically in additional
shares of the same Class and automatically credited to your
account, unless you request in writing that all
distributions be paid in cash. If you elect the cash option,
the Fund will mail a check to you no later than seven
business days after the distribution is declared. No
interest will accrue on uncashed checks. If you wish to
change how your distributions are paid, your request should
be received by the Fund's transfer agent, Morgan Stanley
Dean Witter Trust FSB, at least five business days prior to
the record date of the distributions.
13
<PAGE>
ICON TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your Fund
investment will be taxed. The tax information in this
PROSPECTUS is provided as general information. You should
consult your own tax professional about the tax consequences
of an investment in the Fund.
Unless your investment in the Fund is through a tax-deferred
retirement account, such as a 401(k) plan or IRA, you need
to be aware of the possible tax consequences when:
- The Fund makes distributions; and
- You sell Fund shares, including an exchange to another
Morgan Stanley Dean Witter Fund.
TAXES ON DISTRIBUTIONS. Your distributions are normally
subject to federal and state income tax when they are paid,
whether you take them in cash or reinvest them in Fund
shares. A distribution also may be subject to local income
tax. Any income dividend distributions and any short-term
capital gain distributions are taxable to you as ordinary
income. Any long-term capital gain distributions are taxable
as long-term capital gains, no matter how long you have
owned shares in the Fund.
Every January, you will be sent a statement (IRS Form
1099-DIV) showing the taxable distributions paid to you in
the previous year. The statement provides full information
on your dividends and capital gains for tax purposes.
TAXES ON SALES. Your sale of Fund shares normally is subject
to federal and state income tax and may result in a taxable
gain or loss to you. A sale also may be subject to local
income tax. Your exchange of Fund shares for shares of
another Morgan Stanley Dean Witter Fund is treated for tax
purposes like a sale of your original shares and a purchase
of your new shares. Thus, the exchange may, like a sale,
result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
When you open your Fund account, you should provide your
social security or tax identification number on your
investment application. By providing this information, you
will avoid being subject to a federal backup withholding tax
of 31% on taxable distributions and redemption proceeds. Any
withheld amount would be sent to the IRS as an advance tax
payment.
ICON SHARE CLASS ARRANGEMENTS
- --------------------------------------------------------------------------------
The Fund offers several Classes of shares having different
distribution arrangements designed to provide you with
different purchase options according to your investment
needs. Your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative can help you
decide which Class may be appropriate for you.
The general public is offered three Classes: Class A shares,
Class B shares and Class C shares, which differ principally
in terms of sales charges and ongoing expenses. A fourth
Class, Class D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested
distributions will not be subject to any front-end sales
charge or CDSC -- contingent deferred sales charge.
14
<PAGE>
Sales personnel may receive different compensation for
selling each Class of shares. The sales charges applicable
to each Class provide for the distribution financing of
shares of that Class.
The chart below compares the sales charge and annual 12b-1
fee applicable to each Class:
<TABLE>
<CAPTION>
CLASS SALES CHARGE ANNUAL 12b-1 FEE
<S> <C> <C>
- ------------------------------------------------------------------
A Maximum 5.25% initial sales charge
reduced for purchase of $25,000 or more;
shares sold without an initial sales
charge are generally subject to a 1.0%
CDSC during the first year 0.25%
- ------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year
decreasing to 0% after six years 1.0%
- ------------------------------------------------------------------
C 1.0% CDSC during the first year 1.0%
- ------------------------------------------------------------------
D None None
- ------------------------------------------------------------------
</TABLE>
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 purchases of $25,000 or more
according to the schedule below. Investments of $1 million
or more are not subject to an initial sales charge, but are
generally subject to a contingent deferred sales charge, or
CDSC, of 1.0% on sales made within one year after the last
day of the month of purchase. The CDSC will be assessed in
the same manner and with the same CDSC waivers as with Class
B shares. Class A shares are also subject to a distribution
(12b-1) fee of up to 0.25% of the average daily net assets
of the Class.
(Sidebar)
FRONT-END SALES
CHARGE OR FSC
An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges -- the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
(End Sidebar)
The offering price of Class A shares includes a sales charge
(expressed as a percentage of the offering price) on a
single transaction as shown in the following table:
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
----------------------------------------------
PERCENTAGE OF APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION PUBLIC OFFERING PRICE OF AMOUNT 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>
The reduced sales charge schedule is applicable to purchases
of Class A shares in a single transaction by:
- A single account (including an individual, trust or
fiduciary account).
- Family member accounts (limited to husband, wife and
children under the age of 21).
- Pension, profit sharing or other employee benefit plans of
companies and their affiliates.
- Tax-exempt organizations.
15
<PAGE>
- Groups organized for a purpose other than to buy mutual
fund shares.
COMBINED PURCHASE PRIVILEGE. You also will have the benefit
of reduced sales charges by combining purchases of Class A
shares of the Fund in a single transaction with purchases of
Class A shares of other Multi-Class Funds and shares of FSC
Funds.
RIGHT OF ACCUMULATION. You also may benefit from a reduction
of sales charges if the cumulative net asset value of Class
A shares of the Fund purchased in a single transaction,
together with shares of other Funds you currently own which
were previously purchased at a price including a front-end
sales charge (including shares acquired through reinvestment
of distributions), amounts to $25,000 or more. Also, if you
have a cumulative net asset value of all your Class A and
Class D shares equal to at least $5 million (or $25 million
for certain employee benefit plans), you are eligible to
purchase Class D shares of any Fund subject to the Fund's
minimum initial investment requirement.
You must notify your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative (or
Morgan Stanley Dean Witter Trust FSB if you purchase
directly through the Fund), 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 when an order is placed by mail. The
reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or
(ii) a review of the records of Dean Witter Reynolds or
other authorized dealer of Fund shares or the Fund's
transfer agent does not confirm your represented holdings.
LETTER OF INTENT. The schedule of reduced sales charges for
larger purchases also will be available to you if you enter
into a written "letter of intent." A letter of intent
provides for the purchase of Class A shares of the Fund or
other Multi-Class Funds or shares of FSC Funds within a
thirteen-month period. The initial purchase under a letter
of intent must be at least 5% of the stated investment goal.
To determine the applicable sales charge reduction, you may
also include: (1) the cost of 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 distributor receiving the letter of intent, and
(2) the cost of shares of other Funds you currently own
acquired in exchange for shares of Funds purchased during
that period at a price including a front-end sales charge.
You can obtain a letter of intent by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized
financial representative or by calling (800) 869-NEWS. If
you do not
16
<PAGE>
achieve the stated investment goal within the thirteen-month
period, you are required to pay the difference between the
sales charges otherwise applicable and sales charges
actually paid.
OTHER FRONT-END SALES CHARGE WAIVERS. In addition to
investments of $1 million or more, your purchase of Class A
shares is not subject to a front-end sales charge (or CDSC
upon sale) if your account qualifies under one of the
following categories:
- A trust for which Morgan Stanley Dean Witter Trust FSB
provides discretionary trustee services.
- Persons participating in a fee-based investment program
(subject to all of its terms and conditions, including
mandatory sale or transfer restrictions on termination)
approved by the Fund's distributor pursuant to which they
pay an asset-based fee for investment advisory,
administrative and/or brokerage services.
- Employer-sponsored employee benefit plans, whether or not
qualified under the Internal Revenue Code, for which
Morgan Stanley Dean Witter Trust FSB serves as trustee or
Dean Witter Reynolds' Retirement Plan Services serves as
recordkeeper under a written Recordkeeping Services
Agreement ("MSDW Eligible Plans") which have at least 200
eligible employees.
- A MSDW Eligible Plan whose Class B shares have converted
to Class A shares, regardless of the plan's asset size or
number of eligible employees.
- A client of a Morgan Stanley Dean Witter Financial Advisor
who joined us from another investment firm within six
months prior to the date of purchase of Fund shares, and
you used the proceeds from the sale of shares of a
proprietary mutual fund of that Financial Advisor's
previous firm that imposed either a front-end or deferred
sales charge to purchase Class A shares, provided that:
(1) you sold the shares not more than 60 days prior to the
purchase of Fund shares, and (2) the sale proceeds were
maintained in the interim in cash or a money market fund.
CLASS B SHARES Class B shares are offered at net asset
value with no initial sales charge but are subject to a
contingent deferred sales charge, or CDSC, as set forth in
the table below. For the purpose of calculating the CDSC,
shares are deemed to have been purchased on the last day of
the month during which they were purchased.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE CDSC AS A PERCENTAGE 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>
(Sidebar)
CONTINGENT DEFERRED SALES CHARGE OR CDSC
A fee you pay when you sell shares of certain Morgan Stanley Dean Witter Funds
purchased without an initial sales charge. This fee declines the longer you hold
your shares as set forth in the table.
(End Sidebar)
Each time you place an order to sell or exchange shares,
shares with no CDSC will be sold or exchanged first, then
shares with the lowest CDSC will be sold or
17
<PAGE>
exchanged next. For any shares subject to a CDSC, the CDSC
will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being sold.
CDSC WAIVERS. A CDSC, if otherwise applicable, will be
waived in the case of:
- Sales of shares held at the time you die or become
disabled (within the definition in Section 72(m)(7) of the
Internal Revenue Code which relates to the ability to
engage in gainful employment), if the shares are: (i)
registered either in your name (not a trust) or in the
names of you and your spouse as joint tenants with right
of survivorship; or (ii) held in a qualified corporate or
self-employed retirement plan, IRA or 403(b) Custodial
Account, provided in either case that the sale is
requested within one year of your death or initial
determination of disability.
- Sales in connection with the following retirement plan
"distributions": (i) 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); (ii) distributions from an IRA or 403(b) Custodial
Account following attainment of age 59 1/2; or (iii) a
tax-free return of an excess IRA contribution (a
"distribution" does not include a direct transfer of IRA,
403(b) Custodial Account or retirement plan assets to a
successor custodian or trustee).
- Sales of shares held for you as a participant in a MSDW
Eligible Plan.
- Sales of shares in connection with the Systematic
Withdrawal Plan of up to 12% annually of the value of each
Fund from which plan sales are made. The percentage is
determined on the date you establish the Systematic
Withdrawal Plan and based on the next calculated share
price. You may have this CDSC waiver applied in amounts up
to 1% per month, 3% per quarter, 6% semi-annually or 12%
annually. Shares with no CDSC will be sold first, followed
by those with the lowest CDSC. As such, the waiver benefit
will be reduced by the amount of your shares that are not
subject to a CDSC. If you suspend your participation in
the plan, you may later resume plan payments without
requiring a new determination of the account value for the
12% CDSC waiver.
All waivers will be granted only following the Distributor
receiving confirmation of your entitlement. If you believe
you are eligible for a CDSC waiver, please contact your
Financial Advisor or call (800) 869-NEWS.
DISTRIBUTION FEE. Fund shares, other than Class D shares,
are also subject to an annual distribution (12b-1) fee of
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
purchases by all shareholders 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 sold by all shareholders since the Fund's inception
upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B.
CONVERSION FEATURE. After ten (10) years, Class B shares
will convert automatically to Class A shares of the Fund
with no initial sales charge. The ten year period runs 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, from the last day of the month in which the
original Class B shares were purchased; the shares will
convert to
18
<PAGE>
Class A shares based on their relative net asset values in
the month following the ten year period. At the same time,
an equal proportion of Class B shares acquired through
automatically reinvested distributions will convert to Class
A shares on the same basis. (Class B shares held before May
1, 1997, however, will convert to Class A shares in May
2007.)
In the case of Class B shares held in a MSDW Eligible Plan,
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 Class B shares of a Morgan Stanley Dean Witter Fund
purchased by that plan.
Currently, the Class B share conversion is not a taxable
event; the conversion feature may be cancelled if it is
deemed a taxable event in the future by the Internal Revenue
Service.
If you exchange your Class B shares for shares of a Money
Market Fund, No-Load Fund or Short-Term U.S. Treasury Trust,
the holding period for conversion is frozen as of the last
day of the month of the exchange and resumes on the last day
of the month you exchange back into Class B shares.
EXCHANGING SHARES SUBJECT TO A CDSC. There are special
considerations when you exchange Fund shares that are
subject to a CDSC. When determining the length of time you
held the shares and the corresponding CDSC rate, any period
(starting at the end of the month) during which you held
shares of a fund that does NOT charge a CDSC WILL NOT BE
COUNTED. Thus, in effect the "holding period" for purposes
of calculating the CDSC is frozen upon exchanging into a
fund that does not charge a CDSC.
For example, if you held Class B shares of the Fund for one
year, exchanged to Class B of another Morgan Stanley Dean
Witter Multi-Class Fund for another year, then sold your
shares, a CDSC rate of 4% would be imposed on the shares
based on a two year holding period -- one year for each
Fund. However, if you had exchanged the shares of the Fund
for a Money Market Fund (which does not charge a CDSC)
instead of the Multi-Class Fund, then sold your shares, a
CDSC rate of 5% would be imposed on the shares based on a
one year holding period. The one year in the Money Market
Fund would not be counted. Nevertheless, if shares subject
to a CDSC are exchanged for a Fund that does not charge a
CDSC, you will receive a credit when you sell the shares
equal to the distribution (12b-1) fees, if any, you paid on
those shares while in that Fund up to the amount of any
applicable CDSC.
In addition, shares that are exchanged into or from a Morgan
Stanley Dean Witter Fund subject to a higher CDSC rate will
be subject to the higher rate, even if the shares are
re-exchanged into a Fund with a lower CDSC rate.
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 sales made within one year after the last day of the
month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B
shares.
DISTRIBUTION FEE. Class C shares are subject to an annual
distribution (12b-1) fee of 1.0% of the average daily net
assets of that Class. The Class C shares' distribution fee
may cause that Class to have higher expenses and pay lower
dividends than
19
<PAGE>
Class A or Class D shares. Unlike Class B shares, Class C
shares have no conversion feature and, accordingly, an
investor that purchases Class C shares may be subject to
distribution (12b-1) fees applicable to Class C shares for
an indefinite period.
CLASS D SHARES Class D shares are offered without any
sales charge on purchases or sales and without any
distribution (12b-1) fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5
million ($25 million for MSDW Eligible Plans) and the
following investor categories:
- Investors participating in the Investment Manager's mutual
fund asset allocation program (subject to all of its terms
and conditions, including mandatory sale or transfer
restrictions on termination) pursuant to which they pay an
asset-based fee.
- Persons participating in a fee-based investment program
(subject to all of its terms and conditions, including
mandatory sale or transfer restrictions on termination)
approved by the Fund's distributor pursuant to which they
pay an asset-based fee for investment advisory,
administrative and/or brokerage services.
- Employee benefit plans maintained by Morgan Stanley Dean
Witter & Co. or any of its subsidiaries for the benefit of
certain employees of Morgan Stanley Dean Witter & Co. and
its subsidiaries.
- Certain unit investment trusts sponsored by Dean Witter
Reynolds.
- Certain other open-end investment companies whose shares
are distributed by the Fund's distributor.
- Investors who were shareholders of the Dean Witter
Retirement Series on September 11, 1998 for additional
purchases for their former Dean Witter Retirement Series
accounts.
MEETING CLASS D ELIGIBILITY MINIMUMS. To meet the $5 million
($25 million for certain MSDW Eligible Plans) initial
investment to qualify to purchase Class D shares you may
combine: (1) purchases in a single transaction of Class D
shares of the Fund and other Morgan Stanley Dean Witter
Multi-Class Funds and/or (2) previous purchases of Class A
and Class D shares of Multi-Class Funds and shares of FSC
Funds you currently own, along with shares of Morgan Stanley
Dean Witter Funds you currently own that you acquired in
exchange for those shares.
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you
receive a cash payment representing an income dividend or
capital gain and you reinvest that amount in the applicable
Class of shares by returning the check within 30 days of the
payment date, the purchased shares would not be subject to
an initial sales charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12b-1 FEES) The Fund has
adopted a Plan of Distribution in accordance with Rule 12b-1
under the Investment Company Act of 1940 with respect to the
distribution of Class A, Class B and Class C shares. The
Plan allows the Fund to pay distribution fees for the sale
and distribution of these shares. It also allows the Fund to
pay for services to shareholders of Class A,
20
<PAGE>
Class B and Class C shares. Because these fees are paid out
of the Fund's assets on an ongoing basis, over time these
fees will increase the cost of your investment in these
Classes and may cost you more than paying other types of
sales charges.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past 5 fiscal years of the Fund.
Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate an investor would have
earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose
report, along with the Fund's financial statements, is included in the
annual report, which is available upon request.
<TABLE>
<CAPTION>
CLASS B SHARES
- ---------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31 1998++ 1997*++ 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.83 $ 18.89 $18.77 $21.60 $19.80
- ---------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) 0.01 0.01 0.05 0.08 (0.10)
Net realized and unrealized gain
(loss) (2.92) (5.77) 0.50 (1.94) 2.22
------- ------- ------ ------ ------
Total income (loss) from investment
operations (2.91) (5.76) 0.55 (1.86) 2.12
- ---------------------------------------------------------------------------------
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 $ 9.73 $ 12.83 $18.89 $18.77 $21.60
- ---------------------------------------------------------------------------------
TOTAL RETURN+ (22.87)% (31.01)% 3.00% (8.65)% 10.69%
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------
Expenses 2.65%(1) 2.44% 2.39% 2.45% 2.41%
- ---------------------------------------------------------------------------------
Net investment income (loss) 0.14%(1) 0.03% 0.18% 0.35% (0.70)%
- ---------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------
Net assets, end of period, in millions $ 409 $ 744 $1,624 $1,442 $1,571
- ---------------------------------------------------------------------------------
Portfolio turnover rate 58% 42% 49% 50% 35%
- ---------------------------------------------------------------------------------
</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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
22
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES++
- ---------------------------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE PERIOD JULY 28, 1997*
SELECTED PER SHARE DATA: OCTOBER 31, 1998 THROUGH OCTOBER 31, 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.86 $ 19.39
- ---------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.10 --
Net realized and unrealized loss (2.94) (6.53)
-------- --------
Total loss from investment operations (2.84) (6.53)
- ---------------------------------------------------------------------------------------------
Less dividends from net investment
income (0.26) --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.76 $ 12.86
- ---------------------------------------------------------------------------------------------
TOTAL RETURN+ (22.35)% (33.68)%(1)
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------
Expenses 1.90%(3) 1.92%(2)
- ---------------------------------------------------------------------------------------------
Net investment income (loss) 0.89%(3) (0.03)%(2)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------
Net assets, end of period, in
thousands $ 3,102 $ 622
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 58% 42%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- ---------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.83 $ 19.39
- ---------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) 0.01 (0.04)
Net realized and unrealized loss (2.89) (6.52)
-------- --------
Total loss from investment operations (2.88) (6.56)
- ---------------------------------------------------------------------------------------------
Less dividends from net investment
income (0.23) --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.72 $ 12.83
- ---------------------------------------------------------------------------------------------
TOTAL RETURN+ (22.68)% (33.83)%(1)
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------
Expenses 2.65%(3) 2.62%(2)
- ---------------------------------------------------------------------------------------------
Net investment income (loss) 0.14%(3) (0.77)%(2)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------
Net assets, end of period, in
thousands $ 1,581 $ 819
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 58% 42%
- ---------------------------------------------------------------------------------------------
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
23
<PAGE>
<TABLE>
<CAPTION>
CLASS D SHARES++
- -------------------------------------------------------------------------
FOR THE
PERIOD
JULY 28,
1997*
THROUGH
FOR THE YEAR ENDED OCTOBER
SELECTED PER SHARE DATA: OCTOBER 31, 1998 31, 1997
<S> <C> <C>
- -------------------------------------------------------------------------
Net asset value, beginning of period $12.86 $19.39
- -------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.07 0.02
Net realized and unrealized loss (2.88) (6.55)
------- ---------
Total loss from investment operations (2.81) (6.53)
- -------------------------------------------------------------------------
Less dividends from net investment
income (0.27) --
- -------------------------------------------------------------------------
Net asset value, end of period $ 9.78 $12.86
- -------------------------------------------------------------------------
TOTAL RETURN+ (22.14)% (33.68)%(1)
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------
Expenses 1.65%(3) 1.62%(2)
- -------------------------------------------------------------------------
Net investment income 1.14%(3) 0.42%(2)
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------
Net assets, end of period, in thousands $1,565 $118
- -------------------------------------------------------------------------
Portfolio turnover rate 58% 42%
- -------------------------------------------------------------------------
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
24
<PAGE>
NOTES
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25
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds
offers investors a wide range of investment
choices. Come on in and meet the family!
- --------------------------------------------------------------------------------
GROWTH FUNDS
- --------------------------------
GROWTH FUNDS
Aggressive Equity Fund
American Value Fund
Capital Growth Securities
Developing Growth Securities
Equity Fund
Growth Fund
Market Leader Trust
Mid-Cap Growth Fund
Special Value Fund
Value Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Precious Metals and Minerals Trust
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas" Portfolio
European Growth Fund
Fund of Funds - International Portfolio
Global Dividend Growth Securities
International SmallCap Fund
Japan Fund
Pacific Growth Fund
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUNDS
- --------------------------------
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Value-Added Market Series/Equity Portfolio
THEME FUNDS
Utilities Fund
Global Utilities Fund
- --------------------------------------------------------------------------------
INCOME FUNDS
- --------------------------------
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust
DIVERSIFIED INCOME FUNDS
Diversified Income Trust
CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund (NL)
GLOBAL INCOME FUNDS
World Wide Income Trust
TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust (FSC)
Limited Term Municipal Trust (NL)
Multi-State Municipal Series Trust (FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund (MM)
U.S. Government Money Market Trust (MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust (MM)
N.Y. Municipal Money Market Trust (MM)
Tax-Free Daily Income Trust (MM)
There may be Funds created after this PROSPECTUS was published. Please consult
the inside front cover of a new Fund's prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
Short-Term U.S. Treasury Trust, is a Multi-Class Fund. A Multi-Class Fund is a
mutual fund offering multiple Classes of shares. The other types of funds are:
NL - No-Load (Mutual) Fund; MM - Money Market Fund; FSC - A mutual fund sold
with a front-end sales charge and a distribution (12b-1) fee.
<PAGE>
MORGAN STANLEY DEAN WITTER
PACIFIC GROWTH FUND
TICKER SYMBOLS:
CLASS A: TGRAX
- -------------------
CLASS B: TGRBX
- -------------------
CLASS C: TGRCX
- -------------------
CLASS D: TGRDX
- -------------------
Additional information about the Fund's investments is
available in the Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO
SHAREHOLDERS. In the Fund's ANNUAL REPORT, you will find a
discussion of the market conditions and investment
strategies that significantly affected the Fund's
performance during its last fiscal year. The Fund's
STATEMENT OF ADDITIONAL INFORMATION also provides additional
information about the Fund. The STATEMENT OF ADDITIONAL
INFORMATION is incorporated herein by reference (legally is
part of this PROSPECTUS). For a free copy of any of these
documents, to request other information about the Fund, or
to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling
your Morgan Stanley Dean Witter Financial Advisor or by
visiting our Internet site at:
WWW.DEANWITTER.COM/FUNDS
Information about the Fund (including the STATEMENT OF
ADDITIONAL INFORMATION) can be viewed and copied at the
Securities and Exchange Commission's Public Reference Room
in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800)
SEC-0330. Reports and other information about the Fund are
available on the SEC's Internet site (www.sec.gov), and
copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section
of the SEC, Washington, DC 20549-6009.
(MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND; INVESTMENT COMPANY ACT FILE NO.
811-6121)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 22, 1999
MORGAN STANLEY DEAN
WITTER
PACIFIC GROWTH
FUND INC.
- ----------------------------------------------------------------------
This STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. The PROSPECTUS
dated February 22, 1999 for the Morgan Stanley Dean Witter Pacific Growth Fund
Inc. may be obtained without charge from the Fund at its address or telephone
number listed below or from Dean Witter Reynolds at any of its branch offices.
Morgan Stanley Dean Witter
Pacific Growth Fund Inc.
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
I. Fund History...................................... 4
II. Description of the Fund and Its Investments and
Risks............................................. 4
A. Classification................................. 4
B. Investment Strategies and Risks................ 4
C. Fund Policies/Investment Restrictions.......... 13
III. Management of the Fund............................ 14
A. Board of Directors............................. 14
B. Management Information......................... 14
C. Compensation................................... 19
IV. Control Persons and Principal Holders of
Securities........................................ 20
V. Investment Management and Other Services.......... 21
A. Investment Manager and Sub-Advisor............. 21
B. Principal Underwriter.......................... 22
C. Services Provided by the Investment Manager and
Fund Expenses Paid by Third Parties............ 22
D. Dealer Reallowances............................ 23
E. Rule 12b-1 Plan................................ 23
F. Other Service Providers........................ 27
VI. Brokerage Allocation and Other Practices.......... 28
A. Brokerage Transactions......................... 28
B. Commissions.................................... 28
C. Brokerage Selection............................ 29
D. Directed Brokerage............................. 30
E. Regular Broker-Dealers......................... 30
VII. Capital Stock and Other Securities................ 30
VIII. Purchase, Redemption and Pricing of Shares........ 31
A. Purchase/Redemption of Shares.................. 31
B. Offering Price................................. 31
IX. Taxation of the Fund and Shareholders............. 32
X. Underwriters...................................... 34
XI. Calculation of Performance Data................... 34
XII. Financial Statements.............................. 35
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CUSTODIAN"--The Chase Manhattan Bank.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"DIRECTORS"--The Board of Directors of the Fund.
"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.
"FORMER SUB-ADVISOR"--Morgan Grenfell Investment Services Limited, an indirect
subsidiary of Deutsche Bank AG.
"FUND"--Morgan Stanley Dean Witter Pacific Growth Fund Inc., a registered
open-end investment company.
"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.
"INDEPENDENT DIRECTORS"--Directors who are not "interested persons" (as defined
by the Investment Company Act) of the Fund.
"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor and (ii) that hold
themselves out to investors as related companies for investment and investor
services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"SUB-ADVISOR"--Morgan Stanley Dean Witter Investment Management Inc., a
subsidiary of MSDW.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was incorporated in the State of Maryland on June 13, 1990 under
the name Dean Witter Pacific Growth Fund Inc. Effective June 22, 1998, the
Fund's name was changed to Morgan Stanley Dean Witter Pacific Growth Fund Inc.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company whose
investment objective is to maximize the capital appreciation of its investments.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's PROSPECTUS titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."
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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts ("FORWARD CONTRACTS") as a hedge
against fluctuations in future foreign exchange rates. The Fund may 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. Forward contracts only will be entered into with United States banks
and their foreign branches, foreign banks, insurance companies and other dealers
whose assets total $1 billion or more, 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.
The Fund may enter into forward contracts under various circumstances. The
typical use of a forward contract is to "lock in" the price of a security in
U.S. dollars or some other foreign currency which the Fund is 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 may be able to
protect itself against a possible loss resulting from an adverse
4
<PAGE>
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.
The Investment Manager also may from time to time utilize forward contracts
for other purposes. For example, they may be used to hedge a foreign security
held in the portfolio or a security which pays out principal tied to an exchange
rate between the U.S. dollar and a foreign currency, against a decline in value
of the applicable foreign currency. They also may be used to lock in the current
exchange rate of the currency in which those securities anticipated to be
purchased are denominated. At times, the Fund may enter into "cross-currency"
hedging transactions involving currencies other than those in which securities
are held or proposed to be purchased are denominated.
The Fund will not enter into forward currency contracts or maintain a net
exposure to these 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.
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.
The Fund may be limited in its ability to enter into hedging transactions
involving forward contracts by the Internal Revenue Code requirements relating
to qualification as a regulated investment company.
Forward currency contracts may limit gains on portfolio securities that
could otherwise be realized had they not been utilized and could result in
losses. The contracts also may increase the Fund's volatility and may involve a
significant amount of risk relative to the investment of cash.
OPTION AND FUTURES TRANSACTIONS. The Fund may engage in transactions in
listed options. Listed options are issued or guaranteed by the exchange on which
they are traded 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) by filing an exercise
notice prior to the expiration date of the option. The writer (seller) of the
option would then have the obligation to sell to the OCC (in the U.S.) or other
clearing corporation or exchange, the underlying security or currency at that
exercise price prior to the expiration date of the option, regardless of its
then current market price. Ownership of a listed put option would give the Fund
the right to sell the underlying security or currency to the OCC (in the U.S.)
or other clearing corporation or exchange, at the stated exercise price. Upon
notice of exercise of the put option, the writer of the put 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.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and on the U.S. dollar and foreign currencies in which
they are denominated, without limit.
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 (or currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Fund if the securities (or currencies) underlying the option
decline in value.
The Fund may be required, at any time during the option period, to deliver
the underlying security (or currency) against payment of the exercise price on
any calls it has written. This obligation is terminated upon the expiration of
the option period or at such earlier time when the writer effects a
5
<PAGE>
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.
Options written by the Fund normally have expiration dates of from 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.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period, at
the purchaser's election. Through the writing of a put option, the Fund would
receive income from the premium paid by purchasers. The potential gain on a
covered put option is limited to the premium received on the option (less the
commissions paid on the transaction). During the option period, the Fund may be
required, at any time, to make payment of the exercise price against delivery of
the underlying security (or currency). The aggregate value of the obligations
underlying puts may not exceed 50% of the Fund's assets. The operation of and
limitations on covered put options in other respects are substantially identical
to those of call options.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equaling up to 5% of its total assets. The purchase
of a call option would enable the Fund, in return for the premium paid to lock
in a purchase price for a security or currency during the term of the option.
The purchase of a put option would enable the Fund, in return for a premium
paid, to lock in a price at which it may sell a security or currency during the
term of the option.
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.
OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. The Fund will engage in OTC
option transactions only with member banks of the Federal Reserve Bank System or
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates, currency
exchange rates and/or market movements. 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. 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 covered put
writer also retains the risk of loss should the market value of the underlying
security decline below the exercise price of the option less the premium
received on the sale of the option. In both cases, the writer has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. 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.
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.
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
6
<PAGE>
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. In the case of OTC options, if the transacting dealer fails to
make or take delivery of the securities underlying an option it has written, in
accordance with the terms of that option, due to insolvency or otherwise, the
Fund would lose the premium paid for the option as well as any anticipated
benefit of the transaction.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security 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 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. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
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. 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.
FUTURES CONTRACTS. The Fund may purchase and sell interest rate, currency
and index futures contracts that are traded on U.S. and foreign commodity
exchanges on such underlying securities as U.S. Treasury bonds, notes, bills and
GNMA Certificates and/or any foreign government fixed-income security, on
various currencies and on such indexes of U.S. and foreign securities as may
exist or come into existence.
A futures contract purchaser 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. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables the Fund, during the term of the contract, to lock in a price
at which it may purchase a security or currency and protect against a rise in
prices pending purchase of portfolio securities. The sale of a futures contract
enables the Fund to lock in a price at which it may sell a security or currency
and protect against declines in the value of portfolio securities.
Although most 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. Index futures contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the
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difference between the index value at the open or close of the last trading day
of the contract and the futures contract price. 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.
MARGIN. If the Fund enters into a futures contract, it is initially
required to deposit an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities ranging from approximately 2% to 5% 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 broker's 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," which are reflective of price
fluctuations in the futures contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts 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), and the writer
the obligation, 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.
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 net
assets which may be subject to a hedge position.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. 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). Also, prices of futures contracts may not move in tandem with the
changes in prevailing interest rates, market movements and/or currency exchange
rates against which the Fund seeks a hedge. A correlation may also be distorted
(a) temporarily, by short-term traders' seeking to profit from the difference
between a contract or security price objective and their cost of borrowed funds;
(b) by investors in futures contracts electing to close out their contracts
through offsetting transactions
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rather than meet margin deposit requirements; (c) by investors in futures
contracts opting to make or take delivery of underlying securities rather than
engage in closing transactions, thereby reducing liquidity of the futures
market; and (d) temporarily, by speculators who view the deposit requirements in
the futures markets as less onerous than margin requirements in the cash market.
Due to the possibility of price distortion in the futures market and because of
the possible imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of interest
rate, currency exchange rate and/or market movement trends by the Investment
Manager may still not result in a successful hedging transaction.
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.
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 these 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.
MONEY MARKET SECURITIES. The Fund may invest in various money market
securities for cash management purposes or when assuming a temporary defensive
position, which among others may include commercial paper, bank acceptances,
bank obligations, corporate debt securities, certificates of deposit, U.S.
Government securities, obligations of savings institutions and repurchase
agreements. 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;
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BANK OBLIGATIONS. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion 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 billion
or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion. If the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the FDIC), 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 the two highest grades by 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; and
REPURCHASE AGREEMENTS. The Fund may invest in 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. These agreements, which may be viewed
as a type of secured lending by the Fund, 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 serving as 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 marked-to-market daily to determine
that the value of the collateral, as specified in the agreement, does not
decrease below the purchase price plus accrued interest. If such decrease
occurs, additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest from
the institution until the time when the repurchase is to occur. Although this
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.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Sub-Advisor subject to
procedures established by the Directors. In addition, as described above, the
value of the collateral underlying the repurchase agreement will be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Fund will seek to liquidate such collateral. However,
the exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements for purposes of meeting redemptions or as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. These transactions are only advantageous if the interest cost to the
Fund of the
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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 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 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.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
brokers, dealers and other financial institutions, provided that the loans are
callable at any time by the Fund, 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 equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of these 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 more than 25% of the
value of its total assets.
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.
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 the rights
if the matters involved would have a material effect on the Fund's investment in
the loaned securities. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time 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 these 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 commitment. 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. The securities so purchased or sold are subject
to market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. 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 its net
asset value. The Fund will also establish a segregated account on the Fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis.
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 or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Sub-Advisor determines that issuance of the security is probable. At that
time, the Fund will record the transaction
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and, in determining its net asset value, will reflect the value of the security
daily. At that time, the Fund will also establish a segregated account on the
Fund's books in which it will maintain cash or cash equivalents or other liquid
portfolio securities equal in value to recognized commitments for such
securities.
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. An increase in the
percentage of the Fund's [total or net] 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 sale.
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 (the "SECURITIES ACT"), or
which are otherwise not readily marketable. (Securities eligible for resale
pursuant to Rule 144A under 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 these
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 the securities for resale and the risk of
substantial delays in effecting the registration.
Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Sub-Advisor, pursuant to procedures
adopted by the Directors, 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," the security will not be included within the category
"illiquid securities," which under current policy may not exceed 10% of the
Fund's total assets. However, investing in Rule 144A securities could have the
effect of increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional buyers
interested in purchasing such securities.
WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and
subscription rights attached to other securities. A warrant is, in effect, an
option to purchase equity securities at a specific price, generally valid for a
specific period of time, and has no voting rights, pays no dividends and has no
rights with respect to the corporation issuing it.
A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the common
stock. A subscription right is freely transferable.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the Sub-Advisor and the services provided to shareholders
by the Distributor and the Transfer Agent depend on the smooth functioning of
their computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing 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
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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.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act of
1940 (the "INVESTMENT COMPANY ACT"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the Fund.
The Investment Company Act defines a majority 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. For purposes of the following
restrictions: (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 will:
1. Seek to maximize the capital appreciation of its investments.
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. 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 Investment Company 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).
5. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than 3 years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
6. Invest more than 10% of its total assets in illiquid securities and
repurchase agreements which have a maturity of longer than seven days.
7. 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.
8. 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 these programs.
9. Purchase or sell commodities or commodities contracts, except that the
Fund may purchase or sell (write) interest rate, currency and stock and bond
index futures contracts and related options thereon.
10. Borrow money (except insofar as the Fund may be deemed to have borrowed
by entrance into a reverse repurchase agreement up to an amount not exceeding
10% of the Fund's total assets), except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% of its total assets
(not including the amount borrowed).
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11. 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.
12. Issue senior securities as defined in the Investment Company 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; or (e) lending portfolio securities.
13. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations; (b) by investment in repurchase or
reverse repurchase agreements; or (c) by lending its portfolio securities.
14. Make short sales of securities.
15. Purchase securities on margin, except for short-term loans as are
necessary for the clearance of portfolio securities. 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.
16. Engage in the underwriting of securities, except insofar as the Fund may
be deemed an underwriter under the Securities Act in disposing of a portfolio
security.
17. Invest for the purpose of exercising control or management of any other
issuer.
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 Investment Company 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.
III. MANAGEMENT OF THE FUND
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A. BOARD OF DIRECTORS
The Board of Directors of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Directors review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Directors
also conduct their review to ensure that administrative services are provided to
the Fund in a satisfactory manner.
Under state law, the duties of the Directors are generally characterized as
a duty of loyalty and a duty of care. The duty of loyalty requires a Director to
exercise his or her powers in the interest of the Fund and not the Director's
own interest or the interest of another person or organization. A Director
satisfies his or her duty of care by acting in good faith with the care of an
ordinarily prudent person and in a manner the Director reasonably believes to be
in the best interest of the Fund and its shareholders.
B. MANAGEMENT INFORMATION
DIRECTORS AND OFFICERS. The Board of the Fund consists of nine (9)
Directors. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Seven Directors (77% of the total number)
have no affiliation or business connection with the Investment Manager or any of
its affiliated persons and do not own any stock or other securities issued by
the
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Investment Manager's parent company, MSDW. These are the "non-interested" or
"independent" Directors. The other two Directors (the "MANAGEMENT DIRECTORS")
are affiliated with the Investment Manager. All of the Independent Trustees also
serve as Independent Trustees of "DISCOVER BROKERAGE INDEX SERIES," a mutual
fund for which the Investment Manager is the investment advisor. Four of the
seven Independent Directors are also Independent Trustees of certain other
mutual funds, referred to as the "TCW/DW FUNDS," for which MSDW Services Company
is the manager and TCW Funds Management, Inc. is the investment advisor.
The Directors and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 84 Morgan Stanley Dean Witter Funds, the 11
TCW/DW Funds and Discover Brokerage Index Series, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (58) ................................... Vice Chairman of Kmart Corporation (since December, 1998);
Director Director or Trustee of the Morgan Stanley Dean Witter
c/o Kmart Corporation Funds; Trustee of Discover Brokerage Index Series;
3100 West Big Beaver Road formerly Chairman and Chief Executive Officer of Levitz
Troy, Michigan Furniture Corporation (November, 1995-November, 1998) and
President and Chief Executive Officer of Hills Department
Stores (May, 1991-July, 1995); formerly variously
Chairman, Chief Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears Merchandise
Group of Sears, Roebuck and Co.; Director of Eaglemark
Financial Services, Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (65) ......................... Chairman, Director or Trustee, President and Chief
Chairman of the Board, President, Executive Officer of the Morgan Stanley Dean Witter Funds;
Chief Executive Officer and Director Chairman, Chief Executive Officer and Trustee of the
Two World Trade Center TCW/DW Funds; Trustee of Discover Brokerage Index Series;
New York, New York formerly Chairman, Chief Executive Officer and Director of
the Investment Manager, the Distributor and MSDW Services
Company; Executive Vice President and Director of Dean
Witter Reynolds; Chairman and Director of the Transfer
Agent; formerly Director and/or officer of various MSDW
subsidiaries (until June, 1998).
Edwin J. Garn (66) ................................... Director or Trustee of the Morgan Stanley Dean Witter
Director Funds; Trustee of Discover Brokerage Index Series;
c/o Huntsman Corporation formerly United States Senator (R-Utah)(1974-1992) and
500 Huntsman Way Chairman, Senate Banking Committee (1980-1986); formerly
Salt Lake City, Utah Mayor of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery (April 12-19, 1985);
Vice Chairman, Huntsman Corporation; 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>
15
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
John R. Haire (74) ................................... Chairman of the Audit Committee and Director or Trustee of
Director the Morgan Stanley Dean Witter Funds; Chairman of the
Two World Trade Center Audit Committee and Trustee of the TCW/DW Funds; Chairman
New York, New York of the Audit Committee and Trustee of Discover Brokerage
Index Series; 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 (65) ................................. Retired; Director or Trustee of the Morgan Stanley Dean
Director Witter Funds; Trustee of Discover Brokerage Index Series;
c/o Gordon Altman Butowsky Director of The PMI Group, Inc. (private mortgage
Weitzen Shalov & Wein insurance); Trustee and Vice Chairman of The Field Museum
Counsel to the Independent Directors of Natural History; formerly associated with the Allstate
114 West 47th Street Companies (1966-1994), most recently as Chairman of The
New York, New York Allstate Corporation (March, 1993-December, 1994) 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 (50) ........................... Senior Partner, Johnson Smick International, Inc., a
Director consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Director or Trustee of the Morgan Stanley Dean Witter
Washington, D.C. Funds; Trustee of the TCW/ DW Funds; Trustee of Discover
Brokerage Index Series; Director of NASDAQ (since June,
1995); Director of Greenwich Capital Markets, Inc.
(broker-dealer) and NVR, Inc. (home construction); Chair-
man 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.
Michael E. Nugent (62) ............................... General Partner, Triumph Capital, L.P., a private invest-
Director ment partnership; Director or Trustee of the Morgan
c/o Triumph Capital, L.P. Stanley Dean Witter Funds; Trustee of the TCW/DW Funds;
237 Park Avenue Trustee of Discover Brokerage Index Series; formerly Vice
New York, New York President, Bankers Trust Company and BT Capital
Corporation (1984-1988); director of various business
organizations.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Philip J. Purcell* (55) .............................. Chairman of the Board of Directors and Chief Executive
Director Officer of MSDW, Dean Witter Reynolds and Novus Credit
1585 Broadway Services Inc.; Director of the Distributor; Director or
New York, New York Trustee of the Morgan Stanley Dean Witter Funds; Trustee
of Discover Brokerage Index Series; Director and/or
officer of various MSDW subsidiaries.
John L. Schroeder (68) ............................... Retired; Director or Trustee of the Morgan Stanley Dean
Director Witter Funds; Trustee of the TCW/DW Funds; Trustee of
c/o Gordon Altman Butowsky Discover Brokerage Index Series; Director of Citizens
Weitzen Shalov & Wein Utilities Company; formerly Executive Vice President and
Counsel to the Independent Directors Chief Investment Officer of the Home Insurance Company
114 West 47th Street (August, 1991-September, 1995).
New York, New York
Barry Fink (44) ...................................... Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) and Director
Secretary and General Counsel (since July, 1998) of the Investment Manager and MSDW
Two World Trade Center Services Company; Senior Vice President (since March,
New York, New York 1997) and Assistant Secretary and Assistant General
Counsel (since February, 1997) of the Distributor;
Assistant Secretary of Dean Witter Reynolds (since August,
1996); Vice President, Secretary and General Counsel of
the Morgan Stanley Dean Witter Funds and the TCW/DW Funds
(since February, 1997); Vice President, Secretary and
General Counsel of Discover Brokerage Index Series;
previously First Vice President (June, 1993-February,
1997), Vice President and Assistant Secretary and
Assistant General Counsel of the Investment Manager and
MSDW Services Company and Assistant Secretary of the Mor-
gan Stanley Dean Witter Funds and the TCW/DW Funds.
Thomas F. Caloia (52) ................................ First Vice President and Assistant Treasurer of the
Treasurer Investment Manager and MSDW Services Company; Treasurer of
Two World Trade Center the Morgan Stanley Dean Witter Funds, the TCW/DW Funds and
New York, New York Discover Brokerage Index Series.
</TABLE>
In addition, MITCHELL M. MERIN, President and Chief Operating Officer of
Asset Management of MSDW, President, Chief Executive Officer and Director of the
Investment Manager and MSDW Services Company, Chairman and Director of the
Distributor and the Transfer Agent, Executive Vice President and Director of
Dean Witter Reynolds, and Director of various MSDW subsidiaries, RONALD E.
ROBISON, Executive Vice President, Chief Administrative Officer and Director of
the Investment Manager and MSDW Services Company, ROBERT S. GIAMBRONE, Senior
Vice President of the Investment Manager, MSDW Services Company, the Distributor
and the Transfer Agent and Director of the Transfer Agent, and JOSEPH J.
MCALINDEN, Executive Vice President and Chief Investment Officer of the
Investment Manager and Director of the Transfer Agent, and MARK BAVOSO, KENTON
J. HINCHLIFFE, IRA N. ROSS and PAUL D. VANCE, Senior Vice Presidents of the
Investment Manager, are Vice Presidents of the Fund.
- ------------------------
* Denotes Directors who are "interested persons" of the Fund, as defined in
the Investment Company Act.
17
<PAGE>
In addition, FRANK BRUTTOMESSO, MARILYN K. CRANNEY, LOU ANNE D. MCINNIS,
CARSTEN OTTO and RUTH ROSSI, First Vice Presidents and Assistant General
Counsels of the Investment Manager and MSDW Services Company, and TODD LEBO,
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT DIRECTORS AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Directors. The Morgan
Stanley Dean Witter Funds seek as Independent Directors individuals of
distinction and experience in business and finance, government service or
academia; these are people whose advice and counsel are in demand by others and
for whom there is often competition. To accept a position on the Funds' Boards,
such individuals may reject other attractive assignments because the Funds make
substantial demands on their time. Indeed, by serving on the Funds' Boards,
certain Directors who would otherwise be qualified and in demand to serve on
bank boards would be prohibited by law from doing so. All of the Independent
Directors serve as members of the Audit Committee. Three of them also serve as
members of the Derivatives Committee. In addition, three of the Directors,
including two Independent Directors, serve as members of the Insurance
Committee.
The Independent Directors are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Directors are required to select and nominate individuals to fill
any Independent Director vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Morgan Stanley Dean Witter Funds have a Rule
12b-1 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 the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
The Board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Fund.
Finally, the Board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS FOR ALL
MORGAN STANLEY DEAN WITTER FUNDS. The Independent Directors and the Funds'
management believe that having the same Independent Directors for each of the
Morgan Stanley Dean Witter Funds avoids the duplication of effort that would
arise from having different groups of individuals serving as Independent
Directors for each of the Funds or even of sub-groups of Funds. They believe
that having the same individuals serve as Independent Directors of all the Funds
tends to increase their knowledge and expertise regarding matters which affect
the Fund complex generally and enhances their ability to negotiate on behalf of
each Fund with the Fund's service providers. This arrangement also precludes the
possibility of separate groups of Independent Directors arriving at conflicting
decisions regarding operations and management of the Funds and avoids the cost
and confusion that would likely ensue. Finally, having the same Independent
Directors serve on all Fund Boards enhances the ability of each Fund to obtain,
at modest cost to each separate Fund, the services of Independent Directors, of
the caliber, experience and business acumen of the individuals who serve as
Independent Directors of the Morgan Stanley Dean Witter Funds.
18
<PAGE>
C. COMPENSATION
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
expenses reimbursed 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 Trustees for which services the
Fund paid him an additional annual fee of $1,200. The following table
illustrates the compensation that the Fund paid to its Independent Directors for
the fiscal year ended October 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- -------------------------------------------------------------- ---------------
Michael Bozic................................................. $1,450
<S> <C>
Edwin J. Garn................................................. 1,600
John R. Haire................................................. 2,850
Wayne E. Hedien............................................... 1,550
Dr. Manuel H. Johnson......................................... 1,550
Michael E. Nugent............................................. 1,600
John L. Schroeder............................................. 1,600
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Directors for the calendar year ended December 31, 1998 for services
to the 85 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 11 TCW/DW Funds that were in operation at
December 31, 1998. 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. No compensation was paid
to the Fund's Independent Trustees by Discover Brokerage Index Series for the
calendar year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF FOR SERVICE
INDEPENDENT AS CHAIRMAN TOTAL CASH
FOR SERVICE AS DIRECTORS/ OF COMPENSATION
DIRECTOR OR TRUSTEES AND INDEPENDENT FOR SERVICES
TRUSTEE AND FOR SERVICE AS AUDIT TRUSTEES AND TO 85 MORGAN
COMMITTEE MEMBER TRUSTEE AND COMMITTEES OF AUDIT STANLEY DEAN
OF 85 MORGAN COMMITTEE MEMBER 85 MORGAN COMMITTEES OF WITTER FUNDS
NAME OF STANLEY DEAN OF 11 TCW/DW STANLEY DEAN 11 TCW/DW AND 11 TCW/
INDEPENDENT DIRECTOR WITTER FUNDS FUNDS WITTER FUNDS FUNDS DW FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $120,150 -- -- -- $120,150
Edwin J. Garn.............. 132,450 -- -- -- 132,450
John R. Haire.............. 136,450 $66,931 $101,338 $ 14,725 319,444
Wayne E. Hedien............ 132,350 -- -- -- 132,350
Dr. Manuel H. Johnson...... 128,400 62,331 -- -- 190,731
Michael E. Nugent.......... 132,450 62,131 -- -- 194,581
John L. Schroeder.......... 132,450 64,731 -- -- 197,181
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an Independent Director
19
<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 or Trustee 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 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 60.44% after ten years of service. The foregoing percentages may
be changed by the Board.(1) "ELIGIBLE COMPENSATION" is one-fifth of the total
compensation earned by such Eligible Director for service to the Adopting Fund
in the five year period prior to the date of the Eligible Director's retirement.
Benefits under the retirement program are not secured or funded by the Adopting
Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Directors by the Fund for the fiscal year ended October 31,
1998 and by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for the
year ended October 31, 1998, and the estimated retirement benefits for the
Independent Directors, to commence upon their retirement, from the Fund as of
October 31, 1998 and from the 55 Morgan Stanley Dean Witter Funds as of December
31, 1998.
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 UPON
ESTIMATED 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 60.44% $ 412 $ 22,377 $1,029 $ 52,250
Edwin J. Garn...................... 10 60.44 709 35,225 1,029 52,250
John R. Haire...................... 10 60.44 224 (3) (12,211)(3) 2,418 134,705
Wayne E. Hedien.................... 9 51.37 654 41,979 875 44,413
Dr. Manuel H. Johnson.............. 10 60.44 276 14,047 1,029 52,250
Michael E. Nugent.................. 10 60.44 526 25,336 1,029 52,250
John L. Schroeder.................. 8 50.37 828 45,117 861 44,343
</TABLE>
- ------------------------
1 An Eligible Director may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, 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 2 above.
3 This number reflects the effect of the extension of Mr. Haire's term as
Director or Trusttee until May 1, 1999.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
The following persons owned 5% or more of the outstanding Class A shares of
the Fund on February 3, 1999: The Lady Kathleen Loewen Trust, John Loewen,
Trustee, 28, Meadowglade Crescent, Willowdale, Ontario, MJ7 -- 25.612%, MSDWT
FSB, Trustee, Prebon Yamane USA Inc., 401(K) Profit Sharing Plan, P.O. Box 957,
Jersey City, NJ 07303-0957 -- 17.821%, MSDW Trust, Trustee, Cygnus Inc., P.O.
Box 957, Jersey City, NJ 07303-0957 -- 7.953%. The following persons owned 5% or
more of the outstanding shares of Class C of the Fund on February 3, 1999: R,
R&M LLC., Rita R. Mahmood, GP, 500 RubyDrive, Mesquite NV 89027-2921 -- 5.029%.
The following persons owned 5% or more of the
20
<PAGE>
outstanding shares of Class D of the fund on February 3, 1999: Hare & CO., c/o
The Bank of New York, P.O. Box 11203, New York, New York 10286-1203 -- 50.748%,
Paul M. Prusky, 1 Belmont Ave, Suite 519, Bala Cynwyd, PA 19004-1608 -- 42.811%.
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate
number of shares of common stock of the Fund owned by the Fund's officers and
Directors as a group was less than 1% of the Fund's shares of common stock
outstanding.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER AND SUB-ADVISOR
The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New York,
New York 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a
Delaware corporation. MSDW is 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 Sub-Advisor is Morgan Stanley Dean Witter Investment Management Inc., a
subsidiary of MSDW and an affiliate of the Investment Manager, whose address is
1221 Avenue of the Americas, New York, New York 10020. The Sub-Advisor was
retained to provide sub-advisory services to the Fund effective November 1,
1998.
Pursuant to an Investment Management Agreement (the "MANAGEMENT AGREEMENT")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services, manage its business affairs and supervise the
investment of the Fund's assets. The Fund pays the Investment Manager monthly
compensation calculated daily by applying the following annual rates to the net
assets of the Fund determined as of the close of each business day: 0.95% to the
portion of daily net assets not exceeding $1 billion; 0.90% to the portion of
daily net assets exceeding $1 billion but not exceeding $2 billion; and 0.85% to
the portion of daily net assets exceeding $2 billion. The management fee is
allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. For the fiscal years ended October 31, 1996, 1997
and 1998, the Investment Manager accrued total compensation under the Management
Agreement in the amounts of $16,242,482, $13,946,846 and $5,187,815,
respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
Under a Sub-Advisory Agreement (the "SUB-ADVISORY AGREEMENT") between the
Sub-Advisor and the Investment Manager, the Sub-Advisor provides the Fund with
investment advice and portfolio management relating to the Fund's investments in
securities 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 Investment Manager pays the Sub-Advisor monthly
compensation equal to 40% of the Investment Manager's fee.
Prior to November, 1998, the Fund was sub-advised by the Former Sub-Advisor,
Morgan Grenfell Investment Services Limited, 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 Directors recommended that the
current Sub-Advisory Agreement be submitted to shareholders of the Fund for
approval. Fund shareholders approved the Sub-Advisory Agreement on August 18,
1998 and the Sub-Advisory Agreement became effective on November 1, 1998. Under
the Prior Sub-Advisory Agreement, the Investment Manager paid the Sub-Advisor
monthly compensation equal to 40% of the Investment Manager's fee. For the
fiscal years ended October 31, 1996, 1997 and 1998, the Investment Manager
accrued to the Former Sub-Advisor total compensation under the Prior
Sub-Advisory Agreement of $6,496,993, $5,578,738 and $2,075,126, respectively.
21
<PAGE>
Concurrent with effectiveness of the Sub-Advisory Agreement, 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 (a) 1.00% of the portion of daily
net assets not exceeding $1 billion; (b) 0.95% of the portion of daily net
assets exceeding $1 billion but not exceeding $2 billion; and (c) 0.90% of the
portion of daily net assets exceeding $2 billion; to the rates set forth above.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors.
The Distributor also pays certain expenses in connection with the distribution
of the Fund's shares, including the costs of preparing, printing and
distributing advertising or promotional materials, and the costs of printing and
distributing prospectuses and supplements thereto used in connection with the
offering and sale of the Fund's shares. The Fund bears the costs of initial
typesetting, printing and distribution of prospectuses and supplements thereto
to shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws 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. 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.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND FUND EXPENSES PAID BY THIRD
PARTIES
The Investment Manager supervises the investment of the Fund's assets. The
Investment Manager obtains and evaluates the 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, the office space, facilities, equipment, clerical help, bookkeeping and
certain legal services as the Fund may reasonably require in the conduct of its
business, including the preparation of prospectuses, 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.
Pursuant to the Sub-Advisory Agreement, the Sub-Advisor has been retained,
subject to the overall supervision of the Investment Manager, 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,
22
<PAGE>
Australia and New Zealand. On occasion, the Sub-Advisor also provides the
Investment Manager with investment advice concerning potential investment
opportunities for the Fund which are available outside of Asia, Australia and
New Zealand.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Distributor, will be paid by the Fund. These
expenses will be allocated among the four Classes of shares pro rata based on
the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing 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 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 any corporate affiliate of the Investment Manager; 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 legal counsel, including counsel to the Directors who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager); fees and expenses of the Fund's 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 will remain in effect from year to year, provided
continuance of the Management Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Investment Company Act, of
the outstanding shares of the Fund, or by the Directors; provided that in either
event such continuance is approved annually by the vote of a majority of the
Directors who are not parties to the Management Agreement or the Sub-Advisory
Agreement or are "independent Directors," which votes must be cast in person at
a meeting called for the purpose of voting on such approval.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge 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.
E. RULE 12b-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company 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 reinvestment of dividends
or capital gains distributions), less the average daily aggregate net
23
<PAGE>
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
("FSCS") and of contingent deferred sales charges ("CDSCS") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Dean Witter
Reynolds received the proceeds of CDSCs and FSCs, for the last three fiscal
years ended October 31, in approximate amounts as provided in the table below
(the Distributor did not retain any of these amounts).
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A............................ FSCs:(4) $ 27,369 FSCs: $ 11,000 FSCs: N/A(5)
CDSCs: $ 1,390 CDSCs: $ 0 CDSCs: N/A(5)
Class B............................ CDSCs: $ 1,609,376 CDSCs: $ 4,821,220 CDSCs: $ 3,770,779
Class C............................ CDSCs: $ 6,017 CDSCs: $ 650 CDSCs: N/A(5)
</TABLE>
- ------------------------------
4 FSCs apply to Class A only.
5 This Class commenced operations on July 28, 1997.
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' average daily net assets are
currently each characterized as a "service fee" under the Rules 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 such is
defined by the Rules of the Association.
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 under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended October
31, 1998, of $5,147,778. This amount is equal to 1.00% 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 year ended October 31, 1998, Class A and Class C shares
of the Fund accrued payments under the Plan amounting to $4,701 and $12,016,
respectively, which amounts are equal to 0.25% and 1.00% of the average daily
net assets of Class A and Class C, respectively, for the fiscal year.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.
With respect to Class A shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored employee benefit
plans, whether or not qualified under the Internal Revenue Code, for which the
Transfer Agent serves as Trustee or Dean Witter Reynolds Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("MSDW ELIGIBLE PLANS"), the Investment Manager compensates Financial
Advisors by paying them, from its own funds, a gross sales credit of 1.0% of the
amount sold.
24
<PAGE>
With respect to Class B shares, Dean Witter Reynolds 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 by MSDW Eligible Plans, Dean
Witter Reynolds compensates its Financial Advisors by paying them, from its own
funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, Dean Witter Reynolds 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 up to 1.0% of the current
value of the respective accounts for which they are the Financial Advisors of
record.
With respect to Class D shares other than shares held by participants in the
Investment Manager's mutual fund asset allocation program, the Investment
Manager compensates Dean Witter Reynolds'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 Dean Witter
Reynolds's Financial Advisors by paying them, from its own funds, an annual
residual commission, currently 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 Investment Manager's mutual fund asset
allocation program).
The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds's
Fund-associated distribution-related expenses, including sales compensation, and
overhead and other branch office distribution-related expenses including (a) the
expenses of operating Dean Witter Reynolds'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 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 Financial Advisors and other authorized financial
representatives, such amounts shall be determined at the beginning of each
calendar quarter by the Directors, including, a majority of the Independent
Directors. Expenses representing
25
<PAGE>
the service fee (for Class A) or a gross sales credit or a residual to Financial
Advisors and other authorized financial representatives (for Class C) may be
reimbursed without prior determination. In the event that the Distributor
proposes that monies shall be reimbursed for other than such expenses, then in
making quarterly determinations of the amounts that may be reimbursed by the
Fund, the Distributor will provide and the Directors will review a quarterly
budget of projected distribution expenses to be incurred on behalf of the Fund,
together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Directors will determine which particular expenses,
and the portions thereof, that may be borne by the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended October 31, 1998 to the Distributor. The
Distributor and Dean Witter Reynolds estimate that they have spent, pursuant to
the Plan, $122,985,027 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)
3.24% ($3,982,476)-- advertising and promotional expenses; (ii) 0.33%
($402,324)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 96.43% ($118,600,227)--other expenses, including the
gross sales credit and the carrying charge, of which 9.10% ($10,787,093)
represents carrying charges, 37.18% ($44,095,572) represents commission credits
to Dean Witter Reynolds branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other selected broker-dealer
representatives, and 53.72% ($63,717,562) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and Class C
for distribution during the fiscal year ended October 31, 1998 were for expenses
which relate to compensation of sales personnel and associated overhead
expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of 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 in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by Dean
Witter Reynolds 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, totaled $39,579,103 as of October 31, 1998 (the end of
the Fund's fiscal year), which was equal to 9.68% 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 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 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 Trustees 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 authorized broker-dealer representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed expenses representing a gross sales commission credited to
Morgan Stanley Dean Witter Financial Advisors and other authorized broker-dealer
representatives at the time of sale totaled $11,148 in the case of Class C at
December 31, 1997 (the end of the calendar year), 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
26
<PAGE>
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.
No interested person of the Fund nor any Independent Director has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their 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.
On an annual basis, the Directors, including a majority of the Independent
Directors, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Directors requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Directors considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan, including that: (a) the Plan is essential in order to give Fund
investors a choice of alternatives for payment of distribution and service
charges and to enable the Fund to continue to grow and avoid a pattern of net
redemptions which, in turn, are essential for effective investment management;
and (b) without the compensation to individual brokers and the reimbursement of
distribution and account maintenance expenses of Dean Witter Reynolds's branch
offices made possible by the 12b-1 fees, Dean Witter Reynolds could not
establish and maintain an effective system for distribution, servicing of Fund
shareholders and maintenance of shareholder accounts; and (3) what services had
been provided and were continuing to be provided under the Plan to the Fund and
its shareholders. Based upon their review, the Directors, including each of the
Independent 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 by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to 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 Directors or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
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.
F. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for the Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans. The principal business address of the Transfer Agent is Harborside
Financial Center, Plaza Two, Jersey City, New Jersey 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets. The Custodian 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. These balances
may, at times, be substantial.
27
<PAGE>
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Directors, the Investment Manager
and the Sub-Advisor are responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
secu-rities 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. Options and futures transactions will
usually be effected through a broker and a commission will be charged. On
occasion, the Fund may also purchase certain money market instruments directly
from an issuer, in which case no commissions or discounts are paid.
For the fiscal years ended October 31, 1996, 1997 and 1998, the Fund paid a
total of $8,295,697, $6,754,100 and $2,989,529, respectively, in brokerage
commissions.
B. COMMISSIONS
Pursuant to an order of the SEC, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. The Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will be
effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.
During the fiscal years ended October 31, 1996, 1997 and 1998, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through Dean Witter Reynolds, Morgan Stanley & Co. and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect any
portfolio transactions on an exchange 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, including the Independent Directors, have adopted procedures which
are reasonably designed to provide that any commissions, fees or other
remuneration paid to an
28
<PAGE>
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 fiscal years ended October 31, 1996, 1997 and 1998, the Fund did
not pay any brokerage commissions to Dean Witter Reynolds.
During the period June 1 through October 31, 1997 and during the fiscal year
ended October 31, 1998, the Fund paid a total of $119,132 and $13,320,
respectively, in brokerage commissions to Morgan Stanley & Co., which
broker-dealer became an affiliate of the Investment Manager and of Sub-Advisor
on May 31, 1997 upon consummation of the merger of Dean Witter, Discover & Co.
with Morgan Stanley Group Inc. During the fiscal year ended October 31, 1998,
the brokerage commissions paid to Morgan Stanley & Co. represented approximately
0.45% of the total brokerage commissions paid by the Fund for this period and
were paid on account of transactions having an aggregate dollar value equal to
approximately 0.51% of the aggregate dollar value of all portfolio transactions
of the Fund during the year for which commissions were paid. The Fund paid
brokerage commissions to affiliates of the Former Sub-Advisor in the amounts of
$335,464 and $177,930 for the fiscal years ended October 31, 1996 and 1997,
respectively. During the fiscal year ended October 31, 1998, the Fund paid
affiliated broker-dealers of the Former Sub-Advisor for transactions as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
BROKERAGE EXECUTED TRADES
COMMISSIONS PAID PERCENTAGE OF ON WHICH
TO AFFILIATED AGGREGATE BROKERAGE
BROKER BROKERAGE COMMISSIONS
OF SUB-ADVISOR FOR COMMISSIONS FOR WERE PAID FOR
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR
NAME OF BROKER 10/31/98 10/31/98 ENDED 10/31/98
- ------------------------------------------------------ ------------------- ------------------- -----------------
<S> <C> <C> <C>
Morgan Grenfell Asia & Partners Securities Ltd. ...... $ 6,691 0.22% 0.24%
</TABLE>
C. BROKERAGE SELECTION
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. These determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
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/or 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 the prices and executions are obtainable
from more than one broker or dealer, it 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 the Sub-Advisor.
The 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.
29
<PAGE>
The information and services received by the Investment Manager and/or the
Sub-Advisor from brokers and dealers may be of benefit to the Investment Manager
and/or the Sub-Advisor in the management of accounts of some of its other
clients and may not in all cases benefit the Fund directly.
The Investment Manager and the Sub-Advisor currently serve as advisors to a
number of clients, including other investment companies, and may in the future
act as investment manager or advisor 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.
D. DIRECTED BROKERAGE
During the fiscal year ended October 31, 1998, the Fund did not pay any
brokerage commissions because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended October 31, 1998, the Fund has not purchased
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year.
VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
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 Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional Classes of shares
within any series. The Trustees have not presently authorized any such
additional series or Classes of shares other than as set forth in the
PROSPECTUS.
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.
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 Investment
Company Act.
All of the Directors have been elected by the shareholders of the Fund, most
recently at a Special Meeting of Shareholders held on May 21, 1997. The
Directors themselves have the power to alter the number and the terms of office
of the Directors (as provided for in the Articles of Incorporation), and they
30
<PAGE>
may at any time lengthen or shorten their own terms or make their terms of
unlimited duration and appoint their own successors, provided that always at
least a majority of the Directors has been elected by the shareholders of the
Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's PROSPECTUS.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean Witter Funds and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized 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 authorized broker-dealer.
The Distributor and any authorized broker-dealer have 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 Morgan
Stanley Dean Witter Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange privilege.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of Fund
shares to a new registration, the 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.
B. OFFERING PRICE
The Fund's Class B, Class C and Class D shares are offered at net asset
value and the Class A shares are offered at net asset value per share plus any
applicable FSC which is distributed among the Fund's Distributor, Dean Witter
Reynolds and other authorized dealers as described in Section "V. Investment
Management and Other Services--E. Rule 12b-1 Plan."
The price of Fund shares, called "NET ASSET VALUE," is based on the value of
the Fund's portfolio securities. Net asset value per share of each Class is
calculated by dividing the value of the portion of the Fund's securities and
other assets attributable to that Class, less the liabilities attributable to
that Class, by the number of shares of that Class outstanding. The assets of
each Class of shares are invested in a single portfolio. The net asset value of
each Class, however, will differ because the Classes have different ongoing
fees.
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
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 a security is traded on more than
one exchange, the security is 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 latest bid price. When market quotations are not
readily available, including circumstances under which it is determined by the
Investment Manager or the 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
31
<PAGE>
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.
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' market value, in which case
these securities will be valued at their fair value as determined by the
Directors.
Certain of the Fund's portfolio securities 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.
Listed options on debt securities are valued at the latest sale price on the
exchange on which they are listed unless no sales of such options have taken
place that day, in which case they will be valued at the mean between their
latest bid and asked prices. Unlisted options on debt securities and all options
on equity securities are valued at the mean between their latest bid and asked
prices. Futures are valued at the latest sale price on the commodities exchange
on which they trade unless the Directors determine such price does not reflect
their market value, in which case they will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Directors.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events which may affect the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the New York Stock Exchange and will therefore not be reflected in the
computation of the Fund's net asset value. If events that may affect the value
of such securities occur during such period, then these securities may be valued
at their fair value as determined in good faith under procedures established by
and under the supervision of the Directors.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. Tax issues relating to the Fund
are not generally a consideration for shareholders such as tax exempt entities
and tax-advantaged retirement vehicles such as an IRA or 401(k) plan.
Shareholders are urged to consult their own tax professionals regarding specific
questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. 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, to the extent that it distributes
such income and capital gains to its shareholders.
The Fund generally intends to distribute sufficient income and gains so that
the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.
32
<PAGE>
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have a tax holding period of more than one
year. Gains or losses on the sale of securities with a tax holding period of one
year or less will be short-term gains or losses.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions, various
tax rules may accelerate or defer recognition of certain gains and losses,
change the character of certain gains or losses, or alter the holding period of
other investments held by the Fund. The application of these rules would
therefore also affect the amount, timing and character of distributions made by
the Fund.
Under certain tax rules, the Fund may be required to accrue a portion of any
discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year. To
the extent that the Fund invests in such securities, it would be required to pay
out such accrued discount as an income distribution in each year in order to
avoid taxation at the Fund level. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Investment Manager will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive a larger
capital gain distribution, if any, than they would in the absence of such
transactions.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have to
pay federal income taxes, and any state and/or local income taxes, on the
dividends and other 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.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. The Taxpayer Relief Act of 1997 reduced the
maximum tax on long-term capital gains applicable to individuals from 28% to
20%.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of investment income and short term capital
gains.
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, and the portion taxable as
long-term capital gains.
PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. 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, such dividends and capital gains distributions 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 long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing Fund shares immediately prior to a
distribution record date.
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one
33
<PAGE>
year or less will, for tax purposes, generally result in short-term gains or
losses and those held for more than one year generally result in long-term gain
or loss. 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 with
respect to such shares during the six-month period.
Gain or loss on the sale or redemption of shares in the Fund is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.
Exchanges of Fund shares for shares of another fund, including shares of
other Morgan Stanley Dean Witter Funds, are also subject to similar tax
treatment. Such an exchange is treated for tax purposes as a sale of the
original shares in the first fund, followed by the purchase of shares in the
second fund.
If a shareholder realizes a loss on the redemption or exchange of a fund's
shares and reinvests in that fund's shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain obligations
under the Distribution Agreement concerning the distribution of the shares.
These obligations and the compensation the Distributor receives are described
above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
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 operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any contingent deferred sales charge ("CDSC") at
the end of the one, five, ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment (which in the case of Class A shares is reduced by the Class A
initial sales charge), taking a root of the quotient (where the root is
equivalent to the number of years in the period) and subtracting 1 from the
result. The average annual total returns for Class B for the one year, five year
and the life of the Fund periods ended October 31, 1998 were -26.66%, -11.45%
and 1.41%, respectively. The average annual total returns of Class A for the
fiscal year ended October 31, 1998 and for the period July 28, 1997 (inception
of the Class) through October 31, 1998 were -26.43% and -43.43%, respectively.
The average annual total returns of Class C for the fiscal year ended October
31, 1998 and for the period July 28, 1997 (inception of the Class) through
October 31, 1998 were -23.44% and -41.27%, respectively. The average annual
total returns of Class D for the fiscal year ended October 31, 1998 and for the
period July 28, 1997 (inception of the Class) through October 31, 1998 were
- -22.14% and -48.36%, respectively.
In addition, 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. These 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
34
<PAGE>
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, five year and the life of the Fund periods ended October 31, 1998,
were -22.87%, -11.14% and 1.41%, respectively. Based on this calculation, the
average annual total returns of Class A for the fiscal year ended October 31,
1998 and for the period July 28, 1997 through October 31, 1998 were -22.35% and
- -40.96%, respectively, the average annual total returns of Class C for the
fiscal year ended October 31, 1998 and for the period July 28, 1997 through
October 31, 1998 were -22.68% and -41.27%, respectively, and the average annual
total returns of Class D for the fiscal year ended October 31, 1998 and for the
period July 28, 1997 through October 31, 1998 were -22.14% and -40.83%,
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 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, five year and the life of the Fund periods
ended October 31, 1998, were -22.87%, -44.58% and 11.73%, respectively. Based on
the foregoing calculation, the total returns of Class A for the fiscal year
ended October 31, 1998 and for the period July 28, 1997 through October 31, 1998
were -22.35% and -48.50%, respectively, the total returns of Class C for the
fiscal year ended October 31, 1998 and for the period July 28, 1997 through
October 31, 1998 were -22.68% and -48.84%, respectively, and the total returns
of Class D for the fiscal year ended October 31, 1998 and for the period July
28, 1997 through October 31, 1998 were -22.14% and -48.36%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at October 31,
1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----------------------------------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
Class A............................ 7/28/97 $ 4,880 $24,720 $49,955
Class B............................ 11/30/90 11,173 55,865 111,730
Class C............................ 7/28/97 5,116 25,580 51,160
Class D............................ 7/28/97 5,164 25,820 51,640
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
October 31, 1998 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS have been so included and
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
*****
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 SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
35
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS, BONDS, RIGHTS AND WARRANTS (93.0%)
AUSTRALIA (5.3%)
ALCOHOLIC BEVERAGES
1,125,400 Foster's Brewing Group Ltd...................................................... $ 2,759,841
------------
DIVERSIFIED MANUFACTURING
1,025,000 Pacific Dunlop Ltd.............................................................. 1,842,048
------------
FOREIGN BANKS
1,016,000 Westpac Banking Corp., Ltd...................................................... 6,168,664
------------
HEALTHCARE
408,200 Mayne Nickless Ltd.............................................................. 1,879,810
------------
OIL & GAS PRODUCTION
1,031,300 Oil Search Ltd.................................................................. 1,544,475
------------
RETAIL
470,700 Coles Myer Ltd.................................................................. 2,014,897
------------
SPECIALTY FOODS/CANDY
4,215,800 Goodman Fielder Ltd............................................................. 5,558,583
------------
TELECOMMUNICATIONS
653,120 Cable & Wireless Communications Optus Ltd. (Rights)*............................ 313,322
------------
TOTAL AUSTRALIA................................................................. 22,081,640
------------
CHINA (1.1%)
ELECTRIC UTILITIES
2,830,000 Huaneng Power International, Inc.*.............................................. 986,699
3,600,000 Zhejiang Southeast Electric Power Co., Ltd. (B Shares).......................... 756,000
------------
1,742,699
------------
MUTUAL FUNDS
100,000 Investment Co. of China* ***.................................................... 543,000
------------
OTHER METALS/MINERALS
5,750,000 Yanzhou Coal Mining Co. Ltd.*................................................... 1,128,616
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE
3,760,000 China Resources Beijing Land.................................................... $ 1,007,490
------------
TOTAL CHINA..................................................................... 4,421,805
------------
HONG KONG (31.1%)
BANKS
1,575,838 Dao Heng Bank Group Ltd......................................................... 3,286,387
1,040,000 Hang Seng Bank Ltd.............................................................. 8,997,934
------------
12,284,321
------------
BROADCASTING
959,000 Television Broadcasts Ltd....................................................... 2,551,059
------------
DIVERSIFIED ELECTRONIC PRODUCTS
340,000 VTech Holdings Ltd.............................................................. 1,275,439
------------
DIVERSIFIED MANUFACTURING
2,016,000 Johnson Electric Holdings Ltd.++................................................ 4,685,950
------------
ELECTRIC UTILITIES
2,187,000 CLP Holdings Ltd.++............................................................. 12,284,930
1,662,000 Hong Kong Electric Holdings Ltd................................................. 6,095,145
------------
18,380,075
------------
ELECTRONIC PRODUCTION EQUIPMENT
1,500,000 ASM Pacific Technology Ltd...................................................... 397,082
------------
FOOD CHAINS
2,200,000 Dairy Farm International Holdings Ltd........................................... 2,706,000
------------
MULTI-SECTOR COMPANIES
3,390,000 Hutchison Whampoa, Ltd.++....................................................... 24,295,584
2,731,000 New World Development Co., Ltd.++............................................... 6,347,882
1,389,000 Swire Pacific Ltd. (Class A).................................................... 7,371,888
------------
38,015,354
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE
2,330,000 Cheung Kong (Holdings) Ltd.++................................................... $ 15,946,539
1,218,000 Sun Hung Kai Properties Ltd.++.................................................. 8,493,285
------------
24,439,824
------------
TELECOMMUNICATIONS
2,229,000 China Telecom Ltd.*............................................................. 4,188,010
9,098,000 Hong Kong Telecommunications Ltd.++............................................. 18,210,098
------------
22,398,108
------------
TRANSPORTATION
686,000 New World Infrastructure Ltd.*.................................................. 978,861
1,381,000 Road King Infrastructure Ltd.................................................... 980,824
------------
1,959,685
------------
UTILITIES
150,000 Hong Kong & China Gas Co., Ltd. (Warrants due 09/30/99)*........................ 15,496
------------
TOTAL HONG KONG................................................................. 129,108,393
------------
INDIA (1.2%)
FOREIGN BANKS
135,000 State Bank of India (GDR)....................................................... 1,090,125
------------
OTHER METALS/MINERALS
70,000 Hindalco Industries Ltd. (GDR)*................................................. 822,500
------------
SPECIALTY CHEMICALS
70,000 Reliance Industries Ltd. (GDR).................................................. 357,000
------------
TELECOMMUNICATIONS
134,900 Mahanagar Telephone Nigam Ltd. (GDR)*........................................... 1,480,528
------------
TOBACCO
65,000 ITC Ltd. (GDR)*................................................................. 1,300,000
------------
TOTAL INDIA..................................................................... 5,050,153
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDONESIA (0.0%)
MUTUAL FUNDS
2,500,000 Bativa Investment............................................................... --
------------
PAPER
300 PT Pabrik Kertas Tjiwi Kimia (Warrants due 07/15/02)*........................... $ 22
------------
TOTAL INDONESIA................................................................. 22
------------
JAPAN (19.7%)
APPAREL
132,000 Tokyo Style Co., Ltd............................................................ 1,325,123
------------
AUTO PARTS: O.E.M.
77,000 Bridgestone Corp................................................................ 1,703,363
18,000 Yasunaga Corp................................................................... 74,515
------------
1,777,878
------------
BANKS
178,000 Bank of Tokyo-Mitsubishi Ltd.................................................... 1,659,491
142,000 Mitsui Trust & Banking Co., Ltd................................................. 186,149
114,000 Sanwa Bank Ltd.................................................................. 893,713
113,000 Sumitomo Bank Ltd............................................................... 1,115,869
119,000 Sumitomo Trust & Banking Co..................................................... 333,549
------------
4,188,771
------------
BUILDING MATERIALS
34,500 Nichiha Corp.................................................................... 243,984
250,000 Nitto Boseki Co., Ltd........................................................... 582,147
------------
826,131
------------
BUILDING PRODUCTS
202,000 Sanwa Shutter Corp.............................................................. 827,512
JPY 80,000 K Sanwa Shutter Corp. 0.90% due 03/31/06 (Conv.).................................. 586,460
------------
1,413,972
------------
CHEMICALS
13,000 C. Uyemura & Co., Ltd........................................................... 315,050
------------
CLOTHING/SHOE/ACCESSORY CHAINS
21,000 Shimamura Co., Ltd.............................................................. 836,740
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE
53,000 Hitachi Software Engineering Co., Ltd........................................... $ 1,371,281
432 NTT Data Corp................................................................... 1,836,792
------------
3,208,073
------------
CONSUMER ELECTRONICS/APPLIANCES
30,000 Hitachi Maxell Ltd.............................................................. 429,495
25,300 Sony Corp....................................................................... 1,614,661
------------
2,044,156
------------
CONTAINERS/PACKAGING
8,000 Fuji Seal, Inc.................................................................. 372,574
------------
DEPARTMENT STORES
132,000 Hankyu Department Stores, Inc................................................... 741,113
------------
DIVERSIFIED COMMERCIAL SERVICES
3,000 Bellsystem 24, Inc.............................................................. 579,560
19,200 Meitec Corp..................................................................... 372,574
24,000 Secom Co........................................................................ 1,790,427
------------
2,742,561
------------
ELECTRIC UTILITIES
58,000 Tokyo Electric Power Co......................................................... 1,475,636
------------
ELECTRICAL PRODUCTS
170,000 Fujikura Ltd.................................................................... 791,721
98,000 Sumitomo Electric Industries.................................................... 1,090,298
------------
1,882,019
------------
ELECTRONIC COMPONENTS
53,000 Ibiden Co., Ltd................................................................. 809,056
78,000 Minebea Co., Ltd................................................................ 736,611
19,500 Mitsui High-Tec, Inc............................................................ 448,189
14,600 Shinko Electric Industries Co., Ltd............................................. 516,257
13,000 TDK Corp........................................................................ 861,061
------------
3,371,174
------------
ELECTRONIC PRODUCTION EQUIPMENT
JPY 91,000 K Canon, Inc. 1.20% due 12/20/05 (Conv.).......................................... 1,201,561
JPY 45,000 K Canon, Inc. 1.30% due 12/19/08 (Conv.).......................................... 659,767
20,000 Disco Corp...................................................................... 569,211
26,200 Tokyo Seimitsu Co., Ltd......................................................... 824,752
------------
3,255,291
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENGINEERING & CONSTRUCTION
264,000 Kajima Corp..................................................................... $ 785,511
38,000 Kaneshita Construction.......................................................... 198,275
91,000 Nippon Comsys Corp.............................................................. 1,185,080
------------
2,168,866
------------
FINANCE COMPANIES
JPY 19,000 K Minebea Co., Ltd. 0.80% due 03/31/03 (Conv.).................................... 211,384
13,700 Nichiei Co., Ltd. (Kyoto)....................................................... 1,113,014
------------
1,324,398
------------
FOOD CHAINS
18,500 Circle K Japan Co., Ltd......................................................... 732,342
27,000 Ito-Yokado Co., Ltd............................................................. 1,583,441
24,000 Seven - Eleven Japan Co., Ltd................................................... 1,833,894
------------
4,149,677
------------
INDUSTRIAL MACHINERY/COMPONENTS
113,000 Daifuku Co., Ltd................................................................ 479,483
20,000 Fuji Machine Manufacturing Co., Ltd............................................. 591,634
123,000 OSG Corp........................................................................ 583,441
22,500 Shima Seiki Manufacturing, Ltd.................................................. 708,279
11,000 Union Tool Co................................................................... 406,986
------------
2,769,823
------------
INDUSTRIAL SPECIALTIES
200,000 Tomoegawa Paper Co., Ltd.*...................................................... 388,098
------------
INVESTMENT BANKERS/BROKERS/SERVICES
112,000 Nomura Securities Co., Ltd...................................................... 850,022
------------
MAJOR PHARMACEUTICALS
59,000 Sankyo Co., Ltd................................................................. 1,338,249
75,000 Takeda Chemical Industries...................................................... 2,451,488
------------
3,789,737
------------
MEAT/POULTRY/FISH
108,000 Nippon Meat Packers, Inc........................................................ 1,509,858
30,000 Yonekyu Corp.................................................................... 466,235
------------
1,976,093
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
METALS FABRICATIONS
325,000 Mitsui Mining & Smelting Co., Ltd............................................... $ 1,482,751
------------
MOTOR VEHICLES
15,000 Aucnet, Inc..................................................................... 297,542
64,000 Honda Motor Co.................................................................. 1,931,867
68,000 Toyota Motor Corp............................................................... 1,642,087
------------
3,871,496
------------
MOVIES/ENTERTAINMENT
28,200 Sony Music Entertainment Inc.................................................... 987,426
------------
NATURAL GAS DISTRIBUTION
369,000 Tokyo Gas Co., Ltd.............................................................. 951,539
------------
OFFICE EQUIPMENT/SUPPLIES
134,000 Ricoh Co., Ltd.................................................................. 1,138,335
------------
OTHER SPECIALTY STORES
6,000 Otsuka Kagu Ltd................................................................. 331,177
------------
PHOTOGRAPHIC PRODUCTS
50,000 Fuji Photo Film Co.............................................................. 1,841,311
------------
PRECISION INSTRUMENTS
10,700 Keyence Corp.................................................................... 1,077,844
------------
PROPERTY - CASUALTY INSURANCE
181,000 Tokio Marine & Fire Insurance Co................................................ 2,068,348
------------
RAILROADS
220,000 Tokyu Corp...................................................................... 554,032
------------
REAL ESTATE
34,700 Chubu Sekiwa Real Estate, Ltd................................................... 182,254
89,000 Mitsubishi Estate Co., Ltd...................................................... 811,324
131,000 Mitsui Fudosan Co., Ltd......................................................... 874,463
------------
1,868,041
------------
RECREATIONAL PRODUCTS/TOYS
13,000 Nintendo Co., Ltd............................................................... 1,105,476
------------
RENTAL/LEASING COMPANIES
16,500 Orix Corp....................................................................... 1,188,228
------------
SEMICONDUCTORS
15,000 Rohm Co., Ltd................................................................... 1,332,471
------------
SERVICES TO THE HEALTH INDUSTRY
19,000 Nichii Gakkan Co................................................................ 688,228
------------
SOFT DRINKS
19,000 Itoen Ltd....................................................................... 794,739
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPECIALTY CHEMICALS
152,000 Asahi Chemical Industry Co., Ltd................................................ $ 646,279
513,000 Mitsubishi Chemical Corp........................................................ 929,107
441,000 Mitsubishi Rayon Co., Ltd....................................................... 1,182,846
311,000 Nippon Zeon Co., Ltd............................................................ 879,759
87,000 Sanyo Chemical Industries, Ltd.................................................. 739,069
76,000 Shin-Etsu Chemical Co........................................................... 1,520,655
80,000 Sumitomo Bakelite Co., Ltd...................................................... 538,163
20,000 Tokyo Ohka Kogyo Co., Ltd....................................................... 502,803
------------
6,938,681
------------
STEEL/IRON ORE
666,000 Nippon Steel Co................................................................. 1,166,003
734,000 Sumitomo Metal Industries....................................................... 784,959
90,000 Yamato Kogyo Co., Ltd........................................................... 411,384
------------
2,362,346
------------
TELECOMMUNICATIONS
267 DDI Corp........................................................................ 782,924
234 Nippon Telegraph & Telephone Corp............................................... 1,840,517
------------
2,623,441
------------
WHOLESALE DISTRIBUTOR
15,000 Fujimi, Inc..................................................................... 504,528
22,000 Kuroda Electric Co., Ltd........................................................ 307,374
32,000 Misumi Corp..................................................................... 518,844
200 World Co., Ltd.................................................................. 6,399
------------
1,337,145
------------
TOTAL JAPAN..................................................................... 81,736,031
------------
MALAYSIA+ (2.6%)
AGRICULTURE
976,000 Highlands & Lowlands Berhad..................................................... 361,282
3,417,000 IOI Corporation Berhad.......................................................... 943,923
732,000 Kuala Lumpur Kepong Berhad...................................................... 601,237
------------
1,906,442
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
AUTO
879,000 Oriental Holdings Berhad........................................................ $ 641,039
------------
CASINO/GAMBLING
928,000 Berjaya Sports Toto Berhad...................................................... 522,961
------------
CONTAINERS/PACKAGING
464,000 Malaysian Pacific Industries Berhad............................................. 338,387
------------
ELECTRIC UTILITIES
680,000 Malakoff Berhad................................................................. 745,120
1,935,000 Tenaga Nasional Berhad.......................................................... 1,532,320
------------
2,277,440
------------
ENGINEERING & CONSTRUCTION
732,000 Gamuda Berhad................................................................... 428,685
------------
HOTELS/RESORTS
1,392,000 Resorts World Berhad............................................................ 830,585
------------
INSURANCE
971,000 Malaysian Assurance Alliance Berhad............................................. 500,700
------------
TELECOMMUNICATIONS
1,863,000 Telekom Malaysia Berhad......................................................... 2,315,884
------------
TOBACCO
644,000 RJ Reynolds Berhad.............................................................. 347,499
------------
TRANSPORTATION
1,269,000 Lingkaran Trans Kota Holdings Berhad*........................................... 563,221
------------
TOTAL MALAYSIA.................................................................. 10,672,843
------------
PHILIPPINES (0.8%)
ELECTRIC UTILITIES
355,963 Manila Electric Co. (B Shares).................................................. 1,053,721
------------
REAL ESTATE
2,606,400 Ayala Land, Inc................................................................. 794,239
------------
TELECOMMUNICATIONS
64,800 Philippine Long Distance Telephone Co. (ADR).................................... 1,579,500
------------
TOTAL PHILIPPINES............................................................... 3,427,460
------------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SINGAPORE (10.0%)
AIRLINES
862,000 Singapore Airlines Ltd.......................................................... $ 5,312,789
------------
BANKS
439,500 Development Bank of Singapore, Ltd.............................................. 2,762,958
1,141,200 Overseas Chinese Banking Corp., Ltd............................................. 4,993,849
926,000 Overseas Union Bank, Ltd........................................................ 2,522,601
920,000 United Overseas Bank Ltd........................................................ 4,337,750
------------
14,617,158
------------
DIVERSIFIED ELECTRONIC PRODUCTS
385,000 Elec & Eltek International Co., Ltd............................................. 1,925,000
------------
DIVERSIFIED MANUFACTURING
3,008,243 Singapore Technologies Engineering Ltd.......................................... 2,966,526
------------
ELECTRICAL PRODUCTS
289,000 GP Batteries International Ltd.................................................. 637,670
------------
ELECTRONIC COMPONENTS
1,260,000 Venture Manufacturing Ltd....................................................... 4,193,529
------------
ENGINEERING
200,000 Jurong Shipyard Ltd............................................................. 862,866
------------
INDUSTRIAL MACHINERY/COMPONENTS
532,000 Keppel Fels Ltd................................................................. 963,994
------------
NEWSPAPERS
324,382 Singapore Press Holdings Ltd.................................................... 2,798,982
------------
REAL ESTATE
870,400 City Developments, Ltd.......................................................... 3,165,091
632,000 Keppel Land Ltd................................................................. 619,341
------------
3,784,432
------------
TELECOMMUNICATIONS
1,869,000 Singapore Telecommunications Ltd................................................ 3,236,912
------------
TOTAL SINGAPORE................................................................. 41,299,858
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SOUTH KOREA (6.5%)
DIVERSIFIED ELECTRONIC PRODUCTS
1 LG Information & Communication Ltd.............................................. $ 23
141,245 Samsung Electronics Co.......................................................... 5,786,973
------------
5,786,996
------------
ELECTRIC UTILITIES
339,000 Korea Electric Power Corp....................................................... 6,044,385
------------
ELECTRICAL PRODUCTS
64,305 Samsung Display Devices Co...................................................... 2,415,097
------------
INDUSTRIAL MACHINERY/COMPONENTS
390,000 Daewoo Heavy Industries......................................................... 1,467,678
------------
MUTUAL FUNDS
234,000 Atlantis Korean Smaller Companies*.............................................. 1,277,640
------------
STEEL/IRON ORE
175,295 Pohang Iron & Steel Co., Ltd.................................................... 9,822,505
------------
TOTAL SOUTH KOREA............................................................... 26,814,301
------------
TAIWAN (11.5%)
BANKS
1,144,332 China Trust Commercial Bank*.................................................... 798,823
496,036 International Commercial Bank of China*......................................... 516,337
885,456 United World Chinese Commercial Bank*........................................... 845,115
------------
2,160,275
------------
BUILDING MATERIALS
336,534 Asia Cement (GDR)............................................................... 3,112,939
------------
ELECTRONIC COMPONENTS
65,937 Acer Inc........................................................................ 67,413
$ 1,900 K Acer Peripherals Inc. 1.25% due 11/27/06 (Conv.)................................ 1,966,500
$ 2,100 K Compal Electronics 1.00% due 11/21/03 (Conv.)................................... 4,672,500
936,000 Microtek International, Inc.*................................................... 719,889
736,848 Siliconware Precision Industries Co.*........................................... 1,183,509
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 230 K Siliconware Precision Industries Co. 0.50% due 07/21/04 (Conv.)................. $ 215,625
$ 1,800 K United Microelectronics Corp. - 144A** 0.25% due 05/16/04 (Conv.)............... 1,815,750
$ 1,000 K Yageo Corp. 1.25% due 07/24/03 (Conv.).......................................... 1,150,000
------------
11,791,186
------------
ELECTRONIC PRODUCTION EQUIPMENT
1,758,125 Taiwan Semiconductor Manufacturing Co.*......................................... 3,556,979
------------
FINANCE COMPANIES
951,750 China Development Corp.......................................................... 1,881,452
------------
INDUSTRIAL SPECIALTIES
$ 2,925 K Nan Ya Plastics Corp. 1.75% due 07/19/01 (Conv.)................................ 3,217,500
------------
LIFE INSURANCE
1,283,820 Cathay Life Insurance Co., Ltd.................................................. 4,540,460
------------
MARINE TRANSPORTATION
$ 2,000 K U-Ming Marine Transport 1.50% due 02/07/01 (Conv.).............................. 1,725,000
------------
MUTUAL FUNDS
730 Taipei Fund*.................................................................... 6,192,590
------------
REAL ESTATE
1,053,541 Cathay Construction Corp........................................................ 667,107
------------
SEMICONDUCTORS
58,000 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR)*.............................. 801,125
------------
SPECIALTY CHEMICALS
1,155,618 Formosa Plastic Corp............................................................ 1,774,030
------------
SPECIALTY FOODS/CANDY
1,801,200 President Enterprises Corp.*.................................................... 1,541,104
660,000 Standard Foods Taiwan Ltd.*..................................................... 1,345,483
------------
2,886,587
------------
STEEL/IRON ORE
3,802,800 China Steel Corp................................................................ 2,584,142
69,300 China Steel Corp. (GDR)......................................................... 975,397
------------
3,559,539
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TEXTILES
68,488 Formosa Chemical & Fibre Corp................................................... $ 48,867
------------
TOTAL TAIWAN.................................................................... 47,915,636
------------
THAILAND (2.5%)
BANKS
673,800 Bangkok Bank PCL................................................................ 1,028,141
1,009,500 Thai Farmers Bank PCL........................................................... 1,279,067
------------
2,307,208
------------
BROADCASTING
1,103,500 United Broadcasting PCL*........................................................ 699,084
------------
ELECTRIC UTILITIES
773,500 Cogeneration PCL*............................................................... 579,598
439,400 Electricity Generating PCL...................................................... 1,161,357
------------
1,740,955
------------
MOVIES/ENTERTAINMENT
255,200 BEC World PCL................................................................... 1,571,531
------------
OIL
230,700 PTT Exploration & Production PCL................................................ 2,225,281
------------
OTHER TRANSPORTATION
580,400 Bangkok Expressway PCL*......................................................... 458,627
------------
TELECOMMUNICATIONS
195,100 Advanced Info Service PCL....................................................... 1,435,341
------------
TOTAL THAILAND.................................................................. 10,438,027
------------
UNITED KINGDOM (0.7%)
DIVERSIFIED FINANCIAL SERVICES
126,400 HSBC Holdings PLC............................................................... 2,897,211
------------
TOTAL COMMON STOCKS, BONDS, RIGHTS AND WARRANTS
(IDENTIFIEDCOST $465,828,237)................................................... 385,863,380
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (a) (6.3%)
COMMERCIAL PAPER
SMALLER BANKS
$ 350 Associates Corp. of N.A. 5.07% due 12/18/98..................................... $ 347,702
------------
U.S. GOVERNMENT AGENCY
26,000 Federal Home Loan Mortgage Corp. 5.42% due 11/02/98............................. 25,996,085
------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $26,343,787).................................................... 26,343,787
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $492,172,024) (b)........................................................ 99.3 % 412,207,167
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.7 3,030,562
------ -------------
NET ASSETS................................................................................ 100.0 % $ 415,237,729
------ -------------
------ -------------
</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.
+ Securities deemed illiquid. The Malaysian Government prohibits the
repatriation of proceeds on sales of securities denominated in Malaysian
ringgits for a one year period from the date of sale.
++ Some or all of these securities are segregated in connection with open
forward foreign currency contracts.
(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 $23,860,944 and the
aggregate gross unrealized depreciation is $103,825,801, resulting in net
unrealized depreciation of $79,964,857.
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1998:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- -------------------------------------------------------------
<S> <C> <C> <C>
$ 766,890 AUD 1,208,272 11/09/98 $ (12,929)
HKD 28,980,000 $ 3,684,679 11/18/98 (55,738)
HKD 290,578,500 $ 36,789,074 12/01/98 (702,346)
HKD 80,800,000 $ 9,958,343 06/10/99 (324,506)
-------------
Total unrealized depreciation......... $ (1,095,519)
-------------
-------------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
AUD Australian Dollar.
HKD Hong Kong Dollar.
JPY Japanese Yen.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
SUMMARY OF INVESTMENTS OCTOBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Agriculture....................................................................... $ 1,906,442 0.5%
Airlines.......................................................................... 5,312,789 1.3
Alcoholic Beverages............................................................... 2,759,841 0.7
Apparel........................................................................... 1,325,123 0.3
Auto.............................................................................. 641,039 0.2
Auto Parts: O.E.M................................................................. 1,777,878 0.4
Banks............................................................................. 35,557,733 8.6
Broadcasting...................................................................... 3,250,143 0.8
Building Materials................................................................ 3,939,070 0.9
Building Products................................................................. 1,413,972 0.3
Casino/Gambling................................................................... 522,961 0.1
Chemicals......................................................................... 315,050 0.1
Clothing/Shoe/Accessory Chains.................................................... 836,740 0.2
Computer Software................................................................. 3,208,073 0.8
Consumer Electronics/Appliances................................................... 2,044,156 0.5
Containers/Packaging.............................................................. 710,961 0.2
Department Stores................................................................. 741,113 0.2
Diversified Commercial Services................................................... 2,742,561 0.7
Diversified Electronic Products................................................... 8,987,435 2.2
Diversified Financial Services.................................................... 2,897,211 0.7
Diversified Manufacturing......................................................... 9,494,524 2.3
Electric Utilities................................................................ 32,714,911 7.9
Electrical Products............................................................... 4,934,786 1.2
Electronic Components............................................................. 19,355,889 4.7
Electronic Production Equipment................................................... 7,209,352 1.7
Engineering....................................................................... 862,866 0.2
Engineering & Construction........................................................ 2,597,551 0.6
Finance Companies................................................................. 3,205,850 0.8
Food Chains....................................................................... 6,855,677 1.6
Foreign Banks..................................................................... 7,258,789 1.7
Healthcare........................................................................ 1,879,810 0.4
Hotels/Resorts.................................................................... 830,585 0.2
Industrial Machinery/
Components...................................................................... 5,201,495 1.2
Industrial Specialties............................................................ 3,605,598 0.9
Insurance......................................................................... 500,700 0.1
Investment Bankers/
Brokers/Services................................................................ 850,022 0.2
Life Insurance.................................................................... 4,540,460 1.1
Major Pharmaceuticals............................................................. 3,789,737 0.9
Marine Transportation............................................................. 1,725,000 0.4
Meat/Poultry/Fish................................................................. 1,976,093 0.5
Metals Fabrications............................................................... 1,482,751 0.4
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Motor Vehicles.................................................................... $ 3,871,496 0.9%
Movies/Entertainment.............................................................. 2,558,957 0.6
Multi-Sector Companies............................................................ 38,015,354 9.2
Mutual Funds...................................................................... 8,013,230 1.9
Natural Gas Distribution.......................................................... 951,539 0.2
Newspapers........................................................................ 2,798,982 0.7
Office Equipment/Supplies......................................................... 1,138,335 0.3
Oil............................................................................... 2,225,281 0.5
Oil & Gas Production.............................................................. 1,544,475 0.4
Other Metals/Minerals............................................................. 1,951,116 0.5
Other Specialty Stores............................................................ 331,177 0.1
Other Transportation.............................................................. 458,627 0.1
Paper............................................................................. 22 0.0
Photographic Products............................................................. 1,841,311 0.4
Precision Instruments............................................................. 1,077,844 0.3
Property - Casualty Insurance..................................................... 2,068,348 0.5
Railroads......................................................................... 554,032 0.1
Real Estate....................................................................... 32,561,133 7.8
Recreational Products/Toys........................................................ 1,105,476 0.3
Rental/Leasing Companies.......................................................... 1,188,228 0.3
Retail............................................................................ 2,014,897 0.5
Semiconductors.................................................................... 2,133,596 0.5
Services To The Health Industry................................................... 688,228 0.2
Smaller Banks..................................................................... 347,702 0.1
Soft Drinks....................................................................... 794,739 0.2
Specialty Chemicals............................................................... 9,069,711 2.2
Specialty Foods/Candy............................................................. 8,445,170 2.0
Steel/Iron Ore.................................................................... 15,744,390 3.8
Telecommunications................................................................ 35,383,036 8.5
Textiles.......................................................................... 48,867 0.0
Tobacco........................................................................... 1,647,499 0.4
Transportation.................................................................... 2,522,906 0.6
U.S. Government Agency............................................................ 25,996,085 6.2
Utilities......................................................................... 15,496 0.0
Wholesale Distributor............................................................. 1,337,145 0.3
------------ -----
$412,207,167 99.3%
------------ -----
------------ -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $368,112,493 88.7%
Convertible Bonds................................................................. 17,422,047 4.2
Rights & Warrants................................................................. 328,840 0.1
Short-Term Investments............................................................ 26,343,787 6.3
------------ -----
$412,207,167 99.3%
------------ -----
------------ -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $492,172,024)............................................................. $ 412,207,167
Cash (including $2,541,702 in foreign currency).............................................. 3,760,313
Receivable for:
Capital stock sold....................................................................... 831,789
Dividends................................................................................ 576,432
Interest................................................................................. 89,735
Investments sold......................................................................... 79,331
Prepaid expenses and other assets............................................................ 203,822
-------------
TOTAL ASSETS............................................................................ 417,748,589
-------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts........................... 1,095,519
Payable for:
Investment management fee................................................................ 323,669
Plan of distribution fee................................................................. 320,765
Capital stock repurchased................................................................ 288,426
Compensated forward foreign currency contracts........................................... 185,001
Accrued expenses and other payables.......................................................... 297,480
-------------
TOTAL LIABILITIES....................................................................... 2,510,860
-------------
NET ASSETS.............................................................................. $ 415,237,729
-------------
-------------
COMPOSITION OF NET ASSETS:
Paid-in-capital.............................................................................. $ 908,710,524
Net unrealized depreciation.................................................................. (81,538,023)
Dividends in excess of net investment income................................................. (2,863,488)
Accumulated net realized loss................................................................ (409,071,284)
-------------
NET ASSETS.............................................................................. $ 415,237,729
-------------
-------------
CLASS A SHARES:
Net Assets................................................................................... $3,102,386
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE).................................. 317,755
NET ASSET VALUE PER SHARE............................................................... $9.76
-------------
-------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)....................................... $10.30
-------------
-------------
CLASS B SHARES:
Net Assets................................................................................... $ 408,989,567
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE).................................. 42,034,987
NET ASSET VALUE PER SHARE............................................................... $9.73
-------------
-------------
CLASS C SHARES:
Net Assets................................................................................... $1,580,928
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE).................................. 162,669
NET ASSET VALUE PER SHARE............................................................... $9.72
-------------
-------------
CLASS D SHARES:
Net Assets................................................................................... $1,564,848
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE).................................. 160,051
NET ASSET VALUE PER SHARE............................................................... $9.78
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $833,344 foreign withholding tax).......................................... $ 12,757,134
Interest (net of $1,696 foreign withholding tax)............................................. 1,696,304
-------------
TOTAL INCOME............................................................................ 14,453,438
-------------
EXPENSES
Investment management fee.................................................................... 5,187,815
Plan of distribution fee (Class A shares).................................................... 4,701
Plan of distribution fee (Class B shares).................................................... 5,147,778
Plan of distribution fee (Class C shares).................................................... 12,016
Transfer agent fees and expenses............................................................. 2,127,150
Custodian fees............................................................................... 759,655
Shareholder reports and notices.............................................................. 236,574
Registration fees............................................................................ 124,937
Professional fees............................................................................ 76,734
Directors' fees and expenses................................................................. 17,610
Other........................................................................................ 33,309
-------------
TOTAL EXPENSES.......................................................................... 13,728,279
-------------
NET INVESTMENT INCOME................................................................... 725,159
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments.............................................................................. (274,483,545)
Foreign exchange transactions............................................................ (994,452)
-------------
NET LOSS................................................................................ (275,477,997)
-------------
Net change in unrealized appreciation/depreciation on:
Investments.............................................................................. 122,217,563
Translation of forward foreign currency contracts and other assets and liabilities
denominated in foreign currencies...................................................... (1,083,303)
-------------
NET APPRECIATION........................................................................ 121,134,260
-------------
NET LOSS................................................................................ (154,343,737)
-------------
NET DECREASE................................................................................. $(153,618,578)
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MORGAN STANLEY 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, 1998 OCTOBER 31, 1997*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................. $ 725,159 $ 386,894
Net realized loss...................................................... (275,477,997) (81,003,250)
Net change in unrealized appreciation/depreciation..................... 121,134,260 (280,824,717)
---------------- -----------------
NET DECREASE...................................................... (153,618,578) (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......................................................... (17,046) --
---------------- -----------------
TOTAL DIVIDENDS................................................... (10,321,335) (25,258,274)
---------------- -----------------
Net decrease from capital stock transactions........................... (166,513,928) (492,076,963)
---------------- -----------------
NET DECREASE...................................................... (330,453,841) (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
$2,863,488 AND $3,880,806, RESPECTIVELY)........................... $ 415,237,729 $ 745,691,570
---------------- -----------------
---------------- -----------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Pacific Growth Fund Inc. (the "Fund"), formerly Dean
Witter Pacific Growth Fund Inc., is registered under the Investment Company Act
of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Fund's investment objective is to maximize 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 and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those
estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Directors); (2) listed options are valued at the latest sale
price on the exchange on which they are listed unless no sales of such options
have taken place that day, in which case they are valued at the mean between
their latest bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (4) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., or Morgan Grenfell Investment
Services Limited (the "Sub-Advisor") that sale and bid prices are not reflective
of a security's market value, portfolio securities are valued at their fair
value as determined in good faith under procedures established by and under the
general
48
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
supervision of the Directors (valuation of debt securities for which market
quotations are not readily available may be based upon current market prices of
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); and (5) short-term debt securities having a
maturity date of more than sixty days at the time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined 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
49
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
cost of the option. If a put option is exercised, the cost of the security or
currency sold upon exercise will be increased by the premium originally paid. If
a call option is exercised, the cost of the security purchased upon exercise
will be increased by the premium originally paid.
E. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
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
50
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, 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 0.85% 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-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since 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
51
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
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 (1)
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, the Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the shares or who service shareholder accounts, including overhead and
telephone expenses; (2) printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and (3) preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor,
and other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Directors 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 $39,579,103 at October 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended October 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
52
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
The Distributor has informed the Fund that for the year ended October 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $1,390, $1,609,376,
and $6,017, respectively and received $27,369 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1998 aggregated
$286,599,407 and $459,404,314, respectively.
For the year ended October 31, 1998, the Fund incurred $6,691 in brokerage
commissions with affiliates of the Sub-Advisor for portfolio transactions
executed on behalf of the Fund.
For the year ended October 31, 1998, the Fund incurred brokerage commissions of
$13,320 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $10,500.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 1998 included
in Directors' fees and expenses in the Statement of Operations, amounted to
$5,219. At October 31, 1998, the Fund had an accrued pension liability of
$42,377 which is included in accrued expenses in the Statement of Assets and
Liabilities.
53
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
5. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997*
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 418,160 $ 4,158,089 63,214 $ 998,769
Reinvestment of dividends........................................ 1,152 13,083 -- --
Redeemed......................................................... (149,951) (1,337,917) (14,820) (235,608)
----------- -------------- ----------- ---------------
Net increase - Class A........................................... 269,361 2,833,255 48,394 763,161
----------- -------------- ----------- ---------------
CLASS B SHARES
Sold............................................................. 37,286,227 384,246,449 28,630,560 521,923,627
Reinvestment of dividends........................................ 840,396 9,572,097 1,228,090 23,456,516
Redeemed......................................................... (54,083,073) (565,173,912) (57,878,288) (1,039,376,437)
----------- -------------- ----------- ---------------
Net decrease - Class B........................................... (15,956,450) (171,355,366) (28,019,638) (493,996,294)
----------- -------------- ----------- ---------------
CLASS C SHARES
Sold............................................................. 1,140,153 10,725,985 76,313 1,169,997
Reinvestment of dividends........................................ 1,046 11,869 -- --
Redeemed......................................................... (1,042,383) (10,154,217) (12,460) (171,011)
----------- -------------- ----------- ---------------
Net increase - Class C........................................... 98,816 583,637 63,853 998,986
----------- -------------- ----------- ---------------
CLASS D SHARES
Sold............................................................. 612,447 5,857,456 9,137 157,184
Reinvestment of dividends........................................ 222 2,523 -- --
Redeemed......................................................... (461,755) (4,435,433) -- --
----------- -------------- ----------- ---------------
Net increase - Class D........................................... 150,914 1,424,546 9,137 157,184
----------- -------------- ----------- ---------------
Net decrease in Fund............................................. (15,437,359) $ (166,513,928) (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.
6. FEDERAL INCOME TAX STATUS
At October 31, 1998, the Fund had a net capital loss carryover of approximately
$385,013,000, 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 2006
- --------- ----------- ----------- -------------
<S> <C> <C> <C>
$ 3,193 $ 15,875 $ 97,593 $ 268,352
- --------- ----------- -----------
- --------- ----------- -----------
</TABLE>
54
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
As of October 31, 1998, 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 $6,774,952,
paid-in-capital was charged $3,838,542, and dividends in excess of net
investment income was credited $10,613,494.
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, 1998, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions and manage
foreign currency exposure.
At October 31, 1998, the Fund's cash balance consisted principally of interest
bearing deposits with Chase Manhattan Bank N.A., the Fund's custodian.
8. CHANGE IN SUB-ADVISOR AND INVESTMENT MANAGEMENT FEE
On August 18, 1998, the Fund's shareholders approved a new Sub-Advisory
Agreement with Morgan Stanley Dean Witter Investment Management Inc., formerly
Morgan Stanley Asset Management Inc., an affiliate of the Investment Manager and
Distributor. The new Sub-Advisory Agreement took effect on November 1, 1998.
Additionally, the Investment Manager and the Fund amended the Investment
Management Agreement to reduce each tier of the annual rate paid by the Fund to
the Investment Manager by 0.05%. This rate change also took effect on November
1, 1998.
55
<PAGE>
MORGAN STANLEY 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 YEAR ENDED OCTOBER 31
-------------------------------------------------------------------
1998++ 1997*++ 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER
SHARE DATA:
Net asset value,
beginning of
period.......... $ 12.83 $ 18.89 $ 18.77 $ 21.60 $ 19.80
---------- --------- --------- ----------- ----------
Income (loss)
from investment
operations:
Net investment
income
(loss)........ 0.01 0.01 0.05 0.08 (0.10)
Net realized
and unrealized
gain (loss)... (2.92) (5.77) 0.50 (1.94) 2.22
---------- --------- --------- ----------- ----------
Total income
(loss) from
investment
operations...... (2.91) (5.76) 0.55 (1.86) 2.12
---------- --------- --------- ----------- ----------
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... $ 9.73 $ 12.83 $ 18.89 $ 18.77 $ 21.60
---------- --------- --------- ----------- ----------
---------- --------- --------- ----------- ----------
TOTAL RETURN+.... (22.87)% (31.01)% 3.00% (8.65)% 10.69%
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 2.65%(1) 2.44% 2.39% 2.45% 2.41%
Net investment
income (loss)... 0.14%(1) 0.03% 0.18% 0.35% (0.70)%
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $409 $744 $1,624 $1,442 $1,571
Portfolio
turnover rate... % 58 42% 49% 50% 35%
</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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 12.86 $ 19.39
------ ------
Income (loss) from investment operations:
Net investment income.............................................. 0.10 --
Net realized and unrealized loss................................... (2.94) (6.53)
------ ------
Total loss from investment operations................................. (2.84) (6.53)
------ ------
Less dividends from net investment income............................. (0.26) --
------ ------
Net asset value, end of period........................................ $ 9.76 $ 12.86
------ ------
------ ------
TOTAL RETURN+......................................................... (22.35)% (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.90%(3) 1.92%(2)
Net investment income (loss).......................................... 0.89%(3) (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $3,102 $622
Portfolio turnover rate............................................... 58% 42%
</TABLE>
<TABLE>
<S> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 12.83 $ 19.39
------ ------
Income (loss) from investment operations:
Net investment income (loss)....................................... 0.01 (0.04)
Net realized and unrealized loss................................... (2.89) (6.52)
------ ------
Total loss from investment operations................................. (2.88) (6.56)
------ ------
Less dividends from net investment income............................. (0.23) --
------ ------
Net asset value, end of period........................................ $ 9.72 $ 12.83
------ ------
------ ------
TOTAL RETURN+......................................................... (22.68)% (33.83)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.65%(3) 2.62%(2)
Net investment income (loss).......................................... 0.14%(3) (0.77)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,581 $819
Portfolio turnover rate............................................... 58% 42%
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 12.86 $ 19.39
------ ------
Income (loss) from investment operations:
Net investment income.............................................. 0.07 0.02
Net realized and unrealized loss................................... (2.88) (6.55)
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Total loss from investment operations................................. (2.81) (6.53)
------ ------
Less dividends from net investment income............................. (0.27) --
------ ------
Net asset value, end of period........................................ $ 9.78 $ 12.86
------ ------
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TOTAL RETURN+......................................................... (22.14)% (33.68)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.65%(3) 1.62%(2)
Net investment income................................................. 1.14%(3) 0.42%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,565 $118
Portfolio turnover rate............................................... 58% 42%
</TABLE>
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* 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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
58
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MORGAN STANLEY DEAN WITTER PACIFIC GROWTH FUND INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF MORGAN STANLEY 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 Morgan Stanley Dean Witter Pacific
Growth Fund Inc. (the "Fund"), formerly Dean Witter Pacific Growth Fund Inc., at
October 31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 17, 1998
1998 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended October 31, 1998, 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,
of which 100% would be allowable as a credit. The Fund generated
net foreign source income of $0.05 per share with respect to this
election.
59
