<PAGE>
DEAN WITTER JAPAN FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1997
DEAR SHAREHOLDER:
The six-month period ended November 30, 1997, witnessed an extraordinary and
difficult period for the markets of Japan. Currency and economic crises in Asia,
ongoing financial and political scandals at home, headline bankruptcies that
prompted fears of a banking collapse, growing evidence of a slowing economy and
falling corporate profits have combined to push sentiment to extremely depressed
levels. The Nikkei has reacted by falling steadily from just below 21,000 in
late June, to just below 15,000 by mid-November. Stock and sector movements have
been volatile, especially in the financial sector, with 100 percent stock market
price swings within a few days not uncommon. The market has also been extremely
sensitive to political comments, many of which have been confusing and often
contradictory.
The period began with analysts predicting a fifth successive year of strong
profit growth and, in June, the quarterly Tankan survey of business sentiment
released by the Bank of Japan was unexpectedly positive. Foreigners became net
buyers, spurred on by renewed optimism in Japan and continuing strength on Wall
Street. However, the currency remained volatile, reacting to a barrage of
comments from U.S. Deputy Treasury Secretary Lawrence Summers and Japan's Vice
Minister for international affairs, Eisuke Sakakibara.
Through July, the Nikkei, supported by continued interest in high-tech companies
and by general strength in the U.S. market, held around 20,000. However, the
stock prices of Nomura Securities and Daiichi Kangyo Bank were heavily hit
following revelations that managers at these companies had been involved with
criminal organizations. This added to a growing mistrust of the financial sector
and a realization of the true level of bad debts burdening that sector. Cracks
also began to emerge in the construction sector where Tokai Kogyo and Tada Corp,
two medium-sized operators, declared bankruptcy. In the face of these problems,
the yen weakened and the yield gap with the United States widened.
<PAGE>
DEAN WITTER JAPAN FUND
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1997, CONTINUED
Recognition that the economic recovery was stalling and that consumption was in
a trough saw the Nikkei fall over 10 percent in August (the largest drop since
November 1993). This weakness was compounded by a fall of more than 7 percent on
Wall Street and a sharp drop in many Asian markets. Foreigners became net
sellers, tech stocks stumbled and yet another mid-sized construction company
went bust. Meanwhile, the OTC (small companies) index recorded its thirty-third
consecutive down day and hit its lowest level since the collapse of the market
in 1990. This weakness contributed to the yen falling below 120 U.S. dollars by
the end of August.
Market sentiment remained subdued through September, with foreigners continuing
to be net sellers, and only the firmness of blue-chip exporters, which benefited
from a weak yen, and a rebound in the United States, kept the Nikkei around
18,000. The weak economy moved the benchmark ten-year government bond yield to
1.86 percent on September 30.
Economic statistics through October showed further slowdown. Companies,
especially those geared to the domestic economy, began reporting earnings
downgrades, while the ruling Liberal Democratic Party's economic stimulus plan
was dismissed by the market as muddled and inadequate. On top of this, the
September Tankan survey was much worse than expected. The dramatic collapse of
the Hong Kong market finally drove the Nikkei from 17,000 toward 16,000. On
October 31, the government bond yield, at 1.575 percent, was lower than that
reached by the U.S. Treasury Bond during the Great Depression. Concerns were
raised about Japanese banks' loan exposure to Asia, and with the market around
16,000, the realization that a large number of major banks and life insurers had
lost their unrealized gains on securities further depressed sentiment.
In November, fears of a financial meltdown were heightened by a series of widely
reported closures, especially those of Yamaichi Securities (the biggest post-war
brokerage failure in Japan), Hokkaido Takushoku Bank and a number of smaller
securities houses closing overseas offices. The Liberal Democratic Party's
second economic package on November 14 was again perceived to be ineffective and
the Nikkei fell to 15,000 for the first time in 28 months. After a series of
contradictory statements that caused violent reactions in the market, Prime
Minister Ryutaro Hashimoto finally instructed the Liberal Democratic Party to
consider countermeasures for the bad debt problem, stabilizing the Nikkei above
16,000 and thus leaving November as one of the most remarkable months in
Japanese post-war financial history. The market remained highly nervous as
participants awaited news of a plan of action by the government. Prime Minister
Hashimoto's December 16 announcement of a large income-tax cut as well as a 10
trillion yen package of government funds aimed at bolstering confidence in
Japan's financial system, sent the market higher the next day by 3.5 percent.
<PAGE>
DEAN WITTER JAPAN FUND
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1997, CONTINUED
FUND PERFORMANCE
As one can imagine from the foregoing, the past six months have been extremely
difficult for investors in Japan. For the six-month period ended November 30,
1997, Dean Witter Japan Fund returned -19.57 percent versus -20.16 percent for
the Morgan Stanley Capital International Japan Index and -17.95 percent for the
Lipper Japanese Funds Average. The Fund's underweighting in the financial
sector, which has continued to underperform, as well as its large
underweightings in domestic industries, such as chemical and steel where the
operating environment is still deteriorating, helped to protect the Fund from
the heavy losses that these industries endured over the period. The Fund has
also been helped by excellent share performance from blue-chip companies such as
Sony Corp., Rohm Co. Ltd., Bridgestone Corp. and Canon, Inc., that continue to
benefit from superior technology, transparency of earnings and depreciation of
the yen versus most major currencies. Other positive contributions have come
from the Fund's positions in strong growth areas related to telecommunications
as well as turnaround situations such as those seen in the larger real-estate
companies.
OUTLOOK
Against this confusing and volatile backdrop a number of points are clear:
Japanese economic growth will slow, corporate profits will be reduced and Asian
countries will become more competitive. The temptation for Korea and Taiwan to
export their way out of difficulty will be very high and competition will be
intense in steel, semi-conductors, chemicals, textiles and ship building -- all
vital areas for Japan. Over the next few months, the market will almost
certainly remain volatile. Investors are nervous and much of the government's
response has been long on rhetoric and short on substance. However, the
government's 30 trillion yen (250 billion dollars) financial stabilization
package announced by Hashimoto could well mark a turning point in Japan's
markets. If the government is perceived to be committed to change and fiscal
stimulation, the markets may very well rebound over the next year.
Taking a longer-term view (the next 18 months to two years) the case for Japan
is still firmly in place. The ongoing process of deregulation is likely to force
many companies that have been protected to restructure and become much more
effective and shareholder friendly. Valuation levels are extremely supportive;
in fact, a number of Japanese companies now have more net cash on their balance
sheets than their market capitalization, creating opportunities in a more
deregulated
<PAGE>
DEAN WITTER JAPAN FUND
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1997, CONTINUED
environment for merger and acquisition activity. We may even see the first
contested takeover in Japan which, if it were to happen, would have a dramatic
impact on a market where 40 percent of stocks are now trading at or below book
value.
In summary, we believe that Japanese equities will remain very volatile over the
short term and an investment in Japanese stocks is, as in the past, one for
long-term investors. At the same time, we continue to believe that some exposure
to Japan provides appropriate diversification for many U.S. investors and there
continue to be significant reasons to be positive about this market and about
the investment prospects for Dean Witter Japan Fund.
We appreciate your support during this challenging period and look forward to
continuing to serve your investment needs and objectives.
Sincerely,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (92.2%)
AUTOMOBILES (6.2%)
266,000 Bridgestone Corp................................................................................ $ 5,774,451
413,000 Mitsubishi Motors Corp.......................................................................... 1,417,665
212,000 Nissan Motor Co., Ltd........................................................................... 922,100
164,000 Suzuki Motor Co., Ltd........................................................................... 1,786,520
------------
9,900,736
------------
BANKING (4.4%)
300,000 Bank of Tokyo-Mitsubishi Ltd.................................................................... 4,349,530
126,000 Mitsubishi Trust & Banking...................................................................... 1,678,683
147,000 Sumitomo Trust & Banking........................................................................ 970,016
------------
6,998,229
------------
BUILDING & CONSTRUCTION (0.7%)
134,000 National House Industrial....................................................................... 1,071,160
------------
BUSINESS & PUBLIC SERVICES (4.1%)
27,000 Asatsu Inc...................................................................................... 469,749
134,000 Mitsubishi Logistic............................................................................. 1,533,229
72,000 Secom Co........................................................................................ 4,514,107
------------
6,517,085
------------
BUSINESS EQUIPMENT (1.7%)
230,000 Ricoh Co., Ltd.................................................................................. 2,775,861
------------
CHEMICALS (6.2%)
660,000 Asahi Chemical Industrial Co., Ltd.............................................................. 2,844,828
262,000 Nippon Zeon Co., Ltd............................................................................ 714,546
265,000 Shin-Etsu Chemical Co........................................................................... 6,292,712
------------
9,852,086
------------
ELECTRICAL EQUIPMENT (17.4%)
328,000 Canon, Inc...................................................................................... 7,917,241
536,000 Hitachi, Ltd.................................................................................... 3,801,567
308,000 Matsushita Electric Industrial Co., Ltd......................................................... 4,803,448
162,000 Matsushita Electric Works....................................................................... 1,320,376
197,000 Omron Corp...................................................................................... 3,365,674
74,100 Sony Corp....................................................................................... 6,329,859
------------
27,538,165
------------
ELECTRONICS (17.1%)
441,000 Furukawa Electric Co............................................................................ 2,156,614
35,000 Kyocera Corp.................................................................................... 1,689,655
36,500 Mabuchi Motor Co................................................................................ 1,913,676
222,000 Minebea Co., Ltd................................................................................ 2,470,533
83,000 Murata Manufacturing Co., Ltd................................................................... 2,491,301
319,000 NGK Insulators, Ltd............................................................................. 2,975,000
86,000 Olympus Optical Co., Ltd........................................................................ 629,499
78,000 Rohm Co., Ltd................................................................................... 7,702,194
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
384,000 Sumitomo Electric Industries.................................................................... $ 5,146,082
------------
27,174,554
------------
ENGINEERING & CONSTRUCTION (2.0%)
299,000 Kajima Corp..................................................................................... 984,169
119,000 Kandenko Co., Ltd............................................................................... 726,497
126,000 Kinden Corp..................................................................................... 1,431,818
------------
3,142,484
------------
FINANCIAL SERVICES (1.9%)
27,000 Japan Associated Finance........................................................................ 973,354
160,000 Nomura Securities Co., Ltd...................................................................... 1,981,191
------------
2,954,545
------------
INSURANCE (2.0%)
200,000 Sumitomo Marine & Fire.......................................................................... 1,010,972
233,000 Tokio Marine & Fire Insurance Co................................................................ 2,209,483
------------
3,220,455
------------
INTERNATIONAL TRADE (1.3%)
260,000 Mitsubishi Corp................................................................................. 2,029,467
------------
MACHINERY (4.2%)
169,000 Asahi Diamond Industries Co., Ltd............................................................... 900,627
1,338,000 Kawasaki Heavy Industries....................................................................... 3,282,085
587,000 NSK Ltd......................................................................................... 2,433,566
------------
6,616,278
------------
METALS (1.0%)
697,000 Mitsubishi Materials Corp....................................................................... 1,573,166
------------
PHARMACEUTICALS (3.7%)
157,000 Banyu Pharmaceutical Co., Ltd................................................................... 1,993,260
121,000 Sankyo Co., Ltd................................................................................. 3,859,483
------------
5,852,743
------------
REAL ESTATE (3.0%)
214,000 Mitsubishi Estate Co., Ltd...................................................................... 2,482,132
223,000 Mitsui Fudosan Co............................................................................... 2,359,326
------------
4,841,458
------------
RECREATION (1.4%)
25,600 H.I.S. Co., Ltd................................................................................. 601,881
50,900 Sony Music Entertainment Inc.................................................................... 1,691,348
------------
2,293,229
------------
RETAIL (4.8%)
84,900 Family Mart Co., Ltd............................................................................ 3,160,462
78,000 Ito-Yokado Co., Ltd............................................................................. 3,521,003
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
57,000 York-Benimaru................................................................................... $ 897,884
------------
7,579,349
------------
RETAIL - DEPARTMENT STORES (0.3%)
77,000 Isetan.......................................................................................... 437,500
------------
RETAIL - SPECIALTY (0.3%)
78,000 Best Denki Co., Ltd............................................................................. 403,448
------------
STEEL & IRON (1.3%)
725,000 Kobe Steel Ltd.................................................................................. 693,182
1,425,000 NKK Corp........................................................................................ 1,440,635
------------
2,133,817
------------
TELECOMMUNICATIONS (4.6%)
654 DDI Corp........................................................................................ 1,998,903
652 Nippon Telegraph & Telephone Corp............................................................... 5,365,204
------------
7,364,107
------------
TEXTILES (2.3%)
352,000 Teijin Ltd...................................................................................... 924,138
266,000 Tokyo Style..................................................................................... 2,710,031
------------
3,634,169
------------
TRANSPORTATION (0.3%)
118,000 Tobu Railway Co., Ltd........................................................................... 411,520
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $193,221,667).................................................................. 146,315,611
------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS
- ---------------
<C> <S> <C>
PURCHASED PUT OPTIONS ON FOREIGN CURRENCY (5.3%)
Y7,354,570 February 10, 1998/YEN 115.82.................................................................... 5,289,550
Y7,363,920 February 10, 1998/YEN 120.72.................................................................... 3,059,150
------------
TOTAL PURCHASED PUT OPTIONS ON FOREIGN CURRENCY
(IDENTIFIED COST $2,878,425).................................................................... 8,348,700
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.2%)
U.S. GOVERNMENT AGENCY
$ 3,500 Federal Home Loan Mortgage Corp. 5.63% due 12/01/97 (AMORTIZED COST $3,500,000)................. $ 3,500,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $199,600,092) (b)........................................................ 99.7 % 158,164,311
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.3 480,127
------ -------------
NET ASSETS................................................................................ 100.0 % $ 158,644,438
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $15,248,059 and the
aggregate gross unrealized depreciation is $56,683,840, resulting in net
unrealized depreciation of $41,435,781.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $199,600,092)............................ $158,164,311
Cash.......................................................................................... 390,028
Receivable for:
Dividends................................................................................. 390,914
Shares of beneficial interest sold........................................................ 132,620
Foreign withholding taxes reclaimed....................................................... 29,006
Interest.................................................................................. 3,909
Deferred organizational expenses.............................................................. 140,693
Prepaid expenses.............................................................................. 55,331
------------
TOTAL ASSETS............................................................................. 159,306,812
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased................................................. 295,886
Investment management fee................................................................. 134,949
Plan of distribution fee.................................................................. 134,904
Organizational expenses....................................................................... 7,090
Accrued expenses.............................................................................. 89,545
------------
TOTAL LIABILITIES........................................................................ 662,374
------------
NET ASSETS............................................................................... $158,644,438
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $235,855,091
Net unrealized depreciation................................................................... (41,463,447)
Net investment loss........................................................................... (1,890,445)
Accumulated net realized loss................................................................. (33,856,761)
------------
NET ASSETS............................................................................... $158,644,438
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $27,553
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 3,885
NET ASSET VALUE PER SHARE................................................................ $7.09
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $7.48
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $158,041,915
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 22,346,600
NET ASSET VALUE PER SHARE................................................................ $7.07
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $357,729
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 50,554
NET ASSET VALUE PER SHARE................................................................ $7.08
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $217,241
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 30,623
NET ASSET VALUE PER SHARE................................................................ $7.09
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1997* (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $97,896 foreign withholding tax)............................................ $ 515,162
Interest...................................................................................... 276,649
------------
TOTAL INCOME............................................................................. 791,811
------------
EXPENSES
Investment management fee..................................................................... 1,105,807
Plan of distribution fee (Class A shares)..................................................... 19
Plan of distribution fee (Class B shares)..................................................... 1,105,000
Plan of distribution fee (Class C shares)..................................................... 677
Transfer agent fees and expenses.............................................................. 251,148
Custodian fees................................................................................ 77,810
Shareholder reports and notices............................................................... 44,784
Registration fees............................................................................. 39,851
Professional fees............................................................................. 25,758
Organizational expenses....................................................................... 20,736
Trustees' fees and expenses................................................................... 5,423
Other......................................................................................... 5,243
------------
TOTAL EXPENSES........................................................................... 2,682,256
------------
NET INVESTMENT LOSS...................................................................... (1,890,445)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments............................................................................... (15,756,899)
Foreign exchange transactions............................................................. (131,675)
------------
NET LOSS................................................................................. (15,888,574)
------------
Net change in unrealized appreciation/depreciation on:
Investments............................................................................... (26,278,251)
Translation of other assets and liabilities denominated in foreign
currencies.............................................................................. (60,887)
------------
NET DEPRECIATION......................................................................... (26,339,138)
------------
NET LOSS................................................................................. (42,227,712)
------------
NET DECREASE.................................................................................. $(44,118,157)
------------
------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
NOVEMBER 30, ENDED
1997* MAY 31, 1997
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss........................................................ $ (1,890,445) $ (4,281,589)
Net realized loss.......................................................... (15,888,574) (17,458,743)
Net change in unrealized depreciation...................................... (26,339,138) (5,808,933)
-------------- --------------
NET DECREASE.......................................................... (44,118,157) (27,549,265)
Net decrease from transactions in shares of beneficial interest............ (36,956,356) (6,276,032)
-------------- --------------
NET DECREASE.......................................................... (81,074,513) (33,825,297)
NET ASSETS:
Beginning of period........................................................ 239,718,951 273,544,248
-------------- --------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $1,890,445 AND $0, RESPECTIVELY)... $ 158,644,438 $ 239,718,951
-------------- --------------
-------------- --------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Japan Fund (the "Fund") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a non-diversified, open-end management
investment company. The Fund's investment objective is to seek long-term capital
appreciation. The Fund seeks to meet its investment objective by investing
primarily in securities of issuers located in Japan. The Fund was organized as a
Massachusetts business trust on January 22, 1996 and commenced operations on
April 26, 1996. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange; the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") or Morgan
Grenfell Investment Services Limited (the "Sub-Adviser") that sale 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 Trustees (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);
<PAGE>
DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 (UNAUDITED) CONTINUED
(4) certain portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service may utilize a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the securities valued by such pricing service;
and (5) short-term debt securities having a maturity date of more than sixty
days at time of purchase are valued on a mark-to-market basis until sixty days
prior to maturity and thereafter at amortized cost based on their value on the
61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted over the
life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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.
E. 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
<PAGE>
DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 (UNAUDITED) CONTINUED
exchange gains and losses are included in the Statement of Operations as
unrealized foreign currency gain or loss and in the Statement of Assets and
Liabilities as part of the related foreign currency denominated asset or
liability. 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.
F. 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.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $207,000 and was reimbursed
for the full amount thereof. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
annual rate of 1.0% to the net assets of the Fund determined as of the close of
each business day.
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
<PAGE>
DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 (UNAUDITED) CONTINUED
all personnel, including officers of the Fund who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the Sub-Adviser and the Investment
Manager, the Sub-Adviser provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for the services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Adviser monthly compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of
Class C. In the case of Class A shares, amounts paid under the Plan are paid to
the Distributor for services provided. In the case of Class B and Class C
shares, amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including the payment of commissions for sales of these
Classes and incentive compensation to, and expenses of, the account executives
of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of these shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate DWR and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
<PAGE>
DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 (UNAUDITED) CONTINUED
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $16,255,513 at November 30, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended November 30, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended November 30,
1997, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares of $679,856 and received $1,260 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders pay
such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended November 30, 1997 aggregated
$2,220,037 and $35,308,421, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At November 30, 1997, the Fund had transfer agent
fees and expenses payable of approximately $2,900.
<PAGE>
DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 (UNAUDITED) CONTINUED
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1997 MAY 31, 1997
---------------------------- --------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 3,885 $ 33,351 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 4,441,457 38,040,844 13,534,303 $114,115,612
Redeemed......................................................... (9,366,008) (75,653,351) (14,718,440) (120,391,644)
----------- -------------- ----------- ------------
Net decrease - Class B........................................... (4,924,551) (37,612,507) (1,184,137) (6,276,032)
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 52,909 427,565 -- --
Redeemed......................................................... (2,355) (18,532) -- --
----------- -------------- ----------- ------------
Net increase - Class C........................................... 50,554 409,033 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 30,623 213,767 -- --
----------- -------------- ----------- ------------
Net decrease in Fund............................................. (4,839,489) $ (36,956,356) (1,814,137) $ (6,276,032)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
* For the period July 28, 1997 (issue date) through November 30, 1997.
6. FEDERAL INCOME TAX STATUS
At May 31, 1997, the Fund had a net capital loss carryover of approximately
$871,000 which will be available through May 31, 2005 to offset future capital
gains to the extent provided by regulations.
Capital and foreign currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Fund's next taxable year. The Fund incurred and will elect to defer net
capital and foreign currency losses of approximately $16,741,000 and $357,000,
respectively, during fiscal 1997.
As of May 31, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
<PAGE>
DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997 (UNAUDITED) CONTINUED
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At November 30, 1997, there were no outstanding forward contracts.
<PAGE>
DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 26,
MONTHS ENDED FOR THE YEAR 1996*
NOVEMBER 30, ENDED THROUGH
1997***++ MAY 31, 1997 MAY 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 8.79 $ 9.61 $ 10.00
------ ------ ------
Net investment loss..................... (0.07) (0.16) --
Net realized and unrealized loss........ (1.65) (0.66) (0.39)
------ ------ ------
Total from investment operations........ (1.72) (0.82) (0.39)
------ ------ ------
Net asset value, end of period.......... $ 7.07 $ 8.79 $ 9.61
------ ------ ------
------ ------ ------
TOTAL INVESTMENT RETURN+................ (19.57)%(1) (8.53)% (3.90)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.43%(2) 2.43% 2.84%(2)
Net investment loss..................... (1.71)%(2) (1.77)% (0.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $158,042 $239,719 $273,544
Portfolio turnover rate................. 1%(1) 25% --
Average commission rate paid............ $0.0099 $0.0227 $0.0424
</TABLE>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
NOVEMBER 30,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.16
------
Net investment loss................................................... (0.03)
Net realized and unrealized loss...................................... (2.04)
------
Total from investment operations...................................... (2.07)
------
Net asset value, end of period........................................ $ 7.09
------
------
TOTAL INVESTMENT RETURN+.............................................. (22.60)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.76%(2)
Net investment loss................................................... (1.06)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 28
Portfolio turnover rate............................................... 1%(1)
Average commission rate paid.......................................... $ 0.0099
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.16
------
Net investment loss................................................... (0.05)
Net realized and unrealized loss...................................... (2.03)
------
Total from investment operations...................................... (2.08)
------
Net asset value, end of period........................................ $ 7.08
------
------
TOTAL INVESTMENT RETURN+.............................................. (22.71)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.56%(2)
Net investment loss................................................... (1.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 358
Portfolio turnover rate............................................... 1%(1)
Average commission rate paid.......................................... $ 0.0099
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
NOVEMBER 30,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.16
------
Net investment loss................................................... (0.03)
Net realized and unrealized loss...................................... (2.04)
------
Total from investment operations...................................... (2.07)
------
Net asset value, end of period........................................ $ 7.09
------
------
TOTAL INVESTMENT RETURN+.............................................. (22.60)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.74%(2)
Net investment loss................................................... (1.21)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $217
Portfolio turnover rate............................................... 1%(1)
Average commission rate paid.......................................... $0.0099
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
SUB-ADVISER
Morgan Grenfell Investment Services Limited
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER JAPAN FUND
[GRAPHIC]
SEMIANNUAL REPORT
NOVEMBER 30, 1997
