<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND TWO WORLD TRADE CENTER,
LETTER TO THE SHAREHOLDERS, MAY 31, 1999 NEW YORK, NEW YORK 10048
DEAR SHAREHOLDER:
The 12-month period ended May 31, 1999, saw dramatic changes in Japan's economy,
equity markets and investor sentiment. Although the Japanese equity markets have
been particularly robust during the last several months, Morgan Stanley Dean
Witter Investment Management, the sub-advisor of Morgan Stanley Dean Witter
Japan Fund, believes that sustained GDP growth for Japan of 2 percent or higher
is several years away, and that Japan is a restructuring story, rather than an
economic recovery play. Therefore, the Fund will continue to place priority on
stock and sector selection for the foreseeable future.
MARKET OVERVIEW
Several important economic developments occurred in Japan during the period
under review. First, the government injected 7.5 trillion yen of public funds
into the Japanese banking system, which served as the first step toward
recapitalizing Japan's banks, a prerequisite for a sustained economic recovery.
Second, the government provided a special 20 trillion yen loan guarantee
facility for small and medium-sized companies affected by a credit crunch that
had stemmed from curtailed lending by Japanese banks. Also significant was the
Bank of Japan's reduction of short-term interest rates to zero in order to halt
a sharp rise in Japanese government bonds, owing to massive issuance of debt to
support the country's huge deficit-spending program.
Most importantly, many Japanese corporations announced unprecedented
restructuring plans, and are focusing increasingly on return on equity over
their traditional market-share goals. This is a profound departure from the last
five to seven years, when the government attempted to revive the economy solely
through massive public-works spending that did not spark growth.
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
LETTER TO THE SHAREHOLDERS, MAY 31, 1999, CONTINUED
PERFORMANCE AND PORTFOLIO
For the 12-month period ended May 31, 1999, Morgan Stanley Dean Witter Japan
Fund's Class B shares produced a total return of 19.89 percent, compared to
20.84 percent for the Morgan Stanley Capital International (MSCI) Japan Index
and 27.43 percent for the Lipper Japanese Funds average. For the same time
period the Fund's Class A, C and D shares posted total returns of 20.61 percent,
19.86 percent and 21.76 percent, respectively. The performance of the Fund's
four share classes varies because of differing expenses. The Fund's
underperformance relative to its Lipper peer group was most likely the result of
its lack of exposure to small- and mid-cap Japanese stocks, which experienced
exceptional returns during the period, and an underweighting in bank stocks,
which also performed well. The accompanying chart illustrates the growth of a
$10,000 investment in the Fund, versus similar investments in the MSCI Japan
Index and the Lipper Japanese Funds average.
The Fund's sub-advisor, Morgan Stanley Dean Witter Investment Management,
believes that, although the previously mentioned developments are very important
milestones for long-term investors in Japan, full economic recovery is still 18
to 24 months away. The rising tide of the overall Japanese market has lifted all
ships, but the manager believes many boats in Japan are not yet seaworthy. In
particular, during the last several months, low-priced high-beta stocks have
staged a powerful technical rebound. Many of these companies have very high
valuations and are facing deregulation and competition for the first time. The
sub-advisor believes that the balance of 1999 will witness the emergence of a
two-tier market in which companies with solid restructuring plans and growth
prospects will become increasingly attractive, as investors become more
discriminating in their purchases. The sub-advisor believes the Fund is well
positioned for such an environment.
LOOKING AHEAD
Japan is beginning to show signs of true change and meaningful investment merit.
Bull markets are said to be born in pessimism and raised higher with skepticism,
and the Fund's sub-advisor believes that Japan is at such a stage in both the
economic environment and the stock market cycle. Therefore, though the market
and economic recovery will not likely be V-shaped, evidence continues to mount
that Japan may be the most attractive large asset class in the world today. The
Fund's portfolio selection will be highly selective until further empirical
evidence suggests that full-scale economic recovery is at hand. Should this
occur, the Fund will increase its weighting in domestic, economically sensitive
issues.
2
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
LETTER TO THE SHAREHOLDERS, MAY 31, 1999, CONTINUED
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management for Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's investment manager. He also serves as Chairman, Chief Executive Officer
and Director of the Fund's distributor and transfer agent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Japan Fund and
look forward to continuing to serve your investment objectives.
Very truly yours,
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
CHAIRMAN OF THE BOARD PRESIDENT
</TABLE>
3
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FUND PERFORMANCE MAY 31, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 -- CLASS B SHARES
($ in Thousands)
Fund MSCI Japan Lipper
<S> <C> <C> <C>
Apr-96 $10,000 $10,000 $10,000
May-96 $9,610 $9,486 $9,662
May-97 $8,790 $8,099 $8,998
May-98 $6,670 $5,860 $7,078
May-99 $7,844(3) $7,082 $9,019
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------------------
CLASS B* CLASS A+
- ----------------------------------------------- -----------------------------------------------
PERIOD ENDED 5/31/99 PERIOD ENDED 5/31/99
- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year 19.89%(1) 14.89%(2) 1 Year 20.61%(1) 14.28%(2)
Since Inception (4/26/96) (6.97) (1) (7.55) (2) Since Inception (7/28/97) (6.43) (1) (9.14) (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C++ CLASS D#
- ----------------------------------------------- -----------------------------------------------
PERIOD ENDED 5/31/99 PERIOD ENDED 5/31/99
- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year 19.86%(1) 18.86%(2) 1 Year 21.76%(1)
Since Inception (7/28/97) (7.05) (1) (7.05) (2) Since Inception (7/28/97) (5.95) (1)
</TABLE>
- ------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value after the deduction of a 2% CDSC, assuming a complete
redemption on May 31, 1999.
(4) The Morgan Stanley Capital International Japan Index is a capitalization
weighted index that measures performance, in US dollars, of companies
listed on the Japanese Stock Exchange. The index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lipper Japanese Fund Average tracks the performance of all funds that
concentrate their investments in equity securities of Japanese companies.
* The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The
CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of purchase.
# Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (96.2%)
BUILDING PRODUCTS (0.8%)
257,000 Sanwa Shutter Corp..................................................................... $ 1,187,291
------------
CONSUMER ELECTRONICS/APPLIANCES (4.7%)
59,000 Aiwa Co., Ltd.......................................................................... 1,513,194
62,500 Sony Corp.............................................................................. 5,836,416
------------
7,349,610
------------
CONSUMER SPECIALTIES (1.2%)
270,000 Casio Computer Co., Ltd................................................................ 1,835,512
------------
DIVERSIFIED ELECTRONIC PRODUCTS (14.3%)
650,000 Hitachi Ltd............................................................................ 4,750,103
63,000 Kyocera Corp........................................................................... 3,283,354
252,000 Matsushita Electric Industrial Co., Ltd................................................ 4,536,621
440,000 NEC Corp............................................................................... 4,846,691
790,000 Toshiba Corp........................................................................... 4,851,048
------------
22,267,817
------------
E.D.P. PERIPHERALS (2.5%)
180,000 Mitsumi Electric Co., Ltd.............................................................. 3,876,695
------------
ELECTRICAL PRODUCTS (1.2%)
497,000 Furukawa Electric Co., Ltd............................................................. 1,948,779
------------
ELECTRONIC COMPONENTS (3.0%)
55,000 TDK Corp............................................................................... 4,692,972
------------
ELECTRONIC DATA PROCESSING (3.5%)
330,000 Fujitsu Ltd............................................................................ 5,479,655
------------
ELECTRONIC DISTRIBUTORS (0.9%)
80,000 Ryosan Co., Ltd........................................................................ 1,413,892
------------
FINANCE COMPANIES (1.7%)
135,000 Hitachi Credit Corp.................................................................... 2,663,379
------------
FOOD CHAINS (1.2%)
46,900 FamilyMart Co., Ltd.................................................................... 1,946,938
------------
HOME BUILDING (2.8%)
280,000 Sekisui Chemical Co., Ltd.............................................................. 1,721,660
251,000 Sekisui House Ltd...................................................................... 2,707,045
------------
4,428,705
------------
HOME FURNISHINGS (1.5%)
75,000 Rinnai Corp............................................................................ 1,664,612
40,000 Sangetsu Co., Ltd...................................................................... 736,539
------------
2,401,151
------------
INDUSTRIAL MACHINERY/COMPONENTS (9.0%)
150,000 Amada Co., Ltd......................................................................... 924,784
270,000 Daifuku Co., Ltd....................................................................... 1,640,197
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
245,000 Daikin Industries, Ltd................................................................. $ 2,195,232
120,000 Fuji Machine Manufacturing Co., Ltd.................................................... 3,561,036
268,000 Minebea Co., Ltd....................................................................... 2,648,056
660,000 Mitsubishi Heavy Industries Ltd........................................................ 2,560,789
180,000 Tsubakimoto Chain Co................................................................... 525,277
------------
14,055,371
------------
INDUSTRIAL SPECIALTIES (1.0%)
200,000 Fujitec Co., Ltd....................................................................... 1,589,807
------------
MOTOR VEHICLES (5.8%)
970,000 Nissan Motor Co., Ltd.*................................................................ 4,242,006
160,000 Suzuki Motor Corp...................................................................... 2,256,967
95,000 Toyota Motor Corp...................................................................... 2,577,065
------------
9,076,038
------------
OFFICE EQUIPMENT/SUPPLIES (7.3%)
200,000 Canon, Inc............................................................................. 5,014,385
134,000 Lintec Corp............................................................................ 1,208,368
467,000 Ricoh Co., Ltd......................................................................... 5,144,102
------------
11,366,855
------------
OTHER PHARMACEUTICALS (8.5%)
101,000 Ono Pharmaceutical Co., Ltd............................................................ 3,611,591
210,000 Sankyo Co., Ltd........................................................................ 4,911,221
140,000 Yamanouchi Pharmaceutical Co., Ltd..................................................... 4,799,014
------------
13,321,826
------------
OTHER TELECOMMUNICATIONS (3.4%)
545 Nippon Telegraph & Telephone Corp...................................................... 5,286,478
------------
PHOTOGRAPHIC PRODUCTS (2.9%)
127,000 Fuji Photo Film Co..................................................................... 4,509,988
------------
POLLUTION CONTROL EQUIPMENT (0.9%)
85,000 Kurita Water Industries Ltd............................................................ 1,341,554
------------
PRINTING/FORMS (1.7%)
150,000 Dai Nippon Printing Co., Ltd........................................................... 2,234,279
64,000 Nissha Printing Co., Ltd............................................................... 404,044
------------
2,638,323
------------
PROPERTY - CASUALTY INSURERS (0.8%)
188,000 Sumitomo Marine & Fire Insurance Co., Ltd.............................................. 1,217,789
------------
REAL ESTATE (1.4%)
230,000 Mitsubishi Estate Co., Ltd............................................................. 2,174,270
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1999, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RECREATIONAL PRODUCTS/TOYS (5.6%)
57,000 Nintendo Co., Ltd...................................................................... $ 6,653,514
200,000 Yamaha Corp............................................................................ 2,046,856
------------
8,700,370
------------
SEMICONDUCTORS (1.9%)
23,000 Rohm Co., Ltd.......................................................................... 2,992,930
------------
SPECIALTY CHEMICALS (6.7%)
560,000 Daicel Chemical Industries, Ltd........................................................ 1,790,711
420,000 Kaneka Corp............................................................................ 3,645,869
750,000 Mitsubishi Chemical Corp............................................................... 2,114,673
166,000 NIFCO Inc.............................................................................. 1,405,508
270,000 Shin-Etsu Polymer Co., Ltd............................................................. 1,551,418
------------
10,508,179
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $128,529,041)......................................................... 150,272,174
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (4.2%)
U.S. GOVERNMENT AGENCY
$ 6,500 Federal Home Loan Mortgage Corp. 4.72% due 06/01/99 (AMORTIZED COST $6,500,000)........ $ 6,500,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $135,029,041) (b)........................................................ 100.4 % 156,772,174
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.4) (662,947)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 156,109,227
------ -------------
------ -------------
</TABLE>
- ---------------------
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $25,090,176 and the
aggregate gross unrealized depreciation is $3,347,043, resulting in net
unrealized appreciation of $21,743,133.
FORWARD FOREIGN CURRENCY CONTRACT OPEN AT MAY 31, 1999:
<TABLE>
<CAPTION>
CONTRACT TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- ----------------------------------------------------
<S> <C> <C> <C>
$ 1,414,890 JPY 170,975,268 6/01/99 ($9,421)
</TABLE>
CURRENCY ABBREVIATION:
JPY Japanese Yen.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $135,029,041).............................................................. $156,772,174
Cash.......................................................................................... 218,679
Receivable for:
Dividends................................................................................. 536,447
Shares of beneficial interest sold........................................................ 409,456
Deferred organizational expenses.............................................................. 76,336
Prepaid expenses and other assets............................................................. 99,184
------------
TOTAL ASSETS............................................................................. 158,112,276
------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts............................ 9,421
Payable for:
Investments purchased..................................................................... 1,405,469
Shares of beneficial interest repurchased................................................. 254,806
Plan of distribution fee.................................................................. 131,707
Investment management fee................................................................. 128,565
Accrued expenses and other payables........................................................... 73,081
------------
TOTAL LIABILITIES........................................................................ 2,003,049
------------
NET ASSETS............................................................................... $156,109,227
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $220,703,829
Net unrealized appreciation................................................................... 21,709,434
Dividends in excess of net investment income.................................................. (326,899)
Accumulated net realized loss................................................................. (85,977,137)
------------
NET ASSETS............................................................................... $156,109,227
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $ 1,822,882
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 240,889
NET ASSET VALUE PER SHARE................................................................ $7.57
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE).......................................... $7.99
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $147,811,654
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 19,504,313
NET ASSET VALUE PER SHARE................................................................ $7.58
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $ 5,423,352
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 723,651
NET ASSET VALUE PER SHARE................................................................ $7.49
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $ 1,051,339
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 137,923
NET ASSET VALUE PER SHARE................................................................ $7.62
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $126,113 foreign withholding tax)........................................... $ 714,645
Interest...................................................................................... 311,737
------------
TOTAL INCOME............................................................................. 1,026,382
------------
EXPENSES
Investment management fee..................................................................... 1,272,958
Plan of distribution fee (Class A shares)..................................................... 1,829
Plan of distribution fee (Class B shares)..................................................... 1,260,360
Plan of distribution fee (Class C shares)..................................................... 33,342
Transfer agent fees and expenses.............................................................. 398,747
Custodian fees................................................................................ 114,745
Registration fees............................................................................. 103,736
Professional fees............................................................................. 80,639
Shareholder reports and notices............................................................... 65,363
Organizational expenses....................................................................... 40,037
Trustees' fees and expenses................................................................... 12,584
Other......................................................................................... 12,451
------------
TOTAL EXPENSES........................................................................... 3,396,791
------------
NET INVESTMENT LOSS...................................................................... (2,370,409)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain/loss on:
Investments............................................................................... (36,083,309)
Foreign exchange transactions............................................................. 6,010,000
------------
NET LOSS................................................................................. (30,073,309)
------------
Net change in unrealized appreciation/depreciation on:
Investments............................................................................... 62,238,427
Translation of forward foreign currency contracts, other assets and liabilities
denominated in foreign currencies....................................................... (4,060,513)
------------
NET APPRECIATION......................................................................... 58,177,914
------------
NET GAIN................................................................................. 28,104,605
------------
NET INCREASE.................................................................................. $ 25,734,196
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1999 MAY 31, 1998*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss............................................................ $ (2,370,409) $ (2,943,073)
Net realized loss.............................................................. (30,073,309) (28,408,746)
Net change in unrealized appreciation/depreciation............................. 58,177,914 (21,344,171)
------------ -------------
NET INCREASE (DECREASE)................................................... 25,734,196 (52,695,990)
------------ -------------
DIVIDENDS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME:
Class A shares................................................................. (36,929) --
Class B shares................................................................. (4,101,636) --
Class C shares................................................................. (151,368) --
Class D shares................................................................. (1,483) --
IN EXCESS OF NET INVESTMENT INCOME:
Class A shares................................................................. (13,129) --
Class B shares................................................................. (1,912,867) --
Class C shares................................................................. (57,074) --
Class D shares................................................................. (511) --
------------ -------------
TOTAL DIVIDENDS........................................................... (6,274,997) --
------------ -------------
Net increase (decrease) from transactions in shares of beneficial interest..... 9,150,518 (59,523,451)
------------ -------------
NET INCREASE (DECREASE)................................................... 28,609,717 (112,219,441)
NET ASSETS:
Beginning of period............................................................ 127,499,510 239,718,951
------------ -------------
END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF $326,899 AND
UNDISTRIBUTED NET INVESTMENT INCOME OF $611,788, RESPECTIVELY)............. $156,109,227 $ 127,499,510
------------ -------------
------------ -------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley 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 and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange; the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), or Morgan Stanley Dean Witter Investment Management Inc. (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
Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of
10
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999, CONTINUED
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); (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. OPTION ACCOUNTING PRINCIPLES -- When the Fund purchases a call or put option,
the premium paid is recorded as an investment which is subsequently
marked-to-market to reflect the current market value. If a purchased option
expires, the Fund will realize a loss to the extent of the premium paid. If the
Fund enters into a closing sale transaction, a gain or loss is realized for the
difference between the proceeds from the sale and the cost of the option. If a
put option is exercised, the cost of the security or currency sold upon exercise
will be increased by the premium originally paid. If a call option is exercised,
the cost for 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
11
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999, CONTINUED
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 foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
G. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment 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.
12
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999, CONTINUED
I. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $200,000 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 0.95% to the net assets of the Fund determined as of the close of
each business day. Prior to October 1, 1998, the annual rate was equal to 1.0%.
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 the services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation.
Prior to October 1, 1998, Morgan Grenfell Investment Services Limited served as
the Fund's sub-advisor, providing identical services and receiving compensation
at the same rate as the current Sub-Advisor.
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
13
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999, CONTINUED
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 (1) services provided and the expenses borne by
it and others in the distribution of the shares of these Classes, including the
payment of commissions for sales of these Classes and incentive compensation to,
and expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and (3) preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $16,938,281 at May 31, 1999.
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
14
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999, CONTINUED
other selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended May 31, 1999, the distribution fee was accrued
for Class A shares and Class C shares at the annual rate of 0.13% and 0.99%,
respectively.
The Distributor has informed the Fund that for the year ended May 31, 1999, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $65, $482,120 and
$7,737, respectively and received $13,531 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 May 31, 1999 aggregated $104,036,241
and $97,762,512, respectively.
For the year ended May 31, 1999, the Fund incurred $40,526 in brokerage
commissions with Morgan Stanley & Co., an affiliate of 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 May 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $2,000.
5. FEDERAL INCOME TAX STATUS
At May 31, 1999, the Fund had a net capital loss carryover of approximately
$80,934,000 which may be used to offset future capital gains to the extent
provided by regulations, which is available through May 31 of the following
years:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
- -----------------------------------------
2005 2006 2007
- --------- -------------- --------------
<S> <C> <C>
$448 $28,917 $51,569
- --------- -------------- --------------
- --------- -------------- --------------
</TABLE>
Capital 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 losses of
approximately $4,912,000 during fiscal 1999.
As of May 31, 1999, the Fund had temporary book/tax differences primarily
attributable to post-October losses and income from the mark-to-market of
passive foreign investment companies and permanent book/tax differences
primarily attributable to foreign currency gains and a dividend
15
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999, CONTINUED
redesignation. To reflect reclassifications arising from the permanent
differences, paid-in-capital was charged $1,696,719, accumulated net realized
loss was charged $6,010,000 and net investment income was credited $7,706,719.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1999 MAY 31, 1998*
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 5,370,586 $ 36,662,209 1,653,350 $ 11,512,949
Reinvestment of dividends........................................ 7,798 52,327 -- --
Redeemed......................................................... (5,156,270) (35,993,342) (1,634,575) (11,582,196)
------------ -------------- ------------ --------------
Net increase (decrease) - Class A................................ 222,114 721,194 18,775 (69,247)
------------ -------------- ------------ --------------
CLASS B SHARES
Sold............................................................. 28,669,856 203,289,556 8,327,661 65,197,758
Reinvestment of dividends........................................ 820,552 5,522,307 -- --
Redeemed......................................................... (28,729,509) (203,190,103) (16,855,398) (127,207,599)
------------ -------------- ------------ --------------
Net increase (decrease) - Class B................................ 760,899 5,621,760 (8,527,737) (62,009,841)
------------ -------------- ------------ --------------
CLASS C SHARES
Sold............................................................. 846,527 5,960,654 272,435 1,993,277
Reinvestment of dividends........................................ 26,857 178,602 -- --
Redeemed......................................................... (410,037) (2,908,273) (12,131) (85,899)
------------ -------------- ------------ --------------
Net increase - Class C........................................... 463,347 3,230,983 260,304 1,907,378
------------ -------------- ------------ --------------
CLASS D SHARES
Sold............................................................. 5,043,403 35,816,884 143,074 983,689
Reinvestment of dividends........................................ 322 2,168 -- --
Redeemed......................................................... (4,999,222) (36,242,471) (49,654) (335,430)
------------ -------------- ------------ --------------
Net increase (decrease) - Class D................................ 44,503 (423,419) 93,420 648,259
------------ -------------- ------------ --------------
Net increase (decrease) in Fund.................................. 1,490,863 $ 9,150,518 (8,155,238) $ (59,523,451)
------------ -------------- ------------ --------------
------------ -------------- ------------ --------------
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through May 31, 1998.
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.
16
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1999, CONTINUED
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 May 31, 1999, there were outstanding forward contracts, used to facilitate
settlement of foreign currency denominated portfolio transactions.
At May 31, 1999, the Fund's cash balance consisted principally of interest
bearing deposits with Chase Manhattan Bank N.A., the Fund's custodian.
17
<PAGE>
MORGAN STANLEY 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
APRIL 26,
FOR THE YEAR ENDED MAY 31, 1996*
---------------------------------------- THROUGH
1999++ 1998**++ 1997 MAY 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period..................... $ 6.67 $ 8.79 $ 9.61 $ 10.00
---------- ---------- ---------- ------
Income (loss) from investment operations:
Net investment loss................................... (0.13) (0.13) (0.16) --
Net realized and unrealized gain (loss)............... 1.37 (1.99) (0.66) (0.39)
---------- ---------- ---------- ------
Total income (loss) from investment operations........... 1.24 (2.12) (0.82) (0.39)
---------- ---------- ---------- ------
Less dividends:
From net investment income............................ (0.22) -- -- --
In excess of net investment income.................... (0.11) -- -- --
---------- ---------- ---------- ------
Total dividends.......................................... (0.33) -- -- --
---------- ---------- ---------- ------
Net asset value, end of period........................... $ 7.58 $ 6.67 $ 8.79 $ 9.61
---------- ---------- ---------- ------
---------- ---------- ---------- ------
TOTAL RETURN+............................................ 19.89% (24.12)% (8.53)% (3.90)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................. 2.59%(3) 2.48% 2.43% 2.84%(2)
Net investment loss...................................... (1.81)%(3) (1.62)% (1.77)% (0.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.................. $147,812 $125,008 $239,719 $273,544
Portfolio turnover rate.................................. 78% 7% 25% --
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
MAY 31, 1999 MAY 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 6.72 $ 9.16
------ ------
Income (loss) from investment operations:
Net investment income (loss)....................................... (0.02) 0.05
Net realized and unrealized gain (loss)............................ 1.31 (2.49)
------ ------
Total income (loss) from investment operations........................ 1.29 (2.44)
------ ------
Less dividends:
From net investment income......................................... (0.33) --
In excess of net investment income................................. (0.11) --
------ ------
Total dividends....................................................... (0.44) --
------ ------
Net asset value, end of period........................................ $ 7.57 $ 6.72
------ ------
------ ------
TOTAL RETURN+......................................................... 20.61% (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.72%(3) 1.83%(2)
Net investment income (loss).......................................... (0.94)%(3) 0.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,823 $126
Portfolio turnover rate............................................... 78% 7%
</TABLE>
<TABLE>
<S> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 6.68 $ 9.16
------ ------
Income (loss) from investment operations:
Net investment loss................................................ (0.12) (0.07)
Net realized and unrealized gain (loss)............................ 1.34 (2.41)
------ ------
Total income (loss) from investment operations........................ 1.22 (2.48)
------ ------
Less dividends:
From net investment income......................................... (0.30) --
In excess of net investment income................................. (0.11) --
------ ------
Total dividends....................................................... (0.41) --
------ ------
Net asset value, end of period........................................ $ 7.49 $ 6.68
------ ------
------ ------
TOTAL RETURN+......................................................... 19.86% (27.07)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.58%(3) 2.52%(2)
Net investment loss................................................... (1.80)%(3) (1.21)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $5,423 $1,738
Portfolio turnover rate............................................... 78% 7%
</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
19
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
MAY 31, 1999 MAY 31, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 6.72 $ 9.16
------ ------
Income (loss) from investment operations:
Net investment loss................................................ (0.02) (0.01)
Net realized and unrealized gain (loss)............................ 1.37 (2.43)
------ ------
Total income (loss) from investment operations........................ 1.35 (2.44)
------ ------
Less dividends:
From net investment income......................................... (0.34) --
In excess of net investment income................................. (0.11) --
------ ------
Total dividends....................................................... (0.45) --
------ ------
Net asset value, end of period........................................ $ 7.62 $ 6.72
------ ------
------ ------
TOTAL RETURN+......................................................... 21.76% (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.59%(3) 1.60%(2)
Net investment loss................................................... (0.81)%(3) (0.23)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,051 $628
Portfolio turnover rate............................................... 78% 7%
</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.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER JAPAN FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER JAPAN FUND
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 Japan
Fund (the "Fund") at May 31, 1999, 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
indicated, 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 May 31,
1999 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
JULY 9, 1999
21
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
SUB-ADVISOR
Morgan Stanley Dean Witter
Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
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.
MORGAN STANLEY
DEAN WITTER
JAPAN FUND
ANNUAL REPORT
MAY 31, 1999
