<PAGE> 1
MORGAN STANLEY DEAN WITTER JAPAN FUND Two World Trade Center, New York,
New York 10048
LETTER TO THE SHAREHOLDERS November 30, 1999
DEAR SHAREHOLDER:
Over the six-month period ended November 30, 1999, Japan's economy continued to
show signs of a cyclical recovery, with record buying by foreign investors
propelling the Japanese equity market upward. The announcement in September that
Japanese gross domestic product (GDP) growth had reached 0.9 percent for the
second quarter was an important catalyst for many international investors.
Despite this trend, however, Morgan Stanley Dean Witter Investment Management
Inc., the sub-advisor for Morgan Stanley Dean Witter Japan Fund, remains wary of
some disturbing momentum characteristics that developed during the period, when
fewer than a dozen stocks were primarily responsible for the market's gains. The
ascension of this group of companies to a leadership role reflected a global
trend of outperformance by technology companies, but seldom in Japan have so
many mega-cap stocks produced such outsized gains in such a short time.
PERFORMANCE
For the six-month period ended November 30, 1999, the Fund's Class B shares
produced a total return of 30.05 percent, compared to 37.91 percent for the
Morgan Stanley Capital International (MSCI) Japan Index and 66.82 percent for
the Lipper Japanese Funds Average. For the same period, the Fund's Class A, C
and D shares posted total returns of 30.49 percent, 29.84 percent and 30.38
percent, respectively. The performance of the Fund's four share classes varies
because of differing expenses. (These total return figures assume the
reinvestment of all distributions and do not reflect the deduction of any
applicable sales charges.)
The Fund performed in line with the MSCI Japan Index, but less favorably in
comparison to its Lipper peer group, which includes a disproportionate number of
funds focusing on growth, over-the-counter and small-cap stocks. The Fund's
overall performance was also hindered by the strength of the yen during the last
six months, which limited gains in some of the international blue-chip stocks in
its portfolio.
<PAGE> 2
MORGAN STANLEY DEAN WITTER JAPAN FUND
LETTER TO THE SHAREHOLDERS November 30, 1999, continued
PORTFOLIO STRATEGY
As we enter the second half of the Fund's fiscal year, many of its core holdings
are showing significant signs of real earnings momentum, and restructuring
efforts have begun to bear fruit. Local merger-and-acquisition activity on an
annualized basis is larger than the last three years in the aggregate,
suggesting that aggressive, high-quality companies with focused management are
shedding businesses that are not part of their core competency. The sub-advisor
therefore continues to believe that the current Japanese market closely mirrors
that of the U.S. market in the early 1990s. Leading Japanese companies that have
traditionally emphasized market share are now prioritizing return on equity and
business relationships based on mutual merit.
Companies added to the Fund's portfolio during the period included Tokyo
Electric Power, House Food and Nippon Meat Packers.
LOOKING AHEAD
During the last six months, evidence of a long-term recovery in the Japanese
economy began to mount, including low inventory levels, an improvement in retail
sales and additional supplementary budget amounting to 3 percent of GDP that was
announced in November. While most of 1999's recovery was based on a cyclical
upturn, the sub-advisor believes a longer-term recovery will likely reward
economic-sensitive stocks, which are currently at highly attractive valuations
relative to the handful of "new" Japan companies. The sub-advisor believes the
Fund's portfolio is well positioned to benefit from such a recovery,
particularly if the appreciation of the yen subsides.
We appreciate your ongoing support of Morgan Stanley Dean Witter Japan Fund and
look forward to continuing to serve your investment objectives.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER JAPAN FUND
FUND PERFORMANCE November 30, 1999
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A*
- -------------------------------------------
<S> <C> <C>
Since Inception (7/28/97) 6.33(1) 3.91(2)
1 Year 46.28(1) 38.60(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C+
- -------------------------------------------
<S> <C> <C>
Since Inception (7/28/97) 5.56(1) 5.56(2)
1 Year 45.40(1) 44.40(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B**
- -------------------------------------------
<S> <C> <C>
Since Inception (4/26/96) 1.10(1) 0.56(2)
1 Year 45.45(1) 40.45(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D#
- -------------------------------------------
<S> <C>
Since Inception (7/28/97) 6.73(1)
1 Year 46.94(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
- ---------------------
<TABLE>
<S> <C>
(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.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for
Class B is 5.0%. The CDSC declines to 0% after six years.
+ 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.
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS November 30, 1999 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.2%)
Building Products (0.6%)
462,000 Sanwa Shutter Corp. ......... $ 1,585,294
------------
Consumer Electronics/Appliances (6.0%)
93,000 Aiwa Co., Ltd. .............. 1,841,765
114,000 Rinnai Corp. ................ 2,347,059
60,500 Sony Corp. .................. 11,210,294
------------
15,399,118
------------
Consumer Specialties (1.2%)
450,000 Casio Computer Co., Ltd. .... 3,070,588
------------
Diversified Electronic Products (15.7%)
535,000 Hitachi Ltd. ................ 7,395,588
60,000 Kyocera Corp. ............... 7,241,177
302,000 Matsushita Electric
Industrial Co., Ltd. ....... 7,653,627
435,000 NEC Corp. ................... 10,171,324
1,025,000 Toshiba Corp. ............... 7,546,814
------------
40,008,530
------------
E.D.P. Peripherals (2.4%)
228,000 Mitsumi Electric Co.,
Ltd. ....................... 6,057,647
------------
Electrical Products (1.1%)
257,000 Furukawa Electric Co.,
Ltd. ....................... 2,748,892
------------
Electronic Components (2.6%)
60,000 TDK Corp. ................... 6,588,235
------------
Electronic Data Processing (4.1%)
295,000 Fujitsu Ltd. ................ 10,469,608
------------
Electronic Distributors (1.0%)
100,000 Ryosan Co., Ltd. ............ 2,450,980
------------
Finance Companies (1.9%)
215,000 Hitachi Credit Corp. ........ 4,911,275
------------
Food Chains (1.5%)
61,900 FamilyMart Co., Ltd. ........ 3,889,990
------------
Home Building (2.3%)
415,000 Sekisui Chemical Co.,
Ltd. ....................... 1,973,284
401,000 Sekisui House Ltd. .......... 3,892,059
------------
5,865,343
------------
Home Furnishings (0.3%)
40,000 Sangetsu Co., Ltd. .......... 748,627
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------
<S> <C> <C>
Industrial Machinery/Components (10.3%)
395,000 Amada Co., Ltd. ............. $ 2,246,078
330,000 Daifuku Co., Ltd. ........... 1,695,294
380,000 Daikin Industries, Ltd. ..... 4,936,275
130,000 Fuji Machine Manufacturing
Co., Ltd. .................. 7,596,078
288,000 Minebea Co., Ltd. ........... 4,497,882
1,060,000 Mitsubishi Heavy Industries
Ltd. ....................... 3,439,804
420,000 Tsubakimoto Chain Co. ....... 1,968,235
------------
26,379,646
------------
Industrial Specialties (2.0%)
210,000 Fujitec Co., Ltd. ........... 2,468,529
249,000 Lintec Corp. ................ 2,599,853
------------
5,068,382
------------
Major Pharmaceuticals (2.2%)
230,000 Sankyo Co., Ltd. ............ 5,659,804
------------
Meat/Poultry/Fish (0.3%)
60,000 Nippon Meat Packers, Inc. ... 766,471
------------
Motor Vehicles (4.9%)
890,000 Nissan Motor Co., Ltd.*...... 4,144,608
263,000 Suzuki Motor Corp. .......... 3,865,069
136,000 Toyota Motor Corp. .......... 4,613,333
------------
12,623,010
------------
Office Equipment/Supplies (5.9%)
240,000 Canon, Inc. ................. 7,058,824
427,000 Ricoh Co., Ltd. ............. 7,912,059
------------
14,970,883
------------
Other Pharmaceuticals (4.2%)
136,000 Ono Pharmaceutical Co.,
Ltd. ....................... 4,306,667
147,000 Yamanouchi Pharmaceutical
Co., Ltd. .................. 6,413,235
------------
10,719,902
------------
Other Telecommunications (3.9%)
554 Nippon Telegraph & Telephone
Corp. ...................... 9,939,412
------------
Photographic Products (2.7%)
167,000 Fuji Photo Film Co. ......... 6,794,608
------------
Pollution Control Equipment (1.2%)
158,000 Kurita Water Industries
Ltd. ....................... 3,020,588
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER JAPAN FUND
PORTFOLIO OF INVESTMENTS November 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------
<S> <C> <C>
Printing/Forms (1.8%)
228,000 Dai Nippon Printing Co.,
Ltd. ....................... $ 3,967,647
77,000 Nissha Printing Co., Ltd. ... 528,431
------------
4,496,078
------------
Real Estate (1.3%)
300,000 Mitsubishi Estate Co.,
Ltd. ....................... 3,235,294
------------
Recreational Products/Toys (4.8%)
59,000 Nintendo Co., Ltd. .......... 9,839,118
277,000 Yamaha Corp. ................ 2,541,882
------------
12,381,000
------------
Semiconductors (1.9%)
18,000 Rohm Co., Ltd. .............. 4,884,706
------------
Specialty Chemicals (6.3%)
670,000 Daicel Chemical Industries,
Ltd. ....................... 1,983,726
490,000 Kaneka Corp. ................ 6,249,902
540,000 Mitsubishi Chemical Corp. ... 2,234,118
246,000 NIFCO Inc. .................. 2,978,529
440,000 Shin-Etsu Polymer Co.,
Ltd. ....................... 2,652,941
------------
16,099,216
------------
Specialty Foods/Candy (0.3%)
50,000 House Foods Corp. ........... 711,275
------------
Utilities (0.9%)
80,000 Tokyo Electric Power Co. .... 2,254,902
------------
Wholesale Distributors (0.6%)
107,000 Nissei Sangyo Co., Ltd. ..... 1,584,020
------------
TOTAL COMMON STOCKS
(Identified Cost
$167,422,697)................ 245,383,324
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
SHORT-TERM INVESTMENT (a) (1.5%)
U.S. GOVERNMENT AGENCY
$ 3,800 Federal National Mortgage Assoc.
5.60% due 12/01/99
(Amortized Cost $3,800,000) 3,800,000
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- ----------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $171,222,697) (b).. 97.7% $249,183,324
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES............... 2.3 5,863,237
---- ------------
NET ASSETS.......................... 100.0% $255,046,561
===== ============
</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 $82,290,018 and the
aggregate gross unrealized depreciation is $4,329,391, resulting in net
unrealized appreciation of $77,960,627.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT NOVEMBER 30, 1999:
<TABLE>
<CAPTION>
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
- -------------------------------------------------------
<S> <C> <C> <C>
JPY 1,178,100 $ 11,550 12/01/99 $ --
JPY 849,530,271 $ 8,328,728 12/02/99 --
JPY 3,000,000,000 $27,798,369 12/03/99 (1,629,552)
JPY 3,600,000,000 $33,361,134 12/03/99 (1,952,371)
-----------
Total unrealized
depreciation................. $(3,581,923)
===========
</TABLE>
Currency Abbreviation:
JPY Japanese Yen.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999 (unaudited)
ASSETS:
Investments in securities, at value (identified cost
$171,222,697).............................................. $249,183,324
Cash (including $11,550 in foreign currency)................ 295,457
Receivable for:
Investments sold........................................ 8,312,903
Shares of beneficial interest sold...................... 928,189
Dividends............................................... 483,117
Deferred organizational expenses............................ 56,263
Prepaid expenses and other assets........................... 146,717
------------
TOTAL ASSETS............................................ 259,405,970
------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency
contracts.................................................. 3,581,923
Payable for:
Shares of beneficial interest repurchased............... 317,827
Plan of distribution fee................................ 213,321
Investment management fee............................... 212,161
Accrued expenses and other payables......................... 34,177
------------
TOTAL LIABILITIES....................................... 4,359,409
------------
NET ASSETS.............................................. $255,046,561
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $263,975,138
Net unrealized appreciation................................. 74,392,144
Accumulated net investment loss............................. (2,044,211)
Accumulated net realized loss............................... (81,276,510)
------------
NET ASSETS.............................................. $255,046,561
============
CLASS A SHARES:
Net Assets.................................................. $4,461,329
Shares Outstanding (unlimited authorized, $.01 par value)... 449,367
NET ASSET VALUE PER SHARE............................... $9.93
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $10.48
============
CLASS B SHARES:
Net Assets.................................................. $233,901,169
Shares Outstanding (unlimited authorized, $.01 par value)... 23,612,695
NET ASSET VALUE PER SHARE............................... $9.91
============
CLASS C SHARES:
Net Assets.................................................. $13,825,557
Shares Outstanding (unlimited authorized, $.01 par value)... 1,411,784
NET ASSET VALUE PER SHARE............................... $9.79
============
CLASS D SHARES:
Net Assets.................................................. $2,858,506
Shares Outstanding (unlimited authorized, $.01 par value)... 285,871
NET ASSET VALUE PER SHARE............................... $10.00
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended November 30, 1999 (unaudited)
NET INVESTMENT LOSS:
INCOME
Dividends (net of $80,007 foreign withholding tax).......... $ 508,989
Interest.................................................... 323,333
-----------
TOTAL INCOME............................................ 832,322
-----------
EXPENSES
Investment management fee................................... 1,046,791
Plan of distribution fee (Class A shares)................... 5,607
Plan of distribution fee (Class B shares)................... 1,014,892
Plan of distribution fee (Class C shares)................... 51,324
Transfer agent fees and expenses............................ 180,485
Registration fees........................................... 75,746
Shareholder reports and notices............................. 56,626
Custodian fees.............................................. 48,952
Professional fees........................................... 37,470
Organizational expenses..................................... 20,073
Trustees' fees and expenses................................. 6,563
Other....................................................... 5,105
-----------
TOTAL EXPENSES.......................................... 2,549,634
-----------
NET INVESTMENT LOSS..................................... (1,717,312)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain/loss on:
Investments............................................. 9,077,646
Foreign exchange transactions........................... (4,377,019)
-----------
NET GAIN................................................ 4,700,627
-----------
Net change in unrealized appreciation/depreciation on:
Investments............................................. 56,217,494
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies............................................. (3,534,784)
-----------
NET APPRECIATION........................................ 52,682,710
-----------
NET GAIN................................................ 57,383,337
-----------
NET INCREASE................................................ $55,666,025
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1999 MAY 31, 1999
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................. $ (1,717,312) $ (2,370,409)
Net realized gain (loss)............................. 4,700,627 (30,073,309)
Net change in unrealized appreciation................ 52,682,710 58,177,914
------------ ------------
NET INCREASE..................................... 55,666,025 25,734,196
------------ ------------
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 from transactions in shares of
beneficial interest................................. 43,271,309 9,150,518
------------ ------------
NET INCREASE..................................... 98,937,334 28,609,717
NET ASSETS:
Beginning of period.................................. 156,109,227 127,499,510
------------ ------------
END OF PERIOD
(Including a net investment loss of $2,044,211
and dividends in excess of net investment income
of $326,899, respectively)....................... $255,046,561 $156,109,227
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1999 (unaudited)
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 converted to
a multiple class share structure.
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 securities which
are comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1999 (unaudited) continued
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 exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1999 (unaudited) continued
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.
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 $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.
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.
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1999 (unaudited) continued
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.
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 and
Sub-Advisor. 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 (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, Distributor and Sub-Advisor, 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
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1999 (unaudited) continued
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 $17,933,125 at
November 30, 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 other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended November 30, 1999, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.20%
and 1.00%, respectively.
The Distributor has informed the Fund that for the six months ended November 30,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $192,964 and $4,762,
respectively and received $33,581 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, 1999 aggregated
$50,690,165 and $20,874,155, respectively.
For the six months ended November 30, 1999, the Fund incurred $29,857 in
brokerage commissions with Morgan Stanley & Co., an affiliate of the Investment
Manager, Distributor and Sub-Advisor, for portfolio transactions executed on
behalf of the Fund.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1999 (unaudited) continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
Distributor and Sub-Advisor, is the Fund's transfer agent.
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, 1999 MAY 31, 1999
--------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold...................................................... 7,618,074 $ 70,050,613 5,370,586 $ 36,662,209
Reinvestment of dividends................................. -- -- 7,798 52,327
Redeemed.................................................. (7,409,596) (69,734,688) (5,156,270) (35,993,342)
----------- ------------- ----------- -------------
Net increase - Class A.................................... 208,478 315,925 222,114 721,194
----------- ------------- ----------- -------------
CLASS B SHARES
Sold...................................................... 22,860,434 211,415,928 28,669,856 203,289,556
Reinvestment of dividends................................. -- -- 820,552 5,522,307
Redeemed.................................................. (18,752,052) (175,556,415) (28,729,509) (203,190,103)
----------- ------------- ----------- -------------
Net increase - Class B.................................... 4,108,382 35,859,513 760,899 5,621,760
----------- ------------- ----------- -------------
CLASS C SHARES
Sold...................................................... 1,906,516 17,346,536 846,527 5,960,654
Reinvestment of dividends................................. -- -- 26,857 178,602
Redeemed.................................................. (1,218,383) (11,353,380) (410,037) (2,908,273)
----------- ------------- ----------- -------------
Net increase - Class C.................................... 688,133 5,993,156 463,347 3,230,983
----------- ------------- ----------- -------------
CLASS D SHARES
Sold...................................................... 3,830,537 35,261,234 5,043,403 35,816,884
Reinvestment of dividends................................. -- -- 322 2,168
Redeemed.................................................. (3,682,589) (34,158,519) (4,999,222) (36,242,471)
----------- ------------- ----------- -------------
Net increase (decrease) - Class D......................... 147,948 1,102,715 44,503 (423,419)
----------- ------------- ----------- -------------
Net increase in Fund...................................... 5,152,941 $ 43,271,309 1,490,863 $ 9,150,518
=========== ============= =========== =============
</TABLE>
6. 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>
AMOUNT IN THOUSANDS
- -------------------------------------------
2005 2006 2007
- --------------------- -------- --------
<S> <C> <C>
$448 $28,917 $51,569
==== ======= =======
</TABLE>
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER JAPAN FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1999 (unaudited) continued
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.
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, 1999, there were outstanding forward contracts, used to
facilitate settlement of foreign currency denominated portfolio transactions and
manage foreign currency exposure.
At November 30, 1999, the Fund's cash balance consisted principally of interest
bearing deposits with Chase Manhattan Bank N.A., the Fund's custodian.
15
<PAGE> 16
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
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
NOVEMBER 30, 1999 MAY 31, 1999 MAY 31, 1998
- ------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 7.57 $ 6.72 $ 9.16
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)............................... (0.06) (0.02) 0.05
Net realized and unrealized gain (loss).................... 2.42 1.31 (2.49)
------ ------ ------
Total income (loss) from investment operations.............. 2.36 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.............................. $ 9.93 $ 7.57 $ 6.72
====== ====== ======
TOTAL RETURN+............................................... 30.49%(1) 20.61% (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.54%(2)(3) 1.72%(3) 1.83%(2)
Net investment income (loss)................................ (0.79)%(2)(3) (0.94)%(3) 0.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $4,461 $1,823 $126
Portfolio turnover rate..................................... 10%(1) 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
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED MAY 31, APRIL 26, 1996*
MONTHS ENDED --------------------------------- THROUGH
NOVEMBER 30, 1999++ 1999++ 1998**++ 1997 MAY 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period............... $ 7.58 $ 6.67 $ 8.79 $ 9.61 $10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss............................... (0.09) (0.13) (0.13) (0.16) --
Net realized and unrealized gain (loss)........... 2.42 1.37 (1.99) (0.66) (0.39)
------ ------ ------ ------ ------
Total income (loss) from investment operations..... 2.33 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..................... $ 9.91 $ 7.58 $ 6.67 $ 8.79 $ 9.61
====== ====== ====== ====== ======
TOTAL RETURN+...................................... 30.05%(1) 19.89% (24.12)% (8.53)% (3.90)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 2.34%(2)(3) 2.59%(3) 2.48% 2.43% 2.84%(2)
Net investment loss................................ (1.59)%(2)(3) (1.81)%(3) (1.62)% (1.77)% (0.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............ $233,901 $147,812 $125,008 $239,719 $273,544
Portfolio turnover rate............................ 10%(1) 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
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
NOVEMBER 30, 1999 MAY 31, 1999 MAY 31, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(unaudited)
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 7.49 $ 6.68 $ 9.16
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.10) (0.12) (0.07)
Net realized and unrealized gain (loss).................... 2.40 1.34 (2.41)
------ ------ ------
Total income (loss) from investment operations.............. 2.30 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.............................. $ 9.79 $ 7.49 $ 6.68
====== ====== ======
TOTAL RETURN+............................................... 29.84%(1) 19.86% (27.07)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 2.34%(2)(3) 2.58%(3) 2.52%(2)
Net investment loss......................................... (1.59)%(2)(3) (1.80)%(3) (1.21)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $13,826 $5,423 $1,738
Portfolio turnover rate..................................... 10%(1) 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
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER JAPAN FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
NOVEMBER 30, 1999 MAY 31, 1999 MAY 31, 1998
- ------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 7.62 $ 6.72 $ 9.16
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.05) (0.02) (0.01)
Net realized and unrealized gain (loss).................... 2.43 1.37 (2.43)
------ ------ ------
Total income (loss) from investment operations.............. 2.38 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.............................. $10.00 $ 7.62 $ 6.72
====== ====== ======
TOTAL RETURN+............................................... 30.38%(1) 21.76% (26.64)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.34%(2)(3) 1.59%(3) 1.60%(2)
Net investment loss......................................... (0.59)%(2)(3) (0.81)%(3) (0.23)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $2,859 $1,051 $628
Portfolio turnover rate..................................... 10%(1) 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
19
<PAGE> 20
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
James F. Willison
Vice President
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
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. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
JAPAN FUND
Semiannual Report
November 30, 1999
