<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALL- TWO WORLD TRADE CENTER,
CAP FUND NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1998
DEAR SHAREHOLDER:
During the six months ended November 30, 1998, the international equity markets
experienced an extraordinary level of volatility. During the period, the Morgan
Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Small
Cap Index fell by 11.4 percent, the European portion of the MSCI EAFE Small Cap
Index fell by 19.7 percent and the Far East portion of the MSCI EAFE Small Cap
Index rose by 5.1 percent. The long bull run in the western European markets
came to an end in July as investors became concerned about a global recession as
a direct result of the Asian, Latin American and Russian economic crises. This
shift led to sharp corrections in small cap stocks worldwide.
In response to this turmoil, the Federal Reserve Board reduced interest rates
three times during October and November. These reductions provided encouragement
to the financial community, allowing the capital markets to function in a more
orderly fashion. In the last six weeks we have seen a sharp recovery in stock
markets around the world, led by those in the United States.
PERFORMANCE AND PORTFOLIO
For the six-month period ended November 30, 1998, Morgan Stanley Dean Witter
International SmallCap Fund's Class B shares returned -13.41 percent versus
- -11.35 percent for the Morgan Stanley Capital International EAFE Small Cap Index
and -11.22 percent for the Lipper International Small Cap Fund Average. During
this period, the Fund's Class A, C and D shares posted total returns of -12.99
percent, -13.41 percent and -13.30 percent, respectively. The performance of the
Fund's four share classes varies because each class has different expenses.
The Fund's underperformance during the period relative to the benchmark was a
result of its underweighted position in Japan and the rest of the Far East.
Japan and Singapore were among the best-performing markets during the period,
rising 6.4 percent and 14.3 percent, respectively. However, we believe that the
valuations in the Asian markets have run well ahead of reality and do not
reflect the underlying economic fundamentals. In Japan
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1998, CONTINUED
the measures necessary for structural reform have not yet been implemented, and
the fiscal reforms already introduced by the government are unlikely to be
sufficient to turn the economy around.
PORTFOLIO STRATEGY
During this period, several stocks were reduced or sold either because they had
reached the manager's fair value assessment (Alliance Unichem, Devro, Georg
Fisher, Havas Advertising) or because they were particularly sensitive to fears
of an economic downturn (Forbo, KSB, Rautaruukki). In the Asian markets, profits
were taken on stocks that held strong exposure to the U.S. economy; because of
the expected recoveries in Hong Kong and Singapore, these stocks were replaced
by stocks more sensitive to improvements in their own domestic economies.
We have added several new positions to the portfolio, including Beru AG, a world
leader in glow plugs, a product used in European diesel-engine cars. Also added
was Sartorius AG, a global leader in measuring equipment for the pharmaceutical
industry. This company is undergoing restructuring in a transformation from a
family-run business to a professionally managed organization. Finally, given the
increasing role of direct mail in marketing, demand for efficient flexible
envelope-making machines has been growing. As a result we purchased Winkler &
Duennebier, an international leader of envelope-making machines.
OUTLOOK
During the six-month period ending November 30, 1998, smaller companies
generally underperformed larger ones. This underperfomance was a result of
investors continuing to focus on larger, more liquid stocks. However, we believe
smaller companies to be attractively priced in relation to larger companies.
Indeed, the valuation gap between smaller and larger is wider now than it has
been in the last decade. As evidence of this, we are beginning to see an
increased level of mergers and acquisitions as financial buyers take advantage
of the current attractiveness of smaller companies.
We appreciate your ongoing support of Morgan Stanley Dean Witter International
SmallCap Fund and look forward to continuing to serve your investment needs and
objectives.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
2
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS AND RIGHTS (97.8%)
AUSTRALIA (6.7%)
CASINO/GAMBLING
1,033,700 Star City Holdings Ltd.*............................................................... $ 782,917
------------
DEPARTMENT STORES
586,000 David Jones Ltd........................................................................ 669,241
------------
ELECTRONIC COMPONENTS
1,476,069 E.R.G. Ltd............................................................................. 1,018,857
------------
GOLD MINING
392,000 Eltin Ltd.............................................................................. 307,475
------------
HOME BUILDING
1,377,214 Parbury Ltd............................................................................ 259,260
------------
HOSPITAL/NURSING MANAGEMENT
579,200 Australian Hospital Care Ltd........................................................... 381,620
------------
TOTAL AUSTRALIA........................................................................ 3,419,370
------------
DENMARK (1.3%)
NON - U.S. BANKS
14,150 Sydbank A/S............................................................................ 648,276
------------
FINLAND (5.6%)
CONSTRUCTION/AG EQUIP/TRUCKS
17,700 KCI Konecranes International PLC....................................................... 756,366
------------
INDUSTRIAL MACHINERY/COMPONENTS
43,595 Rauma Group............................................................................ 606,082
------------
MACHINERY
6,700 Kone Corp. (B Shares).................................................................. 767,826
------------
REAL ESTATE
63,000 Metsa Tissue Corp...................................................................... 562,904
------------
STEEL/IRON ORE
23,050 Rautaruukki OY......................................................................... 147,748
------------
TOTAL FINLAND.......................................................................... 2,840,926
------------
FRANCE (7.5%)
BROADCASTING
3,050 Societe Television Francaise 1......................................................... 534,287
------------
CONSTRUCTION/AG EQUIP/TRUCKS
20,021 Groupe Legris Industries S.A........................................................... 875,060
------------
CONSUMER SPECIALTIES
15,825 Europeenne D'Extincteurs............................................................... 902,694
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MULTI-SECTOR COMPANIES
5,075 Chargeurs S.A.......................................................................... $ 266,706
------------
REAL ESTATE
6,450 Alliance et Gestion Commerciale........................................................ 547,342
------------
TRANSPORTATION - SHIPPING
13,846 De Dietrich et Compagnie S.A........................................................... 726,427
------------
TOTAL FRANCE........................................................................... 3,852,516
------------
GERMANY (8.6%)
AUTO PARTS: O.E.M.
11,500 Beru AG................................................................................ 261,472
------------
BUILDING MATERIALS
1,800 Dyckerhoff AG (Pref.).................................................................. 563,397
------------
ENGINEERING & CONSTRUCTION
4,108 Philipp Holzmann AG.................................................................... 460,946
1,500 Sto AG (Pref.)*........................................................................ 428,748
------------
889,694
------------
INDUSTRIAL MACHINERY/COMPONENTS
1,920 Satorius AG (Pref.)*................................................................... 459,221
------------
MACHINERY
16,000 Winkler & Duennebier................................................................... 526,309
------------
MISCELLANEOUS
4,108 Holzmann (Rights)...................................................................... 988
------------
MOTOR VEHICLES
11,300 Kamps AG*.............................................................................. 653,989
------------
OTHER SPECIALTY STORES
3,240 Hornbach Holding AG (Pref.)............................................................ 229,611
18,750 Moebel Walther AG...................................................................... 786,187
------------
1,015,798
------------
TOTAL GERMANY.......................................................................... 4,370,868
------------
HONG KONG (2.1%)
BROADCASTING
76,000 Television Broadcasts Ltd.............................................................. 196,332
------------
CLOTHING/SHOE/ACCESSORY STORES
492,000 Esprit Holdings Ltd.................................................................... 181,116
------------
DIVERSIFIED ELECTRONIC PRODUCTS
52,000 VTech Holdings Ltd.*................................................................... 225,006
------------
ELECTRONIC COMPONENTS
38,000 Varitronix International Ltd........................................................... 72,643
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FOOD CHAINS
109,000 Dairy Farm International Holdings Ltd.................................................. $ 143,880
------------
MEDICAL/DENTAL DISTRIBUTORS
2,706,000 Quality Healthcare Asia Ltd.*.......................................................... 248,161
------------
TOTAL HONG KONG........................................................................ 1,067,138
------------
IRELAND (2.1%)
BANKS - EUROPEAN
430,720 Anglo Irish Bank Corp. PLC............................................................. 1,100,966
------------
ITALY (2.5%)
AUTO PARTS: O.E.M.
115,400 Sogefi SpA............................................................................. 319,199
------------
DIVERSIFIED FINANCIAL SERVICES
13,800 Banca Popolare di Bergamo Credito Varesino SpA......................................... 304,381
------------
OFFICE EQUIPMENT/SUPPLIES
186,900 Buffetti SpA........................................................................... 633,956
------------
TOTAL ITALY............................................................................ 1,257,536
------------
JAPAN (24.8%)
AIRLINES
5,000 H.I.S. Co., Ltd........................................................................ 107,592
------------
APPAREL
5,000 Nagaileben Co., Ltd.*.................................................................. 88,916
------------
AUTO PARTS: O.E.M.
20,000 NGK Spark Plug Co., Ltd................................................................ 184,815
------------
CLOTHING/SHOE/ACCESSORY STORES
9,000 Ryohin Keikaku Co., Ltd................................................................ 1,023,143
6,100 Shimamura Co., Ltd..................................................................... 241,226
------------
1,264,369
------------
COMPUTER SOFTWARE
6,000 Fuji Soft ABC Inc...................................................................... 246,041
------------
CONSUMER ELECTRONICS/APPLIANCES
12,000 Aiwa Co., Ltd.......................................................................... 348,843
------------
CONSUMER SUNDRIES
11,600 Aderans Co., Ltd....................................................................... 330,621
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED COMMERCIAL SERVICES
2,400 Bellsystem 24, Inc..................................................................... $ 459,927
8,200 Meitec Corp............................................................................ 193,098
------------
653,025
------------
DRUG STORE CHAIN
10,900 Matsumotokiyoshi Co.................................................................... 419,537
------------
ELECTRICAL PRODUCTS
7,000 Nidec Corp............................................................................. 781,567
27,000 Ushio Inc.............................................................................. 236,346
------------
1,017,913
------------
ELECTRONIC COMPONENTS
14,000 Sony Chemicals Corp.................................................................... 504,750
------------
ELECTRONIC PRODUCTION EQUIPMENT
7,000 Disco Corp............................................................................. 198,376
5,000 Fujimi Inc............................................................................. 185,546
------------
383,922
------------
FINANCIAL SERVICES
11,000 Aeon Credit Service Co., Ltd........................................................... 623,467
------------
FOOD CHAINS
13,000 Circle K Japan Co., Ltd................................................................ 529,923
7,600 Ministop Co., Ltd...................................................................... 183,597
------------
713,520
------------
HOME BUILDING
500 Higashi Nihon House Co................................................................. 1,624
------------
INDUSTRIAL MACHINERY/COMPONENTS
10,000 Fuji Machine Manufacturing Co., Ltd.................................................... 315,063
16,000 Hosiden Corp.*......................................................................... 277,385
14,000 Japan Cash Machine Co., Ltd............................................................ 188,713
9,000 Union Tool Co.......................................................................... 398,295
------------
1,179,456
------------
MACHINERY
12,000 Sato Corp.............................................................................. 195,859
------------
MEDICAL SPECIALTIES
11,000 Kawasumi Laboratories, Inc............................................................. 187,576
------------
METALS FABRICATIONS
16,000 Sumitomo Special Metals Co............................................................. 263,743
------------
OTHER SPECIALTY STORES
3,000 Otsuka Kagu Ltd........................................................................ 183,679
------------
REAL ESTATE
700 Chubu Sekiwa Real Estate, Ltd.......................................................... 3,837
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RESTAURANTS
7,000 Denny's Japan Co., Ltd................................................................. $ 167,682
13,100 Doutor Coffee Co., Ltd................................................................. 412,733
15,000 Saint Marc Co., Ltd.................................................................... 444,580
18,000 Watami Food Service Co., Ltd........................................................... 482,339
------------
1,507,334
------------
SERVICES TO THE HEALTH INDUSTRY
8,000 Nichii Gakkan Co....................................................................... 311,815
------------
SOFT DRINKS
12,300 Itoen, Ltd............................................................................. 523,362
------------
SPECIALTY CHEMICALS
28,000 Nippon Soda Co., Ltd................................................................... 157,564
------------
SPECIALTY FOODS/CANDY
11,000 Ariake Japan Co., Ltd.................................................................. 334,957
22,000 Rock Field Co., Ltd.................................................................... 401,949
------------
736,906
------------
STEEL/IRON ORE
5,000 Misumi Corp............................................................................ 88,510
------------
UTILITIES
13,000 Tokyo Seimitsu Co., Ltd................................................................ 430,694
------------
TOTAL JAPAN............................................................................ 12,659,290
------------
MALAYSIA (0.7%)
CASINO/GAMBLING
115,000 Tanjong PLC............................................................................ 99,116
------------
CATALOG/SPECIALTY DISTRIBUTION
72,000 Amway (Malaysia) Holdings Berhad....................................................... 104,751
------------
MOTOR VEHICLES
36,000 Oriental Holdings Berhad............................................................... 34,475
------------
MULTI-SECTOR COMPANIES
249,000 Hap Seng Consolidated Berhad........................................................... 116,017
------------
TOTAL MALAYSIA......................................................................... 354,359
------------
NETHERLANDS (8.3%)
CONSUMER ELECTRONICS/APPLIANCES
6,445 Atag Group NV.......................................................................... 172,155
------------
ENGINEERING & CONSTRUCTION
16,900 Hollandsche Beton Groep NV............................................................. 195,616
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FARMING/SEEDS/MILLING
14,100 Nutreco Holding NV..................................................................... $ 553,868
------------
MULTI-SECTOR COMPANIES
19,720 Apothekers Cooperatie OPG NV........................................................... 619,703
10,400 Internatio-Muller NV................................................................... 238,580
------------
858,283
------------
NEWSPAPERS
12,800 Holdingmaatschappij De Telegraaf NV.................................................... 331,849
------------
OFFICE EQUIPMENT/SUPPLIES
20,845 Samas Groep NV......................................................................... 339,538
------------
PACKAGE GOODS/COSMETICS
17,050 Benckiser NV (B Shares)................................................................ 1,009,087
------------
WHOLESALE & INTERNATIONAL TRADE
19,000 GTI Holding NV......................................................................... 507,516
10,500 Koninklijke Ahrend Groep NV............................................................ 247,473
------------
754,989
------------
TOTAL NETHERLANDS...................................................................... 4,215,385
------------
NEW ZEALAND (1.5%)
AIRCRAFT & AEROSPACE
219,500 Auckland Intl Airport Ltd.*............................................................ 243,151
------------
ENGINEERING & CONSTRUCTION
120,900 Fletcher Challenge Building............................................................ 152,334
------------
WHOLESALE DISTRIBUTOR
113,200 Fisher & Paykel Industries Ltd......................................................... 353,609
------------
TOTAL NEW ZEALAND...................................................................... 749,094
------------
NORWAY (2.0%)
CONSTRUCTION/AG EQUIP/TRUCKS
25,900 Kverneland ASA......................................................................... 615,530
------------
NON - U.S. BANKS
21,420 Sparebanken NOR........................................................................ 413,254
------------
TOTAL NORWAY........................................................................... 1,028,784
------------
SINGAPORE (1.6%)
ELECTRICAL PRODUCTS
40,000 GP Batteries International Ltd.*....................................................... 86,919
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC COMPONENTS
34,000 Venture Manufacturing (Singapore) Ltd.................................................. $ 130,015
------------
INDUSTRIAL MACHINERY/COMPONENTS
204,000 Natsteel Broadway Ltd.................................................................. 228,480
------------
MULTI-SECTOR COMPANIES
233,000 Informatics Holdings Ltd.*............................................................. 83,442
------------
PRECISION INSTRUMENTS
98,000 Avimo Group Ltd........................................................................ 151,684
------------
SPECIALTY FOODS/CANDY
50,000 Want Want Holdings..................................................................... 60,000
------------
TOBACCO
11,000 Rothmans Industries Ltd................................................................ 62,762
------------
TOTAL SINGAPORE........................................................................ 803,302
------------
SPAIN (1.8%)
DIVERSIFIED COMMERCIAL SERVICES
21,800 Prosegur, CIA de Seguridad S.A......................................................... 264,014
------------
PRINTING FORMS
18,350 Miquel y Costas & Miquel, S.A.......................................................... 659,076
------------
TOTAL SPAIN............................................................................ 923,090
------------
SWEDEN (1.5%)
INDUSTRIAL MACHINERY/COMPONENTS
20,500 Haldex AB*............................................................................. 245,622
------------
MEDICAL/NURSING SERVICES
35,610 Nobel Biocare AB....................................................................... 505,432
------------
TOTAL SWEDEN........................................................................... 751,054
------------
SWITZERLAND (4.7%)
ADVERTISING
150 Publigroupe S.A........................................................................ 42,617
------------
CONSTRUCTION/AG EQUIP/TRUCKS
286 Bucher Holding AG (Bearer Shares)...................................................... 262,649
------------
CONTAINERS/PACKAGING
980 SIG Schweizerische Industrie-
Gesellschaft Holding AG
(Registered Shares).................................................................. 632,802
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL MACHINERY/COMPONENTS
160 Bobst AG (Bearer Shares)............................................................... $ 216,785
900 Zehnder Holdings AG.................................................................... 417,779
------------
634,564
------------
OTHER SPECIALTY STORES
3,095 Valora Holding AG...................................................................... 810,500
------------
TOTAL SWITZERLAND...................................................................... 2,383,132
------------
UNITED KINGDOM (14.5%)
ADVERTISING
395,500 Aegis Group PLC*....................................................................... 585,367
------------
BROADCASTING
67,900 Capital Radio PLC...................................................................... 612,497
------------
FOOD DISTRIBUTORS
334,400 Christian Salvesen PLC................................................................. 551,459
------------
INDUSTRIAL MACHINERY/COMPONENTS
212,800 Bunzl PLC.............................................................................. 951,016
174,500 The Six Hundred Group PLC.............................................................. 192,804
------------
1,143,820
------------
MEAT/POULTRY/FISH
528,000 Bernard Matthews PLC................................................................... 948,655
------------
MEDICAL/NURSING SERVICES
107,700 Westminster Health Care Holdings PLC................................................... 337,455
------------
MISCELLANEOUS MATERIALS & COMMODITIES
205,200 Quadramatic PLC........................................................................ 521,129
------------
MULTI-SECTOR COMPANIES
231,900 SIG PLC................................................................................ 539,221
------------
OTHER METALS/MINERALS
178,200 English China Clays PLC................................................................ 502,517
------------
OTHER PHARMACEUTICALS
38,012 Seton Scholl Healthcare PLC............................................................ 545,365
------------
RETAIL - GENERAL MERCHANDISE
41,800 Le Riche Group Ltd..................................................................... 322,604
------------
SPECIALTY FOODS/CANDY
234,350 Devro PLC.............................................................................. 629,941
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
WHOLESALE DISTRIBUTOR
151,300 Time Products PLC...................................................................... $ 162,804
------------
TOTAL UNITED KINGDOM................................................................... 7,402,834
------------
TOTAL COMMON AND PREFERRED
STOCKS AND RIGHTS
(IDENTIFIED COST $51,042,005).......................................................... 49,827,920
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (2.9%)
U.S. GOVERNMENT AGENCY
$ 1,500 Federal Home Loan Banks 5.15% due 12/01/98 (AMORTIZED COST $1,500,000)................. 1,500,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $52,542,005) (B).......................................................... 100.7 % 51,327,920
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (0.7) (348,359)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 50,979,561
------ ------------
------ ------------
</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 $5,851,433 and the
aggregate gross unrealized depreciation is $7,065,518, resulting in net
unrealized depreciation of $1,214,085.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT NOVEMBER 30, 1998:
<TABLE>
<CAPTION>
IN
CONTRACTS TO EXCHANGE DELIVERY UNREALIZED
DELIVER FOR DATE DEPRECIATION
- --------------------------------------------------
<S> <C> <C> <C>
JPY 366,744,000 $2,800,000 12/24/98 $ (190,206)
JPY 417,000,000 $3,000,000 03/03/99 (431,525)
-----------
Total unrealized depreciation........ $ (621,731)
-----------
-----------
</TABLE>
CURRENCY ABBREVIATION:
JPY Japanese Yen.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
SUMMARY OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Advertising........................................................................ $ 627,984 1.2 %
Aircraft & Aerospace............................................................... 243,151 0.5
Airlines........................................................................... 107,592 0.2
Apparel............................................................................ 88,916 0.2
Auto Parts: O.E.M.................................................................. 765,486 1.5
Banks - European................................................................... 1,100,966 2.2
Broadcasting....................................................................... 1,343,116 2.6
Building Materials................................................................. 563,397 1.1
Casino/Gambling.................................................................... 882,033 1.7
Catalog/Specialty Distribution..................................................... 104,751 0.2
Clothing/Shoe/Accessory Stores..................................................... 1,445,485 2.8
Computer Software.................................................................. 246,041 0.5
Construction/Ag Equip/Trucks....................................................... 2,509,605 4.9
Consumer Electronics/Appliances.................................................... 520,998 1.0
Consumer Specialties............................................................... 902,694 1.8
Consumer Sundries.................................................................. 330,621 0.7
Containers/Packaging............................................................... 632,802 1.2
Department Stores.................................................................. 669,241 1.3
Diversified Commercial Services.................................................... 917,039 1.8
Diversified Electronic Products.................................................... 225,006 0.4
Diversified Financial Services..................................................... 304,381 0.6
Drug Store Chain................................................................... 419,537 0.8
Electrical Products................................................................ 1,104,832 2.2
Electronic Components.............................................................. 1,726,265 3.4
Electronic Production Equipment.................................................... 383,922 0.8
Engineering & Construction......................................................... 1,237,644 2.4
Farming/Seeds/Milling.............................................................. 553,868 1.1
Financial Services................................................................. 623,467 1.2
Food Chains........................................................................ 857,400 1.7
Food Distributors.................................................................. 551,459 1.1
Gold Mining........................................................................ 307,475 0.6
Home Building...................................................................... 260,884 0.5
Hospital/Nursing Management........................................................ 381,620 0.7
Industrial Machinery/Components.................................................... 4,497,245 8.8
Machinery.......................................................................... 1,489,995 2.9
Meat/Poultry/Fish.................................................................. 948,655 1.9
Medical Specialties................................................................ 187,576 0.4
Medical/Dental Distributors........................................................ 248,161 0.5
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medical/Nursing Services........................................................... $ 842,887 1.7 %
Metals Fabrications................................................................ 263,743 0.5
Miscellaneous...................................................................... 988 0.0
Miscellaneous Materials & Commodities.............................................. 521,129 1.0
Motor Vehicles..................................................................... 688,464 1.4
Multi-Sector Companies............................................................. 1,863,669 3.7
Newspapers......................................................................... 331,849 0.7
Non - U.S. Banks................................................................... 1,061,530 2.1
Office Equipment/Supplies.......................................................... 973,494 1.9
Other Metals/Minerals.............................................................. 502,517 1.0
Other Pharmaceuticals.............................................................. 545,365 1.1
Other Specialty Stores............................................................. 2,009,977 3.9
Package Goods/Cosmetics............................................................ 1,009,087 2.0
Precision Instruments.............................................................. 151,684 0.3
Printing Forms..................................................................... 659,076 1.3
Real Estate........................................................................ 1,114,083 2.2
Restaurants........................................................................ 1,507,333 3.0
Retail - General Merchandise....................................................... 322,604 0.6
Services To The Health Industry.................................................... 311,815 0.6
Soft Drinks........................................................................ 523,362 1.0
Specialty Chemicals................................................................ 157,564 0.3
Specialty Foods/Candy.............................................................. 1,426,847 2.8
Steel/Iron Ore..................................................................... 236,258 0.5
Tobacco............................................................................ 62,762 0.1
Transportation - Shipping.......................................................... 726,427 1.4
U.S. Government Agency............................................................. 1,500,000 2.9
Utilities.......................................................................... 430,694 0.8
Wholesale & International Trade.................................................... 754,989 1.5
Wholesale Distributor.............................................................. 516,413 1.0
----------- -----
$51,327,920 100.7 %
----------- -----
----------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks...................................................................... $48,145,955 94.5 %
Preferred Stocks................................................................... 1,680,977 3.3
Rights............................................................................. 988 0.0
Short-Term Investment.............................................................. 1,500,000 2.9
----------- -----
$51,327,920 100.7 %
----------- -----
----------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $52,542,005)................................................................ $51,327,920
Cash (including $71,875 in foreign currency)................................................... 244,350
Receivable for:
Investments sold........................................................................... 578,197
Dividends.................................................................................. 80,973
Foreign withholding taxes reclaimed........................................................ 58,134
Shares of beneficial interest sold......................................................... 27,795
Deferred organizational expenses............................................................... 22,133
Prepaid expenses and other assets.............................................................. 82,845
-----------
TOTAL ASSETS.............................................................................. 52,422,347
-----------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts............................. 621,731
Payable for:
Investments purchased...................................................................... 568,550
Shares of beneficial interest repurchased.................................................. 74,445
Investment management fee.................................................................. 50,652
Plan of distribution fee................................................................... 43,393
Accrued expenses and other payables............................................................ 84,015
-----------
TOTAL LIABILITIES......................................................................... 1,442,786
-----------
NET ASSETS................................................................................ $50,979,561
-----------
-----------
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................................................ $74,970,528
Net unrealized depreciation.................................................................... (1,857,163)
Net investment loss............................................................................ (248,181)
Accumulated net realized loss.................................................................. (21,885,623)
-----------
NET ASSETS................................................................................ $50,979,561
-----------
-----------
CLASS A SHARES:
Net Assets..................................................................................... $370,599
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 48,262
NET ASSET VALUE PER SHARE................................................................. $7.68
-----------
-----------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)......................................... $8.11
-----------
-----------
CLASS B SHARES:
Net Assets..................................................................................... $50,395,167
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 6,632,607
NET ASSET VALUE PER SHARE................................................................. $7.60
-----------
-----------
CLASS C SHARES:
Net Assets..................................................................................... $158,602
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 20,873
NET ASSET VALUE PER SHARE................................................................. $7.60
-----------
-----------
CLASS D SHARES:
Net Assets..................................................................................... $55,193
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)...................................... 7,198
NET ASSET VALUE PER SHARE................................................................. $7.67
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $75,027 foreign withholding tax)............................................. $ 610,636
Interest....................................................................................... 42,003
-----------
TOTAL INCOME.............................................................................. 652,639
-----------
EXPENSES
Investment management fee...................................................................... 336,498
Plan of distribution fee (Class A shares)...................................................... 462
Plan of distribution fee (Class B shares)...................................................... 288,815
Plan of distribution fee (Class C shares)...................................................... 492
Transfer agent fees and expenses............................................................... 81,579
Shareholder reports and notices................................................................ 63,121
Professional fees.............................................................................. 48,418
Registration fees.............................................................................. 25,858
Custodian fees................................................................................. 22,617
Organizational expenses........................................................................ 16,836
Trustees' fees and expenses.................................................................... 5,807
Other.......................................................................................... 10,317
-----------
TOTAL EXPENSES............................................................................ 900,820
-----------
NET INVESTMENT LOSS....................................................................... (248,181)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments................................................................................ 90,175
Foreign exchange transactions.............................................................. 214,186
-----------
NET GAIN.................................................................................. 304,361
-----------
Net change in unrealized appreciation/depreciation on:
Investments................................................................................ (8,847,525)
Translation of forward foreign currency contracts, other assets and liabilities denominated
in foreign currencies.................................................................... (643,078)
-----------
NET DEPRECIATION.......................................................................... (9,490,603)
-----------
NET LOSS.................................................................................. (9,186,242)
-----------
NET DECREASE................................................................................... $(9,434,423)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1998 MAY 31, 1998*
- ----------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss........................................................ $ (248,181) $ (1,010,832)
Net realized gain.......................................................... 304,361 4,988,366
Net change in unrealized appreciation...................................... (9,490,603) (6,927,685)
----------------- -------------
NET DECREASE.......................................................... (9,434,423) (2,950,151)
Net decrease from transactions in shares of beneficial interest............ (10,791,538) (31,152,512)
----------------- -------------
NET DECREASE.......................................................... (20,225,961) (34,102,663)
NET ASSETS:
Beginning of period........................................................ 71,205,522 105,308,185
----------------- -------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $248,181 AND $0, RESPECTIVELY)..... $ 50,979,561 $ 71,205,522
----------------- -------------
----------------- -------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter International SmallCap 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 long-term growth of capital. The Fund seeks to achieve its
objective by investing primarily in equity securities of "small capitalization"
companies located outside of the United States. The Fund was organized as a
Massachusetts business trust on April 21, 1994 and commenced operations on July
29, 1994. 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) listed options are valued at the latest sale price
on the exchange on which they are listed unless no sales of such options have
taken place that day, in which case they will be valued at the mean between
their latest bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (4) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") or Morgan Stanley Dean Witter Investment Management Inc. (the
"Sub-Advisor"), an affiliate of the Investment Manager, that sale and bid prices
are not reflective of a security's market value, portfolio
12
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
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); 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 from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes a call option, an amount
equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as a liability which is subsequently marked-to-market to reflect the
current market value of the option written. If a written option either expires
or the Fund enters into a closing purchase transaction, the Fund realizes a gain
or loss without regard to any unrealized gain or loss on the underlying security
or currency and the liability related to such option is extinguished. If a
written call option is exercised, the Fund realizes a gain or loss from the sale
of the underlying security or currency and the proceeds from such sale are
increased by the premium originally received.
When the Fund purchases a call or put option, the premium paid is recorded as an
investment which is subsequently marked-to-market to reflect the current market
value. If a purchased option expires, the Fund will realize a loss to the extent
of the premium paid. If the Fund enters into a closing sale transaction, a gain
or loss is realized for the difference between the proceeds from the sale and
the
13
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
cost of the option. If a put option is exercised, the cost of the security or
currency sold upon exercise will be increased by the premium originally paid. If
a call option is exercised, the cost of the security purchased upon exercise
will be increased by the premium originally paid.
E. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized 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
14
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
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.
I. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $172,000 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, accrued daily and payable monthly, by applying the
annual rate of 1.15% 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.
Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
15
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C - up to 1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for (1)
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, 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 $8,288,034 at November 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to 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, 1998, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.25%
and 1.0%, respectively.
16
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
The Distributor has informed the Fund that for the six months ended November 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $109,461 and $23, respectively and
received $2,911 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, 1998 aggregated
$9,053,782 and $17,699,317, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At November 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $13,000.
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, 1998 MAY 31, 1998*
---------------------------- --------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 122,652 $ 918,578 37,467 $ 315,275
Redeemed......................................................... (110,317) (823,853) (1,540) (12,809)
----------- -------------- ----------- ------------
Net increase - Class A........................................... 12,335 94,725 35,927 302,466
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 259,752 2,099,412 1,496,043 2,527,299
Redeemed......................................................... (1,581,188) (12,311,612) (5,352,008) (44,859,325)
----------- -------------- ----------- ------------
Net decrease - Class B........................................... (1,321,436) (10,212,200) (3,855,965) (32,332,026)
----------- -------------- ----------- ------------
CLASS C SHARES
Sold............................................................. 13,592 107,079 12,297 106,649
Redeemed......................................................... (1,527) (11,693) (3,489) (27,753)
----------- -------------- ----------- ------------
Net increase - Class C........................................... 12,065 95,386 8,808 78,896
----------- -------------- ----------- ------------
CLASS D SHARES
Sold............................................................. 109,753 815,639 95,823 798,152
Redeemed......................................................... (198,378) (1,585,088) -- --
----------- -------------- ----------- ------------
Net increase (decrease) - Class D................................ (88,625) (769,449) 95,823 798,152
----------- -------------- ----------- ------------
Net decrease in Fund............................................. (1,385,661) $ (10,791,538) (3,715,407) $(31,152,512)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through May 31, 1998.
17
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
6. FEDERAL INCOME TAX STATUS
At May 31, 1998, the Fund had a net capital loss carryover of approximately
$21,944,000, 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
- ---------------------------------
2004 2005 2006
- --------- --------- -----------
<S> <C> <C>
$ 7,034 $ 1,455 $ 13,455
- --------- --------- -----------
- --------- --------- -----------
</TABLE>
As of May 31, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities. The Fund may also purchase put options on foreign
currencies in which the securities are denominated to hedge against adverse
foreign currency and market risk.
Forward contracts and purchased put options on foreign currency 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 and over-the-counter purchased put options from
the potential inability of the counterparties to meet the terms of their
contracts.
At November 30, 1998, there were outstanding forward contracts.
18
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP 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 ENDED MAY 31, JULY 29, 1994*
MONTHS ENDED --------------------------------------------- THROUGH
NOVEMBER 30, 1998++ 1998**++ 1997 1996 MAY 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of
period....................... $ 8.80 $ 8.92 $ 10.28 $ 8.54 $ 10.00
------ ---------- ----------- ----------- ------
Income (loss) from investment
operations:
Net investment loss........ (0.03) (0.11) (0.16) (0.08) (0.08)
Net realized and unrealized
gain (loss)................ (1.17) (0.01) (0.88) 1.82 (1.38)
------ ---------- ----------- ----------- ------
Total income (loss) from
investment operations........ (1.20) (0.12) (1.04) 1.74 (1.46)
------ ---------- ----------- ----------- ------
Dividends from net investment
income....................... -- -- (0.38) -- --
------ ---------- ----------- ----------- ------
Capital contribution.......... -- -- 0.06 -- --
------ ---------- ----------- ----------- ------
Net asset value, end of
period....................... $ 7.60 $ 8.80 $ 8.92 $ 10.28 $ 8.54
------ ---------- ----------- ----------- ------
------ ---------- ----------- ----------- ------
TOTAL RETURN+................. (13.41)%(1) (1.35)% (9.52)%(3) 20.37% (14.60)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 3.09%(2)(4) 3.06% 2.89% 2.85% 2.90%(2)
Net investment loss........... (0.86)%(2)(4) (1.24)% (1.34)% (1.09)% (1.12)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $50,395 $69,960 $105,308 $145,254 $93,729
Portfolio turnover rate....... 16%(1) 178% 46% 44% 41%(1)
</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) Includes voluntary capital contribution from Morgan Grenfell Investment
Services Limited, the former sub-advisor, the effect of which was to
increase total return by 0.59%.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE SIX JULY 28,
MONTHS ENDED 1997*
NOVEMBER 30, THROUGH
1998 MAY 31, 1998
- ---------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 8.85 $ 8.96
------ ------
Loss from investment operations:
Net investment loss................................................ (0.01) --
Net realized and unrealized loss................................... (1.16) (0.11)
------ ------
Total loss from investment operations................................. (1.17) (0.11)
------ ------
Net asset value, end of period........................................ $ 7.68 $ 8.85
------ ------
------ ------
TOTAL RETURN+......................................................... (12.99)%(1) (1.23)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.34%(2)(3) 2.52%(2)
Net investment income (loss).......................................... (0.11)%(2)(3) 0.03%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 371 $ 318
Portfolio turnover rate............................................... 16%(1) 178%
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 8.80 $ 8.96
------ ------
Loss from investment operations:
Net investment loss................................................ (0.04) (0.09)
Net realized and unrealized loss................................... (1.16) (0.07)
------ ------
Total loss from investment operations................................. (1.20) (0.16)
------ ------
Net asset value, end of period........................................ $ 7.60 $ 8.80
------ ------
------ ------
TOTAL RETURN+......................................................... (13.41)%(1) (1.79)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 3.09%(2)(3) 3.16%(2)
Net investment loss................................................... (0.86)%(2)(3) (1.37)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $159 $77
Portfolio turnover rate............................................... 16%(1) 178%
</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
20
<PAGE>
MORGAN STANLEY DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE
PERIOD
JULY 28,
FOR THE SIX 1997*
MONTHS ENDED THROUGH
NOVEMBER 30, MAY 31,
1998 1998
- --------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 8.87 $ 8.96
------ -----------
Loss from investment operations:
Net investment income.............................................. 0.01 --
Net realized and unrealized loss................................... (1.21) (0.09)
------ -----------
Total loss from investment operations................................. (1.20) (0.09)
------ -----------
Net asset value, end of period........................................ $ 7.67 $ 8.87
------ -----------
------ -----------
TOTAL RETURN+......................................................... (13.30)%(1) (1.00)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.09%(2)(3) 2.31%(2)
Net investment income (loss).......................................... 0.14%(2)(3) (0.02)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $55 $850
Portfolio turnover rate............................................... 16%(1) 178%
</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
21
<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
INTERNATIONAL
SMALLCAP FUND
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
- --------------------------------------------------------------------------------
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
- --------------------------------------------------------------------------------
TRANSFER AGENT
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
