<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Two World Trade Center, New York, New York 10048
Letter to the Shareholders November 30, 1999
DEAR SHAREHOLDER:
During the six-month period ended November 30, 1999, the U.S. stock market
reached new highs in spite of a 75-basis-point increase in the federal-funds
rate. Relatively strong global economic growth and increasing crude oil prices
led to concerns about inflation. As a result of these concerns, financials as
well as several other sectors posted negative returns, including basic
materials, consumer staples, energy, transportation and utilities. Only two
sectors represented in the Standard & Poor's 500 Composite Stock Price Index
(S&P 500) -- technology and telecommunications services -- posted double-digit
returns during this period, fueled by optimism that considerable demand for
technology would continue into the new millennium.
PERFORMANCE
For the six-month period ended November 30, 1999, the Fund's Class B shares
produced a total return of -3.90 percent, compared to 7.36 percent for the S&P
500. For the same period, the Fund's A, C and D shares posted total returns of
- -3.53 percent, -3.90 percent and -3.41 percent, respectively. The performance of
the Fund's four share classes varies because each class has different expenses.
(The total return figures shown assume the reinvestment of all distributions and
do not reflect the deduction of any applicable sales charges.)
PORTFOLIO STRATEGY
The Fund continues to focus on companies in the wealth-management and
capital-markets businesses, including brokers, life insurers selling retirement
products and banks focused on asset management.
As mentioned in our last report to shareholders (dated May 31, 1999), we
repositioned the Fund earlier this year to take advantage of an anticipated
higher-interest-rate environment. When interest rates increased as expected, the
mortgage issues we added to the Fund's portfolio outperformed other
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Letter to the Shareholders November 30, 1999, continued
sectors within the financial services industry. During this period we eliminated
the Fund's position in property and casualty insurers, as fundamentals for that
market segment have yet to improve significantly. We once again increased the
Fund's exposure to capital-market-oriented stocks, because global merger and
underwriting activity has remained extremely robust. The Fund has also increased
its exposure to the Internet financial-services stocks related to online bill
payment, which we believe will soon become a mass-market phenomenon, and to the
technology companies that are helping to drive this new way of delivering
financial services.
The Fund has also added a roughly 5 percent weighting in Japanese banks. We
believe that Japan's economy is in the early stages of recovery following its
prolonged recession, normally a period when financial-services firms' earnings
bottom and then begin to improve. In addition, many of the Japanese banks are
starting to take more serious steps toward restructuring. We believe the
combination of these factors makes a compelling case for investing in Japanese
banks.
LOOKING AHEAD
We believe that the global economy will continue to improve in the coming year.
Accordingly, we will continue to look for financial-services companies that are
not overly susceptible to changes in credit quality and those that are based in
regions of the world benefiting from the early stages of economic expansion.
Given that the U.S. economy is now entering its tenth year of expansion, we
believe that earnings growth has likely peaked for the domestic
financial-services sector in this economic cycle.
Going forward we will continue to overweight segments of the financial-services
industry that we believe will have above-average earnings growth relative to
their peer group and those that are best positioned to benefit from
consolidation, deregulation and technology.
We appreciate your ongoing support of Morgan Stanley Dean Witter Financial
Services Trust and look forward to continuing to serve your investment
objectives.
Very truly yours,
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
2
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Fund Performance November 30, 1999
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
CLASS A SHARES*
- -------------------------------------------------------------
PERIOD ENDED 11/30/99
- --------------------------
1 Year 15.40%(1) 9.34%(2)
From Inception (7/28/97) 18.03%(1) 15.34%(2)
CLASS B SHARES+
- -------------------------------------------------------------
PERIOD ENDED 11/30/99
- --------------------------
1 Year 14.54%(1) 9.54%(2)
From Inception (2/26/97) 20.31%(1) 19.52%(2)
CLASS C SHARES++
- --------------------------------------------------------------
PERIOD ENDED 11/30/99
- --------------------------
1 Year 14.54%(1) 13.54%(2)
From Inception (7/28/97) 17.13%(1) 17.13%(2)
CLASS D SHARES#
- ----------------------------------------------
PERIOD ENDED 11/30/99
- --------------------------
1 Year 15.78%(1)
From Inception (7/28/97) 18.02%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
- ---------------
(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.
3
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Portfolio of Investments November 30, 1999 (unaudited)
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (93.1%)
Accident & Health Insurance (1.0%)
141,000 Torchmark Corp. .......................... $ 4,476,750
-----------
Advertising (0.3%)
9,000 DoubleClick Inc.* ........................ 1,440,000
-----------
Computer Software (2.9%)
16,000 Citrix Systems, Inc.* .................... 1,521,000
47,500 Great Plains Software, Inc.* ............. 2,538,281
180,000 Intuit Inc.* ............................. 8,988,750
-----------
13,048,031
-----------
Diversified Commercial
Services (8.3%)
333,500 CheckFree Holdings Corp.* ................ 21,865,094
447,000 Concord EFS, Inc.* ....................... 11,733,750
95,500 Paychex, Inc. ............................ 3,808,062
-----------
37,406,906
-----------
Diversified Financial Services (9.4%)
120,000 American Express Co. ..................... 18,157,500
450,000 Citigroup Inc. ........................... 24,243,750
-----------
42,401,250
-----------
E.D.P. Services (2.9%)
88,000 Automatic Data Processing, Inc. .......... 4,345,000
200,000 First Data Corp. ......................... 8,650,000
-----------
12,995,000
-----------
Electronic Data Processing (0.4%)
12,000 Sun Microsystems, Inc.* .................. 1,586,250
-----------
Electronic Production
Equipment (0.2%)
8,900 ASM Lithography Holding NV
(Netherlands)* ......................... 832,706
-----------
Finance Companies (1.5%)
60,000 NextCard, Inc.* .......................... 1,991,250
95,000 SLM Holding Corp. ........................ 4,708,437
-----------
6,699,687
-----------
Financial Publishing/Services (3.2%)
97,500 FactSet Research Systems Inc. ............ 6,045,000
150,000 McGraw-Hill Companies, Inc. .............. 8,503,125
-----------
14,548,125
-----------
International Banks (5.3%)
792,000 Asahi Bank Ltd. (The) (Japan) ............ 5,551,765
360,000 Fuji Bank, Limited (The) (Japan) ......... 4,312,941
1,000,000 Mitsui Trust & Banking Co., Ltd.
(Japan) ................................ 3,088,235
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
800,000 Sakura Bank Ltd. (Japan) ................. $ 5,921,569
565,000 Sumitomo Trust & Banking Co.,
Ltd. (Japan) ........................... 4,852,353
-----------
23,726,863
-----------
Internet Services (2.1%)
35,000 VeriSign, Inc.* .......................... 6,501,250
7,500 Vignette Corp.* .......................... 1,551,562
7,000 Yahoo! Inc.* ............................. 1,490,125
-----------
9,542,937
-----------
Investment Bankers/Brokers/
Services (12.1%)
180,000 Donaldson, Lufkin & Jenrette, Inc. ....... 9,056,250
177,000 Goldman Sachs Group, Inc. ................ 13,297,125
100,000 Hambrecht & Quist Group* ................. 4,975,000
217,000 Legg Mason, Inc. ......................... 7,635,687
202,000 Lehman Brothers Holdings, Inc. ........... 15,427,750
56,000 Merrill Lynch & Co., Inc. ................ 4,515,000
-----------
54,906,812
-----------
<PAGE>
Investment Managers (2.5%)
536,000 Amvescap PLC (United Kingdom) ............ 5,546,019
125,000 BlackRock, Inc.* ......................... 2,296,875
200,000 Federated Investors, Inc. (Class B) ...... 3,562,500
-----------
11,405,394
-----------
Life Insurance (6.0%)
25,285 Aegon N.V. (ARS) (Netherlands) ........... 2,278,811
54,325 Aegon N.V. (Netherlands) ................. 4,929,831
55,000 American General Corp. ................... 4,032,188
56,000 Jefferson-Pilot Corp. .................... 3,801,000
179,000 Protective Life Corp. .................... 5,728,000
149,000 ReliaStar Financial Corp. ................ 6,481,500
-----------
27,251,330
-----------
Major Banks (15.5%)
120,000 Bank of New York Co., Inc. ............... 4,785,000
200,000 Chase Manhattan Corp. (The) .............. 15,450,000
280,000 Mellon Financial Corp. ................... 10,202,500
50,000 PNC Bank Corp. ........................... 2,787,500
60,000 SunTrust Banks, Inc. ..................... 4,192,500
183,000 U.S. Bancorp ............................. 6,256,313
109,600 UnionBanCal Corp. ........................ 4,829,250
468,000 Wells Fargo & Co. ........................ 21,762,000
-----------
70,265,063
-----------
Mid-Sized Banks (3.3%)
155,000 Northern Trust Corp. ..................... 14,996,250
-----------
See Notes to Financial Statements
4
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Portfolio of Investments November 30, 1999 (unaudited) continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
Multi-Line Insurance (2.9%)
115,000 American International Group, Inc. ...... $ 11,873,750
55,000 Horace Mann Educators Corp. ............. 1,206,563
------------
13,080,313
------------
Multi-Sector Companies (4.7%)
165,000 General Electric Co. .................... 21,450,000
------------
Newspapers (0.7%)
50,000 Dow Jones & Co., Inc. ................... 3,031,250
------------
Other Consumer Services (0.5%)
45,000 Preview Travel, lnc.* ................... 2,081,250
------------
Savings & Loan Associations (2.5%)
110,000 Golden West Financial Corp. ............. 11,103,125
------------
Semiconductors (0.4%)
9,000 Broadcom Corp. (Class A)* ............... 1,611,000
------------
Smaller Banks (0.3%)
21,000 Zions Bancorporation .................... 1,354,500
------------
Specialty Insurers (4.2%)
105,000 MGIC Investment Corp. ................... 5,932,500
150,000 PMI Group, Inc. ......................... 7,490,625
120,000 Radian Group, Inc. ...................... 5,865,000
------------
19,288,125
------------
TOTAL COMMON STOCKS
(Identified Cost $373,591,745)........... 420,528,917
------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.9%)
U.S. GOVERNMENT AGENCY (a) (5.8%)
$ 26,500 Federal National Mortgage Assoc.
5.61% due 12/01/99
(Amortized Cost $26,500,000)....... $ 26,500,000
------------
REPURCHASE AGREEMENT (0.1%)
264 The Bank of New York 5.375%
due 12/01/99 (dated 11/30/99;
proceeds $263,695) (b)
(Identified Cost $263,656)......... 263,656
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $26,763,656)...... 26,763,656
------------
TOTAL INVESTMENTS
(Identified Cost $400,355,401) (c)......... 99.0% 447,292,573
OTHER ASSETS IN EXCESS OF
LIABILITIES ............................... 1.0 4,567,383
----- ------------
NET ASSETS ................................ 100.0% $451,859,956
===== ============
- --------------------------------
ARS American Registered Shares.
* 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) Collateralized by $297,443 U.S. Treasury Note 0% due 05/15/01
valued at $273,184.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$50,916,457 and the aggregate gross unrealized depreciation is
$3,979,285, resulting in net unrealized appreciation of
$46,937,172.
See Notes to Financial Statements
5
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $400,355,401)............................. $447,292,573
Receivable for:
Investments sold .......................................... 4,142,374
Shares of beneficial interest sold ........................ 1,121,029
Dividends ................................................. 361,442
Foreign withholding taxes reclaimed ....................... 32,668
Deferred organizational expenses ............................ 27,378
Prepaid expenses and other assets ........................... 82,378
------------
TOTAL ASSETS ............................................. 453,059,842
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ................. 471,688
Plan of distribution fee .................................. 388,017
Investment management fee ................................. 298,531
Accrued expenses and other payables ......................... 41,650
------------
TOTAL LIABILITIES ........................................ 1,199,886
------------
NET ASSETS ............................................... $451,859,956
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ............................................. $352,347,679
Net unrealized appreciation ................................. 46,936,868
Accumulated net investment loss ............................. (794,454)
Accumulated undistributed net realized gain ................. 53,369,863
------------
NET ASSETS ............................................... $451,859,956
============
CLASS A SHARES:
Net Assets .................................................. $4,826,895
Shares Outstanding (unlimited authorized, $.01 par value) ... 321,314
NET ASSET VALUE PER SHARE ................................ $15.02
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ........ $15.85
======
CLASS B SHARES:
Net Assets .................................................. $434,241,044
Shares Outstanding (unlimited authorized, $.01 par value) ... 29,393,168
NET ASSET VALUE PER SHARE ................................ $14.77
======
CLASS C SHARES:
Net Assets .................................................. $10,609,958
Shares Outstanding (unlimited authorized, $.01 par value) ... 718,222
NET ASSET VALUE PER SHARE ................................ $14.77
======
CLASS D SHARES:
Net Assets .................................................. $2,182,059
Shares Outstanding (unlimited authorized, $.01 par value) ... 145,424
NET ASSET VALUE PER SHARE ................................ $15.00
======
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Financial Statements, continued
STATEMENT OF OPERATIONS
For the six months ended November 30, 1999 (unaudited)
NET INVESTMENT LOSS:
INCOME
Dividends (net of $26,034 foreign withholding tax) .......... $ 2,715,483
Interest .................................................... 869,770
------------
TOTAL INCOME ............................................. 3,585,253
------------
EXPENSES
Plan of distribution fee (Class A shares) ................... 5,141
Plan of distribution fee (Class B shares) ................... 2,179,324
Plan of distribution fee (Class C shares) ................... 49,663
Investment management fee ................................... 1,690,415
Transfer agent fees and expenses ............................ 299,632
Registration fees ........................................... 44,560
Shareholder reports and notices ............................. 41,276
Professional fees ........................................... 31,607
Custodian fees .............................................. 23,843
Organizational expenses ..................................... 6,123
Trustees' fees and expenses ................................. 5,795
Other ....................................................... 2,138
------------
TOTAL EXPENSES ........................................... 4,379,517
------------
NET INVESTMENT LOSS ...................................... (794,264)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments .............................................. (53,242,495)
Foreign exchange transactions ............................ (1,783)
------------
NET LOSS ................................................. (53,244,278)
------------
Net change in unrealized appreciation/depreciation on:
Investments .............................................. 34,393,281
Translation of forward foreign currency contracts,
other assets and liabilities denominated in foreign
currencies ............................................. 2,007
------------
NET APPRECIATION ......................................... 34,395,288
------------
NET LOSS ................................................. (18,848,990)
------------
NET DECREASE ................................................ $(19,643,254)
============
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1999 MAY 31, 1999
------------------- ----------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C>
Net investment loss .................................. $ (794,264) $ (1,653,821)
Net realized gain (loss) ............................. (53,244,278) 118,351,450
Net change in unrealized appreciation ................ 34,395,288 (44,598,390)
------------ ------------
NET INCREASE (DECREASE) ........................... (19,643,254) 72,099,239
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN:
Class A shares ....................................... - (303,641)
Class B shares ....................................... - (37,658,512)
Class C shares ....................................... - (730,844)
Class D shares ....................................... - (152,943)
------------ ------------
TOTAL DISTRIBUTIONS ............................... - (38,845,940)
------------ ------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ (19,639,686) 80,095,593
------------ ------------
NET INCREASE (DECREASE) ........................... (39,282,940) 113,348,892
NET ASSETS:
Beginning of period .................................. 491,142,896 377,794,004
------------ ------------
END OF PERIOD
(Including accumulated net investment losses of
$794,454 and $190, respectively) .................. $451,859,956 $491,142,896
============ ============
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Notes to Financial Statements November 30, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Financial Services Trust (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is long-term capital appreciation. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in the equity securities
of companies in the financial services and financial services related
industries. The Fund was organized as a Massachusetts business trust on November
8, 1996 and commenced operations on February 26, 1997. 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 security is
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") 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 portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may
9
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Notes to Financial Statements November 30, 1999 (unaudited) continued
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 portfolio 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 gain/loss on foreign exchange transactions. The Fund
records realized gains or losses on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
10
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Notes to Financial Statements November 30, 1999 (unaudited) continued
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 incurred the organizational
expenses of the Fund in the amount of approximately $61,100 which have been
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 AGREEMENT
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 0.75% to the net assets of the Fund determined at 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.
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
11
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Notes to Financial Statements November 30, 1999 (unaudited) continued
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 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 $14,181,571 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 0.24%
and 1.0%, respectively.
12
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Notes to Financial Statements November 30, 1999 (unaudited) continued
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 A shares, Class B shares and Class C shares of $1,861,
$591,457, and $2,978, respectively and received $18,380 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
$524,492,295 and $534,949,259, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $27,109,233 and
$21,902,576, respectively.
For the six months ended November 30, 1999, the Fund incurred brokerage
commissions of $46,720 with DWR for portfolio transactions executed on behalf of
the Fund.
For the six months ended November 30, 1999, the Fund incurred brokerage
commissions of $76,662 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent.
5. FEDERAL INCOME TAX STATUS
As of May 31, 1999, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
13
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Notes to Financial Statements November 30, 1999 (unaudited) continued
6. 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 .................................. 238,797 $ 3,524,104 518,207 $ 7,673,522
Reinvestment of distributions ......... - - 23,457 299,079
Repurchased ........................... (232,598) (3,427,798) (382,320) (5,646,484)
-------- ----------- -------- -------------
Net increase - Class A ................ 6,199 96,306 159,344 2,326,117
-------- ----------- -------- -------------
CLASS B SHARES
Sold .................................. 3,227,914 47,248,020 12,534,942 184,965,257
Reinvestment of distributions ......... - - 2,805,603 35,434,745
Repurchased ........................... (4,716,764) (68,307,726) (10,197,768) (148,220,180)
---------- ------------ ----------- -------------
Net increase (decrease) - Class B ..... (1,488,850) (21,059,706) 5,142,777 72,179,822
---------- ------------ ----------- -------------
CLASS C SHARES
Sold .................................. 160,368 2,344,064 519,816 7,705,724
Reinvestment of distributions ......... - - 56,557 714,314
Repurchased ........................... (112,745) (1,637,547) (273,320) (4,012,407)
---------- ------------ ----------- -------------
Net increase - Class C ................ 47,623 706,517 303,053 4,407,631
---------- ------------ ----------- -------------
CLASS D SHARES
Sold .................................. 204,367 2,887,422 435,918 6,435,748
Reinvestment of distributions ......... - - 572 7,257
Repurchased ........................... (148,104) (2,270,225) (352,926) (5,260,982)
---------- ------------ ----------- -------------
Net increase - Class D ................ 56,263 617,197 83,564 1,182,023
---------- ------------ ----------- -------------
Net increase (decrease) in Fund ....... (1,378,765) $(19,639,686) 5,688,738 $ 80,095,593
========== ============ =========== =============
</TABLE>
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 no outstanding forward contracts.
14
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
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)
CLASS A SHARES#
SELECTED PER SHARE DATA:
<S> <C> <C> <C>
Net asset value, beginning of period ................... $15.57 $14.44 $11.51
------ ------ ------
Income (loss) from investment operations:
Net investment income ................................. 0.03 0.05 0.04
Net realized and unrealized gain (loss) ............... (0.58) 2.48 3.13
------ ------ ------
Total income (loss) from investment operations ......... (0.55) 2.53 3.17
------ ------ ------
Less dividends and distributions from:
Net investment income ................................. - - (0.06)
Net realized gain ..................................... - (1.40) (0.18)
------ ----- ------
Total dividends and distributions ...................... - (1.40) (0.24)
------ ----- ------
Net asset value, end of period ......................... $15.02 $15.57 $14.44
====== ====== ======
TOTAL RETURN+ ......................................... (3.53)%(1) 19.63 % 27.74 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.19 %(2)(3) 1.20 %(3) 1.23 %(2)
Net investment income .................................. 0.40 %(2)(3) 0.37 %(3) 0.34 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $4,827 $4,905 $2,249
Portfolio turnover rate ................................ 125 %(1) 295 % 99 %
</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
15
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
Financial Highlights, continued
FOR THE SIX
MONTHS ENDED
NOVEMBER 30, 1999++
-----------------------
(unaudited)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $15.37
------
Income (loss) from investment operations:
Net investment income (loss) .......................... (0.03)
Net realized and unrealized gain (loss) ............... (0.57)
------
Total income (loss) from investment operations ......... (0.60)
------
Less dividends and distributions from:
Net investment income ................................. -
Net realized gain ..................................... -
------
Total dividends and distributions ...................... -
------
Net asset value, end of period ......................... $14.77
======
TOTAL RETURN+ ......................................... (3.90)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.95 %(2)(3)
Net investment income (loss) ........................... (0.36)%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $434,241
Portfolio turnover rate ................................ 125 %(1)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FEBRUARY 26, 1997*
ENDED ENDED THROUGH
MAY 31, 1999++ MAY 31, 1998**++ MAY 31, 1997
----------------- ------------------- -------------------
<S> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $14.38 $10.05 $10.00
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) .......................... (0.06) (0.05) 0.01
Net realized and unrealized gain (loss) ............... 2.45 4.58 0.04
------ ------ ------
Total income (loss) from investment operations ......... 2.39 4.53 0.05
------ ------ ------
Less dividends and distributions from:
Net investment income ................................. - (0.02) -
Net realized gain ..................................... (1.40) (0.18) -
------ ------ ------
Total dividends and distributions ...................... (1.40) (0.20) -
------ ------ ------
Net asset value, end of period ......................... $15.37 $14.38 $10.05
====== ====== ======
TOTAL RETURN+ ......................................... 18.69 % 45.25 % 0.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.97 %(3) 1.98 % 2.23%(2)
Net investment income (loss) ........................... (0.40)%(3) (0.38)% 0.64%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $474,549 $370,181 $176,651
Portfolio turnover rate ................................ 295 % 99 % 17%(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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
16
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
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)
CLASS C SHARES++
SELECTED PER SHARE DATA:
<S> <C> <C> <C>
Net asset value, beginning of period ................... $15.37 $14.38 $11.51
------- ------ ------
Income (loss) from investment operations:
Net investment loss ................................... (0.03) (0.05) (0.05)
Net realized and unrealized gain (loss) ............... (0.57) 2.44 3.13
------ ------ ------
Total income (loss) from investment operations ......... (0.60) 2.39 3.08
------ ------ ------
Less dividends and distributions from:
Net investment income ................................. - - (0.03)
Net realized gain ..................................... - (1.40) (0.18)
------ ------ ------
Total dividends and distributions ...................... - (1.40) (0.21)
------ ------ ------
Net asset value, end of period ......................... $14.77 $15.37 $14.38
====== ====== ======
TOTAL RETURN+ ......................................... (3.90)%(1) 18.69 % 26.95 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.95 %(2)(3) 1.91 %(3) 1.96 %(2)
Net investment loss .................................... (0.36)%(2)(3) (0.34)%(3) (0.42)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $10,610 $10,305 $5,284
Portfolio turnover rate ................................ 125 %(1) 295 % 99 %
</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
17
<PAGE>
Morgan Stanley Dean Witter Financial Services Trust
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)
CLASS D SHARES++
SELECTED PER SHARE DATA:
<S> <C> <C> <C>
Net asset value, beginning of period ................... $15.53 $14.35 $11.51
------- ------ ------
Income (loss) from investment operations:
Net investment income ................................. 0.03 0.04 0.08
Net realized and unrealized gain (loss) ............... (0.56) 2.54 3.01
------ ------ ------
Total income (loss) from investment operations ......... (0.53) 2.58 3.09
------ ------ ------
Less dividends and distributions from:
Net investment income ................................. - - (0.07)
Net realized gain ..................................... - (1.40) (0.18)
------ ------ ------
Total dividends and distributions ...................... - (1.40) (0.25)
------ ------ ------
Net asset value, end of period ......................... $15.00 $15.53 $14.35
====== ====== ======
TOTAL RETURN+ ......................................... (3.41)%(1) 20.12 % 27.03 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.95 %(2)(3) 0.97 %(3) 0.94 %(2)
Net investment income .................................. 0.64 %(2)(3) 0.60 %(3) 0.63 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $2,182 $1,385 $80
Portfolio turnover rate ................................ 125 %(1) 295 % 99 %
</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
18
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Michelle Kaufman
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
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
FINANCIAL SERVICES
TRUST
[GRAPHIC OMITTED]
SEMIANNUAL REPORT
NOVEMBER 30, 1999
