<PAGE> 1
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1999
DEAR SHAREHOLDER:
During the six-month period ended January 31, 1999, the equity markets continued
to take investors on a wild ride. After soaring to a record high of 9,338 in
July, the Dow plunged nearly 1,800 points by the end of August. Several factors
combined to drag down the prices of stocks, including a slowdown in profits
growth, the persistent Asian contagion, Russia's debt default and devaluation of
its ruble, the worsening White House scandal and the near collapse of a major
hedge fund. Fortunately, the steadying influence of the Goldilocks
economy -- featuring economic expansion with low inflation -- pulled the market
out of its summer slump and propelled it toward new highs in mid-January.
The performance of the health-care sector mirrored that of the broad equity
market, suffering sharply during the late-summer sell-off and rebounding
strongly in the market's fourth-quarter rally. Pharmaceutical and biotechnology
companies were among the sector's strongest performers as investors favored
companies with the most promising growth potential.
PERFORMANCE AND PORTFOLIO
During the six months ended January 31, 1999, Morgan Stanley Dean Witter Health
Sciences Trust's Class B shares posted a total return of 12.19 percent, compared
to returns of 15.03 percent for the S&P 500 Index and 15.05 percent for the
Lipper Health/Biotechnology Funds Index. For the same period, the Fund's Class
A, C and D shares returned 12.66 percent, 12.19 percent and 12.75 percent,
respectively. The performance of the Fund's four share classes varies because
each class has different expenses.
The Fund's underperformance relative to its benchmark indexes was due primarily
to its earlier focus on small-cap stocks, which underperformed their large-cap
counterparts. Over the course of the past six months, the Fund significantly
reduced its exposure to small-cap companies in favor of
<PAGE> 2
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
LETTER TO THE SHAREHOLDERS January 31, 1999, continued
larger companies, particularly in the pharmaceuticals arena (e.g., Merck,
Pfizer, Schering-Plough and SmithKline Beecham).
The Fund continues to invest in all aspects of the health-care market, focusing
on companies with solid demand for products and services, strong new product
cycles and experienced management. As of January 31, 1999, 38 percent of the
Fund's assets were invested in pharmaceutical companies (major pharmaceuticals,
generic drug companies and other pharmaceutical companies), 12 percent in
drug-distribution companies, 10 percent in medical products and supplies, 16
percent in biotechnology and 21 percent in various other health-care-related
areas. The Fund also maintained a significant exposure to foreign stocks and
American Depository Receipts (ADRs), which represented 21 percent of its net
assets.
Among the Fund's more significant holdings on January 31 were Allegiance
(subsequently merged into Cardinal Health, Inc.), Medtronic, McKesson, Roche,
Merck and Schering-Plough. The Fund continues to favor product companies
(pharmaceuticals and medical devices) over service companies.
LOOKING AHEAD
We are optimistic about the Fund's long-term prospects. Demographics will
continue to increase demand for health-care-related products and services
worldwide. Additionally, new product introductions in health care should
continue to drive revenue and earnings growth. In the very near term, concerns
about a major overhaul of Medicare may affect the performance of health-care
stocks. However, we believe that any significant changes in Medicare will likely
require several years to be enacted. In the interim we expect the companies the
Fund owns to continue to experience robust demand and earnings growth.
We appreciate your ongoing support of Morgan Stanley Dean Witter Health Sciences
Trust and look forward to continuing to serve your investment needs and
objectives.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS January 31, 1999 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.2%)
Biotechnology (15.6%)
90,000 Amgen Inc.*.................. $ 11,497,500
35,000 Axogen Ltd*.................. 1,010,625
110,000 Biogen, Inc.*................ 10,766,250
160,000 Elan Corp. PLC (ADR)
(Ireland)*.................. 10,800,000
25,000 Genentech, Inc. (Special)*... 2,034,375
50,000 IDEC Pharmaceuticals Corp.*.. 2,493,750
100,000 IDEXX Laboratories, Inc.*.... 2,600,000
30,000 Incyte Pharmaceuticals,
Inc.*....................... 900,000
75,000 Ligand Pharmaceuticals, Inc.
(Class B)*.................. 956,250
130,000 Maxim Pharmaceuticals,
Inc.*....................... 1,641,250
220,000 MedImmune, Inc.*............. 10,807,500
50,000 Pharmacyclics, Inc.*......... 1,093,750
------------
56,601,250
------------
Diversified Commercial Services (7.0%)
200,000 Dendrite International,
Inc.*....................... 6,100,000
36,250 Eclipsys Corp.*.............. 1,357,109
235,000 IMS Health Inc. ............. 8,606,875
175,000 Medquist, Inc.*.............. 6,081,250
65,000 Shared Medical Systems
Corp. ...................... 3,055,000
------------
25,200,234
------------
Drugstore Chains (4.4%)
100,736 CVS Corp. ................... 5,515,296
20,000 Duane Reade, Inc. ........... 600,000
75,000 Rite Aid Corp. .............. 3,684,375
100,000 Walgreen Co. ................ 6,250,000
------------
16,049,671
------------
E.D.P. Services (0.6%)
40,000 Envoy Corp.*................. 2,215,000
------------
Generic Drugs (0.6%)
40,000 Andrx Corp.*................. 2,265,000
------------
Hospital/Nursing Management (1.2%)
150,000 Columbia/HCA Healthcare
Corp. ...................... 2,718,750
140,000 Health Management Associates,
Inc. (Class A)*............. 1,758,750
------------
4,477,500
------------
Major Chemicals (3.0%)
225,000 Monsanto Co. ................ 10,701,562
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Major Pharmaceuticals (32.8%)
100,000 Abbott Laboratories.......... $ 4,643,750
100,000 American Home Products
Corp. ...................... 5,868,750
200,000 Astra AB (Class A) (ADR)
(Sweden).................... 4,375,000
10,000 Bristol-Myers Squibb Co. .... 1,281,875
115,000 Lilly (Eli) & Co. ........... 10,774,062
85,000 Merck & Co., Inc. ........... 12,473,750
5,500 Novartis AG (Switzerland)
(ARS)....................... 10,327,324
500 Novartis AG (Switzerland).... 940,969
30,000 Pfizer, Inc. ................ 3,858,750
175,000 Pharmacia & Upjohn, Inc. .... 10,062,500
1,000 Roche Holdings AG
(Switzerland)............... 13,071,757
225,000 Schering-Plough Corp. ....... 12,262,500
165,000 Smithkline Beecham PLC (ADR)
(United Kingdom)............ 11,189,062
110,000 Warner-Lambert Co. .......... 7,940,625
215,000 Zeneca Group PLC (ADR)
(United Kingdom)............ 10,105,000
------------
119,175,674
------------
Medical Specialties (10.5%)
60,000 Baxter International,
Inc. ....................... 4,256,250
50,000 Biomet, Inc. ................ 1,850,000
50,000 CONMED Corp.*................ 1,637,500
80,000 Guidant Corp. ............... 4,715,000
90,000 Haemonetics Corp.*........... 1,800,000
90,000 Hanger Orthopedic Group,
Inc.*....................... 2,250,000
182,918 Medtronic, Inc. ............. 14,576,254
40,000 NewVision Technology, Inc.
(Units)++*.................. 123,752
40,000 ResMed, Inc.*................ 1,965,000
100,000 Serologicals Corp.*.......... 2,600,000
50,000 Stryker Corp. ............... 2,318,750
------------
38,092,506
------------
Medical/Dental Distributors (12.4%)
350,000 Allegiance Corp. ............ 15,793,750
50,001 Bindley Western Industries,
Inc. ....................... 1,262,525
135,000 Cardinal Health, Inc. ....... 9,981,563
15,000 Henry Schein, Inc.*.......... 629,063
186,069 McKesson HBOC, Inc. ......... 13,978,434
47,400 Priority Healthcare Corp.*... 1,830,825
100,000 PSS World Medical, Inc. ..... 1,575,000
------------
45,051,160
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS January 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Medical/Nursing Services (2.1%)
125,000 Apria Healthcare Group,
Inc.*....................... $ 1,296,875
40,000 Pediatrix Medical Group,
Inc. ....................... 2,582,500
55,000 Quintiles Transnational
Corp.*...................... 2,853,125
25,000 Renal Care Group, Inc.*...... 771,875
------------
7,504,375
------------
Multi-Line Insurance (1.7%)
75,000 CIGNA Corp. ................. 6,178,125
------------
Other Pharmaceuticals (4.8%)
65,000 Forest Laboratories, Inc.*... 3,002,188
50,000 Sanofi S.A. (France)......... 9,825,535
150,000 Shire Pharmaceuticals Group
PLC (ADR) (United
Kingdom)*................... 3,150,000
5,000 Synthelabo (France).......... 1,272,208
------------
17,249,931
------------
Services to the Health Industry (0.5%)
25,000 Omnicare, Inc. .............. 765,625
45,000 United Payors & United
Providers, Inc.*............ 1,170,000
------------
1,935,625
------------
TOTAL COMMON STOCKS
(Identified Cost
$282,362,268)................ 352,697,613
------------
PRINCIPAL
AMOUNT IN
THOUSANDS
- --------
SHORT-TERM INVESTMENTS (0.9%)
U.S. GOVERNMENT AGENCY (a) (0.8%)
Federal Home Loan Banks
$ 3,000 4.62% due 02/01/99
(Amortized Cost $3,000,000)... 3,000,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.1%)
The Bank of New York
$ 281 4.688% due 02/01/99
(dated 01/29/99; proceeds
$281,784) (b)
(Identified Cost
$281,674)................... $ 281,674
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$3,281,674)................. 3,281,674
------------
355,979,287
TOTAL INVESTMENTS
(Identified Cost $285,643,942) (c)..98.1%
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 1.9 6,900,250
---- ------------
NET ASSETS....................... 100.0% $362,879,537
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
ARS American Regulatory Shares.
ADR American Depository Receipt.
* Non-income producing security.
++ Consists of more than one class of securities
traded together as a unit; common stocks with
attached warrants.
(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 $267,503 U.S. Treasury Note
6.25% due 01/31/02 valued at $287,308.
(c) The aggregate cost for federal income tax
purposes approximates identified cost. The
aggregate gross unrealized appreciation is
$75,273,001 and the aggregate gross unrealized
depreciation is $4,937,656, resulting in net
unrealized appreciation of $70,335,345.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $285,643,942)............................. $355,979,287
Foreign cash................................................ 970,591
Receivable for:
Investments sold........................................ 15,327,228
Shares of beneficial interest sold...................... 906,997
Dividends............................................... 74,192
Prepaid expenses and other assets........................... 43,661
------------
TOTAL ASSETS............................................ 373,301,956
------------
LIABILITIES:
Payable for:
Investments purchased................................... 9,162,173
Shares of beneficial interest repurchased............... 544,411
Investment management fee............................... 304,780
Plan of distribution fee................................ 303,377
Accrued expenses and other payables......................... 107,678
------------
TOTAL LIABILITIES....................................... 10,422,419
------------
NET ASSETS.............................................. $362,879,537
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $278,245,699
Net unrealized appreciation................................. 70,335,345
Accumulated net investment loss............................. (2,767,365)
Accumulated undistributed net realized gain................. 17,065,858
------------
NET ASSETS.............................................. $362,879,537
============
CLASS A SHARES:
Net Assets.................................................. $934,105
Shares Outstanding (unlimited authorized, $.01 par value)... 68,157
NET ASSET VALUE PER SHARE............................... $13.71
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $14.47
============
CLASS B SHARES:
Net Assets.................................................. $359,618,464
Shares Outstanding (unlimited authorized, $.01 par value)... 26,567,531
NET ASSET VALUE PER SHARE............................... $13.54
============
CLASS C SHARES:
Net Assets.................................................. $1,282,865
Shares Outstanding (unlimited authorized, $.01 par value)... 94,728
NET ASSET VALUE PER SHARE............................... $13.54
============
CLASS D SHARES:
Net Assets.................................................. $1,044,103
Shares Outstanding (unlimited authorized, $.01 par value)... 75,815
NET ASSET VALUE PER SHARE............................... $13.77
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended January 31, 1999 (unaudited)
NET INVESTMENT LOSS:
INCOME
Dividends (net of $2,284 foreign withholding tax)........... $ 745,652
Interest.................................................... 424,425
-----------
TOTAL INCOME............................................ 1,170,077
-----------
EXPENSES
Investment management fee................................... 1,725,974
Plan of distribution fee (Class A shares)................... 808
Plan of distribution fee (Class B shares)................... 1,712,342
Plan of distribution fee (Class C shares)................... 3,633
Transfer agent fees and expenses............................ 306,484
Registration fees........................................... 50,558
Shareholder reports and notices............................. 40,237
Professional fees........................................... 26,345
Custodian fees.............................................. 19,009
Trustees' fees and expenses................................. 9,459
Other....................................................... 6,444
-----------
TOTAL EXPENSES.......................................... 3,901,293
-----------
NET INVESTMENT LOSS..................................... (2,731,216)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 28,318,700
Net change in unrealized appreciation....................... 14,293,390
-----------
NET GAIN................................................ 42,612,090
-----------
NET INCREASE................................................ $39,880,874
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1999 JULY 31, 1998
- ----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................... $ (2,731,216) $ (7,505,328)
Net realized gain..................................... 28,318,700 100,959,963
Net change in unrealized appreciation
(depreciation)....................................... 14,293,390 (55,763,026)
------------ ------------
NET INCREASE...................................... 39,880,874 37,691,609
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN:
Class A shares........................................ (130,161) (7,675)
Class B shares........................................ (77,763,027) (29,731,527)
Class C shares........................................ (209,238) (13,129)
Class D shares........................................ (255,944) (1,158)
------------ ------------
TOTAL DISTRIBUTIONS............................... (78,358,370) (29,753,489)
------------ ------------
Net increase (decrease) from transactions in shares of
beneficial interest.................................. 43,950,941 (73,239,092)
------------ ------------
NET INCREASE (DECREASE)........................... 5,473,445 (65,300,972)
NET ASSETS:
Beginning of period................................... 357,406,092 422,707,064
------------ ------------
END OF PERIOD
(Including net investment losses of
$2,767,365 and $36,149, respectively)............. $362,879,537 $357,406,092
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Health Sciences Trust (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 capital appreciation. The Fund seeks to achieve its objective by
investing in securities of companies in the health sciences industry throughout
the world. The Fund was organized as a Massachusetts business trust on May 26,
1992 and commenced operations on October 30, 1992. 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, 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 or 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 a security is 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
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1999 (unaudited) continued
utilizing similar factors); (4) 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;
and (5) the market value of foreign denominated portfolio securities is
translated at the exchange rate prevailing at the end of the period.
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.
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 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.
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 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.
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
following annual rates to the net assets of the Fund determined at the close of
each business day: 1.0% to the portion of daily net assets not exceeding $500
million and 0.95% to the portion of daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's book 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 Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1999 (unaudited) continued
which is accrued daily and paid monthly at the following annual rates: (i) Class
A - up to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0%
of the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of dividend
or capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the average
daily net assets of Class B; and (iii) Class C - up to 1.0% of the average daily
net assets of Class C. In the case of Class A shares, amounts paid under the
Plan are paid to the Distributor for services provided. In the case of Class B
and Class C shares, amounts paid under the Plan are paid to the Distributor for
(1) services provided and the expenses borne by it and others in the
distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who engage
in or support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; (2) printing and distribution of
prospectuses and reports used in connection with the offering of these shares to
other than current shareholders; and (3) preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager 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 $13,169,135 at January 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1999 (unaudited) continued
months ended January 31, 1999, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended January 31,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $275,561, and $223, respectively
and received $3,630, 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 January 31, 1999, aggregated
$255,626,164 and $279,703,208, respectively.
For the six months ended January 31, 1999, the Fund incurred brokerage
commissions of $146,626 with DWR for portfolio transactions executed on behalf
of the Fund.
For the six months ended January 31, 1999, the Fund incurred brokerage
commissions of $23,250 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. At January 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $17,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended January 31, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,839. At January 31, 1999, the Fund had an accrued pension liability of
$38,240 which is included in accrued expenses in the Statement of Assets and
Liabilities.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1999 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1999 JULY 31, 1998
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 248,703 $ 3,687,110 152,175 $ 2,404,229
Reinvestment of distributions............................... 9,853 130,161 558 7,674
Redeemed.................................................... (207,394) (3,231,779) (136,405) (2,170,034)
---------- ------------ ----------- -------------
Net increase - Class A...................................... 51,162 585,492 16,328 241,869
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 4,651,563 70,077,366 6,622,726 102,936,128
Reinvestment of distributions............................... 5,515,305 72,029,887 2,032,581 27,866,668
Redeemed.................................................... (6,948,429) (99,499,916) (13,300,594) (205,944,607)
---------- ------------ ----------- -------------
Net increase (decrease) - Class B........................... 3,218,439 42,607,337 (4,645,287) (75,141,811)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 65,058 944,772 36,728 575,630
Reinvestment of distributions............................... 15,661 204,533 941 12,903
Redeemed.................................................... (17,872) (248,383) (7,117) (111,331)
---------- ------------ ----------- -------------
Net increase - Class C...................................... 62,847 900,922 30,552 477,202
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 85,472 1,261,745 211,349 3,206,216
Reinvestment of distributions............................... 279 3,702 83 1,142
Redeemed.................................................... (90,958) (1,408,257) (131,077) (2,023,710)
---------- ------------ ----------- -------------
Net increase (decrease) - Class D........................... (5,207) (142,810) 80,355 1,183,648
---------- ------------ ----------- -------------
Net increase (decrease) in Fund............................. 3,327,241 $ 43,950,941 (4,518,052) $ (73,239,092)
========== ============ =========== =============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of July 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.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 1999 (unaudited) continued
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At January 31, 1999, there were no outstanding forward contracts.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ----------------------------------------------------
JANUARY 31, 1999++ 1998++ 1997* 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.............. $15.22 $ 15.10 $ 14.97 $12.88 $ 9.32 $9.22
------ -------- -------- ------ ------ -----
Income from investment operations:
Net investment loss.............................. (0.12) (0.31) (0.31) (0.26) (0.24) (0.22)
Net realized and unrealized gain................. 1.85 1.59 1.39 3.44 3.80 0.32
------ -------- -------- ------ ------ -----
Total income from investment operations........... 1.73 1.28 1.08 3.18 3.56 0.10
------ -------- -------- ------ ------ -----
Less distributions from net realized gain......... (3.41) (1.16) (0.95) (1.09) -- --
------ -------- -------- ------ ------ -----
Net asset value, end of period.................... $13.54 $ 15.22 $ 15.10 $14.97 $12.88 $9.32
====== ======== ======== ====== ====== =====
TOTAL RETURN+..................................... 12.19 %(1) 9.33% 7.55% 24.84% 38.20% 1.08%
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 2.27 %(2)(3) 2.26% 2.25% 2.20% 2.30% 2.30%
Net investment loss............................... (1.59)%(2)(3) (1.87)% (2.08)% (2.03)% (2.05)% (2.06)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $359,618 $355,416 $422,667 $442,876 $273,735 $228,573
Portfolio turnover rate........................... 78 %(1) 139% 85% 63% 145% 106%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1999 JULY 31, 1998
- --------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $15.31 $15.10
------ ------
Income from investment operations:
Net investment loss........................................ (0.06) (0.18)
Net realized and unrealized gain........................... 1.87 1.55
------ ------
Total income from investment operations..................... 1.81 1.37
------ ------
Less distributions from net realized gain................... (3.41) (1.16)
------ ------
Net asset value, end of period.............................. $13.71 $15.31
====== ======
TOTAL RETURN+............................................... 12.66 %(1) 9.94 %
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.52 %(2)(3) 1.51 %
Net investment loss......................................... (0.84)%(2)(3) (1.06)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $934 $260
Portfolio turnover rate..................................... 78 %(1) 139 %
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $15.23 $15.10
------ ------
Income from investment operations:
Net investment loss........................................ (0.12) (0.29)
Net realized and unrealized gain........................... 1.84 1.58
------ ------
Total income from investment operations..................... 1.72 1.29
------ ------
Less distributions from net realized gain................... (3.41) (1.16)
------ ------
Net asset value, end of period.............................. $13.54 $15.23
====== ======
TOTAL RETURN+............................................... 12.19 %(1) 9.40 %
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 2.27 %(2)(3) 2.27 %
Net investment loss......................................... (1.59)%(2)(3) (1.78)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,283 $485
Portfolio turnover rate..................................... 78 %(1) 139 %
</TABLE>
- ---------------------
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1999 JULY 31, 1998
- --------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $15.35 $15.10
------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.04) (0.14)
Net realized and unrealized gain........................... 1.87 1.55
------ ------
Total income from investment operations..................... 1.83 1.41
------ ------
Less distributions from net realized gain................... (3.41) (1.16)
------ ------
Net asset value, end of period.............................. $13.77 $15.35
====== ======
TOTAL RETURN+............................................... 12.75 %(1) 10.22 %
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.27 %(2)(3) 1.26 %
Net investment loss......................................... (0.59)%(2)(3) (0.79)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,044 $1,244
Portfolio turnover rate..................................... 78 %(1) 139 %
</TABLE>
- ---------------------
++ 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
17
<PAGE> 18
(This Page Intentionally Left Blank)
18
<PAGE> 19
(This Page Intentionally Left Blank)
19
<PAGE> 20
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
Teresa McRoberts
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.
MORGAN STANLEY
DEAN WITTER
HEALTH SCIENCES
TRUST
[MORGAN STANLEY GRAPHIC]
SEMIANNUAL REPORT
JANUARY 31, 1999
