<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust Two World Trade Center,
Letter to the Shareholders January 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, continued to experience robust growth
during the six-month period ended January 31, 2000. As a result, the financial
markets anticipated that the Federal Reserve Board would change monetary policy
and remove the liquidity it had provided during the 1998 international economic
crises. Between June and November, the Fed raised the federal funds rate a total
of 75 basis points, from 4.75 percent to 5.50 percent. Subsequently, on February
2, 2000, the federal funds rate was raised an additional 25 basis points.
The U.S. stock market reached new highs during the second half of 1999 before
pulling back in late January and early February. During the period under review,
all portions of the health-care sector underperformed the broad market, with the
notable exception of biotechnology. The AMEX Pharmaceutical Index rose just 4.2
percent, the HMO Index declined 18 percent and the Standard & Poor's Health Care
Index gained only 3.2 percent. In sharp contrast, the AMEX Biotechnology Index
posted a return of 73 percent during this period, substantially outpacing the
Standard & Poor's Composite Stock Price Index's (S&P 500) return of 5.59
percent. Given the continued strength in the economy, investors were less
willing to pay a premium for defensive growth stocks like pharmaceuticals.
Conversely, biotechnology stocks, which had been out of favor for several years,
benefited from strengthening fundamentals and a resurgence in investor interest.
PERFORMANCE
During the six-month period ended January 31, 2000, Morgan Stanley Dean Witter
Health Sciences Trust's Class B shares returned 23.04 percent compared to 5.59
percent for the S&P 500. For the same period, the Fund's Class A, C and D shares
returned 23.57 percent, 22.95 percent and 23.67 percent, respectively. The
performance of each of the Fund's four share classes varies because each class
has different expenses. The total return figures given assume the reinvestment
of all distributions and do not reflect the deduction of any applicable sales
charges.
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Letter to the Shareholders January 31, 2000, continued
PORTFOLIO STRATEGY
The Fund continues to invest in all aspects of the health care market, focusing
on companies the Fund's management believes have solid demand for products and
services, strong new product cycles, and experienced management. As of January
31, 2000, approximately 32 percent of the Fund's assets were allocated to
pharmaceutical companies (major pharmaceuticals, generic drug companies and
other pharmaceutical companies), 31 percent to biotechnology, 13 percent to
medical device and supply companies, 21 percent to various other health
care-related areas, and the remainder to cash equivalents. Foreign stocks and
American Depositary Receipts (ADRs) represented 10 percent of the Fund's net
assets. Significant holdings in the Fund's portfolio included Genentech,
MedImmune, Amgen, Warner Lambert, and Medtronic. At the present time, we
continue to favor product companies (pharmaceuticals and biotechnology) over
service companies (HMOs).
LOOKING FORWARD
We are optimistic about the Fund's long-term prospects. We believe that
demographic trends will continue to drive demand for health-care-related
products and services worldwide. In addition, we anticipate that new product
introductions in health care will continue to drive revenue and earnings growth,
especially for pharmaceutical, biotechnology and medical-device companies.
Biotechnology companies, which have languished for years, now seem to be in a
particularly strong new product cycle that may drive their stocks yet higher.
In the very near term, concerns about the federal government creating a drug
benefit may continue to affect the performance of pharmaceutical stocks. In the
interim, the companies the Fund invests in are likely to continue to experience
robust demand and earnings growth. While earnings growth is expected to remain
strong, stock performance of pharmaceutical companies is likely to lag until
economic growth decelerates and Washington makes its intentions clearer.
We appreciate your ongoing support of Morgan Stanley Dean Witter Health Sciences
Trust and look forward to continuing to serve your investment objectives.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
- -------------------------- ---------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
2
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Fund Performance January 31, 2000, continued
Average Annual Total Returns
- --------------------------------------------------------------------------------
Class A Shares*
- ---------------------------------------------------------------
Period Ended 1/31/00
- ---------------------------
1 Year 20.69%(1) 14.35%(2)
Since Inception (7/28/97) 17.58%(1) 15.09%(2)
Class C Shares+
- ---------------------------------------------------------------
Period Ended 1/31/00
- ---------------------------
1 Year 19.59%(1) 18.59%(2)
Since Inception (7/28/97) 16.73%(1) 16.73%(2)
Class B Shares**
- ---------------------------------------------------------------
Period Ended 1/31/00
- ---------------------------
1 Year 19.68%(1) 14.68%(2)
5 Years 19.45%(1) 19.25%(2)
Since Inception (10/30/92) 13.71%(1) 13.71%(2)
Class D Shares++
- ---------------------------------------------------------------
Period Ended 1/31/00
- ---------------------------
1 Year 20.89%(1)
Since Inception (7/28/97) 17.82%(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 CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum CDSC 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 Health Sciences Trust
Portfolio of Investments January 31, 2000 (unaudited)
NUMBER OF
SHARES VALUE
- ------------ ------------
COMMON STOCKS (97.1%)
Biotechnology (30.6%)
40,000 Alkermes, Inc.* ....................... $ 2,647,500
300,000 Amgen Inc.* ........................... 19,106,250
110,000 Biogen, Inc.* ......................... 9,480,625
15,000 Cubist Pharmaceuticals, Inc.* ......... 357,187
25,000 Enzon, Inc.* .......................... 1,264,062
140,000 Genentech, Inc.* ...................... 19,670,000
20,000 Human Genome Sciences, Inc.* .......... 1,962,500
35,000 IDEC Pharmaceuticals Corp.* ........... 4,414,375
75,000 Immunomedics, Inc.* ................... 1,026,562
35,000 Maxygen Inc.* ......................... 2,607,500
135,000 MedImmune, Inc.* ...................... 19,650,937
20,000 Millennium Pharmaceuticals, Inc.* 3,748,750
85,000 Neurocrine Biosciences, Inc.* ......... 1,976,250
40,000 OSI Pharameceuticals Inc.* ............ 390,000
165,000 QLT Phototherapeutics, Inc.* .......... 11,302,500
57,500 SangStat Medical Corp.* ............... 1,732,187
8,000 Sequenom Inc.* ........................ 208,000
25,000 Titan Pharmaceuticals Inc.* ........... 503,125
30,000 Tularik Inc.* ......................... 1,509,375
40,000 Vertex Pharmaceuticals, Inc.* ......... 1,635,000
150,000 Xoma Ltd.* ............................ 829,687
------------
106,022,372
------------
Diversified Commercial Services (2.3%)
275,000 Dendrite International, Inc.* ......... 8,095,312
------------
Drugstore Chains (0.6%)
60,736 CVS Corp. ............................. 2,121,964
------------
Generic Drugs (0.7%)
15,000 Andrx Corp.* .......................... 1,051,875
45,000 Ivax Corp.* ........................... 1,496,250
------------
2,548,125
------------
Hospital/Nursing Management (2.3%)
100,000 Columbia/HCA Healthcare Corp. ......... 2,731,250
75,000 Tenet Healthcare Corp.* ............... 1,706,250
75,000 Universal Health Services, Inc.
(Class B)* ............................ 3,351,563
------------
7,789,063
------------
Major Chemicals (3.3%)
325,000 Monsanto Co. .......................... 11,476,563
------------
NUMBER OF
SHARES VALUE
- ------------ ------------
Major Pharmaceuticals (20.7%)
225,000 American Home Products Corp. .......... $ 10,589,063
25,000 Astrazeneca PLC (ADR)
(United Kingdom) ...................... 950,000
135,000 Bristol-Myers Squibb Co. .............. 8,910,000
50,000 Johnson & Johnson ..................... 4,303,125
50,000 Pharmacia & Upjohn, Inc. .............. 2,350,000
750 Roche Holding AG (Switzerland) ........ 8,056,243
125,000 Sanofi-Synthelabo S.A. (France)* ...... 4,670,050
250,000 Schering-Plough Corp. ................. 11,000,000
60,000 Smithkline Beecham PLC (ADR)
(United Kingdom) .................... 3,660,000
180,203 Warner-Lambert Co. .................... 17,108,022
------------
71,596,503
------------
Managed Health Care (0.4%)
25,000 United HealthCare Corp.* .............. 1,325,000
------------
Medical Equipment & Supplies (3.7%)
280,834 Medtronic, Inc. ....................... 12,848,156
------------
Medical Specialties (9.0%)
110,000 Bausch & Lomb, Inc. ................... 6,820,000
75,000 Baxter International, Inc. ............ 4,790,625
20,000 Digene Corp.* ......................... 451,250
75,000 Guidant Corp. ......................... 3,946,875
50,000 INAMED Corp.* ......................... 2,059,375
65,000 Invitrogen Corp.* ..................... 4,290,000
140,000 Stryker Corp. ......................... 8,820,000
------------
31,178,125
------------
Medical/Dental Distributors (2.0%)
112,875 Cardinal Health, Inc. ................. 5,396,836
27,600 Neoforma.com, Inc. .................... 1,390,350
------------
6,787,186
------------
Multi-Line Insurance (2.1%)
100,000 CIGNA Corp. ........................... 7,175,000
------------
Other Pharmaceuticals (10.3%)
75,000 Allergan, Inc. ........................ 4,275,000
2,000 Ares-Serono Group (B Shares)
(Switzerland) ....................... 5,069,097
15,000 Celgene Corp.* ........................ 1,046,250
See Notes to Financial Statements
4
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Portfolio of Investments January 31, 2000 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------ -----------
46,000 CellTech Group PLC
(United Kingdom)* .................... $ 1,184,500
185,000 Forest Laboratories, Inc.* ............. 12,487,500
167,133 Shire Pharmaceuticals Group PLC
(ADR) (United Kingdom)* .............. 6,789,778
75,000 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) .................. 4,907,813
-----------
35,759,938
-----------
Precision Instruments (4.1%)
70,000 PE Corporation-PE Biosystems
Group ................................ 10,482,500
50,000 Waters Corp.* .......................... 3,693,750
-----------
14,176,250
-----------
Services to the Health Industry (5.1%)
50,000 CareInsite, Inc.* ...................... 3,650,000
80,000 HealthExtras, Inc.* .................... 590,000
255,000 IMS Health Inc. ........................ 5,721,563
45,000 Medical Manager Corp.* ................. 3,155,625
15,000 MedicaLogic Inc.* ...................... 438,750
185,000 MedQuist Inc.* ......................... 3,688,438
40,000 ProxyMed, Inc.* ........................ 350,000
-----------
17,594,376
-----------
TOTAL COMMON STOCKS
(Identified Cost $234,888,098).......... 336,493,933
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- ------------
SHORT-TERM INVESTMENT (a) (3.0%)
U.S. GOVERNMENT AGENCY
$ 10,200 Federal Home Loan Mortgage
Corp. 5.75% due 02/01/00
(Amortized Cost $10,200,000)...... $ 10,200,000
------------
TOTAL INVESTMENTS
(Identified Cost $245,088,098) (b)..... 100.1% 346,693,933
LIABILITIES IN EXCESS OF OTHER
ASSETS ................................ ( 0.1) (179,002)
----- ------------
NET ASSETS ............................ 100.0% $346,514,931
===== ============
- --------------------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Purchased on a discount basis. The interest rate shown has been adjusted to
reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $109,201,230 and the
aggregate gross unrealized depreciation is $7,595,395, resulting in net
unrealized appreciation of $101,605,835.
See Notes to Financial Statements
5
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2000 (unaudited)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $245,088,098)................................... $346,693,933
Cash .............................................................. 45,793
Receivable for:
Investments sold ............................................... 10,770,517
Shares of beneficial interest sold ............................. 1,288,885
Dividends ...................................................... 52,067
Foreign withholding taxes reclaimed ............................ 46,199
Prepaid expenses and other assets ................................. 61,202
------------
TOTAL ASSETS ................................................... 358,958,596
------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 11,404,113
Shares of beneficial interest repurchased ...................... 346,496
Investment management fee ...................................... 288,844
Plan of distribution fee ....................................... 286,832
Accrued expenses and other payables ............................... 117,380
------------
TOTAL LIABILITIES .............................................. 12,443,665
------------
NET ASSETS ..................................................... $346,514,931
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $228,427,353
Net unrealized appreciation ....................................... 101,602,799
Accumulated net investment loss ................................... (2,557,556)
Accumulated undistributed net realized gain ....................... 19,042,335
------------
NET ASSETS ..................................................... $346,514,931
============
CLASS A SHARES:
Net Assets ........................................................ $2,606,421
Shares Outstanding (unlimited authorized, $.01 par value) ......... 168,723
NET ASSET VALUE PER SHARE ...................................... $15.45
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ............. $16.31
======
CLASS B SHARES:
Net Assets ........................................................ $338,681,916
Shares Outstanding (unlimited authorized, $.01 par value).......... 22,419,355
NET ASSET VALUE PER SHARE ...................................... $15.11
======
CLASS C SHARES:
Net Assets ........................................................ $4,298,486
Shares Outstanding (unlimited authorized, $.01 par value).......... 284,441
NET ASSET VALUE PER SHARE ...................................... $15.11
======
CLASS D SHARES:
Net Assets ........................................................ $928,108
Shares Outstanding (unlimited authorized, $.01 par value).......... 59,698
NET ASSET VALUE PER SHARE ...................................... $15.55
======
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Financial Statements, continued
STATEMENT OF OPERATIONS
For the six months ended January 31, 2000 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $6,804 foreign withholding tax).................... $ 685,358
Interest ............................................................ 255,143
------------
TOTAL INCOME ..................................................... 940,501
------------
EXPENSES
Investment management fee ........................................... 1,536,249
Plan of distribution fee (Class A shares) ........................... 1,152
Plan of distribution fee (Class B shares) ........................... 1,514,702
Plan of distribution fee (Class C shares) ........................... 12,763
Transfer agent fees and expenses .................................... 258,595
Professional fees ................................................... 44,269
Registration fees ................................................... 33,563
Shareholder reports and notices ..................................... 31,580
Custodian fees ...................................................... 13,953
Trustees' fees and expenses ......................................... 8,283
Other ............................................................... 3,385
------------
TOTAL EXPENSES ................................................... 3,458,494
------------
NET INVESTMENT LOSS .............................................. (2,517,993)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ................................................... 21,791,866
------------
Net change in unrealized appreciation/depreciation on:
Investments ...................................................... 44,539,279
Translation of other assets and liabilities denominated in foreign
currencies ..................................................... (4,288)
------------
NET APPRECIATION ................................................. 44,534,991
------------
NET GAIN ......................................................... 66,326,857
------------
NET INCREASE ........................................................ $ 63,808,864
============
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2000 JULY 31, 1999
------------------ ----------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (2,517,993) $ (5,080,823)
Net realized gain .................................... 21,791,866 33,703,279
Net change in unrealized appreciation ................ 44,534,991 1,025,853
------------- ------------
NET INCREASE ...................................... 63,808,864 29,648,309
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ....................................... (54,742) (130,161)
Class B shares ....................................... (19,874,197) (77,763,028)
Class C shares ....................................... (191,311) (209,238)
Class D shares ....................................... (2,308) (255,944)
------------- ------------
TOTAL DISTRIBUTIONS ............................... (20,122,558) (78,358,371)
------------- ------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ 3,627,962 (9,495,367)
------------- ------------
NET INCREASE (DECREASE) ........................... 47,314,268 (58,205,429)
NET ASSETS:
Beginning of period .................................. 299,200,663 357,406,092
------------- ------------
END OF PERIOD
(Including net investment losses of
$2,557,556 and $39,563, respectively).............. $ 346,514,931 $299,200,663
============= ============
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Notes to Financial Statements January 31, 2000 (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 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 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 utilizing
similar factors); and (4) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a
9
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Notes to Financial Statements January 31, 2000 (unaudited) continued
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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.
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.
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
10
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Notes to Financial Statements January 31, 2000 (unaudited) continued
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 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 Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C - up to 1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for
11
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Notes to Financial Statements January 31, 2000 (unaudited) continued
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 $12,159,644 at January 31, 2000.
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 year six months ended January 31, 2000, the distribution
fee was accrued for Class A shares and Class C shares at the annual rate of
0.24% and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended January 31,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $14, $191,166
and $1,825, respectively and received $34,821 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.
12
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Notes to Financial Statements January 31, 2000 (unaudited) continued
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, 2000, aggregated
$265,959,638 and $289,171,880, respectively.
For the six months ended January 31, 2000, the Fund incurred brokerage
commissions of $43,985 with DWR for portfolio transactions executed on behalf of
the Fund. At January 31, 2000, the Fund's receivable for investments sold
included unsettled trades with DWR of $360,800.
For the six months ended January 31, 2000, the Fund incurred brokerage
commissions of $17,928 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund. At January 31, 2000, the Fund's receivable for investments
sold included unsettled trades with Morgan Stanley & Co., Inc. of $567,481.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At January 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $17,600.
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, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,609. At Janaury 31, 2000, the Fund had an accrued pension liability of
$40,457 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. 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 January 31, 2000, there were no outstanding forward contracts.
13
<PAGE>
Morgan Stanley Dean Witter Health Sciences Trust
Notes to Financial Statements January 31, 2000 (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
JANUARY 31, 2000 JULY 31, 1999
------------------------------- ----------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold .................................. 191,738 $ 2,811,116 424,913 $ 6,073,934
Reinvestment of distributions ......... 3,935 53,281 9,853 130,161
Redeemed .............................. (79,750) (1,124,089) (398,961) (5,796,005)
---------- ------------- ----------- --------------
Net increase - Class A ................ 115,923 1,740,308 35,805 408,090
---------- ------------- ----------- --------------
CLASS B SHARES
Sold .................................. 2,980,808 42,591,390 7,959,920 112,709,190
Reinvestment of distributions ......... 1,400,805 18,574,673 5,515,305 72,029,887
Redeemed .............................. (4,394,507) (61,165,940) (14,392,068) (196,123,403)
---------- ------------- ----------- --------------
Net increase (decrease) - Class B ..... (12,894) 123 (916,843) (11,384,326)
---------- ------------- ----------- --------------
CLASS C SHARES
Sold .................................. 262,064 3,743,573 137,139 1,870,790
Reinvestment of distributions ......... 14,099 186,948 15,661 204,533
Redeemed .............................. (110,268) (1,558,666) (66,135) (874,166)
---------- ------------- ----------- --------------
Net increase - Class C ................ 165,895 2,371,855 86,665 1,201,157
---------- ------------- ----------- --------------
CLASS D SHARES
Sold .................................. 453,513 6,763,618 469,661 6,297,099
Reinvestment of distributions ......... 151 2,064 279 3,702
Redeemed .............................. (504,346) (7,250,006) (440,582) (6,021,089)
---------- ------------- ----------- --------------
Net increase (decrease) - Class D ..... (50,682) (484,324) 29,358 279,712
---------- ------------- ----------- --------------
Net increase (decrease) in Fund ....... 218,242 $ 3,627,962 (765,015) $ (9,495,367)
========== ============= =========== ==============
</TABLE>
7. FEDERAL INCOME TAX STATUS
As of July 31, 1999, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
14
<PAGE>
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 PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
---------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS A SHARES ++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $13.39 $15.31 $15.10 $15.03
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ..................... 0.13 (0.10) (0.18) -
Net realized and unrealized gain ................. 2.89 1.59 1.55 0.07
------ ------ ------ ------
Total income from investment operations ........... 3.02 1.49 1.37 0.07
------ ------ ------ ------
Less distributions from net realized gain ......... (0.96) (3.41) (1.16) -
------ ------ ------ ------
Net asset value, end of period .................... $15.45 $13.39 $15.31 $15.10
====== ====== ====== ======
TOTAL RETURN + .................................... 23.57 %(1) 10.03 % 9.94 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.49 %(2)(3) 1.47 %(3) 1.51 % 1.57 %(2)
Net investment loss ............................... (0.88)%(2)(3) (0.74)%(3) (1.06)% (0.55)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $2,606 $707 $260 $10
Portfolio turnover rate ........................... 90 %(1) 148 % 139 % 85 %
</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 Health Sciences Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED -----------------------------------------------------------------
JANUARY 31, 2000++ 1999++ 1998++ 1997* 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .......... $13.17 $15.22 $15.10 $14.97 $12.88 $9.32
------ ------ ------ ------ ------ -----
Income (loss) from investment operations:
Net investment income (loss) ................. 0.20 (0.21) (0.31) (0.31) (0.26) (0.24)
Net realized and unrealized gain ............. 2.70 1.57 1.59 1.39 3.44 3.80
------ ------ ------ ------ ------ -----
Total income from investment operations ....... 2.90 1.36 1.28 1.08 3.18 3.56
------ ------ ------ ------ ------ -----
Less distributions from net realized gain ..... (0.96) (3.41) (1.16) (0.95) (1.09) -
------ ------ ------ ------ ------ -----
Net asset value, end of period ................ $15.11 $13.17 $15.22 $15.10 $14.97 $12.88
====== ====== ====== ====== ====== ======
TOTAL RETURN+ ................................. 23.04 %(1) 9.12 % 9.33 % 7.55 % 24.84 % 38.20 %
RATIOS TO AVERAGE NET ASSETS:
Expenses ...................................... 2.25 %(2)(3) 2.27 %(3) 2.26 % 2.25 % 2.20 % 2.30 %
Net investment loss ........................... (1.64)%(2)(3) (1.54)%(3) (1.87)% (2.08)% (2.03)% (2.05)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ....... $338,682 $295,446 $355,416 $422,667 $442,876 $273,735
Portfolio turnover rate ....................... 90 %(1) 148 % 139 % 85 % 63 % 145 %
</TABLE>
- --------------
* 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 Health Sciences Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
---------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $13.18 $15.23 $15.10 $15.03
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ..................... 0.13 (0.21) (0.29) -
Net realized and unrealized gain ................. 2.76 1.57 1.58 0.07
------ ------ ------ ------
Total income from investment operations ........... 2.89 1.36 1.29 0.07
------ ------ ------ ------
Less distributions from net realized gain ......... (0.96) (3.41) (1.16) -
------ ------ ------ ------
Net asset value, end of period .................... $15.11 $13.18 $15.23 $15.10
====== ====== ====== ======
TOTAL RETURN+ ..................................... 22.95 %(1) 9.13 % 9.40 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.25 %(2)(3) 2.27 %(3) 2.27 % 2.31 %(2)
Net investment loss ............................... (1.64)%(2)(3) (1.54)%(3) (1.78)% (1.28)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $4,298 $1,562 $485 $20
Portfolio turnover rate ........................... 90 %(1) 148 % 139 % 85 %
</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 Health Sciences Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
---------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $13.46 $15.35 $15.10 $15.03
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ..................... 0.03 (0.09) (0.14) -
Net realized and unrealized gain ................. 3.02 1.61 1.55 0.07
------ ------ ------ ------
Total income from investment operations ........... 3.05 1.52 1.41 0.07
------ ------ ------ ------
Less distributions from net realized gain ......... (0.96) (3.41) (1.16) -
------ ------ ------ ------
Net asset value, end of period .................... $15.55 $13.46 $15.35 $15.10
====== ====== ====== ======
TOTAL RETURN+ ..................................... 23.67 %(1) 10.22 % 10.22 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.25 %(2)(3) 1.27 %(3) 1.26 % 1.31 %(2)
Net investment loss ............................... (0.64)%(2)(3) (0.54)%(3) (0.79)% (0.29)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $928 $1,485 $1,244 $10
Portfolio turnover rate ........................... 90 %(1) 148 % 139 % 85 %
</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
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 Stanely 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
HEALTH SCIENCES
TRUST
[GRAPHIC OMITTED]
SEMIANNUAL REPORT
January 31, 2000
