<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
LETTER TO THE SHAREHOLDERS July 31, 1999
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
During the twelve-month period ended July 31, 1999, investors experienced two
different markets. The first half of the fiscal year saw small- and
mid-capitalization stocks eclipsed by the returns of a narrow list of
larger-cap growth stocks. Huge cash flows into these few large-cap companies
left the rest of the market relatively neglected, taking the relative
valuations of small- and mid-cap companies to historically low levels.
In the second half of the fiscal year, however, the U.S. equity market
experienced a change in leadership. Mega-cap market leaders, particularly in
the technology and pharmaceutical sectors, which had dominated the market's
performance in 1998, experienced lower returns. Large-cap multinationals also
faltered as concerns over inflation and global economic crises surfaced. In
contrast to the rocky road endured by large-cap stocks, mid- and small-cap
stocks had a much smoother ride. Strong performance was evident in the smaller
technology sector and cyclical stocks, particularly those in the drilling and
basic material industries. This change in leadership was reflected in the
individual performance of the stocks in the S&P 500 Composite Stock Price Index
(S&P 500). Its largest 50 stocks were outperformed by the remaining 450 during
the first half of 1999, indicating a shift in sentiment toward small- and
mid-cap stocks as well as cyclicals.
After four years of strong, above-market returns, the S&P pharmaceutical index
performed poorly during the fiscal year, increasing only 3.8 percent. With the
economy strengthening, investors reevaluated the prices they were willing to
pay for defensive growth stocks, including pharmaceutical issues. Conversely,
biotechnology stocks, which had underperformed by a wide margin in the past
four years, were especially strong, with the S&P biotechnology index rising
81.5 percent during the fiscal year.
PERFORMANCE
For the twelve-month period ended July 31, 1999, Morgan Stanley Dean Witter
Health Sciences Trust's Class B shares posted a total return of
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
LETTER TO THE SHAREHOLDERS July 31, 1999, continued
9.12 percent, compared to 14.20 percent for the Lipper Health/Biotechnology
Fund Index and 20.21 percent for the S&P 500. For the same time period, the
Fund's Class A, C and D shares returned 10.03 percent, 9.13 percent and 10.22
percent, respectively. The performance of the Fund's four share classes varies
because of differing expenses. The accompanying chart compares the Fund's
performance with that of the Lipper and S&P 500 indexes.
During the fiscal year, the Fund shifted its focus from small-cap companies to
large caps, particularly biotechnology and pharmaceutical companies. The Fund's
underperformance over the course of the year can be attributed to its early
focus on small-cap holdings. Its shift to larger-cap stocks helped the Fund's
performance toward the end of the fiscal year.
PORTFOLIO STRATEGY
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 July 31, 1999, the Fund's net assets were approximately $300 million. On
that date, the Fund held about 45 percent of its assets in pharmaceutical
companies (major pharmaceuticals, generic drug companies and other
pharmaceutical companies), 6 percent in drug distribution companies, 9 percent
in medical products and supplies, 20 percent in biotechnology, 18 percent in
various other health-care-related areas and the remainder in cash equivalents.
Foreign stocks and American Depository Receipts (ADRs) represented 14 percent
of net assets. Significant holdings included Cardinal Health, MedImmune, Amgen,
Bristol-Myers Squibb, and Warner-Lambert. We continue to favor product
companies (pharmaceuticals and biotechnology) over service companies.
LOOKING AHEAD
We are optimistic about the Fund's long-term prospects. We believe that
demographic trends will continue to fuel demand for health-care-related
products and services worldwide. 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 should push their stock prices higher.
In the very near term, uncertainty about whether the federal government
creating a drug benefit may continue to negatively affect the performance of
pharmaceutical stocks. In the interim, the companies the Fund owns 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. With pharmaceutical companies' fundamentals
remaining strong, we expect these stocks to rebound in the coming year.
2
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
LETTER TO THE SHAREHOLDERS July 31, 1999, continued
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley
Dean Witter Funds. Mr. Merin is the President and Chief Operating Officer of
Asset Management for Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's investment manager. He also serves as Chairman, Chief Executive Officer
and Director of the Fund's distributor and transfer agent.
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
3
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FUND PERFORMANCE July 31, 1999
GROWTH OF $10,000 CLASS B
DATE TOTAL S&P 500 LIPPER
- -------------------------------------------------------------------------------
October 30, 1992 $10,000 $10,000 $10,000
July 31, 1993 $9,220 $10,932 $9,437
July 31, 1994 $9,320 $11,496 $10,253
July 31, 1995 $12,880 $14,489 $13,881
July 31, 1996 $16,079 $16,881 $16,455
July 31, 1997 $17,293 $25,670 $21,890
July 31, 1998 $18,906 $30,618 $25,274
July 31, 1999 $20,630(3) $36,806 $28,863
---- Fund ---- S&P 500 (4) ---- Lipper (5)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
CLASS B SHARES*
- ------------------------------------------------------------
PERIOD ENDED 7/31/99
- ----------------------------
1 Year 9.12%(1) 4.79%(2)
5 Years 17.22%(1) 17.01%(2)
Since Inception (10/30/92) 11.33%(1) 11.33%(2)
CLASS C SHARES++
- -----------------------------------------------------------
PERIOD ENDED 7/31/99
- ---------------------------
1 Year 9.13%(1) 8.27%(2)
Since Inception (7/28/97) 9.49%(1) 9.49%(2)
CLASS A SHARES+
- -----------------------------------------------------------
PERIOD ENDED 7/31/99
- ---------------------------
1 Year 10.03%(1) 4.25%(2)
Since Inception (7/28/97) 10.21%(1) 7.28%(2)
CLASS D SHARES++
- ---------------------------------------------
PERIOD ENDED 7/31/99
- ---------------------------
1 Year 10.22%(1)
Since Inception (7/28/97) 10.44%(1)
- ---------------
(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.
(3) Closing value assuming a complete redemption on July 31, 1999.
(4) The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based index, the
performance of which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.
(5) The Lipper Health/Biotechnology Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Health/Biotechnology Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 10 funds
represented in this index.
* The maximum CDSC for Class B shares is 5.0%. The CDSC declines to 0% after
six years.
+ The maximum front-end sales charge for Class A is 5.25%
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
++ Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS July 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.1%)
Biotechnology (19.9%)
180,000 Amgen Inc.* ........................... $13,837,500
35,000 Axogen Ltd.* .......................... 1,111,250
150,000 Biogen, Inc.* ......................... 10,312,500
95,000 Enzon, Inc.* .......................... 2,285,937
41,300 Genentech, Inc.* ...................... 5,864,600
85,000 Guilford Pharmaceuticals Inc.* ........ 1,391,875
20,000 IDEC Pharmaceuticals Corp.* ........... 1,981,250
35,000 Immunex Corp.* ........................ 3,933,125
175,000 MedImmune, Inc.* ...................... 13,945,312
75,000 QLT Phototherapeutics, Inc.* .......... 4,767,187
-----------
59,430,536
-----------
Diversified Commercial Services (2.5%)
200,000 Dendrite International, Inc.* ......... 7,587,500
-----------
Drugstore Chains (1.0%)
60,736 CVS Corp. ............................. 3,021,616
-----------
E.D.P. Services (1.0%)
75,000 National Data Corp. ................... 3,131,250
-----------
Hospital/Nursing Management (0.4%)
50,000 Columbia/HCA Healthcare Corp. ......... 1,112,500
-----------
Major Chemicals (2.0%)
150,000 Monsanto Co. .......................... 5,868,750
-----------
Major Pharmaceuticals (34.6%)
150,000 American Home Products Corp. .......... 7,650,000
195,000 Bristol-Myers Squibb Co. .............. 12,967,500
75,000 Glaxo Wellcome PLC (ADR)
(United Kingdom) ...................... 3,914,062
75,000 Johnson & Johnson ..................... 6,909,375
135,000 Lilly (Eli) & Co. ..................... 8,859,375
150,000 Merck & Co., Inc. ..................... 10,153,125
115,000 Pfizer, Inc. .......................... 3,902,812
175,000 Pharmacia & Upjohn, Inc. .............. 9,417,187
850 Roche Holding AG (Switzerland) ........ 9,400,738
180,000 Schering-Plough Corp. ................. 8,820,000
160,000 Smithkline Beecham PLC (ADR)
(United Kingdom) ...................... 9,610,000
180,203 Warner-Lambert Co. .................... 11,893,398
-----------
103,497,572
-----------
Managed Health Care (0.2%)
45,000 Foundation Health Systems Inc.
(Class A) ............................. 683,438
-----------
Medical Equipment & Supplies (3.2%)
132,917 Medtronic, Inc. ....................... $ 9,578,331
-----------
Medical Specialties (6.0%)
40,000 Bard (C.R.), Inc. ..................... 1,945,000
191,400 Boston Scientific Corp.* .............. 7,763,663
65,000 Invitrogen Corp.* ..................... 1,880,938
30,000 Perclose, Inc.* ....................... 1,522,500
80,000 Stryker Corp. ......................... 4,880,000
-----------
17,992,101
-----------
Medical/Dental Distributors (6.3%)
257,875 Cardinal Health, Inc. ................. 17,599,969
100,000 Women First HealthCare, Inc.* ......... 1,125,000
-----------
18,724,969
-----------
Medical/Nursing Services (0.1%)
40,000 Sight Resource Corp. (Units)++* ....... 162,500
-----------
Multi-Line Insurance (2.2%)
75,000 CIGNA Corp. ........................... 6,614,063
-----------
Other Consumer Services (0.3%)
45,000 drkoop.com, Inc.* ..................... 990,000
-----------
Other Pharmaceuticals (10.7%)
70,000 Aviron* ............................... 1,977,500
290,000 Elan Corp. PLC (ADR) (Ireland)*........ 8,428,125
185,000 Forest Laboratories, Inc.* ............ 9,481,250
50,000 Roberts Pharmaceutical Corp.* ......... 1,371,875
180,000 Sanofi-Synthelabo S.A. (France)* ...... 7,486,007
125,000 Shire Pharmaceuticals Group PLC
(ADR) (United Kingdom)* ............... 3,171,875
-----------
31,916,632
-----------
Services to the Health Industry (7.7%)
50,000 CareInsite, Inc.* ..................... 2,150,000
260,000 IMS Health Inc. ....................... 7,247,500
50,800 Mede America Corp.* ................... 1,422,400
21,875 Medical Manager Corp.* ................ 1,387,695
165,000 MedQuist Inc.* ........................ 7,105,313
46,700 ProVantage Health Services, Inc. ...... 863,950
50,000 Shared Medical Systems Corp. .......... 2,993,750
-----------
23,170,608
-----------
TOTAL COMMON STOCKS
(Identified Cost $236,415,810)......... 293,482,366
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS July 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT
$1,282 The Bank of New York 5.00%
due 08/02/99 (dated 07/30/99;
proceeds $1,282,464) (a)
(Identified Cost $1,281,930).......... $ 1,281,930
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $237,697,740) (b)......... 98.5% 294,764,296
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ............................ 1.5 4,436,367
NET ASSETS ................................ 100.0% $299,200,663
</TABLE>
- --------------------------------
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) Collateralized by $1,109,968 U.S. Treasury Bond 10.75% due 05/15/03
valued at $1,310,645.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$61,314,283 and the aggregate gross unrealized depreciation is
$4,247,727, resulting in net unrealized appreciation of $57,066,556.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $237,697,740)................. $294,764,296
Cash ............................................. 1,951,055
Receivable for:
Investments sold ............................ 9,895,868
Dividends ................................... 151,419
Shares of beneficial interest sold .......... 115,033
Foreign withholding taxes reclaimed ......... 50,487
Prepaid expenses and other assets ................ 21,925
------------
TOTAL ASSETS ................................ 306,950,083
------------
LIABILITIES:
Payable for:
Investments purchased ....................... 6,711,157
Shares of beneficial interest
repurchased .............................. 431,323
Investment management fee ................... 265,425
Plan of distribution fee .................... 262,583
Accrued expenses and other payables .............. 78,932
------------
TOTAL LIABILITIES ........................... 7,749,420
------------
NET ASSETS .................................. $299,200,663
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................. $224,799,391
Net unrealized appreciation ...................... 57,067,808
Accumulated net investment loss .................. (39,563)
Accumulated undistributed net realized gain 17,373,027
------------
NET ASSETS .................................. $299,200,663
============
CLASS A SHARES:
Net Assets ....................................... $707,217
Shares Outstanding (unlimited authorized,
$.01 par value) ............................... 52,800
NET ASSET VALUE PER SHARE ................... $13.39
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value) ............................. $14.13
======
CLASS B SHARES:
Net Assets ....................................... $295,446,122
Shares Outstanding (unlimited authorized,
$.01 par value) ............................... 22,432,249
NET ASSET VALUE PER SHARE ................... $13.17
======
CLASS C SHARES:
Net Assets ....................................... $1,562,044
Shares Outstanding (unlimited authorized,
$.01 par value) ............................... 118,546
NET ASSET VALUE PER SHARE ................... $13.18
======
CLASS D SHARES:
Net Assets ....................................... $1,485,280
Shares Outstanding (unlimited authorized,
$.01 par value) ............................... 110,380
NET ASSET VALUE PER SHARE ................... $13.46
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 1999
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $56,068 foreign
withholding tax) ............................... $ 1,857,458
Interest .......................................... 579,517
-----------
TOTAL INCOME ................................. 2,436,975
-----------
EXPENSES
Investment management fee ......................... 3,320,393
Plan of distribution fee (Class A shares) ......... 1,354
Plan of distribution fee (Class B shares) ......... 3,292,077
Plan of distribution fee (Class C shares) ......... 10,873
Transfer agent fees and expenses .................. 575,858
Shareholder reports and notices ................... 91,283
Registration fees ................................. 84,805
Professional fees ................................. 63,906
Custodian fees .................................... 49,554
Trustees' fees and expenses ....................... 19,020
Other ............................................. 8,675
-----------
TOTAL EXPENSES ............................... 7,517,798
-----------
NET INVESTMENT LOSS .......................... (5,080,823)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain/loss on:
Investments .................................. 33,703,467
Foreign exchange transactions ................ (188)
-----------
NET GAIN ..................................... 33,703,279
-----------
Net change in unrealized
appreciation/depreciation on:
Investments .................................. 1,018,963
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies ......... 6,890
-----------
NET APPRECIATION ............................. 1,025,853
-----------
NET GAIN ..................................... 34,729,132
-----------
NET INCREASE ...................................... $29,648,309
===========
</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 YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1999 JULY 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (5,080,823) $ (7,505,328)
Net realized gain .................................... 33,703,279 100,959,963
Net change in unrealized appreciation ................ 1,025,853 (55,763,026)
------------ ------------
NET INCREASE ...................................... 29,648,309 37,691,609
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ....................................... (130,161) (7,675)
Class B shares ....................................... (77,763,028) (29,731,527)
Class C shares ....................................... (209,238) (13,129)
Class D shares ....................................... (255,944) (1,158)
------------ ------------
TOTAL DISTRIBUTIONS ............................... (78,358,371) (29,753,489)
------------ ------------
Net decrease from transactions in shares of beneficial
interest ........................................... (9,495,367) (73,239,092)
------------ ------------
NET DECREASE ...................................... (58,205,429) (65,300,972)
NET ASSETS:
Beginning of period .................................. 357,406,092 422,707,064
------------ ------------
END OF PERIOD
(Including accumulated net investment losses of
$39,563 and $36,149, respectively)................. $299,200,663 $357,406,092
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1999
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
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 July 31, 1999, 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.
10
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1999, continued
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 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 July 31, 1999, 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 $12,500,579 at July 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 year ended July 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.20% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended July 31, 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 $262, $510,447, and
$2,103, respectively and received $9,271, 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 July 31, 1999, 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 year ended July 31, 1999, aggregated
$472,189,629 and $547,467,862, respectively.
For the year ended July 31, 1999, the Fund incurred brokerage commissions of
$213,176 with DWR for portfolio transactions executed on behalf of the Fund. At
July 31, 1999, the Fund's receivable for investments sold included unsettled
trades with DWR of $3,731,144.
For the year ended July 31, 1999, the Fund incurred brokerage commissions of
$37,760 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund. At
July 31, 1999, the Fund's receivable for investments sold included unsettled
trades with Morgan Stanley & Co., Inc. of $515,733.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At July 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $900.
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 year ended July 31, 1999 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,490. At July 31, 1999, the Fund had an accrued pension liability of $39,375
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 July 31, 1999, there were no outstanding forward contracts.
13
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 1999, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1999 JULY 31, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold .................................. 424,913 $ 6,073,934 152,175 $ 2,404,229
Reinvestment of distributions ......... 9,853 130,161 558 7,674
Redeemed .............................. (398,961) (5,796,005) (136,405) (2,170,034)
-------- -------------- -------- --------------
Net increase -- Class A ............... 35,805 408,090 16,328 241,869
-------- -------------- -------- --------------
CLASS B SHARES
Sold .................................. 7,959,920 112,709,190 6,622,726 102,936,128
Reinvestment of distributions ......... 5,515,305 72,029,887 2,032,581 27,866,668
Redeemed .............................. (14,392,068) (196,123,403) (13,300,594) (205,944,607)
----------- -------------- ----------- --------------
Net decrease -- Class B ............... (916,843) (11,384,326) (4,645,287) (75,141,811)
----------- -------------- ----------- --------------
CLASS C SHARES
Sold .................................. 137,139 1,870,790 36,728 575,630
Reinvestment of distributions ......... 15,661 204,533 941 12,903
Redeemed .............................. (66,135) (874,166) (7,117) (111,331)
----------- -------------- ----------- --------------
Net increase -- Class C ............... 86,665 1,201,157 30,552 477,202
----------- -------------- ----------- --------------
CLASS D SHARES
Sold .................................. 469,661 6,297,099 211,349 3,206,216
Reinvestment of distributions ......... 279 3,702 83 1,142
Redeemed .............................. (440,582) (6,021,089) (131,077) (2,023,710)
----------- -------------- ----------- --------------
Net increase -- Class D ............... 29,358 279,712 80,355 1,183,648
----------- -------------- ----------- --------------
Net decrease in Fund .................. (765,015) $ (9,495,367) (4,518,052) $ (73,239,092)
=========== ============== =========== ==============
</TABLE>
7. FEDERAL INCOME TAX STATUS
At July 31, 1999, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged and accumulated net investment loss
was credited $5,077,409.
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 YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $15.31 $15.10 $15.03
------ ------ ------
Income (loss) from investment operations:
Net investment loss .............................. (0.10) (0.18) --
Net realized and unrealized gain ................. 1.59 1.55 0.07
------ ------ ------
Total income from investment operations ........... 1.49 1.37 0.07
------ ------ ------
Less distributions from net realized gain ......... (3.41) (1.16) --
------ ------ ------
Net asset value, end of period .................... $13.39 $15.31 $15.10
====== ====== ======
TOTAL RETURN+ ..................................... 10.03 % 9.94 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.47 %(3) 1.51 % 1.57 %(2)
Net investment loss ............................... (0.74)%(3) (1.06)% (0.55)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $707 $260 $10
Portfolio turnover rate ........................... 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 YEAR ENDED JULY 31,
-----------------------------------------------------------------
1999++ 1998++ 1997* 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .......... $15.22 $15.10 $14.97 $12.88 $ 9.32
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss .......................... (0.21) (0.31) (0.31) (0.26) (0.24)
Net realized and unrealized gain ............. 1.57 1.59 1.39 3.44 3.80
------ ------ ------ ------ ------
Total income from investment operations ....... 1.36 1.28 1.08 3.18 3.56
------ ------ ------ ------ ------
Less distributions from net realized gain ..... (3.41) (1.16) (0.95) (1.09) --
------ ------ ------ ------ ------
Net asset value, end of period ................ $13.17 $15.22 $15.10 $14.97 $12.88
====== ====== ====== ====== ======
TOTAL RETURN+ ................................. 9.12 % 9.33 % 7.55 % 24.84 % 38.20 %
RATIOS TO AVERAGE NET ASSETS:
Expenses ...................................... 2.27 %(1) 2.26 % 2.25 % 2.20 % 2.30 %
Net investment loss ........................... (1.54)%(1) (1.87)% (2.08)% (2.03)% (2.05)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ....... $295,446 $355,416 $422,667 $442,876 $273,735
Portfolio turnover rate ....................... 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) 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 YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $15.23 $15.10 $15.03
------ ------ ------
Income (loss) from investment operations:
Net investment loss .............................. (0.21) (0.29) --
Net realized and unrealized gain ................. 1.57 1.58 0.07
------ ------ ------
Total income from investment operations ........... 1.36 1.29 0.07
------ ------ ------
Less distributions from net realized gain ......... (3.41) (1.16) --
------ ------ ------
Net asset value, end of period .................... $13.18 $15.23 $15.10
====== ====== ======
TOTAL RETURN+ ..................................... 9.13 % 9.40 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.27 %(3) 2.27 % 2.31 %(2)
Net investment loss ............................... (1.54)%(3) (1.78)% (1.28)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $1,562 $485 $20
Portfolio turnover rate ........................... 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 YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $15.35 $15.10 $15.03
------ ------ ------
Income (loss) from investment operations:
Net investment loss .............................. (0.09) (0.14) --
Net realized and unrealized gain ................. 1.61 1.55 0.07
------ ------ ------
Total income from investment operations ........... 1.52 1.41 0.07
------ ------ ------
Less distributions from net realized gain ......... (3.41) (1.16) --
------ ------ ------
Net asset value, end of period .................... $13.46 $15.35 $15.10
====== ====== ======
TOTAL RETURN+ ..................................... 10.22 % 10.22 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.27 %(3) 1.26 % 1.31 %(2)
Net investment loss ............................... (0.54)%(3) (0.79)% (0.29)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $1,485 $1,244 $10
Portfolio turnover rate ........................... 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>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Health
Sciences Trust (the "Fund") at July 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at July
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
September 9, 1999
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended July 31, 1999, the Fund paid to its shareholders $3.41 per
share from long-term capital gains.
19
<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 Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
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]
ANNUAL REPORT
JULY 31, 1999
