<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
LETTER TO THE SHAREHOLDERS July 31, 2000
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
During the 12-month period ended July 31, 2000, the U.S. equity markets reached
new heights amid episodes of increased volatility. Strong global economic
growth, rising crude oil prices and a tight labor market fueled concerns about
inflation. The Federal Reserve Board raised the federal funds rate by a total
of 150 basis points (1.50 percent) during the period, negatively affecting
expectations for earnings growth and the profitability of old-economy stocks.
However, new-economy issues shrugged off the higher rates until April, when a
correction in the Nasdaq refocused investors on such traditional valuation
measures as earnings, cash flow and financial flexibility. Toward the end of
the period, investors were favoring health care and consumer staples issues
along with energy and utility stocks over those in the technology sector.
Biotechnology stocks benefited from improving fundamentals and strong investor
interest, posting a return of 136.11 percent for the period as measured by the
AMEX Biotechnology Index. Pharmaceutical and health-care services and
medical-device stocks also outperformed the broad market over the fiscal year.
Investors rotating out of technology stocks have moved back to defensive stocks
like pharmaceuticals, reflecting concerns about a slowing economy coupled with
more reasonable valuations.
PERFORMANCE AND PORTFOLIO STRATEGY
For the 12-month period ended July 31, 2000, Morgan Stanley Dean Witter Health
Sciences Trust's Class B shares returned 57.16 percent compared to 8.97 percent
for the Standard & Poor's 500 Index (S&P 500). For the same period, the Fund's
Class A, C and D shares returned 58.44 percent, 57.04 percent and 58.74
percent, respectively. The performance 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 but do not reflect the deduction
of any applicable sales charges. The accompanying chart compares the Fund's
performance to that of the S&P 500.
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
LETTER TO THE SHAREHOLDERS July 31, 2000, continued
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 their
products and services, strong new product cycles and experienced management. As
of July 31, 2000, approximately 32 percent of the Fund's assets were allocated
to pharmaceutical companies (major pharmaceuticals, generic drug companies and
other pharmaceutical companies), 30 percent to biotechnology, 10 percent to
medical device and supply companies, 22 percent to various other
health-care-related areas and the remainder to cash equivalents. Foreign stocks
and American Depositary Receipts (ADRs) represented 12 percent of the Fund's
net assets. Significant holdings in the Fund's portfolio included Genentech,
MedImmune, Amgen, Pfizer and Forest Labs. We continue to favor product
companies (pharmaceuticals and biotechnology) over service companies (HMOs).
LOOKING AHEAD
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
Medicare prescription drug benefit may continue to adversely 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, the stock performance of
pharmaceutical companies is likely to lag until economic growth decelerates and
Washington makes its policy intentions clearer.
We appreciate your ongoing support of Morgan Stanley Dean Witter Health
Sciences Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ C. 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 July 31, 2000
GROWTH OF $10,000 CLASS B
Date Total S&P 500
========================================================
October 30, 1992 10,000 10,000
July 31, 1993 9,220 10,932
July 31, 1994 9,320 11,496
July 31, 1995 12,880 14,489
July 31, 1996 16,079 16,881
July 31, 1997 17,293 25,670
July 31, 1998 18,906 30,618
July 31, 1999 20,630 36,806
July 31, 2000 32,423(3) 40,108
========================================================
========================================================
---- Fund ---- S&P 500(4)
========================================================
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. 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
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES*
--------------------------------------------------------------
PERIOD ENDED 7/31/00
--------------------------
<S> <C> <C>
1 Year 58.44%(1) 50.12%(2)
From Inception (7/28/97) 24.33%(1) 22.12%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES**
---------------------------------------------------------------
PERIOD ENDED 7/31/00
---------------------------
<S> <C> <C>
1 Year 57.16%(1) 52.16%(2)
5 Years 20.28%(1) 20.09%(2)
From Inception (10/30/92) 16.39%(1) 16.39%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+
--------------------------------------------------------------
PERIOD ENDED 7/31/00
--------------------------
<S> <C> <C>
1 Year 57.04%(1) 56.04%(2)
From Inception (7/28/97) 23.42%(1) 23.42%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
----------------------------------------------
PERIOD ENDED 7/31/00
--------------------------
<S> <C>
1 Year 58.74%(1)
From Inception (7/28/97) 24.58%(1)
</TABLE>
---------------
(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, 2000.
(4) The Standard and Poor's 500 Index (S&P 500) is a broad-based index, the
performance of which is based on the performance of 500 widely held
common stocks chosen for market size, liquidity and industry group
representation. The Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of purchase.
++ Class D shares have no sales charge.
3
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS July 31, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (93.4%)
Biotechnology (29.8%)
20,000 Abgenix, Inc.* ......................... $ 1,002,500
65,000 Alkermes, Inc.* ........................ 2,153,125
275,000 Amgen Inc.* ............................ 17,857,812
95,000 Applied Molecular Evolution* ........... 2,505,625
13,700 Celgene Corp.* ......................... 711,544
34,000 CellTech Group PLC
(United Kingdom) ....................... 1,249,500
108,300 Charles River Laboratories
International, Inc.* ................... 3,269,306
95,000 COR Therapeutics, Inc.* ................ 7,647,500
60,000 CV Therapeutics, Inc.* ................. 3,487,500
52,800 deCode GENETICS, Inc.* ................. 1,356,300
60,000 DUSA Pharmaceuticals, Inc.* ............ 1,672,500
30,000 Enzon, Inc.* ........................... 1,342,500
120,000 Exelixis, Inc.* ........................ 4,672,500
85,000 GelTex Pharmaceuticals, Inc.* .......... 2,465,000
190,000 Genentech, Inc.* ....................... 28,903,750
60,000 Genzyme Transgenics Corp.* ............. 1,803,750
92,500 IDEC Pharmaceuticals Corp.* ............ 11,360,156
20,700 Illumina, Inc.* ........................ 724,500
70,000 Immunex Corp.* ......................... 3,548,125
90,000 Immunomedics, Inc.* .................... 1,541,250
80,000 Intermune Pharmaceuticals, Inc.* ....... 3,300,000
55,000 Invitrogen Corp.* ...................... 3,451,250
465,000 MedImmune, Inc.* ....................... 27,667,500
45,000 Millennium Pharmaceuticals, Inc.* 4,331,250
145,000 NPS Pharmaceuticals, Inc.* ............. 4,096,250
130,000 OSI Pharameceuticals Inc. .............. 4,363,125
200,000 QLT PhotoTherapeutics Inc. * ........... 13,175,000
51,000 Transgenomic, Inc.* .................... 969,000
42,500 Variagenics, Inc.* ..................... 860,625
200,000 XOMA Ltd.* ............................. 1,225,000
------------
162,713,743
------------
Diversified Commercial Services (1.6%)
320,000 Dendrite International, Inc.* .......... 8,675,000
------------
Generic Drugs (1.2%)
70,000 Ivax Corp.* ............................ 3,447,500
145,000 Mylan Laboratories, Inc. ............... 3,081,250
------------
6,528,750
------------
Hospital/Nursing
Management (4.2%)
200,000 HCA-The Healthcare Corp. ............... 6,800,000
250,000 Health Management Associates,
Inc. (Class A)* ........................ 3,921,875
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C> <C>
85,000 Tenet Healthcare Corp.* ................ $ 2,587,187
140,000 Universal Health Services, Inc.
(Class B)* ............................. 9,432,500
------------
22,741,562
------------
Major Pharmaceuticals (22.1%)
300,000 American Home Products Corp. ........... 15,918,750
50,000 Aventis (ADR) (France) ................. 3,775,000
140,000 Johnson & Johnson ...................... 13,028,750
125,000 Lilly (Eli) & Co. ...................... 12,984,375
100,000 Merck & Co., Inc. ...................... 7,168,750
55,000 Novo Nordisk A/S (ADR) (Denmark) ....... 5,286,875
678,058 Pfizer Inc. ............................ 29,241,251
200,000 Pharmacia Corp. ........................ 10,950,000
750 Roche Holding AG (Switzerland) ......... 7,039,808
75,000 Sanofi-Synthelabo S.A. (France)* ....... 3,998,142
60,000 Schering AG (Germany) .................. 3,573,665
180,000 Schering-Plough Corp. .................. 7,773,750
------------
120,739,116
------------
Managed Health Care (1.7%)
90,000 CIGNA Corp. ............................ 8,988,750
------------
Medical Equipment & Supplies (3.3%)
350,834 Medtronic, Inc. ........................ 17,914,461
------------
Medical Specialties (9.9%)
200,000 ALZA Corp. (Class A)* .................. 12,950,000
60,000 Bard (C.R.), Inc. ...................... 3,003,750
75,000 Bausch & Lomb, Inc. .................... 4,664,062
85,000 Baxter International, Inc. ............. 6,608,750
40,000 Biomet, Inc. ........................... 1,790,000
20,000 Biosource International, Inc.* ......... 375,000
35,000 Discovery Partners International* . 630,000
40,000 INAMED Corp. ........................... 1,315,000
17,500 Molecular Devices Corp.* ............... 1,373,750
60,000 Nycomed Amersham PLC (ADR)
(United Kingdom)* ...................... 2,842,500
20,000 Oxford GlycoSciences PLC
(United Kingdom)* ...................... 561,638
90,000 Packard BioScience Co.* ................ 1,833,750
115,000 Qiagen N.V. (Netherlands)* ............. 5,721,250
40,000 Staar Surgical Co.* .................... 562,500
230,000 Stryker Corp. .......................... 9,875,625
------------
54,107,575
------------
Medical/Dental Distributors (2.9%)
65,000 Andrx Corp.* ........................... 5,074,063
142,875 Cardinal Health, Inc. .................. 10,501,313
------------
15,575,376
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
PORTFOLIO OF INVESTMENTS July 31, 2000, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C> <C>
Military/Gov't/Technical (0.6%)
55,000 PerkinElmer, Inc.* .................. $ 3,516,563
------------
Other Pharmaceuticals (12.4%)
170,000 Allergan, Inc. ...................... 11,379,375
110,000 Aviron* ............................. 3,162,500
40,000 Cell Therapeutics, Inc.* ............ 1,295,000
180,000 Forest Laboratories, Inc.* .......... 19,260,000
154,800 Serono SA (ADR) (Switzerland)* ...... 4,179,600
13,000 Serono SA (B Shares) (Switzerland) .. 13,750,973
122,133 Shire Pharmaceuticals Group PLC
(ADR) (United Kingdom)* ............. 6,686,782
135,000 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) ................. 8,201,250
------------
67,915,480
------------
Package Goods/Cosmetics (0.0%)
750 Givaudan (Registered Shares)
(Switzerland)* ...................... 218,423
------------
Precision Instruments (1.2%)
55,000 Waters Corp.* ....................... 6,524,375
------------
Services to the Health Industry (2.5%)
30,000 CareInsite, Inc.* ................... 495,000
70,000 Laboratory Corp. of America
Holdings* ........................... 6,877,500
35,259 MedQuist Inc.* ...................... 758,069
55,000 Quest Diagnostics Inc.* ............. 5,551,563
------------
13,682,132
------------
TOTAL COMMON STOCKS
(Cost $336,945,114) ................. 509,841,306
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
---------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENT (a) (6.1%)
U.S. GOVERNMENT AGENCY
$ 33,200 Federal Home Loan Banks
6.43% due 08/01/00
(Cost $33,200,000) .......... $ 33,200,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $370,145,114) (b) ......... 99.5% 543,041,306
OTHER ASSETS IN EXCESS OF
LIABILITIES ..................... 0.5 2,627,515
----- ------------
NET ASSETS ...................... 100.0% $545,668,821
===== ============
</TABLE>
--------------------------------
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 the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $177,225,293 and
the aggregate gross unrealized depreciation is $4,329,101,
resulting in net unrealized appreciation of $172,896,192.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(cost $370,145,114) ............................. $543,041,306
Receivable for:
Investments sold .............................. 17,610,925
Shares of beneficial interest sold ............ 2,844,618
Foreign withholding taxes reclaimed ........... 69,113
Dividends ..................................... 52,850
Prepaid expenses and other assets .................. 36,307
------------
TOTAL ASSETS ................................... 563,655,119
------------
LIABILITIES:
Payable for:
Investments purchased ......................... 12,909,588
Shares of beneficial interest repurchased ..... 702,352
Investment management fee ..................... 460,775
Plan of distribution fee ...................... 453,985
Payable to bank .................................... 3,344,433
Accrued expenses and other payables ................ 115,165
------------
TOTAL LIABILITIES .............................. 17,986,298
------------
NET ASSETS ..................................... $545,668,821
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................... $325,001,673
Net unrealized appreciation ........................ 172,892,461
Accumulated net investment loss .................... (42,485)
Accumulated undistributed net realized gain ........ 47,817,172
------------
NET ASSETS ..................................... $545,668,821
============
CLASS A SHARES:
Net Assets ......................................... $8,996,129
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 454,156
NET ASSET VALUE PER SHARE ...................... $19.81
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value) ........................................ $20.91
======
CLASS B SHARES:
Net Assets ......................................... $519,364,651
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 26,913,403
NET ASSET VALUE PER SHARE ...................... $19.30
======
CLASS C SHARES:
Net Assets ......................................... $14,048,369
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 727,718
NET ASSET VALUE PER SHARE ...................... $19.30
======
CLASS D SHARES:
Net Assets ......................................... $3,259,672
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 163,334
NET ASSET VALUE PER SHARE ...................... $19.96
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
<TABLE>
<CAPTION>
NET INVESTMENT LOSS:
<S> <C>
INCOME
Dividends (net of $37,500 foreign withholding
tax) ........................................... $ 1,590,798
Interest .......................................... 882,143
------------
TOTAL INCOME .................................. 2,472,941
------------
EXPENSES
Investment management fee ......................... 3,736,695
Plan of distribution fee (Class A shares) ......... 8,684
Plan of distribution fee (Class B shares) ......... 3,629,303
Plan of distribution fee (Class C shares) ......... 57,864
Transfer agent fees and expenses .................. 500,488
Professional fees ................................. 80,140
Shareholder reports and notices ................... 75,201
Registration fees ................................. 44,688
Custodian fees .................................... 41,277
Trustees' fees and expenses ....................... 17,874
Other ............................................. 7,865
------------
TOTAL EXPENSES ................................ 8,200,079
------------
NET INVESTMENT LOSS ........................... (5,727,138)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain/loss on:
Investments .................................. 56,291,332
Foreign exchange transactions ................ (413)
------------
NET GAIN ...................................... 56,290,919
------------
Net change in unrealized appreciation/
depreciation on:
Investments .................................. 115,829,636
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies ......... (4,983)
------------
NET APPRECIATION .............................. 115,824,653
------------
NET GAIN ...................................... 172,115,572
------------
NET INCREASE ...................................... $166,388,434
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<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, 2000 JULY 31, 1999
--------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (5,727,138) $ (5,080,823)
Net realized gain .................................... 56,290,919 33,703,279
Net change in unrealized appreciation ................ 115,824,653 1,025,853
------------ ------------
NET INCREASE ...................................... 166,388,434 29,648,309
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED
GAIN:
Class A shares ....................................... (54,741) (130,161)
Class B shares ....................................... (19,874,197) (77,763,028)
Class C shares ....................................... (191,312) (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 ................................ 100,202,282 (9,495,367)
------------ ------------
NET INCREASE (DECREASE) ........................... 246,468,158 (58,205,429)
NET ASSETS:
Beginning of period .................................. 299,200,663 357,406,092
------------ ------------
END OF PERIOD
(Including accumulated net investment losses of
$42,485 and $39,563, respectively)................. $545,668,821 $299,200,663
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 2000
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 portfolio security listed or traded
on the New York or American Stock Exchange, NASDAQ, or other exchange is valued
at its latest sale price, 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; (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 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.
8
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 2000, continued
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 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,
9
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 2000, continued
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.
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 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 totaled
$13,852,998 at July 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
10
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 2000, continued
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, 2000,
the distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended July 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 $15, $369,360 and
$7,252, respectively and received $81,320, in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended July 31, 2000, aggregated
$731,938,035 and $687,592,727, respectively.
For the year ended July 31, 2000, the Fund incurred brokerage commissions of
$124,285 with Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At July 31, 2000, the Fund's receivable for investments sold included
unsettled trades with DWR of $4,719,418.
For the year ended July 31, 2000, the Fund incurred brokerage commissions of
$41,878 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At July 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $500.
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, 2000 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,190. At July 31, 2000, the Fund had an accrued pension liability of $42,072
which is included in accrued expenses in the Statement of Assets and
Liabilities.
11
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 2000, continued
5. 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, 2000 JULY 31, 1999
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold .................................. 925,791 $ 16,253,215 424,913 $ 6,073,934
Reinvestment of distributions ......... 3,935 53,281 9,853 130,161
Redeemed .............................. (528,370) (9,224,240) (398,961) (5,796,005)
-------- -------------- -------- --------------
Net increase - Class A ................ 401,356 7,082,256 35,805 408,090
-------- -------------- -------- --------------
CLASS B SHARES
Sold .................................. 11,155,596 188,803,406 7,959,920 112,709,190
Reinvestment of distributions ......... 1,400,805 18,574,673 5,515,305 72,029,887
Redeemed .............................. (8,075,247) (125,859,468) (14,392,068) (196,123,403)
---------- -------------- ----------- --------------
Net increase (decrease) - Class B ..... 4,481,154 81,518,611 (916,843) (11,384,326)
---------- -------------- ----------- --------------
CLASS C SHARES
Sold .................................. 887,143 14,828,695 137,139 1,870,790
Reinvestment of distributions ......... 14,099 186,948 15,661 204,533
Redeemed .............................. (292,070) (4,731,358) (66,135) (874,166)
---------- -------------- ----------- --------------
Net increase - Class C ................ 609,172 10,284,285 86,665 1,201,157
---------- -------------- ----------- --------------
CLASS D SHARES
Sold .................................. 777,294 12,305,118 469,661 6,297,099
Reinvestment of distributions ......... 151 2,065 279 3,702
Redeemed .............................. (724,491) (10,990,053) (440,582) (6,021,089)
---------- -------------- ----------- --------------
Net increase - Class D ................ 52,954 1,317,130 29,358 279,712
---------- -------------- ----------- --------------
Net increase (decrease) in Fund ....... 5,544,636 $ 100,202,282 (765,015) $ (9,495,367)
========== ============== =========== ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of July 31, 2000, 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 $5,724,216.
12
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
NOTES TO FINANCIAL STATEMENTS July 31, 2000, continued
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At July 31, 2000, there were no outstanding forward contracts.
13
<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 ENDED JULY 31 JULY 28, 1997*
------------------------------------------------- THROUGH
2000 1999 1998 JULY 31, 1997
------------------ ------------------ ----------- ------------------
<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 loss ........................... (0.13) (0.10) (0.18) -
Net realized and unrealized gain .............. 7.51 1.59 1.55 0.07
------- ------- ------- -------
Total income from investment operations ........ 7.38 1.49 1.37 0.07
------- ------- ------- -------
Less distributions from net realized gain ...... (0.96) (3.41) (1.16) -
------- ------- ------- -------
Net asset value, end of period ................. $ 19.81 $ 13.39 $ 15.31 $ 15.10
======= ======= ======= =======
TOTAL RETURN+ .................................. 58.44 % 10.03 % 9.94 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ....................................... 1.45 %(3) 1.47 %(3) 1.51 % 1.57 %(2)
Net investment loss ............................ (0.79)%(3) (0.74)%(3) (1.06)% (0.55)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........ $8,996 $707 $260 $10
Portfolio turnover rate ........................ 191 % 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
14
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
----------------------------------
2000++ 1999++
----------------- ----------------
<S> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $13.17 $15.22
------ ------
Income (loss) from investment operations:
Net investment loss .............................. (0.24) (0.21)
Net realized and unrealized gain ................. 7.33 1.57
------ ------
Total income from investment operations ........... 7.09 1.36
------ ------
Less distributions from net realized gain ......... (0.96) (3.41)
------ ------
Net asset value, end of period .................... $19.30 $13.17
====== ======
TOTAL RETURN+ ..................................... 57.16 % 9.12 %
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.20 %(1) 2.27 %(1)
Net investment loss ............................... (1.54)%(1) (1.54)%(1)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $519,365 $295,446
Portfolio turnover rate ........................... 191 % 148 %
<CAPTION>
FOR THE YEAR ENDED JULY 31,
-------------------------------------------
1998++ 1997* 1996
--------- ---------- ----------
<S> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $15.10 $14.97 $12.88
------ ------ ------
Income (loss) from investment operations:
Net investment loss .............................. (0.31) (0.31) (0.26)
Net realized and unrealized gain ................. 1.59 1.39 3.44
------ ------ ------
Total income from investment operations ........... 1.28 1.08 3.18
------ ------ ------
Less distributions from net realized gain ......... (1.16) (0.95) (1.09)
------ ------ ------
Net asset value, end of period .................... $15.22 $15.10 $14.97
====== ====== ======
TOTAL RETURN+ ..................................... 9.33 % 7.55 % 24.84 %
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.26 % 2.25 % 2.20 %
Net investment loss ............................... (1.87)% (2.08)% (2.03)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $355,416 $422,667 $442,876
Portfolio turnover rate ........................... 139 % 85 % 63 %
</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
15
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31 JULY 28, 1997*
------------------------------------------------- THROUGH
2000 1999 1998 JULY 31, 1997
------------------ ------------------ ----------- ------------------
<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 loss .............................. (0.25) (0.21) (0.29) -
Net realized and unrealized gain ................. 7.33 1.57 1.58 0.07
------ ------ ------ ------
Total income from investment operations ........... 7.08 1.36 1.29 0.07
------ ------ ------ ------
Less distributions from net realized gain ......... (0.96) (3.41) (1.16) -
------ ------ ------ ------
Net asset value, end of period .................... $19.30 $13.18 $15.23 $15.10
====== ====== ====== ======
TOTAL RETURN+ ..................................... 57.04 % 9.13 % 9.40 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.20 %(3) 2.27 %(3) 2.27 % 2.31 %(2)
Net investment loss ............................... (1.54)%(3) (1.54)%(3) (1.78)% (1.28)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $14,048 $1,562 $485 $20
Portfolio turnover rate ........................... 191 % 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
16
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31 JULY 28, 1997*
------------------------------------------------- THROUGH
2000 1999 1998 JULY 31, 1997
------------------ ------------------ ----------- ------------------
<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 loss .............................. (0.10) (0.09) (0.14) -
Net realized and unrealized gain ................. 7.56 1.61 1.55 0.07
------ ------ ------ ------
Total income from investment operations ........... 7.46 1.52 1.41 0.07
------ ------ ------ ------
Less distributions from net realized gain ......... (0.96) (3.41) (1.16) -
------ ------ ------ ------
Net asset value, end of period .................... $19.96 $13.46 $15.35 $15.10
====== ====== ====== ======
TOTAL RETURN+ ..................................... 58.74 % 10.22 % 10.22 % 0.47 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.20 %(3) 1.27 %(3) 1.26 % 1.31 %(2)
Net investment loss ............................... (0.54)%(3) (0.54)%(3) (0.79)% (0.29)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $3,260 $1,485 $1,244 $10
Portfolio turnover rate ........................... 191 % 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
17
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Health Sciences Trust (the "Fund"), including the portfolio
of investments, as of July 31, 2000, and the related statements of operations
and changes in net assets, and financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended July 31, 1999 and the financial
highlights for each of the respective stated periods ended July 31, 1999 were
audited by other auditors whose report, dated September 9, 1999, expressed an
unqualified opinion on that statement and the financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. Our procedures included confirmation of securities owned at July
31, 2000 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Morgan Stanley Dean
Witter Health Sciences Trust as of July 31, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
New York, New York
September 18, 2000
18
<PAGE>
MORGAN STANLEY DEAN WITTER HEALTH SCIENCES TRUST
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to
make reference thereto in their report on the financial statements for such
years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manual 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
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
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 Distributors Inc., member NASD.
MORGAN STANLEY DEAN WITTER
HEALTH SCIENCES TRUST
[GRAPHIC OMITTED]
ANNUAL REPORT
JULY 31, 2000
