<PAGE>
Morgan Stanley Dean Witter Next Generation Trust Two World Trade Center,
Letter to the Shareholders July 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The period from November 26, 1999, through July 31, 2000, was a challenging one
for equity investors, and for Morgan Stanley Dean Witter Next Generation Trust.
The Fund, which commenced operations on November 26, 1999, aims to capitalize on
the vast and growing demographic trend of consumption by Generation Y
(individuals born after 1980). The Fund seeks long-term growth by investing in
the sectors of the S&P 500 that benefit from these consumption trends, as well
as selected international companies that also supply goods and services to these
consumers.
While positive market returns characterized the period as a whole, these results
mask the challenging environment that growth-fund managers found themselves
confronting in the first seven months of 2000. Many growth stocks that have
provided exceptional performance in recent years, especially those in the
technology, media and telecommunications industries, found themselves most
vulnerable to the swings and volatility of the Nasdaq Composite Index (Nasdaq)
during the period. The corresponding performance of the Fund during the period
partially reflects this volatile environment.
PERFORMANCE
From its inception through July 31, 2000, Morgan Stanley Dean Witter Next
Generation Trust's Class A, B, C and D shares posted total returns of -8.83
percent, -9.30 percent, -9.30 percent and -8.71 percent, respectively. For the
same period, the Standard & Poor's 500 Stock Index (S&P 500) returned 1.88
percent. 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.
We believe that the Fund's underperformance relative to the S&P 500 resulted
primarily from a number of short-term events that caused the
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Letter to the Shareholders July 31, 2000, continued
sectors the Fund has focused on, including retail, telecommunications and the
Internet, to underperform to a greater degree than the market as a whole. These
events included the Nasdaq correction in April and a decrease in consumer
spending brought about by interest-rate hikes.
PORTFOLIO STRATEGY
Over the course of the next several years, we believe that consumption trends
fueled by Generation Y consumers will provide significant profits to the
companies that can most effectively market to this demographic group. Government
studies have suggested that this segment of the population numbers roughly 75
million Americans, a group that enjoys unprecedented spending power, as well as
the online means with which to consume, learn and invest. The Fund's portfolio
is built around the companies that tap into this demographic. We also attempt to
use the Fund as an educational vehicle to provide information and materials to
our shareholders and young investors interested in learning more about investing
in general.
The nature of our long-term investment theme partly revolves around consumer
spending. Sectors such as retail, consumer goods and electronics are all quite
sensitive to interest rates and general consumer spending patterns. While the
demographic group that we are targeting does not tend to be sensitive to these
economic trends, stocks in these industries are. When interest rates move higher
(as they have this year), mature consumers tend to curtail their spending,
leading to equity underperformance. It is our sense that, while some additional
interest-rate increases might be in the offing, the majority of the Fed's
tightening actions are likely behind them for this cycle. Therefore, companies
such as the Gap, Limited, Too and Payless Shoesource (all U.S. apparel and
footwear retailers) should rebound in this environment.
The initial months of 2000 also proved difficult for Internet companies, another
area of emphasis for the Fund. This sector corrected in April after valuation
levels reached extremes that fundamentals could not support. Despite this
short-term setback, we believe many Internet-related issues, including America
Online, Inktomi and Earthlink, have strong long-term potential. Both as users
and developers of websites, Generation Y will become the first group of
Americans who will grow up with the Internet as ubiquitous as television or the
telephone were to baby boomers. Because of this trend, we will continue to look
for long-term growth opportunities within the Internet sector.
Finally, a number of international companies that have been at the forefront of
marketing to a younger demographic stumbled during the period. These included
companies that experienced component shortages, such as Nokia and Ericsson, two
European makers of cellular phones and devices, as well as others that
overestimated the consumer demand for their products, such as Sony, the Japanese
electronics conglomerate. However, these companies have demonstrated their
ability to target consumers effectively, and we believe that they will return to
their historic valuations over time.
2
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Letter to the Shareholders July 31, 2000, continued
LOOKING AHEAD
We are optimistic about the long-term investment merits of companies that market
their products or services to Generation Y, believing that strong earnings
prospects will translate into strong share-price performance. We remain mindful,
however, that growth stocks (particularly technology) may be volatile in times
of market turbulence. We will continue to seek out companies and sectors that we
believe have strong management teams, competitive advantages and compelling
stock valuations as we seek the Fund's objective of long-term capital growth.
We appreciate your ongoing support of Morgan Stanley Dean Witter Next Generation
Trust and look forward to continuing to serve your investment needs.
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 Next Generation Trust
Fund Performance July 31, 2000
GROWTH OF $10,000
($ in Thousands)
Date Class A Class B Class C Class D S&P 500
November 26, 1999 $9,475 $10,000 $10,000 $10,000 $10,000
November 30, 1999 $9,409 $9,930 $9,930 $9,930 $$9,817
December 31, 1999 $9,901 $10,442 $10,442 $10,452 $10,394
January 31, 2000 $9,104 $9,591 $9,591 $9,610 $9,872
February 29, 2000 $10,195 $10,742 $10,742 $10,773 $9,686
March 31, 2000 $10,281 $10,822 $10,822 $10,863 $10,632
April 30, 2000 $9,189 $9,671 $9,671 $9,710 $10,313
May 31, 2000 $8,391 $8,820 $8,820 $8,869 $10,101
June 30, 2000 $8,733 $9,180 $9,180 $9,229 $10,350
July 31, 2000 $8,638(3) $8,617(3) $8,980(3) $9,129(3) $10,188
--------------------------------------------------------------------------------
--- Class A --- Class B --- Class C --- Class D --- 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
less than their original cost. Performance for Class A, Class B, Class C, and
Class D shares will vary due to differences in sales charges and expenses.
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
CLASS A SHARES*
---------------------------------------------------------------
PERIOD ENDED 7/31/00
----------------------------
Since Inception (11/26/99) (8.83)%(1) (13.62)%(2)
CLASS B SHARES**
---------------------------------------------------------------
PERIOD ENDED 7/31/00
----------------------------
Since Inception (11/26/99) (9.30)%(1) (13.83)%(2)
CLASS C SHARES+
---------------------------------------------------------------
PERIOD ENDED 7/31/00
----------------------------
Since Inception (11/26/99) (9.30)%(1) (10.20)%(2)
CLASS D SHARES++
---------------------------------------------------------------
PERIOD ENDED 7/31/00
----------------------------
Since Inception (11/26/99) (8.71)%(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, 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.
4
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Portfolio of Investments July 31, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.2%)
Books/Magazines (2.7%)
108,000 Class Editori SpA (Italy) .......... $ 1,668,674
-----------
Broadcasting (7.3%)
20,000 Grupo Televisa S.A. (GDR)
(Mexico)* ........................ 1,292,500
32,200 Hispanic Broadcasting Corp.* ....... 1,225,612
15,500 Univision Communications, Inc.
(Class A)* ....................... 1,925,875
-----------
4,443,987
-----------
Cellular Telephone (2.8%)
30,400 Nextel Communications, Inc.
(Class A)* ....................... 1,700,500
-----------
Clothing/Shoe/Accessory
Stores (6.5%)
31,200 Gap, Inc. (The) .................... 1,117,350
27,000 Payless ShoeSource, Inc.* .......... 1,393,875
65,400 Too, Inc.* ......................... 1,467,412
-----------
3,978,637
-----------
Computer Software (2.6%)
22,700 Microsoft Corp.* ................... 1,584,744
-----------
Computer/Video Chains (2.9%)
24,000 Best Buy Co., Inc.* ................ 1,746,000
-----------
Consumer Electronics/
Appliances (5.5%)
55,000 Pioneer Corp. (Japan) .............. 1,809,872
16,400 Sony Corp. (Japan) ................. 1,509,579
-----------
3,319,451
-----------
Consumer Sundries (3.4%)
139,000 Luxottica Group SpA (ADR)
(Italy) .......................... 2,093,687
-----------
Discount Chains (2.6%)
29,300 Wal-Mart Stores, Inc. .............. 1,609,669
-----------
Diversified Electronic
Products (4.8%)
150 Kudelski SA Bearer
(Switzerland)* ................... 2,067,495
6,000 Samsung Electronics (GDR)
(Korea) - 144A** ................. 862,500
-----------
2,929,995
-----------
Electronic Data Processing (9.9%)
22,800 Apple Computer, Inc.* .............. 1,158,525
175,000 Bull SA (France)* .................. 1,137,960
41,000 Fujistu Ltd. (Japan) ............... 1,154,296
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
20,100 Gateway, Inc.* ..................... $ 1,109,269
12,900 International Business Machines
Corp. ............................ 1,450,444
-----------
6,010,494
-----------
Internet Services (5.4%)
20,100 America Online, Inc.* .............. 1,071,581
1,300 Blue Martini Software, Inc.* ....... 77,269
64,089 Earthlink, Inc.* ................... 801,112
10,300 Yahoo! Inc.* ....................... 1,325,481
-----------
3,275,443
-----------
Investment Bankers/Brokers/
Services (2.4%)
98,000 E*TRADE Group, Inc.* ............... 1,470,000
-----------
Major Pharmaceuticals (2.3%)
15,050 Johnson & Johnson .................. 1,400,591
-----------
Media Conglomerates (6.8%)
41,100 Disney (Walt) Co. (The) ............ 1,590,056
50,000 Promotora de Inform SA - Prisa
(Spain)* ......................... 1,141,665
18,000 Time Warner Inc. ................... 1,380,375
-----------
4,112,096
-----------
Newspapers (2.2%)
106,000 Gruppo Editoriale L'Espresso
SpA (Italy) ...................... 1,326,517
-----------
Other Telecommunications (4.3%)
450,000 China Unicom Ltd. (Hong Kong)*...... 1,041,520
34,000 Qwest Communications
International, Inc.* ............. 1,595,875
-----------
2,637,395
-----------
Package Goods/Cosmetics (2.2%)
23,900 Colgate-Palmolive Co. .............. 1,330,931
-----------
Photographic Products (3.7%)
270,000 Konica Corp. (Japan) ............... 2,263,163
-----------
Restaurants (1.5%)
28,600 McDonald's Corp. ................... 900,900
-----------
Shoe Manufacturing (2.9%)
40,700 Nike, Inc. (Class B) ............... 1,780,625
-----------
Telecommunication Equipment (9.5%)
36,500 Alcatel (France) ................... 2,691,272
3,300 Corvis Corporation* ................ 271,683
88,000 Ericsson LM - B Shs (Sweden) ....... 1,718,900
32,700 Motorola, Inc. ..................... 1,081,144
-----------
5,762,999
-----------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Portfolio of Investments July 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
TOTAL COMMON STOCKS
(Cost $54,650,995)......................... $57,346,498
-----------
SHORT-TERM INVESTMENTS (5.2%)
U.S. GOVERNMENT AGENCY (a) (3.5%)
$ 2,100 Federal Home Loan Banks
6.43% due 08/01/00
(Cost $2,100,000) ....................... 2,100,000
-----------
REPURCHASE AGREEMENT (1.7%)
1,041 The Bank of New York 6.50% due
08/01/00 (dated 07/31/00; proceeds
$1,041,272) (b) (Cost $1,041,084)........ 1,041,084
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $3,141,084).......................... 3,141,084
-----------
TOTAL INVESTMENTS
(Cost $57,792,079) (c)....................... 99.4% 60,487,582
OTHER ASSETS IN EXCESS OF
LIABILITIES ................................. 0.6 395,455
----- -----------
NET ASSETS .................................. 100.0% $60,883,037
===== ===========
</TABLE>
--------------------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Purchased on a discount basis. The interest rate shown has been adjusted to
reflect a money market equivalent yield.
(b) Collateralized by $1,032,553 U.S. Treasury Note 6.5% due 02/28/02 valued at
$1,061,909.
(c) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $8,015,493 and the aggregate gross unrealized depreciation
is $5,319,990, resulting in net unrealized appreciation of $2,695,503.
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(cost $57,792,079) .............................................. $60,487,582
Receivable for:
Investments sold ............................................... 632,134
Shares of beneficial interest sold ............................. 16,507
Foreign withholding taxes reclaimed ............................ 9,922
Dividends ...................................................... 3,764
Offering costs .................................................... 49,464
Prepaid expenses and other assets ................................. 5,891
------------
TOTAL ASSETS ................................................... 61,205,264
------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 118,800
Plan of distribution fee ....................................... 51,910
Investment management fee ...................................... 40,714
Shares of beneficial interest repurchased ...................... 35,615
Accrued expenses and other payables ............................... 75,188
------------
TOTAL LIABILITIES .............................................. 322,227
------------
NET ASSETS ..................................................... $60,883,037
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $66,433,280
Net unrealized appreciation ....................................... 2,695,536
Net investment loss ............................................... (1,466)
Net realized loss ................................................. (8,244,313)
------------
NET ASSETS ..................................................... $60,883,037
===========
CLASS A SHARES:
Net Assets ........................................................ $3,506,017
Shares Outstanding (unlimited authorized, $.01 par value) ......... 385,267
NET ASSET VALUE PER SHARE ...................................... $9.10
=====
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................ $9.60
=====
CLASS B SHARES:
Net Assets ........................................................ $50,632,613
Shares Outstanding (unlimited authorized, $.01 par value) ......... 5,588,437
NET ASSET VALUE PER SHARE ...................................... $9.06
=====
CLASS C SHARES:
Net Assets ........................................................ $6,721,566
Shares Outstanding (unlimited authorized, $.01 par value) ......... 741,865
NET ASSET VALUE PER SHARE ...................................... $9.06
=====
CLASS D SHARES:
Net Assets ........................................................ $22,841
Shares Outstanding (unlimited authorized, $.01 par value) ......... 2,506
NET ASSET VALUE PER SHARE ...................................... $9.11
=====
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Financial Statements, continued
STATEMENT OF OPERATIONS
For the period November 26, 1999* through July 31, 2000
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Interest ................................................................ $ 329,809
Dividends (net of $13,886 foreign withholding tax) ...................... 126,265
------------
TOTAL INCOME ......................................................... 456,074
------------
EXPENSES
Plan of distribution fee (Class A shares) ............................... 6,982
Plan of distribution fee (Class B shares) ............................... 392,966
Plan of distribution fee (Class C shares) ............................... 58,590
Investment management fee ............................................... 359,739
Transfer agent fees and expenses ........................................ 112,978
Offering costs .......................................................... 105,270
Professional fees ....................................................... 59,389
Registration fees ....................................................... 19,098
Custodian fees .......................................................... 14,532
Shareholder reports and notices ......................................... 12,303
Trustees' fees and expenses ............................................. 8,505
Other ................................................................... 5,518
------------
TOTAL EXPENSES ....................................................... 1,155,870
------------
NET INVESTMENT LOSS .................................................. (699,796)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments .......................................................... (8,244,313)
Foreign exchange transactions ........................................ (1,466)
------------
NET LOSS ............................................................. (8,245,779)
------------
Net unrealized appreciation/depreciation on:
Investments .......................................................... 2,695,503
Net translation of other assets and liabilities denominated in foreign
currencies ......................................................... 33
------------
NET APPRECIATION ..................................................... 2,695,536
------------
NET LOSS ............................................................. (5,550,243)
------------
NET DECREASE ............................................................ $ (6,250,039)
============
</TABLE>
---------------------
* Commencement of operations.
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 26, 1999*
THROUGH
JULY 31, 2000
-------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ..................................................... $ (699,796)
Net realized loss ....................................................... (8,245,779)
Net unrealized appreciation ............................................. 2,695,536
------------
NET DECREASE ......................................................... (6,250,039)
------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares .......................................................... (8,507)
Class B shares .......................................................... (69,265)
Class C shares .......................................................... (12,184)
Class D shares .......................................................... (53)
------------
TOTAL DIVIDENDS ...................................................... (90,009)
------------
Net increase from transactions in shares of beneficial interest ......... 67,123,085
------------
NET INCREASE ......................................................... 60,783,037
NET ASSETS:
Beginning of period ..................................................... 100,000
------------
END OF PERIOD
(Including a net investment loss of $1,466) .......................... $ 60,883,037
============
</TABLE>
---------------------
* Commencement of operations.
See Notes to Financial Statements
9
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Notes to Financial Statements July 31, 2000
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Next Generation Trust (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is long-term growth of capital. The Fund seeks to achieve its
objective by investing primarily in common stocks of companies, which
manufacture products or provide services for children, teenagers and/or young
adults. The Fund was organized as a Massachusetts business trust on July 8, 1999
and had no operations other than those relating to organizational matters and
the issuance of 2,500 shares of beneficial interest by each class for $25,000 of
each class to Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") to effect the Fund's initial capitalization. The Fund commenced
operations on November 26, 1999.
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); and (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 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
10
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Notes to Financial Statements July 31, 2000, continued
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.
B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FORWARD CURRENCY TRANSLATION - The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized gain/loss on foreign exchange transactions. The Fund
records realized gains or losses on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
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
11
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Notes to Financial Statements July 31, 2000, continued
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
H. OFFERING COSTS - The Investment Manager incurred offering costs on behalf of
the Fund in the amount of approximately $150,000 which will be reimbursed by the
Fund for the full amount thereof. Such expenses were deferred and are being
amortized by the Fund on the straight-line method over the period of benefit of
approximately one year or less from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close of
each business day.
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
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
$5,040,113 at July 31, 2000.
12
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Notes to Financial Statements July 31, 2000, continued
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 period 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
1.00%, respectively.
The Distributor has informed the Fund that for the period ended July 31, 2000,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $173,396 and $28,723, respectively
and received $23,738 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 period ended July 31, 2000 aggregated
$87,024,328, and $24,129,020, respectively.
For the period ended July 31, 2000, the Fund incurred brokerage commissions with
Dean Witter Reynolds Inc., an affiliate of the Investment Manager and
Distributor, of $9,780, for portfolio transactions executed on behalf of the
Fund.
For the period ended July 31, 2000, the Fund incurred brokerage commissions of
$5,861 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 $700.
13
<PAGE>
Morgan Stanley Dean Witter Next Generation 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 PERIOD
NOVEMBER 26, 1999*
THROUGH
JULY 31, 2000
---------------------------------
SHARES AMOUNT
--------------- ---------------
<S> <C> <C>
CLASS A
Sold .............................. 511,476 $ 5,117,805
Reinvestment of dividends ......... 767 7,781
Redeemed .......................... (129,476) (1,290,962)
--------- -------------
Net increase - Class A ............ 382,767 3,834,624
--------- -------------
CLASS B
Sold .............................. 6,830,855 68,421,256
Reinvestment of dividends ......... 6,384 64,799
Redeemed .......................... (1,251,302) (12,532,621)
--------- -------------
Net increase - Class B ............ 5,585,937 55,953,434
--------- -------------
CLASS C
Sold .............................. 1,228,710 12,318,786
Reinvestment of dividends ......... 1,088 11,040
Redeemed .......................... (490,433) (4,994,862)
--------- -------------
Net increase - Class C ............ 739,365 7,334,964
--------- -------------
CLASS D
Sold .............................. 1 10
Reinvestment of dividends ......... 5 53
---------- -------------
Net increase - Class D ............ 6 63
---------- -------------
Net increase in Fund .............. 6,708,075 $ 67,123,085
========== =============
</TABLE>
---------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
Capital and foreign currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Fund's next taxable year. The Fund incurred and will elect to defer net
capital and foreign currency losses of approximately $8,244,000 and $1,000,
respectively during fiscal 2000.
As of July 31, 2000, the Fund had temporary book/tax differences attributable to
post-October losses and permanent book/tax differences primarily attributable to
a net operating loss and nondeductible expenses. To reflect reclassifications
arising from the permanent differences, paid-in-capital was charged $789,805,
net realized loss was credited $1,466 and net investment loss was credited
$788,339.
14
<PAGE>
Morgan Stanley Dean Witter Next Generation 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.
15
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Financial Highlights
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD NOVEMBER 26, 1999* THROUGH JULY 31, 2000**
------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ........... $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- -------- ------- -------
Income (loss) from investment operations:
Net investment loss ........................... (0.05) (0.10) (0.10) (0.04)
Net realized and unrealized loss .............. (0.83) (0.83) (0.83) (0.83)
------- -------- ------- -------
Total loss from investment operations .......... (0.88) (0.93) (0.93) (0.87)
------- -------- ------- -------
Less dividends from net investment income ...... (0.02) (0.01) (0.01) (0.02)
------- -------- ------- -------
Net asset value, end of period ................. $ 9.10 $ 9.06 $ 9.06 $ 9.11
======= ======== ======= =======
TOTAL RETURN+(1) .............................. (8.83)% (9.30)% (9.30)% (8.71)%
RATIOS TO AVERAGE NET ASSETS (2)(3):
Expenses ....................................... 1.70 % 2.45 % 2.45 % 1.45 %
Net investment loss ............................ (0.75)% (1.50)% (1.50)% (0.50)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........ $3,506 $50,633 $6,722 $ 23
Portfolio turnover rate (1) .................... 40 % 40 % 40 % 40 %
</TABLE>
-------------
* Commencement of operations.
** 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 Next Generation Trust
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF MORGAN STANLEY DEAN WITTER NEXT
GENERATION TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Next Generation 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 period November 26,
1999 (commencement of operations) to July 31, 2000. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
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 statement 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 Next Generation Trust as of July 31, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the period
November 26, 1999 (commencement of operations) to July 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
September 18, 2000
2000 FEDERAL TAX NOTICE (unaudited)
Of the Fund's ordinary income dividends paid during the fiscal year ended
July 31, 2000, 15.01% was attributable to qualifying Federal obligations.
Please consult your tax advisor to determine if any portion of the
dividends you received is exempt from state income tax.
17
<PAGE>
Morgan Stanley Dean Witter Next Generation Trust
Change in Independent Accountants
On July 1, 2000, PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The report of PricewaterhouseCoopers LLP on the financial statement of the Fund
as of September 9, 1999 contained no adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principle.
From September 9, 1999 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.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants for the period
ended July 31, 2000.
18
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
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
Mark Bavoso
Vice President
David Dineen
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
NEXT GENERATION
TRUST
[GRAPHIC OMITTED]
ANNUAL REPORT
JULY 31, 2000
