MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND, N-30D, 1998-11-20

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
N-30D, 1998-11-20

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<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND Two World Trade Center,
LETTER TO THE SHAREHOLDERS September 30, 1998 New York, New York 10048

DEAR SHAREHOLDER:

The recent twelve-month period was very volatile for financial markets around
the world. Domestic equity markets peaked in the middle of July and then began
to fall as concerns regarding the impact that global financial problems might
have on the U.S. economy began to weigh heavily on market sentiment. At the
same time, interest rates continued their decline, inflation remained in check
and the dollar strengthened further.

PERFORMANCE AND PORTFOLIO

The downturn experienced by the equity market toward the end of this reporting
period was evident in the performance of Morgan Stanley Dean Witter Income
Builder Fund. During the period under review, the Fund's Class A shares
returned -- 4.67 percent, Class B shares returned -- 5.29 percent, Class C
shares returned -- 5.38 percent and Class D shares returned -- 4.46 percent.
The performance of the Fund's four share classes varies, because each class has
different expenses. At the same time, the Standard & Poor's 500 Composite Stock
Price Index (S&P 500) returned 9.06 percent and the Lipper Equity Income Funds
Index (Lipper Index) returned 1.29 percent. The accompanying chart illustrates
the growth of a hypothetical $10,000 investment in the Fund's Class B shares
from June 26, 1996 through September 30, 1998, versus similar investments in
the issues that comprise the S&P 500 and the Lipper Index.

The Fund's underperformance relative to the Lipper Index was largely due to the
Fund's lack of exposure to high-technology stocks, its underweighting in the
financial sector and its exposure to convertible securities. The Fund, for the
most part, avoids investing in high technology because these stocks generally
pay little, if any, dividends and therefore do not contribute to the Fund's
primary investment objective, that of providing shareholders with reasonable
income. During periods of strong equity market performance, the Fund's tilt
toward yield dampened performance relative to its benchmarks. However, the
income stream

<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS September 30, 1998, continued

produced by the Fund's holdings was crucial in providing a cushion against the
extreme volatility that we saw in the markets at the end of this fiscal period.

PORTFOLIO ASSET ALLOCATION

Since its inception on June 26, 1996, Morgan Stanley Dean Witter Income Builder
Fund has maintained a target asset mix of 40 percent large-cap stocks, 30
percent convertible securities, 10 percent high-yield bonds, 10 percent
investment-grade fixed-income issues and 10 percent real estate investment
trusts (REITs).

Since inception the large-cap segment of the Fund has been nearly fully
invested. At the end of the fiscal period this segment was well diversified,
consisting of 49 stocks spread among 23 industry groups. Associates First
Capital, a spin-off from Ford, was the only new common stock added during the
period.

The convertible portion of the Fund underperformed the broader equity market
during the fiscal year, primarily due to its heavy bias toward small- and
mid-cap issues, which lagged those of large caps for most of the period. In
addition, illiquidity in the convertible market and widening credit spreads
among lower-quality issues have hurt performance in recent months. However, we
believe that these conditions have rendered the convertible market overall, and
the small-cap market in particular, attractively valued, both from a
fixed-income and an equity appreciation perspective. We remain positive about
the prospects for small caps over the long term and will continue to focus on
this sector going forward.

The fixed-income portion of the Fund is structured to provide maximum current
income while minimizing exposure to interest-rate movement. This portion of the
Fund performed as expected and helped to reduce overall portfolio volatility
during the year.

Real estate investment trusts (REITs) have performed poorly during most of
calendar 1998 as concerns over property acquisition pricing, overbuilding and
access to capital markets have caused many investors to avoid the group.
Dividend yields, however, are relatively high, with many stocks trading below
their underlying real-estate value. The Fund dedicates 10 percent of its net
assets to REITs, split equally between common stocks and convertible
securities.

LOOKING AHEAD

Going forward, we are convinced that the outlook for the economy and the
financial markets remains favorable. We believe that, in such an environment,
the Fund's broad diversification across asset classes will continue to provide
shareholders with reasonable income and, secondarily, the potential for capital
appreciation.

2
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS September 30, 1998, continued

We appreciate your ongoing support of Morgan Stanley Dean Witter Income Builder
Fund and look forward to continuing to serve your investment needs.

Very truly yours,

/s/ Charles A. Fiumefreddo

CHARLES A. FIUMEFREDDO
Chairman of the Board

3
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FUND PERFORMANCE September 30, 1998

[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]

[LINE CHART]

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.

AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B SHARES**
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (5.29)%(1) (9.66)%(2)
Since Inception (6/26/96) 11.06%(1) 9.89%(2)

<CAPTION>
CLASS C SHARES++
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (5.38)%(1) (6.25)%(2)
Since Inception (7/28/97) 0.09%(1) 0.09%(2)

<CAPTION>
CLASS A SHARES+
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C> <C>
1 Year (4.67)%(1) (9.67)%(2)
Since Inception (7/28/97) 0.86%(1) (3.67)%(2)

<CAPTION>
CLASS D SHARES++
- -----------------------------------------------------------------
PERIOD ENDED 9/30/98
- ---------------------------
<S> <C>
1 Year (4.46)%(1)
Since Inception (7/28/97) 1.06%(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 after the deduction of a 3% contingent deferred sales charge
(CDSC), assuming a complete redemption on September 30, 1998.
(4) The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based index,
the performance of which is based on the average performance of 500 widely
held common stocks. The performance of the index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lipper Equity Income Fund Index is an equally-weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Equity Income Funds objective. The Index, which is adjusted for capital
gains distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds in this index.
* For periods of less than one year, the fund quotes its total return on a
non-annualized basis.
** The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
++ Class D shares have no sales charge.

4
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (45.4%)
Accident & Health Insurance (0.8%)
96,000 Torchmark Corp. ................................... $ 3,450,000
------------
Apparel (0.8%)
132,000 Kellwood Co. ...................................... 3,547,500
------------
Auto Parts -- Original Equipment (1.7%)
97,000 Dana Corp. ........................................ 3,619,312
78,000 Johnson Controls, Inc. ............................ 3,627,000
------------
7,246,312
------------
Building Materials (1.7%)
70,000 Armstrong World Industries, Inc. .................. 3,745,000
34,000 Vulcan Materials Co. .............................. 3,440,375
------------
7,185,375
------------
Clothing/Shoe/Accessory Chains (0.8%)
157,000 Limited (The), Inc. ............................... 3,444,187
------------
Consumer Electric/Appliances (0.8%)
76,000 Whirlpool Corp. ................................... 3,572,000
------------
Consumer Sundries (0.8%)
92,000 American Greetings Corp. (Class A) ................ 3,639,750
------------
Containers/Packaging (0.8%)
130,000 Crown Cork & Seal Co., Inc. ....................... 3,477,500
------------
Diversified Financial Services (0.7%)
33,000 Providian Financial Corp. ......................... 2,798,812
------------
Electric Utilities: East (1.7%)
92,000 New England Electric System ....................... 3,818,000
94,000 Public Service Enterprise Group, Inc. ............. 3,695,375
------------
7,513,375
------------
Electric Utilities: South (0.9%)
121,000 Houston Industries Inc. ........................... 3,766,125
------------
Finance Companies (2.4%)
55,000 Associates First Capital Corp. (Class A) .......... 3,588,750
56,000 Fannie Mae ........................................ 3,598,000
105,000 SLM Holding Corp. ................................. 3,405,936
------------
10,592,686
------------
Food Distributors (0.8%)
156,000 Supervalu, Inc. ................................... 3,636,750
------------
Home Building (0.8%)
115,000 Fleetwood Enterprises, Inc. ....................... 3,471,562
------------
Life Insurance (1.1%)
17,622 Aegon N.V. (ADR) (Netherlands) .................... 1,372,313
59,000 Jefferson-Pilot Corp. ............................. 3,569,500
------------
4,941,813
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

5
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
Major Banks (0.8%)
116,000 KeyCorp .......................................... $ 3,349,500
------------
Major Chemicals (3.3%)
42,000 Dow Chemical Co. ................................. 3,588,375
123,000 Hercules, Inc. ................................... 3,697,688
67,000 PPG Industries, Inc. ............................. 3,655,688
127,000 Rohm & Haas Co. .................................. 3,532,188
------------
14,473,939
------------
Major Pharmaceuticals (0.8%)
35,000 Schering-Plough Corp. ............................ 3,624,688
------------
Major U.S. Telecommunications (3.4%)
62,000 AT&T Corp. ....................................... 3,623,125
76,000 Bell Atlantic Corp. .............................. 3,681,250
68,000 GTE Corp. ........................................ 3,740,000
69,000 U.S. West Communications Group, Inc. ............. 3,618,188
------------
14,662,563
------------
Meat/Poultry/Fish (0.8%)
132,000 Hormel Foods Corp. ............................... 3,572,250
------------
Mid-Sized Banks (1.5%)
192,000 First Security Corp. ............................. 3,204,000
126,000 First Tennessee National Corp. ................... 3,433,500
------------
6,637,500
------------
Motor Vehicles (2.4%)
72,000 Chrysler Corp. ................................... 3,447,000
74,500 Ford Motor Co. ................................... 3,496,844
62,000 General Motors Corp. ............................. 3,390,625
------------
10,334,469
------------
Multi-Line Insurance (0.8%)
41,000 Lincoln National Corp. ........................... 3,372,250
------------
Multi-Sector Companies (0.8%)
105,000 Tenneco, Inc. .................................... 3,451,875
------------
Natural Gas -- Distribution (0.9%)
71,000 Consolidated Natural Gas Co. ..................... 3,869,500
------------
Newspapers (0.5%)
136,344 Hollinger International, Inc. (Class A) .......... 1,959,945
------------
Oil Refining/Marketing (0.8%)
75,000 Ashland, Inc. .................................... 3,468,750
------------
Other Metals/Minerals (0.9%)
280,000 Cyprus Amax Minerals Co. ......................... 3,710,000
------------
Real Estate Investment Trust (5.3%)
98,300 Boston Properties, Inc. .......................... 2,801,550
120,000 Equity One, Inc. ................................. 1,050,000
59,250 Healthcare Realty Trust, Inc. .................... 1,510,875
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

6
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
91,500 LTC Properties, Inc. ................................ $ 1,595,531
100,000 Meditrust Corp. ..................................... 1,706,250
92,377 MeriStar Hospitality Corp. .......................... 1,576,183
200,000 Mid-Atlantic Realty Trust ........................... 2,700,000
50,420 New Plan Excel Realty Trust ......................... 1,175,416
145,000 Reckson Associates Realty Corp. ..................... 3,407,500
208,800 Sunstone Hotel Investors, Inc. ...................... 1,892,250
68,800 Tanger Factory Outlet Centers, Inc. ................. 1,560,900
60,000 Trinet Corporate Realty Trust, Inc. ................. 1,957,500
------------
22,933,955
------------
Savings & Loan Associations (2.4%)
166,000 TCF Financial Corp. ................................. 3,299,250
148,000 Washington Federal, Inc. ............................ 3,700,000
102,000 Washington Mutual, Inc. ............................. 3,423,375
------------
10,422,625
------------
Smaller Banks (0.9%)
73,000 Wilmington Trust Corp. .............................. 3,723,000
------------
Steel/Iron Ore (0.8%)
150,000 USX-U.S. Steel Group, Inc. .......................... 3,581,250
------------
Tobacco (1.7%)
80,000 Philip Morris Companies, Inc. ....................... 3,685,000
120,000 UST, Inc. ........................................... 3,547,500
------------
7,232,500
------------
TOTAL COMMON STOCKS
(Identified Cost $189,888,715) ...................... 196,664,306
------------
CONVERTIBLE PREFERRED STOCKS (19.2%)
Accident & Health Insurance (0.5%)
85,000 AmerUs Life Holdings, Inc. .......................... 2,061,250
------------
Apparel (0.3%)
30,500 Warnaco Group, Inc. $3.00 ........................... 1,220,000
------------
Auto Parts (0.7%)
94,000 BTI Capital Trust $3.25 -- 144A* .................... 1,880,000
68,500 Walbro Capital Trust $2.00 .......................... 1,147,375
------------
3,027,375
------------
Books/Magazine (0.6%)
130,000 Reader's Digest Association, Inc $1.93............... 2,705,625
------------
Broadcasting (0.9%)
109,700 Metromedia International Group, Inc. $3.625.......... 2,495,675
145,000 Triathlon Broadcasting Co. $0.945 ................... 1,377,500
------------
3,873,175
------------
Business Services (0.7%)
63,000 Unisys Corp. (Series A) $3.75 ....................... 2,984,625
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

7
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Containers/Packaging (0.6%)
70,000 Sealed Air Corp. (Series A) $2.00 ................................. $ 2,528,750
------------
Finance (0.3%)
39,200 Insignia Financing, Inc. $3.25..................................... 1,496,970
------------
Investment Bankers/Brokers/Services (0.9%)
90,000 Merrill Lynch & Co., Inc. $2.39
(exchangeable into IMC Global, Inc. common stock) ................. 1,991,250
25,800 Merrill Lynch & Co., Inc. $4.087
(exchangeable into SunAmerica, Inc. common stock) ................. 1,886,625
------------
3,877,875
------------
Machinery (0.6%)
117,000 Ingersoll-Rand Co. $1.688 ......................................... 2,457,000
------------
Major U.S. Telecommunications (1.2%)
44,100 Loral Space & Commmunications Ltd. $3.00 -- 144A* (Bermuda) 1,990,012
47,000 Loral Space & Communications Ltd. (Series C) $3.00 (Bermuda) ...... 2,120,875
27,000 Qualcomm Financial Trust $2.875 ................................... 1,128,951
------------
5,239,838
------------
Movies/Entertainment (0.6%)
70,000 Premier Parks, Inc. $4.05.......................................... 2,730,000
------------
Non-U.S. Banks (1.5%)
135,000 National Australia Bank, Ltd. $1.969 (Australia) (Units)++ ........ 3,594,375
111,500 WBK Strypes Trust $3.135........................................... 3,080,187
------------
6,674,562
------------
Oil Refining/Marketing (0.7%)
200,000 Tesoro Petroleum Corp. $1.16 ...................................... 2,850,000
------------
Other Consumer Services (0.6%)
100,000 Cendant Corp. $3.75 ............................................... 2,500,000
------------
Package Goods/Cosmetics (0.9%)
72,000 Estee Lauder Co. $3.80 ............................................ 3,960,000
------------
Property -- Casualty Insurance (0.5%)
210,000 Philadelphia Consolidated Holding Co. $0.70 ....................... 2,047,500
------------
Railroads (0.8%)
75,000 Union Pacific Capital Trust $3.125 -- 144A* ....................... 3,375,000
------------
Real Estate Investment Trust (3.1%)
61,400 Camden Property Trust (Series A) $2.25 ............................ 1,542,675
182,000 FelCor Lodging Trust, Inc. (Series A) $1.95 ....................... 3,913,000
113,000 Merry Land & Investment Co., Inc. (Series C) $2.15 ................ 2,973,313
36,600 Rouse Co. (Series B) $3.00 ........................................ 1,647,000
140,000 SL Green Realty Corp. $2.00 ....................................... 3,360,000
------------
13,435,988
------------
Smaller Banks (0.9%)
145,000 CNB Capital Trust I $1.50.......................................... 3,878,750
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

8
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Steel/Iron Ore (0.7%)
165,000 USX Corp. ..................................................... $ 3,114,375
------------
Telecommunications (0.8%)
67,500 EchoStar Communications Corp. (Series C) $3.375................ 3,628,125
------------
Unregulated Power Generation (0.8%)
81,000 CalEnergy Capital Trust $3.25.................................. 3,371,625
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $101,063,650)................................. 83,038,408
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ----------- ------ --------
<S> <C> <C> <C> <C>
CORPORATE BONDS (33.5%)
CONVERTIBLE BONDS (12.1%)
Assisted Living Services (0.7%)
$ 1,500 ARV Assisted Living, Inc. .................... 6.75% 04/01/06 868,500
3,000 Emeritus Corp. -- 144A* ...................... 6.25 01/01/06 2,099,460
------------
2,967,960
------------
Auto Parts (2.0%)
4,000 Mark IV Industries, Inc. -- 144A* ............ 4.75 11/01/04 3,326,240
3,000 MascoTech, Inc. .............................. 4.50 12/15/03 2,553,750
2,700 Tower Automotive, Inc. -- 144A* .............. 5.00 08/01/04 2,592,000
------------
8,471,990
------------
Books/Magazine (0.1%)
640 Nelson (Thomas), Inc. ........................ 5.75 11/30/99 635,341
------------
Cable/Cellular (0.7%)
7,850 U.S. Cellular Corp. .......................... 0.00 06/15/15 2,983,157
------------
Clothing/Shoe/Accessory Chains (1.3%)
4,400 Genesco Inc. -- 144A* ........................ 5.50 04/15/05 2,549,492
3,200 Saks Holdings, Inc. .......................... 5.50 09/15/06 3,168,000
------------
5,717,492
------------
Finance (0.8%)
4,000 Financial Federal Corp. -- 144A* ............. 4.50 05/01/05 3,665,000
------------
Machinery (0.5%)
2,300 Thermo Fibertek, Inc. -- 144A* ............... 4.50 07/15/04 2,110,250
------------
Major U.S. Telecommunications (0.8%)
3,700 Bell Atlantic Financial Service -- 144A*...... 4.25 09/15/05 3,590,147
750 SA Telecommunications, Inc.
-- 144A* (a) ................................. 10.00 08/15/06 22,500
------------
3,612,647
------------
Managed Health Care (1.1%)
4,400 Concentra Managed Care, Inc. -- 144A*......... 4.50 03/15/03 2,824,272
5,400 Phymatrix Corp. .............................. 6.75 06/15/03 2,052,000
------------
4,876,272
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

9
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Medical Electronics (0.4%)
$ 2,100 ThermoTrex Corp. ............................. 3.25% 11/01/07 $1,523,508
----------
Office Equipment & Supplies (0.7%)
4,750 Danka Business Systems, PLC
(United Kingdom) ............................. 6.75 04/01/02 3,090,492
----------
Real Estate Investment Trust (1.6%)
3,800 Capstar Hotel Corp. .......................... 4.75 10/15/04 2,539,426
4,425 Capstone Capital Corp. ....................... 6.55 03/14/02 4,211,892
----------
6,751,318
----------
Services to the Health Industry (0.4%)
1,380 Pharmaceutical Marketing Services, Inc. 6.25 02/01/03 1,204,354
675 Pharmaceutical Marketing Services, Inc.
(Eurobond) ................................... 6.25 02/01/03 590,625
----------
1,794,979
----------
Shoe Manufacturing (1.0%)
2,300 Nine West Group, Inc. ........................ 5.50 07/15/03 1,520,507
4,300 Nine West Group, Inc. -- 144A* ............... 5.50 07/15/03 2,842,687
----------
4,363,194
----------
TOTAL CONVERTIBLE BONDS
(Identified Cost $64,902,503) .......................................... 52,563,600
----------
NON-CONVERTIBLE BONDS (21.4%)
Books/Magazine (0.7%)
2,200 Big Flower Press, Inc. ....................... 8.875 07/01/07 2,145,000
1,000 Hollinger International Publishing, Inc. 9.25 02/01/06 1,025,000
----------
3,170,000
----------
Broadcasting (2.0%)
3,000 JCAC Inc. .................................... 10.125 06/15/06 3,285,000
5,060 Young Broadcasting Corp. ..................... 11.75 11/15/04 5,388,900
----------
8,673,900
----------
Building Materials (0.7%)
2,850 USG Corp. (Series B) ......................... 9.25 09/15/01 3,113,824
----------
Cable/Cellular (3.8%)
12,950 Continental Cablevision, Inc. ................ 11.00 06/01/07 14,073,801
2,000 Tele-Communications, Inc. .................... 9.25 04/15/02 2,259,520
----------
16,333,321
----------
Casino/Gambling (1.0%)
4,200 Casino Magic Finance Corp. ................... 11.50 10/15/01 4,200,000
----------
Diversified Financial Services (3.6%)
14,060 Groupe Videotron Ltee (Canada) ............... 10.625 02/15/05 15,413,275
----------
Drug Store Chain (0.5%)
1,950 Thrifty PayLess Holdings, Inc. ............... 12.25 04/15/04 2,132,813
----------
Major Chemicals (1.7%)
7,000 Harris Chemical North America, Inc. .......... 10.75 10/15/03 7,245,000
----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

10
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 1998, continued

- ---------------------
ADR American Depository Receipt.
* Resale is restricted to qualified institutional investors.
++ Consists of more than one class of securities traded together as a
unit; stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Collateralized by $1,627,093 U.S. Treasury Note 6.25% due
01/31/02 valued at $1,735,727.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$24,041,088 and the aggregate gross unrealized depreciation is
$50,018,706, resulting in net unrealized depreciation of
$25,977,618.

SEE NOTES TO FINANCIAL STATEMENTS

11
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $452,694,639)........ $426,717,021
Receivable for:
Interest .............................................................. 4,016,177
Investments sold ...................................................... 3,162,862
Dividends ............................................................. 753,565
Shares of beneficial interest sold .................................... 562,079
Deferred organizational expenses ......................................... 89,536
Prepaid expenses and other assets ........................................ 66,495
------------
TOTAL ASSETS ........................................................... 435,367,735
------------
LIABILITIES:
Payable for:
Investments purchased ................................................. 1,025,876
Plan of distribution fee .............................................. 357,189
Shares of beneficial interest repurchased ............................. 287,751
Investment management fee ............................................. 267,986
Dividends and distributions to shareholders ........................... 91,008
Accrued expenses and other payables ...................................... 107,895
------------
TOTAL LIABILITIES ...................................................... 2,137,705
------------
NET ASSETS ............................................................. $433,230,030
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .......................................................... $434,715,783
Net unrealized depreciation .............................................. (25,977,618)
Accumulated undistributed net investment income .......................... 3,454,171
Accumulated undistributed net realized gain .............................. 21,037,694
------------
NET ASSETS ............................................................. $433,230,030
============
CLASS A SHARES:
Net Assets ............................................................... $10,073,263
Shares Outstanding (unlimited authorized, $.01 par value)................. 900,992
NET ASSET VALUE PER SHARE .............................................. $11.18
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ...................... $11.80
======
CLASS B SHARES:
Net Assets ............................................................... $416,908,604
Shares Outstanding (unlimited authorized, $.01 par value) ................ 37,280,650
NET ASSET VALUE PER SHARE .............................................. $11.18
======
CLASS C SHARES:
Net Assets ............................................................... $5,630,261
Shares Outstanding (unlimited authorized, $.01 par value) ................ 504,418
NET ASSET VALUE PER SHARE .............................................. $11.16
======
CLASS D SHARES:
Net Assets ............................................................... $617,902
Shares Outstanding (unlimited authorized, $.01 par value) ................ 55,258
NET ASSET VALUE PER SHARE .............................................. $11.18
======
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

12
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued

STATEMENT OF OPERATIONS
For the year ended September 30, 1998

<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .................................................. $ 14,163,882
Dividends (net of $2,739 foreign withholding tax) ......... 11,937,421
------------
TOTAL INCOME ............................................ 26,101,303
------------
EXPENSES
Plan of distribution fee (Class A shares) ................. 18,844
Plan of distribution fee (Class B shares) ................. 3,886,869
Plan of distribution fee (Class C shares) ................. 41,480
Investment management fee ................................. 3,387,158
Transfer agent fees and expenses .......................... 380,586
Registration fees ......................................... 165,230
Shareholder reports and notices ........................... 66,522
Professional fees ......................................... 50,805
Custodian fees ............................................ 47,954
Organizational expenses ................................... 32,715
Trustees' fees and expenses ............................... 11,998
Other ..................................................... 20,188
------------
TOTAL EXPENSES .......................................... 8,110,349
------------
NET INVESTMENT INCOME ................................... 17,990,954
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ......................................... 21,800,391
Net change in unrealized appreciation ..................... (68,902,232)
------------
NET LOSS ................................................ (47,101,841)
------------
NET DECREASE .............................................. $(29,110,887)
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

13
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 17,990,954 $ 10,365,875
Net realized gain .................................... 21,800,391 17,728,044
Net change in unrealized appreciation ................ (68,902,232) 39,732,802
------------ ------------
NET INCREASE (DECREASE) ............................ (29,110,887) 67,826,721
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares .................................... (344,600) (7,078)
Class B shares .................................... (15,186,529) (9,398,309)
Class C shares .................................... (153,463) (7,487)
Class D shares .................................... (16,323) (193)
Net realized gain
Class A shares .................................... (264,926) --
Class B shares .................................... (18,061,378) (157,191)
Class C shares .................................... (92,820) --
Class D shares .................................... (1,956) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .................. (34,121,995) (9,570,258)
------------ ------------
Net increase from transactions in shares of beneficial
interest ........................................... 135,434,833 154,629,702
------------ ------------
NET INCREASE ....................................... 72,201,951 212,886,165
NET ASSETS:
Beginning of period .................................. 361,028,079 148,141,914
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$3,454,171 and $1,125,380, respectively) .......... $433,230,030 $361,028,079
============ ============
</TABLE>

- --------------
* Class A, Class C and Class D shares were issued July 28, 1997.

SEE NOTES TO FINANCIAL STATEMENTS

14
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998

1. ORGANIZATION AND ACCOUNTING POLICIES

Morgan Stanley Dean Witter Income Builder Fund (the "Fund"), formerly Dean
Witter Income Builder 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 primary investment objective is to seek reasonable income
and, as a secondary objective, growth of capital. The Fund seeks to achieve its
objective by investing primarily in income-producing equity securities,
including common and preferred stocks as well as convertible securities. The
Fund was organized as a Massachusetts business trust on March 21, 1996 and
commenced operations on June 26, 1996. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.

The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.

The following is a summary of significant accounting policies:

A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the security
is valued on the exchange designated as the primary market pursuant to
procedures adopted by the Trustees); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., 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); (4) certain portfolio
securities may be valued by an outside pricing service approved by

15
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued

the Trustees. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters,
and/or research and evaluations by its staff, including review of broker-dealer
market price quotations, if available, in determining what it believes is the
fair valuation of the securities valued by such pricing service; and (5)
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
except for certain dividends on 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. 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.

E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amounts of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.

16
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued

F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $164,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years 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. Effective May 1, 1998 the Agreement was amended to reduce
the annual rate to 0.725% of the portion of daily net assets in excess of $500
million.

Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.

3. PLAN OF DISTRIBUTION

Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of dividend
or capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the average
daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average
daily net assets of Class C. In the case of Class A shares, amounts paid under
the Plan are paid to the Distributor for services provided. In the case of
Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for (1) services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering
of these shares to other than current shareholders; and (3) preparation,
printing and distribution

17
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued

of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $18,378,964 at September 30, 1998.

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended September 30, 1998, 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 September 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $1,076,184 and $4,960, respectively
and received $99,718 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 year the ended September 30, 1998
aggregated $370,672,491 and $254,895,716, respectively.

For the year ended September 30, 1998, the Fund incurred $141,296 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At September 30, 1998, the Fund's receivable for investments sold and payable
for investments purchased included unsettled trades with DWR of $1,671,518 and
$889,375, respectively.

18
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1998, continued

For the year ended September 30, 1998, the Fund incurred $6,600 in brokerage
commissions 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 September 30, 1998, the Fund
had transfer agent fees and expenses payable of approximately $5,100.

5. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 887,465 $ 11,197,972 84,697 $ 1,060,929
Reinvestment of dividends and distributions ......... 26,670 324,319 297 3,779
Redeemed ............................................ (94,880) (1,168,724) (3,257) (41,000)
---------- ------------ ---------- ------------
Net increase - Class A .............................. 819,255 10,353,567 81,737 1,023,708
---------- ------------ ---------- ------------
CLASS B SHARES
Sold ................................................ 14,488,236 183,541,957 16,601,412 187,858,686
Reinvestment of dividends and distributions ......... 2,214,603 27,031,378 629,815 7,297,503
Redeemed ............................................ (7,439,745) (91,648,973) (3,697,289) (42,533,458)
---------- ------------ ---------- ------------
Net increase - Class B .............................. 9,263,094 118,924,362 13,533,938 152,622,731
---------- ------------ ---------- ------------
CLASS C SHARES
Sold ................................................ 513,124 6,515,096 80,094 1,000,747
Reinvestment of dividends and distributions ......... 17,520 213,338 519 6,601
Redeemed ............................................ (103,278) (1,268,428) (3,561) (44,293)
---------- ------------ ---------- ------------
Net increase - Class C .............................. 427,366 5,460,006 77,052 963,055
---------- ------------ ---------- ------------
CLASS D SHARES
Sold ................................................ 57,284 742,379 1,633 20,015
Reinvestment of dividends and distributions ......... 492 6,014 15 193
Redeemed ............................................ (4,166) (51,495) -- --
---------- ------------ ---------- ------------
Net increase - Class D .............................. 53,610 696,898 1,648 20,208
---------- ------------ ---------- ------------
Net increase in Fund ................................ 10,563,325 $135,434,833 13,694,375 $154,629,702
========== ============ ========== ============
</TABLE>

- ---------------
* For Class A, C and D, for the period July 28, 1997 (issue date) through
September 30, 1997.

6. FEDERAL INCOME TAX STATUS

As of September 30, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to nondeductible expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated undistributed net investment income was credited
$38,752.

19
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JUNE 26, 1996*
ENDED ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997**++ SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $12.81 $10.23 $10.00
------ ------ ------
Net investment income ........................ 0.50 0.46 0.08
Net realized and unrealized gain (loss) ...... (1.11) 2.54 0.23
------ ------ ------
Total from investment operations ............. (0.61) 3.00 0.31
------ ------ ------
Less dividends and distributions from:
Net investment income ....................... (0.43) (0.41) (0.08)
Net realized gain ........................... (0.59) (0.01) --
------ ------ ------
Total dividends and distributions ............ (1.02) (0.42) (0.08)
------ ------ ------
Net asset value, end of period ............... $11.18 $12.81 $10.23
====== ====== ======
TOTAL INVESTMENT RETURN+ ..................... (5.29)% 29.83% 3.10%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses ..................................... 1.80%(3) 1.85% 2.25%(2)
Net investment income ........................ 3.98%(3) 4.16% 3.60%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ...... $416,909 $358,973 $148,142
Portfolio turnover rate ...................... 58% 74% 7%(1)
</TABLE>

- -------------
* Commencement of operations.
** Prior to July 28, 1997 the Fund issued one class of shares. All shares
held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.

SEE NOTES TO FINANCIAL STATEMENTS

20
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $12.81 $12.20
------ ------
Net investment income ........................... 0.59 0.12
Net realized and unrealized gain (loss) ......... (1.12) 0.61
------ ------
Total from investment operations ................ (0.53) 0.73
------ ------
Less dividends and distributions from:
Net investment income .......................... (0.51) (0.12)
Net realized gain .............................. (0.59) --
------ ------
Total dividends and distributions ............... (1.10) (0.12)
------ ------
Net asset value, end of period .................. $11.18 $12.81
====== ======
TOTAL INVESTMENT RETURN+ ........................ (4.67)% 5.95%(1)

RATIOS TO AVERAGE NET ASSETS:

Expenses ........................................ 1.17%(3) 1.28%(2)
Net investment income ........................... 4.61%(3) 5.77%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $10,073 $1,047
Portfolio turnover rate ......................... 58% 74%

CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:

Net asset value, beginning of period ............ $12.80 $12.20
------ ------
Net investment income ........................... 0.50 0.10
Net realized and unrealized gain (loss) ......... (1.12) 0.61
------ ------
Total from investment operations ................ (0.62) 0.71
------ ------
Less dividends and distributions from:
Net investment income .......................... (0.43) (0.11)
Net realized gain .............................. (0.59) --
------ ------
Total dividends and distributions ............... (1.02) (0.11)
------ ------
Net asset value, end of period .................. $11.16 $12.80
====== ======
TOTAL INVESTMENT RETURN+ ........................ (5.38)% 5.79%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.92%(3) 1.98%(2)
Net investment income ........................... 3.86%(3) 4.61%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $5,630 $987
Portfolio turnover rate ......................... 58% 74%
</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

21
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, 1998++ SEPTEMBER 30, 1997++
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $12.82 $12.20
------ ------
Net investment income ........................... 0.64 0.12
Net realized and unrealized gain (loss) ......... (1.15) 0.62
------ ------
Total from investment operations ................ (0.51) 0.74
------ ------
Less dividends and distributions from:
Net investment income .......................... (0.54) (0.12)
Net realized gain .............................. (0.59) --
------ ------
Total dividends and distributions ............... (1.13) (0.12)
------ ------
Net asset value, end of period .................. $11.18 $12.82
====== ======
TOTAL INVESTMENT RETURN+ ........................ (4.46)% 5.98%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 0.92%(3) 0.96%(2)
Net investment income ........................... 4.86%(3) 5.41%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $618 $21
Portfolio turnover rate ......................... 58% 74%
</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

22
<PAGE>

MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Income
Builder Fund (the "Fund"), formerly Dean Witter Income Builder, at September
30, 1998, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 6, 1998

- -------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)

During the year ended September 30, 1998, the Fund paid to its shareholders
$0.06 per share from long-term capital gains. Of this $0.06 distribution, $0.04
is taxable as 28% rate gain and $0.02 is taxable as 20% rate gain. For such
period, 39.97% of the income paid qualified for the dividends received
deduction available to corporations.
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23
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TRUSTEES

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder

OFFICERS

Charles A. Fiumefreddo
Chairman and Chief Executive Officer

Barry Fink
Vice President, Secretary and General Counsel

Paul D. Vance
Vice President

Peter M. Avelar
Vice President

Thomas F. Caloia
Treasurer

TRANSFER AGENT

Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

INVESTMENT MANAGER

Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048

This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.

MORGAN STANLEY
DEAN WITTER
INCOME BUILDER
FUND

[GRAPHIC]

ANNUAL REPORT
SEPTEMBER 30, 1998