<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND Two World Trade Center,
LETTER TO THE SHAREHOLDERS September 30, 2000 New York, New York 10048
DEAR SHAREHOLDER:
During the fiscal year ended September 30, 2000, the U.S. equity market
experienced extreme volatility, with technology and telecommunications stocks
leading the market both on the way up and on the decline. Concerns over
profitability and valuations became more prominent as a considerable number of
these companies faced near-term liquidity crises and problems with the
long-term viability of their business plans. However, a rotation out of
technology stocks has been a major positive for sectors such as health care,
because of an improving legislative environment and stronger fundamentals, as
well as energy, with commodity prices near 10-year highs and surging
technology-driven demand.
Concerns over potentially higher inflation caused by an overheating U.S.
economy prompted the Fed to continue instituting gradual rate hikes into the
second quarter of 2000. Leadership of the market changed hands frequently in
the second and third quarters, with the end of September finding both the Dow
and the Nasdaq in negative territory. The volatility early in the year, caused
largely by speculation surrounding the Fed's inflationary-biased monetary
policy, died down as the summer went on and inflation fears faded, but
continuing turmoil in the market was spurred by negative earnings reports in
all sectors.
PERFORMANCE
For the 12-month period ended September 30, 2000, Morgan Stanley Dean Witter
Income Builder Fund's Class B shares posted a total return of 2.00 percent,
versus 13.27 percent for the Standard and Poor's 500 Index (S&P 500). For the
same period, the Fund's Class A, C and D shares posted total returns of 2.71
percent, 2.01 percent and 2.98 percent, respectively. The performance of the
Fund's four share classes varies because each has different expenses. The total
return figures given assume the reinvestment of all distributions but do not
reflect the deduction of any applicable sales charges. The accompanying chart
compares the Fund's performance to that of the S&P 500.
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS September 30, 2000, continued
The Fund's underperformance relative to its benchmark index can be largely
attributed to its lack of exposure to technology stocks, which generally pay
little if any dividends. Because the Fund's primary objective is providing
reasonable income, these stocks are typically not included in the portfolio.
The Fund's value-oriented style of stock selection has also hindered its
relative performance versus the S&P 500. In recent years the S&P 500, the
benchmark against which most equity funds are compared, has reflected a bias
toward growth, with companies like Microsoft, Intel, Dell, and Cisco heavily
weighted in the index and contributing to most of its performance. The Fund's
underweighting in technology proved fortuitous in the second half of the fiscal
year, when concerns about decelerating growth rates resulted in large negative
returns for that sector.
PORTFOLIO STRATEGY
On September 30, 2000, the Fund's large-cap stock segment was relatively fully
invested, as it has been since the Fund's inception. Portfolio transactions
during the period included the purchase of Boston Properties, Emerson,
Rockwell, Vornado, Kerr McGee, Florida Power and Light, Mack Cali and Simon
Properties. The Fund eliminated its positions in Arch Coal, Hercules, Public
Services Enterprise Group, General Motors, Limited, U.S. Street, Visteon,
Fleetwood Enterprise, Trinet, DaimlerChrysler, Conseco, Mid Atlantic Realty,
TCF Financial, Washington Federal, Tidewater, Sallie Mae, Associates First
Capital, Meditrust, U.S. Tobacco, Equity One, Crown Cork and Seal, Jefferson
Pilot, Fluor and Tanger Factory.
During the period, real estate investment trusts (REITs), utilities and
financial stocks were positive contributors to performance, while overexposure
to the basic materials and capital goods sectors had a negative effect. The
Fund continues to overweight REITs and utilities, because we believe these
groups can continue to provide stable returns in a slower economic growth
scenario.
The convertible portion of the Fund, while underperforming technology heavy
convertible indexes, contributed stable returns, owing to its focus on high
current income and reasonably priced underlying equities. Although convertibles
tend to lag equities during strong market rallies, we believe that the Fund's
concentration in high-credit-quality names can offer downside protection in
weak market environments while allowing substantial equity participation during
upswings.
LOOKING AHEAD
Although we expect that the U.S. economy's growth pace will continue to slow,
we are not expecting recessionary conditions in the near future. Should the
U.S. equity markets experience further volatility, we are optimistic that
investors will gravitate to companies that provide more consistent earnings
with a dividend cushion. Because of its value-oriented style and its emphasis
on higher yielding securities, we would expect the Fund to benefit from such an
environment.
2
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS September 30, 2000, 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 /s/ Mitchell M. Merin
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FUND PERFORMANCE September 30, 2000
[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]
Date Total S&P 500
June 26, 1996 $10,000 $10,000
September 30, 1996 $10,310 $10,426
September 30, 1997 $13,386 $14,641
September 30, 1998 $12,678 $15,967
September 30, 1999 $13,858 $20,404
September 30, 2000 $13,935(3) $23,113
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 C, and Class D
shares will vary from the performance of Class B shares shown above due to
differences in sales charges and expenses.
Average Annual Total Returns
--------------------------------------------------------------------------------
Class A Shares*
-----------------------------------------------
Period Ended 9/30/00
---------------------------
1 Year 2.71%(1) (2.68)%(2)
Since Inception (7/28/97) 4.29%(1) 2.53 %(2)
Class B Shares**
-----------------------------------------------
Period Ended 9/30/00
---------------------------
1 Year 2.00%(1) (2.72)%(2)
Since Inception (6/26/96) 8.46%(1) 8.09 %(2)
Class C Shares+
-----------------------------------------------
Period Ended 9/30/00
---------------------------
1 Year 2.01%(1) 1.07%(2)
Since Inception (7/28/97) 3.54%(1) 3.54%(2)
Class D Shares++
-----------------------------------------------
Period Ended 9/30/00
---------------------------
1 Year 2.98%(1)
Since Inception (7/28/97) 4.56%(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 after the deduction of a 2% contingent deferred sales charge
(CDSC), assuming a complete redemption on September 30, 2000.
(4) The Standard and Poor's 500 Index (S&P 500(Reg. TM)) 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 INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (48.9%)
Auto Parts: O.E.M. (2.4%)
190,000 Delphi Automotive Systems Corp. .......... $ 2,873,750
60,000 Johnson Controls, Inc. ................... 3,191,250
------------
6,065,000
------------
Beverages: Alcoholic (1.2%)
70,000 Anheuser-Busch Companies, Inc. ........... 2,961,875
------------
Chemicals: Major Diversified (1.1%)
115,000 Dow Chemical Co. ......................... 2,867,812
------------
Construction Materials (1.0%)
60,000 Vulcan Materials Co. ..................... 2,411,250
------------
Electric Utilities (5.1%)
55,000 Dominion Resources, Inc. ................. 3,193,437
50,000 FPL Group, Inc. .......................... 3,287,500
70,000 Reliant Energy, Inc. ..................... 3,255,000
110,000 TECO Energy, Inc. ........................ 3,162,500
------------
12,898,437
------------
Electrical Products (1.2%)
45,000 Emerson Electric Co. ..................... 3,015,000
------------
Electronic Equipment/Instruments (1.9%)
80,000 Rockwell International Corp. ............. 2,420,000
165,000 Xerox Corp. .............................. 2,485,312
------------
4,905,312
------------
Electronics/Appliances (0.9%)
60,000 Whirlpool Corp. .......................... 2,332,500
------------
Finance/Rental/Leasing (2.3%)
45,000 Fannie Mae ............................... 3,217,500
135,500 Ryder System, Inc. ....................... 2,498,281
------------
5,715,781
------------
Food Distributors (1.1%)
190,000 Supervalu, Inc. .......................... 2,861,875
------------
Food: Major Diversified (1.2%)
155,000 Sara Lee Corp. ........................... 3,148,437
------------
Food: Meat/Fish/Dairy (1.2%)
155,000 ConAgra, Inc. ............................ 3,109,687
------------
Industrial Conglomerates (1.2%)
82,000 Honeywell International, Inc. ............ 2,921,250
------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------------------------
<S> <C> <C>
Industrial Specialties (1.2%)
75,000 PPG Industries, Inc. ......................... $ 2,976,562
------------
Life/Health Insurance (1.1%)
60,000 Lincoln National Corp. ....................... 2,887,500
------------
Major Banks (3.4%)
60,000 Bank of America Corp. ........................ 3,142,500
60,000 Chase Manhattan Corp. ........................ 2,771,250
70,000 FleetBoston Financial Corp. .................. 2,730,000
------------
8,643,750
------------
Major Telecommunications (2.4%)
94,500 AT&T Corp. ................................... 2,775,938
70,000 Verizon Communications ....................... 3,390,625
------------
6,166,563
------------
Motor Vehicles (1.1%)
110,000 Ford Motor Co. ............................... 2,784,375
------------
Oil & Gas Production (1.3%)
51,000 Kerr-McGee Corp. ............................. 3,378,750
------------
Oil Refining/Marketing (2.3%)
80,000 Ashland, Inc. ................................ 2,695,000
125,000 Ultramar Diamond Shamrock Corp. .............. 3,171,875
------------
5,866,875
------------
Pharmaceuticals: Major (2.6%)
45,000 Merck & Co., Inc. ............................ 3,349,688
70,000 Schering-Plough Corp. ........................ 3,255,000
------------
6,604,688
------------
Real Estate Investment Trusts (9.1%)
70,000 Archstone Communities Trust .................. 1,719,375
35,000 Avalonbay Communities, Inc. .................. 1,669,063
40,000 Boston Properties, Inc. ...................... 1,717,500
75,000 Duke-Weeks Realty Corp. ...................... 1,809,375
55,000 Equity Office Properties Trust ............... 1,708,438
40,000 Equity Residential Properties Trust .......... 1,920,000
60,000 First Industrial Realty Trust, Inc. .......... 1,845,000
85,000 Healthcare Realty Trust, Inc. ................ 1,795,625
70,000 Mack-Cali Realty Corp. ....................... 1,973,125
85,000 MeriStar Hospitality Corp. ................... 1,721,250
70,000 Reckson Associates Realty Corp. .............. 1,785,000
75,000 Simon Property Group, Inc. ................... 1,757,813
45,000 Vornado Realty Trust ......................... 1,670,625
------------
23,092,189
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Banks (1.3%)
80,000 Washington Mutual, Inc. ............................................ $ 3,185,000
------------
Tobacco (1.1%)
95,000 Philip Morris Companies, Inc. ...................................... 2,796,563
------------
TOTAL COMMON STOCKS AND RIGHTS
(Cost $122,350,310)................................................. 123,597,031
------------
CONVERTIBLE PREFERRED STOCKS (11.1%)
Auto Parts: O.E.M. (0.0%)
94,000 BTI Capital Trust $3.25 - 144A*..................................... 11,750
------------
Containers/Packaging (0.1%)
4,900 Sealed Air Corp. (Series A) $2.00................................... 220,500
------------
Household/Personal Care (1.0%)
38,500 Estee Lauder Co. $3.80.............................................. 2,497,687
------------
Industrial Machinery (0.5%)
69,000 Ingersoll-Rand Co. $1.688........................................... 1,242,000
------------
Major Banks (1.6%)
155,900 National Australia Bank, Ltd. $1.97 (Australia) (Units) +........... 3,946,219
------------
Movies/Entertainment (0.4%)
30,000 Six Flags, Inc. $4.05............................................... 945,000
------------
Oil Refining/Marketing (0.8%)
200,000 Tesoro Petroleum Corp. $1.16........................................ 2,100,000
------------
Publishing: Books/Magazines (0.9%)
70,000 Reader's Digest Association, Inc $1.93.............................. 2,170,000
------------
Railroads (0.6%)
37,200 Union Pacific Capital Trust $3.13................................... 1,507,902
------------
Real Estate Investment Trusts (0.8%)
70,000 SL Green Realty Corp. $2.00......................................... 2,100,000
------------
Regional Banks (3.4%)
126,500 CNB Capital Trust I $1.50........................................... 4,822,813
120,700 WBK Strypes Trust $3.14............................................. 3,854,856
------------
8,677,669
------------
Tools/Hardware (1.0%)
109,700 Metromedia International Group, Inc. $3.63.......................... 2,495,675
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $35,302,458).................................................. 27,914,402
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS (14.6%)
Apparel/Footwear Retail (1.2%)
$ 3,160 Genesco Inc. ................................ 5.50 % 04/15/05 $ 3,054,330
------------
Auto Parts: O.E.M. (0.9%)
300 Magna International, Inc. (Canada) -
144A* ..................................... 4.875 02/15/05 273,012
3,000 MascoTech, Inc. ............................. 4.50 12/15/03 2,040,000
------------
2,313,012
------------
Biotechnology (0.7%)
810 Athena Neurosciences, Inc. - 144A* .......... 4.75 11/15/04 1,276,997
180 Johnson & Johnson - 144A* ................... 4.75 02/15/05 229,911
165 Johnson & Johnson ........................... 4.75 02/15/05 210,751
------------
1,717,659
------------
Broadcasting (0.6%)
1,400 Clear Channel Communications, Inc. .......... 2.625 04/01/03 1,549,828
------------
Cable/Satellite TV (1.0%)
1,975 EchoStar Communications Corp. ............... 4.875 01/01/07 2,628,468
------------
Contract Drilling (0.2%)
440 Diamond Offshore Drilling, Inc. ............. 3.75 02/15/07 491,643
------------
Electronic Components (0.6%)
1,925 Solectron Corp. - 144A* ..................... 0.00 01/27/19 1,423,133
------------
Electronic Equipment/Instruments (0.8%)
2,000 SCI Systems, Inc. ........................... 3.00 03/15/07 2,034,560
------------
Electronic Production Equipment (0.7%)
1,690 Photronics Inc. ............................. 6.00 06/01/04 1,698,112
------------
Hospital/Nursing Management (0.2%)
1,295 Emeritus Corp. - 144A* ...................... 6.25 01/01/06 491,310
105 Sunrise Assisted Living, Inc. - 144A* ....... 5.50 06/15/02 96,206
------------
587,516
------------
Industrial Machinery (0.8%)
2,300 Thermo Fibertek, Inc. - 144A* ............... 4.50 07/15/04 2,080,074
------------
Internet Software/Services (1.2%)
7,000 AT Home Corp. ............................... 0.525 12/28/18 3,031,630
------------
Major Telecommunications (3.0%)
3,700 Bell Atlantic Financial Service - 144A*...... 4.25 09/15/05 4,093,125
</TABLE>
See Notes to Financial Statements
8
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,700 Bell Atlantic Financial Service - 144A*
(exchangeable into Telecom
Corporation of New Zealand
common stock) ............................. 5.75% 04/01/03 $ 3,575,125
------------
7,668,250
------------
Medical/Nursing Services (0.1%)
580 Alternative Living Services, Inc. ........... 5.25 12/15/02 282,315
------------
Metal Fabrications (0.2%)
225 Hexcel Corp. ................................ 7.00 08/01/03 225,000
300 Tower Automotive, Inc. - 144A* .............. 5.00 08/01/04 228,270
------------
453,270
------------
Movies/Entertainment (0.1%)
255 Speedway Motorsports, Inc. .................. 5.75 09/30/03 226,978
------------
Packaged Software (0.3%)
350 Hyperion Solutions Corp. .................... 4.50 03/15/05 287,042
260 Network Associates, Inc. .................... 0.00 02/13/18 100,721
745 Network Associates, Inc. - 144A* ............ 0.00 02/13/18 288,606
------------
676,369
------------
Personnel Services (0.1%)
370 Metamor Worldwide, Inc. ..................... 2.94 08/15/04 171,417
------------
Property - Casualty Insurers (0.8%)
640 Berkshire Hathaway, Inc. .................... 1.00 12/02/01 2,048,064
------------
Semiconductors (0.3%)
310 STMicroelectronics NV (Netherlands) ......... 0.00 06/10/08 801,273
------------
Services to the Health Industry (0.0%)
150 Quadramed Corp. ............................. 5.25 05/01/05 50,400
50 Quadramed Corp. - 144A* ..................... 5.25 05/01/05 16,800
------------
67,200
------------
Specialty Telecommunications (0.8%)
3,000 Efficient Networks, Inc. .................... 5.00 03/15/05 1,964,400
750 SA Telecommunications, Inc. - 144A* (a)...... 10.00 08/15/06 22,500
------------
1,986,900
------------
TOTAL CONVERTIBLE BONDS
(Cost $36,405,722)................................................... 36,992,001
------------
CORPORATE BONDS (22.9%)
Aerospace & Defense (0.0%)
140 BE Aerospace, Inc. (Series B) ............... 8.00 03/01/08 123,550
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alternative Power Generation (0.0%)
$ 50 CalEnergy Co., Inc. .......................... 7.63% 10/15/07 $ 49,668
------------
Aluminum (0.0%)
100 Golden Northwest Aluminum .................... 12.00 12/15/06 102,000
------------
Auto Parts: O.E.M. (0.1%)
175 Hayes Lemmerz International, Inc. ............ 8.25 12/15/08 141,750
100 Hayes Wheels International, Inc.
(Series B) ................................... 9.125 07/15/07 86,000
------------
227,750
------------
Beverages: Non-Alcoholic (0.2%)
165 Cott Corp. (Canada) .......................... 9.375 07/01/05 163,762
350 Packaged Ice Inc. (Series B) ................. 9.75 02/01/05 304,500
------------
468,262
------------
Broadcasting (3.5%)
150 Emmis Communications Corp.
(Series B) ................................... 8.125 03/15/09 142,500
2,900 EZ Communications, Inc. ...................... 9.75 12/01/05 3,050,336
145 Lamar Media Corp. ............................ 9.25 08/15/07 147,175
200 STC Broadcasting, Inc. ....................... 11.00 03/15/07 198,000
5,060 Young Broadcasting Corp. ..................... 11.75 11/15/04 5,180,175
------------
8,718,186
------------
Cable/Satellite TV (0.9%)
175 Echostar DBS Corp. ........................... 9.375 02/01/09 171,500
2,000 Tele-Communications, Inc. .................... 9.25 04/15/02 2,063,700
------------
2,235,200
------------
Casino/Gaming (0.1%)
200 Boyd Gaming Corp. ............................ 9.25 10/01/03 197,500
------------
Chemicals: Agricultural (0.0%)
100 Scotts Co. - 144A* ........................... 8.625 01/15/09 96,500
------------
Chemicals: Specialty (2.8%)
6,960 Huntsman Polymers Corp. ...................... 11.75 12/01/04 7,029,600
175 Texas Petrochemicals Corp. ................... 11.125 07/01/06 148,750
------------
7,178,350
------------
Coal (0.1%)
175 P&L Coal Holdings Corp. (Series B) ........... 8.875 05/15/08 173,250
------------
Construction Materials (1.1%)
2,850 USG Corp. (Series B) ......................... 9.25 09/15/01 2,892,037
------------
Consumer/Business Services (0.0%)
100 American Business Information, Inc. .......... 9.50 06/15/08 82,000
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Containers/Packaging (0.2%)
$ 225 Ball Corp. ................................. 7.75% 08/01/06 $ 217,125
125 Ball Corp. ................................. 8.25 08/01/08 120,312
100 Consumers Packaging, Inc. .................. 9.75 02/01/07 20,000
225 U.S. Can Corp. ............................. 10.125 10/15/06 242,719
------------
600,156
------------
Drugstore Chains (0.7%)
1,950 Thrifty PayLess Holdings, Inc. ............. 12.25 04/15/04 1,790,344
------------
Electric Utilities (0.2%)
100 CMS Energy Corp. ........................... 7.50 01/15/09 89,194
113 Niagara Mohawk Power (Series F) ............ 7.625 10/01/05 114,330
175 Niagara Mohawk Power (Series G) ............ 7.75 10/01/08 175,786
125 Niagara Mohawk Power (Series H) ............ 8.50 ++ 07/01/10 100,640
------------
479,950
------------
Electrical Products (0.1%)
335 Communications & Power Industries,
Inc. (Series B) ............................ 12.00 08/01/05 227,381
------------
Engineering & Construction (0.1%)
225 Mastec Inc. (Series B) ..................... 7.75 02/01/08 213,750
------------
Finance/Rental/Leasing (0.0%)
25 Anthony Crane Rentals ...................... 10.375 08/01/08 12,750
------------
Financial Conglomerates (0.0%)
75 GS Escrow Corp. ............................ 7.125 08/01/05 69,101
------------
Food Distributors (0.0%)
100 Di Giorgio Corp. ........................... 10.00 06/15/07 88,000
------------
Food: Major Diversified (0.2%)
475 International Home Foods, Inc. ............. 10.375 11/01/06 508,250
------------
Food: Specialty/Candy (0.0%)
100 Mrs. Fields Original (Series B) ............ 10.125 12/01/04 87,000
------------
Home Building (0.1%)
75 D.R. Horton Inc. ........................... 8.00 02/01/09 69,750
50 Standard Pacific Corp. (Series A) .......... 8.00 02/15/08 46,250
290 Williams Scotsman, Inc. .................... 9.875 06/01/07 255,200
------------
371,200
------------
Home Furnishings (0.1%)
200 Westpoint Stevens, Inc. .................... 7.875 06/15/08 166,500
------------
Hotels/Resorts/Cruiselines (0.1%)
400 ITT Corp. (New) ............................ 7.375 11/15/15 356,228
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Specialties (0.0%)
$ 125 Fibermark Inc. ............................ 9.375% 10/15/06 $ 123,750
------------
Major Telecommunications (1.4%)
225 RCN Corp. ................................. 11.125++ 10/15/07 114,750
3,250 Sprint Spectrum L.P. ...................... 11.00 08/15/06 3,508,895
------------
3,623,645
------------
Media Conglomerates (0.8%)
2,000 Time Warner Entertainment Co. ............. 9.625 05/01/02 2,073,780
------------
Medical/Nursing Services (2.0%)
4,800 Healthsouth Corp. ......................... 9.50 04/01/01 4,788,000
225 Prime Medical Services Inc. ............... 8.75 04/01/08 202,500
------------
4,990,500
------------
Metal Fabrications (0.1%)
200 International Wire Group (Series B) ....... 11.75 06/01/05 201,500
100 Neenah Corp. (Series F) ................... 11.125 05/01/07 77,500
------------
279,000
------------
Miscellaneous Manufacturing (0.1%)
200 Ametek Inc. ............................... 7.20 07/15/08 183,008
155 Insilco Corp. (Series B) .................. 12.00 08/15/07 154,225
------------
337,233
------------
Miscellaneous Commercial Services(0.2%)
250 Iron Mountain, Inc. ....................... 10.125 10/01/06 254,375
75 Iron Mountain, Inc. ....................... 8.75 09/30/09 70,875
75 Pierce Leahy Command Co. .................. 8.125 05/15/08 70,125
------------
395,375
------------
Oil & Gas Production (0.1%)
275 Magnum Hunter Resources ................... 10.00 06/01/07 270,875
------------
Other Consumer Services (0.0%)
100 Protection One Alarm Monitoring, Inc....... 7.375 08/15/05 70,000
------------
Other Consumer Specialties (0.0%)
95 Boyds Collection Ltd. ..................... 9.00 05/15/08 90,250
------------
Other Metals/Minerals (4.3%)
10,500 Cyprus Amax Minerals Inc. ................. 10.125 04/01/02 10,867,500
------------
Publishing: Books/Magazines (0.1%)
50 Primedia, Inc. ............................ 7.625 04/01/08 45,500
250 Von Hoffman Press, Inc. - 144A* ........... 10.875 05/15/07 230,000
------------
275,500
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Publishing: Newspapers (0.5%)
$ 275 Garden State Newspapers (Series B) ........... 8.75% 10/01/09 $ 257,125
1,000 Hollinger International Publishing, Inc....... 9.25 02/01/06 998,750
------------
1,255,875
------------
Pulp & Paper (0.0%)
125 Paperboard Industrial International Inc....... 8.375 09/15/07 105,000
------------
Real Estate Development (0.1%)
300 Forest City Enterprises ...................... 8.50 03/15/08 285,000
------------
Recreational Products (0.0%)
125 CSC Holdings, Inc. ........................... 7.625 07/15/18 113,058
------------
Regional Banks (0.1%)
50 Chevy Chase Savings Bank ..................... 9.25 12/01/05 47,750
100 Chevy Chase Savings Bank, F.S.B. ............. 9.25 12/01/08 92,000
------------
139,750
------------
Specialty Stores (0.1%)
175 Michaels Stores, Inc. ........................ 10.875 06/15/06 180,250
175 Zale Corp. (Series B) ........................ 8.50 10/01/07 168,000
------------
348,250
------------
Specialty Telecommunications (0.1%)
325 Level 3 Communications, Inc. ................. 9.125 05/01/08 280,719
------------
Textiles (1.7%)
4,300 Dan River, Inc. .............................. 10.125 12/15/03 4,214,000
100 Polymer Group Inc. (Series B) ................ 8.75 03/01/08 79,000
------------
4,293,000
------------
Wholesale Distributors (0.0%)
300 Home Interiors & Gifts ....................... 10.125 06/01/08 89,625
------------
TOTAL CORPORATE BONDS
(Cost $62,228,627)...................................................... 57,822,548
------------
SHORT-TERM INVESTMENT (1.1%)
REPURCHASE AGREEMENT
2,825 The Bank of New York (dated 09/29/00;
proceeds $2,826,003) (b)
(Cost $2,824,532)............................. 6.25 10/02/00 2,824,532
------------
TOTAL INVESTMENTS
(Cost $259,111,649) (c).................................. 98.6% 249,150,514
OTHER ASSETS IN EXCESS OF LIABILITIES ................... 1.4 3,441,116
----- ------------
NET ASSETS .............................................. 100.0% $252,591,630
===== ============
</TABLE>
See Notes to Financial Statements
13
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
---------------------
* Resale is restricted to qualified institutional investors.
+ Consists of more than one class of securities traded together as a unit;
stocks with attached warrants.
++ Currently a zero coupon bond that will pay interest at the rate shown at a
future specified date.
(a) Non-income producing security; bond in default.
(b) Collateralized by $2,813,904 Federal Home Loan Mortgage Corp. 6.875% due
01/15/05 valued at $2,881,025.
(c) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $20,533,973 and the aggregate gross unrealized depreciation
is $30,495,108, resulting in net unrealized depreciation of $9,961,135.
See Notes to Financial Statements
14
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(cost $259,111,649).............................................. $ 249,150,514
Receivable for :
Interest ....................................................... 2,531,181
Investments sold ............................................... 738,076
Dividends ...................................................... 719,822
Shares of beneficial interest sold ............................. 28,948
Deferred organizational expenses .................................. 24,048
Prepaid expenses and other assets ................................. 26,694
-------------
TOTAL ASSETS ................................................... 253,219,283
-------------
LIABILITIES:
Payable for:
Plan of distribution fee ....................................... 208,470
Shares of beneficial interest repurchased ...................... 169,938
Investment management fee ...................................... 158,131
Accrued expenses and other payables ............................... 91,114
-------------
TOTAL LIABILITIES .............................................. 627,653
-------------
NET ASSETS ..................................................... $ 252,591,630
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $ 279,790,552
Net unrealized depreciation ....................................... (9,961,135)
Accumulated undistributed net investment income ................... 3,007,106
Accumulated net realized loss ..................................... (20,244,893)
-------------
NET ASSETS ..................................................... $ 252,591,630
=============
CLASS A SHARES:
Net Assets ........................................................ $2,871,709
Shares Outstanding (unlimited authorized, $.01 par value).......... 277,157
NET ASSET VALUE PER SHARE ...................................... $10.36
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................ $10.93
==== ======
CLASS B SHARES:
Net Assets ........................................................ $223,413,016
Shares Outstanding (unlimited authorized, $.01 par value) ......... 21,554,281
NET ASSET VALUE PER SHARE ...................................... $10.37
======
CLASS C SHARES:
Net Assets ........................................................ $25,594,439
Shares Outstanding (unlimited authorized, $.01 par value) ......... 2,474,938
NET ASSET VALUE PER SHARE ...................................... $10.34
======
CLASS D SHARES:
Net Assets ........................................................ $712,466
Shares Outstanding (unlimited authorized, $.01 par value) ......... 68,780
NET ASSET VALUE PER SHARE ...................................... $10.36
======
</TABLE>
See Notes to Financial Statements
15
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended September 30, 2000
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:
<S> <C>
INCOME
Dividends ......................................... $ 9,791,902
Interest .......................................... 9,729,479
-------------
TOTAL INCOME ................................... 19,521,381
-------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 17,265
Plan of distribution fee (Class B shares) ......... 2,776,290
Plan of distribution fee (Class C shares) ......... 322,264
Investment management fee ......................... 2,388,886
Transfer agent fees and expenses .................. 335,279
Shareholder reports and notices ................... 89,142
Registration fees ................................. 86,013
Professional fees ................................. 79,464
Custodian fees .................................... 35,237
Organizational expenses ........................... 32,779
Trustees' fees and expenses ....................... 16,883
Other ............................................. 22,875
-------------
TOTAL EXPENSES ................................. 6,202,377
-------------
NET INVESTMENT INCOME .......................... 13,319,004
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ................................. (18,829,120)
Net change in unrealized depreciation ............. 10,092,703
-------------
NET LOSS ....................................... (8,736,417)
-------------
NET INCREASE ...................................... $ 4,582,587
=============
</TABLE>
See Notes to Financial Statements
16
<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, 2000 SEPTEMBER 30, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 13,319,004 $ 18,480,801
Net realized gain (loss) ............................. (18,829,120) 15,975,924
Net change in unrealized depreciation ................ 10,092,703 3,774,240
-------------- -------------
NET INCREASE ...................................... 4,582,587 38,230,965
-------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares .................................... (259,840) (646,373)
Class B shares .................................... (11,009,664) (17,881,658)
Class C shares .................................... (1,295,836) (604,652)
Class D shares .................................... (66,785) (76,726)
Net realized gain
Class A shares .................................... (425,264) (671,285)
Class B shares .................................... (11,062,251) (24,998,743)
Class C shares .................................... (1,329,137) (346,036)
Class D shares .................................... (25,446) (40,395)
-------------- -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................. (25,474,223) (45,265,868)
-------------- -------------
Net decrease from transactions in shares of beneficial
interest ........................................... (128,727,015) (23,984,846)
-------------- -------------
NET DECREASE ...................................... (149,618,651) (31,019,749)
NET ASSETS:
Beginning of period .................................. 402,210,281 433,230,030
-------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$3,007,106 and $2,449,140, respectively)........... $ 252,591,630 $ 402,210,281
============== =============
</TABLE>
See Notes to Financial Statements
17
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 2000
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Income Builder Fund (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 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 converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS - (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange, NASDAQ, or other exchange is valued
at its latest sale price, prior to the time when assets are valued; if there
were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange; the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price; (3) when market quotations are not readily
available, including circumstances under which it is determined by Morgan
Stanley Dean Witter Advisors Inc. (the "Investment Manager"), that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation of
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (4)
certain portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service may utilize a matrix system
incorporating
18
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
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 tax purposes are reported as distributions of paid-in-capital.
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.
19
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.75% to the portion of daily net assets not exceeding $500
million and 0.725% to the portion of daily net assets in excess of $500
million.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C - up to 1.0% of the average daily net
assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts totaled
$16,457,049 at September 30, 2000.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended September 30, 2000, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
0.99%, respectively.
20
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
The Distributor has informed the Fund that for the year ended September 30,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $879,018 and $1,420,
respectively and received $13,117 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended September 30, 2000
aggregated $119,776,502 and $258,287,455, respectively.
For the year ended September 30, 2000, the Fund incurred $128,749 in brokerage
commissions with Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund. At September 30, 2000, the Fund's receivable for
investments sold included unsettled trades with DWR of $279,841.
For the year ended September 30, 2000, the Fund incurred $17,425 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.
5. FEDERAL INCOME TAX STATUS
At September 30, 2000, the Fund had a net capital loss carryover of
approximately $4,600,000 which will be available through September 30, 2008 to
offset future capital gains to the extent provided by regulations.
Capital 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 losses of
approximately $14,902,000 during fiscal 2000.
As of September 30, 2000, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales
and permanent book/tax differences primarily attributable to a dividend
redesignation and tax adjustments on real estate investment trusts held by the
Fund. To reflect reclassifications arising from the permanent differences,
accumulated undistributed net investment income was charged $128,913,
paid-in-capital was charged $32,799 and accumulated net realized gain was
credited $161,712.
21
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold .................................................. 165,350 $ 1,746,960 373,161 $ 4,311,270
Reinvestment of dividends and distributions ........... 49,956 516,422 72,926 807,614
Shares issued in connection with the acquisition of
TCW/DW Income and Growth Fund ........................ - - 8,607 101,458
Redeemed .............................................. (1,080,681) (11,152,505) (213,154) (2,454,803)
---------- -------------- -------- --------------
Net increase (decrease) - Class A ..................... (865,375) (8,889,123) 241,540 2,765,539
---------- -------------- -------- --------------
CLASS B SHARES
Sold .................................................. 2,079,343 21,898,681 3,043,825 35,162,596
Reinvestment of dividends and distributions ........... 1,715,995 17,730,597 3,152,355 34,981,362
Shares issued in connection with the acquisition of
TCW/DW Income and Growth Fund ........................ - - 723,832 8,541,094
Redeemed .............................................. (13,931,822) (146,329,936) (12,509,897) (143,652,130)
----------- -------------- ----------- --------------
Net decrease - Class B ................................ (10,136,484) (106,700,658) (5,589,885) (64,967,078)
----------- -------------- ----------- --------------
CLASS C SHARES
Sold .................................................. 86,384 904,529 114,511 1,316,245
Reinvestment of dividends and distributions ........... 216,767 2,235,520 72,635 801,880
Shares issued in connection with the acquisition of
TCW/DW Income and Growth Fund ........................ - - 3,554,666 41,847,822
Redeemed .............................................. (1,556,094) (16,250,626) (518,349) (5,997,769)
----------- -------------- ----------- --------------
Net increase (decrease) - Class C ..................... (1,252,943) (13,110,577) 3,223,463 37,968,178
----------- -------------- ----------- --------------
CLASS D SHARES
Sold .................................................. 214,024 2,220,160 449,722 5,167,272
Reinvestment of dividends and distributions ........... 2,726 28,226 4,118 45,524
Redeemed .............................................. (215,266) (2,275,043) (441,802) (4,964,281)
----------- -------------- ----------- --------------
Net increase (decrease) - Class D ..................... 1,484 (26,657) 12,038 248,515
----------- -------------- ----------- --------------
Net decrease in Fund .................................. (12,253,318) $ (128,727,015) (2,112,844) $ (23,984,846)
=========== ============== =========== ==============
</TABLE>
22
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
7. FUND ACQUISITION
On June 28, 1999, the Fund acquired all the net assets of TCW/DW Income and
Growth Fund ("Income and Growth") based on the respective valuations as of the
close of business June 25, 1999, pursuant to a plan of reorganization approved
by the shareholders of Income and Growth on June 8, 1999. The acquisition was
accomplished by a tax-free exchange of 8,607 Class A shares of the Fund at a
net asset value of $11.79 per share for 9,404 Class A shares of Income and
Growth; 723,832 Class B shares of the Fund at a net asset value of $11.80 per
share for 791,586 Class B shares of Income and Growth; and 3,554,666 Class C
shares of the Fund at a net asset value of $11.77 per share for 3,873,928 Class
C shares of Income and Growth. The net assets of the Fund and Income and Growth
immediately before the acquisition were $402,078,443 and $50,615,496,
respectively, including unrealized appreciation of $2,147,861 for Income and
Growth. Immediately after the acquisition, the combined net assets of the Fund
amounted to $452,693,939.
23
<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 ENDED SEPTEMBER 30, JULY 28, 1997*
------------------------------------------------ THROUGH
2000 1999 1998 SEPTEMBER 30, 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 10.98 $ 11.18 $ 12.81 $ 12.20
-------- -------- ------- --------
Income (loss) from investment operations:
Net investment income ................................. 0.53 0.58 0.59 0.12
Net realized and unrealized gain (loss) ............... (0.26) 0.54 (1.12) 0.61
-------- -------- ------- --------
Total income (loss) from investment operations ......... 0.27 1.12 (0.53) 0.73
-------- -------- ------- --------
Less dividends and distributions from:
Net investment income ................................. (0.51) (0.62) (0.51) (0.12)
Net realized gain ..................................... (0.38) (0.70) (0.59) -
-------- -------- ------- --------
Total dividends and distributions ...................... (0.89) (1.32) (1.10) (0.12)
-------- -------- ------- --------
Net asset value, end of period ......................... $ 10.36 $ 10.98 $ 11.18 $ 12.81
======== ======== ======= ========
TOTAL RETURN+ .......................................... 2.71% 10.15% (4.67)% 5.95%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.21%(3) 1.17%(3) 1.17%(3) 1.28%(2)
Net investment income .................................. 4.92%(3) 5.02%(3) 4.61%(3) 5.77%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $ 2,872 $ 12,541 $10,073 $ 1,047
Portfolio turnover rate ................................ 38% 36% 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
24
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
2000++ 1999++ 1998++ 1997**++
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 10.98 $ 11.18 $ 12.81 $ 10.23
--------- --------- -------- -------
Income (loss) from investment operations:
Net investment income ................................. 0.44 0.50 0.50 0.46
Net realized and unrealized gain (loss) ............... (0.23) 0.53 (1.11) 2.54
--------- --------- -------- -------
Total income (loss) from investment operations ......... 0.21 1.03 (0.61) 3.00
--------- --------- -------- -------
Less dividends and distributions from:
Net investment income ................................. (0.44) (0.53) (0.43) (0.41)
Net realized gain ..................................... (0.38) (0.70) (0.59) (0.01)
--------- --------- -------- --------
Total dividends and distributions ...................... (0.82) (1.23) (1.02) (0.42)
--------- --------- -------- --------
Net asset value, end of period ......................... $ 10.37 $ 10.98 $ 11.18 $ 12.81
========= ========= ======== ========
TOTAL RETURN+ .......................................... 2.00% 9.31% (5.29)% 29.83%
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.97%(3) 1.90%(3) 1.80%(3) 1.85%
Net investment income .................................. 4.16%(3) 4.29%(3) 3.98%(3) 4.16%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $ 223,413 $ 348,070 $416,909 $358,973
Portfolio turnover rate ................................ 38% 36% 58% 74%
<CAPTION>
FOR THE PERIOD
JUNE 26, 1996*
THROUGH
SEPTEMBER 30, 1996
-------------------
<S> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $10.00
----------
Income (loss) from investment operations:
Net investment income ................................. 0.08
Net realized and unrealized gain (loss) ............... 0.23
----------
Total income (loss) from investment operations ......... 0.31
----------
Less dividends and distributions from:
Net investment income ................................. (0.08)
Net realized gain ..................................... -
----------
Total dividends and distributions ...................... (0.08)
----------
Net asset value, end of period ......................... $10.23
=========
TOTAL RETURN+ .......................................... 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 2.25%(2)
Net investment income .................................. 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $148,142
Portfolio turnover rate ................................ 7%(1)
</TABLE>
--------------
* Commencement of operations.
** Prior to July 28, 1997 the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
25
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED SEPTEMBER 30, JULY 28, 1997*
------------------------------------------------ THROUGH
2000 1999 1998 SEPTEMBER 30, 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 10.96 $ 11.16 $ 12.80 $ 12.20
-------- -------- ------- --------
Income (loss) from investment operations:
Net investment income ................................. 0.44 0.48 0.50 0.10
Net realized and unrealized gain (loss) ............... (0.24) 0.55 (1.12) 0.61
-------- -------- ------- --------
Total income (loss) from investment operations ......... 0.20 1.03 (0.62) 0.71
-------- -------- ------- --------
Less dividends and distributions from:
Net investment income ................................. (0.44) (0.53) (0.43) (0.11)
Net realized gain ..................................... (0.38) (0.70) (0.59) -
-------- -------- ------- --------
Total dividends and distributions ...................... (0.82) (1.23) (1.02) (0.11)
-------- -------- ------- --------
Net asset value, end of period ......................... $ 10.34 $ 10.96 $ 11.16 $ 12.80
======== ======== ======= ========
TOTAL RETURN+ .......................................... 2.01% 9.38% (5.38)% 5.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.96%(3) 1.90%(3) 1.92%(3) 1.98%(2)
Net investment income .................................. 4.17%(3) 4.29%(3) 3.86%(3) 4.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $ 25,594 $ 40,859 $5,630 $ 987
Portfolio turnover rate ................................ 38% 36% 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
26
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED SEPTEMBER 30, JULY 28, 1997*
------------------------------------------------ THROUGH
2000 1999 1998 SEPTEMBER 30, 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 10.99 $ 11.18 $ 12.82 $ 12.20
-------- -------- ------- --------
Income (loss) from investment operations:
Net investment income ................................. 0.54 0.60 0.64 0.12
Net realized and unrealized gain (loss) ............... (0.24) 0.55 (1.15) 0.62
-------- -------- ------- --------
Total income (loss) from investment operations ......... 0.30 1.15 (0.51) 0.74
-------- -------- ------- --------
Less dividends and distributions from:
Net investment income ................................. (0.55) (0.64) (0.54) (0.12)
Net realized gain ..................................... (0.38) (0.70) (0.59) -
-------- -------- ------- --------
Total dividends and distributions ...................... (0.93) (1.34) (1.13) (0.12)
-------- -------- ------- --------
Net asset value, end of period ......................... $ 10.36 $ 10.99 $ 11.18 $ 12.82
======== ======== ======= ========
TOTAL RETURN+ .......................................... 2.98% 10.51% (4.46)% 5.98%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.97%(3) 0.93%(3) 0.92%(3) 0.96%(2)
Net investment income .................................. 5.16%(3) 5.26%(3) 4.86%(3) 5.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $ 712 $ 740 $ 618 $ 21
Portfolio turnover rate ................................ 38% 36% 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
27
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Income Builder Fund (the "Fund"), including the portfolio
of investments, as of September 30, 2000, and the related statements of
operations and changes in net assets, and the financial highlights for the year
then ended. 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. The statement of changes in net assets for the year ended September 30,
1999 and the financial highlights for each of the respective stated periods
ended September 30, 1999 were audited by other independent accountants whose
report, dated November 9, 1999, expressed an unqualified opinion on that
statement and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights 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 as of September 30, 2000, by correspondence with the
custodian. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Morgan Stanley Dean Witter Income Builder Fund as of September 30, 2000, the
results of its operations, the changes in its net assets, and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
November 9, 2000
2000 FEDERAL TAX NOTICE (unaudited)
During the fiscal year ended July 31, 2000, the Fund paid to its
shareholders $0.37 per share from long-term capital gains. For such
period, 70.11% of the income dividends paid qualified for the dividends
received deduction available to corporations.
28
<PAGE>
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to
make reference thereto in their report on the financial statements for such
years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
29
<PAGE>
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<PAGE>
(This page has been left blank intentionally.)
<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
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
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
INCOME BUILDER
FUND
[Graphic Omitted]
ANNUAL REPORT
SEPTEMBER 30, 2000
