<PAGE> 1
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS March 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. equity market continued its bull market run during the six-month period
ended March 31, 2000. Technology stocks were again the dominant contributors to
the market's performance. However, technology underperformed late in the first
quarter of 2000 as investors' attention shifted toward old-economy companies.
Growth-oriented stocks outperformed value-oriented issues throughout this period
as investors continued to believe in the sustainability of the growth of the
largest companies.
Increased volatility marked the U.S. equity markets in the first quarter of
2000. While the Standard & Poor's 500 Composite Stock Price Index (S&P 500)*
increased 2.29 percent for the quarter, it had been down as much as 8 percent
year-to-date in late February. Growth continued to outperform value, however,
for the quarter. Many high-quality stocks are trading at levels well below their
historical fundamentals and offer attractive earnings prospects. We are
optimistic that investors will eventually seek comfort in dividend-paying stocks
as the market's volatility increases and the impact of higher interest rates
affects corporate profits. During March, the markets witnessed the beginnings of
a shift in investor preference toward value-oriented stocks over growth.
PERFORMANCE
During the six-month period ended March 31, 2000, Morgan Stanley Dean Witter
Income Builder Fund's Class B shares produced a total return of 0.42 percent
versus 17.50 percent for the S&P 500. For the same period, the Fund's Class A, C
and D shares posted total returns of 0.73 percent, 0.44 percent and 0.96
percent, respectively. The performance of the Fund's four share classes varies
because of differing
---------------------
* The Standard & Poor's 500 Composite Stock Price 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.
<PAGE> 2
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
expenses. The total return figures given assume the reinvestment of all
distributions but do not reflect the deduction of any applicable sales charges.
The Fund's underperformance relative to its benchmark index can be attributed
largely to its lack of exposure to technology stocks, which generally pay little
if any dividends. Because the Fund's primary objective is providing reasonable
current 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 being heavily
weighted in the index and contributing to most of its performance.
PORTFOLIO STRATEGY
On March 31, 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 sale of Fleetwood Enterprise, Trinet, Daimler
Chrysler, Conseco, Mid-Atlantic Realty, TCF Financial, Washington Federal,
Tidewater, Sallie Mae, Associates First Capital, Meditrust, US Tobacco, Equity
One, Crown Cork & Seal, Jefferson Pilot, Fluor and Tanger Factory. Purchases
included Albertsons, Boston Properties, Emerson, Rockwell, Vornado and General
Growth Properties.
During the period, real estate investment trusts (REITs) went from
underperforming the S&P 500 in 1999 to outperforming it in the first quarter of
2000. The recent REIT Modernization Act has had a major impact on these stocks.
It reduced the minimum distribution requirement from 95 percent to 90 percent of
a REIT's taxable income, which should lead to a greater level of retained
capital for the industry. The act also decreased REITs' dependency on
development activity for growth, by allowing REITs to now obtain revenues from
ancillary services. These new services, coupled with strong demand for real
estate in the United States, should improve industry returns on invested
capital. We continue to view the overall fundamentals of this group positively
and have committed 10 percent of the Fund's net assets to this sector.
LOOKING AHEAD
If interest rates move higher in the near future, we expect the U.S. equity
market to broaden out to companies that exhibit proven earnings potential and
provide a dividend cushion. Because of its
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
value-oriented style and its emphasis on higher-yielding securities, we would
expect the Fund to fare well in such an environment.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FUND PERFORMANCE March 31, 2000
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A*
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
---------------------------
Since Inception (7/28/97) 4.35%(1) 2.27%(2)
1 Year 2.33(1) -3.04 (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C+
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
---------------------------
Since Inception (7/28/97) 3.62%(1) 3.62%(2)
1 Year 1.71(1) 0.76 (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B**
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
---------------------------
Since Inception (6/26/96) 9.18%(1) 8.76%(2)
1 Year 1.63(1) -3.08 (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D++
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
---------------------------
Since Inception (7/28/97) 4.66%(1)
1 Year 2.78(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE.
WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
---------------------
<TABLE>
<S> <C>
(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.
* 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 CDSC for Class C shares is 1% for shares
redeemed within one year of purchase.
++ Class D shares have no sales charge.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (46.1%)
Auto Parts: O.E.M. (2.0%)
190,000 Delphi Automotive Systems Corp. .......................... $ 3,040,000
58,000 Johnson Controls, Inc. ................................... 3,135,625
-----------
6,175,625
-----------
Building Materials (1.1%)
74,000 Vulcan Materials Co. ..................................... 3,390,125
-----------
Clothing/Shoe/Accessory Stores (1.1%)
80,000 Limited (The), Inc. ...................................... 3,370,000
-----------
Consumer Electronics/Appliances (1.1%)
56,500 Whirlpool Corp. .......................................... 3,312,317
-----------
Diversified Electronic Products (1.0%)
74,000 Rockwell International Corp. ............................. 3,094,125
-----------
Diversified Manufacturing (1.2%)
68,000 Honeywell International Inc. ............................. 3,582,750
-----------
Electric Utilities (4.0%)
71,347 Dominion Resources, Inc. ................................. 2,742,400
100,000 Public Service Enterprise Group, Inc. .................... 2,962,500
136,000 Reliant Energy, Inc. ..................................... 3,187,500
165,000 TECO Energy, Inc. ........................................ 3,207,187
-----------
12,099,587
-----------
Electrical Products (1.1%)
62,500 Emerson Electric Co. ..................................... 3,304,688
-----------
Finance Companies (1.0%)
52,000 Fannie Mae................................................ 2,934,750
-----------
Food Chains (1.1%)
104,000 Albertson's Inc. ......................................... 3,224,000
-----------
Food Distributors (1.1%)
177,000 Supervalu, Inc. .......................................... 3,351,938
-----------
Life Insurance (1.2%)
105,000 Lincoln National Corp. ................................... 3,517,500
-----------
Major Banks (1.1%)
64,000 Bank of America Corp. .................................... 3,356,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
Major Chemicals (3.2%)
28,500 Dow Chemical Co. ......................................... $ 3,249,000
180,000 Hercules, Inc. ........................................... 2,902,500
82,000 Rohm & Haas Co. .......................................... 3,659,250
-----------
9,810,750
-----------
Major Pharmaceuticals (1.1%)
90,000 Schering-Plough Corp. .................................... 3,307,500
-----------
Major U.S. Telecommunications (3.2%)
58,500 AT&T Corp. ............................................... 3,290,625
55,000 Bell Atlantic Corp. ...................................... 3,361,875
47,000 GTE Corp. ................................................ 3,337,000
-----------
9,989,500
-----------
Meat/Poultry/Fish (1.0%)
169,000 ConAgra, Inc.............................................. 3,063,125
-----------
Motor Vehicles (2.1%)
70,000 Ford Motor Co. ........................................... 3,215,625
40,000 General Motors Corp. ..................................... 3,312,500
-----------
6,528,125
-----------
Office Equipment/Supplies (1.0%)
114,000 Xerox Corp. .............................................. 2,964,000
-----------
Oil Refining/Marketing (2.2%)
98,000 Ashland, Inc. ............................................ 3,276,875
133,000 Ultramar Diamond Shamrock Corp. .......................... 3,374,875
-----------
6,651,750
-----------
Other Consumer Services (0.4%)
100,000 Cendant Corp. (Rights).................................... 1,125,000
-----------
Paints/Coatings (1.0%)
60,000 PPG Industries, Inc. ..................................... 3,138,750
-----------
Real Estate Investment Trusts (8.5%)
100,000 Archstone Communities Trust............................... 1,993,750
55,000 Avalonbay Communities, Inc. .............................. 2,014,375
67,000 Boston Properties, Inc. .................................. 2,131,437
107,500 Duke-Weeks Realty Corp. .................................. 2,055,938
82,000 Equity Office Properties Trust............................ 2,060,250
50,500 Equity Residential Properties Trust....................... 2,029,469
76,500 First Industrial Realty Trust, Inc. ...................... 2,084,625
65,000 General Growth Properties, Inc. .......................... 1,978,437
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
112,000 Healthcare Realty Trust, Inc. ............................ $ 1,876,000
118,000 MeriStar Hospitality Corp. ............................... 2,057,625
105,000 Reckson Associates Realty Corp. .......................... 1,968,750
44,000 Spieker Properties, Inc. ................................. 1,958,000
64,500 Vornado Realty Trust...................................... 2,160,749
-----------
26,369,405
-----------
Rental/Leasing Companies (1.0%)
135,500 Ryder System, Inc. ....................................... 3,074,156
-----------
Savings & Loan Associations (1.1%)
123,000 Washington Mutual, Inc. .................................. 3,259,500
-----------
Steel/Iron Ore (1.1%)
130,000 USX-U.S. Steel Group...................................... 3,250,000
-----------
Tobacco (1.1%)
160,000 Philip Morris Companies, Inc. ............................ 3,380,000
-----------
TOTAL COMMON STOCKS
(Identified Cost $144,848,935)............................ 140,624,966
-----------
CONVERTIBLE PREFERRED STOCKS (13.8%)
Auto Parts (0.0%)
94,000 BTI Capital Trust $3.25 - 144A*........................... 11,750
-----------
Books/Magazines (1.0%)
100,000 Reader's Digest Association, Inc. $1.93................... 3,100,000
-----------
Containers/Packaging (0.1%)
4,900 Sealed Air Corp. (Series A) $2.00......................... 254,494
-----------
Discount Chains (0.2%)
13,000 Dollar General Strypes Trust $3.35........................ 497,250
-----------
Electric Utilities (0.5%)
10,000 Houston Industries, Inc. $3.29 (exchangeable into Time
Warner common stock)..................................... 1,590,000
-----------
Industrial Machinery/Components (0.9%)
117,000 Ingersoll-Rand Co. $1.688................................. 2,749,500
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------------------------------------------------------------------------------
<C> <S> <C>
International Banks (2.4%)
155,900 National Australia Bank, Ltd. $1.97 (Australia)
(Units)++................................................. $ 3,770,831
120,700 WBK Strypes Trust $3.14................................... 3,621,000
-----------
7,391,831
-----------
Investment Bankers/Brokers/Services (0.5%)
90,000 Merrill Lynch & Co., Inc. $2.39 (exchangeable into IMC
Global, Inc. common stock)............................... 1,530,000
-----------
Movies/Entertainment (0.7%)
50,000 Premier Parks, Inc. $4.05................................. 2,125,000
-----------
Oil Refining/Marketing (0.8%)
200,000 Tesoro Petroleum Corp. $1.16.............................. 2,425,000
-----------
Other Consumer Services (0.0%)
3,700 Cendant Corp. $0.65....................................... 90,650
-----------
Package Goods/Cosmetics (1.1%)
38,500 Estee Lauder Co. $3.80.................................... 3,426,500
-----------
Railroads (0.5%)
37,200 Union Pacific Capital Trust $3.13......................... 1,470,888
-----------
Real Estate Investment Trusts (1.2%)
140,000 SL Green Realty Corp. $2.00............................... 3,570,000
-----------
Rental/Leasing Companies (0.1%)
10,900 United Rentals Trust I $3.25 - 144A*...................... 347,097
-----------
Services to the Health Industry (0.2%)
6,600 Laboratory Corp. of America (Series A) $4.25.............. 514,800
-----------
Smaller Banks (1.7%)
156,500 CNB Capital Trust I $1.50................................. 5,086,250
-----------
Tools/Hardware (1.1%)
109,700 Metromedia International Group, Inc. $3.63................ 3,510,400
-----------
Unregulated Power Generation (0.8%)
70,000 CalEnergy Capital Trust III $3.25......................... 2,590,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $49,371,927)............................. 42,281,410
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONVERTIBLE BONDS (14.6%)
Assisted Living Services (0.3%)
$ 580 Alternative Living Services, Inc. ... 5.25% 12/15/02 $ 275,529
1,295 Emeritus Corp. - 144A*............... 6.25 01/01/06 610,269
105 Sunrise Assisted Living,
Inc. - 144A*......................... 5.50 06/15/02 84,799
------------
970,597
------------
Auto Parts: O.E.M. (0.8%)
300 Magna International, Inc. (Canada) -
144A*............................... 4.875 02/15/05 261,000
3,000 MascoTech, Inc. ..................... 4.50 12/15/03 2,235,000
------------
2,496,000
------------
Biotechnology (0.5%)
810 Athena Neurosciences, Inc. - 144A*... 4.75 11/15/04 1,114,390
165 Centocor, Inc. ...................... 4.75 02/15/05 182,079
180 Centocor, Inc. - 144A*............... 4.75 02/15/05 198,632
------------
1,495,101
------------
Broadcasting (0.6%)
1,400 Clear Channel Communications,
Inc. ................................ 2.625 04/01/03 1,702,330
------------
Cable Television (1.6%)
2,700 EchoStar Communications - 144A*...... 4.875 01/01/07 4,982,849
------------
Clothing/Shoe/Accessory Stores (0.9%)
3,160 Genesco Inc. ........................ 5.50 04/15/05 2,677,120
------------
Computer Software (0.2%)
350 Arbor Software Corp. ................ 4.50 03/15/05 288,075
260 Network Associates, Inc. ............ 0.00 02/13/18 103,301
745 Network Associates, Inc. - 144A*..... 0.00 02/13/18 295,995
------------
687,371
------------
Contract Drilling (0.2%)
440 Diamond Offshore Drilling, Inc. ..... 3.75 02/15/07 498,164
------------
Discount Chains (0.3%)
680 Costco Companies, Inc. - 144A*....... 0.00 08/19/17 832,109
------------
Diversified Commercial Services
(0.2%)
345 Interim Services Inc. ............... 4.50 06/01/05 276,414
370 Metamor Worldwide, Inc. ............. 2.94 08/15/04 318,781
------------
595,195
------------
Diversified Electronic Products
(0.8%)
2,000 SCI Systems, Inc. ................... 3.00 03/15/07 2,310,840
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Electronic Components (0.4%)
$ 1,925 Solectron Corp. - 144A* ............. 0.00% 01/27/19 $ 1,279,278
------------
Electronic Production Equipment
(0.7%)
1,690 Phototronics, Inc. - 144A*........... 6.00 6/01/04 2,167,290
------------
Finance Companies (0.2%)
890 Elan Finance Corp. - 144A*........... 0.00 12/14/18 642,429
------------
Industrial Machinery/Components
(0.6%)
2,300 Thermo Fibertek, Inc. - 144A*........ 4.50 07/15/04 1,939,544
------------
Major U.S. Telecommunications (2.9%)
3,700 Bell Atlantic Financial
Service - 144A*...................... 4.25 09/15/05 5,258,995
3,700 Bell Atlantic Financial
Service - 144A* (exchangeable into
Telecom Corporation of New Zealand
common stock)....................... 5.75 04/01/03 3,755,500
------------
9,014,495
------------
Media Conglomerates (0.3%)
895 News America Holdings, Inc. ......... 0.00 03/11/13 1,036,526
------------
Metals Fabrications (0.1%)
225 Hexcel Corp. ........................ 7.00 08/01/03 150,750
300 Tower Automotive, inc. - 144A*....... 5.00 08/01/04 255,846
------------
406,596
------------
Movies/Entertainment (0.1%)
255 Speedway Motorsports, Inc. .......... 5.75 09/30/03 247,360
------------
Multi-Line Insurance (0.1%)
285 American International Group,
Inc. ................................ 2.25 07/30/04 444,720
------------
Other Telecommunications (0.0%)
750 SA Telecommunications, Inc - 144A*
(a)................................. 10.00 08/15/06 22,500
------------
Precision Instruments (0.4%)
1,100 Thermo Optek Corp. - 144A*........... 5.00 10/15/00 1,166,253
------------
Property - Casualty Insurers (0.6%)
640 Berkshire Hathaway, Inc. ............ 1.00 12/02/01 1,700,218
------------
Semiconductors (1.0%)
480 Level One Communications, Inc. ...... 4.00 09/01/04 2,047,190
310 STMicroelectronics NV
(Netherlands)........................ 0.00 06/10/08 1,016,509
------------
3,063,699
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Services to the Health Industry
(0.2%)
$ 150 Quadramed Corp. ..................... 5.25% 05/01/05 $ 67,425
50 Quadramed Corp. - 144A*.............. 5.25 05/01/05 22,488
265 Quintiles Transnational Corp. ....... 4.25 05/31/00 263,200
160 Quintiles Transnational
Corp. - 144A*........................ 4.25 05/31/00 158,914
------------
512,027
------------
Telecommunications Equipment (0.6%)
380 Comverse Technology, Inc. - 144A*.... 4.50 07/01/05 1,680,501
------------
TOTAL CONVERTIBLE BONDS
(Identified Cost $36,638,503)............................. 44,571,112
------------
CORPORATE BONDS (23.0%)
Aerospace (0.0%)
140 BE Aerospace, Inc. (Series B)........ 8.00 03/01/08 109,550
------------
Aluminum (0.0%)
100 Golden Northwest Aluminum............ 12.00 12/15/06 104,250
------------
Auto Parts: O.E.M. (0.1%)
175 Hayes Lemmerz International, Inc. ... 8.25 12/15/08 147,000
100 Hayes Wheels International, Inc.
(Series B).......................... 9.125 07/15/07 89,000
------------
236,000
------------
Beverages - Non-Alcoholic (0.1%)
165 Cott Corp. (Canada).................. 9.375 07/01/05 153,450
350 Packaged Ice Inc. (Series B)......... 9.75 02/01/05 294,000
------------
447,450
------------
Books/Magazines (0.1%)
50 Primedia, Inc. ...................... 7.625 04/01/08 45,000
250 Von Hoffman Press, Inc. - 144A*...... 10.375 05/15/07 233,750
------------
278,750
------------
Broadcasting (2.9%)
100 Chancellor Media AFM................. 9.00 10/01/08 100,500
150 Emmis Communications Corp. (Series
B).................................. 8.125 03/15/09 139,500
2,900 EZ Communications, Inc. ............. 9.75 12/01/05 3,078,727
145 Lamar Media Corp. ................... 9.25 08/15/07 143,550
200 STC Broadcasting, Inc. .............. 11.00 03/15/07 198,000
5,060 Young Broadcasting Corp. ............ 11.75 11/15/04 5,123,250
------------
8,783,527
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Building Materials (1.0%)
$ 2,850 USG Corp. (Series B)................. 9.25% 09/15/01 $ 2,904,349
------------
Cable Television (0.8%)
175 Echostar DBS Corp. - 144A*........... 9.375 02/01/09 169,750
2,000 Tele-Communications, Inc. ........... 9.25 04/15/02 2,078,620
275 TV Guide Inc. ....................... 8.125 03/01/09 273,625
------------
2,521,995
------------
Casino/Gambling (0.1%)
200 Boyd Gaming Corp. ................... 9.25 10/01/03 195,000
------------
Clothing/Shoe/Accessory Stores (0.6%)
1,950 Thrifty PayLess Holdings, Inc. ...... 12.25 04/15/04 1,774,500
------------
Coal Mining (0.1%)
175 P&L Coal Holdings Corp. (Series B)... 8.875 05/15/08 157,938
------------
Consumer Specialties (0.1%)
95 Boyds Collection Ltd. - 144A*........ 9.00 05/15/08 85,025
300 Home Interiors & Gifts............... 10.125 06/01/08 240,000
100 Scotts Co. - 144A*................... 8.625 01/15/09 93,000
------------
418,025
------------
Containers/Packaging (0.2%)
225 Ball Corp. - 144A*................... 7.75 08/01/06 210,937
125 Ball Corp. - 144A*................... 8.25 08/01/08 115,938
100 Consumers Packaging, Inc. - 144A*.... 9.75 02/01/07 52,250
225 U.S. Can Corp. ...................... 10.125 10/15/06 236,250
------------
615,375
------------
Diversified Commercial Services
(0.1%)
250 Iron Mountain, Inc. ................. 10.125 10/01/06 242,500
75 Iron Mountain, Inc. ................. 8.75 09/30/09 66,187
75 Pierce Leahy Command Co. ............ 8.125 05/15/08 65,250
------------
373,937
------------
Diversified Financial Services (0.0%)
75 GS Escrow Corp. ..................... 7.125 08/01/05 67,109
------------
Diversified Manufacturing (0.1%)
200 Ametec Inc. ......................... 7.20 07/15/08 181,356
155 Insilco Corp. (Series B)............. 12.00 08/15/07 146,088
100 Mark IV Industries Inc. ............. 7.75 04/01/06 89,009
------------
416,453
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
E.D.P. Services (0.0%)
$ 100 American Business Information, Inc. -
144A*............................... 9.50% 06/15/08 $ 88,000
------------
Electric Utilities (0.2%)
100 CMS Energy Corp. .................... 7.50 01/15/09 89,195
113 Niagara Mohawk Power (Series F)...... 7.625 10/01/05 111,887
175 Niagara Mohawk Power (Series G)...... 7.75 10/01/08 171,539
125 Niagara Mohawk Power (Series H)...... 0.00 07/01/10 96,641
------------
469,262
------------
Electrical Products (0.1%)
335 Communications & Power Industries,
Inc. (Series B)..................... 12.00 08/01/05 262,975
------------
Electronic Data Processing (2.5%)
7,250 Unisys Corp. (Series B).............. 12.00 04/15/03 7,685,000
------------
Engineering & Construction (0.1%)
225 Mastec Inc. (Series B)............... 7.75 02/01/08 207,000
------------
Environmental Services (0.0%)
350 Safety-Kleen Services................ 9.25 06/01/08 42,000
------------
Food Distributors (0.0%)
100 Di Giorgio Corp. .................... 10.00 06/15/07 89,000
------------
Home Building (0.1%)
75 D.R. Horton inc. .................... 8.00 02/01/09 61,875
50 Standard Pacific Corp. (Series A).... 8.00 02/15/08 43,000
290 Williams Scotsman, Inc. ............. 9.875 06/01/07 261,000
------------
365,875
------------
Home Furnishings (0.1%)
200 Westpoint Stevens, Inc. ............. 7.875 06/15/08 156,000
------------
Hotels/Resorts (0.1%)
400 ITT Corp. (New)...................... 7.375 11/15/15 329,644
------------
Industrial Specialties (0.1%)
200 International Wire Group (Series
B)................................... 11.75 06/01/05 202,000
125 Specialty Paperboard, Inc. .......... 9.375 10/15/06 115,000
------------
317,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Internet Services (0.3%)
$ 825 Verio Inc. .......................... 10.375% 04/01/05 $ 792,000
------------
Media Conglomerates (0.7%)
2,000 Time Warner Entertainment Co. ....... 9.625 05/01/02 2,083,800
------------
Medical/Nursing Services (1.6%)
4,800 Healthsouth Corp. ................... 9.50 04/01/01 4,752,000
225 Prime Medical Services Inc. ......... 8.75 04/01/08 191,250
------------
4,943,250
------------
Metals Fabrications (1.0%)
2,900 Ivaco, Inc. (Canada)................. 11.50 09/15/05 3,103,000
100 Neenah Corp. (Series F).............. 11.125 05/01/07 86,000
------------
3,189,000
------------
Newspapers (0.4%)
275 Garden State Newspapers (Series B)... 8.75 10/01/09 239,250
1,000 Hollinger International Publishing,
Inc. ............................... 9.25 02/01/06 940,000
------------
1,179,250
------------
Oil & Gas Production (0.1%)
275 Magnum Hunter Resources.............. 10.00 06/01/07 242,000
------------
Other Consumer Services (0.0%)
100 Protection One Alarm Monitoring,
Inc. ............................... 7.375 08/15/05 71,000
------------
Other Metals/Minerals (3.7%)
10,500 Cyprus Amax Minerals Inc. ........... 10.125 04/01/02 10,922,100
------------
Other Specialty Stores (0.1%)
175 Michaels Stores, Inc. ............... 10.875 06/15/06 182,000
100 Mrs Fields Original
Cookies - 144A*...................... 10.125 12/01/04 81,000
175 Zale Corp. (Series B)................ 8.50 10/01/07 167,125
------------
430,125
------------
Other Telecommunications (1.5%)
125 Intermedia Communications, Inc.
(Series B).......................... 8.50 01/15/08 108,750
150 Intermedia Communications, Inc.
(Series B).......................... 9.50 03/01/09 135,000
325 Level 3 Communications, Inc. ........ 9.125 05/01/08 279,500
115 NEXTLINK Communications, Inc. ....... 9.625 10/01/07 108,675
150 NEXTLINK Communications, Inc. -
144A*............................... 10.75 11/15/08 146,625
60 Paging Network, Inc. (a)............. 10.125 08/01/07 40,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 225 RCN Corp. ........................... 0.00% 10/15/07 $ 144,000
3,250 Sprint Spectrum L.P. ................ 11.00 08/15/06 3,511,657
------------
4,475,007
------------
Packaged Foods (0.2%)
475 International Home Foods, Inc. ...... 10.375 11/01/06 465,500
------------
Paper (0.0%)
125 Paperboard Industrial International
Inc. ............................... 8.375 09/15/07 110,000
------------
Real Estate (0.1%)
300 Forest City Enterprises.............. 8.50 03/15/08 267,000
------------
Recreational Products/Toys (0.0%)
125 CSC Holdings, Inc. .................. 7.625 07/15/18 116,276
------------
Rental/Leasing Companies (0.0%)
25 Anthony Crane Rentals - 144A*........ 10.375 08/01/08 19,500
------------
Smaller Banks (0.0%)
50 Chevy Chase Savings Bank............. 9.25 12/01/05 47,875
100 Chevy Chase Savings Bank, F.S.B. .... 9.25 12/01/08 95,750
------------
143,625
------------
Specialty Chemicals (2.4%)
6,960 Huntsman Polymers Corp. ............. 11.75 12/01/04 7,168,800
175 Texas Petrochemicals Corp. .......... 11.125 07/01/06 145,250
------------
7,314,050
------------
Textiles (1.3%)
4,300 Dan River, Inc. ..................... 10.125 12/15/03 3,827,000
100 Polymer Group Inc. (Series B)........ 8.75 03/01/08 87,000
------------
3,914,000
------------
Unregulated Power Generation (0.0%)
50 CalEnergy Co. Inc. .................. 7.63 10/15/07 49,727
------------
TOTAL CORPORATE BONDS
(Identified Cost $75,670,756)............................. 70,143,174
------------
SHORT-TERM INVESTMENT (1.4%)
REPURCHASE AGREEMENT
4,169 The Bank of New York (dated 03/31/00;
proceeds $4,171,006) (b)
(Identified Cost $4,168,900)......... 6.063 04/03/00 4,168,900
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
VALUE
-----------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $310,699,021) (c)............... 98.9% $301,789,562
OTHER ASSETS IN EXCESS OF LIABILITIES............ 1.1 3,424,819
----- ------------
NET ASSETS....................................... 100.0% $305,214,381
===== ============
</TABLE>
---------------------
* Resale is restricted to qualified institutional investors.
++ Consists of one or more classes of securities traded together as a unit;
stocks with attached warrants.
(a) Non-income producing security; bond in default.
(b) Collateralized by $4,211,917 U.S. Treasury Note 5.875% due 11/30/01 valued
at $4,252,282.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $25,929,672 and the
aggregate gross unrealized depreciation is $34,839,131, resulting in net
unrealized depreciation of $8,909,459.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $310,699,021)............................. $301,789,562
Receivable for:
Interest................................................ 3,063,102
Investments sold........................................ 1,267,896
Shares of beneficial interest sold...................... 1,174,403
Dividends............................................... 781,686
Deferred organizational expenses............................ 40,433
Prepaid expenses and other assets........................... 87,517
------------
TOTAL ASSETS............................................ 308,204,599
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 2,099,465
Investments purchased................................... 392,083
Plan of distribution fee................................ 251,493
Investment management fee............................... 193,667
Accrued expenses and other payables......................... 53,510
------------
TOTAL LIABILITIES....................................... 2,990,218
------------
NET ASSETS.............................................. $305,214,381
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $331,407,053
Net unrealized depreciation................................. (8,909,459)
Accumulated undistributed net investment income............. 3,309,421
Accumulated net realized loss............................... (20,592,634)
------------
NET ASSETS.............................................. $305,214,381
============
CLASS A SHARES:
Net Assets.................................................. $3,590,683
Shares Outstanding (unlimited authorized, $.01 par value)... 344,515
NET ASSET VALUE PER SHARE............................... $10.42
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $11.00
============
CLASS B SHARES:
Net Assets.................................................. $267,252,983
Shares Outstanding (unlimited authorized, $.01 par value)... 25,636,418
NET ASSET VALUE PER SHARE............................... $10.42
============
CLASS C SHARES:
Net Assets.................................................. $31,455,999
Shares Outstanding (unlimited authorized, $.01 par value)... 3,024,207
NET ASSET VALUE PER SHARE............................... $10.40
============
CLASS D SHARES:
Net Assets.................................................. $2,914,716
Shares Outstanding (unlimited authorized, $.01 par value)... 279,485
NET ASSET VALUE PER SHARE............................... $10.43
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended March 31, 2000 (unaudited)
NET INVESTMENT INCOME:
INCOME
Dividends................................................... $ 5,771,661
Interest.................................................... 5,522,547
-----------
TOTAL INCOME............................................ 11,294,208
-----------
EXPENSES
Plan of distribution fee (Class A shares)................... 13,584
Plan of distribution fee (Class B shares)................... 1,547,127
Plan of distribution fee (Class C shares)................... 180,928
Investment management fee................................... 1,345,023
Transfer agent fees and expenses............................ 190,813
Registration fees........................................... 48,585
Professional fees........................................... 33,391
Shareholder reports and notices............................. 21,271
Organizational expenses..................................... 16,393
Custodian fees.............................................. 8,677
Trustees' fees and expenses................................. 5,761
Other....................................................... 7,147
-----------
TOTAL EXPENSES.......................................... 3,418,700
-----------
NET INVESTMENT INCOME................................... 7,875,508
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (19,015,149)
Net change in unrealized depreciation....................... 11,144,379
-----------
NET LOSS................................................ (7,870,770)
-----------
NET INCREASE................................................ $ 4,738
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
MARCH 31, ENDED
2000 SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 7,875,508 $ 18,480,801
Net realized gain (loss)........................... (19,015,149) 15,975,924
Net change in unrealized depreciation.............. 11,144,379 3,774,240
------------ ------------
NET INCREASE................................... 4,738 38,230,965
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................. (190,004) (646,373)
Class B shares................................. (6,050,626) (17,881,658)
Class C shares................................. (726,648) (604,652)
Class D shares................................. (47,949) (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.............. (19,857,325) (45,265,868)
------------ ------------
Net decrease from transactions in shares of
beneficial interest............................... (77,143,313) (23,984,846)
------------ ------------
NET DECREASE................................... (96,995,900) (31,019,749)
NET ASSETS:
Beginning of period................................ 402,210,281 433,230,030
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $3,309,421 and $2,449,140, respectively).... $305,214,381 $402,210,281
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE> 20
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited)
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 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"), 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
20
<PAGE> 21
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
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 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
21
<PAGE> 22
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
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.
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
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
22
<PAGE> 23
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
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 $16,502,807 at March 31, 2000.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will 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 six months ended March 31, 2000, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.23% and
0.99%, respectively.
The Distributor has informed the Fund that for the six months ended March 31,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $524,090 and $968, respectively
and received $2,228 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 six months ended March 31, 2000 aggregated
$76,458,800 and $164,536,052, respectively.
For the six months ended March 31, 2000, the Fund incurred $71,650 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 March 31, 2000, the Fund's receivable for investments
sold and payable for investments purchased included unsettled trades with DWR of
$1,108,086 and $392,083, respectively.
For the six months ended March 31, 2000, the Fund incurred $15,250 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.
23
<PAGE> 24
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 105,999 $ 1,127,918 373,161 $ 4,311,270
Reinvestment of dividends and distributions................. 44,424 459,639 72,926 807,614
Shares issued in connection with the acquisition of TCW/DW
Income and Growth Fund..................................... -- -- 8,607 101,458
Redeemed.................................................... (948,440) (9,762,710) (213,154) (2,454,803)
---------- ------------ ----------- -------------
Net increase (decrease) - Class A........................... (798,017) (8,175,853) 241,540 2,765,539
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 1,227,667 12,961,748 3,043,825 35,162,596
Reinvestment of dividends and distributions................. 1,348,657 13,959,504 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.................................................... (8,630,671) (90,732,924) (12,509,897) (143,652,130)
---------- ------------ ----------- -------------
Net decrease - Class B...................................... (6,054,347) (63,811,672) (5,589,885) (64,967,078)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 39,053 413,813 114,511 1,316,245
Reinvestment of dividends and distributions................. 173,461 1,791,786 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.................................................... (916,188) (9,561,232) (518,349) (5,997,769)
---------- ------------ ----------- -------------
Net increase (decrease) - Class C........................... (703,674) (7,355,633) 3,223,463 37,968,178
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 214,024 2,220,159 449,722 5,167,272
Reinvestment of dividends and distributions................. 2,588 26,801 4,118 45,524
Redeemed.................................................... (4,423) (47,115) (441,802) (4,964,281)
---------- ------------ ----------- -------------
Net increase - Class D...................................... 212,189 2,199,845 12,038 248,515
---------- ------------ ----------- -------------
Net decrease in Fund........................................ (7,343,849) $(77,143,313) (2,112,844) $ (23,984,846)
========== ============ =========== =============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of September 30, 1999, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
24
<PAGE> 25
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) 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 assets 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.
25
<PAGE> 26
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 SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<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................... 0.27 0.58 0.59 0.12
Net realized and unrealized gain
(loss)................................ (0.20) 0.54 (1.12) 0.61
------ ------ ------ ------
Total income (loss) from investment
operations.............................. 0.07 1.12 (0.53) 0.73
------ ------ ------ ------
Less dividends and distributions from:
Net investment income................... (0.25) (0.62) (0.51) (0.12)
Net realized gain....................... (0.38) (0.70) (0.59) --
------ ------ ------ ------
Total dividends and distributions........ (0.63) (1.32) (1.10) (0.12)
------ ------ ------ ------
Net asset value, end of period........... $10.42 $10.98 $11.18 $12.81
====== ====== ====== ======
TOTAL RETURN+............................ 0.73%(1) 10.15% (4.67)% 5.95%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 1.17%(2)(3) 1.17%(3) 1.17 %(3) 1.28%(2)
Net investment income.................... 5.13%(2)(3) 5.02%(3) 4.61 %(3) 5.77%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................... $3,591 $12,541 $10,073 $1,047
Portfolio turnover rate.................. 22%(1) 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> 27
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30, JUNE 26, 1996*
MONTHS ENDED ------------------------------------ THROUGH
MARCH 31, 2000++ 1999++ 1998++ 1997**++ SEPTEMBER 30, 1996
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <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 $10.00
------ -------- -------- -------- ------
Income (loss) from investment operations:
Net investment income....................... 0.23 0.50 0.50 0.46 0.08
Net realized and unrealized gain (loss)..... (0.19) 0.53 (1.11) 2.54 0.23
------ -------- -------- -------- ------
Total income (loss) from investment
operations.................................. 0.04 1.03 (0.61) 3.00 0.31
------ -------- -------- -------- ------
Less dividends and distributions from:
Net investment income....................... (0.22) (0.53) (0.43) (0.41) (0.08)
Net realized gain........................... (0.38) (0.70) (0.59) (0.01) --
------ -------- -------- -------- ------
Total dividends and distributions............ (0.60) (1.23) (1.02) (0.42) (0.08)
------ -------- -------- -------- ------
Net asset value, end of period............... $10.42 $10.98 $11.18 $12.81 $10.23
====== ======== ======== ======== ======
TOTAL RETURN+................................ 0.42%(1) 9.31% (5.29)% 29.83% 3.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 1.94%(2)(3) 1.90%(3) 1.80%(3) 1.85% 2.25%(2)
Net investment income........................ 4.36%(2)(3) 4.29%(3) 3.98%(3) 4.16% 3.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $267,253 $348,070 $416,909 $358,973 $148,142
Portfolio turnover rate...................... 22%(1) 36% 58% 74% 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
27
<PAGE> 28
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<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............................ 0.23 0.48 0.50 0.10
Net realized and unrealized gain (loss).......... (0.19) 0.55 (1.12) 0.61
------ ------ ------ ------
Total income (loss) from investment operations.... 0.04 1.03 (0.62) 0.71
------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................ (0.22) (0.53) (0.43) (0.11)
Net realized gain................................ (0.38) (0.70) (0.59) --
------ ------ ------ ------
Total dividends and distributions................. (0.60) (1.23) (1.02) (0.11)
------ ------ ------ ------
Net asset value, end of period.................... $10.40 $10.96 $11.16 $12.80
====== ====== ====== ======
TOTAL RETURN+..................................... 0.44%(1) 9.38% (5.38)% 5.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 1.93%(2)(3) 1.90%(3) 1.92 %(3) 1.98%(2)
Net investment income............................. 4.37%(2)(3) 4.29%(3) 3.86 %(3) 4.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $31,456 $40,859 $5,630 $987
Portfolio turnover rate........................... 22%(1) 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
28
<PAGE> 29
MORGAN STANLEY DEAN WITTER INCOME BUILDER FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<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............................ 0.30 0.60 0.64 0.12
Net realized and unrealized gain (loss).......... (0.20) 0.55 (1.15) 0.62
------ ------ ------ ------
Total income (loss) from investment operations.... 0.10 1.15 (0.51) 0.74
------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................ (0.28) (0.64) (0.54) (0.12)
Net realized gain................................ (0.38) (0.70) (0.59) --
------ ------ ------ ------
Total dividends and distributions................. (0.66) (1.34) (1.13) (0.12)
------ ------ ------ ------
Net asset value, end of period.................... $10.43 $10.99 $11.18 $12.82
====== ====== ====== ======
TOTAL RETURN+..................................... 0.96%(1) 10.51% (4.46)% 5.98%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 0.94%(2)(3) 0.93%(3) 0.92 %(3) 0.96%(2)
Net investment income............................. 5.36%(2)(3) 5.26%(3) 4.86 %(3) 5.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $2,915 $740 $618 $21
Portfolio turnover rate........................... 22%(1) 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
29
<PAGE> 30
(This Page Intentionally Left Blank)
<PAGE> 31
(This Page Intentionally Left Blank)
<PAGE> 32
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
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
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
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
Semiannual Report
March 31, 2000
