Filed Pursuant to Rule 497(e)
Registration File No.: 2-66268
DEAN WITTER
TAX-EXEMPT SECURITIES TRUST
Prospectus--February 25, 1994
===============================================================================
DEAN WITTER TAX-EXEMPT SECURITIES TRUST (THE "FUND") IS AN OPEN-END DIVERSIFIED
MANAGEMENT INVESTMENT COMPANY WHOSE INVESTMENT OBJECTIVE IS TO PROVIDE A HIGH
LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX, CONSISTENT WITH THE
PRESERVATION OF CAPITAL. THE FUND INVESTS PRINCIPALLY IN TAX-EXEMPT FIXED-
INCOME SECURITIES WHICH ARE RATED IN THE THREE HIGHEST CATEGORIES BY MOODY'S
INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORPORATION. (SEE "INVESTMENT
OBJECTIVE AND POLICIES.")
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated February 25, 1994, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed below. The
Statement of Additional Information is incorporated herein by reference.
TABLE OF CONTENTS
Prospectus Summary................................................... 2
Summary of Fund Expenses............................................. 3
Financial Highlights................................................. 4
The Fund and its Management.......................................... 5
Investment Objective and Policies.................................... 5
Investment Restrictions.............................................. 9
Purchase of Fund Shares.............................................. 9
Shareholder Services................................................. 11
Redemptions and Repurchases.......................................... 13
Dividends, Distributions and Taxes................................... 13
Performance Information.............................................. 15
Additional Information............................................... 15
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
DEAN WITTER
TAX-EXEMPT SECURITIES TRUST
TWO WORLD TRADE CENTER
NEW YORK,NEW YORK 10048
(212) 392-2550 OR
(800) 526-3143
===============================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Dean Witter Distributors Inc., Distributor
<PAGE>
PROSPECTUS SUMMARY
===============================================================================
The Fund
The Fund is organized as a Trust, commonly known as a Massachusetts
business trust, and is an open-end diversified management investment company
investing principally in investment grade, tax-exempt fixed-income securities
(see page 5).
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Shares Offered
Shares of beneficial interest with $0.01 par value (see page 15).
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Offering Price
The price of the shares offered by this prospectus varies with the
changes in the value of the Fund's investments. The offering price, determined
once daily as of 4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, is equal to the net asset value plus a sales charge of 4.0%
of the offering price, scaled down on purchases of $25,000 or over (see page
9).
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Minimum
Purchase
Minimum initial purchase is $1,000; minimum subsequent purchase is $100
(see page 9).
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Investment
Objective
The investment objective of the Fund is to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital (see page 5).
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Investment
Manager
Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager
of the Fund, and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to eighty-one investment companies and other
portfolios with assets of approximately $71.2 billion at December 31, 1993 (see
page 5).
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Management
Fee
The monthly fee is at an annual rate of 1/2 of 1% of average daily net
assets, scaled down on assets over $500 million (see page 5).
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Dividends and
Capital Gains
Distributions
Income dividends are declared daily and paid monthly; capital gains, if
any, may be distributed annually or retained for reinvestment by the Fund.
Dividends and distributions are automatically reinvested in additional shares
at net asset value (without sales charge), unless the shareholder elects to
receive cash (see page 13).
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Distributor
Dean Witter Distributors Inc. (see page 9).
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Sales Charge
4.0% of offering price (4.17% of amount invested); reduced charges on
purchases of $25,000 or more (see page 9).
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Redemption
Shares redeemable by the shareholder at net asset value. An account
may be involuntarily redeemed if shares owned have a net asset value of less
than $100 (see page 13).
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Risks
The value of the Fund's portfolio securities, and therefore the Fund's
net asset value per share, may increase or decrease due to various factors,
principally changes in prevailing interest rates and the ability of the issuers
of the Fund's portfolio securities to pay interest and principal on such
obligations. The Fund may purchase when-issued and delayed delivery securities
(see page 7). The Fund may also invest in futures and options, which may be
considered speculative in nature and which may involve greater risks than those
customarily assumed by certain other investment companies which do not invest
in such instruments (see page 7).
===============================================================================
The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus and in the Statement of Additional Information.
2
<PAGE>
<TABLE>
SUMMARY OF FUND EXPENSES
===============================================================================
The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended December 31, 1993.
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Charge Imposed on Purchases.......................... 4.0 %
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends............... None
Deferred Sales Charge.............................................. None
Redemption Fees.................................................... None
Exchange Fee....................................................... None
<CAPTION>
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
<S> <C>
Management Fees.................................................... 0.41%
Other Expenses..................................................... 0.06%
Total Fund Operating Expenses...................................... 0.47%
<CAPTION>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption
at the end of each time period:...... $45 $54 $65 $97
</TABLE>
The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Fund may be greater or
less than those shown.
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Purchase of Fund Shares." There are reduced
sales charges on purchases of $25,000 or more (see "Purchase of Fund Shares").
3
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
===================================================================================================================================
The following ratios and per share data for a share of beneficial interest outstanding throughout each period have been audited by
Price Waterhouse, independent accountants. The financial highlights should be read in conjunction with the financial statements,
the notes thereto and the unqualified report of independent accountants, which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to Shareholders, which
may be obtained without charge upon request to the Fund.
<CAPTION>
For the year ended December 31,
-----------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period.......... $11.88 $11.65 $11.09 $11.28 $10.96 $10.45 $11.50 $10.79 $ 9.80 $ 9.85
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment income--net....... 0.77 0.79 0.80 0.80 0.81 0.81 0.80 0.85 0.92 1.06
Realized and unrealized gain
(loss) on investments--net.. 0.54 0.23 0.56 (0.18) 0.32 0.51 (0.97) 1.21 1.07 (0.19)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................... 1.31 1.02 1.36 0.62 1.13 1.32 (0.17) 2.06 1.99 0.87
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends and
distributions:
Dividends from net
investment income........... (0.77) (0.79) (0.80) (0.81) (0.81) (0.81) (0.83) (0.87) (1.00) (0.92)
Distributions from
net realized gain
on investments.............. (0.01) -0- -0- -0- -0- -0- (0.05) (0.48) -0- -0-
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions................ (0.78) (0.79) (0.80) (0.81) (0.81) (0.81) (0.88) (1.35) (1.00) (0.92)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period................ $12.41 $11.88 $11.65 $11.09 $11.28 $10.96 $10.45 $11.50 $10.79 $ 9.80
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Investment Return+....... 11.23% 9.09% 12.71% 5.86% 10.61% 13.02% (1.44%) 20.17% 21.35% 9.37%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands).............. $1,581,986$1,323,469$1,144,716$1,010,355$1,033,250 $907,822 $896,419 $965,834 $489,367 $173,147
Ratio of expenses to average
net assets................... 0.47% 0.49% 0.51% 0.51% 0.51% 0.54% 0.52% 0.56% 0.61% 0.68%
Ratio of net investment income
to average net assets........ 6.23% 6.74% 7.05% 7.25% 7.31% 7.51% 7.42% 7.51% 8.90% 11.71%
Portfolio turnover rate....... 13% 4% 10% 19% 13% 17% 37% 42% 116% 102%
<FN>
- ----------
+ Does not reflect the deduction of sales load.
See Notes to Financial Statements
</TABLE>
4
<PAGE>
THE FUND AND ITS MANAGEMENT
===============================================================================
Dean Witter Tax-Exempt Securities Trust (the "Fund") is an open-end diversified
management investment company incorporated in Maryland on December 13, 1979.
The Fund reorganized as a trust of the type commonly known as a "Massachusetts
business trust" on April 30, 1987.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing a
broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services
Company Inc., serve in various investment management, advisory, management and
administrative capacities to a total of eighty-one investment companies,
twenty-nine of which are listed on the New York Stock Exchange, with combined
total net assets of approximately $69.2 billion as of December 31, 1993. The
Investment Manager also manages portfolios of pension plans, other institutions
and individuals which aggregated approximately $2.0 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by or under
the direction of the Investment Manager to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
As full compensation for the services and facilities furnished to the
Fund and for expenses of the Fund assumed by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily at an annual
rate of 0.50% of the daily net assets of the Fund up to $500 million, scaled
down at various asset levels to 0.325% on assets over $1.25 billion. For the
fiscal year ended December 31, 1993, the Fund accrued total compensation to the
Investment Manager amounting to 0.41% of the Fund's average daily net assets
and the Fund's total expenses amounted to 0.47% of the Fund's average daily net
assets.
INVESTMENT OBJECTIVES AND POLICIES
===============================================================================
The investment objective of the Fund is to provide a high level of current
income which is exempt from federal income tax, consistent with the
preservation of capital. There is no assurance that this objective will be
achieved. This objective is fundamental and may not be changed without
shareholder approval. The Fund seeks to achieve its investment objective by
investing its assets in accordance with the following policies:
1. At least 80% of the Fund's total assets will be invested in tax-
exempt securities, except as stated in paragraph (5) below. Tax-exempt
securities consist of Municipal Bonds and Municipal Notes ("Municipal
Obligations") and Municipal Commercial Paper.
2. At least 75% of the Fund's total assets will be invested in: (a)
Municipal Bonds which are rated at the time of purchase within the three
highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P"); (b) Municipal Notes which at the time of purchase
are rated in the two highest grades by Moody's or S&P, or, if not rated, have
outstanding one or more issues of Municipal Bonds rated as set forth in clause
(a) of this paragraph; and (c) Municipal Commercial Paper which at the time of
purchase are rated P-1 by Moody's and A-1 by S&P.
3. Up to 25% of the Fund's total assets may be invested in tax-exempt
securities which are not rated by Moody's or S&P or, if rated, are not within
the rating categories of Moody's or S&P stated in paragraph (2) above.
4. In accordance with the current position of the staff of the
Securities and Exchange Commission, tax-exempt securities which are subject to
the federal alternative minimum tax for individual shareholders will not be
included in the 80% total described in paragraph 1 above. (See "Dividends,
Distributions and Taxes," below.) As such, the remaining 20% of the Fund's
total assets may be invested in tax-exempt securities subject to the
alternative minimum tax.
5. Inclusive of paragraph 4 above, up to 20% of the Fund's total
assets may be invested in taxable money market instruments under any one or
more of the following circumstances: (a) pending investment of proceeds of sale
of Fund shares or of portfolio securities; (b) pending settlement of purchases
of portfolio securities; and (c) to maintain liquidity for the purpose of
meeting anticipated redemptions. In
5
<PAGE>
addition, the Fund may temporarily invest more than 20% of its total assets in
taxable securities, or in tax-exempt securities subject to the federal
alternative minimum tax for individual shareholders, to maintain a "defensive"
posture when, in the opinion of the Investment Manager, it is advisable to do
so because of market conditions. The types of taxable securities in which the
Fund may temporarily invest are limited to the following short-term fixed-
income securities (maturing in one year or less from the time of purchase): (i)
obligations of the United States Government, its agencies, instrumentalities or
authorities; (ii) commercial paper rated P-1 by Moody's or A-1 by S&P; (iii)
certificates of deposit of domestic banks with assets of $1 billion or more;
and (iv) repurchase agreements with respect to any of the foregoing portfolio
securities.
Municipal Obligations are debt obligations of states, cities,
municipalities and municipal agencies which generally have maturities, at the
time of their issuance, of either one year or more (Bonds) or from six months
to three years (Notes). Municipal Commercial Paper refers to short-term
obligations of municipalities. Any Municipal Obligation which depends directly
or indirectly on the credit of the Federal Government shall be considered to
have a rating of Aaa/AAA.
While the Fund may invest up to 25% of its total assets in Municipal
Obligations which are unrated or, if rated, are not within the three highest
Bond rating categories of Moody's or S&P or the two highest Note rating
categories of Moody's or S&P, the Fund does not intend to invest in Municipal
Bonds which are rated below either Baa by Moody's or BBB by S&P (the lowest
ratings considered investment grade) or, if not rated, are deemed by the
Investment Manager to be below investment grade, in amounts exceeding 5% of its
total assets. Investments in Municipal Bonds rated either Baa by Moody's or BBB
by S&P may have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken their capacity to
make principal and interest payments than would be the case with investments in
securities with higher credit ratings. Municipal Bonds rated below investment
grade may not currently be paying any interest and may have extremely poor
prospects of ever attaining any real investment standing.
The two principal classifications of Municipal Obligations and
Commercial Paper are "general obligation" and "revenue" obligations or
commercial paper. General obligation bonds, notes or commercial paper are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Issuers of general obligation bonds, notes
or commercial paper include a state, its counties, cities, towns and other
government units. Revenue bonds, notes or commercial paper are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from specific revenue sources. Revenue bonds, notes or commercial paper
are issued for a wide variety of purposes, including the financing of electric,
gas, water and sewer systems and other public utilities; industrial development
and pollution control facilities; single and multi-family housing units; public
buildings and facilities; air and marine ports; transportation facilities such
as toll roads, bridges and tunnels; and health and educational facilities such
as hospitals and dormitories. They rely primarily on user fees to pay debt
service, although the principal revenue source is often supplemented by
additional security features which are intended to enhance the creditworthiness
of the issuer's obligations. In some cases, particularly revenue bonds issued
to finance housing and public buildings, a direct or implied "moral obligation"
of a governmental unit may be pledged to the payment of debt service. In other
cases, a special tax or other charge may augment user fees.
Included within the revenue category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local governments issue lease
obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer) have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Lease obligations represent a relatively new type of financing that has
not yet developed the depth of marketability associated with more conventional
municipal obligations, and, as a result, certain of such lease obligations, may
be considered illiquid securities. To determine whether or not the Fund will
consider such securities to be illiquid (the Fund may not invest more than ten
percent of its net assets in illiquid securities), the Trustees of the Fund
have established guidelines to be utilized by the Fund in determining the
liquidity of a lease obligation. The factors to
6
<PAGE>
be considered in making the determination include: 1) the frequency of trades
and quoted prices for the obligation; 2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; 3)
the willingness of dealers to undertake to make a market in the security; and
4) the nature of the marketplace trades, including, the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of the
transfer.
The value of the Fund's portfolio securities and, therefore, the Fund's
net asset value per share, may increase or decrease due to various factors,
principally changes in prevailing interest rates and the ability of the issuers
of the Fund's portfolio securities to pay interest and principal on such
obligations on a timely basis. Generally, a rise in interest rates will result
in a decrease in the Fund's net asset value per share, while a drop in interest
rates will result in an increase in the Fund's net asset value per share.
The foregoing percentage and rating policies apply at the time of
acquisition of a security based on the last previous determination of the
Fund's net asset value. Any subsequent change in any rating by a rating service
or change in percentages resulting from market fluctuations or other changes in
the Fund's total assets will not require elimination of any security from the
Fund's portfolio until such time as the Investment Manager determines that it
is practicable to sell the security without undue market or tax consequences to
the Fund.
The ratings assigned by Moody's and S&P represent their opinions as to
the quality of the securities which they undertake to rate (see the Appendix to
the Statement of Additional Information). It should be emphasized, however,
that the ratings are general and not absolute standards of quality.
PORTFOLIO CHARACTERISTICS
Variable Rate Obligations. The interest rates payable on certain Municipal
Bonds and Municipal Notes are not fixed and may fluctuate based upon changes in
market rates. Municipal obligations of this type are called "variable rate"
obligations. The interest rate payable on a variable rate obligation is
adjusted either at predesignated periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based.
When-Issued and Delayed Delivery Securities. The Fund may purchase tax-exempt
securities on a when-issued or delayed delivery basis; i.e., delivery and
payment can take place a month or more after the date of the transaction. These
securities are subject to market fluctuation and no interest accrues to the
purchaser prior to settlement. At the time the Fund makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.
<PAGE>
HEDGING ACTIVITIES
The Fund may enter into financial futures contracts ("futures contracts"),
options on such futures and municipal bond index futures contracts for hedging
purposes.
Futures Contracts and Options on Futures. The Fund may invest in futures
contracts and related options thereon. The Fund may sell a futures contract or
a call option thereon or purchase a put option on such futures contract, if the
Investment Manager anticipates interest rates to rise, as a hedge against a
decrease in the value of the Fund's portfolio securities. If the Investment
Manager anticipates that interest rates will decline, the Fund may purchase a
futures contract or a call option thereon or sell a put option on such futures
contract, to protect against an increase in the price of the securities the
Fund intends to purchase. These futures contracts and related options thereon
will be used only as a hedge against anticipated interest rate changes. A
futures contract sale creates an obligation by the Fund, as seller, to deliver
the specific type of instrument called for in the contract at a specified
future time for a specified price. A futures contract purchase creates an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specified future time at a specified price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was effected.
Although the terms of futures contracts specify actual delivery or
receipt of securities, in most instances the contracts are closed out before
the settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract (a long
position in the case of a call option and a short position in the case of a put
option). If the holder decides not to enter into the contract, the premium paid
for the option on the contract is lost. Since the value of the option is fixed
at the point of sale, there are not daily payments of cash to reflect the
change in the value of the underlying contract as there are by a purchaser or
seller of a futures contract. The value of the option does change and is
reflected in the net asset value of the Fund.
7
<PAGE>
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject to
futures contracts may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities. The risk of imperfect correlation
may be increased by the fact that the Fund will invest in futures contracts on
taxable securities and there is no guarantee that the prices of taxable
securities will move in a similar manner to the prices of tax-exempt
securities. The correlation may be distorted by the fact that the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price objective and their cost of borrowed
funds. Such distortions are generally minor and would diminish as the contract
approached maturity.
Another risk is that the Fund's manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Fund sold futures contracts for the sale of securities in anticipation of an
increase in interest rates, and then interest rates went down instead, causing
bond prices to rise, the Fund would lose money on the sale.
In addition to the risks that apply to all options transactions (see
the Statement of Additional Information for a description of the
characteristics of, and the risks of investing in, options on debt securities),
there are several special risks relating to options on futures; in particular,
the ability to establish and close out positions on options on futures will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or be maintained.
Municipal Bond Index Futures. The Fund may utilize municipal bond index
futures contracts and options thereon for hedging purposes. The Fund's
strategies in employing such contracts will be similar to that discussed above
with respect to financial futures and options thereon. A municipal bond index
is a method of reflecting in a single number the market value of many different
municipal bonds and is designed to be representative of the municipal bond
market generally. The index fluctuates in response to changes in the market
values of the bonds included within the index. Unlike futures contracts on
particular financial instruments, transactions in futures on a municipal bond
index will be settled in cash, if held until the close of trading in the
contract. However, like any other futures contract, a position in the contract
may be closed out by purchase or sale of an offsetting contract for the same
delivery month prior to expiration of the contract.
The Fund may not enter into futures contracts or purchase related
options thereon if immediately thereafter the amount committed to margin plus
the amount paid for premiums for unexpired options on futures contracts exceeds
5% of the value of the Fund's total assets. The Fund may not purchase or sell
futures contracts or related options thereon if, immediately thereafter, more
than one-third of its net assets would be hedged.
PORTFOLIO MANAGEMENT
The Fund is actively managed by the Investment Manager with a view to achieving
the Fund's investment objective. In determining which securities to purchase
for the Fund or hold in the Fund's portfolio, the Investment Manager will rely
on information from various sources, including research, analysis and
appraisals of brokers and dealers, including Dean Witter Reynolds Inc. ("DWR"),
a broker-dealer affiliate of InterCapital, the views of Trustees of the Fund
and others regarding economic developments and interest rate trends, and the
Investment Manager's own analysis of factors it deems relevant. The Fund is
managed within InterCapital's Municipal Fixed Income Group, which manages 36
tax-exempt municipal funds and fund portfolios, with approximately $12 billion
in assets as of December 31, 1993. James F. Willison, Senior Vice President of
InterCapital and Manager of InterCapital's Municipal Fixed Income Group, has
been the primary portfolio manager of the Fund since its inception and has been
a portfolio manager at InterCapital for over five years.
Securities are purchased and sold principally in response to the
Investment Manager's current evaluation of an issuer's ability to meet its debt
obligations in the future, and the Investment Manager's current assessment of
future changes in the levels of interest rates on tax-exempt securities of
varying maturities. Securities purchased by the Fund are, generally, sold by
dealers acting as principal for their own accounts. Pursuant to an order of the
Securities and Exchange Commission, the Fund may effect principal transactions
in certain money market instruments with DWR. In addition, the Fund may incur
brokerage commissions on transactions conducted through DWR.
The portfolio trading engaged in by the Fund may result in its
portfolio turnover rate exceeding 100%. The Fund will incur underwriting
discount costs (on underwritten securities) commensurate with its portfolio
turnover rate. Additionally, see "Dividends, Distributions and Taxes" for a
discussion of the tax policy of the Fund. A more extensive discussion of the
Fund's portfolio brokerage policies is set forth in the Statement of Additional
Information.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as
such, may be changed without shareholder approval.
8
<PAGE>
INVESTMENT RESTRICTIONS
===============================================================================
The investment restrictions listed below are among the restrictions which have
been adopted by the Fund as fundamental policies. Under the Investment Company
Act of 1940, as amended (the "Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the
Fund, as defined in the Act.
For purposes of the following restrictions: (a) an "issuer" of a
security is the entity whose assets and revenues are committed to the payment
of interest and principal on that particular security, provided that the
guarantee of a security will be considered a separate security, and provided
further that a guarantee of a security shall not be deemed to be a security
issued by the guarantor if the value of all securities issued or guaranteed by
the guarantor and owned by the Fund does not exceed 10% of the value of the
total assets of the Fund; (b) a "taxable security" is any security the interest
on which is subject to federal income tax; and (c) all percentage limitations
apply immediately after a purchase or initial investment, and any subsequent
change in any applicable percentage resulting from market fluctuations or other
changes in the Fund's total assets does not require elimination of any security
from the portfolio.
The Fund may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding taxable debt securities or
any one issuer (other than obligations issued, or guaranteed as to principal
and interest, by the United States Government, its agencies or
instrumentalities).
3. Invest more than 25% of the value of its total assets in securities
of issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities or to cash equivalents (industrial development and pollution
control bonds are grouped into industries based upon the business in which the
issuers of such obligations are engaged).
4. Invest more than 5% of the value of its total assets in taxable
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or instrumentalities.
<PAGE>
PURCHASE OF FUND SHARES
===============================================================================
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers who have entered into agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is located
at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or
more may be made by sending a check, payable to Dean Witter Tax-Exempt
Securities Trust, directly to Dean Witter Trust Company (the "Transfer Agent")
at P.O. Box 1040, Jersey City, N.J. 07303 or by contacting a DWR or other
Selected Broker-Dealer account executive.
In the case of purchases made pursuant to systematic payroll deduction
plans (including individual retirement plans), the Fund, in its discretion, may
accept such purchases without regard to any minimum amounts which would
otherwise be required if the Fund has reason to believe that additional
purchases will increase the amount of the purchase of shares in all accounts
under such plans to at least $1,000. Certificates for shares purchased will not
be issued unless a request is made by the shareholder in writing to the
Transfer Agent. The offering price will be the net asset value per share next
determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
Sales Charge
----------------------------------
Percentage Approximate
of Percentage of
Amount of Public Amount
Single Transaction Offering Price Invested
------------------ -------------- -------------
<S> <C> <C>
Less than $25,000........................ 4.00% 4.17%
$25,000 but less than $50,000............ 3.50 3.65
$50,000 but less than $100,000........... 3.25 3.33
$100,000 but less than $250,000.......... 2.75 2.81
$250,000 but less than $500,000.......... 2.50 2.56
$500,000 but less than $1,000,000........ 1.75 1.78
$1,000,000 and over...................... 0.50 0.50
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow
up to the full applicable sales charge as shown in the above schedule during
periods specified in such
9
<PAGE>
notice. During periods when substantially the entire sales charge is reallowed,
such Selected Broker-Dealers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933, as amended.
The above schedule of sales charges is applicable to purchases in a
single transaction by, among others: (a) an individual; (b) an individual, his
or her spouse and their children under the age of 21 purchasing shares for his
or her own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-
sharing or other employee benefit plan qualified or non-qualified under Section
401 of the Internal Revenue Code; (e) tax-exempt organizations enumerated in
Section 501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit
plans qualified under Section 401 of the Internal Revenue Code of a single
employer or of employers who are "affiliated persons" of each other within the
meaning of Section 2(a)(3)(c) of the Act; or (g) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
Shares of the Fund are sold through the Distributor on a normal five
business day settlement basis; that is, payment generally is due on or before
the fifth business day (settlement date) after the order is placed with the
Distributor. Shares of the Fund purchased through the Distributor are entitled
to dividends beginning on the next business day following settlement date.
Since DWR and other Selected Broker-Dealers forward investors' funds on
settlement date, they will benefit from the temporary use of the funds where
payment is made prior thereto. Shares purchased through the Transfer Agent are
entitled to dividends beginning on the next business day following receipt of
an order. As noted above, orders placed directly with the Transfer Agent must
be accompanied by payment. Investors will be entitled to receive capital gains
distributions if their order is received by the close of business on the day
prior to the record date for such distributions. The Fund and/or the
Distributor reserve the right to reject any purchase order.
REDUCED SALES CHARGES
Combined Purchase Privilege. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of shares
of the Fund in single transactions with the purchase of shares of Dean Witter
High Yield Securities Inc. and of Dean Witter Funds which are sold with a
contingent deferred sales charge ("CDSC funds"). The sales charge payable on
the purchase of shares of the Fund and Dean Witter High Yield Securities Inc.
will be at their respective rates applicable to the total amount of the
combined concurrent purchases of the Fund, Dean Witter High Yield Securities
Inc. and CDSC funds.
Right of Accumulation. The above persons and entities may also benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of shares purchased in a single transaction,
together with shares previously purchased (including shares of Dean Witter High
Yield Securities Inc. and CDSC funds, and of certain Dean Witter funds acquired
in exchange for shares of such funds) which are held at the time of such
transaction, amounts to $25,000 or more.
The Distributor must be notified by DWR or other Selected Broker-Dealer
or the shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such an
order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Selected Broker-Dealer or the Transfer Agent fails to
confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will also be
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of shares of the Fund from DWR or
another Selected Broker-Dealer. The cost of shares of the Fund or shares of
Dean Witter High Yield Securities Inc. which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, or of shares of
other Dean Witter Funds acquired in exchange for shares of such funds acquired
during such period at a price including a front-end sales charge, which are
still owned by the shareholder, may also be included in determining the
applicable reduction.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time, on each day that the New York Stock Exchange is open by
taking the value of all assets of the Fund, subtracting its liabilities,
dividing by the number of shares outstanding and adjusting to the nearest cent.
The net asset value per share will not be determined on Good Friday and on such
other federal and non-federal holidays as are observed by the New York Stock
Exchange.
Portfolio securities (other than short-term taxable debt securities,
futures and options) are valued for the Fund by an outside independent pricing
service approved by the Fund's
10
<PAGE>
Trustees. The service utilizes a computerized grid matrix of tax-exempt
securities and evaluations by its staff in determining what it believes is the
fair value of the Fund's portfolio securities. The Board believes that timely
and reliable market quotations are generally not readily available to the Fund
for purposes of valuing tax-exempt securities and that the valuations supplied
by the pricing services are more likely to approximate the fair value of such
securities.
Short-term taxable debt securities with remaining maturities of 60 days
or less at time of purchase are valued at amortized cost, unless the Board
determines such does not reflect the securities' fair value, in which case
these securities will be valued at their market value as determined by the
Board of Trustees. Other taxable short-term debt securities with maturities of
more than 60 days will be valued on a mark to market basis until such time as
they reach a maturity of 60 days, whereupon they will be valued at amortized
cost using their value on the 61st day unless the Trustees determine such does
not reflect the securities' fair value, in which case these securities will be
valued at their fair market value as determined by the Board of Trustees.
Listed options on debt securities are valued at the latest sale price on the
exchange on which they are listed unless no sales of such options have taken
place that day, in which case, they will be valued at the mean between their
closing bid and asked prices. Unlisted options on debt securities are valued at
the mean between their latest bid and asked price. Futures are valued at the
latest sale price on the commodities exchange on which they trade unless the
Board of Trustees determines that such price does not reflect their fair value,
in which case they will be valued at their fair market value as determined by
the Board of Trustees. All other securities and other assets are valued at
their fair value as determined in good faith under procedures established by
and under the supervision of the Board of Trustees.
SHAREHOLDER SERVICES
===============================================================================
Automatic Investment of Dividends and Distributions. All income dividends and
capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid in cash. Each purchase of shares of the Fund is made
upon the condition that the Transfer Agent is thereby automatically appointed
as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid in shares of the Fund (or in cash if the shareholder so requests)
at the net asset value per share (without sales charge) on the monthly payment
date, which will be no later than the last business day of the month for which
the dividend or distribution is payable. Processing of dividend checks begins
immediately following the monthly payment date. Shareholders who have requested
to receive dividends in cash will normally receive their monthly dividend
checks during the first ten days of the following month.
EasyInvestSM. Shareholders may subscribe to EasyInvest, an automatic purchase
plan which provides for any amount from $100 to $5,000 to be transferred
automatically from a checking or savings account, on a semi-monthly, monthly or
quarterly basis, to the Transfer Agent for investment in shares of the Fund.
Systematic Withdrawal Plan. A withdrawal plan is available for shareholders
who own or purchase shares of the Fund having a minimum value of $10,000 based
upon the then current net asset value. The plan provides for monthly or
quarterly (March, June, September, December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis.
Withdrawal plan payments should not be considered as dividends, yields
or income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original investment
will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Systematic Withdrawal Plan, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charges applicable to
the purchase of additional shares.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege" allowing
the exchange of shares of the Fund for shares of other Dean Witter Funds sold
with a front-end (at time of purchase) sales charge ("FESC" funds), Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), five Dean
Witter Funds which are money market funds and Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Short-Term Bond Fund and Dean Witter Limited Term
Municipal Trust (the foregoing eight non-CDSC or FESC funds
11
<PAGE>
are hereinafter collectively referred to in this section as the "Exchange
Funds"). Exchanges may be made after the shares of the Fund acquired by
purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no holding period for exchanges of shares acquired by exchange
or dividend reinvestment. However, shares of CDSC funds, including shares
acquired in exchange for shares of FESC funds, may not be exchanged for shares
of FESC funds. Thus, shareholders who exchange their Fund shares for shares of
CDSC funds may subsequently exchange those shares for shares of other CDSC
funds or money market funds but may not reacquire FESC fund shares by exchange.
An exchange to another FESC fund, to a CDSC fund, or to any Exchange
Fund that is not a money market fund is on the basis of the next calculated net
asset value per share of each fund after the exchange order is received. When
exchanging into a money market fund from the Fund, shares of the Fund are
redeemed out of the Fund at their next calculated net asset value and the
proceeds of the redemption are used to purchase shares of the money market fund
at their net asset value determined the following business day. Subsequent
exchanges between any of the Exchange Funds, FESC funds and CDSC funds can be
effected on the same basis (except that CDSC fund shares may not be exchanged
for shares of FESC funds). Shares of a CDSC fund acquired in exchange for
shares of an FESC fund (or in exchange for shares of other Dean Witter Funds
for which shares of an FESC fund have been exchanged) are not subject to any
contingent deferred sales charge upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the best
interests of the Fund and its other shareholders, investors shoud be aware that
the Fund and each of the other Dean Witter Funds may in their discretion limit
or otherwise restrict the number of times this Exchange Privilege may be
exercised by any investor. Any such restriction will be made by the Fund on a
prospective basis only, upon notice to the shareholder not later than ten days
following such shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Dean Witter Funds for which shares of the Fund may be
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in their margin account.
The current prospectus for each fund describes its investment
objectives and policies, and shareholders should obtain one and read it
carefully before investing. Exchanges are subject to the minimum investment
requirement and other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until the share certificate(s) have been received by the Transfer Agent
and deposited in the shareholder's account. An exchange will be treated for
federal income tax purposes as a redemption or repurchase of shares, on which
the shareholder may realize a capital gain or loss. However, the ability to
deduct capital losses on an exchange is limited in situations where there is an
exchange of shares within ninety days after the shares are purchased. There are
also limits on the deduction of losses after the payment of exempt-interest
dividends for shares held for less than six months (see "Dividends,
Distributions and Taxes"). The Exchange Privilege is only available in states
where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of
record and its account numbers are part of the account information,
shareholders may initiate an exchange of shares of the Fund for shares of any
of the Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their DWR or other Selected
Broker-Dealer account executive (no Exchange Privilege Authorization Form is
required). Other shareholders (and those shareholders who are clients of DWR or
another Selected Broker-Dealer but who wish to make exchanges directly by
writing or telephoning the Transfer Agent) must complete and forward to the
Transfer Agent an Exchange Privilege Authorization form, copies of which may be
obtained from the Transfer Agent, to initiate an exchange. If the Authorization
Form is used, exchanges may be made by contacting the Transfer Agent at (800)
526-3143 (toll free). The Fund will employ reasonable procedures to confirm
that exchange instructions communicated over the telephone are genuine. Such
procedures may include requiring various forms of personal identification such
as name, mailing address, social security or other tax identification number
and DWR or other Selected Broker-Dealer account number (if any). Telephone
instructions may also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock
12
<PAGE>
Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request (see "Redemptions and Repurchases"). Shareholders are advised that
during periods of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although this has
not been the case with the Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
===============================================================================
Redemption. Shares of the Fund can be redeemed for cash at any time at the net
asset value per share next determined (without any redemption or other charge).
If shares are held in a shareholder's account without a share certificate, a
written request for redemption is required. If certificates are held by the
shareholder(s), the shares may be redeemed by surrendering the certificate(s)
with a written request for redemption, along with any additional information
required by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to repurchase
shares represented by a share certificate which is delivered to any of their
offices. Shares held in a shareholder's account without a share certificate may
also be repurchased by DWR and other Selected Broker-Dealers upon the
telephonic request of the shareholder. The repurchase price is the net asset
value next determined (see "Purchase of Fund Shares--Determination of Net Asset
Value") after such repurchase order is received by DWR or other Selected
Broker-Dealer. Payment for shares repurchased may be made by the Fund to the
Distributor for the account of the shareholder. The offers by DWR and other
Selected Broker-Dealers to repurchase shares from shareholders may be suspended
by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended at times
when normal trading is not taking place on the New York Stock Exchange. If the
shares to be redeemed have recently been purchased by check, payment of the
redemption proceeds may be delayed for the minimum time needed to verify that
the check used for investment has been honored (not more than fifteen days from
the time of investment of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her share redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within 30 days after the date of the redemption or repurchase, reinstate
any portion or all of the proceeds of such redemption or repurchase in shares
of the Fund at their net asset value (without a sales charge) next determined
after a reinstatement request, together with the proceeds, is received by the
Transfer Agent.
Involuntary Redemption. The Fund reserves the right, on sixty days notice, to
redeem at their net asset value, the shares of any shareholder whose shares
have a value of less than $100 as a result of redemptions or repurchases, or
such lesser amount as may be fixed by the Board of Trustees. However, before
the Fund redeems such shares and sends the proceeds to the shareholder, it
will notify the shareholder that the value of the shares is less than $100 and
allow the shareholder to make an additional investment in an amount which will
increase the value of the account to $100 or more before the redemption is
processed. No charge will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
===============================================================================
Dividends and Distributions. The Fund declares dividends from net investment
income on each day the New York Stock Exchange is open for business (see
"Purchase of Fund Shares"). Such dividends are paid monthly. The Fund intends
to distribute all of the Fund's net investment income on an annual basis.
The Fund will distribute at least once each year all net realized
short-term capital gains in excess of any realized net long-term capital
losses, if any. The Fund intends to distribute
13
<PAGE>
all of its realized net long-term capital gains, if any, in excess of any
realized net short-term capital losses and any available net capital loss
carryovers, at least once per fiscal year, although it may elect to retain all
or part of such gains for reinvestment. Taxable capital gains may be generated
by the sale of portfolio securities and by transactions in options and futures
contracts engaged in by the Fund. All dividends and capital gains distributions
will be paid in additional Fund shares (without sales charge) and automatically
credited to the shareholder's account without issuance of a share certificate
unless the shareholder requests in writing that all dividends be paid in cash
and such request is received by the close of business on the day prior to the
record date for such distributions (see "Shareholder Services--Automatic
Investment of Dividends and Distributions"). Any dividends declared in the last
quarter of any year which are paid in the following year prior to February 1
will be deemed received by the shareholder in the prior year.
Taxes. Because the Fund intends to distribute all of its net investment income
and capital gains to shareholders and intends to otherwise continue to qualify
as a regulated investment company under Subchapter M of the Internal Revenue
Code, it is not expected that the Fund will be required to pay any federal
income tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders by maintaining, as of the close of each quarter of its taxable
year, at least 50% of the value of its total assets in tax-exempt securities.
If the Fund satisfies such requirement, distributions from net investment
income to shareholders, whether taken in cash or reinvested in additional
shares, will be excludable from gross income for federal income tax purposes to
the extent net investment income is represented by interest on tax-exempt
securities. Exempt-interest dividends are included, however, in determining
what portion, if any, of a person's Social Security benefits are subject to
federal income tax. The Internal Revenue Code may subject interest received on
certain otherwise tax-exempt securities to an alternative minimum tax. This
alternative minimum tax may be incurred due to interest received on certain
"private activity bonds" (in general, bonds that benefit non-government
entities) issued after August 7, 1986 which, although tax-exempt, areused for
purposes other than those generally performed by government units (e.g., bonds
used for commercial or housing purposes). Income received on such bonds is
classified as a "tax preference item," under the alternative minimum tax, for
both individual and corporate investors. The Fund anticipates that a portion of
its investments will be made in such "private activity bonds," with the result
that a portion of the exempt-interest dividends paid by the Fund will be an
item of tax preference to shareholders subject to the alternative minimum tax.
In addition, certain corporations which are subject to the alternative minimum
tax may also have to include exempt-interest dividends in calculating their
alternative minimum taxable income in situations where the "adjusted current
earnings" of the corporation exceeds its alternative minimum taxable income.
Under the Revenue Reconciliation Act of 1993, all or a portion of the
Fund's gain from the sale or redemption of tax-exempt obligations purchased at
a market discount after April 30, 1993 will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders.
Within sixty days after the end of its fiscal year, the Fund will mail
to its shareholders a statement indicating the percentage of the dividend
distributions for such fiscal year which constitutes exempt-interest dividends
and the percentage, if any, that is taxable, and the percentage, if any, of the
exempt-interest dividends which constitutes an item of tax preference.
Shareholders will normally be subject to federal income tax on
dividends paid from interest income derived from taxable securities and on
distributions of net short-term capital gains, if any. Distributions of long-
term capital gains, if any, are taxable as long-term capital gains, regardless
of how long the shareholder has held the Fund shares and regardless of whether
the distribution is received in additional shares or in cash. To avoid being
subject to a 31% federal backup withholding tax on taxable dividends, capital
gains distributions and proceeds of redemptions or repurchases, shareholders'
taxpayer identification numbers must be furnished and certified as to accuracy.
Any loss on the sale or exchange of shares of the Fund which are held
for six months or less is disallowed to the extent of the amount of any exempt-
interest dividend paid with respect to such shares. Treasury Regulations may
provide for a reduction in such required holding periods. If a shareholder
receives a distribution that is taxed as a long-term capital gain on shares
held for six months or less and sells those shares at a loss, the loss will be
treated as a long-term capital loss.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of an investment company paying exempt-interest dividends, such as the
Fund, will not be deductible by the investor for federal income tax purposes.
The exemption of interest income for federal income tax purposes does
not necessarily result in exemption under the income or other tax laws of any
state or local taxing authority. Thus, shareholders of the Fund may be subject
to state and local taxes on exempt-interest dividends.
Shareholders should consult their tax advisers as to the applicability
of the above to their own tax situation.
14
<PAGE>
PERFORMANCE INFORMATION
===============================================================================
From time to time the Fund may quote its "yield" and/or its "total return" in
advertisements and sales literature. Both the yield and the total return of the
Fund are based on historical earnings and are not intended to indicate future
performance. The yield of the Fund is computed by dividing the Fund's net
investment income over a 30-day period by an average value (using the average
number of shares entitled to receive dividends and the maximum offering price
per share at the end of the period), all in accordance with applicable
regulatory requirements. Such amount is compounded for six months and then
annualized for a twelve-month period to derive the Fund's yield. The Fund may
also quote tax-equivalent yield, which is calculated by determining the pre-tax
yield which, after being taxed at a stated rate, would be equivalent to the
yield determined as described above.
The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment of $1,000 over periods of one, five and ten
years. Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets, all expenses incurred by the
Fund and all sales charges incurred by shareholders, for the stated periods. It
also assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return
over different periods of time by means of aggregate, average, year-by-year or
other types of total return figures. Such calculations may or may not reflect
the imposition of the front-end sales charge which, if reflected, would reduce
the performance quoted. The Fund may also advertise the growth of hypothetical
investments of $10,000, $50,000 or $100,000 in shares of the Fund by adding 1
to the Fund's aggregate total return to date and multiplying by $9,600, $48,375
or $97,250 ($10,000, $50,000 or $100,000 adjusted for 4.00%, 3.25% and 2.75%
sales charges, respectively). The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
ADDITIONAL INFORMATION
===============================================================================
Voting Rights. All shares of beneficial interest of the Fund are of $.01 par
value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that Fund obligations include such disclaimer, and provides for
indemnification and reimbursement of expenses out of the Fund's property for
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations. Given the above limitations on shareholder personal
liability and the nature of the Fund's assets and operations the possibility of
the Fund's being unable to meet its obligations is remote and, in the opinion
of Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Shareholder Inquiries. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
15
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DEAN WITTER
TAX-EXEMPT SECURITIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
110 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center,
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
