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Filed Pursuant to Rule 497(e)
Registration File No.: 2-66268
DEAN WITTER
TAX-EXEMPT SECURITIES TRUST
PROSPECTUS -- MARCH 26, 1997
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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 March 26, 1997, 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
on this page. The Statement of Additional Information is incorporated herein
by reference.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 3
The Fund and its Management ........................................... 4
Investment Objective and Policies ..................................... 4
Risk Considerations and Investment Practices ......................... 6
Investment Restrictions ............................................... 8
Purchase of Fund Shares ............................................... 9
Shareholder Services .................................................. 11
Redemptions and Repurchases ........................................... 13
Dividends, Distributions and Taxes .................................... 13
Performance Information ............................................... 14
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) 869-NEWS (TOLL-FREE)
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
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PROSPECTUS SUMMARY
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<CAPTION>
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business
Fund trust, and is an open-end, diversified management investment company
investing principally in investment grade, tax-exempt fixed-income securities
(see page 4).
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 15).
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Offering The price of the shares offered by this prospectus varies with the changes in
Price 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 pages
9-10).
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Minimum Minimum initial purchase is $1,000; ($100 if the account is opened through
Purchase EasyInvest (Service Mark) ); minimum subsequent purchase is $100 (see page
9).
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Investment The investment objective of the Fund is to provide a high level of current
Objective income exempt from federal income tax, consistent with the preservation of
capital (see page 4).
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the
Manager Fund, and its wholly-owned subsidiary, Dean Witter Services Company Inc.,
serve in various investment management, advisory, management and
administrative capacities to 102 investment companies and other portfolios
with assets of approximately $93 billion at February 28, 1997 (see page 4).
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Management The monthly fee is at an annual rate of 1/2 of 1% of average daily net
Fee assets, scaled down on assets over $500 million (see page 4).
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Dividends and Income dividends are declared daily and paid monthly; capital gains, if any,
Capital Gains may be distributed annually or retained for reinvestment by the Fund.
Distributions Dividends and distributions are automatically reinvested in additional shares
at net asset value (without sales charge), unless the shareholder elects to
receive cash (see pages 13-14).
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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 pages 9-10).
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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 or, if the account was opened through EasyInvest (Service Mark), if
after twelve months the shareholder has invested less than $1,000 in the
account. (see pages 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 6). 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).
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</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus and in the Statement of Additional Information.
2
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SUMMARY OF FUND EXPENSES
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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, 1996.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)..................................... 4.0%
Maximum Sales Charge Imposed on Reinvested Dividends...................... None
Deferred Sales............................................................ None
Redemption Fees........................................................... None
Exchange Fee.............................................................. None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee............................................................ 0.43%
Other Expenses............................................................ 0.05%
Total Fund Operating Expenses............................................. 0.48%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<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 $55 $66 $98
</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").
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
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.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ...................... $12.09 $11.01 $12.41 $11.88 $11.65
-------- -------- --------- -------- --------
Net investment income ........ 0.65 0.67 0.70 0.77 0.79
Net realized and unrealized
gain (loss) ................. (0.24) 1.19 (1.37) 0.54 0.23
-------- -------- --------- -------- --------
Total from investment
operations .................. 0.41 1.86 (0.67) 1.31 1.02
-------- -------- --------- -------- --------
Less dividends and
distributions from:
Net investment income ....... (0.65) (0.67) (0.70) (0.77) (0.79)
Net realized gain ........... (0.08) (0.11) (0.03) (0.01) --
-------- -------- --------- -------- --------
Total dividends and
distributions ............... (0.73) (0.78) (0.73) (0.78) (0.79)
-------- -------- --------- -------- --------
Net asset value, end of
period ...................... $11.77 $12.09 $11.01 $12.41 $11.88
======== ======== ========= ======== ========
TOTAL INVESTMENT RETURN+ .... 3.61% 17.37% (5.55)% 11.23% 9.09%
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................... 0.48% 0.48% 0.47% 0.47% 0.49%
Net investment income......... 5.52% 5.76% 6.02% 6.23% 6.74%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions ................. $1,190 $1,325 $1,295 $1,582 $1,323
Portfolio turnover rate ..... 18% 21% 16% 13% 4%
</TABLE>
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(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ...................... $11.09 $11.28 $10.96 $10.45 $11.50
-------- -------- -------- -------- ---------
Net investment income ........ 0.80 0.80 0.81 0.81 0.80
Net realized and unrealized
gain (loss) ................. 0.56 (0.18) 0.32 0.51 (0.97)
-------- -------- -------- -------- ---------
Total from investment
operations .................. 1.36 0.62 1.13 1.32 (0.17)
-------- -------- -------- -------- ---------
Less dividends and
distributions from:
Net investment income ....... (0.80) (0.81) (0.81) (0.81) (0.83)
Net realized gain ........... -- -- -- -- (0.05)
-------- -------- -------- -------- ---------
Total dividends and
distributions ............... (0.80) (0.81) (0.81) (0.81) (0.88)
-------- -------- -------- -------- ---------
Net asset value, end of
period ...................... $11.65 $11.09 $11.28 $10.96 $10.45
======== ======== ======== ======== =========
TOTAL INVESTMENT RETURN+ .... 12.71% 5.86% 10.61% 13.02% (1.44)%
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................... 0.51% 0.51% 0.51% 0.54% 0.52%
Net investment income......... 7.05% 7.25% 7.31% 7.51% 7.42%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions ................. $1,145 $1,010 $1,033 $908 $896
Portfolio turnover rate ..... 10% 19% 13% 17% 37%
</TABLE>
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+ Does not reflect the deduction of sales load. Calculated based on the net
asset value as of the last business day of the period.
3
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THE FUND AND ITS MANAGEMENT
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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 102 investment companies, 30 of which
are listed on the New York Stock Exchange, with combined total net assets of
approximately $89.8 billion as of February 28, 1997. The Investment Manager
also manages portfolios of pension plans, other institutions and individuals
which aggregated approximately $3.2 billion at such date.
On February 5, 1997, DWDC and Morgan Stanley Group Inc. announced that
they had entered into an Agreement and Plan of Merger, with the combined
company to be named Morgan Stanley, Dean Witter, Discover & Co. The business
of Morgan Stanley Group Inc. and its affiliated companies is providing a wide
range of financial services for sovereign governments, corporations,
institutions and individuals throughout the world. DWDC is the direct parent
of InterCapital and Dean Witter Distributors Inc., the Fund's distributor. It
is currently anticipated that the transaction will close in mid-1997.
Thereafter, InterCapital and Dean Witter Distributors Inc. will be direct
subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.
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 net assets over $1.25 billion. For
the fiscal year ended December 31, 1996, the Fund accrued total compensation
to the Investment Manager amounting to 0.43% of the Fund's average daily net
assets and the Fund's total expenses amounted to 0.48% of the Fund's average
daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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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 or 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,
4
<PAGE>
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 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. The Fund may purchase Municipal
Obligations which had originally been issued by the same issuer as two
separate series of the same issue with different interest rates, but which
are now linked together to form one series.
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
5
<PAGE>
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 type of financing that may not have 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 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 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.
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.
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.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased by
the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
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 Fund's yield will also vary based on the yield of the Fund's
portfolio securities.
6
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may enter into financial
futures contracts ("futures contracts"), options on such futures and
municipal bond index futures contracts for hedging purposes. 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.
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.
For a discussion of the risks of certain types of Municipal Obligations,
such as lease obligations, see above in "Investment Objective and Policies."
7
<PAGE>
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 Tax-Exempt Group, which manages 40
tax-exempt municipal funds and fund portfolios, with approximately $10.8
billion in assets as of February 28, 1997. James F. Willison, Senior Vice
President of InterCapital and Manager of InterCapital's Municipal Fixed
Income Group and Joseph R. Arcieri, Vice President of InterCapital and a
member of InterCapital's Municipal Fixed Income Group, have been the primary
portfolio co-managers of the Fund since its inception and February, 1997,
respectively, and have been portfolio managers 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.
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.
8
<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. The minimum initial purchase
in the case of investments through EasyInvest (Service Mark), an automatic
purchase plan (see "Shareholder Services"), is $100, provided that the
schedule of automatic investments will result in investments totalling at
least $1,000 within the first twelve months.
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 OF APPROXIMATE
AMOUNT OF PUBLIC PERCENTAGE OF
SINGLE TRANSACTION OFFERING PRICE AMOUNT INVESTED
- --------------------------------- -------------- ---------------
<S> <C> <C>
Less than $25,000................. 4.00% 4.17%
$25,000 but less than $50,000 .... 3.50 3.63
$50,000 but less than $100,000 ... 3.25 3.36
$100,000 but less than $250,000 .. 2.75 2.83
$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 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.
Sales personnel are compensated for selling shares of the Fund at the time
of their sale by the Distributor and/or Selected Broker-Dealer. In addition,
some sales personnel of the Selected Broker-Dealer will receive various types
of non-cash compensation as special sales incentives, including trips,
educational and/or business seminars and merchandise.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment generally is due on or before
the third 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.
9
<PAGE>
ANALOGOUS DEAN WITTER FUNDS. The Distributor and the Investment Manager serve
in the same capacities for Dean Witter National Municipal Trust, an open-end
investment company with investment objectives and policies similar to those
of the Fund. Unlike the Fund, however, shares of Dean Witter National
Municipal Trust are offered to the public at net asset value, with a
contingent deferred sales charge assessed upon redemptions within three years
of purchase, as well as an annual Rule 12b-1 distribution fee, rather than a
sales charge imposed at the time of purchase. These two Dean Witter Funds
have differing fees and expenses, which will affect performance. Investors
who would like to receive a prospectus for Dean Witter National Municipal
Trust should call the telephone numbers listed on the front cover of this
Prospectus, or may call their account executive for additional information.
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
(or, on days when the New York Stock Exchange closes prior to 4:00 p.m., at
such earlier time), 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 Trustees. The service may utilize 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' market value, in which case
these securities will be valued at their fair 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' market 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
10
<PAGE>
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, at the net asset value per share (without
sales charge), in shares of the Fund (or in cash if the shareholder so
requests) 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.
EASYINVEST (SERVICE MARK). 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 (see "Purchase of Fund Shares" and
"Redemptions and Repurchases--Involuntary Redemption").
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, Dean Witter Limited Term Municipal Trust, Dean Witter Balanced Income
Fund, Dean Witter Balanced Growth Fund and Dean Witter Intermediate Term U.S.
Treasury Trust (the foregoing eleven non-CDSC or FESC funds 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
11
<PAGE>
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) 869-NEWS (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 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.
12
<PAGE>
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, to gether with the proceeds, is received by
the Transfer Agent.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days notice, to
redeem at 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 or, in the case of an
account opened through EasyInvest, if after twelve months the shareholder has
invested less than $1,000 in the account. 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 the applicable amount
and allow the shareholder to make an additional investment in an amount which
will increase the value of the account to at least the applicable amount
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 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 calendar year which are paid in the following calendar
year prior to February 1 will be deemed received by the shareholder in the
prior calendar year.
13
<PAGE>
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, are used 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.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments will not be taxable to shareholders.
Shareholders should consult their tax advisers as to the applicability of
the above to their own tax situation.
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
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<PAGE>
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 share holder 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.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within 60 days of a sale or a sale
within 60 days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within 30 days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute
Advisory Group on Personal Investing.
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.
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DEAN WITTER
TAX-EXEMPT SECURITIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
James F. Willison
Vice President
Joseph R. Arcieri
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 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 LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
