<PAGE>
Filed Pursuant to Rule 497(b)
Registration File No.: 333-45688
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 23, 2001
TO THE SHAREHOLDERS OF MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST:
Notice is hereby given of a Special Meeting of the Shareholders of Morgan
Stanley Dean Witter Municipal Income Trust ("MIT"), to be held in the Career
Development Room, Sixty-First Floor, Two World Trade Center, New York, New York
10048, at 9:00 A.M., New York time, on January 23, 2001, and any adjournments
thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
August 24, 2000 (the "Reorganization Agreement"), between MIT and Morgan
Stanley Dean Witter Tax-Exempt Securities Trust ("Tax-Exempt"), pursuant to
which substantially all of the assets of MIT would be combined with those
of Tax-Exempt and shareholders of MIT would become shareholders of
Tax-Exempt receiving Class D shares of Tax-Exempt with a value equal to the
net asset value of their holdings in MIT (the "Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on October
26, 2000 are entitled to notice of, and to vote at, the Meeting. Please read the
Proxy Statement and Prospectus carefully before telling us, through your proxy
or in person, how you wish your shares to be voted. Alternatively, if you are
eligible to vote telephonically by touchtone telephone or electronically on the
Internet (as discussed in the enclosed Proxy Statement) you may do so in lieu of
attending the Meeting in person. THE BOARD OF TRUSTEES OF MIT RECOMMENDS YOU
VOTE IN FAVOR OF THE REORGANIZATION. WE URGE YOU TO SIGN, DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
November 9, 2000
--------------------------------------------------------------------------------
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY
IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. AS
DISCUSSED IN THE ENCLOSED PROXY STATEMENT, CERTAIN SHAREHOLDERS WILL BE ABLE
TO VOTE TELEPHONICALLY BY TOUCHTONE TELEPHONE OR ELECTRONICALLY ON THE
INTERNET BY FOLLOWING INSTRUCTIONS ON THEIR PROXY CARDS OR ON THE ENCLOSED
VOTING INFORMATION CARD.
--------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER
TAX-EXEMPT SECURITIES TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(800) 869-NEWS
ACQUISITION OF THE ASSETS OF
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
BY AND IN EXCHANGE FOR CLASS D SHARES OF
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
This Proxy Statement and Prospectus is being furnished to shareholders of
Morgan Stanley Dean Witter Municipal Income Trust ("MIT"), in connection with an
Agreement and Plan of Reorganization, dated August 24, 2000 (the "Reorganization
Agreement"), pursuant to which substantially all the assets of MIT, a closed-end
management investment company, will be combined with those of Morgan Stanley
Dean Witter Tax-Exempt Securities Trust ("Tax-Exempt"), an open-end management
investment company, in exchange for Class D shares of Tax-Exempt (the
"Reorganization"). As a result of this transaction, shareholders of MIT will
become shareholders of Tax-Exempt and will receive Class D shares of Tax-Exempt
with a value equal to the net asset value of their holdings in MIT. The terms
and conditions of this transaction are more fully described in this Proxy
Statement and Prospectus and in the Reorganization Agreement between MIT and
Tax-Exempt, attached hereto as Exhibit A. The address of MIT is that of
Tax-Exempt set forth above. This Proxy Statement also constitutes a Prospectus
of Tax-Exempt, which is dated November 8, 2000, filed by Tax-Exempt with the
Securities and Exchange Commission (the "Commission") as part of its
Registration Statement on Form N-14 (the "Registration Statement").
Tax-Exempt 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 preservation of capital. The fund seeks to
achieve its objective by investing at least 80% of its assets in securities that
pay interest exempt from federal income taxes.
This Proxy Statement and Prospectus sets forth concisely information about
Tax-Exempt that shareholders of MIT should know before voting on the
Reorganization Agreement. A copy of the Prospectus for Tax-Exempt dated February
24, 2000, is attached as Exhibit B and incorporated herein by reference. Also
enclosed and incorporated herein by reference is Tax-Exempt's Annual Report for
the fiscal year ended December 31, 1999 and the succeeding Semi-Annual Report
for the six months ended June 30, 2000. A Statement of Additional Information
relating to the Reorganization, described in this Proxy Statement and Prospectus
(the "Additional Statement"), dated November 8, 2000, has been filed with the
Commission and is also incorporated herein by reference. Also incorporated
herein by reference is MIT's Annual Report for its fiscal year ended August 31,
2000. Such documents are available without charge by calling (800) 869-NEWS
(TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED NOVEMBER 8, 2000.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ............................................................................ 1
General ............................................................................... 1
Record Date; Share Information ........................................................ 1
Proxies ............................................................................... 2
Expenses of Solicitation .............................................................. 2
Vote Required ......................................................................... 3
SYNOPSIS ................................................................................ 3
The Reorganization .................................................................... 3
Fee Table ............................................................................. 4
Tax Consequences of the Reorganization ................................................ 5
Reasons for the Reorganization ........................................................ 6
Comparison of MIT and Tax-Exempt ...................................................... 6
PRINCIPAL RISK FACTORS .................................................................. 8
THE REORGANIZATION ...................................................................... 9
The Proposal .......................................................................... 9
The Board's Consideration ............................................................. 10
The Reorganization Agreement .......................................................... 11
Tax Aspects of the Reorganization ..................................................... 12
Description of Shares of Tax-Exempt and MIT and the Organization of the Two Funds ..... 13
Capitalization Table (unaudited) ...................................................... 15
Appraisal Rights ...................................................................... 15
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS .......................... 16
Investment Objectives and Policies .................................................... 16
Investment Restrictions ............................................................... 19
ADDITIONAL MATTERS REGARDING MIT ........................................................ 20
History of Public Trading of MIT's Shares ............................................. 21
Investment Advisor .................................................................... 21
Portfolio Management .................................................................. 21
Expenses Borne by MIT ................................................................. 22
ADDITIONAL INFORMATION ABOUT MIT AND TAX-EXEMPT ......................................... 22
General ............................................................................... 22
Financial Information ................................................................. 23
Management ............................................................................ 23
Description of Securities and Shareholder Inquiries ................................... 23
Custodian and Transfer Agent and Dividend Paying Agent ................................ 23
Dividends, Distributions and Taxes .................................................... 23
Purchases, Repurchases and Redemptions ................................................ 23
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ............................................. 24
FINANCIAL STATEMENTS AND EXPERTS ........................................................ 24
LEGAL MATTERS ........................................................................... 24
AVAILABLE INFORMATION ................................................................... 24
OTHER BUSINESS .......................................................................... 25
Exhibit A - Agreement and Plan of Reorganization, dated August 24, 2000, by and between
MIT and Tax-Exempt ..................................................................... A-1
Exhibit B - Prospectus of Tax-Exempt dated February 24, 2000 ............................ B-1
Exhibit C - Description of Dividend Reinvestment Plan of MIT ............................ C-1
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
--------------------
PROXY STATEMENT AND PROSPECTUS
--------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 23, 2001
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of the Morgan Stanley Dean Witter Municipal Income Trust ("MIT"), a closed-end
diversified management investment company, in connection with the solicitation
by the Board of Trustees of MIT (the "Board") of proxies to be used at the
Special Meeting of Shareholders of MIT to be held in the Career Development
Room, Sixty-First Floor, Two World Trade Center, New York, New York 10048 at
9:00 A.M., New York time, on January 23, 2001, and any adjournments thereof (the
"Meeting"). It is expected that the mailing of this Proxy Statement and
Prospectus will be made on or about November 13, 2000.
At the Meeting, MIT shareholders ("Shareholders") will consider and vote
upon an Agreement and Plan of Reorganization, dated August 24, 2000 (the
"Reorganization Agreement"), between MIT and Morgan Stanley Dean Witter
Tax-Exempt Securities Trust ("Tax-Exempt") pursuant to which substantially all
of the assets of MIT will be combined with those of Tax-Exempt in exchange for
Class D shares of Tax-Exempt. As a result of this transaction, Shareholders will
become shareholders of Tax-Exempt and will receive Class D shares of Tax-Exempt
equal to the net asset value of their holdings in MIT on the closing date of
such transaction (the "Reorganization"). The Class D shares to be issued by
Tax-Exempt pursuant to the Reorganization (the "Tax-Exempt Shares") will be
issued at net asset value and will not be subject to any sales charge. Further
information relating to Tax-Exempt is set forth herein and in Tax-Exempt's
current Prospectus, dated February 24, 2000 ("Tax-Exempt's Prospectus"),
attached to this Proxy Statement and Prospectus and incorporated herein by
reference.
The information concerning MIT contained herein has been supplied by MIT
and the information concerning Tax-Exempt contained herein has been supplied by
Tax-Exempt.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on October 26, 2000 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were
27,577,114 shares of MIT issued and outstanding. There are no MIT shares held by
MIT. Shareholders on the Record Date are entitled to one vote per share on each
matter submitted to a vote at the Meeting. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, will constitute a quorum at
the Meeting.
1
<PAGE>
No persons were known to own of record or beneficially 5% or more of the
outstanding shares of MIT as of the Record Date although from time to time, the
number of shares held in "street name" accounts of various securities dealers
for the benefit of their clients or in centralized securities depositories may
exceed 5% of the total outstanding shares of MIT. As of the Record Date, the
trustees and officers of MIT, as a group, owned less than 1% of the outstanding
shares of MIT.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Tax-Exempt as of the Record Date:
Class A -- Mitteldorf Family TR, Harriet Mitteldorf TTEE, c/o Mike Tinkleru/A
10/30, 33 Beverly Ave., Lansdowne, PA 19050-2705 (22.6%). Class C -- Danilo F.
Piccinini & Lola Piccinini JT TEN, PO Box 5307, Incline Village, NV 89450-5307
(6.0%). As of the Record Date, the trustees and officers of Tax-Exempt, as a
group, owned less than 1% of the outstanding shares of Tax-Exempt.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special Meeting
of Shareholders, to be presented for consideration at the Meeting. However, the
proxy confers discretionary authority upon the persons named therein to vote as
they determine on other business, not currently contemplated, which may come
before the Meeting. Abstentions and, if applicable, broker "non-votes" will not
count as votes in favor of the Reorganization Agreement, and broker "non-votes"
will not be deemed to be present at the meeting for purposes of determining
whether the Reorganization Agreement has been approved. Broker "non-votes" are
shares held in street name for which the broker indicates that instructions have
not been received from the beneficial owners or other persons entitled to vote
and for which the broker does not have discretionary voting authority. If a
Shareholder executes and returns a proxy but fails to indicate how the votes
should be cast, the proxy will be voted in favor of the Reorganization
Agreement. The proxy may be revoked at any time prior to the voting thereof by:
(i) delivering written notice of revocation to the Secretary of MIT at Two World
Trade Center, New York, New York 10048; (ii) attending the Meeting and voting in
person; or (iii) completing and returning a new proxy (whether by mail or, as
discussed below, by touchtone telephone or the Internet) (if returned and
received in time to be voted). Attendance at the Meeting will not in and of
itself revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of MIT
present in person or by proxy at the Meeting. The persons named as proxies will
vote in favor of such adjournment those proxies which they are entitled to vote
in favor of the Reorganization Agreement and will vote against any such
adjournment those proxies required to be voted against the Reorganization
Agreement.
EXPENSES OF SOLICITATION
The expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, are expected to approximate
$130,000 and will be borne by MIT. MIT and Tax-Exempt will bear all of their
respective other expenses associated with the Reorganization. In addition to the
solicitation of proxies by mail, proxies may be solicited by officers of MIT,
and officers and regular employees of Morgan Stanley Dean Witter Advisors Inc.
("MSDW Advisors" or the "Investment Manager" or the "Investment Advisor") and
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), an affiliate of MSDW
Advisors, personally or by mail, telephone, telegraph or otherwise, without
compensation therefor. In addition, MIT may retain Mackenzie Partners, Inc. as
proxy solicitor, at a cost to MIT of approximately $7,500 plus reimbursement
2
<PAGE>
of reasonable expenses. Brokerage houses, banks and other fiduciaries may be
requested to forward soliciting material to the beneficial owners of shares and
to obtain authorization for the execution of proxies.
Shareholders whose shares are registered with MSDW Trust will be able to
vote their shares by touchtone telephone or by Internet by following the
instructions on the proxy card or on the Voting Information Card accompanying
this Proxy Statement and Prospectus. To vote by touchtone telephone,
Shareholders can call the toll-free number 1-800-690-6903. To vote by Internet,
Shareholders can access the websites www.msdwt.com or www.proxyvote.com.
Telephonic and Internet voting with MSDW Trust presently are not available to
Shareholders whose shares are held in street name.
In certain instances, MSDW Trust, an affiliate of MSDW Advisors, may call
Shareholders to ask if they would be willing to have their votes recorded by
telephone. The telephone voting procedure is designed to authenticate
Shareholders' identities, to allow Shareholders to authorize the voting of their
shares in accordance with their instructions and to confirm that their
instructions have been recorded properly. No recommendation will be made as to
how a Shareholder should vote on the Reorganization Agreement other than to
refer to the recommendation of the Board. MIT has been advised by counsel that
these procedures are consistent with the requirements of applicable law.
Shareholders voting by telephone in this manner will be asked for their social
security number or other identifying information and will be given an
opportunity to authorize proxies to vote their shares in accordance with their
instructions. To ensure that the Shareholders' instructions have been recorded
correctly, they will receive a confirmation of their instructions in the mail. A
special toll-free number set forth in the confirmation will be available in case
the information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and Prospectus and may vote by mail using the
enclosed proxy card or by touchtone telephone or the Internet as set forth
above. The last proxy vote received in time to be voted, whether by proxy card,
touchtone telephone or Internet, will be the vote that is counted and will
revoke all previous votes by the Shareholder.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of MIT
represented in person or by proxy and entitled to vote at the Meeting, provided
a quorum is present at the Meeting. If the Reorganization Agreement is not
approved by Shareholders, MIT will continue in existence and the Board will
consider alternative actions.
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and Reorganization Agreement in their
entirety and, in particular, Tax-Exempt's Prospectus, which is attached to this
Proxy Statement and incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially all
the assets of MIT, subject to stated liabilities, to Tax-Exempt in exchange for
the Tax-Exempt Shares. The aggregate net asset value of the Tax-Exempt Shares
issued in the exchange will equal the aggregate value of the net assets of MIT
received by Tax-Exempt. On or after the closing date of the Reorganization,
currently anticipated to be January 29, 2001, (the "Closing Date"), MIT will
distribute the Tax-Exempt Shares received by MIT to Shareholders as of the
3
<PAGE>
Valuation Date (as defined below under "The Reorganization Agreement") in
complete liquidation of MIT and MIT will thereafter be de-registered as an
investment company under the Investment Company Act of 1940 (the "1940 Act")
and dissolved under Massachusetts law. As a result of the Reorganization, each
Shareholder will receive that number of full and fractional Tax-Exempt Shares
equal in value to such Shareholder's pro rata interest in the net assets of MIT
transferred to Tax-Exempt. Accordingly, as a result of the Reorganization, each
Shareholder of MIT will become a holder of Class D shares of Tax-Exempt.
Shareholders holding their shares of MIT in certificate form will be asked to
surrender their certificates in connection with the Reorganization.
Shareholders who do not surrender their certificates prior to the Closing Date
will still receive their shares of Tax-Exempt; however, such Shareholders will
not be able to redeem, transfer or exchange the Tax-Exempt Shares received
until the old certificates have been surrendered. The Board has determined that
the interests of Shareholders will not be diluted as a result of the
Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF MIT ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED IN THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT"), HAS CONCLUDED THAT
THE REORGANIZATION IS IN THE BEST INTERESTS OF MIT AND ITS SHAREHOLDERS AND
RECOMMENDS APPROVAL OF THE REORGANIZATION AGREEMENT.
FEE TABLE
MIT and Tax-Exempt each pay a variety of expenses for management of their
assets, distribution of their shares (Tax-Exempt) and other services, and those
expenses are reflected in the net asset value per share of each fund. Class D
shares of Tax-Exempt do not pay distribution-related fees; however, the other
three Classes offered by Tax-Exempt pay fees for the distribution of their
shares. The following table briefly describes the fees and expenses that a
shareholder of MIT and a Class D shareholder of Tax-Exempt may pay if they buy
and hold shares of each respective fund. These expenses are deducted from each
respective fund's assets and are based on expenses paid by MIT for its fiscal
year ended August 31, 2000 and on expenses paid by Class D shares of Tax-Exempt
for its fiscal year ended December 31, 1999. The table also sets forth pro forma
fees for the surviving combined fund (Tax-Exempt) reflecting what the fee
schedule would have been on June 30, 2000, if the Reorganization had been
consummated twelve (12) months prior to that date and assuming Class D fees and
expenses.
Shareholder Fees
----------------
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
TAX-EXEMPT TAX-EXEMPT
MIT (CLASS D) (CLASS D)
--------- ------------ -----------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE) none(1) none none
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED
DIVIDENDS none none none
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (LOAD) (AS A
PERCENTAGE OF THE LESSER OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PROCEEDS) none none none
REDEMPTION FEES none(1) none none
EXCHANGE FEE none none none
</TABLE>
----------
(1) Purchases and sales of MIT are made on the New York Stock Exchange or
otherwise through brokers and dealers and are generally subject to
brokerage commissions which vary. Customarily, such commissions may
depend upon the size of the transaction, the broker selected and other
factors.
4
<PAGE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
TAX-EXEMPT TAX-EXEMPT
MIT (CLASS D) (CLASS D)
--------------- -------------- -----------
<S> <C> <C> <C>
MANAGEMENT FEES 0.54%(2) 0.44% 0.43%
DISTRIBUTION AND SERVICE (12B-1) FEES none none none
OTHER EXPENSES 0.11% 0.07% 0.07%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.65% 0.51% 0.50%
</TABLE>
----------
(2) The Management Fees shown for MIT reflect both the advisory and
administration fees paid by MIT under its Investment Advisory Agreement
with MSDW Advisors and its Administration Agreement with Morgan Stanley
Dean Witter Services Company Inc., respectively. The combined services
provided to MIT under these two agreements are comparable to the services
provided to Tax-Exempt under its Investment Management Agreement with
MSDW Advisors. For more information, please see "Synopsis -- Comparison
of MIT and Tax-Exempt -- Investment Management and Administration Fees."
EXAMPLE
To attempt to show the effect of these expenses on an investment over time,
the hypotheticals shown below have been created. The Example assumes that an
investor invests $10,000 in either MIT or Class D shares of Tax-Exempt or the
new combined fund (Tax-Exempt), that the investment has a 5% return each year
and that the operating expenses for each fund remain the same (as set forth in
the chart above). Although a shareholder's actual costs may be higher or lower,
the tables below show a shareholder's costs at the end of each period based on
these assumptions.
Expenses Over Time:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
MIT ................................................. $66 $208 $362 $810
Tax-Exempt (Class D) ................................ $52 $164 $285 $640
Pro Forma Combined -- Tax-Exempt (Class D) .......... $51 $160 $280 $628
</TABLE>
The purpose of the foregoing fee table is to assist the investor or
shareholder in understanding the various costs and expenses that an investor or
shareholder in the fund will bear directly or indirectly. For a more complete
description of these costs and expenses, see "Comparison of MIT and Tax-Exempt
-- Investment Management and Administration Fees, Other Significant Fees, and
Purchases, Exchanges and Redemptions" below.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, MIT and Tax-Exempt, will receive an
opinion of Mayer, Brown & Platt to the effect that the Reorganization will
constitute a tax-free reorganization for federal income tax purposes, and that
no gain or loss will be recognized by MIT or the shareholders of MIT for
federal income tax purposes as a result of the transactions included in the
Reorganization. For further information about the tax consequences of the
Reorganization, see "The Reorganization -- Tax Aspects of the Reorganization"
below.
5
<PAGE>
REASONS FOR THE REORGANIZATION
MIT is a closed-end fund that has traded on the New York Stock Exchange
("NYSE") at a discount to net asset value for the past six years. For more
information, see "Additional Matters Regarding MIT -- History of Public Trading
of MIT's Shares" below. The Board of MIT has, in the past, considered a number
of options in attempting to reduce or eliminate the discount, including share
repurchases and the use of tender offers. For a number of years, the Board has
authorized a share repurchase program to repurchase shares of MIT in the
open-market in order to support the price of the fund's shares. The Board has
concluded that currently, the Reorganization is an appropriate course for
Shareholders of MIT to realize the net asset value of their shares as well as
other benefits offered by the Reorganization. For further information on the
reasons for the Board's decision, see "The Reorganization -- The Board's
Consideration," set forth below.
COMPARISON OF MIT AND TAX-EXEMPT
INVESTMENT OBJECTIVES AND POLICIES. MIT and Tax-Exempt have similar
investment objectives. As its investment objective, MIT seeks to provide
current income exempt from federal income tax. Tax-Exempt has an investment
objective of seeking to provide a high level of current income exempt from
federal income tax, consistent with preservation of capital. The respective
investment objectives of MIT and Tax-Exempt are fundamental and may not be
changed without respective shareholder approval.
Tax-Exempt seeks to achieve its investment objective by investing at least
80% of its total assets in securities that pay interest exempt from federal
income taxes, i.e., municipal obligations. Likewise, MIT seeks to achieve its
investment objective by investing at least 80% of its net assets in municipal
obligations. Income dividend distributions of Tax-Exempt and MIT, to the extent
derived from municipal obligations, are normally exempt from federal income
taxes, however, all, or a portion of, MIT's investments in municipal
obligations may be subject to the alternative minimum tax for certain
investors. Under normal circumstances, Tax-Exempt has a 20% limit on
investments in municipal obligations subject to the alternative minimum tax.
Other than as set forth above, the investment policies of MIT and
Tax-Exempt are substantially similar; the principal differences between them
are described under "Comparison of Investment Objectives, Policies and
Restrictions" below.
INVESTMENT MANAGEMENT AND ADMINISTRATION FEES. Pursuant to an Investment
Advisory Agreement, MIT's investment adviser, MSDW Advisors, manages MIT's
assets, including placing orders for the purchase and sale of portfolio
securities. MSDW Advisors obtains and evaluates such information and advice
relating to the economy, securities markets and securities as it deems
necessary or useful to manage the assets of MIT in a manner consistent with its
objective and policies. As compensation for advisory services provided to MIT,
MIT pays MSDW Advisors an advisory fee, calculated weekly and payable monthly,
by applying the following annual rates to the fund's weekly net assets: 0.35%
to the portion of the fund's weekly net assets not exceeding $250 million and
0.25% to the portion of the fund's weekly net assets exceeding $250 million.
Pursuant to an Administration Agreement, MIT has retained Morgan Stanley Dean
Witter Services Company Inc. ("MSDW Services"), a wholly owned subsidiary of
MSDW Advisors, to serve as Administrator for MIT. Under that agreement, MSDW
Services provides MIT with certain administrative and/or bookkeeping services.
As compensation for such services, MIT pays MSDW Services a fee, calculated
weekly and payable monthly, by applying the following annual rates to the
fund's weekly net assets: 0.20% to the portion of the fund's weekly net assets
not exceeding $250 million; 0.15% to the portion of the fund's weekly net
assets exceeding $250 million but not exceeding $500 million; 0.12% to the
portion of the fund's weekly net assets exceeding $500 million but not
exceeding $750 million; and 0.10% to the portion of the fund's weekly net
assets exceeding $750 million. The services provided to MIT under both the
Investment Advisory Agreement and the Administration Agreement are comparable
to those provided by MSDW Advisors to Tax-Exempt under its Investment
6
<PAGE>
Management Agreement with MSDW Advisors. Pursuant to that agreement, Tax-Exempt
pays MSDW Advisors, monthly compensation calculated daily by applying the
following annual rates to the average daily net assets of the fund: 0.50% of
the portion of the daily net assets not exceeding $500 million; 0.425% of the
portion of the daily net assets exceeding $500 million but not exceeding $750
million; 0.375% of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.35% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.25 billion; and 0.325% of the portion
of the daily net assets exceeding $1.25 billion. Each class of shares of
Tax-Exempt is subject to the same management fee rates.
MIT is a closed-end investment company and therefore does not have a
distribution plan pursuant to Rule 12b-1 under the 1940 Act ("12b-1 Plan").
Tax-Exempt has adopted a 12b-1 Plan for the distribution of its shares,
however, there are no 12b-1 fees applicable to Tax-Exempt's Class D shares. For
information relating to the 12b-1 fees applicable to Tax-Exempt's Class A, B
and C shares, see the section entitled "Share Class Arrangements" in
Tax-Exempt's Prospectus, attached hereto.
OTHER SIGNIFICANT FEES. Both MIT and Tax-Exempt pay additional fees in
connection with their operations, including legal, auditing, transfer agent,
trustees fees and custodial fees and, in the case of MIT, listing fees for the
listing of its shares on the NYSE. See "Synopsis -- Fee Table" above for the
percentage of average net assets represented by such "Other Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Class D shares of Tax-Exempt are
currently offered at net asset value and such shares may be redeemed for cash
without redemption or other charge at the net asset value per share next
determined. Normally, Class D shares of Tax-Exempt are offered only to a
limited group of investors. Subsequent to the Reorganization, all MIT shares
will be designated Class D shares of Tax-Exempt. However, additional
investments (except for reinvestment of distributions received on shares
acquired as a result of the Reorganization) in Class D shares of Tax-Exempt (or
in Class D shares of any other Morgan Stanley Dean Witter Fund) by Shareholders
holding such shares may only be made if those Shareholders are otherwise
eligible to purchase Class D shares. Class D shares acquired in the
Reorganization may, however, be exchanged for Class D shares of another Morgan
Stanley Dean Witter Fund pursuant to Class D's exchange privileges discussed
below.
Tax-Exempt offers four classes of shares (Class A, Class B, Class C and
Class D) which differ principally in terms of sales charges, distribution and
service fees, and ongoing expenses. For further information relating to each of
the classes of Tax-Exempt's shares, see the section entitled "Share Class
Arrangements" in Tax-Exempt's Prospectus attached hereto.
Class D shares of Tax-Exempt that are held with a broker-dealer that has
entered into a selected dealer agreement with Tax-Exempt's distributor (or
shares held directly with Tax-Exempt's transfer agent) may be exchanged for
Class D shares of any other Morgan Stanley Dean Witter Fund that offers its
shares in more than one class, or any of Morgan Stanley Dean Witter Short-Term
U.S. Treasury Trust, Morgan Stanley Dean Witter North American Government
Income Trust, Morgan Stanley Dean Witter Limited Term Municipal Trust, Morgan
Stanley Dean Witter Short-Term Bond Fund and the five Morgan Stanley Dean
Witter Funds that are money market funds (the foregoing funds are collectively
referred to as the "Exchange Funds"), without the imposition of an exchange
fee. Exchange privileges will not be available to Shareholders who hold
Tax-Exempt shares with broker-dealers that have not entered into a selected
dealer agreement with Tax-Exempt's distributor.
Tax-Exempt shareholders may redeem their Tax-Exempt shares on any business
day at the net asset value of such shares. Tax-Exempt provides telephone
exchange privileges to its shareholders. For greater details relating to
exchange privileges applicable to Tax-Exempt, see the section entitled "How to
Exchange Shares" in Tax-Exempt's Prospectus.
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Tax-Exempt may redeem involuntarily, at net asset value, most accounts
valued at less than $100. However, Tax-Exempt offers a reinstatement privilege
whereby a shareholder who has not previously exercised such privilege whose
shares have been redeemed or repurchased may, within thirty-five days after the
date of redemption or repurchase, reinstate any portion or all of the proceeds
thereof in shares of the same class from which such shares were redeemed or
repurchased.
Unlike Tax-Exempt, MIT is a closed-end investment company and does not
redeem its shares or engage in the continuous offering of new shares in the
same manner as an open-end investment company and does not offer to exchange
its shares for shares of other investment companies. Shares of MIT are only
purchased and sold on the NYSE.
DIVIDENDS. Tax-Exempt declares income dividends daily and pays dividends
from net investment income monthly; MIT declares and pays dividends from net
investment income monthly. Tax-Exempt usually distributes net capital gains, if
any, in June and December and MIT distributes all of its net realized
short-term and long-term capital gains at least once per year. Each, however,
may determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment. With respect to
Tax-Exempt, dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless the shareholder
elects to receive cash. All persons who become registered holders of MIT are
automatically included in MIT's automatic dividend reinvestment plan unless
they elect to receive distributions in cash. Under that plan, Shareholders'
dividends are automatically reinvested in shares of MIT at the then-current
market price of such shares. For more information on MIT's dividend
reinvestment plan, see Exhibit C to this Proxy Statement and Prospectus. As
discussed above, Tax-Exempt's and MIT's income dividend distributions to
shareholders are generally exempt from federal income taxes.
PRINCIPAL RISK FACTORS
The share price or net asset value of Tax-Exempt and the market price per
share of MIT on the NYSE as well as MIT's net asset value will fluctuate with
changes in the market value of their respective portfolio securities. The
market value of the funds' portfolio securities will increase or decrease due
to a variety of economic, market and political factors, including changes in
prevailing interest rates, which cannot be predicted. The principal risks of an
investment in either Tax-Exempt or MIT are the risks associated with their
respective fixed-income securities which primarily consist of municipal
obligations. Fixed income securities are subject to two types of risks: credit
risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security will
be unable or unwilling to make interest payments and/or repay the principal on
its debt. In the case of certain municipal obligations known as revenue bonds,
the credit risk refers to the possibility that the user fees from a project or
specified revenue source are insufficient to meet interest and/or principal
payment obligations or the credit impairment of the user. Interest rate risk
refers to fluctuations in the value of a fixed-income security resulting from
changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most fixed-income securities go down.
When the general level of interest rates goes down, the prices of most
fixed-income securities go up.
MIT may invest up to 35% of its assets in municipal obligations rated
below investment grade (i.e., junk bonds), and it may invest without limitation
in municipal obligations rated in the lowest investment grade category.
Tax-Exempt may invest in such lower rated obligations to a significantly
limited extent (e.g., the fund may only invest up to 5% of its assets in junk
bonds). Lower rated obligations are generally subject to increased credit and
interest rate risk and thus have speculative characteristics. As a result,
these securities are generally more volatile and less liquid than higher rated
securities.
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Both Tax-Exempt and MIT may invest a portion of their respective assets in
inverse floating rate municipal obligations which are obligations that are
typically created through a division of a fixed rate municipal obligation into
two separate instruments, a short-term obligation and a long-term obligation.
The interest rates on inverse floating rate municipal obligations generally
move in the reverse direction of market interest rates. The interest rate on
the short-term obligation is set at periodic auctions. The interest rate on the
long-term obligation is the rate the issuer would have paid on the fixed-income
obligation: (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. Inverse floating rate municipal obligations offer
the potential for higher income than is available from fixed rate obligations
of comparable maturity and credit rating but they also carry greater risks. In
particular, the prices of inverse floating rate municipal obligations are more
volatile, i.e., they increase and decrease in response to changes in interest
rates to a greater extent than comparable fixed rate obligations.
Certain of the municipal obligations that Tax-Exempt and MIT may invest in
will be covered by insurance at the time of issuance or at a later date. Such
insurance covers the remaining term of the security. Insured municipal
obligations would generally be assigned a lower rating if the rating were based
primarily on the credit quality of the issuer without regard to the insurance
feature. If the claims-paying ability of the insurer were downgraded, the
ratings on the municipal obligations it insures may also be downgraded.
Both Tax-Exempt and MIT may invest in municipal lease obligations which
are obligations issued by state and local agencies or authorities to finance
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, in part,
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 that 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 these legislative appropriations do not occur,
holders of such municipal lease obligations may experience difficulty
exercising their rights, including disposition of the property.
Both Tax-Exempt and MIT may also invest in futures obligations which are
considered speculative in nature and involve certain risks.
The foregoing discussion is a summary of the principal risk factors of MIT
and Tax-Exempt. For a more complete discussion of the risks of Tax-Exempt, see
"Principal Risks" and "Additional Risk Information" in Tax-Exempt's Prospectus
attached hereto and incorporated herein by reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of MIT, including the Independent Trustees, having
reviewed the financial position of MIT, the ability of Shareholders of MIT to
realize the net asset value of their shares and the prospects for achieving
economies of scale through the Reorganization and having determined that the
Reorganization is in the best interests of MIT and its Shareholders and that
the interests of MIT's Shareholders will not be diluted as a result thereof,
recommends approval of the Reorganization by Shareholders of MIT.
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THE BOARD'S CONSIDERATION
At a meeting held on August 24, 2000, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that MIT Shareholders approve the Reorganization
Agreement. In reaching this decision, the Board made an extensive inquiry into
a number of factors, particularly the elimination of the current market
discount of MIT shares, the effect on Shareholders of "open-ending" MIT
including, for example, the potential impact of redemptions on portfolio
management, and the comparative expense ratios of MIT and the Class D shares of
Tax-Exempt. The Board also considered other factors, including, but not limited
to: comparable investment objectives, policies, restrictions and portfolios of
MIT and Tax-Exempt; the terms and conditions of the Reorganization which would
affect the price of shares to be issued in the Reorganization; the tax-free
nature of the Reorganization; and any direct or indirect costs to be incurred
by MIT and Tax-Exempt in connection with the Reorganization.
In recommending the Reorganization to Shareholders, the Board of MIT
considered that the Reorganization would have the following benefits to
Shareholders:
1. MIT, since January of 1994, has generally traded at a discount to its
net asset value and is, as of the date of this Proxy Statement and Prospectus,
trading at a discount. The Reorganization at net asset value would benefit the
Shareholders of MIT by immediately eliminating any such discount. See
"Additional Matters Regarding MIT -- History of Public Trading of MIT's Shares"
below.
2. Once the Reorganization is consummated, the expenses which would be
borne by Class D shareholders of the "combined fund" are expected to be
significantly lower on a percentage basis than the expenses per share of MIT.
This is partially attributable to the fact that Tax-Exempt's investment
management fee rate (0.44% of its net assets) was appreciably lower for its
last fiscal year than MIT's combined advisory/administration fee rate (0.54%)
paid for its last fiscal year. (As noted earlier, MIT pays separate advisory
and administration fees under two agreements for services comparable to those
provided under Tax-Exempt's single Investment Management Agreement.)
Furthermore, the rate of other expenses paid by Class D of the surviving
Tax-Exempt (0.07% of average daily net assets) for its last fiscal year was
lower than the rate of other expenses paid by MIT (0.11% of average daily net
assets) for its last fiscal year. In addition, to the extent that the
Reorganization would result in Shareholders becoming shareholders of a combined
larger fund, further economies of scale could be achieved since various fixed
expenses (e.g., auditing and legal) can be spread over a larger number of
shares. The Board noted that the expense ratio for MIT (0.65% for its fiscal
year ended August 31, 2000) was materially higher than the expense ratio for
Class D shares of Tax-Exempt (0.51% for its fiscal year ended December 31,
1999).
3. Shareholders of MIT would have a continued participation in a portfolio
of municipal obligations normally exempt from federal income tax.
4. Shareholders would have the ability to exchange their Class D shares of
Tax-Exempt acquired as a result of the Reorganization into Class D shares of
any Morgan Stanley Dean Witter Multi-Class Fund without the imposition of any
sales charge or additional fees. The Board noted, however, that exchange
privileges will not be available to Shareholders who hold Tax-Exempt shares
with broker-dealers that have not entered into a selected dealer agreement with
Tax-Exempt's distributor. MIT, being a closed-end fund, does not offer any
exchange privileges.
5. The Reorganization is intended to qualify as a tax-free reorganization
for federal income tax purposes, pursuant to which no gain or loss will be
recognized by MIT or its Shareholders for Federal income tax purposes as a
result of transactions included in the Reorganization.
The Board of Trustees of Tax-Exempt, including a majority of the
Independent Trustees of Tax-Exempt, also have determined that the
Reorganization is in the best interests of Tax-Exempt and its shareholders and
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that the interests of existing shareholders of Tax-Exempt will not be diluted
as a result thereof. The transaction will enable Tax-Exempt to acquire
investment securities which are consistent with Tax-Exempt's investment
objective, without the costs attendant to the purchase of such securities in
the market. Also, the addition of MIT's assets to Tax-Exempt's portfolio may
result in a further reduction in Tax-Exempt's investment management fee
resulting from the addition of more assets at a lower breakpoint rate in the
management fee schedule and may result also in the economies of scale described
above. Finally, the Board considered that even if the benefits enumerated above
are not realized, the costs to the Fund are sufficiently minor to warrant
taking the opportunity to realize those benefits.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) MIT will transfer all of
its assets, including portfolio securities, cash (other than cash amounts
retained by MIT as a "Cash Reserve" in the amount sufficient to discharge its
liabilities not discharged prior to the Valuation Date (as defined below) and
for expenses of the dissolution), cash equivalents and receivables to
Tax-Exempt on the Closing Date in exchange for the assumption by Tax-Exempt of
stated liabilities of MIT, including all expenses, costs, charges and reserves,
as reflected on an unaudited statement of assets and liabilities of MIT
prepared by the Treasurer of MIT, as of the Valuation Date (as defined below)
in accordance with generally accepted accounting principles consistently
applied from the prior audited period, and the delivery of the Tax-Exempt
Shares; (ii) such Tax-Exempt Shares would be distributed to Shareholders on the
Closing Date or as soon as practicable thereafter; (iii) MIT would be
de-registered as an investment company under the 1940 Act; (iv) MIT would be
dissolved as a Massachusetts business trust; and (v) the outstanding shares of
MIT would be canceled.
The number of Tax-Exempt Shares to be delivered to MIT will be determined
by dividing the aggregate net asset value of the shares of MIT acquired by
Tax-Exempt by the net asset value per share of the Class D shares of
Tax-Exempt; these values will be calculated as of the close of business of the
New York Stock Exchange on the third business day following the receipt of the
requisite approval by Shareholders of the Reorganization Agreement or at such
other time as MIT and Tax-Exempt may agree (the "Valuation Date"). As an
illustration, assume that on the Valuation Date, the shares of MIT had an
aggregate net asset value (not including any Cash Reserve of MIT) of $100,000.
If the net asset value per Class D share of Tax-Exempt were $10 per share at
the close of business on the Valuation Date, the number of Class D shares of
Tax-Exempt to be issued would be 10,000 ($100,000 (divided by) $10). These
10,000 Class D shares of of Tax-Exempt would be distributed to the former
shareholders of MIT. This example is given for illustration purposes only and
does not bear any relationship to the dollar amounts or shares expected to be
involved in the Reorganization.
On the Closing Date or as soon as practicable thereafter, MIT will
distribute pro rata to its Shareholders of record as of the close of business
on the Valuation Date, the Tax-Exempt Shares it receives. Each Shareholder will
receive Class D shares of Tax-Exempt that corresponds to the shares of MIT
currently held by that Shareholder. Tax-Exempt will cause its transfer agent to
credit and confirm an appropriate number of Tax-Exempt Shares to each
Shareholder. Certificates for Tax-Exempt Shares will be issued only upon
written request of a Shareholder and only for whole shares, with fractional
shares credited to the name of the Shareholder on the books of Tax-Exempt.
Shareholders who wish to receive certificates representing their Tax-Exempt
Shares must, after receipt of their confirmations, make a written request to
Tax-Exempt's transfer agent Morgan Stanley Dean Witter Trust FSB, Harborside
Financial Center, Jersey City, New Jersey 07311. Shareholders of MIT holding
their shares in certificate form will be asked to surrender such certificates
in
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connection with the Reorganization. Shareholders who do not surrender their
certificates prior to the Closing Date will still receive their shares of
Tax-Exempt; however, such Shareholders will not be able to redeem, transfer or
exchange the Tax-Exempt Shares received until the old certificates have been
surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval of
the Reorganization by the Shareholders and the receipt of the other opinions
and certificates set forth in Sections 6, 7 and 8 of the Reorganization
Agreement and the occurrence of the events described in those Sections, certain
of which may be waived by MIT or Tax-Exempt. The Reorganization Agreement may
be amended in any mutually agreeable manner. All expenses of this solicitation,
including the cost of preparing and mailing this Proxy Statement and
Prospectus, will be borne, as set forth in this Proxy Statement and Prospectus
under "Expenses of Solicitation," by MIT, which expenses are expected to
approximate $137,500. MIT and Tax-Exempt will bear all of their respective
other expenses associated with the Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of MIT, and Tax-Exempt. In addition, either party may terminate the
Reorganization Agreement upon the occurrence of a material breach of the
Reorganization Agreement by the other party or if, by May 31, 2001, any
condition set forth in the Reorganization Agreement has not been fulfilled or
waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, MIT shall: either pay or make provision for all of its liabilities and
distribute any remaining amount of the Cash Reserve (after paying or making
provision for such liabilities and the estimated cost of making the
distribution) to former Shareholders of MIT that received Tax-Exempt Shares.
MIT shall be de-registered as an investment company under the 1940 Act,
dissolved under Massachusetts law promptly following the distributions of
shares of Tax-Exempt to Shareholders of record of MIT.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of MIT (at net asset value on the Valuation Date calculated after
subtracting any Cash Reserve) and reinvest the proceeds in Tax-Exempt Shares at
net asset value and without recognition of taxable gain or loss for Federal
income tax purposes. See "Tax Aspects of the Reorganization" below. As noted in
"Tax Aspects of the Reorganization" below, if MIT recognizes net gain from the
sale of securities prior to the Closing Date, such gain, to the extent not
offset by capital loss carryforwards, will be distributed to Shareholders prior
to the Closing Date and will be taxable to Shareholders as capital gain.
Prior to the NYSE's suspension of trading of MIT's shares, which is
currently expected to occur the next business day after the Meeting (assuming
Shareholders of MIT approve the Reorganization Agreement at the Meeting)
Shareholders will continue to be able to sell their shares of MIT on the NYSE
at the market price of the shares on the NYSE when the sell order is placed.
Following the suspension of trading, Shareholders will no longer be able to
sell their MIT shares on the NYSE. On or after the Closing Date, however,
Shareholders will be able to redeem their newly-issued shares of Tax-Exempt.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, MIT will declare and pay a dividend or dividends which, together with all
previous such dividends, will have the effect of distributing to Shareholders
all of MIT's investment company taxable income for all periods since the
inception of MIT through and including the Valuation Date (computed without
regard to any dividends paid deduction), and all of MIT's net capital gain, if
any, realized in such periods (after reduction for any capital loss
carryforward).
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The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code").
As a condition to the Reorganization, MIT and Tax-Exempt will receive an
opinion of Mayer, Brown & Platt to the effect that, based on certain
assumptions, facts, the terms of the Reorganization Agreement and
representations set forth in the Reorganization Agreement or otherwise provided
by MIT and Tax-Exempt (including a representation to the effect that Tax-Exempt
has no plan or intention to sell or otherwise dispose of more than fifty
percent of the assets of MIT acquired in the Reorganization except for
dispositions made in the ordinary course of business):
1. The transfer of MIT's assets in exchange for the Tax-Exempt Shares and
the assumption by Tax-Exempt of certain stated liabilities of MIT followed by
the distribution by MIT of the Tax-Exempt Shares to Shareholders in exchange
for their MIT shares pursuant to and in accordance with the terms of the
Reorganization Agreement will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code, and MIT and Tax-Exempt will each be a
"party to a reorganization" within the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by Tax-Exempt upon the receipt of
the assets of MIT solely in exchange for the Tax-Exempt Shares and the
assumption by Tax-Exempt of the stated liabilities of MIT;
3. No gain or loss will be recognized by MIT upon the transfer of the
assets of MIT to Tax-Exempt in exchange for the Tax-Exempt Shares and the
assumption by Tax-Exempt of the stated liabilities or upon the distribution of
Tax-Exempt Shares to Shareholders in exchange for their MIT shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of MIT for the Tax-Exempt Shares;
5. The aggregate tax basis for the Tax-Exempt Shares received by each of
the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in MIT held by each such Shareholder
immediately prior to the Reorganization;
6. The holding period of the Tax-Exempt Shares to be received by each
Shareholder will include the period during which the shares of MIT surrendered
in exchange therefor were held (provided such shares in MIT were held as
capital assets on the date of the Reorganization);
7. The tax basis of the assets of MIT acquired by Tax-Exempt will be the
same as the tax basis of such assets of MIT immediately prior to the
Reorganization; and
8. The holding period of the assets of MIT in the hands of Tax-Exempt will
include the period during which those assets were held by MIT.
The advice of Counsel is not binding on the Internal Revenue Service or
the courts and neither MIT nor Tax-Exempt has sought or will seek a ruling with
respect to the tax treatment of the Reorganization.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES OF TAX-EXEMPT AND MIT AND THE ORGANIZATION OF THE TWO
FUNDS
Class D shares of Tax-Exempt to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by Tax-Exempt and
transferable without restrictions and will have no preemptive rights. As stated
above, Class D shares of Tax-Exempt are not subject to any sales charge on
purchase or redemption or any 12b-1 fee.
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Shares of MIT (the only existing class of which is common) are entitled to
one vote for each share held and to vote for the election of Trustees and on
other matters submitted to meetings of shareholders. Shares of MIT have no
pre-emptive or conversion rights and the shares, when issued, are fully paid
and non-assessable.
The shareholders of Tax-Exempt are entitled to a full vote for each full
share of beneficial interest held. Tax-Exempt is authorized to issue an
unlimited number of shares of beneficial interest. All shares of beneficial
interest of Tax-Exempt are of $0.01 par value and are equal as to earnings,
assets and voting privileges except that each Class will have exclusive voting
privileges with respect to matters relating to distribution expenses borne
solely by such Class or any other matter in which the interests of one Class
differ from the interests of any other Class. In addition, Class B shareholders
will have the right to vote on any proposed material increase in Class A's
expenses, if such proposal is submitted separately to Class A shareholders.
Also, Class A, Class B and Class C bear expenses related to the distribution of
their respective shares.
Tax-Exempt's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and additional Classes
of shares within any series. The Trustees have not presently authorized any
such additional series or Classes of shares other than as set forth in
Tax-Exempt's Prospectus.
Tax-Exempt is not required to hold annual meetings of shareholders and in
ordinary circumstances Tax-Exempt 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 Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by the actions
of the Trustees. In addition, under certain circumstances, the shareholders may
call a meeting to remove the Trustees and Tax-Exempt is required to provide
assistance in communicating with shareholders about such a meeting. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect
any Trustees. MIT, whose shares are listed on the NYSE, does hold annual
meetings as required by the rules of the NYSE.
Both Tax-Exempt and MIT are entities of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of a
business trust may, under certain limited circumstances, be held personally
liable as partners for the obligations of Tax-Exempt or MIT. However, the
Declaration of Trust of both funds contains an express disclaimer of
shareholder liability for acts or obligations of Tax-Exempt or MIT, requires
that notice of such Tax-Exempt or MIT obligations include such disclaimer, and
provides for indemnification out of the Tax-Exempt's or MIT's property for any
shareholder held personally liable for the obligations of Tax-Exempt or MIT.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which Tax-Exempt or MIT
themselves would be unable to meet their obligations. Given the above
limitations on shareholder personal liability, and the nature of Tax-Exempt's
and MIT's assets and operations, the possibility of Tax-Exempt or MIT being
unable to meet their obligations is remote and thus, in the opinion of
Massachusetts counsel to Tax-Exempt and MIT, the risk to Tax-Exempt and MIT
shareholders of personal liability is remote.
MIT presently has certain anti-takeover provisions in its Declaration of
Trust which could have the effect of limiting the ability of other entities or
persons to acquire control of MIT, to cause it to engage in certain
transactions or to modify its structure. The Board of Trustees is divided into
three classes, each having a term of three years. Each year the term of one
class expires. This provision could delay for up to two years the replacement
of a majority of the Board of Trustees. In addition, the affirmative vote or
consent of the holders of 80% of the shares of MIT (a greater vote than that
required by the 1940 Act and greater than the required vote applicable to
business corporations under state law) is required to authorize the conversion
of MIT from a closed-end to an open-end investment company, or generally to
authorize any of the following transactions:
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(i) merger or consolidation of MIT with or into any other corporation;
(ii) issuance of any securities of MIT to any person or entity for cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of MIT, to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000);
(iv) sale, lease or exchange to MIT, in exchange for securities of MIT,
of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000)
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of 5% or more of the outstanding shares of
MIT. However, such 80% vote or consent will not be required with respect to the
foregoing transactions where the Board of Trustees under certain conditions
approves the transaction (as the Board has done with respect to the
Reorganization), in which case, with respect to (i) and (iii) above, a majority
shareholder vote or consent will be required, and, with respect to (ii) and
(iv) above, no shareholder vote or consent would be required. Furthermore, any
amendment to the provisions in the Declaration of Trust requiring an 80%
shareholder vote or consent for the foregoing transactions similarly requires
an 80% shareholder vote or consent.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of Tax-Exempt and MIT as
of August 31, 2000 and on a pro forma combined basis as if the Reorganization
had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
----------------- ------------- ----------
<S> <C> <C> <C>
MIT $ 268,845,068 27,577,097 $ 9.75
Tax-Exempt
(Class A) $ 18,257,997 1,596,984 $ 11.43
(Class B) $ 142,841,544 12,442,278 $ 11.48
(Class C) $ 11,157,397 973,960 $ 11.46
(Class D) $ 856,258,319 74,945,142 $ 11.43
Total Tax-Exempt (Class A-D) $1,028,515,257 -- --
Combined Fund (pro forma)
(Class A) $ 18,257,997 1,596,984 $ 11.43
(Class B) $ 142,841,544 12,442,278 $ 11.48
(Class C) $ 11,157,397 973,960 $ 11.46
(Class D) $1,125,103,386 98,466,145 $ 11.43
Total Combined Fund (pro forma) (Tax-Exempt)
(Class A-D) $1,297,360,324 -- --
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
15
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
MIT and Tax-Exempt have similar investment objectives. MIT seeks to
provide current income exempt from federal income tax; Tax-Exempt seeks to
provide a high level of current income exempt from federal income tax
consistent with preservation of capital.
Tax-Exempt invests at least 80% of its total assets in securities that pay
interest exempt from federal income taxes, in accordance with its investment
objectives set forth above. Tax-Exempt invests at least 75% of its net assets
in (i) municipal bonds rated within the three highest grades by either Moody's
Investors Service ("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch
IBCA, Inc. ("Fitch"); (ii) municipal notes rated within the two highest grades
by Moody's, S&P or Fitch, or, if not rated, have outstanding bonds within the
three highest grades by Moody's, S&P or Fitch; and (iii) municipal commercial
paper rated within the highest grade by such rating organizations. Tax-Exempt
may invest up to 25% of its assets in municipal obligations that are rated
below the limits stated above or are not rated by those rating agencies.
However, Tax-Exempt may only invest up to 5% of its assets in municipal
obligations rated below investment grade (Ba or BB or lower by Moody's or S&P),
commonly known as "junk bonds." Unrated securities may be purchased by
Tax-Exempt if such securities are judged by the Investment Manager to be of
comparable quality to the rated securities described above. Other than its
investment objectives, the foregoing investment policies of Tax-Exempt may be
changed without shareholder approval.
MIT invests at least 80% of its net assets in municipal obligations and
certain municipal obligations in which MIT may invest without limit may be
subject to the alternative minimum tax. MIT invests at least 65% of its total
assets in: (a) Municipal Bonds which are rated at the time of purchase within
the four highest grades (Baa or BBB or better) by Moody's or S&P; (b) Municipal
Notes which at the time of purchase are rated in the two highest grades by
Moody's or in the three highest grades by S&P, or, if not rated, whose issuers
have outstanding one or more issues of Municipal Bonds rated within the four
highest grades by Moody's or S&P; and (c) Municipal Commercial Paper which at
the time of purchase is rated within the highest grade by either Moody's or
S&P. MIT may invest up to 35% of its assets in junk bonds and unrated
obligations. Thus, with respect to this portion of the portfolio, MIT may
invest in instruments rated as low as C by Moody's or S&P. Securities rated Ba
or lower by Moody's or BB or lower by S&P are considered to be speculative
investments and are commonly known as junk bonds. A general description of
Moody's and S&P ratings of Municipal Bonds, Notes and Commercial Paper is set
forth in Tax-Exempt's "Statement of Additional Information."
MIT may invest any amount of its assets in securities that pay interest
subject to the "alternative minimum tax" ("AMT") with the result that some
taxpayers may have to pay tax on income distributions from MIT. Tax-Exempt may
only invest up to 20% of its assets in securities subject to the AMT unless the
fund has adopted a temporary defensive posture as set forth below.
Both MIT and Tax-Exempt may invest up to 20% of their respective assets in
taxable money market instruments.
Both MIT and Tax-Exempt may take temporary "defensive" positions that are
inconsistent with each fund's principal investment strategies in attempting to
respond to adverse market conditions and during a temporary defensive period
each fund may invest more than 20% of its assets in investments, the income of
which may be subject to federal income taxes. In addition, during such a
defensive posture, Tax-Exempt may also invest any amount of its assets in
tax-exempt securities subject to the AMT.
The foregoing investment objective and policies of MIT are fundamental and
may not be changed without the approval of MIT shareholders.
16
<PAGE>
MIT may invest up to 10% of the value of its total assets, at the time of
purchase, in Municipal Obligations denominated and payable in foreign currency,
in an effort to increase the income of the fund. Such Obligations are issued by
municipalities in the United States when it is believed that denomination in a
foreign currency would be more attractive to potential purchasers.
Both MIT and Tax-Exempt may invest up to 10% of their respective assets in
inverse floating rate municipal obligations. The interest rates on these
obligations generally move in the reverse direction of market interest rates.
If market interest rates fall, the interest rates on the obligations will
increase and if market interest rates increase, the interest rates on the
obligations will fall.
Both MIT and Tax-Exempt may purchase securities on a when-issued or
delayed delivery basis or, in the case of Tax-Exempt, may purchase or sell
securities on a forward commitment basis. When these transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of commitment. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date. At
the time the Fund makes the commitment to purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
funds' assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis (Tax-Exempt) may increase the volatility
of their respective net asset value.
Both MIT and Tax-Exempt may purchase variable rate or floating rate
municipal 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. Other features may include the right to demand prepayment of the
principal amount of the obligation prior to its stated maturity (a "demand
feature") and the right of the issuer to prepay the principal amount prior to
maturity. The principal benefit of a variable rate obligation is that the
interest rate adjustment minimizes changes in the market value of the
obligation. The principal benefit of purchasing obligations with a demand
feature is that liquidity, and the ability to obtain repayment of the full
principal amount of an obligation prior to maturity, is enhanced.
Both MIT and Tax-Exempt may enter into repurchase agreements subject to
certain procedures designed to minimize risks associated with such investments.
Repurchase agreements may be viewed as a type of secured lending and typically
involve the acquisition by a fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the fund will sell back to the institution, and that
the institution will repurchase, the underlying security serving as collateral
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. The collateral will be marked-to-market
daily to determine that the value of the collateral, as specified in the
agreement, does not decrease below the purchase price plus accrued interest. If
such decrease occurs, additional collateral will be requested and, when
received, added to the account to maintain full collateralization. The fund
will accrue interest from the institution until the time when the repurchase is
to occur. Although this date is deemed by the fund to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits. It is the policy of MIT and
Tax-Exempt not to invest in repurchase agreements that do not mature within
seven days, if any such investments amount to more than 10% of MIT's total
assets or amount to 10% of Tax-Exempt's net assets together with any other
illiquid assets held by Tax-Exempt.
Both MIT and Tax-Exempt may lend their portfolio securities to brokers,
dealers and other financial institutions, provided that the loans are callable
at any time by the fund, and are at all times secured by cash
17
<PAGE>
or cash equivalents, which are maintained in a segregated account pursuant to
applicable regulations and that are equal to at least 100% for Tax-Exempt and
102% for MIT of the market value, determined daily, of the loaned securities.
The advantage of these loans is that the fund continues to receive the income
on the loaned securities while at the same time earning interest on the cash
amounts deposited as collateral, which will be invested in short-term
obligations. Tax-Exempt may not lend more than 25% of the value of its total
assets while MIT may not lend more than 10% of the value of its total assets.
As with any extensions of credit, there are risks of delay in recovery and, in
some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by either fund's management to be creditworthy and
when the income which can be earned from such loans justifies the attendant
risks. Upon termination of the loan, the borrower is required to return the
securities to the fund. Any gain or loss in the market price during the loan
period would inure to the fund.
Both MIT and Tax-Exempt may purchase and sell financial futures contracts
and may purchase and write put and call options on such futures contracts for
the purpose of hedging its portfolio securities against changes in prevailing
interest rates. Both funds may invest in municipal bond index futures. The
funds may not purchase and sell 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 each fund's total assets. Both funds may purchase or sell
(write) options on debt securities as a means of achieving additional return or
hedging the value of their respective portfolios. The funds will only write
covered call or put options, or buy call or put options, which are listed on
national securities exchanges. The funds may not write covered options in an
amount exceeding 20% of the value of their respective total assets. The funds
will not purchase options if, as a result, the aggregate cost of all
outstanding options exceeds 10% of the respective fund's total assets.
Both MIT and Tax-Exempt may invest in illiquid securities. MIT may invest
in such securities in an amount up to 25% of its total assets while Tax-Exempt
may only invest in such securities in an amount up to 10% of its net assets.
Both MIT and Tax-Exempt may borrow money. MIT may borrow money from a bank
for temporary or emergency purposes or for the repurchase of its shares
provided that immediately after such borrowing the amount borrowed does not
exceed 331/3% of the value of its total assets (including the amount borrowed)
less its liabilities (not including any borrowings but including the fair
market value at the time of computation of any other senior securities then
outstanding). Tax-Exempt may borrow from a bank for temporary or emergency
purposes in amounts not exceeding 5% (taken at the lower of cost or current
value) of the value of its total assets (not including the amount borrowed).
Tax-Exempt may purchase securities on a when, as and if issued basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the fund until the Investment Manager determines
that issuance of the security is probable. At that time, the fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. The value of the fund's commitments to purchase the
securities of any one issuer, together with the value of all securities of such
issuer owned by the fund, may not exceed 5% of the value of the fund's total
assets at the time the initial commitment to purchase such securities is made.
An increase in the percentage of the fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. The fund may also sell securities on a "when, as and if
issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the fund
at the time of sale.
18
<PAGE>
Tax-Exempt may invest in zero coupon securities. Zero coupon 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. A
zero coupon security pays no interest to its holder during its life.
The foregoing discussion is a summary of the principal differences and
similarities between the investment policies of the funds. For a more complete
discussion of Tax-Exempt's policies, see "Principal Investment Strategies" and
"Additional Investment Strategy Information" in Tax-Exempt's Prospectus and
"Description of the Fund and Its Investments and Risks" in Tax-Exempt's
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by MIT and Tax-Exempt as fundamental
policies are substantially similar. MIT's investment restrictions and their
similarities or differences with Tax-Exempt's investment restrictions are
summarized below. A full description of Tax-Exempt's investment restrictions
can be found under the caption "Description of the Fund and Its Investments and
Risks -- Fund Policies/Investment Restrictions" in Tax-Exempt's Statement of
Additional Information. A fundamental investment restriction cannot be changed
without the vote of the majority of the outstanding voting securities of a
fund, as defined in the 1940 Act.
MIT may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer, except that this limitation
shall not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities. Tax-Exempt has a similar
restriction but as to 100% of its total assets.
2. Purchase more than 10% of all outstanding taxable debt securities of
any one issuer (other than obligations issued, or guaranteed as to principal
and interest, by the United States Government, its agencies or
instrumentalities). Tax-Exempt has an identical restriction.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry; provided, however, that such limitations shall not
be applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities. In addition, the fund
reserves the right to invest 25% or more of its assets in any of the following
types of Municipal Obligations, provided that the percentage of the Trust's
total assets in private activity bonds in any one category does not exceed 25%
of the fund's total assets: health facility obligations, housing obligations,
single family mortgage revenue bonds, industrial revenue obligations (including
pollution control obligations), electric utility obligations, airport facility
revenue obligations, water and sewer obligations, university and college
revenue obligations, bridge authority and toll road obligations and resource
recovery obligations. Tax-Exempt has a similar restriction.
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.
Tax-Exempt has an identical restriction.
5. Invest in common stock. Tax-Exempt has an identical restriction.
6. Invest in securities of any issuer if, to the knowledge of the fund,
any officer or trustee of the fund or any officer or director of the Investment
Adviser or Dean Witter Reynolds owns more than 1/2 of 1% of the outstanding
securities of such issuer, and such officers, trustees and directors who own
more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer. Tax-Exempt has a substantially identical
restriction.
19
<PAGE>
7. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein. Tax-Exempt has
an identical restriction.
8. Purchase or sell commodities except that the fund may purchase or sell
financial futures contracts and related options thereon. Tax-Exempt has a
substantially similar restriction.
9. Purchase oil, gas or other mineral leases, rights or royalty contracts,
or exploration or development programs. Tax-Exempt has a similar restriction.
10. Write, purchase or sell puts, calls, or combinations thereof, except
for options on futures contracts or options on debt securities. Tax-Exempt has
an identical restriction.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets. Tax-Exempt has an identical restriction.
12. Borrow money, except that the fund may borrow from a bank for
temporary or emergency purposes or for repurchase of its shares provided that
immediately after such borrowing the amount borrowed does not exceed 331/3% of
the value of its total assets (including the amount borrowed) less its
liabilities (not including any borrowings but including the fair market value
at the time of computation of any other senior securities which are outstanding
at the time). Tax-Exempt may only borrow for temporary or emergency purposes
and only in amounts not exceeding 5% of the value of its total assets (not
including the amount borrowed).
13. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in Restriction 12.
However, for the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect to
initial margin for futures are not deemed to be pledges of assets. Tax-Exempt
has an identical restriction.
14. Issue senior securities as defined in the Act, except insofar as the
fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) purchasing any securities on a when-issued
or delayed delivery basis; (c) purchasing or selling any financial futures
contracts; (d) borrowing money in accordance with restrictions described above;
or (e) lending portfolio securities. Tax-Exempt has an identical restriction.
15. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; and (c) by
lending its portfolio securities. Tax-Exempt has a substantially similar
restriction.
16. Make short sales of securities. Tax-Exempt has an identical
restriction.
17. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities. Tax-Exempt
has an identical restriction.
18. Engage in the underwriting of securities, except insofar as the fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security. Tax-Exempt has an identical restriction.
19. Invest for the purpose of exercising control or management of any
other issuer. Tax-Exempt has an identical restriction.
ADDITIONAL MATTERS REGARDING MIT
This section sets forth additional information about MIT which is not
contained elsewhere in this Proxy Statement and Prospectus.
20
<PAGE>
HISTORY OF PUBLIC TRADING OF MIT'S SHARES
Shares of MIT trade on the New York Stock Exchange under the symbol "TFA".
The following table shows the history of public trading of the shares of
beneficial interest of the Fund by quarter for the last two fiscal years. The
table sets forth the per share high market price and the per share low market
price on the NYSE for each completed fiscal quarter and the corresponding net
asset value for that market price as well as the discount (expressed as a
percentage of net asset value) represented by the difference between the market
price and the corresponding net asset value:
<TABLE>
<CAPTION>
MARKET NET ASSET PERCENTAGE MARKET NET ASSET PERCENTAGE
QUARTER ENDED PRICE-HIGH VALUE DISCOUNT PRICE-LOW VALUE DISCOUNT
------------- ---------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
August 31, 2000 $ 9.4375 $ 9.74 3.11% $ 8.0625 $ 9.32 13.49%
May 31, 2000 $ 8.3750 $ 9.52 12.03% $ 7.7500 $ 9.34 17.02%
February 29, 2000 $ 8.1250 $ 9.28 12.45% $ 7.625 $ 9.21 17.21%
November 30, 1999 $ 8.2500 $ 9.44 12.61% $ 7.6875 $ 9.37 17.96%
August 31, 1999 $ 8.5625 $ 9.81 12.72% $ 7.7500 $ 9.55 18.85%
May 31, 1999 $ 8.8750 $ 10.11 12.22% $ 8.3750 $ 10.00 16.25%
February 28, 1999 $ 9.2500 $ 10.19 9.22% $ 8.8125 $ 10.15 13.18%
November 30, 1998 $ 9.5625 $ 10.17 5.97% $ 8.8125 $ 10.21 13.69%
</TABLE>
The MIT shares generally have traded at a discount from net asset value
since January 28, 1994. On October 26, 2000, the shares traded at a market
price of $9.3125 with a net asset value of $9.72.
INVESTMENT ADVISOR
MIT's investment adviser, MSDW Advisors, maintains its offices at Two
World Trade Center, New York, New York 10048. MSDW Advisors, which was
incorporated in July, 1992 under the name Dean Witter InterCapital Inc.,
changed its name to Morgan Stanley Dean Witter Advisors Inc. on June 22, 1998.
MSDW Advisors together with Morgan Stanley Dean Witter Services Company Inc.,
its wholly-owned subsidiary, had approximately $155 billion in assets under
managements as of September 30, 2000. MSDW Advisors is a wholly-owned
subsidiary of MSDW, a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses -- securities,
asset management and credit services. MSDW has its offices at 1585 Broadway,
New York, New York 10036.
The Principal Executive Officer and Directors of MSDW Advisors are
Mitchell M. Merin, President and Chief Executive Officer, Ronald E. Robison,
Executive Vice President and Chief Administrative Officer and Barry Fink,
Executive Vice President, Secretary and General Counsel. Messrs. Merin, Robison
and Fink also serve as officers of MIT.
MSDW Advisors and its wholly-owned subsidiary, MSDW Services, serve in
various investment management, advisory, management and administrative
capacities to investment companies and pension plans and other institutional
and individual investors.
There are various lawsuits pending against MSDW involving material amounts
which, in the opinion of its management, will be resolved with no material
effect on the consolidated financial position of the company.
PORTFOLIO MANAGEMENT
Since March 1993, James F. Willison has been the primary portfolio manager
of MIT and has been the person primarily responsible for the day-to-day
portfolio management of MIT's portfolio. Mr. Willison has been a portfolio
manager with MIT's Investment Advisor for over five years.
21
<PAGE>
EXPENSES BORNE BY MIT
Under the Advisory Agreement, MIT is obligated to bear all of the costs
and expenses of its operation, except those specifically assumed by the
Investment Advisor, including, without limitation: charges and expenses of any
registrar, custodian or depository appointed by MIT for the safekeeping of its
cash, portfolio securities or commodities and other property, and any stock
transfer or dividend agent or agents appointed by MIT; brokers' commissions
chargeable to MIT in connection with portfolio securities transactions to which
the Trust is a party; all taxes, including securities or commodities issuance
and transfer taxes, and fees payable by the Trust to Federal, state or other
governmental agencies; costs and expenses of engraving or printing of
certificates representing shares of MIT; all costs and expenses in connection
with registration and maintenance of registration of MIT and of its shares with
the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expense of preparing, printing, including typesetting,
and distributing prospectuses for such purposes; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Trustees or members of
any advisory board or committee who are not employees of MIT's Administrator or
Investment Advisor or any of their corporate affiliates; all expenses incident
to the payment of any dividend or distribution program; charges and expenses of
any outside pricing services; charges and expenses of legal counsel, including
counsel to the Independent Trustees of MIT, and independent accountants in
connection with any matter relating to MIT (not including compensation or
expenses of attorneys employed by the Administrator or Investment Advisor);
membership dues of industry associations; interest payable on borrowings; fees
and expenses incident to the listing of MIT's shares on any stock exchange;
postage; insurance premiums on property or personnel (including officers and
Trustees) of MIT which inure to its benefit; extraordinary expenses (including,
but not limited to legal claims, liabilities, litigation costs and any
indemnification related thereto); and all other charges and costs of MIT's
operations unless otherwise explicitly provided in the Advisory Agreement. MIT
is not responsible for expenses assumed by the Administrator under the
Administration Agreement.
ADDITIONAL INFORMATION ABOUT MIT AND TAX-EXEMPT
GENERAL
MIT was organized as a "Massachusetts business trust" under the laws of
the Commonwealth of Massachusetts on June 16, 1987 and commenced operations as
a closed-end registered investment company on September 29, 1987. For a
discussion of the organization and operation of Tax-Exempt, see "Fund
Management" and "Investment Objective" in Tax-Exempt's Prospectus.
The Board of Trustees of each of MIT and Tax-Exempt oversees the
management of the Fund but does not itself manage the Fund. The Trustees review
various services provided by or under the direction of the Investment Manager
or Investment Advisor, as the case may be, to ensure that the Fund's general
investment policies and programs are properly carried out. The Trustees also
conduct their review to ensure that administrative services are provided to the
Fund in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as
a duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of each Fund and not the Trustee's
own interest or the interest of another person or organization. A Trustee
satisfies his or her duty of care by acting in good faith with the care of an
ordinarily prudent person and in a manner the Trustee reasonably believes to be
in the best interest of each Fund and its shareholders.
22
<PAGE>
FINANCIAL INFORMATION
For certain financial information about Tax-Exempt, see "Financial
Highlights" and "Past Performance" in Tax-Exempt's Prospectus, and for certain
financial information about MIT, see MIT's Annual Report for its fiscal year
ended August 31, 2000.
MANAGEMENT
For information about the respective Board of Trustees, Investment
Manager, and the Distributor of Tax-Exempt, see "Fund Management" in
Tax-Exempt's Prospectus and "Investment Management and Other Services" in
Tax-Exempt's Statement of Additional Information and, with respect to MIT, see
"Additional Matters Regarding MIT" above.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of MIT and Tax-Exempt, and information regarding shareholder inquiries, see the
discussion herein under "The Reorganization -- Description of Shares of
Tax-Exempt and MIT" and "Available Information" as well as "Capital Stock and
Other Securities" in Tax-Exempt's Statement of Additional Information.
CUSTODIAN AND TRANSFER AGENT AND DIVIDEND PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for each of
MIT's and Tax-Exempt's shares and the Dividend Disbursing Agent for payment of
dividends and distributions on their respective shares. The principal business
address of the Transfer Agent is Harborside Financial Center, Plaza Two, Jersey
City, NJ 07311. The Bank of New York, 100 Church Street, New York, NY 10007 is
the Custodian of the assets of both MIT and Tax-Exempt.
DIVIDENDS, DISTRIBUTIONS AND TAXES
MIT and Tax-Exempt are each qualified as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986 and each generally
distributes sufficient income and gains so that it will not pay corporate
income tax on its earnings. Income dividend distributions made by MIT or
Tax-Exempt are exempt from federal income taxes, to the extent they are derived
from municipal obligations. Income derived from other portfolio securities may
be subject to federal, state and/or local taxes. Additionally, income derived
from some municipal securities are subject to the federal "alternative minimum
tax" and although interest on these securities is generally exempt from federal
income tax, some shareholders who have many deductions or exemptions
nevertheless may have to pay tax on the income. Capital gain distributions are
normally subject to federal income tax when they are paid. Any short-term
capital gain distributions are taxable to shareholders as ordinary income. Any
long-term capital gain distributions are taxable to shareholders as long-term
capital gains, no matter how long a shareholder has owned shares in MIT or
Tax-Exempt. After the end of each calendar year, MIT and Tax-Exempt
shareholders are sent a statement showing the taxable distributions paid to
them in the previous year. The statement provides information on their
dividends and capital gains for tax purposes.
For a further discussion of Tax-Exempt's and MIT's policies with respect
to dividends, distributions and taxes, see "Distributions" and "Tax
Consequences" in Tax-Exempt's Prospectus as well as the discussion herein under
"Synopsis -- Purchases, Exchanges and Redemptions" with respect to both
Tax-Exempt and MIT.
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Tax-Exempt's shares may be purchased, repurchased
and redeemed, see "How to Buy Shares," "How to Exchange Shares" and "How to
Sell Shares" in Tax-Exempt's Prospectus.
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of Tax-Exempt's performance, see management's letter to
shareholders in its Annual Report for its fiscal year ended December 31, 1999
and its Semi-Annual Report for the six month period ended June 30, 2000, each
accompanying this Proxy Statement and Prospectus. For a discussion of the
performance of MIT, see MIT's Annual Report for its fiscal year ended August
31, 2000.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Tax-Exempt, for the year ended December 31,
1999, have been audited by PricewaterhouseCoopers LLP, independent accountants
and the financial statements of MIT, for the year ended August 31, 2000, have
been audited by Deloitte & Touche LLP, independent accountants, and are
incorporated by reference in the Statement of Additional Information relating
to the Registration Statement on Form N-14 of which this Proxy Statement and
Prospectus forms a part. These financial statements have been incorporated by
reference in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP and Deloitte & Touche LLP, respectively, as experts
in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Tax-Exempt will
be passed upon by Mayer, Brown & Platt, New York, New York. Such firm will rely
on Massachusetts counsel as to matters of Massachusetts law.
AVAILABLE INFORMATION
Additional information about MIT and Tax-Exempt is available, as
applicable, in the following documents which are incorporated herein by
reference: (i) Tax-Exempt's Prospectus dated February 24, 2000, attached to
this Proxy Statement and Prospectus, which Prospectus forms a part of
Post-Effective Amendment No. 23 to Tax-Exempt's Registration Statement on Form
N-1A (File Nos. 2-66268; 811-2979); (ii) Tax-Exempt's Annual Report for its
fiscal year ended December 31, 1999, and its succeeding Semi-Annual Report for
the six months ended June 30, 2000, accompanying this Proxy Statement and
Prospectus; and (iii) MIT's Annual Report for its fiscal year ended August 31,
2000. The foregoing documents may be obtained without charge by calling (800)
869-NEWS (toll-free).
MIT and Tax-Exempt are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith, file
reports and other information with the Commission. Proxy material, reports and
other information about MIT and Tax-Exempt which are of public record can be
inspected and copied at public reference facilities maintained by the
Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, NW, Washington,
D.C. 20549 and certain of its regional offices, and copies of such materials
can be obtained at prescribed rates from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549.
The shares of beneficial interest of MIT are listed on the NYSE and, in
accordance with the requirements of the NYSE, MIT files proxy materials,
reports and other information with the NYSE. These materials can be inspected
at the New York Stock Exchange located at 11 Wall Street, New York, NY 10005 or
by telephoning the NYSE at (212) 656-3000.
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OTHER BUSINESS
Management of MIT knows of no business other than the matters specified
above which will be presented at the Meeting. Since matters not known at the
time of the solicitation may come before the Meeting, the proxy as solicited
confers discretionary authority with respect to such matters as properly come
before the Meeting, including any adjournment or adjournments thereof, and it
is the intention of the persons named as attorneys-in-fact in the proxy to vote
this proxy in accordance with their judgment on such matters.
By Order of the Board of Trustees
Barry Fink, Secretary
November 9, 2000
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
24th day of August, 2000, by and between MORGAN STANLEY DEAN WITTER TAX-EXEMPT
SECURITIES TRUST, a Massachusetts business trust ("Tax-Exempt") and MORGAN
STANLEY DEAN WITTER MUNICIPAL INCOME TRUST, a Massachusetts business trust
("MIT").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to Tax-Exempt of substantially all of the assets of MIT in exchange
for the assumption by Tax-Exempt of all stated liabilities of MIT and the
issuance by Tax-Exempt of Class D shares of beneficial interest, par value
$0.01 per share (the "Tax-Exempt Shares"), to be distributed, after the Closing
Date hereinafter referred to, to the shareholders of MIT in liquidation of MIT
as provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF MIT
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, MIT agrees to assign,
deliver and otherwise transfer the MIT Assets (as defined in paragraph 1.2) to
Tax-Exempt and Tax-Exempt agrees in exchange therefor to assume all of MIT
stated liabilities on the Closing Date as set forth in paragraph 1.3(a) and to
deliver to MIT the number of Tax-Exempt Shares, including fractional Tax-Exempt
Shares, determined in the manner set forth in paragraph 2.3. Such transactions
shall take place at the closing provided for in paragraph 3.1 ("Closing").
1.2 (a) The "MIT Assets" shall consist of all property, including without
limitation, all cash (other than the "Cash Reserve" (as defined in paragraph
1.3(b)), cash equivalents, securities and dividend and interest receivables
owned by MIT, and any deferred or prepaid expenses shown as an asset on MIT's
books on the Valuation Date.
(b) On or prior to the Valuation Date, MIT will provide Tax-Exempt with a
list of all of MIT assets to be assigned, delivered and otherwise transferred
to Tax-Exempt and of the stated liabilities to be assumed by Tax-Exempt
pursuant to this Agreement. MIT reserves the right to sell any of the
securities on such list but will not, without the prior approval of Tax-Exempt,
acquire any additional securities other than securities of the type in which
Tax-Exempt is permitted to invest and in amounts agreed to in writing by
Tax-Exempt. Tax-Exempt will, within a reasonable time prior to the Valuation
Date, furnish MIT with a statement of Tax-Exempt's investment objectives,
policies and restrictions and a list of the securities, if any, on the list
referred to in the first sentence of this paragraph that do not conform to
Tax-Exempt's investment objective, policies and restrictions. In the event that
MIT holds any investments that Tax-Exempt is not permitted to hold, MIT will
dispose of such securities on or prior to the Valuation Date. In addition, if
it is determined that the portfolios of MIT and Tax-Exempt, when aggregated,
would contain investments exceeding certain percentage limitations imposed upon
Tax-Exempt with respect to such investments, MIT if requested by Tax-Exempt
will, on or prior to the Valuation Date, dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date (as defined in paragraph 3.1).
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1.3 (a) MIT will endeavor to discharge all of its liabilities and
obligations on or prior to the Valuation Date. Tax-Exempt will assume all
stated liabilities, which includes, without limitation, all expenses, costs,
charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of MIT prepared by the Treasurer of MIT, as of the Valuation Date
in accordance with generally accepted accounting principles consistently
applied from the prior audited period.
(b) On the Valuation Date, MIT may establish a cash reserve, which shall
not exceed 5% of MIT's net assets as of the close of business on the Valuation
Date ("Cash Reserve") to be retained by MIT and used for the payment of its
liabilities not discharged prior to the Valuation Date and for the expenses of
dissolution.
1.4 In order for MIT to comply with Section 852(a)(1) of the Code and to
avoid having any investment company taxable income or net capital gain (as
defined in Sections 852(b)(2) and 1222(11) of the Code, respectively) in the
short taxable year ending with its dissolution, MIT will on or before the
Valuation Date (a) declare a dividend in an amount large enough so that it will
have declared dividends of all of its investment company taxable income and net
capital gain, if any, for such taxable year (determined without regard to any
deduction for dividends paid) and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, MIT will
distribute Tax-Exempt Shares received by MIT pursuant to paragraph 1.1 pro rata
to its shareholders of record determined as of the close of business on the
Valuation Date ("MIT Shareholders"). Each MIT Shareholder will receive Class D
shares of Tax-Exempt. Such distribution will be accomplished by an instruction,
signed by the Secretary of MIT, to transfer Tax-Exempt Shares then credited to
MIT's account on the books of Tax-Exempt to open accounts on the books of
Tax-Exempt in the names of the MIT Shareholders and representing the respective
pro rata number of Tax-Exempt Shares due such MIT Shareholders. All issued and
outstanding shares of MIT simultaneously will be canceled on MIT's books;
however, share certificates representing interests in MIT will represent a
number of Tax-Exempt Shares after the Closing Date as determined in accordance
with paragraph 2.3. Tax-Exempt will issue certificates representing Tax-Exempt
Shares in connection with such exchange only upon the written request of a MIT
Shareholder.
1.6 Ownership of Tax-Exempt Shares will be shown on the books of
Tax-Exempt's transfer agent. Tax-Exempt Shares will be issued in the manner
described in Tax-Exempt's current Prospectus and Statement of Additional
Information.
1.7 Any transfer taxes payable upon issuance of Tax-Exempt Shares in a
name other than the registered holder of Tax-Exempt Shares on MIT's books as of
the close of business on the Valuation Date shall, as a condition of such
issuance and transfer, be paid by the person to whom Tax-Exempt Shares are to
be issued and transferred.
1.8 Any reporting responsibility of MIT is and shall remain the
responsibility of MIT up to and including the date on which MIT is dissolved
pursuant to paragraph 1.9.
1.9 Within one year after the Closing Date, MIT shall pay or make
provision for the payment of all its liabilities and taxes, and distribute to
the shareholders of MIT as of the close of business on the Valuation Date any
remaining amount of the Cash Reserve (as reduced by the estimated cost of
distributing it to shareholders). If and to the extent that any trust, escrow
account, or other similar entity continues after the close of such one-year
period in connection either with making provision for payment of liabilities or
taxes or with distributions to shareholders of MIT, such entity shall either
(i) qualify as a liquidating trust under Section 7701 of the Code (and
applicable Treasury Regulations thereunder) or other entity which does not
constitute a continuation of MIT for federal income tax purposes, or (ii) be
subject to a waiver under Section 368(a)(2)(G)(ii) of the complete distribution
requirement of Section 368(a)(2)(G)(i) of the Code. MIT shall be dissolved
under Massachusetts law, promptly following the making of all distributions
pursuant to paragraph 1.5 (and, in any event, within one year after the Closing
Date).
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1.10 Copies of all books and records maintained on behalf of MIT in
connection with its obligations under the Investment Company Act of 1940, as
amended (the "1940 Act"), the Code, state blue sky laws or otherwise in
connection with this Agreement will promptly after the Closing be delivered to
officers of Tax-Exempt or their designee and Tax-Exempt or its designee shall
comply with applicable record retention requirements to which MIT is subject
under the 1940 Act.
2. VALUATION
2.1 The value of the MIT Assets shall be the value of such assets computed
as of 4:00 p.m. on the New York Stock Exchange on the third business day
following the receipt of the requisite approval by shareholders of MIT of this
Agreement or at such time on such earlier or later date after such approval as
may be mutually agreed upon in writing (such time and date being hereinafter
called the "Valuation Date"), using the valuation procedures set forth in MIT's
initial registration statement on Form N-2 dated September 22, 1987 which
procedures are similar to the valuation procedures in Tax-Exempt's then current
Prospectus and Statement of Additional Information.
2.2 The net asset value of a Tax-Exempt Share shall be the net asset value
per share computed on the Valuation Date, using the valuation procedures set
forth in Tax-Exempt's then current Prospectus and Statement of Additional
Information.
2.3 The number of Tax-Exempt Shares (including fractional shares, if any)
to be issued hereunder shall be determined, with respect to each class, by
dividing the aggregate net asset value of MIT shares (determined in accordance
with paragraph 2.1) by the net asset value per share of Class D shares of
Tax-Exempt (determined in accordance with paragraph 2.2). For purposes of this
paragraph, the aggregate net asset value of the shares of MIT shall not include
the amount of the Cash Reserve.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services") in accordance with its regular practice
in pricing Tax-Exempt. Tax-Exempt shall cause MSDW Services to deliver a copy
of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time on January 29, 2001, or at such other time as the parties may
agree. The Closing shall be held at Two World Trade Center, New York, New York,
at the principal offices of MIT and Tax-Exempt. All acts taking place at the
Closing shall be deemed to take place simultaneously as of 9:00 a.m. Eastern
time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by MIT and represented by a certificate or
other written instrument shall be presented by it or on its behalf to The Bank
of New York (the "Custodian"), as custodian for Tax-Exempt, for examination no
later than five business days preceding the Valuation Date. Such portfolio
securities (together with any cash or other assets) shall be delivered by MIT
to the Custodian for the account of Tax-Exempt on or before the Closing Date in
conformity with applicable custody provisions under the 1940 Act and duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof in accordance with the custom of brokers. The portfolio
securities shall be accompanied by all necessary Federal and state stock
transfer stamps or a check for the appropriate purchase price of such stamps.
Portfolio securities and instruments deposited with a securities depository (as
defined in Rule 17f-4 under the 1940 Act) shall be delivered on or before the
Closing Date by book-entry in accordance with customary practices of such
depository and the Custodian. The cash delivered shall be in the form of a
Federal Funds wire, payable to the order of "The Bank of New York, Custodian
for Morgan Stanley Dean Witter Tax-Exempt Securities Trust."
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3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both Tax-Exempt and MIT, accurate
appraisal of the value of the net assets of Tax-Exempt or the MIT Assets is
impracticable, the Valuation Date shall be postponed until the first business
day after the day when trading shall have been fully resumed without
restriction or disruption and reporting shall have been restored.
3.4 If requested, MIT shall deliver to Tax-Exempt or its designee (a) at
the Closing, a list, certified by its Secretary, of the names, addresses and
taxpayer identification numbers of the MIT Shareholders and the number and
percentage ownership of outstanding MIT shares owned by each such MIT
Shareholder, all as of the Valuation Date, and (b) as soon as practicable after
the Closing, all original documentation (including Internal Revenue Service
forms, certificates, certifications and correspondence) relating to the MIT
Shareholders' taxpayer identification numbers and their liability for or
exemption from back-up withholding. Tax-Exempt shall issue and deliver to such
Secretary a confirmation evidencing delivery of Tax-Exempt Shares to be
credited on the Closing Date to Massachusetts Series or provide evidence
satisfactory to MIT that such Tax-Exempt Shares have been credited to MIT's
account on the books of Tax-Exempt. At the Closing, each party shall deliver to
the other such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. COVENANTS OF TAX-EXEMPT AND MIT
4.1 Except as otherwise expressly provided herein with respect to MIT,
Tax-Exempt and MIT each will operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that such
ordinary course of business will include customary dividends and other
distributions.
4.2 Tax-Exempt will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to Tax-Exempt Shares
("Registration Statement"). MIT will provide Tax-Exempt with the Proxy
Materials as described in paragraph 4.3 below, for inclusion in the
Registration Statement. MIT will further provide Tax-Exempt with such other
information and documents relating to MIT as are reasonably necessary for the
preparation of the Registration Statement.
4.3 MIT will call a meeting of its shareholders to consider and act upon
this Agreement and to take all other action necessary to obtain approval of the
transactions contemplated herein. MIT will prepare the notice of meeting, form
of proxy and proxy statement (collectively, "Proxy Materials") to be used in
connection with such meeting; provided that Tax-Exempt will furnish MIT with
its currently effective prospectus for inclusion in the Proxy Materials and
with such other information relating to Tax-Exempt as is reasonably necessary
for the preparation of the Proxy Materials.
4.4 MIT will assist Tax-Exempt in obtaining such information as Tax-Exempt
reasonably requests concerning the beneficial ownership of MIT shares.
4.5 Subject to the provisions of this Agreement, Tax-Exempt and MIT will
each take, or cause to be taken, all action, and do or cause to be done, all
things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
4.6 MIT shall furnish or cause to be furnished to Tax-Exempt within 30
days after the Closing Date a statement of MIT's assets and liabilities as of
the Closing Date, which statement shall be certified by MIT's Treasurer and
shall be in accordance with generally accepted accounting principles
consistently applied. As
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promptly as practicable, but in any case within 60 days after the Closing Date,
MIT shall furnish Tax-Exempt, in such form as is reasonably satisfactory to
Tax-Exempt, a statement certified by MIT's Treasurer of earnings and profits of
MIT for Federal income tax purposes that will be carried over to Tax-Exempt
pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, MIT (a)
shall prepare and file all Federal and other tax returns and reports of MIT
required by law to be filed with respect to all periods ending on or before the
Closing Date but not theretofore filed and (b) shall pay all Federal and other
taxes shown as due thereon and/or all Federal and other taxes that were unpaid
as of the Closing Date, including without limitation, all taxes for which the
provision for payment was made as of the Closing Date (as represented in
paragraph 5.2(k)).
4.8 Tax-Exempt agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Tax-Exempt represents and warrants to MIT as follows:
(a) Tax-Exempt is a validly existing Massachusetts business trust with
full power to carry on its business as presently conducted;
(b) Tax-Exempt is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of Tax-Exempt have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. Shares
of Tax-Exempt are registered in all jurisdictions in which they are
required to be registered under state securities laws and other laws, and
said registrations, including any periodic reports or supplemental filings,
are complete and current, all fees required to be paid have been paid, and
Tax-Exempt is not subject to any stop order and is fully qualified to sell
its shares in each state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Tax-Exempt conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the regulations thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(e) Tax-Exempt is not in, and the execution, delivery and performance
of this Agreement will not result in a, material violation of any provision
of Tax-Exempt's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which
Tax-Exempt is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Tax-Exempt or any of its properties or assets
which, if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business; and Tax-Exempt knows of
no facts that might form the basis for the institution of
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such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended December 31, 1999, of Tax-Exempt audited by PricewaterhouseCoopers
LLP (copies of which have been furnished to MIT), fairly present, in all
material respects, Tax-Exempt's financial condition as of such date in
accordance with generally accepted accounting principles, and its results
of such operations, changes in its net assets and financial highlights for
such period, and as of such date there were no known liabilities of
Tax-Exempt (contingent or otherwise) not disclosed therein that would be
required in accordance with generally accepted accounting principles to be
disclosed therein;
(h) All issued and outstanding Tax-Exempt Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Capital Stock and Other
Securities" in Tax-Exempt's current Statement of Additional Information
incorporated by reference in the Statement of Additional Information to the
Registration Statement. Tax-Exempt does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of its shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Tax-Exempt, and this
Agreement constitutes a valid and binding obligation of Tax-Exempt
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles. No other
consents, authorizations or approvals are necessary in connection with
Tax-Exempt's performance of this Agreement;
(j) Tax-Exempt Shares to be issued and delivered to MIT, for the
account of the MIT Shareholders, pursuant to the terms of this Agreement
will at the Closing Date have been duly authorized and, when so issued and
delivered, will be duly and validly issued Tax-Exempt Shares, and will be
fully paid and non-assessable with no personal liability attaching to the
ownership thereof, except as set forth under the caption "Capital Stock and
Other Securities" in Tax-Exempt's current Statement of Additional
Information incorporated by reference in the Statement of Additional
Information to the Registration Statement;
(k) All material Federal and other tax returns and reports of
Tax-Exempt required by law to be filed on or before the Closing Date have
been filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of
Tax-Exempt's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Tax-Exempt has met the
requirements of Subchapter M of the Code for qualification and treatment as
a "regulated investment company" and neither the execution or delivery of
nor the performance of its obligations under this Agreement will adversely
affect, and no other events are reasonably likely to occur which will
adversely affect the ability of Tax-Exempt to continue to meet the
requirements of Subchapter M of the Code;
(m) Since December 31, 1999 there has been no change by Tax-Exempt in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles;
(n) The information furnished or to be furnished by Tax-Exempt for use
in registration statements, proxy materials and other documents which may
be necessary in connection with the transactions contemplated hereby shall
be accurate and complete in all material respects and shall comply in all
material respects with Federal securities and other laws and regulations
applicable thereto; and
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(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Tax-Exempt) will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not materially
misleading.
5.2 MIT represents and warrants to Tax-Exempt as follows:
(a) MIT is a series of a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) MIT is a duly registered, closed-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
MIT have been offered and sold in compliance in all material respects with
applicable requirements of the 1933 Act and state securities laws. Shares
of MIT are registered in all jurisdictions in which they are required to be
registered and said registrations, including any periodic reports or
supplemental filings, are complete and current, all fees required to be
paid have been paid, and MIT is not subject to any stop order and is fully
qualified to sell its shares in each state in which its shares have been
registered;
(d) The Registration Statement of MIT on Form N-2 conformed in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the regulations thereunder and did not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(e) MIT is not, and the execution, delivery and performance of this
Agreement will not result, in a material violation of any provision of
MIT's Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which MIT is a party or
by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against MIT or any of its properties or assets which,
if adversely determined, would materially and adversely affect its
financial condition or the conduct of its business; and MIT knows of no
facts that might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects, or is reasonably likely to materially and adversely effect, its
business or its ability to consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of MIT for the
year ended August 31, 2000, audited by Deloitte & Touche LLP (copies of
which have been or will be furnished to Tax-Exempt) fairly present, in all
material respects, MIT's financial condition as of such date, and its
results of operations, changes in its net assets and financial highlights
for such period in accordance with generally accepted accounting
principles, and as of such date there were no known liabilities of MIT
(contingent or otherwise) not disclosed therein that would be required in
accordance with generally accepted accounting principles to be disclosed
therein;
(h) MIT has no material contracts or other commitments (other than this
Agreement) that will be terminated with liability to it prior to the
Closing Date;
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(i) All issued and outstanding shares of MIT are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "The Reorganization --
Description of Shares of Tax-Exempt and MIT and the Organization of the Two
Funds" in this Proxy Statement and Prospectus. MIT does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any security
convertible to any of its shares. All such shares will, at the time of
Closing, be held by the persons and in the amounts set forth in the list of
shareholders submitted to Tax-Exempt pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of MIT, and subject to the approval of MIT's shareholders, this
Agreement constitutes a valid and binding obligation of MIT, enforceable in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles. No other
consents, authorizations or approvals are necessary in connection with
MIT's performance of this Agreement;
(k) All material Federal and other tax returns and reports of MIT
required by law to be filed on or before the Closing Date shall have been
filed and are correct and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of MIT's
knowledge, no such return is currently under audit and no assessment has
been asserted with respect to any such return;
(l) For each taxable year since its inception, MIT, has met all the
requirements of Subchapter M of the Code for qualification and treatment as
a "regulated investment company" and neither the execution or delivery of
nor the performance of its obligations under this Agreement will adversely
affect, and no other events are reasonably likely to occur which will
adversely affect the ability of MIT to continue to meet the requirements of
Subchapter M of the Code;
(m) At the Closing Date, MIT will have good and valid title to the MIT
Assets, subject to no liens (other than the obligation, if any, to pay the
purchase price of portfolio securities purchased by MIT which have not
settled prior to the Closing Date), security interests or other
encumbrances, and full right, power and authority to assign, deliver and
otherwise transfer such assets hereunder, and upon delivery and payment for
such assets, Tax-Exempt will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including any
restrictions as might arise under the 1933 Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of MIT's shareholders and on the Closing Date, the Proxy
Materials (exclusive of the currently effective Tax-Exempt Prospectus
contained therein) will (i) comply in all material respects with the
provisions of the 1933 Act, the Securities Exchange Act of 1934, as amended
("1934 Act") and the 1940 Act and the regulations thereunder and (ii) not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading. Any other information furnished by MIT for use in
the Registration Statement or in any other manner that may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with applicable Federal
securities and other laws and regulations thereunder;
(o) MIT will, on or prior to the Valuation Date, declare one or more
dividends or other distributions to shareholders that, together with all
previous dividends and other distributions to shareholders, shall have the
effect of distributing to the shareholders all of its investment company
taxable income and net capital gain, if any, through the Valuation Date
(computed without regard to any deduction for dividends paid);
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(p) MIT has maintained or has caused to be maintained on its behalf all
books and accounts as required of a registered investment company in
compliance with the requirements of Section 31 of the 1940 Act and the
Rules thereunder; and
(q) MIT is not acquiring Tax-Exempt Shares to be issued hereunder for
the purpose of making any distribution thereof other than in accordance
with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF MIT
The obligations of MIT to consummate the transactions provided for herein
shall be subject, at its election, to the performance by Tax-Exempt of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:
6.1 All representations and warranties of Tax-Exempt contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date;
6.2 Tax-Exempt shall have delivered to MIT, a certificate of its President
and Treasurer, in a form reasonably satisfactory to MIT and dated as of the
Closing Date, to the effect that the representations and warranties of
Tax-Exempt made in this Agreement are true and correct at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as MIT shall reasonably request;
6.3 MIT shall have received a favorable opinion from Mayer, Brown & Platt,
counsel to Tax-Exempt, dated as of the Closing Date, to the effect that:
(a) Tax-Exempt is a validly existing Massachusetts business trust, and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon
in delivering such opinion); (b) Tax-Exempt is a duly registered, open-end,
management investment company, and its registration with the Commission as
an investment company under the 1940 Act is in full force and effect; (c)
this Agreement has been duly authorized, executed and delivered by
Tax-Exempt and, assuming that the Registration Statement complies with the
1933 Act, the 1934 Act and the 1940 Act and regulations thereunder and
assuming due authorization, execution and delivery of this Agreement by
MIT, is a valid and binding obligation of Tax-Exempt enforceable against
Tax-Exempt in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles; (d)
Tax-Exempt Shares to be issued to MIT Shareholders as provided by this
Agreement are duly authorized and upon such delivery will be validly
issued, fully paid and non-assessable (except as set forth under the
caption "Capital Stock and Other Securities" in Tax-Exempt's Statement of
Additional Information), and no shareholder of Tax-Exempt has any
preemptive rights to subscription or purchase in respect thereof
(Massachusetts counsel may be relied upon in delivering such opinion); (e)
the execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated hereby will not, violate Tax-Exempt's
Declaration of Trust or By-Laws (Massachusetts counsel may be relied upon
in delivering such opinion); and (f) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by Tax-Exempt of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act and such as may be required under state securities laws; and
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6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees from those described in Tax-Exempt's Prospectus
dated February 24, 2000 and Statement of Additional Information dated February
24, 2000.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF TAX-EXEMPT
The obligations of Tax-Exempt to complete the transactions provided for
herein shall be subject, at its election, to the performance by MIT of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:
7.1 All representations and warranties of MIT contained in this Agreement
shall be true and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated by this
Agreement, as of the Closing Date with the same force and effect as if made on
and as of the Closing Date;
7.2 MIT shall have delivered to Tax-Exempt at the Closing a certificate of
its President and its Treasurer, in form and substance satisfactory to
Tax-Exempt and dated as of the Closing Date, to the effect that the
representations and warranties of MIT made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
Tax-Exempt shall reasonably request;
7.3 MIT shall have delivered to Tax-Exempt a statement of the MIT Assets
and its liabilities, together with a list of MIT's portfolio securities and
other assets showing the respective adjusted bases and holding periods thereof
for income tax purposes, as of the Closing Date, certified by the Treasurer of
MIT;
7.4 MIT shall have delivered to Tax-Exempt within three business days
after the Closing a letter from PricewaterhouseCoopers LLP with respect to
taxable years ended August 31, 1998 and 1999, and a letter from Deloitte &
Touche LLP for taxable year ended August 31, 2000, each dated as of the Closing
Date stating that (a) such respective firm has performed a limited review of
the Federal and state income tax returns of MIT for each of the respective
taxable years and, based on such limited review, nothing came to their
attention that caused them to believe that such returns did not properly
reflect, in all material respects, the Federal and state income tax liabilities
of MIT for the periods covered thereby, (b) for the period from August 31, 2000
to and including the Closing Date, Deloitte & Touche LLP has performed a
limited review (based on unaudited financial data) to ascertain the amount of
applicable Federal, state and local taxes and has determined that same either
have been paid or reserves have been established for payment of such taxes,
and, based on such limited review, nothing came to their attention that caused
them to believe that the taxes paid or reserves set aside for payment of such
taxes were not adequate in all material respects for the satisfaction of all
Federal, state and local tax liabilities for the period from August 31, 2000 to
and including the Closing Date and (c) based on such limited reviews, nothing
came to their attention that caused them to believe that MIT would not qualify
as a regulated investment company for Federal income tax purposes for any such
year or period;
7.5 Tax-Exempt shall have received at the Closing a favorable opinion from
Mayer, Brown & Platt, counsel to MIT, dated as of the Closing Date to the
effect that:
(a) MIT is a validly existing Massachusetts business trust and has the
power to own all of its properties and assets and to carry on its business
as presently conducted (Massachusetts counsel may be relied upon in
delivering such opinion); (b) MIT is a duly registered, closed-end,
management investment company under the 1940 Act, and its registration with
the Commission as an investment company under the 1940 Act is in full force
and effect; (c) this Agreement has been duly authorized, executed and
delivered by MIT and, assuming that the Registration Statement complies
with the 1933 Act, the 1934 Act and the 1940 Act and the regulations
thereunder and assuming due authorization, execution and delivery
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of this Agreement by Tax-Exempt, is a valid and binding obligation of MIT
enforceable against MIT in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general equity
principles; (d) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, violate
MIT's Declaration of Trust or By-Laws (Massachusetts counsel may be relied
upon in delivering such opinion); and (e) to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by MIT of the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required under state securities laws; and
7.6 On the Closing Date, the MIT Assets shall include no assets that
Tax-Exempt, by reason of limitations of the fund's Declaration of Trust or
otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF TAX-EXEMPT AND MIT
The obligations of MIT and Tax-Exempt hereunder are each subject to the
further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
MIT in accordance with the provisions of MIT's Declaration of Trust, and
certified copies of the resolutions evidencing such approval shall have been
delivered to Tax-Exempt;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by Tax-Exempt or MIT to permit consummation, in
all material respects, of the transactions contemplated herein shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve risk of a material adverse effect on the assets or properties
of Tax-Exempt or MIT;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 MIT shall have declared and paid a dividend or dividends and/or other
distribution or distributions that, together with all previous such dividends
or distributions, shall have the effect of distributing to the MIT Shareholders
all of MIT's investment company taxable income (computed without regard to any
deduction for dividends paid) and all of its net capital gain (after reduction
for any capital loss carry-forward and computed without regard to any deduction
for dividends paid) for all taxable years ending on or before the Closing Date;
and
8.6 The parties shall have received the opinion of the law firm of Mayer,
Brown & Platt (based on such representations as such law firm shall reasonably
request), addressed to Tax-Exempt and MIT, which opinion may be relied upon by
the shareholders of MIT, substantially to the effect that, for Federal income
tax purposes:
(a) The transfer of MIT's assets in exchange for Tax-Exempt Shares and
the assumption by Tax-Exempt of certain stated liabilities of MIT followed
by the distribution by MIT of Tax-Exempt Shares
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<PAGE>
to the MIT Shareholders in exchange for their MIT shares pursuant to and in
accordance with the terms of the Reorganization Agreement will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code,
and MIT and Tax-Exempt will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Tax-Exempt upon the receipt
of the assets of MIT solely in exchange for Tax-Exempt Shares and the
assumption by Tax-Exempt of the stated liabilities of MIT;
(c) No gain or loss will be recognized by MIT upon the transfer of the
assets of MIT to Tax-Exempt in exchange for Tax-Exempt Shares and the
assumption by Tax-Exempt of the stated liabilities or upon the distribution
of Tax-Exempt Shares to the MIT Shareholders in exchange for their MIT
shares;
(d) No gain or loss will be recognized by the MIT Shareholders upon the
exchange of the MIT shares for Tax-Exempt Shares;
(e) The aggregate tax basis for Tax-Exempt Shares received by each MIT
Shareholder pursuant to the reorganization will be the same as the
aggregate tax basis of the MIT Shares held by each such MIT Shareholder
immediately prior to the Reorganization;
(f) The holding period of Tax-Exempt Shares to be received by each MIT
Shareholder will include the period during which the MIT Shares surrendered
in exchange therefor were held (provided such MIT Shares were held as
capital assets on the date of the Reorganization);
(g) The tax basis of the assets of MIT acquired by Tax-Exempt will be
the same as the tax basis of such assets to MIT immediately prior to the
Reorganization; and
(h) The holding period of the assets of MIT in the hands of Tax-Exempt
will include the period during which those assets were held by MIT.
Notwithstanding anything herein to the contrary, neither Tax-Exempt nor
MIT may waive the conditions set forth in this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) Tax-Exempt shall bear its expenses incurred in connection with the
entering into, and carrying out of, the provisions of this Agreement, including
legal, accounting, Commission registration fees and Blue Sky expenses. MIT
shall bear, as set forth in the Proxy Statement and Prospectus contained in the
Registration Statement, its expenses incurred in connection with the entering
into and carrying out of the provisions of this Agreement, including legal and
accounting fees, printing, filing and proxy solicitation expenses incurred in
connection with the consummation of the transactions contemplated herein. MIT
shall bear any other expenses in connection with the provisions of this
Agreement including certain other legal and accounting fees and portfolio
transfer taxes (if any) incurred in connection with the consummation of the
transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of MIT being either unwilling or unable to go forward (other than by
reason of the nonfulfillment or failure of any condition to MIT's obligations
specified in this Agreement), MIT's only obligation hereunder shall be to
reimburse Tax-Exempt for all reasonable out-of-pocket fees and expenses
incurred by Tax-Exempt in connection with those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of Tax-Exempt being either unwilling or unable to go forward (other
than by reason of the nonfulfillment or failure of any
A-12
<PAGE>
condition to Tax-Exempt's obligations specified in this Agreement),
Tax-Exempt's only obligation hereunder shall be to reimburse MIT for all
reasonable out-of-pocket fees and expenses incurred by MIT in connection with
those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of MIT
hereunder shall not survive the dissolution and complete liquidation of MIT in
accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of MIT and Tax-Exempt;
(b) by either Tax-Exempt or MIT by notice to the other, without
liability to the terminating party on account of such termination
(providing the terminating party is not otherwise in material default or
breach of this Agreement) if the Closing shall not have occurred on or
before May 31, 2001; or
(c) by either Tax-Exempt or MIT in writing without liability to the
terminating party on account of such termination (provided the terminating
party is not otherwise in material default or breach of this Agreement), if
(i) the other party shall fail to perform in any material respect its
agreements contained herein required to be performed on or prior to the
Closing Date, (ii) the other party materially breaches any of its
representations, warranties or covenants contained herein, (iii) the MIT
shareholders fail to approve this Agreement at any meeting called for such
purpose at which a quorum was present or (iv) any other condition herein
expressed to be precedent to the obligations of the terminating party has
not been met and it reasonably appears that it will not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of Tax-Exempt or MIT, or the trustees or
officers of Tax-Exempt or MIT, to any other party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Tax-Exempt or MIT, or the trustees or
officers of Tax-Exempt or MIT, except that any party in breach of this
Agreement shall, upon demand, reimburse the non-breaching party for all
reasonable out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, including legal, accounting
and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
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<PAGE>
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of Tax-Exempt hereunder are solely
those of Tax-Exempt. It is expressly agreed that no shareholder, nominee,
trustee, officer, agent, or employee of Tax-Exempt shall be personally liable
hereunder. The execution and delivery of this Agreement have been authorized by
the trustees of Tax-Exempt and signed by authorized officers of Tax-Exempt
acting as such, and neither such authorization by such trustees nor such
execution and delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally.
13.6 The obligations and liabilities of MIT hereunder are solely those of
MIT. It is expressly agreed that no shareholder, nominee, trustee, officer,
agent, or employee of MIT shall be personally liable hereunder. The execution
and delivery of this Agreement have been authorized by the trustees of MIT and
signed by authorized officers of MIT acting as such, and neither such
authorization by such trustees nor such execution and delivery by such officers
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
By: /s/ CHARLES A. FIUMEFREDDO
----------------------------------------------
Name: Charles A. Fiumefreddo
Title: Chairman
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
By: /s/ BARRY FINK
----------------------------------------------
Name: Barry Fink
Title: Vice President
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<PAGE>
PROSPECTUS - FEBRUARY 24, 2000
EXHIBIT B
MORGAN STANLEY DEAN WITTER
--------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES TRUST
[GRAPHIC OMITTED]
A MUTUAL FUND THAT SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM
FEDERAL INCOME TAX, CONSISTENT WITH THE PRESERVATION OF CAPITAL
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
CONTENTS
The Fund Investment Objective .......................... 1
Principal Investment Strategies ............... 1
Principal Risks ............................... 2
Past Performance .............................. 4
Fees and Expenses ............................. 6
Additional Investment Strategy Information .... 7
Additional Risk Information ................... 8
Fund Management ............................... 9
Shareholder Information Pricing Fund Shares ........................... 10
How to Buy Shares ............................. 10
How to Exchange Shares ........................ 12
How to Sell Shares ............................ 14
Distributions ................................. 16
Tax Consequences .............................. 16
Share Class Arrangements ...................... 18
Financial Highlights ............................................... 25
Our Family of Funds .................................. Inside Back Cover
This Prospectus contains important information about the Fund.
Please read it carefully and keep it for future reference.
<PAGE>
THE FUND
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
--------------------
Morgan Stanley Dean Witter Tax-Exempt Securities Trust (the "Fund") seeks to
provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGIES
-------------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The Fund will normally invest at least 80% of its total assets in securities
that pay interest exempt from federal income taxes. The Fund's "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., generally invests the Fund's
assets in municipal obligations. Municipal obligations are bonds, notes or
short-term commercial paper issued by state governments, local governments, and
their respective agencies. At least 75% of these municipal obligations will have
the following ratings at the time of purchase:
o municipal bonds -- within the three highest grades by
Moody's Investors Service Inc.
("Moody's"), Standard & Poor's
Corporation ("S&P"), or Fitch IBCA,
Inc. ("Fitch");
o municipal notes -- within the two highest grades or, if
not rated, have outstanding bonds
within the three highest grades by
Moody's, S&P or Fitch; and
o municipal commercial paper -- within the highest grade by
Moody's, S&P or Fitch.
The Fund may invest up to 25% of its assets in municipal obligations that are
rated below the limits stated above or are not rated by those rating agencies.
However, the Fund may only invest up to 5% of its assets in municipal
obligations rated below investment grade or, if unrated, of comparable quality
as determined by the Investment Manager (commonly known as "junk bonds").
The Fund may invest up to 10% of its assets in inverse floating rate municipal
obligations. The interest rates on these obligations generally move in the
reverse direction of market interest rates. If market interest rates fall, the
interest rate on the obligations will increase and if market interest rates
increase, the interest rate on the obligations will fall.
The Fund may invest up to 20% of its assets in taxable money market instruments
or securities that pay interest income subject to the "alternative minimum tax,"
and some
1
<PAGE>
taxpayers may have to pay tax on a Fund distribution of this income. The Fund
therefore may not be a suitable investment for these investors. See the "Tax
Consequences" section for more details.
Municipal bonds, notes and commercial paper are commonly classified as either
"general obligation" or "revenue." General obligation bonds, notes, and
commercial paper are secured by the issuer's faith and credit including its
taxing power, for payment of principal and interest. Revenue bonds, notes and
commercial paper, however, are generally payable from a specific source of
income. They are issued to fund a wide variety of public and private projects in
sectors such as transportation, education and industrial development. Included
within the revenue category are participations in lease obligations. The Fund's
municipal obligation investments may include zero coupon securities, which are
purchased at a discount and accrue interest, but make no interest payments until
maturity.
In pursuing the Fund's investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys, holds or sells on a
day-to-day basis -- and which investment strategies it uses. For example, the
Investment Manager in its discretion may determine to use some permitted
investment strategies while not using others.
[GRAPHIC OMITTED]
PRINCIPAL RISKS
---------------
There is no assurance that the Fund will achieve its investment objective. The
Fund's share price and yield will fluctuate with changes in the market value of
the Fund's portfolio securities. When you sell Fund shares, they may be worth
less than what you paid for them and, accordingly, you can lose money investing
in this Fund.
Credit and Interest Rate Risks. Municipal obligations, like other debt
securities, are subject to two types of risks: credit risk and interest rate
risk.
Credit risk refers to the possibility that the issuer of a security will be
unable to make interest payments and/or repay the principal on its debt. In the
case of revenue bonds, notes or commercial paper, for example, the credit risk
is the possibility that the user fees from a project or other specified revenue
sources are insufficient to meet interest and/or principal payment obligations.
The issuers of private activity bonds, used to finance projects in sectors such
as industrial development and pollution control, also may be negatively impacted
by the general credit of the user of the project.
Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When the
general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the
prices of most fixed-income securities go up. Zero coupon securities are
typically subject to greater price fluctuations than comparable
2
<PAGE>
securities that pay current interest. As a general illustration of the
relationship between fixed-income securities and interest rates, the following
table shows how interest rates affect bond prices.
HOW INTEREST RATES AFFECT BOND PRICES
PRICE PER $1,000 OF A MUNICIPAL BOND
IF INTEREST RATES:
-------------------------------------------
INCREASE* DECREASE**
-------------------------------------------
YEARS TO
MATURITY BOND MATURITY COUPON 1% 2% 1% 2%
--------------------------------------------------------------------------------
1 2000 3.95% $990 $981 $1,010 $1,020
--------------------------------------------------------------------------------
5 2004 4.70% $957 $916 $1,045 $1,093
--------------------------------------------------------------------------------
10 2009 5.05% $926 $858 $1,082 $1,171
--------------------------------------------------------------------------------
20 2019 5.80% $892 $799 $1,128 $1,278
--------------------------------------------------------------------------------
30 2029 5.95% $875 $773 $1,155 $1,350
--------------------------------------------------------------------------------
Source: Municipal Market Data (a division of Thomson Financial Municipal Group);
"Aaa" yield curve as of 12/31/99. The table is not representative of price
changes for inverse floating rate municipal obligations which typically respond
to changes in interest rates to a greater extent than comparable obligations. In
addition, the table is an illustration and does not represent expected yields or
share price changes of any Morgan Stanley Dean Witter mutual fund.
* Assumes no effect from market discount calculation.
**Assumes bonds are non-callable.
The Fund is not limited as to the maturities of the municipal obligations in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Fund's portfolio securities to fall substantially.
Inverse Floating Rate Municipal Obligations. The inverse floating rate municipal
obligations in which the Fund may invest are typically created through a
division of a fixed rate municipal obligation into two separate instruments, a
short-term obligation and a long-term obligation. The interest rate on the
short-term obligation is set at periodic auctions. The interest rate on the
long-term obligation is the rate the issuer would have paid on the fixed income
obligation: (i) plus the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed rate; or
(ii) minus such difference if the interest rate on the short-term obligation is
higher than the fixed rate. Inverse floating rate municipal obligations offer
the potential for higher income than is available from fixed rate obligations of
comparable maturity and credit rating. They also carry greater risks. In
particular, the prices of inverse floating rate municipal obligations are more
volatile, i.e., they increase and decrease in response to changes in interest
rates to a greater extent than comparable fixed rate obligations.
3
<PAGE>
Other Risks. The performance of the Fund also will depend on whether the
Investment Manager is successful in pursuing the Fund's investment strategy. The
Fund is also subject to other risks from its permissible investments including
the risks associated with its lease obligations investments. For more
information about these risks, see the "Additional Risk Information" section.
Shares of the Fund are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
4
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
----------------
The bar chart and table below provide some indication of the risks of investing
in the Fund. The Fund's past performance does not indicate how the Fund will
perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class D shares has varied
from year to year over the past 10 calendar years.
(end sidebar)
[GRAPHIC OMITTED]
ANNUAL TOTAL RETURNS--CALENDAR YEARS
YEAR PERCENTAGE
1990 5.86%
1991 12.71%
1992 9.09%
1993 11.23%
1994 -5.55%
1995 17.37%
1996 3.61%
1997 8.73%
1998 6.11%
1999 -2.71%
The bar chart reflects the performance of Class D shares. All shares held prior
to the Fund adopting its Multi-Class Structure on July 28, 1997 were designated
Class D Shares. Prior to that date, shares were subject to a front-end sales
charge, which is not reflected in the bar chart. The performance of the other
Classes will differ because the Classes have different ongoing fees.
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Fund's average annual returns with those of a broad
measure of market performance over time. The Fund's returns include the maximum
applicable sales charge for each Class and assume you sold your shares at the
end of each period.
(end sidebar)
During the periods shown in the bar chart, the highest return for a calendar
quarter was 6.89% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -5.50% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
--------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
--------------------------------------------------------------------------------
Class A(1) -6.95% 5.27% 5.73%
--------------------------------------------------------------------------------
Class B(2) -7.86% -- --
--------------------------------------------------------------------------------
Class C(2) -4.29% -- --
--------------------------------------------------------------------------------
Class D(3) -2.71% 6.42% 6.44%
--------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index(4) -2.06% 6.91% 6.89%
--------------------------------------------------------------------------------
1 Prior to July 28, 1997 the Fund offered only one class of shares. Because
the distribution arrangement for Class A most closely resembled the
distribution arrangement applicable prior to the implementation of multiple
classes (i.e., Class A is sold with a front-end sales charge), historical
performance information has been restated to reflect the actual maximum
sales charge applicable to Class A (i.e., 4.25%) as compared to the 4.00%
sales charge in effect prior to July 28, 1997. In addition, Class A shares
are now subject to an ongoing 12b-1 fee which is reflected in the restated
performance for that class.
2 Classes B and C commenced operations on July 28, 1997.
3 Because all shares of the Fund held prior to July 28, 1997 were designated
Class D shares, the Fund's historical performance has been restated to
reflect the absence of any sales charge.
4 The Lehman Brothers Municipal Bond Index tracks the performance of Municipal
bonds with maturities of 2 years or more and a minimum credit rating of Baa
or BBB, as measured by Moody's Investor Service, Inc. or Standard & Poor's
Corp. The Index does not include any expenses, fees, or changes. The Index
is unmanaged and should not be considered an investment.
5
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
-----------------
The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund offers four Classes of shares: Classes
A, B, C and D. Each Class has a different combination of fees, expenses and
other features. The Fund does not charge account or exchange fees. See the
"Share Class Arrangements" section for further fee and expense information.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.25%(1) None None None
-------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
-------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
-------------------------------------------------------------------------------------------------
Management fee 0.44% 0.44% 0.44% 0.44%
-------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.13% 0.60% 0.70% None
-------------------------------------------------------------------------------------------------
Other expenses 0.07% 0.07% 0.07% 0.07%
-------------------------------------------------------------------------------------------------
Total annual Fund operating expenses 0.64% 1.11% 1.21% 0.51%
-------------------------------------------------------------------------------------------------
</TABLE>
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended December 31, 1999.
(end sidebar)
(1) Reduced for purchases of $25,000 and over.
(2) Investments that are not subject to any sales charge at the time of purchase
are subject to a contingent deferred sales charge ("CDSC") of 1.00% that
will be imposed if you sell your shares within one year after purchase,
except for certain specific circumstances.
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of
the CDSC.
(4) Only applicable if you sell your shares within one year after purchase.
6
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year, and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the tables below show your costs at
the end of each period based on these assumptions depending upon whether or not
you sell (redeem) your shares at the end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
----------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------- --------------------------------------
CLASS A $488 $621 $767 $1,189 $488 $621 $767 $1,189
----------------------------------------------- --------------------------------------
CLASS B $613 $653 $812 $1,352 $113 $353 $612 $1,352
----------------------------------------------- --------------------------------------
CLASS C $223 $384 $665 $1,466 $123 $384 $665 $1,466
----------------------------------------------- --------------------------------------
CLASS D $52 $164 $285 $640 $52 $164 $285 $640
----------------------------------------------- --------------------------------------
</TABLE>
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
[GRAPHIC OMITTED]
ADDITIONAL INVESTMENT STRATEGY INFORMATION
------------------------------------------
This section provides additional information relating to the Fund's principal
strategies.
Lease Obligations. Included within the revenue bonds category are participations
in lease obligations or installment purchase contracts of municipalities.
Generally, state and local agencies or authorities issue lease obligations to
acquire equipment and facilities for public and private purposes.
Defensive Investing. The Fund may take temporary "defensive" positions in
attempting to respond to adverse market conditions. The Fund may invest any
amount of its assets in taxable securities, or in tax-exempt securities subject
to the federal alternative minimum tax for individual shareholders when the
Investment Manager believes it is advisable to do so. Although taking a
defensive posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the Fund's ability to provide
tax-exempt income. When the Fund takes a defensive position, it may not achieve
its investment objective.
The percentage limitations relating to the composition of the Fund's portfolio
apply at the time the Fund acquires an investment and refer to the Fund's net
assets, unless otherwise noted. Subsequent percentage changes that result from
market fluctuations
7
<PAGE>
will not require the Fund to sell any portfolio security. The Fund may change
its principal investment strategies without shareholder approval; however, you
would be notified of any changes.
[GRAPHIC OMITTED]
ADDITIONAL RISK INFORMATION
---------------------------
This section provides additional information relating to the principal risks of
investing in the Fund.
Bond Insurance Risk. Many of the municipal obligations the Fund invests in will
be covered by insurance at the time of issuance or at a later date. Such
insurance covers the remaining term of the security. Insured municipal
obligations would generally be assigned a lower rating if the rating were based
primarily on the credit quality of the issuer without regard to the insurance
feature. If the claims-paying ability of the insurer were downgraded, the
ratings on the municipal obligations it insures may also be downgraded.
Lease Obligations. 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, in part, 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 that 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 these legislative actions do not occur, the holders of
the lease obligation may experience difficulty in exercising their rights,
including disposition of the property.
8
<PAGE>
[GRAPHIC OMITTED]
FUND MANAGEMENT
----------------
(sidebar)
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc.,
its wholly-owned subsidiary, had approximately $145 billion in assets under
management as of January 31, 2000.
(end sidebar)
The Fund has retained the Investment Manager -- Morgan Stanley Dean Witter
Advisors Inc. -- to provide administrative services, manage its business affairs
and invest its assets, including the placing of orders for the purchase and sale
of portfolio securities. The Investment Manager is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co., a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services. Its main business office is
located at Two World Trade Center, New York, NY 10048.
The Fund's portfolio is managed within the Investment Manager's Tax-Exempt
Group. James F. Willison, Senior Vice President and Director of the Tax-Exempt
Fixed-Income Group of the Investment Manager has been a primary portfolio
manager of the Fund since its inception. Joseph R. Arcieri, Senior Vice
President of the Investment Manager, has been a primary portfolio manager of the
Fund since February 1997. Mr. Willison and Mr. Arcieri have been portfolio
managers with the Investment Manager for over five years.
The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Manager. The fee is based on the Fund's
average daily net assets. For the fiscal year ended December 31, 1999, the Fund
accrued total compensation to the Investment Manager amounting to 0.44% of the
Fund's average daily net assets.
9
<PAGE>
SHAREHOLDER INFORMATION
[GRAPHIC OMITTED]
PRICING FUND SHARES
-------------------
The price of Fund shares (excluding sales charges), called "net asset value," is
based on the value of the Fund's portfolio securities. While the assets of each
Class are invested in a single portfolio of securities, the net asset value of
each Class will differ because the Classes have different ongoing distribution
fees.
The net asset value per share of the Fund is determined once daily at 4:00 p.m.
Eastern 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). Shares will not be priced on days that the New York Stock Exchange is
closed.
The Fund's portfolio securities (except for short-term taxable debt securities
and certain other investments) are valued by an outside independent pricing
service. The service uses a computerized grid matrix of tax-exempt securities
and its evaluations in determining what it believes is the fair value of the
portfolio securities. The Fund's Board of Trustees believes that timely and
reliable market quotations are generally not readily available to the Fund to
value tax-exempt securities and the valuations that the pricing service supplies
are more likely to approximate the fair value of the securities.
An exception to the Fund's general pricing policy concerns its short-term debt
securities. Debt securities with remaining maturities of sixty days or less at
the time of purchase are valued at amortized cost. However, if the cost does not
reflect the securities' market value, these securities will be valued at their
fair value.
[GRAPHIC OMITTED]
HOW TO BUY SHARES
-----------------
(sidebar)
CONTACTING A FINANCIAL ADVISOR
If you are new to the Morgan Stanley Dean Witter Family of Funds and would like
to contact a Financial Advisor, call (877) 937-MSDW (toll-free) for the
telephone number of the Morgan Stanley Dean Witter office nearest you. You may
also access our office locator on our Internet site at:
www.msdw.com/individual/funds
(end sidebar)
You may open a new account to buy Fund shares or buy additional Fund shares for
an existing account by contacting your Morgan Stanley Dean Witter Financial
Advisor. Your Financial Advisor or other authorized financial representative
will assist you, step-by-step, with the procedures to invest in the Fund. You
may also purchase shares directly by calling the Fund's transfer agent and
requesting an application.
Because every investor has different immediate financial needs and long-term
investment goals, the Fund offers investors four Classes of shares: Classes A,
B, C and D. Class D shares are only offered to a limited group of investors.
Each Class of shares offers a distinct structure of sales charges, distribution
and service fees, and other features that are designed to address a variety of
needs. Your Financial Advisor or other authorized financial representative can
help you decide which Class may be most appropriate for you. When purchasing
Fund shares, you must specify which Class of shares you wish to purchase.
10
<PAGE>
When you buy Fund shares, the shares are purchased at the next share price
calculated (less any applicable front-end sales charge for Class A shares) after
we receive your purchase order. Your payment is due on the third business day
after you place your purchase order. We reserve the right to reject any order
for the purchase of Fund shares.
(sidebar)
EASYINVEST(SM)
A purchase plan that allows you to transfer money automatically from your
checking or savings account or from a Money Market Fund on a semi-monthly,
monthly or quarterly basis. Contact your Morgan Stanley Dean Witter Financial
Advisor for further information about this service.
(end sidebar)
MINIMUM INVESTMENT AMOUNTS
--------------------------------------------------------------
MINIMUM INVESTMENT
--------------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
--------------------------------------------------------------
Regular Accounts $1,000 $100
--------------------------------------------------------------
EasyInvest(SM)
(Automatically from your
checking or savings account
or Money Market Fund) $100* $100*
--------------------------------------------------------------
* Provided your schedule of investments totals $1,000 in twelve months.
There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Manager's mutual fund asset allocation plan, (2) a program,
approved by the Fund's distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services, or (3) employer-sponsored
employee benefit plan accounts.
Investment Options for Certain Institutional and Other Investors/Class D Shares.
To be eligible to purchase Class D shares, you must qualify under one of the
investor categories specified in the "Share Class Arrangements" section of this
Prospectus.
Subsequent Investments Sent Directly to the Fund. In addition to buying
additional Fund shares for an existing account by contacting your Morgan Stanley
Dean Witter Financial Advisor, you may send a check directly to the Fund. To buy
additional shares in this manner:
o Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification number,
the Class of shares you wish to purchase and the investment amount (which
would include any applicable front-end sales charge). The letter must be
signed by the account owner(s).
o Make out a check for the total amount payable to: Morgan Stanley Dean Witter
Tax-Exempt Securities Trust.
o Mail the letter and check to Morgan Stanley Dean Witter Trust FSB at P.O. Box
1040, Jersey City, NJ 07303.
11
<PAGE>
[GRAPHIC OMITTED]
HOW TO EXCHANGE SHARES
----------------------
Permissible Fund Exchanges. You may exchange shares of any Class of the Fund for
the same Class of any other continuously offered Multi-Class Fund, or for shares
of a No-Load Fund, a Money Market Fund, North American Government Income Trust
or Short-Term U.S. Treasury Trust, without the imposition of an exchange fee.
See the inside back cover of this prospectus for each Morgan Stanley Dean Witter
Fund's designation as a Multi-Class Fund, No-Load Fund or Money Market Fund. If
a Morgan Stanley Dean Witter Fund is not listed, consult the inside back cover
of that Fund's prospectus for its designation. For purposes of exchanges, shares
of FSC Funds (subject to a front-end sales charge) are treated as Class A shares
of a Multi-Class Fund.
Exchanges may be made after shares of the Fund acquired by purchase have been
held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. The current prospectus for each
fund describes its investment objective(s), policies and investment minimums,
and should be read before investment. Since exchanges are available only into
continuously offered Morgan Stanley Dean Witter Funds, exchanges are not
available into any new Morgan Stanley Dean Witter Fund during its initial
offering period, or when shares of a particular Morgan Stanley Dean Witter Fund
are not being offered for purchase.
Exchange Procedures. You can process an exchange by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative. Otherwise, you must forward an exchange privilege authorization
form to the Fund's transfer agent -- Morgan Stanley Dean Witter Trust FSB -- and
then write the transfer agent or call (800) 869-NEWS to place an exchange order.
You can obtain an exchange privilege authorization form by contacting your
Financial Advisor or other authorized financial representative, or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be processed
until we have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a Money Market Fund)
is made on the basis of the next calculated net asset values of the Funds
involved after the exchange instructions are accepted. When exchanging into a
Money Market Fund, the Fund's shares are sold at their next calculated net asset
value and the Money Market Fund's shares are purchased at their net asset value
on the following business day.
The Fund may terminate or revise the exchange privilege upon required notice.
The check writing privilege is not available for Money Market Fund shares you
acquire in an exchange.
Telephone Exchanges. For your protection when calling Morgan Stanley Dean Witter
Trust FSB, we will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. These procedures may
include
12
<PAGE>
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number. Telephone
instructions also may be recorded.
Telephone instructions will be accepted if received by the Fund's transfer agent
between 9:00 a.m. and 4:00 p.m. Eastern time on any day the New York Stock
Exchange is open for business. 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 Fund in the past.
Margin Accounts. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative regarding restrictions on the exchange of such shares.
Tax Considerations of Exchanges. If you exchange shares of the Fund for shares
of another Morgan Stanley Dean Witter Fund there are important tax
considerations. For tax purposes, the exchange out of the Fund is considered a
sale of Fund shares -- and the exchange into the other Fund is considered a
purchase. As a result, you may realize a capital gain or loss.
You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.
Limitations on Exchanges. Certain patterns of exchanges may result in the Fund
limiting or prohibiting, at its discretion, additional purchases and/or
exchanges. Determinations in this regard may be made based on the frequency or
dollar amount of previous exchanges. The Fund will notify you in advance of
limiting your exchange privileges.
CDSC Calculations on Exchanges. See the "Share Class Arrangements" section of
this Prospectus for a further discussion of how applicable contingent deferred
sales charges (CDSCs) are calculated for shares of one Morgan Stanley Dean
Witter Fund that are exchanged for shares of another.
For further information regarding exchange privileges, you should contact your
Morgan Stanley Dean Witter Financial Advisor or call (800) 869-NEWS.
13
<PAGE>
[GRAPHIC OMITTED]
HOW TO SELL SHARES
------------------
You can sell some or all of your Fund shares at any time. If you sell Class A,
Class B or Class C shares, your net sale proceeds are reduced by the amount of
any applicable CDSC. Your shares will be sold at the next price calculated after
we receive your order to sell as described below.
OPTIONS PROCEDURES
--------------------------------------------------------------------------------
Contact Your To sell your shares, simply call your Morgan Stanley
Financial Advisor Dean Witter Financial Advisor or other authorized
financial representative.
--------------------------------------------------------
[GRAPHIC OMITTED] Payment will be sent to the address to which the account
is registered or deposited in your brokerage account.
--------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a
"letter of instruction" that includes:
o your account number;
o the dollar amount or the number
of shares you wish to sell;
o the Class of shares you wish to sell; and
[GRAPHIC OMITTED] o the signature of each owner as it appears on the
account.
--------------------------------------------------------
If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any
address other than the address of the registered
owner(s) or pre-designated bank account, you will need a
signature guarantee. You can obtain a signature
guarantee from an eligible guarantor acceptable to
Morgan Stanley Dean Witter Trust FSB. (You should
contact Morgan Stanley Dean Witter Trust FSB at (800)
869-NEWS for a determination as to whether a particular
institution is an eligible guarantor.) A notary public
cannot provide a signature guarantee. Additional
documentation may be required for shares held by a
corporation, partnership, trustee or executor.
--------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 983, Jersey City, NJ 07303. If you hold
share certificates, you must return the certificates,
along with the letter and any required additional
documentation.
--------------------------------------------------------
A check will be mailed to the name(s) and address in
which the account is registered, or otherwise according
to your instructions.
--------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean
Withdrawal Plan Witter Family of Funds has a total Withdrawal Plan
[GRAPHIC OMITTED] market value of at least $10,000, you may elect to
withdraw amounts of $25 or more, or in any whole
percentage of a Fund's balance (provided the amount is
at least $25), on a monthly, quarterly, semi-annual or
annual basis, from any Fund with a balance of at least
$1,000. Each time you add a Fund to the plan, you must
meet the plan requirements.
--------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A
CDSC may be waived under certain circumstances. See the
Class B waiver categories listed in the "Share Class
Arrangements" section of this Prospectus.
--------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact
your Morgan Stanley Dean Witter Financial Advisor or
call (800) 869-NEWS. You may terminate or suspend your
plan at any time. Please remember that withdrawals from
the plan are sales of shares, not Fund "distributions,"
and ultimately may exhaust your account balance. The
Fund may terminate or revise the plan at any time.
--------------------------------------------------------
14
<PAGE>
Payment for Sold Shares. After we receive your complete instructions to sell as
described above, a check will be mailed to you within seven days, although we
will attempt to make payment within one business day. Payment may also be sent
to your brokerage account.
Payment may be postponed or the right to sell your shares suspended, under
unusual circumstances. If you request to sell shares that were recently
purchased by check, your sale will not be effected until it has been verified
that the check has been honored.
Reinstatement Privilege. If you sell Fund shares and have not previously
exercised the reinstatement privilege, you may, within 35 days after the date of
sale, invest any portion of the proceeds in the same Class of Fund shares at
their net asset value and receive a pro rata credit for any CDSC paid in
connection with the sale.
Involuntary Sales. The Fund reserves the right, on sixty days' notice, to sell
the shares of any shareholder (other than shares held in an IRA or 403(b)
Custodial Account) whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through EasyInvest(SM), if after
12 months the shareholder has invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner, we will notify you
and allow you sixty days to make an additional investment in an amount that will
increase the value of your account to at least the required amount before the
sale is processed. No CDSC will be imposed on any involuntary sale.
Margin Accounts. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative regarding restrictions on the sale of such shares.
15
<PAGE>
[GRAPHIC OMITTED]
DISTRIBUTIONS
-------------
(sidebar)
TARGETED DIVIDENDS(SM)
You may select to have your Fund distributions automatically invested in other
Classes of Fund shares or Classes of another Morgan Stanley Dean Witter Fund
that you own. Contact your Morgan Stanley Dean Witter Financial Advisor for
further information about this service.
(end sidebar)
The Fund passes substantially all of its earnings from income and capital gains
along to its investors as "distributions." The Fund earns interest from
fixed-income investments. These amounts are passed along to Fund shareholders as
"income dividend distributions." The Fund realizes capital gains whenever it
sells securities for a higher price than it paid for them. These amounts may be
passed along as "capital gain distributions."
The Fund declares income dividends separately for each Class. Distributions paid
on Class A and Class D shares usually will be higher than for Class B and Class
C because distribution fees that Class B and Class C pay are higher. Normally,
income dividends are declared on each day the New York Stock Exchange is open
for business, and are distributed to shareholders monthly. Capital gains, if
any, are usually distributed in June and December. The Fund, however, may retain
and reinvest any long-term capital gains. The Fund may at times make payments
from sources other than income or capital gains that represent a return of a
portion of your investment.
Distributions are reinvested automatically in additional shares of the same
Class and automatically credited to your account, unless you request in writing
that all distributions be paid in cash. If you elect the cash option, processing
of your dividend checks begins immediately following the monthly payment date,
and the Fund will mail a monthly dividend check to you normally during the first
seven days of the following month. No interest will accrue on uncashed checks.
If you wish to change how your distributions are paid, your request should be
received by the Fund's transfer agent, Morgan Stanley Dean Witter Trust FSB, at
least five business days prior to the record date of the distributions.
[GRAPHIC OMITTED]
TAX CONSEQUENCES
----------------
As with any investment, you should consider how your Fund investment will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Fund.
You need to be aware of the possible tax consequences when:
o The Fund makes distributions; and
o You sell Fund shares, including an exchange to another Morgan Stanley Dean
Witter Fund.
16
<PAGE>
Taxes on Distributions. Your income dividend distributions are normally exempt
from federal income taxes -- to the extent they are derived from municipal
obligations. Income derived from other portfolio securities may be subject to
federal, state and/or local income taxes.
Income derived from some municipal securities is subject to the federal
"alternative minimum tax." Certain tax-exempt securities whose proceeds are used
to finance private, for-profit organizations are subject to this special tax
system that ensures that individuals pay at least some federal taxes. Although
interest on these securities is generally exempt from federal income tax, some
taxpayers who have many tax deductions or exemptions nevertheless may have to
pay tax on the income.
If you borrow money to purchase shares of the Fund, the interest on the borrowed
money is generally not deductible for personal income tax purposes.
If the Fund makes any capital gain distributions, those distributions will
normally be subject to federal income tax when they are paid, whether you take
them in cash or reinvest them in the Fund shares. Any long-term capital gain
distributions are taxable to you as long-term capital gains, no matter how long
you have owned shares in the Fund.
The Fund may derive gains in part from municipal obligations the Fund purchased
below their principal or face values. All, or a portion, of these gains may be
taxable to you as ordinary income rather than capital gains.
Taxes on Sales. Your sale of Fund shares normally is subject to federal and
state income tax and may result in a taxable gain or loss to you. A sale also
may be subject to local income tax. Your exchange of Fund shares for shares of
another Morgan Stanley Dean Witter Fund is treated for tax purposes like a sale
of your original shares and a purchase of your new shares. Thus, the exchange
may, like a sale, result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
When you open your Fund account, you should provide your social security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to a federal backup withholding tax of
31% on taxable distributions and redemption proceeds. Any withheld amount would
be sent to the IRS as an advance tax payment.
17
<PAGE>
[GRAPHIC OMITTED]
SHARE CLASS ARRANGEMENTS
------------------------
The Fund offers several Classes of shares having different distribution
arrangements designed to provide you with different purchase options according
to your investment needs. Your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative can help you decide which Class may be
appropriate for you.
The general public is offered three Classes: Class A shares, Class B shares and
Class C shares, which differ principally in terms of sales charges and ongoing
expenses. A fourth Class, Class D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested distributions will not
be subject to any front-end sales charge or CDSC -- contingent deferred sales
charge. Sales personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide for the
distribution financing of shares of that Class.
The chart below compares the sales charge and maximum annual 12b-1 fee
applicable to each Class:
MAXIMUM
CLASS SALES CHARGE ANNUAL 12B-1 FEE
--------------------------------------------------------------------------------
A Maximum 4.25% initial sales charge reduced for
purchases of $25,000 or more; shares sold
without an initial sales charge are generally
subject to a 1.0% CDSC during the first year 0.25%
--------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year
decreasing to 0% after six years 0.60%
--------------------------------------------------------------------------------
C 1.0% CDSC during the first year 0.70%
--------------------------------------------------------------------------------
D None None
--------------------------------------------------------------------------------
CLASS A SHARES Class A shares are sold at net asset value plus an initial sales
charge of up to 4.25%. The initial sales charge is reduced for purchases of
$25,000 or more according to the schedule below. Investments of $1 million or
more are not subject to an initial sales charge, but are generally subject to a
contingent deferred sales charge, or CDSC, of 1.0% on sales made within one year
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25% of the
average daily net assets of the Class.
18
<PAGE>
The offering price of Class A shares includes a sales charge (expressed as a
percentage of the offering price) on a single transaction as shown in the
following table:
(sidebar)
FRONT-END SALES CHARGE OR FSC
An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges -- the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
(end sidebar)
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
------------------------------------------------
AMOUNT OF PERCENTAGE OF APPROXIMATE PERCENTAGE
SINGLE TRANSACTION PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED
---------------------------------------------------------------------------------------
<S> <C> <C>
Less than $25,000 4.25% 4.44%
---------------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00% 4.17%
---------------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50% 3.63%
---------------------------------------------------------------------------------------
$100,000 but less than $250,000 2.75% 2.83%
---------------------------------------------------------------------------------------
$250,000 but less than $1 million 1.75% 1.78%
---------------------------------------------------------------------------------------
$1 million and over 0 0
---------------------------------------------------------------------------------------
</TABLE>
The reduced sales charge schedule is applicable to purchases of Class A shares
in a single transaction by:
o A single account (including an individual, trust or fiduciary account).
o Family member accounts (limited to husband, wife and children under the age of
21).
o Pension, profit sharing or other employee benefit plans of companies and their
affiliates.
o Tax-exempt organizations.
o Groups organized for a purpose other than to buy mutual fund shares.
Combined Purchase Privilege. You also will have the benefit of reduced sales
charges by combining purchases of Class A shares of the Fund in a single
transaction with purchases of Class A shares of other Multi-Class Funds and
shares of FSC Funds.
Right of Accumulation. You also may benefit from a reduction of sales charges if
the cumulative net asset value of Class A shares of the Fund purchased in a
single transaction, together with shares of other Funds you currently own which
were previously purchased at a price including a front-end sales charge
(including shares acquired through reinvestment of distributions), amounts to
$25,000 or more. Also, if you have a cumulative net asset value of all your
Class A and Class D shares equal to at least $5 million (or $25 million for
certain employee benefit plans), you are eligible to purchase Class D shares of
any Fund subject to the Fund's minimum initial investment requirement.
19
<PAGE>
You must notify your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative (or Morgan Stanley Dean Witter Trust FSB if
you purchase directly through the Fund), 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 when an order is
placed by mail. The reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or (ii) a review of the
records of Dean Witter Reynolds or other authorized dealer of Fund shares or the
Fund's transfer agent does not confirm your represented holdings.
Letter of Intent. The schedule of reduced sales charges for larger purchases
also will be available to you if you enter into a written "letter of intent." A
letter of intent provides for the purchase of Class A shares of the Fund or
other Multi-Class Funds or shares of FSC Funds within a thirteen-month period.
The initial purchase under a letter of intent must be at least 5% of the stated
investment goal. To determine the applicable sales charge reduction, you may
also include: (1) the cost of shares of other Morgan Stanley Dean Witter Funds
which were previously purchased at a price including a front-end sales charge
during the 90-day period prior to the distributor receiving the letter of
intent, and (2) the cost of shares of other Funds you currently own acquired in
exchange for shares of Funds purchased during that period at a price including a
front-end sales charge. You can obtain a letter of intent by contacting your
Morgan Stanley Dean Witter Financial Advisor or other authorized financial
representative, or by calling (800) 869-NEWS. If you do not achieve the stated
investment goal within the thirteen-month period, you are required to pay the
difference between the sales charges otherwise applicable and sales charges
actually paid, which may be deducted from your investment.
Other Sales Charge Waivers. In addition to investments of $1 million or more,
your purchase of Class A shares is not subject to a front-end sales charge (or a
CDSC upon sale) if your account qualifies under one of the following categories:
o A trust for which Morgan Stanley Dean Witter Trust FSB provides discretionary
trustee services.
o Persons participating in a fee-based investment program (subject to all of its
terms and conditions, including termination fees, mandatory sale or transfer
restrictions on termination) approved by the Fund's distributor pursuant to
which they pay an asset-based fee for investment advisory, administrative and/
or brokerage services.
o A client of a Morgan Stanley Dean Witter Financial Advisor who joined us from
another investment firm within six months prior to the date of purchase of
Fund shares, and you used the proceeds from the sale of shares of a
proprietary mutual fund of that Financial Advisor's previous firm that imposed
either a front-end or deferred sales charge to purchase Class A shares,
provided that: (1) you sold the shares not more than 60 days prior to the
purchase of fund shares, and (2) the sale proceeds were maintained in the
interim in cash or a money market fund.
20
<PAGE>
o Current or retired Directors/Trustees of the Morgan Stanley Dean Witter Funds,
such persons' spouses and children under the age of 21, and trust accounts for
which any of such persons is a beneficiary.
o Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, such persons' spouses and children
under the age of 21, and trust accounts for which any of such persons is a
beneficiary.
CLASS B SHARES Class B shares are offered at net asset value with no initial
sales charge but are subject to a contingent deferred sales charge, or CDSC, as
set forth in the table below. For the purpose of calculating the CDSC, shares
are deemed to have been purchased on the last day of the month during which they
were purchased.
(sidebar)
CONTINGENT DEFERRED SALES CHARGE OR CDSC
A fee you pay when you sell shares of certain Morgan Stanley Dean Witter Funds
purchased without an initial sales charge. This fee declines the longer you hold
your shares as set forth in the table.
(end sidebar)
CDSC AS A PERCENTAGE OF
YEAR SINCE PURCHASE PAYMENT MADE AMOUNT REDEEMED
---------------------------------------------------------------------
First 5.0%
---------------------------------------------------------------------
Second 4.0%
---------------------------------------------------------------------
Third 3.0%
---------------------------------------------------------------------
Fourth 2.0%
---------------------------------------------------------------------
Fifth 2.0%
---------------------------------------------------------------------
Sixth 1.0%
---------------------------------------------------------------------
Seventh and thereafter None
---------------------------------------------------------------------
Each time you place an order to sell or exchange shares, shares with no CDSC
will be sold or exchanged first, then shares with the lowest CDSC will be sold
or exchanged next. For any shares subject to a CDSC, the CDSC will be assessed
on an amount equal to the lesser of the current market value or the cost of the
shares being sold. A lower CDSC schedule applies in most cases to shares of the
Fund acquired in connection with the reorganization of Dean Witter National
Municipal Trust and the Fund on November 7, 1997.
CDSC Waivers. A CDSC, if otherwise applicable, will be waived in the case of:
o Sales of shares held at the time you die or become disabled (within the
definition in Section 72(m)(7) of the Internal Revenue Code which relates to
the ability to engage in gainful employment), if the shares are:
(i) registered either in your name (not a trust) or in the names of you and
your spouse as joint tenants with right of survivorship; or (ii) held in a
qualified corporate or self-employed retirement plan, IRA or 403(b) Custodial
Account, provided in either case that the sale is requested within one year of
your death or initial determination of disability.
o Sales in connection with the following retirement plan "distributions:" (i)
lump-sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or, in the case of a "key employee" of a
"top
21
<PAGE>
heavy" plan, following attainment of age 59 1/2); (ii) distributions from an
IRA or 403(b) Custodial Account following attainment of age 59 1/2; or (iii) a
tax-free return of an excess IRA contribution (a "distribution" does not include
a direct transfer of IRA, 403(b) Custodial Account or retirement plan assets to
a successor custodian or trustee).
o Sales of shares in connection with the Systematic Withdrawal Plan of up
to 12% annually of the value of each Fund from which plan sales are
made. The percentage is determined on the date you establish the
Systematic Withdrawal Plan and based on the next calculated share price.
You may have this CDSC waiver applied in amounts up to 1% per month, 3%
per quarter, 6% semi-annually or 12% annually. Shares with no CDSC will
be sold first, followed by those with the lowest CDSC. As such, the
waiver benefit will be reduced by the amount of your shares that are not
subject to a CDSC. If you suspend your participation in the plan, you
may later resume plan payments without requiring a new determination of
the account value for the 12% CDSC waiver.
o Sales of shares if you simultaneously invest the proceeds in the
Investment Manager's mutual fund asset allocation program, pursuant
to which investors pay an asset-based fee. Any shares you acquire
in connection with the Investment Manager's mutual fund asset
allocation program are subject to all of the terms and conditions
of that program, including termination fees, mandatory sale or
transfer restrictions on termination.
All waivers will be granted only following the Fund's distributor receiving
confirmation of your entitlement. If you believe you are eligible for a CDSC
waiver, please contact your Financial Advisor or call (800) 869-NEWS.
Distribution Fee. Class B shares are also subject to an annual 12b-1 fee of
0.60% of the average daily net assets of Class B.
Conversion Feature. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales charge. The
ten year period runs from the last day of the month in which the shares were
purchased, or in the case of Class B shares acquired through an exchange, from
the last day of the month in which the original Class B shares were purchased;
the shares will convert to Class A shares based on their relative net asset
values in the month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically reinvested
distributions will convert to Class A shares on the same basis. (Class B shares
held before May 1, 1997, however, will convert to Class A shares in May 2007.)
Currently, the Class B share conversion is not a taxable event; the conversion
feature may be cancelled if it is deemed a taxable event in the future by the
Internal Revenue Service.
22
<PAGE>
If you exchange your Class B shares for shares of a Money Market Fund, a No-Load
Fund, North American Government Income Trust or Short-Term U.S. Treasury Trust,
the holding period for conversion is frozen as of the last day of the month of
the exchange and resumes on the last day of the month you exchange back into
Class B shares.
Exchanging Shares Subject to a CDSC. There are special considerations when you
exchange Fund shares that are subject to a CDSC. When determining the length of
time you held the shares and the corresponding CDSC rate, any period (starting
at the end of the month) during which you held shares of a fund that does not
charge a CDSC will not be counted. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a fund that does
not charge a CDSC.
For example, if you held Class B shares of the Fund for one year, exchanged to
Class B of another Morgan Stanley Dean Witter Multi-Class Fund for another year,
then sold your shares, a CDSC rate of 4% would be imposed on the shares based on
a two year holding period -- one year for each Fund. However, if you had
exchanged the shares of the Fund for a Money Market Fund (which does not charge
a CDSC) instead of the Multi-Class Fund, then sold your shares, a CDSC rate of
5% would be imposed on the shares based on a one year holding period. The one
year in the Money Market Fund would not be counted. Nevertheless, if shares
subject to a CDSC are exchanged for a Fund that does not charge a CDSC, you will
receive a credit when you sell the shares equal to the distribution (12b-1)
fees, if any, you paid on those shares while in that Fund up to the amount of
any applicable CDSC.
In addition, shares that are exchanged into or from a Morgan Stanley Dean Witter
Fund subject to a higher CDSC rate will be subject to the higher rate, even if
the shares are re-exchanged into a Fund with a lower CDSC rate.
CLASS C SHARES Class C shares are sold at net asset value with no initial sales
charge but are subject to a CDSC of 1.0% on sales made within one year after the
last day of the month of purchase. The CDSC will be assessed in the same manner
and with the same CDSC waivers as with Class B shares.
Distribution Fee. Class C shares are subject to an annual distribution (12b-1)
fee of up to 0.70% of the average daily net assets of that Class. The Class C
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A or Class D shares. Unlike Class B shares, Class C
shares have no conversion feature and, accordingly, an investor that purchases
Class C shares may be subject to distribution (12b-1) fees applicable to Class C
shares for an indefinite period.
23
<PAGE>
CLASS D SHARES Class D shares are offered without any sales charge on purchases
or sales and without any distribution (12b-1) fee. Class D shares are offered
only to investors meeting an initial investment minimum of $5 million and the
following investor categories:
o Investors participating in the Investment Manager's mutual fund asset
allocation program (subject to all of its terms and conditions, including
termination fees, mandatory sale or transfer restrictions on termination)
pursuant to which they pay an asset-based fee.
o Persons participating in a fee-based investment program (subject to all of its
terms and conditions, including termination fees, mandatory sale or transfer
restrictions on termination) approved by the Fund's distributor pursuant to
which they pay an asset-based fee for investment advisory, administrative and/
or brokerage services.
o Certain unit investment trusts sponsored by Dean Witter Reynolds.
o Certain other open-end investment companies whose shares are distributed by
the Fund's distributor.
o Investors who were shareholders of the Dean Witter Retirement Series on
September 11, 1998 for additional purchases for their former Dean Witter
Retirement Series accounts.
Meeting Class D Eligibility Minimums. To meet the $5 million initial investment
to qualify to purchase Class D shares you may combine: (1) purchases in a single
transaction of Class D shares of the Fund and other Morgan Stanley Dean Witter
Multi-Class Funds and/or (2) previous purchases of Class A and Class D shares of
Multi-Class Funds and shares of FSC Funds you currently own, along with shares
of Morgan Stanley Dean Witter Funds you currently own that you acquired in
exchange for those shares.
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a cash payment
representing an income dividend or capital gain and you reinvest that amount in
the applicable Class of shares by returning the check within 30 days of the
payment date, the purchased shares would not be subject to an initial sales
charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act of
1940 with respect to the distribution of Class A, Class B and Class C shares.
The Plan allows the Fund to pay distribution fees for the sale and distribution
of these shares. It also allows the Fund to pay for services to shareholders of
Class A, Class B and Class C shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase the cost
of your investment in these Classes and may cost you more than paying other
types of sales charges.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost
on an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JULY 28, 1997*
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A
----------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA:
----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.02 $12.09 $12.00
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.58 0.59 0.25
Net realized and unrealized gain (loss) (0.91) 0.10 0.14
-------- -------- -----
Total income (loss) from investment operations (0.33) 0.69 0.39
----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.58) (0.59) (0.25)
Net realized gain (0.03) (0.17) (0.05)
-------- -------- ------
Total dividends and distributions (0.61) (0.76) (0.30)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.08 $12.02 $12.09
----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.82)% 5.86% 3.31%(1)
----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
----------------------------------------------------------------------------------------------------------------------
Expenses 0.64%(4)(5) 0.74%(4)(5) 0.76%(2)(3)
----------------------------------------------------------------------------------------------------------------------
Net investment income 4.98%(5) 4.88%(5) 4.96%(2)
----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $17,198 $15,041 $3,857
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13% 15% 16%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.02%.
(4) Does not reflect the effect of expense offset of 0.01%.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
25
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JULY 28, 1997*
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B
----------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA:
----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.07 $12.14 $12.00
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.53 0.55 0.23
Net realized and unrealized gain (loss) (0.91) 0.10 0.19
-------- -------- --------
Total income (loss) from investment operations (0.38) 0.65 0.42
----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.53) (0.55) (0.23)
Net realized gain (0.03) (0.17) (0.05)
-------- -------- --------
Total dividends and distributions (0.56) (0.72) (0.28)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.13 $12.07 $12.14
----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (3.25)% 5.47% 3.57%(1)
----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
----------------------------------------------------------------------------------------------------------------------
Expenses 1.11%(4)(5) 1.10%(4)(5) 1.14%(2)(3)
----------------------------------------------------------------------------------------------------------------------
Net investment income 4.51%(5) 4.52%(5) 4.87%(2)
----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $139,786 $132,303 $95,573
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13% 15% 16%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.02%.
(4) Does not reflect the effect of expense offset of 0.01%.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
26
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JULY 28, 1997*
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C
----------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA:
----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.04 $12.11 $12.00
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.51 0.53 0.23
Net realized and unrealized gain (loss) (0.91) 0.10 0.16
-------- --------- ---------
Total income (loss) from investment
operations (0.40) 0.63 0.39
----------------------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.51) (0.53) (0.23)
Net realized gain (0.03) (0.17) (0.05)
-------- --------- ---------
Total dividends and distributions (0.54) (0.70) (0.28)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.10 $12.04 $12.11
----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (3.37)% 5.36% 3.28%(1)
----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
----------------------------------------------------------------------------------------------------------------------
Expenses 1.21%(4)(5) 1.20%(4)(5) 1.20%(2)(3)
----------------------------------------------------------------------------------------------------------------------
Net investment income 4.41%(5) 4.34%(5) 4.41%(2)
----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $10,025 $7,599 $2,953
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13% 15% 16%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.02%.
(4) Does not reflect the effect of expense offset of 0.01%.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
27
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1999 1998* 1997* 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS D
------------------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA:
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.01 $12.08 $11.77 $12.09 $11.01
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.59 0.62 0.63 0.65 0.67
Net realized and unrealized gain (loss) (0.91) 0.10 0.36 (0.24) 1.19
------ -------- ---------- ---------- ----------
Total income (loss) from investment operations (0.32) 0.72 0.99 0.41 1.86
------------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.59) (0.62) (0.63) (0.65) (0.67)
Net realized gain (0.03) (0.17) (0.05) (0.08) (0.11)
------ ----------- ---------- ---------- ----------
Total dividends and distributions (0.62) (0.79) (0.68) (0.73) (0.78)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.07 $12.01 $12.08 $11.77 $ 12.09
------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.71)% 6.11% 8.73% 3.61% 17.37%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
------------------------------------------------------------------------------------------------------------------------------------
Expenses 0.51%(1)(2) 0.50%(1)(2) 0.49% 0.48% 0.48%
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.11%(2) 5.12%(2) 5.34% 5.52% 5.76%
------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $853,216 $1,023,246 $1,096,998 $1,190,034 $1,325,308
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13% 15% 16% 18% 21%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class D shares.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Does not reflect the effect of expense offset of 0.01%.
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
28
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers investors a wide range of
investment choices. Come on in and meet the family!
--------------------------------------------------------------------------------
GROWTH FUNDS
GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Growth Fund
Market Leader Trust
Mid-Cap Equity Trust
Next Generation Trust
Small Cap Growth Fund
Special Value Fund
21st Century Trend Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund -- "Best Ideas" Portfolio
European Growth Fund
Fund of Funds -- International Portfolio
International Fund
International SmallCap Fund
Japan Fund
Latin American Growth Fund
Pacific Growth Fund
--------------------------------------------------------------------------------
GROWTH & INCOME FUNDS
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Equity Fund
Fund of Funds -- Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Total Market Index Fund
Total Return Trust
Value Fund
Value-Added Market Series/Equity Portfolio
THEME FUNDS
Real Estate Fund
Utilities Fund
GLOBAL FUNDS
Global Dividend Growth Securities
Global Utilities Fund
--------------------------------------------------------------------------------
INCOME FUNDS
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust
DIVERSIFIED INCOME FUNDS
Diversified Income Trust
CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund(NL)
GLOBAL INCOME FUNDS
North American Government Income Trust
World Wide Income Trust
TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust(FSC)
Limited Term Municipal Trust(NL)
Multi-State Municipal Series Trust(FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
--------------------------------------------------------------------------------
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund(MM)
U.S. Government Money Market Trust(MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust(MM)
New York Municipal Money Market Trust(MM)
Tax-Free Daily Income Trust(MM)
There may be funds created after this Prospectus was published. Please consult
the inside back cover of a new Fund's Prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of Funds are: NL -- No-Load (Mutual) Fund; MM --
Money Market Fund; FSC -- A mutual fund sold with a front-end sales charge and
a distribution (12b-1) fee.
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PROSPECTUS - FEBRUARY 24, 2000
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's Statement of Additional Information also provides additional information
about the Fund. The Statement of Additional Information is incorporated herein
by reference (legally is part of this Prospectus). For a free copy of any of
these documents, to request other information about the Fund, or to make
shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
WWW.MSDW.COM/INDIVIDUAL/FUNDS
Information about the Fund (including the Statement of Additional Information)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (202) 942-8090. Reports and
other information about the Fund are available on the EDGAR Database on the
SEC's Internet site (www.sec.gov), and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Public
Reference Section of the SEC, Washington, DC 20549-0102.
TICKER SYMBOLS:
Class A: TAXAX Class C: TAXCX
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Class B: TAXBX Class D: TAXDX
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(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-2979)
MORGAN STANLEY DEAN WITTER
TAX-EXEMPT SECURITIES TRUST
[GRAPHIC OMITTED]
A MUTUAL FUND THAT SEEKS TO
PROVIDE A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM FEDERAL
INCOME TAX, CONSISTENT WITH
THE PRESERVATION OF CAPITAL
<PAGE>
EXHIBIT C
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
TERMS & PROVISIONS OF THE
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Dividend Reinvestment Plan
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(A) Shareholders of the Trust (except brokers, and nominees of banks and
financial institutions) may participate in the Dividend Reinvestment Plan ("the
Plan") and will be deemed to have appointed Morgan Stanley Dean Witter Trust
FSB, Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311 (the
"Transfer Agent") as their Transfer Agent to act on their behalf under the
Plan. Under the Plan, dividends and distributions ("distributions") will be
reinvested in additional Shares of the Trust. The Plan will continue in effect
for each shareholder as to all future distributions until terminated.
(B) The payment date for distributions will generally be approximately two
weeks after the record date.
(C) Whenever the Trust declares a dividend or other distribution, it will pay
the amount thereof to the Transfer Agent on behalf of shareholders under the
Plan in cash which the Transfer Agent will forward to the Plan agent to buy
Shares in the open market for the participants' accounts. Market price for the
purpose of the Plan will be the market price of the Shares on a national
securities exchange or, in the event the Shares are not listed on a securities
exchange at the time, market price will be the asked price, or the mean of the
asked prices if more than one is available, of the Shares in the
over-the-counter market.
(D) The cost of full and fractional Shares acquired for each shareholder's
account in connection with a particular distribution shall be determined by the
average cost per share of the Shares acquired by the Transfer Agent in
connection with that distribution. Shareholders will receive a confirmation
showing the average cost of Shares acquired as soon as practicable after the
Transfer Agent has received the Shares purchased by the Plan agent. The
Transfer Agent may mingle the cash in a shareholder's account with similar
funds of other shareholders of the Trust for whom it acts as Transfer Agent
under the Plan.
(E) As used herein, the term "market price" means the closing price of the
Trust's Shares on a national securities exchange plus expected brokerage
commissions.
(F) There is no service charge by the Transfer Agent to shareholders who
participate in the Plan. However, the Trust reserves the right to amend the
Plan in the future to include a
service charge. Each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions.
(G) The Transfer Agent will maintain the shareholder's account, hold the
additional Shares acquired through the Plan in safekeeping and furnish him or
her with written confirmation of all transactions in the account. Upon written
request to the Transfer Agent signed by the shareholder, a certificate for all
full Shares in a shareholder's account will be sent to the shareholder, but the
shareholder will continue to be a participant in the Plan unless he requests
termination.
(H) Shareholders may terminate their participation in the Plan at any time and
elect to receive distributions in cash by notifying the Transfer Agent in
writing. Such notification must be received prior to the record date of any
distribution. There will be no charge or other penalty for such termination.
Upon termination, the Transfer Agent will send the shareholder a share
certificate for the number of full Shares in his or her account and a check for
the market value of any fractional Share unless otherwise instructed by the
shareholder.
(I) Brokers and nominees of banks and financial institutions are advised to
contact the Transfer Agent in the event any beneficial owners of the Shares
held in their names desire to participate in the Plan.
(J) Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan, or
change the Transfer Agent. Any material change in the Plan will be applied to
any distribution paid subsequent to notice thereof sent to participants in the
Plan at least thirty days before the record date for such distribution. The
Transfer Agent is to be liable only for wilful misconduct or negligence in
acting as Transfer Agent under the Plan.
(K) For more information, please contact the Transfer Agent at the address
above.
(L) Capital gains and income are realized on distributions reinvested pursuant
to the Plan even though cash is not received.
C-1
<PAGE>
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 23, 2001
The undersigned shareholder of Morgan Stanley Dean Witter Municipal Income
Trust, does hereby appoint Barry Fink, Ronald E. Robison and Joseph J.
McAlinden and each of them, as attorneys-in-fact and proxies of the
undersigned, each with the full power of substitution, to attend the Special
Meeting of Shareholders of Morgan Stanley Dean Witter Municipal Income Trust to
be held on January 23, 2001, in the Career Development Room, Sixty-First Floor,
Two World Trade Center, New York, New York at 9:00 A.M., New York time, and at
all adjournments thereof and to vote the shares held in the name of the
undersigned on the record date for said meeting for the Proposal specified on
the reverse side hereof. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
(Continued on reverse side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED BY THE
BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
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PLEASE MARK VOTES AS
IN THE EXAMPLE USING
BLACK OR BLUE INK [X]
TO VOTE BY MAIL, PLEASE COMPLETE AND RETURN THIS CARD
YOU ALSO MAY VOTE A PROXY BY TOUCH-TONE PHONE OR BY INTERNET
(SEE ENCLOSED VOTING INFORMATION CARD FOR FURTHER INSTRUCTIONS)
TO VOTE A PROXY BY PHONE, call Toll-Free: 1-800-690-6903
TO VOTE A PROXY BY INTERNET, visit our Website(s): WWW.MSDWT.COM or
WWW.PROXYVOTE.COM
The Proposal: FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Approval of the Agreement and Plan of
Reorganization, dated as of August 24, 2000, pursuant to which substantially
all of the assets of Morgan Stanley Dean Witter Municipal Income Trust would be
combined with those of Morgan Stanley Dean Witter Tax-Exempt Securities Trust
and shareholders of Morgan Stanley Dean Witter Municipal Income Trust would
become shareholders of Morgan Stanley Dean Witter Tax-Exempt Securities Trust
receiving Class D shares in Morgan Stanley Dean Witter Tax-Exempt Securities
Trust with a value equal to the net asset value of their holdings in Morgan
Stanley Dean Witter Municipal Income Trust.
Please sign personally. If the shares are registered in more than one name,
each joint owner or each fiduciary should sign personally. Only authorized
officers should sign for corporations. Please make sure to sign and date this
Proxy using black or blue ink.
Date
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Shareholder sign in the box above
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Co-Owner (if any) sign in the box above
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PLEASE FOLD AND DETACH AT PERFORATION ALONG DOTTED LINES
MORGAN STANLEY DEAN WITTER MUNICIPAL INCOME TRUST
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IMPORTANT
USE ONE OF THE THREE EASY WAYS TO VOTE YOUR PROXY
1. BY MAIL. PLEASE DATE, SIGN AND RETURN THE ABOVE PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
2. BY INTERNET. HAVE YOUR PROXY CARD AT HAND. GO TO THE "VOTE YOUR PROXY HERE"
LINK ON THE WEBSITE WWW.MSDWT.COM OR WWW.PROXYVOTE.COM. ENTER YOUR 12
DIGIT CONTROL NUMBER LOCATED ON THE PROXY CARD AND FOLLOW THE SIMPLE
INSTRUCTIONS.
3. BY TELEPHONE. HAVE YOUR PROXY CARD AT HAND. CALL 1-800-690-6903 ON A
TOUCH-TONE PHONE. ENTER YOUR 12-DIGIT CONTROL NUMBER LOCATED ON THE PROXY
CARD AND FOLLOW THE SIMPLE RECORDED INSTRUCTIONS.
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00121
<PAGE>
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MORGAN STANLEY DEAN WITTER FUNDS
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OFFERS TWO NEW WAYS TO VOTE YOUR PROXY
24 HOURS A DAY, 7 DAYS A WEEK
You can now vote your proxy in a matter of minutes with the ease and
convenience of the Internet or the telephone. You may still vote by mail.
But remember, if you are voting by Internet or telephone, do not mail the
proxy.
TO VOTE BY INTERNET:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Go to the "Proxy Voting" link on www.msdwt.com or to website
www.proxyvote.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
Your Proxy Vote is Important!
Thank You for Submitting Your Proxy.
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