<PAGE>
ACTIVE ASSETS MONEY TRUST
ACTIVE ASSETS TAX-FREE TRUST
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
--------------------
THIS DOCUMENT CONSISTS OF THE PROSPECTUSES OF ACTIVE ASSETS MONEY TRUST,
ACTIVE ASSETS TAX-FREE TRUST, ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST AND ACTIVE
ASSETS GOVERNMENT SECURITIES TRUST (COLLECTIVELY, THE "TRUSTS") AND AN APPENDIX
TO SUCH PROSPECTUSES WHICH CONSTITUTES PART OF THE PROSPECTUSES. A TABLE OF
CONTENTS IS CONTAINED ON PAGE 1 OF EACH PROSPECTUS.
------------------------
Each Trust is a diversified open-end management investment company seeking
high current income, preservation of capital and liquidity from investments in
short-term securities. Active Assets Money Trust invests in money market
instruments generally; Active Assets Tax-Free Trust invests in high quality,
short-term tax-exempt securities and pays dividends exempt from federal personal
income taxation; Active Assets California Tax-Free Trust invests in high
quality, short-term California tax-exempt securities and pays dividends exempt
from federal and California personal income taxation; and Active Assets
Government Securities Trust invests in money market instruments issued or
guaranteed by the United States Government or its agencies or instrumentalities.
The Active Assets -Registered Trademark- Account financial service program
("Active Assets") of Dean Witter Reynolds Inc. ("Dean Witter") provides a medium
for the investment of free credit cash balances held in the Active Assets
account in shares of the Trusts. An Active Assets account is a Dean Witter
securities account (the "Securities Account") which is linked to the Trusts, a
Federal Deposit Insurance Corporation ("FDIC") insured account (the "Active
Assets Insured Account") maintained at a depository institution which has
entered into an agreement with Dean Witter to participate in Active Assets and a
Visa-Registered Trademark- check/card account maintained by Bank One, Columbus,
N.A., Columbus, Ohio ("Visa Account").
The annual fee for participation in the Active Assets program is presently
$80 ($100 for corporations). Dean Witter may charge certain group or special
accounts a different fee. Dean Witter reserves the right to change the fee for
participation in the Active Assets program at any time. As described in the
Appendix to the Prospectus under the section "Purchase of Shares", shares of the
Trusts may be purchased by investors maintaining brokerage accounts with Dean
Witter who are not subscribers to the Active Assets program. In addition,
certain other Securities Accounts which are not subscribers to the Active Assets
Program may be linked to the Trusts and the Active Assets Insured Account.
Shareholders of the Trusts not subscribing to the Active Assets program will not
be charged the program fee.
Subject to the conditions set forth herein, a subscriber to the Active
Assets program will have his or her free credit cash balances held in the
account automatically invested daily in shares of any of the Trusts or
transmitted to the bank for deposit into the Active Assets Insured Account,
depending upon which investment is selected by the investor, and earn a return
thereon pending further investment of such funds in other aspects of the Active
Assets program or utilization through the Visa Account. A program participant
may make additional investments in or change his or her chosen investment at any
time by following the procedures set forth in the Appendix under "Purchase and
Redemption of Shares."
------------------------
THE INFORMATION IN THIS DOCUMENT SHOULD BE READ IN CONJUNCTION WITH THE
CLIENT ACCOUNT AGREEMENT WHICH IS BEING FURNISHED TO ALL ACTIVE ASSETS
SUBSCRIBERS (OR OTHER ACCOUNT AGREEMENT FOR NON-ACTIVE ASSETS SUBSCRIBERS) AND
WILL BE FURNISHED TO NEW SUBSCRIBERS PRIOR TO THE TIME AN ACTIVE ASSETS ACCOUNT,
OR OTHER SECURITIES ACCOUNT, IS OPENED. REFERENCE IS MADE TO SUCH MATERIAL FOR
INFORMATION WITH RESPECT TO THE ACTIVE ASSETS AND OTHER PROGRAMS, INCLUDING THE
FEES RELATED THERETO. FOR MORE COMPLETE DETAILS ABOUT THE ACTIVE ASSETS INSURED
ACCOUNT, INCLUDING PROCEDURES FOR TRANSFERRING FROM ANY OF THE TRUSTS, THE
SUBSCRIBER SHOULD CONSULT HIS OR HER MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR.
For information on participation in the Active Assets program and
information relating to a specific account, call:
- Anywhere in the United States, - In New York City (212) 392-5000
Puerto Rico and the Virgin
Islands toll free at (800)
869-3326
ACTIVE ASSETS IS A REGISTERED TRADEMARK OF DEAN WITTER REYNOLDS INC. AUGUST 20,
1998
<PAGE>
TRUSTEES AND OFFICERS
ACTIVE ASSETS MONEY TRUST
ACTIVE ASSETS TAX-FREE TRUST
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Jonathan R. Page
Vice President
Katherine H. Stromberg
Vice President
Thomas F. Caloia
Treasurer
<PAGE>
ACTIVE ASSETS MONEY TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets Money Trust (the "Money Trust" or the "Trust") is a no-load,
diversified open-end management investment company the investment objectives of
which are high current income, preservation of capital and liquidity. The Trust
is authorized to reimburse Morgan Stanley Dean Witter Distributors Inc. for
specific expenses incurred in promoting the distribution of the Trust's shares
pursuant to a Plan of Distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"). Reimbursement may in no event
exceed an amount equal to payments at the annual rate of 0.15% of the average
daily net assets of the Trust.
The Trust will invest in a diversified portfolio of short-term money market
instruments consisting primarily of United States Government securities,
obligations of U.S. regulated banks and savings and loan associations having
assets of $1 billion or more, certificates of deposit of savings banks and
savings and loan associations having total assets of $1 billion or more, high
grade commercial paper, high grade corporate obligations maturing in thirteen
months or less and certificates of deposit of $100,000 or less of U.S. regulated
banks and savings institutions, having total assets of less than $1 billion,
which are fully insured by the FDIC.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
Highlights/2
Summary of Trust Expenses/3
Financial Highlights/4
Investment Objective and Policies/5
Investment Restrictions/7
Purchase and Redemption of Shares/A-1
Purchase of Shares/A-1
Purchase of Shares by Non-Participants in
Active Assets Program/A-2
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
Active Assets Program/A-4
How Net Asset Value is Determined/A-4
Confirmations/A-5
The Trusts and Their Management/A-5
Plan of Distribution/A-6
Dividends, Distributions and Taxes/A-7
General Information/A-9
Voting Rights/A-9
Custodian/A-10
Shareholder Inquiries/A-10
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 20, 1998, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING MORGAN STANLEY
DEAN WITTER ADVISORS INC. (THE "INVESTMENT MANAGER" OR "MSDW ADVISORS") AT (212)
392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY
REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE CLIENT ACCOUNT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 20, 1998.
ACTIVE ASSETS MONEY TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing in money market
TRUST instruments. The Trust is authorized to reimburse Morgan Stanley Dean Witter Distributors Inc. for
specific expenses incurred in promoting the distribution of the Trust's shares pursuant to a Plan
of Distribution pursuant to Rule 12b-1 under the Act. (See page A-6). The Trust is organized as an
unincorporated business trust under the laws of Massachusetts. (See page A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Money Trust are offered to participants in the Active Assets program of Dean
OFFERED Witter and to non-participants who wish to invest directly in shares of the Trust (See page A-2).
The primary components of the Active Assets program are the Securities Account, which is linked to
the Active Assets Insured Account, the Money Trust, the Active Assets Tax-Free Trust, the Active
Assets California Tax-Free Trust or the Active Assets Government Securities Trust and to the Visa
Account. See the Client Account Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Client Account Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances will be automatically invested in shares of the Money Trust daily at their net asset value
without any sales charge. Morgan Stanley Dean Witter Distributors Inc. is the Distributor of shares
of the Trust. Investments in shares are made under the circumstances described under "Purchase and
Redemption of Shares" (see page A-1). Non-participants in the Active Assets program should refer to
the discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High current income, preservation of capital and liquidity (see page 5). There can be no assurance
OBJECTIVES that the Trust's objectives can be achieved.
- ------------------------------------------------------------------------------------------------------------------------
AUTHORIZED Money market instruments as follows (see page 5):
INVESTMENTS - United States Government securities;
- Obligations of U.S. regulated banks having assets of $1 billion or more;
- High grade commercial paper;
- High grade corporate obligations maturing in thirteen months or less;
- Certificates of deposit of savings banks and savings institutions having assets of $1 billion or
more;
- Certificates of deposit of $100,000 or less, of U.S. regulated banks and savings institutions,
having total assets of less than $1 billion, fully insured by the FDIC;
- Repurchase Agreements (see page 5).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to 102 investment companies and
other portfolios with assets of approximately $115.9 billion at July 31, 1998 (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") sells shares of the Trust through
Dean Witter Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule
12b-1 Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-7).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Money Trust will be redeemed at net
OF SHARES asset value automatically to satisfy debit balances in the Securities Account created by activity
therein or to satisfy amounts owing in the Visa Account resulting from Visa card purchases, cash
advances or checks written against the Visa Account. Non-participants in the Active Assets program
should refer to the discussion appearing at page A-4. It is anticipated that the net asset value
will remain constant at $1.00 per share. Dean Witter has the right to terminate a shareholder's
Active Assets service, in which event all Trust shares held in a shareholder's account will be
involuntarily redeemed. The Trust also reserves the right to reduce the number of shares in all
accounts if the Trustees determine that this is necessary to maintain the constant $1.00 per share
net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust's investments are limited to U.S. Government securities, high grade corporate obligations
and obligations of banks and savings and loan associations having assets of $1 billion or more and
fully insured Certificates of Deposit; consequently, the portfolio securities of the Trust are
subject to minimal risk of loss of income and principal. However, the investor is directed to the
discussion of "Repurchase Agreements" (page 5) concerning the risks associated with such portfolio
securities and management techniques.
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE CLIENT ACCOUNT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS MONEY TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
fiscal year ended June 30, 1998.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases.................................. None
Maximum Sales Charge Imposed on Reinvested Dividends....................... None
Deferred Sales Charge...................................................... None
Redemption Fees............................................................ None
Exchange Fee............................................................... None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------------------------------------------
Management Fees............................................................ 0.28%
12b-1 Fees................................................................. 0.10%
Other Expenses............................................................. 0.06%
------
Total Trust Operating Expenses............................................. 0.44%
------
------
</TABLE>
<TABLE>
<CAPTION>
10
EXAMPLE 1 year 3 years 5 years years
- ----------------------------------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period:............................................ $4 $14 $25 $55
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE TRUST MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
3
ACTIVE ASSETS MONEY TRUST
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income..... 0.052 0.051 0.052 0.051 0.029 0.029 0.045 0.068 0.081 0.083
Less dividends from net
investment
income................... (0.052) (0.051) (0.052) (0.051) (0.029) (0.029) (0.045) (0.068) (0.081) (0.083)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN... 5.38% 5.23% 5.33% 5.23% 2.99% 2.95% 4.58% 7.05% 8.43% 8.57%
RATIOS TO AVERAGE NET
ASSETS:
Expenses.................. 0.44% 0.45% 0.47% 0.49% 0.51% 0.51% 0.54% 0.52% 0.50% 0.52%
Net investment income..... 5.24% 5.07% 5.21% 5.16% 2.95% 2.90% 4.45% 6.80% 8.10% 8.33%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions.............. $11,922 $8,928 $7,170 $5,709 $4,144 $3,604 $3,628 $3,688 $3,454 $3,021
</TABLE>
4
ACTIVE ASSETS MONEY TRUST
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVES OF THE TRUST ARE HIGH CURRENT INCOME, PRESERVATION
OF CAPITAL AND LIQUIDITY. THE INVESTMENT OBJECTIVES MAY NOT BE CHANGED WITHOUT
THE APPROVAL OF THE TRUST'S SHAREHOLDERS. THE TRUST SEEKS TO ACHIEVE ITS
OBJECTIVES BY INVESTING IN THE FOLLOWING MONEY MARKET INSTRUMENTS:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank, Federal Intermediate Credit Banks and Federal Land
Bank), including Treasury bills, notes, bonds (including zero coupon bonds) and
coupons;
BANK OBLIGATIONS. Obligations (including certificates of deposit, bankers'
acceptances and bank notes) of banks subject to regulation by the U.S.
Government and having total assets of $1,000,000,000 or more, and instruments
secured by such obligations, including obligations of foreign branches of
domestic banks (because of its relationship to the Active Assets program, the
Trust will not purchase securities of Bank One, Columbus, N.A. or its affiliates
and will not deal with such Bank or its affiliates as a principal in the
purchase and sale of securities);
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1,000,000,000
or more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1,000,000,000, if the
principal amount of the obligation is insured by the FDIC, limited to $100,000
principal amount per certificate and to 10% or less of the Trust's total assets
in all such obligations or in all illiquid assets, in the aggregate;
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS. Commercial paper and corporate
debt obligations maturing in thirteen months or less which are rated in one of
the two highest rating categories for short-term debt obligations or, if not
rated, have been issued by issuers which have another short-term debt obligation
that is comparable in priority and security to such non-rated securities and is
so rated, by at least two nationally recognized statistical rating organizations
("NRSROs") (or one NRSRO if the instrument was rated by only one such
organization) or which, if unrated, are of comparable quality as determined in
accordance with procedures established by the Board of Trustees. The NRSROs
currently rating instruments of the type the Fund may purchase are Moody's
Investors Service, Inc., Standard & Poor's Corporation, Duff and Phelps, Inc.,
Fitch Investors Service, Inc., IBCA Limited and IBCA Inc., and Thomson
Bankwatch, Inc. Their rating criteria are described in the Appendix to the
Trust's Statement of Additional Information.
The foregoing rating limitations apply at the time of acquisition of a
security. Any subsequent change in any rating by a rating service will not
require elimination of any security from the Trust's portfolio. However, in
accordance with procedures adopted by the Trust's Board of Trustees pursuant to
federal securities regulations governing money market funds, if the Investment
Manager becomes aware that a portfolio security has received a new rating from
an NRSRO that is below the second highest rating, then, unless the security is
disposed of within five days, the Investment Manager will perform a
creditworthiness analysis of any such down-graded securities, which analysis
will be reported to the Trustees who will, in turn, determine whether the
securities continue to present minimal credit risks to the Fund.
The ratings assigned by the NRSROs represent their opinions as to the
quality of the securities they undertake to rate. It should be emphasized,
however, that the ratings are general and not absolute standards of quality.
REPURCHASE AGREEMENTS. The Trust may enter into repurchase agreements,
which may be viewed
5
ACTIVE ASSETS MONEY TRUST
<PAGE>
as a type of secured lending by the Trust, and which typically involve the
acquisition by the Trust of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Trust will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future. The Trust will accrue
interest from the institution until the time when the repurchase is to occur.
Although such date is deemed by the Trust to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed thirteen months. While
repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Trust follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and specifying the required value of the collateral underlying the agreement.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. Certain of the types of
investments described above may be variable rate or floating rate obligations.
The interest rates payable on variable rate or floating rate obligations are not
fixed and may fluctuate based upon changes in market rates. The interest rate
payable on a variable rate obligation may be adjusted either at predesignated
periodic intervals and on a floating rate obligation whenever there is a change
in the market rate of interest on which the interest rate payable is based.
The foregoing investment policies are not fundamental and may be changed by
the Board of Trustees without shareholder vote.
PORTFOLIO MANAGEMENT--
Although the Trust will generally not seek profits through short-term
trading, it may dispose of any portfolio security prior to its maturity if, on
the basis of a revised credit evaluation of the issuer or other circumstances or
considerations, it believes such disposition advisable.
The Trust is expected to have a high portfolio turnover due to the short
maturities of securities purchased, but this should not affect income or net
asset value as brokerage commissions are not normally charged on the purchase or
sale of money market instruments.
The Trust will attempt to balance its objectives of high current income,
capital preservation and liquidity by investing in securities of varying
maturities and risks. The Trust will not, however, invest in securities that
mature in more than thirteen months from the date of purchase.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on the
purchase or sale of money market instruments, but such transactions may involve
transaction costs in the form of spreads between bid and asked prices. Although
the Trust is expected to have a high portfolio turnover rate due to the short
maturities of its portfolio securities, the Trust's income or the net asset
value of its shares should not be affected as brokers' commissions are not
normally incurred. Pursuant to an order of the Securities and Exchange
Commission, the Trust may effect principal transactions in certain money market
instruments with Dean Witter. In addition, the Trust may incur brokerage
commissions on transactions conducted through Dean Witter, Morgan Stanley & Co.
Incorporated and other broker-dealers that are affiliates of the Investment
Manager.
YEAR 2000. The investment management services provided to the Trust by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
6
ACTIVE ASSETS MONEY TRUST
<PAGE>
In addition, it is possible that the markets for securities in which the
Trust invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial. Accordingly, the Trust's investments may be adversely affected.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Trust as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Trust, as defined in the Act.
These restrictions provide that the Trust may not:
1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities. Borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Trust's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made;
2. Purchase securities of any issuer, except for securities issued by the
U.S. Government or its agencies or instrumentalities, having a record, together
with predecessors, of less than three years' continuous operation, if,
immediately after such purchase, more than 5% of the value of the Trust's total
assets would be invested in such securities;
3. Purchase any securities, other than obligations of the U.S. Government, or
its agencies or instrumentalities, if, immediately after such purchase, more
than 5% of the value of the Trust's total assets would be invested in securities
of any one issuer, or more than 10% of the outstanding securities of one issuer
would be owned by the Trust (for this purpose all indebtedness of an issuer
shall be deemed a single class of security); and
4. Purchase any securities, other than obligations of banks or of the U.S.
Government, or its agencies or instrumentalities, if, immediately after such
purchase, more than 25% of the value of the Trust's total assets would be
invested in the securities of issuers in the same industry; however, there is no
limitation as to investments in bank obligations or in obligations issued or
guaranteed by the Federal Government or its agencies or instrumentalities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
7
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets Tax-Free Trust (the "Tax-Free Trust" or the "Trust") is a
no-load, diversified open-end management investment company. The Trust is
authorized to reimburse Morgan Stanley Dean Witter Distributors Inc. for
specific expenses incurred in promoting the distribution of the Trust's shares
pursuant to a Plan of Distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"). Reimbursement may in no event
exceed an amount equal to payments at the annual rate of 0.15% of the average
daily net assets of the Trust.
The investment objective of the Tax-Free Trust is to provide as high a level
of daily income exempt from federal personal income tax as is consistent with
stability of principal and liquidity. The Trust seeks to achieve its objective
by investing primarily in high quality, tax-exempt securities with short-term
maturities including Municipal Bonds, Municipal Notes and Municipal Commercial
Paper.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
Highlights/2
Summary of Trust Expenses/3
Financial Highlights/4
Investment Objective and Policies/5
Investment Restrictions/8
Purchase and Redemption of Shares/A-1
Purchase of Shares/A-1
Purchase of Shares by Non-Participants in
the Active Assets Program/A-2
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
the Active Assets Program/A-4
How Net Asset Value is Determined/A-4
Confirmations/A-5
The Trusts and Their Management/A-5
Plan of Distribution/A-6
Dividends, Distributions and Taxes/A-7
General Information/A-9
Voting Rights/A-9
Custodian/A-10
Shareholder Inquiries/A-10
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 20, 1998, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING MORGAN STANLEY
DEAN WITTER ADVISORS INC. (THE "INVESTMENT MANAGER" OR "MSDW ADVISORS") AT (212)
392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY
REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE CLIENT ACCOUNT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 20, 1998.
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing principally in short-term
TRUST securities exempt from federal income tax. The Trust is authorized to reimburse Morgan Stanley Dean
Witter Distributors Inc. for specific expenses incurred in promoting the distribution of the
Trust's shares pursuant to a Plan of Distribution pursuant to Rule 12b-1 under the Act (See page
A-6). The Trust is organized as an unincorporated business trust under the laws of Massachusetts.
(See page A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Tax-Free Trust are offered to participants in the Active Assets program of Dean
OFFERED Witter and to non-participants who wish to invest directly in shares of the Trust. (See page A-2).
The primary components of the Active Assets program are the Securities Account, which is linked to
the Active Assets Insured Account, the Active Assets Money Trust, the Tax-Free Trust, the Active
Assets California Tax-Free Trust or the Active Assets Government Securities Trust and to the Visa
Account. See the Client Account Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Client Account Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances will be automatically invested daily in shares of the Trust at their current net asset
value without any sales charge. Morgan Stanley Dean Witter Distributors Inc. is the Distributor of
shares of the Trust. Investments in shares are made under the circumstances described under
"Purchase and Redemption of Shares" (see page A-1). Non-participants in the Active Assets program
should refer to the discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High level of daily tax-exempt income consistent with stability of principal and liquidity (see
OBJECTIVE page 5). There can be no assurance that the Trust's investment objective will be achieved.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT A diversified portfolio of tax-exempt, fixed-income securities with short-term maturities (see page
POLICY 5).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to 102 investment companies with
assets under management of approximately $115.9 billion at July 31, 1998 (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") sells shares of the Trust through
Dean Witter Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule
12b-1 Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-7).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Trust will be redeemed at net asset
OF SHARES value automatically to satisfy debit balances in the Securities Account created by activity therein
or to satisfy amounts owing in the Visa Account resulting from Visa card purchases, cash advances
or checks written against the Visa Account. Non-participants in the Active Assets program should
refer to the discussion appearing at page A-4. It is anticipated that the net asset value will
remain constant at $1.00 per share. Dean Witter has the right to terminate a shareholder's Active
Assets service, in which event all Trust shares held in a shareholder's account will be
involuntarily redeemed. The Trust also reserves the right to reduce the number of shares in all
accounts if the Trustees determine that this is necessary to maintain the constant $1.00 per share
net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust invests principally in high quality, short-term fixed-income securities issued or
guaranteed by state and local governments which are subject to minimal risk of loss of income and
principal. However, the investor is directed to the discussions of "lease obligations" (page 6) and
"when-issued and delayed delivery securities" (page 7) concerning the risks associated with such
portfolio securities and management techniques.
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE CLIENT ACCOUNT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
fiscal year ended June 30, 1998.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases.................................. None
Maximum Sales Charge Imposed on Reinvested Dividends....................... None
Deferred Sales Charge...................................................... None
Redemption Fees............................................................ None
Exchange Fee............................................................... None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------------------------------------------
Management Fees............................................................ 0.40%
12b-1 Fees................................................................. 0.10%
Other Expenses............................................................. 0.04%
-----
Total Trust Operating Expenses............................................. 0.54%
-----
-----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:............... $ 6 $17 $30 $68
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE TRUST MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
3
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income......... 0.031 0.030 0.031 0.030 0.020 0.021 0.033 0.047 0.054 0.056
Less dividends from net
investment income............ (0.031) (0.030) (0.031) (0.030) (0.020) (0.021) (0.033) (0.047) (0.054) (0.056)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN....... 3.11% 3.05% 3.12% 3.09% 2.01% 2.15% 3.38% 4.84% 5.57% 5.77%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 0.54% 0.55% 0.55% 0.56% 0.56% 0.57% 0.59% 0.60% 0.56% 0.58%
Net investment income......... 3.05% 2.98% 3.08% 3.05% 1.98% 2.13% 3.30% 4.71% 5.44% 5.66%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $1,869 $1,634 $1,542 $1,499 $1,416 $1,355 $1,304 $1,342 $1,174 $1,112
</TABLE>
4
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF THE TRUST IS TO PROVIDE AS HIGH A LEVEL OF DAILY
INCOME EXEMPT FROM FEDERAL PERSONAL INCOME TAX AS IS CONSISTENT WITH STABILITY
OF PRINCIPAL AND LIQUIDITY. It is a fundamental policy of the Trust that at
least 80% of its total assets will be invested in securities the interest on
which is exempt from federal personal income tax ("tax-exempt securities"). This
policy and the Trust's investment objective may not be changed without a vote of
a majority of the Trust's outstanding voting securities (as defined in the Act).
There is no assurance that the objective will be achieved.
The Trust seeks to achieve its investment objective by investing primarily
in high quality tax-exempt securities with short-term maturities. Such
securities will include Municipal Bonds, Municipal Notes and Municipal
Commercial Paper ("Municipal Obligations") with maturities of thirteen months or
less, which are rated in one of the two highest rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations ("NRSROs" -- primarily Moody's Investors Service ("Moody's") and
Standard & Poor's Corporation ("S&P")), or one NRSRO if the obligation is rated
by only one NRSRO. Unrated obligations may be purchased if they are determined
to be of comparable quality by the Trust's Trustees.
Municipal Bonds and Municipal Notes are debt obligations of states, cities,
municipalities and municipal agencies which generally have maturities, at the
time of their issuance, of either one year or more (Bonds) or from six months to
three years (Notes). Municipal Commercial Paper refers to short-term obligations
of municipalities.
The Trust may purchase certain Municipal Obligations which have a final
maturity of more than thirteen months but which are subject to short-term demand
features or tenders prior to final maturity, either determined by the issuer or
selected at the holder's option. The former are commonly referred to as
"variable rate" obligations (see below) and the latter as municipal commercial
paper. The Trust may purchase Municipal Bonds and Notes if they are within
either the short-term or long-term rating levels set forth above for Municipal
Obligations.
See the Appendix to the Statement of Additional Information for an
explanation of Moody's and S&P ratings.
Any municipal obligation which depends on the credit of the Federal
Government shall be considered to have a rating in the highest category.
Up to 20% of the Trust's total assets may be invested in securities the
interest on which is not exempt from federal personal income tax ("taxable
securities") and in tax-exempt securities subject to the federal alternative
minimum tax for individuals ("AMT") (tax-exempt securities which are subject to
the AMT will not be included in the 80% total referred to above for investment
in tax-exempt securities).
Up to 20% of the Trust's total assets may be invested in taxable securities
of the type described below. The Trust may temporarily invest more than 20% in
taxable securities and tax-exempt securities subject to AMT to maintain a
"defensive" posture when, in the opinion of the Investment Manager, it is
advisable to do so because of market conditions. The types of taxable securities
in which the Trust may invest are limited to the following short-term,
fixed-income securities (maturing in thirteen months or less from the time of
purchase): (i) obligations of the United States Government or its agencies,
instrumentalities or authorities; (ii) prime commercial paper rated P-1 by
Moody's or A-1 by S&P; (iii) certificates of deposit and banker's acceptances of
domestic banks with assets of $1 billion or more; and (iv) repurchase agreements
with respect to any of the foregoing portfolio securities.
5
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the
Trust's net asset value. Any subsequent change in any rating by a rating service
or change in percentages resulting from market fluctuations or amount of total
or net assets may not require elimination of any security from the Trust's
portfolio.
The ratings assigned by NRSROs represent their opinions as to the quality of
the securities which they undertake to rate. It should be emphasized, however,
that the ratings are general and not absolute standards of quality. However, in
accordance with procedures adopted by the Trust's Trustees pursuant to federal
securities regulations governing money market funds, the Investment Manager will
perform a creditworthiness analysis of such downgraded securities, which
analysis will be reported to the Trustees who will, in turn, determine whether
the securities continue to present minimal credit risks to the Trust.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General obligation
bonds, notes or commercial paper are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include a state,
its counties, cities, towns and other governmental units. Revenue bonds, notes
or commercial paper are payable from the revenues derived from a particular
facility or class of facilities or, in some cases, from specific revenue
sources. Revenue bonds, notes or commercial paper are issued for a wide variety
of purposes, including the financing of electric, gas, water and sewer systems
and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports, transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local agencies or authorities
issue lease obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases, and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer), have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Certain lease obligations have not developed the depth of marketability
associated with more conventional municipal obligations, and, as a result, may
be considered illiquid securities. To determine whether or not the Trust will
consider such securities to be illiquid (the Trust may not invest more than ten
percent of its net assets in illiquid
6
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
securities), the Trustees of the Trust have established guidelines to be
utilized by the Trust in determining the liquidity of a lease obligation. The
factors to be considered in making the determination include: 1) the frequency
of trades and quoted prices for the obligation; 2) the number of dealers willing
to purchase or sell the security and the number of other potential purchasers;
3) the willingness of dealers to undertake to make a market in the security; and
4) the nature of the marketplace trades, including, the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of the
transfer. All lease obligations purchased by the Trust are subject to the
creditworthiness standards discussed above for Municipal Obligations.
The Trust does not generally intend to invest more than 25% of its total
assets in securities of governmental units located in any one state, territory,
or possession of the United States. The Trust may invest more than 25% of its
total assets in industrial development and pollution control bonds (two kinds of
tax-exempt Municipal Bonds) whether or not the users of facilities financed by
such bonds are in the same industry. In cases where such users are in the same
industry, there may be additional risk to the Trust in the event of an economic
downturn in such industry, which may result generally in a lowered need for such
facilities and a lowered ability of such users to pay for the use of such
facilities.
The high quality, short-term fixed income securities in which the Trust
principally invests are issued and/or guaranteed by state and local governments
and their agencies and authorities and are subject to minimal risk of loss of
income and principal.
PORTFOLIO MANAGEMENT
Although the Trust will generally acquire
securities for investment with the intent of holding them to maturity and will
not seek profits through short-term trading, the Trust may dispose of any
security prior to its maturity to meet redemption requests. Securities may also
be sold when the Trust's Investment Manager believes such disposition to be
advisable on the basis of a revised evaluation of the issuer or based upon
relevant market considerations. There may be occasions when, as a result of
maturities of portfolio securities or sales of Trust shares, or in order to meet
anticipated redemption requests, the Trust may hold cash which is not earning
income.
The average weighted maturity of the portfolio will be 90 days or less. The
relatively short-term nature of the Trust's portfolio is expected to result in a
lower yield than portfolios comprised of longer-term tax-exempt securities.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. The interest rates payable on
certain Municipal Bonds and Municipal Notes are not fixed and may fluctuate
based upon changes in market rates. Municipal obligations of this type are
called "variable rate" or "floating rate" obligations. The interest rate payable
on a variable rate obligation is adjusted at predesignated periodic intervals
and on a floating rate obligation, whenever there is a change in the market rate
of interest on which the interest rate payable is based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Trust may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., delivery
and payment can take place a month or more after the date of the transaction.
These securities are subject to market fluctuation and no interest accrues to
the purchaser prior to settlement. At the time the Trust makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such security in determining its net asset value.
YEAR 2000. The investment management services provided to the Trust by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary
7
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
changes to their own computer systems to prepare for the year 2000 and expect
that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Trust invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial. Accordingly, the Trust's investments may be adversely affected.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on
purchases and sales of short-term municipal obligations, but such transactions
may involve transaction costs in the form of spreads between bid and asked
prices. Pursuant to an order of the Securities and Exchange Commission, the
Trust may effect principal transactions in certain money market instruments with
Dean Witter. In addition, the Trust may incur brokerage commissions on
transactions conducted through Dean Witter, Morgan Stanley & Co. Incorporated
and other broker-dealers that are affiliates of the Investment Manager.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Trust as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Trust, as defined in the Act. For purposes
of the following limitations: (a) an "issuer" of a security is the entity whose
assets and revenues are committed to the payment of interest and principal on
that particular security provided that the guarantee of a security will be
considered a separate security and, provided further, that a guarantee of a
security shall not be deemed to be a security issued by the guarantor if the
value of all securities issued or guaranteed by the guarantor and owned by the
Fund does not exceed 10% of the value of the total assets of the Fund; (b) a
"taxable security" is any security the interest on which is subject to federal
income tax; and (c) all percentage limitations apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations or amount of total or net assets
does not require elimination of any security from the portfolio.
The Trust may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than obligations issued, or guaranteed
by, the United States Government, its agencies or instrumentalities);
2. Purchase more than 10% of all outstanding taxable debt securities of
any one issuer;
3. Invest more than 25% of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities or to investments in bank
obligations;
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
8
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
than three years of continuous operation. This restriction shall not apply
to any obligation of the United States Government, its agencies or
instrumentalities; and
5. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require
the untimely disposition of securities. Borrowing in the aggregate may not
exceed 20%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the value of the Trust's total assets (including the
amount borrowed), less liabilities (not including the amount borrowed) at
the time the borrowing is made.
9
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets California Tax-Free Trust (the "California Tax-Free Trust" or
the "Trust") is a no-load, diversified open-end management investment company.
The Trust is authorized to reimburse Morgan Stanley Dean Witter Distributors
Inc. for specific expenses incurred in promoting the distribution of the Trust's
shares pursuant to a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act"). Reimbursement may in no
event exceed an amount equal to payments at the annual rate of 0.15% of the
average daily net assets of the Trust.
The investment objective of the Trust is to provide as high a level of daily
income exempt from federal and California personal income tax as is consistent
with stability of principal and liquidity. The Trust seeks to achieve its
objective by investing primarily in high quality, California tax-exempt
securities with short-term maturities including Municipal Bonds, Municipal Notes
and Municipal Commercial Paper. The Trust may invest a significant percentage of
its assets in the securities of a single issuer and therefore an investment in
the Trust may be riskier than an investment in other types of money funds.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
Highlights/2
Summary of Trust Expenses/3
Financial Highlights/4
Investment Objective and Policies/5
Investment Restrictions/10
Purchase and Redemption of Shares/A-1
Purchase of Shares/A-1
Purchase of Shares by Non-Participants in
the Active Assets Program/A-2
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
the Active Assets Program/A-4
How Net Asset Value is Determined/A-4
Confirmations/A-5
The Trusts and Their Management/A-5
Plan of Distribution/A-6
Dividends, Distributions and Taxes/A-7
General Information/A-9
Voting Rights/A-9
Custodian/A-10
Shareholder Inquiries/A-10
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 20, 1998, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING THE MORGAN
STANLEY DEAN WITTER ADVISORS INC. (THE "INVESTMENT MANAGER" OR "MSDW ADVISORS")
AT (212) 392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED
HEREIN BY REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE CLIENT ACCOUNT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 20, 1998.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing principally in short-term
TRUST securities exempt from federal and California personal income tax. The Trust is authorized to
reimburse Morgan Stanley Dean Witter Distributors Inc. for specific expenses incurred in promoting
the distribution of the Trust's shares pursuant to a Plan of Distribution pursuant to Rule 12b-1
under the Act (See page A-6). The Trust is organized as an unincorporated business trust under the
laws of Massachusetts. (See page A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Trust are offered to participants in the Active Assets program of Dean Witter and
OFFERED to non- participants who wish to invest directly in shares of the Trust. (See page A-2). The
primary components of the Active Assets program are the Securities Account, which is linked to the
Active Assets Insured Account, the Active Assets Money Trust, the Active Assets Tax-Free Trust, the
California Tax-Free Trust or the Active Assets Government Securities Trust and to the Visa Account.
See the Client Account Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Client Account Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances will be automatically invested daily in shares of the Trust at their current net asset
value without any sales charge. Morgan Stanley Dean Witter Distributors Inc. is the Distributor of
shares of the Trust. Investments in shares are made under the circumstances described under
"Purchase and Redemption of Shares" (see page A-1). Non-participants in the Active Assets program
should refer to the discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High level of daily California tax-exempt income consistent with stability of principal and
OBJECTIVE liquidity (see page 5). There can be no assurance that the Trust's investment objective will be
achieved.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT A diversified portfolio of tax-exempt, fixed-income securities with short-term maturities (see page
POLICY 5).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to 102 investment companies with
assets under management of approximately $115.9 billion at July 31, 1998 (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-7).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") sells shares of the Trust through
Dean Witter Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule
12b-1 Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Trust will be redeemed at net asset
OF SHARES value automatically to satisfy debit balances in the Securities Account created by activity therein
or to satisfy amounts owing in the Visa Account resulting from Visa card purchases, cash advances
or checks written against the Visa Account. Non-participants in the Active Assets program should
refer to the discussion appearing at page A-4. It is anticipated that the net asset value will
remain constant at $1.00 per share. Dean Witter has the right to terminate a shareholder's Active
Assets service, in which event all Trust shares held in a shareholder's account will be
involuntarily redeemed. The Trust also reserves the right to reduce the number of shares in all
accounts if the Trustees determine that this is necessary to maintain the constant $1.00 per share
net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust invests principally in high quality, short-term fixed-income securities issued or
guaranteed by the state of California and its local governments which are subject to minimal risk
of loss of income and principal. However, the investor is directed to the discussions of "lease
obligations" (page 6) and "when-issued and delayed delivery securities" (page 7) concerning the
risks associated with such portfolio securities and management techniques. Since the Trust
concentrates its investments in California tax-exempt securities, the Trust is affected by any
political, economic or regulatory developments affecting the ability of California issuers to pay
interest or repay principal (page 8).
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE CLIENT ACCOUNT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
fiscal year ended June 30, 1998.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases.................................. None
Maximum Sales Charge Imposed on Reinvested Dividends....................... None
Deferred Sales Charge...................................................... None
Redemption Fees............................................................ None
Exchange Fee............................................................... None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------------------------------------------
Management Fees............................................................ 0.49%
12b-1 Fees................................................................. 0.10%
Other Expenses............................................................. 0.05%
-----
Total Trust Operating Expenses............................................. 0.64%
-----
-----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------- ------- ------- ------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:............... $ 7 $21 $36 $80
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE TRUST MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
3
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information.
<TABLE>
<CAPTION>
FOR THE
PERIOD
NOVEMBER
12, 1991*
FOR THE YEAR ENDED JUNE 30, THROUGH
-------------------------------------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994 1993 1992
--------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ----------- --------- --------- --------- --------- ---------
Net investment income..... 0.028 0.028 0.028 0.029 0.018 0.018 0.017
Less dividends from net
investment income........ (0.028) (0.028) (0.028) (0.029) (0.018) (0.018) (0.017)
--------- ----------- --------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ----------- --------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN... 2.84% 2.83% 2.82% 2.89% 1.78% 1.84% 1.66%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses.................. 0.64% 0.66%(4) 0.67% 0.67% 0.68% 0.71% 0.56%(2)(3)
Net investment income..... 2.79% 2.78% 2.79% 2.86% 1.77% 1.82% 2.42%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands............. $549,779 $431,382 $384,218 $313,566 $288,506 $202,149 $170,364
</TABLE>
- ------------------------
* COMMENCEMENT OF OPERATIONS.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE TRUST HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN 0.80% AND 2.18%, RESPECTIVELY.
(4) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
4
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF THE TRUST IS TO PROVIDE AS HIGH A LEVEL OF DAILY
INCOME EXEMPT FROM FEDERAL AND CALIFORNIA PERSONAL INCOME TAX AS IS CONSISTENT
WITH STABILITY OF PRINCIPAL AND LIQUIDITY. It is a fundamental policy of the
Trust that at least 80% of its total assets will be invested in securities the
interest on which is exempt from federal and California personal income tax
("California tax-exempt securities"). This policy and the Trust's investment
objective may not be changed without a vote of a majority of the Trust's
outstanding voting securities, as defined in the Act. There is no assurance that
the objective will be achieved.
The Trust seeks to achieve its investment objective by investing primarily
in high quality tax-exempt securities with short-term maturities. Such
securities will include California Municipal Bonds, California Municipal Notes
and California Municipal Commercial Paper ("Municipal Obligations") with
maturities of thirteen months or less, which are rated in one of the two highest
rating categories for debt obligations by at least two nationally recognized
statistical rating organizations ("NRSRO's"-- primarily Moody's Investors
Service ("Moody's") and Standard & Poor's Corporation ("S&P")), or one NRSRO if
the obligation is rated by only one NRSRO. Unrated obligations may be purchased
if they are determined to be of comparable quality by the Trust's Trustees.
Up to 20% of the Trust's total assets may also be invested in securities
exempt from federal personal income tax but not from California personal income
tax ("non-California tax-exempt securities"), in taxable securities and in
tax-exempt securities subject to the federal alternative minimum tax for
individual shareholders ("AMT") (California tax-exempt securities subject to AMT
will not be included in the 80% total referred to above for investment in
California tax-exempt securities). In addition, the Trust may temporarily invest
more than 20% of its total assets in taxable securities, non-California
tax-exempt securities, or in tax-exempt securities subject to AMT, to maintain a
"defensive" posture when, in the opinion of the Investment Manager, it is
advisable to do so because of market conditions. The types of taxable securities
in which the Trust may temporarily invest are limited to the following
short-term fixed-income securities (maturing in thirteen months or less from the
time of purchase); (i) obligations of the United States Government or its
agencies, instrumentalities or authorities; (ii) commercial paper rated P-1 by
Moody's or A-1 by S&P; (iii) certificates of deposit of domestic banks with
assets of $1 billion or more; and (iv) repurchase agreements with respect to any
of the foregoing portfolio securities.
California Municipal Bonds and California Municipal Notes are debt
obligations of a state, its cities, municipalities and municipal agencies which
generally have maturities, at the time of their issuance, of either one year or
more (Bonds) or from six months to three years (Notes). California Municipal
Commercial Paper refers to short-term obligations of municipalities. Any
Municipal Obligation which depends on the credit of the Federal Government, its
agencies or instrumentalities shall be considered to have a Moody's rating of
Aaa or S&P rating of AAA. An obligation shall be considered a Municipal
Obligation only if, in the opinion of bond counsel, the interest payable
therefrom is exempt from both federal income tax and California personal income
tax.
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the
Trust's net asset value. Any subsequent change in any rating by a rating service
or change in percentages resulting from market fluctuations may not require
elimination of any security from the Trust's portfolio. However, in accordance
with procedures adopted by the Trust's Trustees pursuant to federal securities
regulations governing money market funds, the Investment Manager will perform a
5
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
creditworthiness analysis of such downgraded securities, which analysis will be
reported to the Trustees who will, in turn, determine whether the securities
continue to present minimal credit risks to the Trust. The Trust does not
anticipate that more than 5% of its net assets are likely to be downgraded below
the rating requirements described above for Municipal Obligations.
The ratings assigned by NRSROs represent their opinions as to the quality of
the securities which they undertake to rate (see the Appendix to the Statement
of Additional Information for an explanation of Moody's and S&P ratings). It
should be emphasized, however, that the ratings are general and not absolute
standards of quality.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General obligation
bonds, notes or commercial paper are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include a state,
its counties, cities, towns and other governmental units. Revenue bonds, notes
or commercial paper are payable from the revenues derived from a particular
facility or class of facilities or, in some cases, from specific revenue
sources. Revenue bonds, notes or commercial paper are issued for a wide variety
of purposes, including the financing of electric, gas, water and sewer systems
and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports, transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local agencies or authorities
issue lease obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases, and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer), have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Certain lease obligations have not developed the depth of marketability
associated with more conventional municipal obligations, and, as a result, may
be considered illiquid securities. To determine whether or not the Trust will
consider such securities to be illiquid (the Trust may not invest more than ten
percent of its net assets in illiquid securities), the Trustees of the Trust
have established guidelines to be utilized by the Trust in determining the
liquidity of a lease obligation. The factors to be considered in making the
determination include: 1) the frequency of trades and quoted prices for the
obligation; 2) the number of dealers willing to purchase or sell the security
and the
6
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
number of other potential purchasers; 3) the willingness of dealers to undertake
to make a market in the security; and 4) the nature of the marketplace trades,
including, the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer. All lease obligations purchased by
the Trust are subject to the creditworthiness standards discussed above for
Municipal Obligations.
The Trust does not generally intend to invest more than 25% of its total
assets in securities of any one governmental unit. The Trust may invest more
than 25% of its total assets in industrial development and pollution control
bonds (two kinds of tax-exempt Municipal Bonds) whether or not the users of
facilities financed by such bonds are in the same industry. In cases where such
users are in the same industry, there will be additional risk to the Trust in
the event of an economic downturn in such industry, which may result generally
in a lowered need for such facilities and a lowered ability of such users to pay
for the use of such facilities.
PORTFOLIO MANAGEMENT
Although the Trust will generally acquire securities for investment with the
intent of holding them to maturity and will not seek profits through short-term
trading, the Trust may dispose of any security prior to its maturity to meet
redemption requests. Securities may also be sold when the Trust's Investment
Manager believes such disposition to be advisable on the basis of a revised
evaluation of the issuer or based upon relevant market considerations. There may
be occasions when, as a result of maturities of portfolio securities or sale of
Trust shares, or in order to meet anticipated redemption requests, the Trust may
hold cash which is not earning income.
The Trust anticipates that the average weighted maturity of the portfolio
will be 90 days or less. The relatively short-term nature of the Trust's
portfolio is expected to result in a lower yield than portfolios comprised of
longer-term tax-exempt securities.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. The interest rates payable on
certain Municipal Bonds and Municipal Notes are not fixed and may fluctuate
based upon changes in market rates. Municipal obligations of this type are
called "variable rate" or "floating rate" obligations. The interest rate payable
on a variable rate obligation is adjusted at predesignated periodic intervals
and on a floating rate obligation, whenever there is a change in the market rate
of interest on which the interest rate payable is based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Trust may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., delivery
and payment can take place a month or more after the date of the transaction.
These securities are subject to market fluctuation and no interest accrues to
the purchaser prior to settlement. At the time the Trust makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on
purchases and sales of short-term municipal obligations, but such transactions
may involve transaction costs in the form of spreads between bid and asked
prices. Pursuant to an order of the Securities and Exchange Commission, the
Trust may effect principal transactions in certain money market instruments with
Dean Witter. In addition, the Trust may incur brokerage commissions on
transactions conducted through Dean Witter, Morgan Stanley & Co. Incorporated
and other broker-dealers that are affiliates of the Investment Manager.
YEAR 2000. The investment management services provided to the Trust by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could
7
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
have a negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Distributor and the Transfer Agent have
been actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted before
that date, but there can be no assurance that they will be successful, or that
interaction with other non-complying computer systems will not impair their
services at that time.
In addition, it is possible that the markets for securities in which the
Trust invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial. Accordingly, the Trust's investments may be adversely affected.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA TAX-EXEMPT SECURITIES
Because the Trust's investments are concentrated in securities issued by the
State of California or entities within the State, an investment in the Trust may
be riskier than an investment in other types of money funds which do not
similarly concentrate their investments. The Trust will be affected by any
political, economic or regulatory developments affecting the ability of
California issuers to pay interest or repay principal on their obligations.
Various subsequent developments regarding the California Constitution and State
of California ("State") statutes which limit the taxing and spending authority
of California governmental entities may impair the ability of California issuers
to maintain debt service on their obligations. Of particular impact are
constitutional voter initiatives, which have become common in recent years. The
following information constitutes only a brief summary and is not intended as a
complete description.
California is the most populous state in the nation with a total population
estimated at 32,383,000. Growth has been incessant since World War II, with
population gains in each decade since 1950 of between 18% and 49%. During the
last decade, the population rose 20%. The State now comprises 12.2% of the
nation's population and 12.5% of its total personal income. Its economy is broad
and diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After experiencing strong
growth throughout much of the 1980s, from 1990-1993, the State suffered through
a severe recession, the worst since the 1930's, heavily influenced by large
cutbacks in defense/aerospace industries and military base closures and a major
drop in real estate construction. California's economy has been recovering and
growing steadily stronger since the start of 1994, to the point where the
State's economic growth is outpacing the rest of the nation. The unemployment
rate, while still higher than the national average, fell to the low 6% range in
mid-1997, compared to over 10% at the worst of the recession. California's
economic recovery from the recession is continuing at a strong pace. Recent
economic reports indicate that, while the rate of economic growth in California
is expected to moderate over the next three years, the increases in employment
and income may exceed those of the nation as a whole. The unsettled financial
situation occurring in certain Asian economies may adversely affect the State's
export-related industries and, therefore, the State's rate of economic growth.
These economic difficulties have exacerbated the structural budget imbalance
which has been evident since fiscal year 1985-1986. Since that time, budget
shortfalls have become increasingly more difficult to solve and the State has
recorded General Fund operating deficits in several fiscal years. Many of these
problems have been attributable to the fact that the great population influx has
8
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
produced increased demand for education and social services at a far greater
pace than the growth in the State's tax revenues. Despite substantial tax
increases, expenditure reductions and the shift of some expenditure
responsibilities to local government, the budget condition remains problematic.
On August 18, 1997, the Governor signed the 1997-98 Budget Act which
provides for General Fund and Special Fund expenditures of approximately $67.2
billion and projects a 97-98 fiscal year end reserve of $112 million. For the
second year in a row, the State budget contains a large increase in funding for
K-14 education, reflecting strong revenues which have exceeded initial budgeted
amounts. The Budget Act reflects a $1.235 billion pension case judgment payment,
and returns funding of the State's pension contribution to the quarterly basis
existing prior to the deferral actions invalidated by the courts. Because of the
effect of the pension payment, most other State programs were continued at
1996-97 levels. Health and welfare costs are contained, continuing generally the
grant levels from prior years, as part of the initial implementation of the new
CalWORKs welfare reform program. Unlike prior years, this Budget Act does not
depend on uncertain federal budget actions. About $300 million in federal funds,
already included in the federal FY 1997 and 1998 budgets, are included in the
Budget Act to offset incarceration costs for illegal immigrants. The Budget Act
contains no tax increases and no tax reductions. The Renters Tax Credit was
suspended for another year, saving approximately $500 million. After enactment
of the Budget Act, and prior to the end of the Legislative Session, the
Legislature and the Governor reached certain agreements related to State
expenditures and taxes. Legislation signed by the Governor includes a variety of
phased-in tax cuts, conformity with certain provisions of the federal tax reform
law passed earlier in the year, and reform of funding for county trial courts,
with the State to assume greater financial responsibility.
The Governor's proposed budget for fiscal year 1998-1999 proposes total
State spending of $70.6 billion (excluding the expenditure of federal funds and
selected bond funds), which is up 4.7% from the current year's budget. This
total includes $55.4 billion in General Fund spending (a 4.5% increase from the
current year) and $15.2 billion in special funds spending (a 5.3% increase). The
Governor's proposed budget anticipates a $296 million reserve for economic
uncertainties. The new budget reflects agreements reached in the prior year in
the areas of welfare reform, education, state tax relief, and the financial
restructuring of the State's trial court system. The budget contains no tax
changes and relatively few major programmatic changes.
Because of the State's continuing budget problems, the State's General
Obligation bonds were downgraded in July 1994 from Aa to A1 by Moody's, to A
from A+ by Standard & Poor's, and from AA to A by Fitch Investors Service, Inc.
All three rating agencies expressed uncertainty in the State's ability to
balance its budget by 1996. However, in 1996, citing California's improving
economy and budget situation, both Fitch and Standard and Poor's raised their
ratings from A to A+. In October, 1997, Fitch raised its rating from A+ to AA-
referring to the State's fundamental strengths, the extent of its economic
recovery and the return of financial stability.
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
For a more detailed discussion of the State of California economic factors,
see the Statement of Additional Information.
9
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Investment restrictions listed below are among the restrictions which have
been adopted by the Trust as fundamental policies. Under the Act, a fundamental
policy may not be changed without the vote of a majority of the outstanding
voting securities of the Trust, as defined in the Act.
For purposes of the following restrictions: (a) an "issuer" of a security is
the entity whose assets and revenues are committed to the payment of interest
and principal on that particular security, provided that the guarantee of a
security will be considered a separate security and, provided further, that a
guarantee of a security shall not be deemed a security issued by the guarantor
if the value of all securities issued or guaranteed by the guarantor and owned
by the Fund does not exceed 10% of the value of the total assets of the Fund;
(b) a "taxable security" is any security the interest on which is subject to
federal income tax; and (c) all percentage limitations apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations does not require elimination of
any security from the portfolio.
The Trust may not:
1. With respect to 75% of its total assets, purchase securities of any issuer
if, immediately thereafter, more than 5% (10% where the security is the
guarantee of a security) of the value of its total assets are in the securities
of any one issuer (other than obligations issued, or guaranteed by, the United
States Government, its agencies or instrumentalities or by the State of
California or its political subdivisions).
2. With respect to 75% of its total assets, purchase more than 10% of all
outstanding taxable debt securities of any one issuer (other than debt
securities issued, or guaranteed as to principal and interest by, the United
States Government, its agencies or instrumentalities).
3. Invest 25% or more of the value of its total assets in taxable securities
of issuers in any one industry (industrial development and pollution control
bonds are grouped into industries based upon the business in which the issuers
of such obligations are engaged). This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities or by the State of California or its political subdivisions,
or to domestic bank obligations (including domestic branches of foreign banks).
The Trust will comply with any investment policies necessitated by rules
governing the pricing of shares of money market funds (see "How Net Asset Value
is Determined" in the Appendix), even though an investment restriction of the
Trust is less restrictive than the related policy.
10
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets Government Securities Trust (the "Government Securities Trust"
or the "Trust") is a no-load, diversified open-end management investment
company. The Trust is authorized to reimburse Morgan Stanley Dean Witter
Distributors Inc. for specific expenses incurred in promoting the distribution
of the Trust's shares pursuant to a Plan of Distribution pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act"). Reimbursement
may in no event exceed an amount equal to payments at the annual rate of 0.15%
of the average daily net assets of the Trust.
The investment objectives of the Trust are high current income, preservation
of capital and liquidity. The Trust will seek to achieve these objectives by
investing in a diversified portfolio of short-term money market instruments
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
Highlights/2
Summary of Trust Expenses/3
Financial Highlights/4
Investment Objectives and Policies/5
Purchase and Redemption of Shares/A-1
Purchase of Shares/A-1
Purchase of Shares by Non-Participants in Active Assets
Program/A-2
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in Active Assets
Program/A-4
How Net Asset Value is Determined/A-4
Confirmations/A-5
The Trusts and Their Management/A-5
Plan of Distribution/A-6
Dividends, Distributions and Taxes/A-7
General Information/A-9
Voting Rights/A-9
Custodian/A-10
Shareholder Inquiries/A-10
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 20, 1998, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING MORGAN STANLEY
DEAN WITTER ADVISORS INC. (THE "INVESTMENT MANAGER" OR "MSDW ADVISORS") AT (212)
392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY
REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE CLIENT ACCOUNT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 20, 1998.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing principally in short-term
TRUST money market instruments issued or guaranteed by the United States Government or its agencies or
instrumentalities. The Trust is authorized to reimburse Morgan Stanley Dean Witter Distributors
Inc. for specific expenses incurred in promoting the distribution of the Trust's shares pursuant to
a Plan of Distribution pursuant to Rule 12b-1 under the Act. (see page A-6). The Trust is organized
as an unincorporated business trust under the laws of Massachusetts. (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Government Securities Trust are offered to participants in the Active Assets
OFFERED program of Dean Witter and to non-participants who wish to invest directly in shares of the Trust
(See page A-2). The primary components of the Active Assets program are the Securities Account,
which is linked to the Active Assets Insured Account, the Active Assets Money Trust, the Active
Assets Tax-Free Trust, the Active Assets California Tax-Free Trust or the Government Securities
Trust, and to the Visa Account. See the Client Account Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Client Account Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances in an Active Assets account will automatically be invested in shares of the Government
Securities Trust daily at their net asset value without any sales charge. Morgan Stanley Dean
Witter Distributors Inc. is the Distributor of shares of the Trust. Investments in shares are made
under the circumstances described under "Purchase and Redemption of Shares" (see page A-1).
Non-participants in the Active Assets program should refer to the discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High current income, preservation of capital and liquidity (see page 5). There can be no assurance
OBJECTIVES that the Trust's investment objectives will be achieved.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT A diversified portfolio of short-term money market instruments issued or guaranteed by the United
POLICY States Government or its agencies or instrumentalities (see page 5).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment manage-
ment, advisory, management and administrative capacities to 102 investment companies and other
portfolios with assets under management of approximately $115.9 billion at July 31, 1998 (see page
A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") sells shares of the Trust through
Dean Witter Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule
12b-1 Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-7).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Government Securities Trust will be
OF SHARES redeemed at net asset value automatically to satisfy debit balances in the securities account
created by activity therein or to satisfy amounts owing in the Visa Account resulting from Visa
card purchases, cash advances or checks written against the Visa Account. Non-participants in the
Active Assets program should refer to the discussion appearing at page A-4. It is anticipated that
the net asset value will remain constant at $1.00 per share. Dean Witter has the right to terminate
a shareholder's Active Assets service, in which event all Trust shares held in a shareholder's
account will be involuntarily redeemed. The Trust also reserves the right to reduce the number of
shares in all accounts if the Trustees determine that this is necessary to maintain the constant
$1.00 per share net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust invests principally in high quality, short-term securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities which are subject to minimal risk of loss of
income and principal. However, the investor is directed to the discussion under the captions
"Investment Objectives and Policies" (page 5), "Repurchase Agreements" (page 6), and "When-Issued
and Delayed Delivery Securities" (page 6) concerning the risks associated with such portfolio
securities and management strategies.
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE CLIENT ACCOUNT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
fiscal year ended June 30, 1998.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases.................................. None
Maximum Sales Charge Imposed on Reinvested Dividends....................... None
Deferred Sales Charge...................................................... None
Redemption Fees............................................................ None
Exchange Fee............................................................... None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------------------------------------------
Management Fees............................................................ 0.48%
12b-1 Fees................................................................. 0.10%
Other Expenses............................................................. 0.05%
-----
Total Trust Operating Expenses............................................. 0.63%
-----
-----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------- ------- ------- ------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:............... $6 $20 $35 $79
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE TRUST MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
3
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements and notes thereto and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income..... 0.049 0.048 0.049 0.048 0.027 0.027 0.043 0.065 0.077 0.079
Less dividends from net
investment income........ (0.049) (0.048) (0.049) (0.048) (0.027) (0.027) (0.043) (0.065) (0.077) (0.079)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN... 5.05% 4.92% 5.03% 4.92% 2.76% 2.71% 4.37% 6.72% 8.03% 8.20%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................. 0.63% 0.64% 0.65% 0.67% 0.66% 0.66% 0.68% 0.70% 0.68% 0.70%
Net investment income..... 4.93% 4.78% 4.93% 4.84% 2.72% 2.68% 4.28% 6.39% 7.74% 7.94%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions.............. $ 699 $ 620 $ 571 $ 542 $ 472 $ 509 $ 533 $ 597 $ 300 $ 244
</TABLE>
4
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVES OF THE TRUST ARE HIGH CURRENT INCOME, PRESERVATION
OF CAPITAL AND LIQUIDITY. THE INVESTMENT OBJECTIVES ARE FUNDAMENTAL POLICIES AND
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE TRUST'S SHAREHOLDERS.
The Trust seeks to achieve its objectives by investing in U.S. Government
securities, including a variety of securities which are issued or guaranteed by
the United States Treasury, by various agencies of the United States Government,
and by various instrumentalities which have been established or sponsored by the
United States Government, and certain interests in the foregoing securities.
Except for U.S. Treasury securities, these obligations, even those which are
guaranteed by Federal agencies or instrumentalities, may or may not be backed by
the "full faith and credit" of the United States. In the case of securities not
backed by the full faith and credit of the United States, they may be backed, in
part, by a line of credit with the U.S. Treasury (such as the Federal National
Mortgage Association), or the Trust must look to the agency issuing or
guaranteeing the obligation for ultimate repayment (such as securities of the
Federal Farm Credit System) in which case the Trust may not be able to assert a
claim against the United States itself in the event the agency or
instrumentality does not meet its commitments.
Treasury securities include Treasury bills, Treasury coupons, Treasury
notes, and Treasury bonds (including zero coupon bonds). Some of the Government
agencies and instrumentalities which issue or guarantee securities include the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Government National Mortgage Association, the Federal
National Mortgage Association, the Farmers Home Administration, the Federal Land
Banks, the Small Business Administration, the Export-Import Bank, the Federal
Intermediate Credit Banks and the Banks for Cooperatives.
The Trust may invest in securities issued or guaranteed by any agency or
instrumentality established or sponsored by the United States Government. Such
investments may take the form of participation interests in, and may be
evidenced by deposit or safekeeping receipts for, any of the foregoing.
Participation interests are pro rata interests in U.S. Government securities
held by others such as interests in pools of mortgages sold by the Government
National Mortgage Association; instruments evidencing deposit or safekeeping are
documentary receipts for such original securities held in custody by others.
The Federal Deposit Insurance Corporation is the administrative authority
over the Bank Insurance Fund and the Savings Insurance Fund which are the
agencies of the U.S. Government which insure (including both principal and
interest) the deposits of certain banks and savings and loan associations up to
$100,000 per deposit. Current federal regulations also permit such institutions
to issue insured negotiable certificates of deposit ("CDs") in principal amounts
of $100,000 or more without regard to the interest rate ceilings on other
deposits. To remain fully insured as to principal, these investments must
currently be limited to $100,000 per bank or savings and loan association. The
interest on such investments is not insured. The Trust may invest in such CDs of
banks and savings and loan institutions having total assets of less than
$1,000,000,000, limited to the insured amount of principal ($100,000) in each
case and limited with regard to all such CDs and all illiquid assets, in the
aggregate, to 10% of the Trust's total assets.
The Trust intends normally to hold its portfolio securities to maturity.
Historically, securities issued or guaranteed by the U.S. Government or its
agencies and instrumentalities have involved minimal risk of loss of principal
or interest, if held to maturity.
The Trust may not borrow money, except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might otherwise
require the untimely disposition of securities. Borrowing in the aggregate,
including reverse repurchase agreements, may not exceed 20%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the value of the
Trust's total assets (including the
5
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
amount borrowed), less liabilities (not including the amount borrowed) at the
time the borrowing is made.
REPURCHASE AGREEMENTS. The Trust may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Trust, and which
typically involve the acquisition by the Trust of government securities from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Trust will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral") at a specified price and at a fixed time in the future. The Trust
will accrue interest from the institution until the time when the repurchase is
to occur. Although such date is deemed by the Trust to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed thirteen months. While
repurchase agreements involve certain risks not associated with direct
investments in U.S. Government securities, the Trust follows procedures designed
to minimize such risks. These procedures include effecting repurchase
transactions only with large, well capitalized and well established financial
institutions and specifying the required value of the collateral underlying the
agreement.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Trust may purchase
securities on a when-issued or delayed delivery basis; i.e., delivery and
payment can take place a month or more after the date of the transaction. When
such transactions are negotiated, the price is fixed at the time of commitment,
but delivery and payment can take place between one month and 120 days after the
date of the commitment. These securities are subject to market fluctuation and
no interest accrues to the purchaser during this period. At the time the Trust
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, it will record the transaction and thereafter reflect the value, each
day, of such security in determining its net
asset value.
All the foregoing strategies may subject the Trust to the effects of
interest rate fluctuations to a greater extent than would occur if such
strategies were not used. Certain provisions of the Internal Revenue Code,
related regulations, and rulings of the Internal Revenue Service may also have
the effect of reducing the extent to which the previously cited techniques may
be used by the Trust, either individually or in combination. Furthermore, there
is no assurance that any of these strategies or any other strategies and methods
available to the Trust will result in the achievement of its objectives.
The foregoing investment policies are not fundamental and may be changed by
the Board of Trustees without shareholder vote.
PORTFOLIO MANAGEMENT
The Trust will invest in securities of varying maturities and risks,
although it will not invest in securities with an effective maturity of more
than thirteen months. The Trust will generally not seek profits through
short-term trading, although it may dispose of any portfolio security prior to
maturity if, on the basis of a revised evaluation or other circumstance or
consideration, the Investment Manager deems such disposition advisable.
The Trust is expected to have a high portfolio turnover due to the short
maturities of securities purchased, but this should not affect income or net
asset value as brokerage commissions are not normally charged on the purchase or
sale of money market instruments such as U.S. Government obligations.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on the
purchase or sale of money market instruments such as U.S. Government
obligations, but such transactions may involve transaction costs in the form of
spreads between bid and asked prices. Pursuant to an order of the Securities and
Exchange Commission, the Trust may effect principal transactions in certain
money market instruments with Dean Witter. In addition, the Trust may incur
brokerage commissions on transactions conducted through Dean Witter, Morgan
Stanley & Co. Incorporated and other broker-dealers that are affiliates of the
Investment Manager.
6
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
YEAR 2000. The investment management services provided to the Trust by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Trust invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial. Accordingly, the Trust's investments may be adversely affected.
7
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
APPENDIX
THIS APPENDIX CONSTITUTES PART OF THE PROSPECTUSES OF THE ACTIVE ASSETS
MONEY TRUST (THE "MONEY TRUST"), THE ACTIVE ASSETS TAX-FREE TRUST (THE "TAX-FREE
TRUST"), THE ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST (THE "CALIFORNIA TAX-FREE
TRUST") AND THE ACTIVE ASSETS GOVERNMENT SECURITIES TRUST (THE "GOVERNMENT
SECURITIES TRUST"). THE MONEY TRUST, THE TAX-FREE TRUST, THE CALIFORNIA TAX-FREE
TRUST AND THE GOVERNMENT SECURITIES TRUST ARE REFERRED TO IN THIS APPENDIX
COLLECTIVELY AS THE "TRUSTS". UNLESS OTHERWISE INDICATED, THE INFORMATION SET
FORTH HEREIN IS APPLICABLE TO EACH TRUST.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
The shares of the Trusts are offered to participants in the Active Assets
financial service program (non-participants see below). Persons subscribing to
the program will have the free credit cash balances in their Active Assets
securities account invested in shares of the Money Trust, the Tax-Free Trust,
the California Tax-Free Trust or the Government Securities Trust or deposited in
the Active Assets Insured Account (a Federal Deposit Insurance Corporation
insured bank account), depending upon which investment vehicle has been
designated by the participant. For further information consult the Client
Account Agreement.
Purchases of shares of the Trusts by program participants will be made only
pursuant to the Active Assets automatic purchase procedures described below.
Subscribers to Active Assets services have the option to change the
designation of their Trust at any time by notifying their Morgan Stanley Dean
Witter Financial Advisor.
The purchase price for shares of the Trusts is the net asset value per share
next determined after receipt by a Trust of a purchase order, pursuant to the
Active Assets program, in proper form. The Trusts anticipate that the net asset
value will remain constant at $1.00 per share and that any fluctuations in value
will be reflected in the daily dividend or in the number of outstanding shares
in the shareholder's account rather than in the per share dollar value. The net
asset value is determined at 12 noon, New York time, on each day that the New
York Stock Exchange is open for business, immediately after the daily
declaration of dividends or on each other day in which there is a sufficient
degree of trading in the Trust's portfolio securities that the current net asset
value of the Trust's shares might be materially affected by changes in the value
of such portfolio securities, but only if on any such day the Trust is required
by the provisions of the Active Assets program to purchase or redeem Trust
shares or receives a request from a non-participant in the Active Assets program
to purchase or redeem shares of the Trust. Shares purchased will receive the
next dividend declared after such shares are issued which will be immediately
prior to the 12 noon pricing on the following business day. The net asset value
per share will not be determined on Good Friday and on such other federal and
non-federal holidays as are observed by the New York Stock Exchange.
A purchase order will not be effective until Federal funds become available
to the Trusts. Federal funds are a commercial bank's deposits in a Federal
Reserve Bank and can be transferred from one member bank's account to that of
another member bank on the same day and thus are considered to be immediately
available funds. There are no minimum investment requirements for the Trusts
(with the exception of non-participants in the Active Assets Program--see below)
although the minimum requirement for entry in the Active Assets program is
currently $5,000 in cash and/or securities. Dean Witter reserves the right to
alter or
A-1
<PAGE>
waive the conditions upon which an Active Assets account may be opened.
Free credit cash balances held in an Active Assets account will be
automatically invested daily in shares of either the Money Trust, the Tax-Free
Trust, the California Tax-Free Trust or the Government Securities Trust, if a
Trust has been selected for investment by the participant, on each business day
on which the New York Stock Exchange is open. Free credit cash balances will be
invested in shares at the price next determined, which is 12 noon New York time,
on the next business day following the credit of any such amounts to the Active
Assets account. Free credit balances arising from a cash payment into an Active
Assets account shall be so invested unless such payment is made after the
cashiering deadline of the Dean Witter office in which the payment is made, in
which case the resulting free credit balance shall be invested on the second
following business day and the investor will not receive the daily dividend
which would have been received had such balance been invested in the designated
Trust. An Active Assets participant desiring to make such a cash payment should
contact his or her Morgan Stanley Dean Witter Financial Advisor for information
concerning the local office's cashiering deadline, which is dependent on such
office's arrangements with its commercial banks.
Each Trust has entered into a Distribution Agreement with Morgan Stanley
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of MSDW
Advisors, which has its principal executive offices at Two World Trade Center,
New York, New York 10048. The Distribution Agreements obligate the Distributor
to pay certain expenses in connection with the offering of the shares of the
Trusts, including costs involved in the distribution of prospectuses and
periodic reports to investors, other supplementary sales literature and
advertising costs. However, costs and expenses incurred by the Distributor may
be reimbursed by the Trusts pursuant to the provisions of the respective Plans
of Distribution pursuant to Rule 12b-1 (see page A-6).
From time to time, certain state administrative agencies may raise questions
as to whether the operation of the Active Assets program constitutes banking
under the laws of their state. In addition, legislation has been proposed in
certain states which, if enacted, could require a modification of the Active
Assets program in those states. The Distributor and Dean Witter are not banks
and believe that the operation of the Active Assets program does not constitute
banking under the laws of any state. The Distributor and Dean Witter intend to
fully contest and resist any regulatory or legislative challenges to the Active
Assets program. Final adverse rulings in any state that the Active Assets
program constitutes unauthorized banking therein or the adoption of legislation
by any state affecting the Active Assets program could force the Trusts to
liquidate shares of residents in such state or to cease offering their shares in
such state as part of the Active Assets program.
PURCHASE OF SHARES BY NON-PARTICIPANTS IN ACTIVE ASSETS PROGRAM
Shares of the Trusts may be purchased by investors maintaining brokerage
accounts with Dean Witter who choose not to participate in the Active Assets
program. Shareholders of the Trusts not participating in the Active Assets
program will not be charged a program fee. The minimum initial purchase for
non-participants is $5,000 and the minimum subsequent purchase is $1,000.
Non-participants in the Active Assets program who are participating in other
brokerage account programs with Dean Witter may have different initial and/or
subsequent purchase minimum accounts, and may make share purchases automatically
through their account programs. Dean Witter account holders should contact their
Morgan Stanley Dean Witter Financial Advisor for further information concerning
methods of purchase.
The Trusts have been created for the purpose of serving as investments for
participants in the Active Assets program and, as such, do not in themselves
offer such typical money market fund features as check writing and exchange
privileges.
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There are other money market funds, including funds managed by MSDW Advisors,
which have investment objectives similar to the Trusts and which offer check
writing and exchange privileges. Prior to making an investment in any such money
market fund, an investor should obtain and read the prospectus.
REDEMPTION OF SHARES
Each Trust is required to redeem for cash all full and fractional shares of
the Trust. The redemption price is the net asset value per share next determined
after receipt by Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent") of
instructions from Dean Witter in accordance with the automatic procedure set
forth below (non-participants in the Active Assets program see below). Such
instructions are delivered to the Transfer Agent prior to the determination of
net asset value at 12 noon, New York time, on any day that the New York Stock
Exchange is open for business, or on each other day in which there is a
sufficient degree of trading in the Trust's portfolio securities that the
current net asset value of the Trust's shares might be materially affected by
changes in the value of such portfolio securities, but only if on any such day
the Trust is required by the provisions of the Active Assets program to purchase
or redeem Trust shares. Payment of the redemption proceeds will be made on the
same day the redemption becomes effective. Shareholders will receive upon
redemption all dividends declared and reinvested until the time of redemption.
Redemption will be automatically effected by Dean Witter to satisfy debit
balances in the Securities Account created by activity therein or to satisfy
debit balances created by Visa credit card purchases, cash advances or checks
written against the Visa Account. Each Active Assets account will be
automatically scanned for debits each business day that the New York Stock
Exchange is open for business as of the close of business on that day, and after
application of any free credit cash balances in the account to such debits, a
sufficient number of Trust shares owned by the Active Assets participants will
be redeemed at 12 noon the following business day to satisfy any remaining
debits in either the Securities Account or the Visa Account. Margin loans will
be utilized to satisfy debits remaining after the liquidation of all Trust
shares in an Active Assets participant's account and shares may not be purchased
until all debits and margin loans in the account are satisfied. Dean Witter (not
the Trusts) may impose a fee for the use of the Visa credit card to obtain cash
advances.
The right to receive payment with respect to any redemption may be suspended
by each Trust for a period of up to seven days. Suspensions of more than seven
days may not be made except (1) for any period (a) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings or
(b) during which trading on the New York Stock Exchange is restricted; (2) for
any period during which an emergency exists as a result of which (a) disposal by
the Trust of securities owned by it is not reasonably practicable or (b) it is
not reasonably practicable for the Trust to fairly determine the value of its
net assets; or (3) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of security holders of the
Trust. The Commission shall by rules and regulations determine the conditions
under which (i) trading shall be deemed to be restricted and (ii) an emergency
shall be deemed to exist within the meaning of clause (2) above. At various
times the Trusts may be requested to redeem shares with respect to which good
payment has not yet been received by the Distributor. A Trust may delay, or
cause to be delayed, the payment of the redemption proceeds until such time as
it has assured itself that good payment has been collected for the purchase of
such shares. In addition, where the shares to be redeemed have been purchased by
check (including a certified or bank cashier's check), automatic and manual
redemptions may be delayed for the minimum time needed to verify that the check
used for investment has been honored (not more than fifteen days from the time
of receipt of the check).
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The total value of a shareholder's investment in a Trust at the time of
redemption may be more or less than his or her cost, depending on the value of
the securities held by the Trust at such time and income earned.
If a participant wishes to reduce or eliminate his or her investment in the
Trust shares component of the Active Assets program, he or she should first call
the Active Assets information number shown on the cover page preceding the
Active Assets Money Trust Prospectus, to ascertain the balance in his or her
Trust Account. He or she may then withdraw an amount equal to the value of such
shares, less any charges pending in his or her Active Assets account, in any of
the following ways:
(a) by writing a check against the Visa Account in such amount;
(b) by obtaining a cash advance from a Visa participating bank or branch
thereof for such amount (which the bank may limit to $5,000 per account
per day); or
(c) by calling his or her Morgan Stanley Dean Witter Financial Advisor and
requesting a cash disbursement from the Active Assets program for such
amount.
In any of the above methods, the Trust share balance at any time is subject
to reduction due to prior debits against the participant's account. Accordingly,
if payment is requested through the Visa Account check or the cash advance
methods and if any other debits are paid by automatic redemption of Trust shares
prior to the time the check or cash advance charge is presented for payment,
then the Trust share balance will be reduced. If so, payment of the check or
cash advance may be paid in part from the margin loan value of the Securities
Account or may result in an overdraft. In addition, Dean Witter (not the Trusts)
may impose a fee for the checkwriting service on certain Active Assets accounts.
Under the Active Assets program, both Dean Witter and Bank One have the
right to terminate an Active Assets account for any reason. In such event, all
shares held in a shareholder's account will be redeemed.
REDEMPTION OF SHARES BY NON-PARTICIPANTS IN ACTIVE ASSETS PROGRAM
Shareholders who are not participating in the Active Assets program should
contact Dean Witter, through his or her Morgan Stanley Dean Witter Financial
Advisor, on any day the New York Stock Exchange is open, to effect a redemption
of shares of the Trust. All such redemption requests will be promptly forwarded
to the Transfer Agent; redemption requests should not be sent directly to the
Trusts or the Transfer Agent. If such requests are inadvertently sent to the
Trust or Transfer Agent, they will be forwarded to the Distributor. Cash
proceeds from the manual redemption of Trust shares ordinarily will be credited
to the shareholder's Dean Witter brokerage account or, on request, will be
mailed to the shareholder at his or her address of record. In certain instances,
as where redemption requests are received in writing, such redemption requests
will require written notices containing the signatures of all persons in whose
name the shares are registered, or additional documents such as, but not limited
to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. Non-participants in the
Active Assets program who are participating in other brokerage account programs
with Dean Witter may effect redemption of shares automatically, as provided for
in their account program. Dean Witter account holders should contact their
Morgan Stanley Dean Witter Financial Advisor for further information concerning
methods of redemption.
HOW NET ASSET VALUE IS DETERMINED
The net asset value per share of each Trust, for the purpose of calculating
the price at which shares are issued and redeemed, is determined by the
Investment Manager as of 12 noon New York time on each day that the New York
Stock Exchange is
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open for business, immediately after the daily declaration of dividends. Each
Trust will also calculate such price on each other day in which there is a
sufficient degree of trading in that Trust's portfolio securities, such that the
current net asset value of the Trust's shares might be materially affected by
changes in the value of such portfolio securities, but only if on any such day
the Trust is required by the provisions of the Active Assets program to purchase
or redeem Trust shares or receives a request from a non-participant in the
Active Assets program to purchase or redeem Trust shares. The determination of
net asset value is made by subtracting from the value of the assets of a Trust
the amount of its liabilities, and dividing the remainder by the number of
outstanding shares of the Trust.
The Trusts utilize the amortized cost method in valuing their portfolio
securities, even though the portfolio securities may increase or decrease in
market value, generally, in regards to changes in interest rates. The amortized
cost method of valuation involves valuing a security at its cost adjusted by a
constant amortization to maturity of any original issue discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00, although there is
no assurance that the $1.00 net asset value will be maintained.
CONFIRMATIONS
All purchases and redemptions of Trust shares and dividend reinvestments
will be confirmed monthly to the shareholder (rounded to the nearest share) in
the Active Assets Account Statement. Dean Witter has received an exemptive order
from the Securities and Exchange Commission which permits it to omit sending out
more frequent confirmations with respect to purchases and redemptions.
In the interest of economy and convenience and because of the operating
procedures of the Trusts, certificates representing the Trusts' shares will not
be physically issued. Shares are maintained by the Trusts on the register
maintained by the Transfer Agent and the holders thereof will have the same
rights of ownership with respect to such shares as if certificates had been
issued.
THE TRUSTS AND THEIR MANAGEMENT
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Money Trust, Tax-Free Trust, California Tax-Free Trust and Government
Securities Trust are all no-load, open-end diversified investment management
companies. Money Trust, Tax-Free Trust and Government Securities Trust were
organized under the laws of the Commonwealth of Massachusetts as business trusts
on March 30, 1981. California Tax-Free Trust was organized under the laws of the
Commonwealth of Massachusetts as a business trust on July 10, 1991.
MSDW Advisors, located at Two World Trade Center, New York, New York 10048,
is the Trusts' Investment Manager. The Investment Manager, 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. The
Investment Manager and Dean Witter are wholly-owned subsidiaries of Morgan
Stanley Dean Witter & Co. ("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 Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 102 investment companies
(the "Dean Witter Funds"), 28 of which are listed on the New York Stock
Exchange, with combined assets of approximately $111.6 billion at July 31, 1998.
The Investment Manager also manages portfolios of pension plans, other
institutions
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and individuals which aggregated approximately $4.3 billion at such date.
The Trusts have retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Trusts.
The Trusts' Trustees review the various services provided by the Investment
Manager to ensure that the Trusts' general investment policies and programs are
being properly carried out and that administrative services are being provided
to the Trusts in a satisfactory manner.
As full compensation for the services and facilities furnished to the Trusts
and expenses of the Trusts assumed by the Investment Manager, the Trusts pay the
Investment Manager monthly compensation calculated daily by applying a
percentage rate to the daily net assets of each of the respective Trusts which
declines as net assets of the Trusts reach specified levels (up to $3 billion).
For the fiscal years ended June 30, 1998, the Trusts accrued total compensation
to the Investment Manager amounting to 0.28% (Money Trust), 0.40% (Tax-Free
Trust), 0.49% (California Tax-Free Trust) and 0.48% (Government Securities
Trust) of the respective Trusts' average daily net assets and the Trusts' total
expenses amounted to 0.44% (Money Trust), 0.54% (Tax-Free Trust), 0.64%
(California Tax-Free Trust) and 0.63% (Government Securities Trust) of the
respective Trusts' average daily net assets.
PLAN OF DISTRIBUTION
Each Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act. Under the respective Plans, the Distributor has expanded the nature of
its promotional activities on behalf of the respective Trusts and uses its best
efforts to foster additional sales of Trust shares. The respective Plans provide
that the Distributor bear the expense of all promotional and distribution
related activities on behalf of the respective Trusts, except for expenses that
the respective Trustees determine to reimburse, as described below. The
following activities and services may be provided by the Distributor under the
respective Plans: (1) compensation to sales representatives of Dean Witter and
other broker-dealers; (2) sales incentives and bonuses to sales representatives
and to marketing personnel in connection with promoting sales of shares of the
Trusts; (3) expenses incurred in connection with promoting sales of shares of
the Trusts; (4) preparing and distributing sales literature; and (5) providing
advertising and promotional activities, including direct mail solicitation and
television, radio, newspaper, magazine and other media advertisements.
Reimbursements for these services are made in monthly payments by each Trust at
the annual rate of up to 0.15 of 1% of the average daily net assets of each
Trust. Such payments were made by Money Trust, Tax-Free Trust, California
Tax-Free Trust and Government Securities Trust at the annual rate of 0.10 of 1%
of each Trust's average daily net assets for their respective fiscal years ended
June 30, 1998. Morgan Stanley Dean Witter Financial Advisors are paid an annual
residual commission, currently a gross residual of up to 0.10 of 1% of the
current value of the respective accounts of which they are the Financial
Advisors of record. In addition, some Dean Witter sales personnel will receive
various types of non-cash compensation as special sales incentives, including
trips, educational and/or business seminars and merchandise. Expenses incurred
by the Distributor pursuant to the Plans in any fiscal year will not be
reimbursed by any Trust through payments accrued in any subsequent fiscal year.
Each Trust's expenses include: the Investment Management fee; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
certain legal, transfer agent, custodian and auditing fees; and printing and
other expenses relating to the Trust's operations which are not expressly
assumed by the Investment Manager under its Investment Management Agreement with
each Trust.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS
Each Trust declares dividends, payable on each day the New York Stock
Exchange is open for business, of all of its daily net investment income (and,
with respect to Money Trust and Government Securities Trust, net short-term
capital gains, if any) to shareholders of record as of 12 noon New York time of
the preceding business day. With respect to Tax-Free Trust and California
Tax-Free Trust, dividends from net short-term capital gains, if any, will be
paid periodically. The amount of dividend may fluctuate from day to day and may
be omitted on some days if net realized losses on portfolio securities exceed a
Trust's net investment income. Dividends are automatically reinvested daily in
additional full and fractional shares of a Trust at the net asset value per
share determined at 12 noon, New York time on that day.
Each Trust intends to distribute dividends from net long-term capital gains,
if any, at least once each year. A Trust may, however, elect to retain all or a
portion of any net long-term capital gains in any year for reinvestment.
Dean Witter will send to each shareholder a monthly summary of his or her
account, including information as to dividends reinvested, on the Dean Witter
Transaction Statement.
TAXES
Because the Trusts currently intend to distribute all of their net
investment income and net capital gains, if any, to shareholders and intend to
otherwise comply with all the provisions of Subchapter M of the Internal Revenue
Code, as amended (the "Code"), to qualify as regulated investment companies, it
is not expected that the Trust will be required to pay any federal income tax.
To avoid being subject to a 31% federal withholding tax on taxable
dividends, capital gains distributions and proceeds of redemptions,
shareholders' taxpayer identification numbers must be furnished and certified as
to accuracy.
MONEY TRUST AND GOVERNMENT SECURITIES TRUST. Distributions of net investment
income and realized net short-term capital gains are taxable to shareholders as
ordinary income, whether such distributions are taken in cash or reinvested in
additional shares. Distributions of long-term capital gains, if any, are taxable
as long-term capital gains, regardless of how long the shareholder has held a
Trust's shares. No portion of such dividends or distributions will be eligible
for the federal dividends received deduction for corporations. The Trusts advise
their shareholders annually as to the federal income tax status of distributions
paid during each calendar year.
TAX-FREE TRUST AND CALIFORNIA TAX-FREE TRUST. The Trusts intend to qualify
to pay "exempt-interest dividends" to their shareholders by maintaining as of
the close of each quarter of their taxable year, at least 50% of the value of
their total assets in tax-exempt securities. If a Trust satisfies such
requirement, dividends from net investment income to shareholders, whether taken
in cash or reinvested in additional Trust shares, will be excludable from gross
income for federal income tax purposes to the extent net interest income is
represented by interest on tax-exempt securities. Exempt-interest dividends are
included, however, in determining what portion, if any, of a person's Social
Security benefits are subject to federal income tax.
The Code now subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax applies
to interest received on "private activity bonds" (in general, bonds that benefit
non-government entities) issued after August 7, 1986 which, although tax-exempt
are used for purposes other than those generally performed by governmental units
(e.g., bonds used for commercial or housing purposes). Income received on such
bonds is classified as a "tax preference item", under the alternative minimum
tax, for both individual and
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corporate investors. A portion of a Trust's investments may be made in such
"private activity bonds," with the result that a portion of the exempt-interest
dividends paid by a Trust will be an item of tax preference to shareholders
subject to the alternative minimum tax. In addition, certain corporations which
are subject to the alternative minimum tax may have to include a portion of
exempt-interest dividends in calculating their alternative minimum taxable
income in situations where the "adjusted current earnings" of the corporation
exceeds its preadjustment alternative minimum taxable income.
CALIFORNIA TAXATION. Under California law, an investment company which
qualifies as a regulated investment company must have at least 50% of the value
of its total assets invested in California state and local issues or in
obligations of the United States which if held by an individual, would pay
interest excludable from income (or in a combination thereof), at the end of
each quarter of its taxable year in order to be eligible to pay dividends which
will be exempt from California personal income tax. Shareholders of California
Tax-Free Trust who are California residents will not incur any federal or
California income tax on the amount of exempt-interest dividends received by
them from the Trust and derived from California state and local issues or
certain United States issues whether taken in cash or reinvested in additional
shares to the extent that such dividends are derived from California securities.
Within 60 days after the end of its fiscal year, the Trusts will mail to
shareholders statements indicating the percentage of the dividend distributions
for such fiscal year which constitutes exempt-interest dividends and the
percentage, if any, that is taxable, and the percentage, if any, of the exempt-
interest dividends which constitutes an item of tax preference. This percentage
should be applied uniformly to any distributions made during the fiscal year to
determine the proportion of dividends that is tax-exempt. The percentage may
differ from the percentage of tax-exempt dividend distributions for any
particular month.
Unlike federal law, no portion of the exempt-interest dividends will
constitute an item of tax preference for California personal income tax
purposes. Moreover, unlike federal law, an individual's Social Security benefits
are not subject to California personal income tax, so that the receipt of
California exempt-interest dividends (from the California Tax-Free Trust) will
have no effect on an individual's California personal income tax.
Shareholders will normally be subject to federal and California personal
income tax on dividends paid from interest income derived from taxable
securities and on distributions of net capital gains, if any. For federal income
tax purposes, distributions of long-term capital gains, if any, are taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held a Trust's shares and regardless of whether the distribution is received
in additional shares or cash. In addition, for California personal income tax
purposes, the shareholders of the California Tax-Free Trust will not be subject
to tax, or receive a credit for tax paid by the Trust, on undistributed capital
gains, if any. With respect to the Tax-Free Trust, the exemption of interest
income for federal income tax purposes does not necessarily result in exemption
under the income or other tax laws of any state or local taxing authority. Thus,
shareholders of the Trust may be subject to state and local taxes on
exempt-interest dividends.
Distributions from investment income and long-term and short-term capital
gains will not be excluded from taxable income in determining the California
corporate income or franchise tax for corporate shareholders. Such distributions
also may be includable in income subject to the alternative minimum tax. In
addition, distributions from investment income and long-term and short-term
capital gains may be subject to state taxes in states other than California and
to local taxes.
Interest on indebtedness incurred by shareholders or related parties to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the Trust, generally will
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not be deductible by the investor for federal or California personal income tax
purposes.
The foregoing relates to federal income taxation and to California personal
income taxation as in effect as of the date of this Prospectus. Distributions
from investment income and capital gains, including exempt-interest dividends,
may be subject to California franchise taxes if received by a corporation doing
business in California, to state taxes in states other than California and to
local taxes.
Shareholders should consult their tax advisers as to the applicability of
the above to their own tax situation.
CURRENT AND EFFECTIVE YIELD
From time to time the Trusts advertise their "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Trust refers to the income
generated by an investment in the Trust over a given seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that seven-day
period is assumed to be generated each seven-day period within a 365-day period
and is shown as a percentage of the investment. The "effective yield" for a
seven-day period is calculated similarly but, when annualized, the income earned
by an investment in a Trust is assumed to be reinvested each week within a
365-day period. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The Tax-Free
Trust and California Tax-Free Trust may also quote tax-equivalent yield, which
is calculated by determining the pre-tax yield which, after being taxed at a
stated rate, would be equivalent to the yield determined as described above.
GENERAL INFORMATION
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VOTING RIGHTS
All shares of beneficial interest of a Trust are of $0.01 par value and are
equal as to earnings, assets and voting privileges. There are no conversion,
pre-emptive or other subscription rights. In the event of liquidation, each
share of beneficial interest of a Trust is entitled to its portion of all of the
Trust's assets after all debts and expenses have been paid. The shares do not
have cumulative voting rights.
The Trust is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Trust does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees (as provided for in the Declaration of Trust), and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of each Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. 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 elected, while the holders of the remaining shares would be
unable to elect any Trustees.
The 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 (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
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Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of a
Trust. The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of a Trust and requires that notice of such
disclaimer be given in each instrument entered into or executed by a Trust. The
Declaration of Trust provides for indemnification out of the Trust's property
for any shareholder held personally liable for the obligations of the Trust.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations. Given the nature of the Trusts' assets
and operations, the possibility of a Trust being unable to meet its obligations
is remote and, in the opinion of Massachusetts counsel to the Trusts, the risk
to Trust shareholders is remote.
CUSTODIAN
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Trusts' assets. The Custodian has no part in deciding the
Trusts' investment policies or which securities are to be purchased or sold for
the Trusts' portfolios. Any of the Trust's cash balances with the Custodian in
excess of $100,000 are unprotected by Federal deposit insurance. Such balances
may, at times, be substantial.
CODE OF ETHICS. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted by
those companies. The Code of Ethics is intended to ensure that the interests of
shareholders and other clients are placed ahead of any personal interest, that
no undue personal benefit is obtained from a person's employment activities and
that actual and potential conflicts of interest are avoided. To achieve these
goals and comply with regulatory requirements, the Code of Ethics requires,
among other things, that personal securities transactions by employees of the
companies be subject to an advance clearance process to monitor that no Morgan
Stanley Dean Witter Fund is engaged at the same time in a purchase or sale of
the same security. The Code of Ethics bans the purchase of securities in an
initial public offering, and also prohibits engaging in futures and options
transactions and profiting on short-term trading (that is, a purchase within
sixty days of a sale or a sale within sixty days of a purchase) of a security.
In addition, investment personnel may not purchase or sell a security for their
personal account within thirty days before or after any transaction in any
Morgan Stanley Dean Witter Fund managed by them. Any violations of the Code of
Ethics are subject to sanctions, including reprimand, demotion or suspension or
termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Trusts should be
directed to the Trusts at the telephone number or at the address set forth on
the front cover of these Prospectuses.
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CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in these
Prospectuses or in the Statements of Additional Information, in connection with
the offer contained in these Prospectuses or in the Statements of Additional
Information and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trusts or the
Distributor. These Prospectuses and the Statements of Additional Information do
not constitute an offer by the Trusts or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trusts or the
Distributor to make such offer in such jurisdiction.
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ACTIVE ASSETS
MONEY TRUST
ACTIVE ASSETS
TAX-FREE TRUST
ACTIVE ASSETS
CALIFORNIA TAX-FREE
TRUST
ACTIVE ASSETS
GOVERNMENT
SECURITIES TRUST
PROSPECTUSES
AUGUST 20, 1998
The enclosed Prospectuses describe four fully managed money market trusts.
Shares of the Trusts are offered directly to clients of Dean Witter and to
participants in the Active Assets-Registered Trademark- Account program of Dean
Witter Reynolds Inc.
Investors should be aware that the Active Assets Account service is not a bank
account. As with any investment in securities, the value of a shareholder's
investment in the Trusts may fluctuate.
Principal Office of the Trusts
Two World Trade Center
New York, New York 10048
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