<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1999
REGISTRATION NOS.: 2-71559
811-3162
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 21 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 22 /X/
-------------------
ACTIVE ASSETS TAX-FREE TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN
SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
<TABLE>
<C> <S>
--- immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
---
X 60 days after filing pursuant to paragraph (a)
---
on (date) pursuant to paragraph (a) of rule 485
---
</TABLE>
AMENDING THE PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS - , 1999
ACTIVE ASSETS
MONEY TRUST
TAX-FREE TRUST
CALIFORNIA TAX-FREE TRUST
GOVERNMENT SECURITIES TRUST
[COVER PHOTO]
FOUR DIFFERENT MONEY MARKET FUNDS OFFERED EXCLUSIVELY TO
PARTICIPANTS IN THE ACTIVE ASSETS
ACCOUNT-Registered Trademark- FINANCIAL SERVICE PROGRAM
AND TO OTHER INVESTORS WHO HAVE BROKERAGE ACCOUNTS WITH
DEAN WITTER REYNOLDS
FOR INFORMATION ON THE ACTIVE ASSETS PROGRAM, READ THE
ENCLOSED "CLIENT ACCOUNT AGREEMENT" AND/OR CALL TOLL FREE
(800) 869-3326 OR IF YOU ARE IN NEW YORK CITY CALL (212)
392-5000.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
Eligible
Investors/Overview ...................................................... 1
The Funds
Active Assets Money
Trust Investment Objectives................................. 2
Principal Investment Strategies....................... 2
Principal Risks....................................... 3
Past Performance...................................... 4
Fees and Expenses..................................... 5
Active Assets
Tax-Free Trust Investment Objective.................................. 6
Principal Investment Strategies....................... 6
Principal Risks....................................... 7
Past Performance...................................... 8
Fees and Expenses..................................... 9
Active Assets
California
Tax-Free Trust Investment Objective.................................. 10
Principal Investment Strategies....................... 10
Principal Risks....................................... 11
Past Performance...................................... 12
Fees and Expenses..................................... 13
Active Assets
Government
Securities Trust Investment Objectives................................. 14
Principal Investment Strategies....................... 14
Principal Risks....................................... 15
Past Performance...................................... 16
Fees and Expenses..................................... 17
Fund Management ...................................................... 18
Shareholder Information Pricing Fund Shares................................... 19
How Are Fund Investments Made?........................ 19
How Are Fund Shares Sold?............................. 20
Distributions......................................... 22
Tax Consequences...................................... 22
The Funds' Financial
Information ...................................................... 24
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
</TABLE>
FUND CATEGORY
---------------------------
/ / Growth
/ / Growth and Income
/ / Income
/X/ MONEY MARKET
<PAGE>
ELIGIBLE INVESTORS/OVERVIEW
Active Assets Money Trust, Active Assets Tax-Free Trust, Active Assets
California Tax-Free Trust and Active Assets Government Securities Trust (each, a
Fund) are four separate money market funds offered exclusively to: (i)
participants in Dean Witter Reynolds' Active Assets
Account-Registered Trademark- Financial Service Program (the Active Assets
Program); and (ii) other investors that have a brokerage account with Dean
Witter Reynolds. (Dean Witter Reynolds is affiliated with Morgan Stanley Dean
Witter Advisors Inc., the Funds' Investment Manager.)
The Active Assets Program offers its participants (Participants) a Dean Witter
brokerage account (an Active Assets Account) that is linked to the Funds, a
federally insured bank account, a Visa-Registered Trademark- debit card and a
checking account. Both the debit card and the checkwriting privileges are
offered through Bank One, Columbus, N.A. The annual fee presently charged for
participating in the Active Assets Program is $80 ($100 for businesses). At any
time, Dean Witter may change the annual fee charged and the services provided
under the Program. For details on the Active Assets Program please read the
enclosed Client Account Agreement carefully.
For details on how investments are made in the Funds, see "How Are Fund
Investments Made?" on p. 19.
1
<PAGE>
(SIDEBAR)
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
(END SIDEBAR)
THE FUNDS
ACTIVE ASSETS MONEY TRUST
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
Active Assets Money Trust is a money market fund that seeks to
provide high current income, preservation of capital and liquidity.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund invests in high quality, short-term debt obligations. In
selecting investments, the "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., seeks to maintain the Fund's share price at
$1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment.
The Fund's investments include the following money market instruments:
<TABLE>
<S> <C>
- - Commercial paper.
- - Corporate obligations.
- - Debt obligations of U.S.-regulated banks and instruments secured by
those obligations. These investments include certificates of deposit.
- - Certificates of deposit of savings banks and savings and loan
associations.
- - Debt obligations issued or guaranteed as to principal and interest by
the U.S. Government, its agencies or its instrumentalities.
- - Repurchase agreements, which may be viewed as a type of secured
lending by the Fund.
</TABLE>
2
<PAGE>
ACTIVE ASSETS MONEY TRUST
ICON PRINCIPAL RISKS
- --------------------------------------------------------------------------------
CREDIT AND INTEREST RATE RISKS. Principal risks of investing in the
Fund are associated with its debt obligation investments. All debt
obligations, such as bonds, are subject to two types of risk: credit
risk and interest rate risk. Credit risk refers to the possibility
that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt. Interest rate risk
refers to fluctuations in the value of a debt security resulting from
changes in the general level of interest rates.
The Investment Manager actively manages the Fund's assets to reduce the risk of
losing any principal investment as a result of credit or interest rate risks.
The Fund's assets are reviewed to maintain or improve creditworthiness. In
addition, federal regulations require money market funds to invest only in debt
obligations of high quality and short-term maturities.
There is no assurance that the Fund will achieve its investment objectives.
Shares of the Fund are not bank deposits and are not insured or guaranteed by
the FDIC or any other government agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, if it is unable to do so, it is
possible to lose money by investing in the Fund.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
corporate and governmental issuers in which the Fund invests do not
properly process and calculate date-related information from and
after January 1, 2000. While year 2000-related computer problems
could have a negative effect on the Fund, the Investment Manager and
its affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which the Fund
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.
Corporate and governmental data processing errors also 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 and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
3
<PAGE>
ACTIVE ASSETS MONEY TRUST
(SIDEBAR)
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR OVER THE PAST 10 CALENDAR YEARS.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME.
(END SIDEBAR)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989
90
91
92
93
94
95
96
97
98
</TABLE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was % (quarter ended , ) and the lowest return for a
calendar quarter was % (quarter ended , ). Year-to-date total
return information as of June 30, 1999 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Active Assets Money Trust % % %
- -------------------------------------------------------------------------------
Lipper (to be inserted)(1) % % %
- -------------------------------------------------------------------------------
</TABLE>
1 (to be inserted)
For the Fund's most recent 7-day annualized yield you may call (800) 869-NEWS.
4
<PAGE>
ACTIVE ASSETS MONEY TRUST
(SIDEBAR)
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
(END SIDEBAR)
ICON FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund is a no-load fund. The Fund does not
impose any sales charges and does not charge account or exchange fees.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------
Management fee %
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees %
- -----------------------------------------------------------------------
Other expenses %
- -----------------------------------------------------------------------
Total annual Fund operating expenses %
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year, and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the table below shows your costs at
the end of each period based on these assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
$ $ $ $
- ----------------------------------------------------------
</TABLE>
5
<PAGE>
(SIDEBAR)
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
(END SIDEBAR)
ACTIVE ASSETS TAX-FREE TRUST
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Active Assets Tax-Free Trust is a money market fund that seeks to
provide as high a level of daily income exempt from federal personal
income tax as is consistent with stability of principal and
liquidity.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will invest in high quality, short-term
securities that are normally municipal obligations
that pay interest exempt from federal income taxes.
The Fund's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., seeks to maintain the Fund's
share price at $1.00. The share price remaining
stable at $1.00 means that the Fund would preserve
the principal value of your investment.
Municipal obligations are securities issued by state and local governments, and
their agencies. These securities typically are "general obligation" or "revenue"
bonds, notes or commercial paper. General obligation securities are secured by
the issuer's faith and credit, as well as its taxing power, for payment of
principal and interest. Revenue bonds, however, are generally payable from a
specific revenue source. They are issued to fund a wide variety of public and
private projects in sectors such as transportation, education and industrial
development. Included within the revenue bonds category are participations in
lease obligations and installment purchase contracts of municipalities.
The Fund may invest up to 20% of its total assets in securities that pay
interest income subject to the "alternative minimum tax," and
some taxpayers may have to pay tax on a Fund distribution of this income; see
the "Tax Consequences" section of this PROSPECTUS for more details.
The Fund has a fundamental policy of investing at least 80% of its total assets
in securities the interest on which is exempt from federal personal income tax.
This policy may not be changed without shareholder approval.
6
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
ICON PRINCIPAL RISKS
- --------------------------------------------------------------------------------
CREDIT AND INTEREST RATE RISKS. Principal risks of investing in the
Fund are associated with its municipal investments. Municipal
obligations, as with all debt securities, are subject to two types of
risks: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security will be
unable to make interest payments and repay the principal on its debt. Interest
rate risk, another risk of debt securities, refers to fluctuations in the value
of a fixed-income security resulting from changes in the general level of
interest rates.
The Investment Manager, however, actively manages the Fund's assets to reduce
the risk of losing any principal investment as a result of credit or interest
rate risks. The Fund's assets are reviewed to maintain or improve
creditworthiness. In addition, federal regulations require money market funds,
such as the Fund, to invest only in debt obligations of high quality and
short-term maturities.
There is no assurance that the Fund will achieve its investment objective.
Shares of the Fund are not bank deposits and are not insured or guaranteed by
the FDIC or any other government agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, if it is unable to do so, it is
possible to lose money by investing in the Fund.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
governmental issuers in which the Fund invests do not properly
process and calculate date-related information from and after January
1, 2000. While year 2000-related computer problems could have a
negative effect on the Fund, the Investment Manager and its
affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which the Fund
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.
Governmental data processing errors also may result in overall economic
uncertainties. Individual issuers will be affected by remediation costs, which
may be substantial. Accordingly, the Fund's investments may be adversely
affected.
7
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
(SIDEBAR)
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR OVER A 10-YEAR PERIOD.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME.
(END SIDEBAR)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989
90
91
92
93
94
95
96
97
98
</TABLE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was % (quarter ended , ) and the lowest return for a
calendar quarter was % (quarter ended , ). Year-to-date total
return information as of June 30, 1999 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Active Assets Tax-Free Trust % % %
- -------------------------------------------------------------------------------
Lipper Tax-Exempt Money Market
Funds Index(1) 3.04% 3.06% 3.58%
- -------------------------------------------------------------------------------
</TABLE>
1 The Lipper Tax-Exempt Money Market Fund Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Tax-Exempt Money Market Funds objective. The index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this index.
For the Fund's most recent 7-day annualized yield you may call (800) 869-NEWS.
8
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
(SIDEBAR)
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
(END SIDEBAR)
ICON FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund is a no-load fund. The Fund does not
impose any sales charges and does not charge account fees.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------
Management fee %
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees %
- -----------------------------------------------------------------------
Other expenses %
- -----------------------------------------------------------------------
Total annual Fund operating expenses %
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
This example shows what expenses you could pay over time. The example assumes
that you invest $10,000 in the Fund, your investment has a 5% return each year,
and the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, the table below shows your costs at the end of each
period based on these assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
$ $ $ $
- ----------------------------------------------------------
</TABLE>
9
<PAGE>
(SIDEBAR)
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
(END SIDEBAR)
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Active Assets California Tax-Free Trust is a money market fund that
seeks 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.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will invest in high quality, short-term securities that are normally
municipal obligations that pay interest exempt from federal and California
income taxes. The Fund's "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., seeks to maintain the Fund's share price at $1.00. The share
price remaining stable at $1.00 means that the Fund would preserve the principal
value of your investment.
The Investment Manager generally invests substantially all of the Fund's assets
in California municipal obligations. The interest on these investments is exempt
from federal and California state income tax. The Fund may invest up to 20% of
its assets in securities that pay interest income subject to the "alternative
minimum tax," and some taxpayers may have to pay tax on a Fund distribution of
this income; see the "Tax Consequences" section of this PROSPECTUS for more
details.
Municipal obligations are securities issued by state and local governments and
regional government authorities. These securities typically are "general
obligation" or "revenue" bonds, notes or commercial paper. General obligation
securities are secured by the issuer's faith and credit, as well as its taxing
power, for payment of principal and interest. Revenue bonds, however, are
generally payable from a specific revenue source. They are issued to fund a wide
variety of public and private projects in sectors such as transportation,
education and industrial development. Included within the revenue bonds category
are participations in lease obligations and installment contracts of
municipalities.
The Fund has a fundamental policy of investing at least 80% of its total assets
in securities the interest on which is exempt from federal and California
personal income tax. This policy may not be changed without shareholder
approval.
10
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ICON PRINCIPAL RISKS
- --------------------------------------------------------------------------------
CREDIT AND INTEREST RATE RISKS. A principal risk of investing in the
Fund is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal
obligations, as with all debt securities, are subject to two types of
risks: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security will be
unable to make interest payments and repay the principal on its debt. However,
unlike most fixed-income mutual funds, the Fund is subject to the added credit
risk of concentrating its investments in a single state -- California -- and its
municipalities. Because the Fund concentrates its investments in securities
issued by California state and local governments and government authorities, the
Fund could be affected by political, economic and regulatory developments
concerning these issuers. Should any difficulties develop concerning California
issuers' ability to pay principal and/or interest on their debt obligations, the
Fund's value and yield could be adversely affected.
Interest rate risk, another risk of debt securities, refers to fluctuations in
the value of a fixed-income security resulting from changes in the general level
of interest rates.
The Investment Manager, however, actively manages the Fund's assets to reduce
the risk of losing any principal investment as a result of credit or interest
rate risks. The Fund's assets are reviewed to maintain or improve
creditworthiness. In addition, federal regulations require money market funds,
such as the Fund, to invest only in debt obligations of high quality and
short-term maturities.
There is no assurance that the Fund will achieve its investment objective.
Shares of the Fund are not bank deposits and are not insured or guaranteed by
the FDIC or any other government agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, if it is unable to do so, it is
possible to lose money by investing in the Fund.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
governmental issuers in which the Fund invests do not properly
process and calculate date-related information from and after January
1, 2000. While year 2000-related computer problems could have a
negative effect on the Fund, the Investment Manager and its
affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which the Fund
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.
Governmental data processing errors also may result in overall economic
uncertainties. Individual issuers will be affected by remediation costs, which
may be substantial. Accordingly, the Fund's investments may be adversely
affected.
11
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
(SIDEBAR)
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR DURING THE LIFE OF THE FUND.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME AND ASSUME YOU SOLD YOUR SHARES AT THE
END OF EACH PERIOD.
(END SIDEBAR)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1991
'92
'93
'94
'95
'96
'97
'98
</TABLE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was % (quarter ended , ) and the lowest return for a
calendar quarter was % (quarter ended , ). Year-to-date total
return as of June 30, 1999 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- ----------------------------------------------------------------------------------
LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 11/12/91)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Active Assets California Tax-Free
Trust % % %
- ----------------------------------------------------------------------------------
Lipper California Tax-Exempt Money
Market Index(1) 2.77% 3.00% 3.47%
- ----------------------------------------------------------------------------------
</TABLE>
1 The Lipper California Tax-Exempt Money Market Funds Index is an
equally-weighted performance index of the largest qualifying funds (based
on net assets) in the Lipper California Tax-Exempt Money Market Funds
objective. The index, which is adjusted for capital gains distributions and
income dividends, is unmanaged and should not be considered an investment.
There are currently 30 funds represented in this index.
For the Fund's most recent 7-day annualized yield you may call (800) 869-NEWS.
12
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
(SIDEBAR)
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
(END SIDEBAR)
ICON FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund is a no-load fund. The Fund does not
impose any sales charges and does not charge account fees.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------
Management fee %
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees %
- -----------------------------------------------------------------------
Other expenses %
- -----------------------------------------------------------------------
Total annual Fund operating expenses %
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year, and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the table below shows your costs at
the end of each period based on these assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
$ $ $ $
- ----------------------------------------------------------
</TABLE>
13
<PAGE>
(SIDEBAR)
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
(END SIDEBAR)
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
ICON INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
Active Assets Government Securities Trust is a money market fund that
seeks to provide high current income, preservation of capital and
liquidity.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will invest in high quality, short-term U.S. Government securities. The
Fund's "Investment Manager," Morgan Stanley Dean Witter Advisors Inc., seeks to
maintain the Fund's share price at $1.00. The share price remaining stable at
$1.00 means that the Fund would preserve the principal value of your investment.
The U.S. Government securities that the Fund may purchase include:
- U.S. Treasury bills, notes and bonds, all of which
are direct obligations of the U.S. Government.
- Securities issued by agencies and instrumentalities
of the U.S. Government which are backed by the full
faith and credit of the United States. Among the
agencies and instrumentalities issuing these
obligations are the Government National Mortgage
Association and the Federal Housing Administration.
- Securities issued by agencies and instrumentalities
which are not backed by the full faith and credit
of the United States, but whose issuing agency or
instrumentality has the right to borrow from the
U.S. Treasury to meet its obligations. Among these
agencies and instrumentalities are the Federal
National Mortgage Association, the Federal Home
Loan Mortgage Corporation and the Federal Home Loan
Banks.
- Securities issued by agencies and instrumentalities
which are backed solely by the credit of the
issuing agency or instrumentality. Among these
agencies and instrumentalities is the Federal Farm
Credit System.
The Fund also may invest up to 10% of its total assets in FDIC insured
certificates of deposit of banks and savings and loan institutions.
In addition, the Fund may invest in repurchase agreements which may be viewed as
a type of secured lending by the Fund.
14
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
ICON PRINCIPAL RISKS
- --------------------------------------------------------------------------------
CREDIT AND INTEREST RATE RISKS. A principal risk of investing in the
Fund is associated with its U.S. Government securities investments,
which are subject to two types of risks: credit risk and interest
rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and repay the
principal on its debt. Interest rate risk, another risk of debt
securities, refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest
rates.
Credit risk is minimal with respect to the Fund's U.S. Government securities
investments. Repurchase agreements involve a greater degree of credit risk. The
Investment Manager, however, actively manages the Fund's assets to reduce the
risk of losing any principal investment as a result of credit or interest rate
risks. In addition, federal regulations require money market funds, such as the
Fund, to invest only in debt obligations of high quality and short-term
maturities.
There is no assurance that the Fund will achieve its investment objectives.
Shares of the Fund are not bank deposits and are not insured or guaranteed by
the FDIC or any other government agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, if it is unable to do so, it is
possible to lose money by investing in the Fund.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
governmental issuers in which the Fund invests do not properly
process and calculate date-related information from and after January
1, 2000. While year 2000-related computer problems could have a
negative effect on the Fund, the Investment Manager and its
affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which the Fund
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.
Governmental data processing errors also 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 and may
be reported inconsistently in U.S. and foreign financial statements.
Accordingly, the Fund's investments may be adversely affected.
15
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
(SIDEBAR)
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR OVER THE PAST 10 CALENDAR YEARS.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME.
(END SIDEBAR)
ICON PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
</TABLE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was % (quarter ended , ) and the lowest return for a
calendar quarter was % (quarter ended , ). Year-to-date total
return information as of June 30, 1999 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Active Assets Government
Securities Trust % % %
- -------------------------------------------------------------------------------
Lipper U.S. Government Money
Market Funds Index(1) 4.95% 4.79% 5.19%
- -------------------------------------------------------------------------------
</TABLE>
1 The Lipper U.S. Government Money Market Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper U.S. Government Money Market Funds objective. The index, which
is adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are currently
30 funds represented in this index.
For the Fund's most recent 7-day annualized yield you may call (800) 869-NEWS.
16
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
(SIDEBAR)
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
(END SIDEBAR)
ICON FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund is a no-load fund. The Fund does not
impose any sales charges and does not impose account fees.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------
Management fee %
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees %
- -----------------------------------------------------------------------
Other expenses %
- -----------------------------------------------------------------------
Total annual Fund operating expenses %
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year, and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the table below shows your costs at
the end of each period based on these assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
$ $ $ $
- ----------------------------------------------------------
</TABLE>
17
<PAGE>
(SIDEBAR)
MORGAN STANLEY DEAN WITTER ADVISORS INC.
THE INVESTMENT MANAGER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND TOGETHER WITH MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC., ITS
WHOLLY-OWNED SUBSIDIARY, HAS MORE THAN $ BILLION IN ASSETS UNDER MANAGEMENT
OR ADMINISTRATION AS OF , 1999.
(END SIDEBAR)
ICON FUND MANAGEMENT
- ------------------------------------------------------------
Each Fund has retained the Investment Manager -- Morgan Stanley Dean Witter
Advisors Inc. -- to provide administrative services, manage its business affairs
and invest its assets, including the placing of orders for the purchase and sale
of portfolio securities. The Investment Manager is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co., a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services. Its main business office is
located at Two World Trade Center, New York, NY 10048.
Each Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Manager. The fee is based on each Fund's
average daily net assets. For the fiscal year ended June 30, 1999, each Fund
accrued total compensation to the Investment Manager as follows:
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT
FEE ACCRUED
(AS A PERCENT OF
FUND FUND'S AVERAGE NET ASSETS)
<S> <C>
- ------------------------------------------------------------------------------
Active Assets Money Trust
- ------------------------------------------------------------------------------
Active Assets Tax-Free Trust
- ------------------------------------------------------------------------------
Active Assets California Tax-Free Trust
- ------------------------------------------------------------------------------
Active Assets Government Securities Trust
- ------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
(SIDEBAR)
CONTACTING A FINANCIAL ADVISOR
IF YOU ARE NEW TO THE MORGAN STANLEY DEAN WITTER FAMILY OF FUNDS AND WOULD LIKE
TO CONTACT A FINANCIAL ADVISOR, CALL (800) THE-DEAN FOR THE TELEPHONE NUMBER OF
THE MORGAN STANLEY DEAN WITTER OFFICE NEAREST YOU.
YOU MAY ALSO ACCESS OUR OFFICE LOCATOR ON OUR INTERNET SITE AT:
WWW.DEANWITTER.COM/FUNDS
(END SIDEBAR)
SHAREHOLDER INFORMATION
ICON PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of each Fund's shares, called "net asset value," is based
on the amortized cost of the Fund's portfolio securities. The
amortized cost valuation method involves valuing a debt obligation in
reference to its cost, rather than market forces.
The net asset value per share of each Fund is determined once daily at 12:00
noon Eastern time on each day that the New York Stock Exchange is open. Shares
will not be priced on days that the New York Stock Exchange is closed.
ICON HOW ARE FUND INVESTMENTS MADE?
- --------------------------------------------------------------------------------
PARTICIPANTS:
Cash balances in your Active Assets Account that are not invested
in securities will be automatically invested in shares of the Fund
of your choice on days that the New York Stock Exchange is open for
business (a "business day"). Alternatively, you may choose to have
your cash balances deposited in a federally insured bank account
selected by Dean Witter. (Currently, the designated bank account is
held with MountainWest Financial Corporation.) You may change your
selection at any time to any of the other three Funds (or to
deposit account balances in the designated bank account) by
notifying your Morgan Stanley Dean Witter Financial Advisor. Upon
selecting a different Fund, all of your shares held in the
previously
designated Fund will automatically be sold and reinvested in shares of the newly
selected Fund.
Your Active Assets Account will be reviewed on each business day to determine
whether the account has a cash balance as a result of any credits accrued that
day. Credits to your account may arise, for example, from sales of securities or
from direct cash payments into the account. The cash balance, reduced by any
debits to your Active Assets Account incurred that day, will be used to purchase
shares of the Fund of your choice on the next business day at the Fund's share
price calculated on that next day. Debits may arise from purchases of
securities, margin calls, other account charges, Visa debit card purchases or
cash advances, and any checks written against the account.
Dividends are not earned until the next business day following the purchase of
Fund shares.
If you make a cash payment into your Active Assets Account after your Financial
Advisor's deadline for processing checks has passed, then investment in the Fund
of your choice may not occur until the second business day after the payment is
made
19
<PAGE>
(and at the price of the Fund's shares calculated on that second business day).
No payments into the Active Assets Account will be credited until federal or
other immediately available funds become available to the account.
There is no minimum investment amount for Participants, although the current
minimum initial deposit into an Active Assets Account is $5,000 in cash or
securities.
NON-PARTICIPANTS:
To invest in any of the Funds, contact your Morgan Stanley Dean
Witter Financial Advisor. Your Financial Advisor will assist you
step-by-step with the procedures to invest in a Fund. The minimum
investment amount is $5,000 for initial investments. We may offer
reduced minimums or automatic investment options for investors that
have certain brokerage accounts held with Dean Witter. Fund shares
are purchased at the next share price calculated after we receive
your instructions to purchase in the proper form required by your
Morgan Stanley Dean Witter Financial Advisor (accompanied by federal
or other immediately available funds).
Non-Participants considering investing in any of the Funds should recognize that
the Funds have been created specifically for the Active Assets Program and, as
such, the Funds do not offer typical money market fund features such as
checkwriting privileges to non-Participants. (We do offer other comparable money
market funds that have these features. For more information, call your Morgan
Stanley Dean Witter Financial Advisor.)
PLAN OF DISTRIBUTION:
Each Fund has adopted a Plan of Distribution in accordance with Rule
12b-1 under the Investment Company Act of 1940. The Plan allows each
Fund to pay distribution fees for the sale and distribution of these
shares. It also allows each Fund to pay for services to shareholders.
Because these fees are paid out of each Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
ICON HOW ARE FUND SHARES SOLD?
- --------------------------------------------------------------------------------
PARTICIPANTS:
AUTOMATIC SALES. Your Active Assets Account will be reviewed on each
business day to determine whether the account has a negative balance
as a result of debits incurred on that day. Of course, the negative
balance will be reduced by any credits accrued to the account on that
day. On the next business day, a sufficient number of your Fund
shares will automatically be sold to equal the value of the negative
balance. The sale price of the Fund's shares will be the share price
calculated on that next business day. If the value of your Fund
shares is insufficient to equal the negative balance, Dean Witter is
authorized to take the actions described in your Client Account
Agreement, including, if you are eligible, applying a margin loan to
your account to cover outstanding debits.
In addition, if Dean Witter or Bank One exercises its right to terminate the
Active Assets Program, then all of your Fund shares will be sold.
20
<PAGE>
VOLUNTARY SALES. If you wish to sell all or some of your Fund shares,
you may do so by:
(a) writing a Bank One check against your account in an amount equal
to the value of shares you wish to sell (there may be fees
imposed for writing these checks);
(b) obtaining a cash advance using your Bank One Visa debit card
(there may be fees imposed on cash advances and you may be
limited to withdrawing up to $5,000 per day); or
(c) calling your Morgan Stanley Dean Witter Financial Advisor.
Once you have taken any of these steps, Fund shares will be sold at the Fund's
share price calculated on the next business day. Proceeds from your sale of Fund
shares will be reduced by any outstanding debits to your Active Assets Account.
Prior to selling any Fund shares through any of the above methods you should
call the Active Assets information number appearing on the cover of this
PROSPECTUS to determine the value of Fund shares you own. If there is an
insufficient value of Fund shares to cover your account withdrawals (I.E., debit
card purchases or checks written), then Dean Witter may take the authorized
steps described in the Client Account Agreement.
NON-PARTICIPANTS:
You can sell some or all of your Fund shares at any time. Your shares
will be sold at the next share price calculated after we receive your
order to sell as described below.
To sell your shares, simply call your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative. Payment will be sent to
the address to which the account is registered or deposited in your brokerage
account.
You may also sell your shares by writing a "letter of instruction" that
includes:
- your account number;
- the dollar amount or the number of shares you wish to sell; and
- the signature of each owner as it appears on the account.
If you are requesting payment to anyone other than the registered owner(s) or
that payment be sent to any address other than the address of the registered
owner(s) or pre-designated bank account, you will need a signature guarantee.
You can generally obtain a signature guarantee from an eligible guarantor
acceptable to Morgan Stanley Dean Witter Trust FSB. (You should contact Morgan
Stanley Dean Witter Trust FSB at (800) 869-NEWS for a determination as to
whether a particular institution is an eligible guarantor.) A notary public
CANNOT provide a signature guarantee. Additional documentation may be required
for shares held by a corporation, partnership, trustee or executor. Mail the
letter to . A check will be mailed to the name(s) and address in
which the account is registered, or otherwise according to your instructions.
21
<PAGE>
After we receive your complete instructions to sell as described above, a check
will be mailed to you within seven days, although we will attempt to make
payment within one business day. Payment may also be sent to your brokerage
account.
Certain Dean Witter brokerage accounts held by non-Participants may be eligible
for an automatic redemption option where Fund shares are sold automatically
under specified circumstances. For more information contact your Morgan Stanley
Dean Witter Financial Advisor.
PARTICIPANTS AND NON-PARTICIPANTS:
Payment for Fund shares sold may be postponed or the right to have
Fund shares sold may be suspended under unusual circumstances. If you
request to sell shares that were recently purchased by check, payment
of the sale proceeds may be delayed for the minimum time needed to
verify that the check has been honored (not more than fifteen days
from the time the check is received).
ICON DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund passes substantially all of its earnings along to its investors as
"distributions." Each Fund earns interest from fixed-income investments. These
amounts are passed along to Fund shareholders as "income dividend
distributions." Each Fund realizes capital gains whenever it sells securities
for a higher price than it paid for them. These amounts may be passed along as
"capital gain distributions;" the Investment Manager does not anticipate that
there will be significant capital gain distributions.
Each Fund declares income dividends, payable on each day the New York Stock
Exchange is open for business, of all of its daily net income to shareholders of
record as of 12:00 noon the preceding business day. Dividends are reinvested
automatically in additional shares of the Fund (rounded to the last 1/100 of a
share). With respect to each of Active Assets Money Trust and Active Assets
Government Securities Trust, its short-term capital gains, if any, are declared
and payable on each business day. The other Funds' short-term capital gains, if
any, are distributed periodically. Each Fund's long-term capital gains, if any,
are distributed at least once in December.
ICON TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your investment in a
Fund will be taxed. The tax information in this PROSPECTUS is
provided as general information. You should consult your own tax
professional about the tax consequences of an investment in a Fund.
Your income dividend distributions from Active Assets Money Trust and Active
Assets Government Securities Trust are normally subject to federal and state
income tax when they are paid.
22
<PAGE>
Income dividend distributions from Active Assets Tax-Free Trust are normally
exempt from federal income tax and will generally be subject to state income
tax. Income dividend distributions from Active Assets California Tax-Free Trust
are exempt from federal and California state income taxes -- to the extent they
are derived from California municipal obligations. With respect to these two
Funds, income derived from certain portfolio securities may be subject to
federal, state and/or local income taxes.
With respect to Active Assets Tax-Free Trust and Active Assets California
Tax-Free Trust, income derived from certain municipal securities may be subject
to the federal "alternative minimum tax." Certain tax-exempt securities whose
proceeds are used to finance private, for-profit organizations are subject to
this special tax system that ensures that individuals pay at least some federal
taxes. Although interest on these securities is generally exempt from federal
income tax, some taxpayers who have many tax deductions or exemptions
nevertheless may have to pay tax on the income.
If a Fund makes any capital gain distributions, those distributions will
normally be subject to federal and state income tax when they are paid. Any
short-term capital gain distributions are taxable to you as ordinary income. Any
long-term capital gain distributions are taxable to you as long-term capital
gains, no matter how long you have owned shares in a Fund.
Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
distributions paid to you in the previous year. The statement provides full
information on your dividends and capital gains for tax purposes.
You should provide your social security or tax identification number. By
providing this information, you will avoid being subject to a federal backup
withholding tax of 31% on taxable distributions and sale proceeds. Any withheld
amount would be sent to the IRS as an advance tax payment.
23
<PAGE>
THE FUNDS' FINANCIAL INFORMATION
ACTIVE ASSETS MONEY TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by , whose report, along with
the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Net income from investments operations
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % % % % %
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses % % % % %
- ---------------------------------------------------------------------------------------------------------------------
Net investment income % % % % %
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
ACTIVE ASSETS MONEY TRUST ANNUAL REPORT
25
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by , whose report, along with
the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Net income from investments operations
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % % % % %
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses % % % % %
- ---------------------------------------------------------------------------------------------------------------------
Net investment income % % % % %
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST ANNUAL REPORT
27
<PAGE>
ACTIVE ASSETS CALIFORNIA
TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by , whose report, along with
the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Net income from investments operations
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % % % % %
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses % % %(1) % %
- ---------------------------------------------------------------------------------------------------------------------
Net investment income % % % % %
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not reflect the effect of expense offset of 0.01%.
28
<PAGE>
ACTIVE ASSETS CALIFORNIA
TAX-FREE TRUST ANNUAL REPORT
29
<PAGE>
ACTIVE ASSETS GOVERNMENT
SECURITIES TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by , whose report, along with
the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Net income from investments operations
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % % % % %
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses % % % % %
- ---------------------------------------------------------------------------------------------------------------------
Net investment income % % % % %
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
ACTIVE ASSETS GOVERNMENT
SECURITIES TRUST ANNUAL REPORT
31
<PAGE>
PROSPECTUS - , 1999
Additional information about each Fund's investments is available in the Fund's
SEMI-ANNUAL REPORT TO SHAREHOLDERS. The Funds' STATEMENT OF ADDITIONAL
INFORMATION also provides additional information about the Funds. The STATEMENT
OF ADDITIONAL INFORMATION is incorporated herein by reference (legally is part
of this PROSPECTUS). For a free copy of any of these documents, to request other
information about the Funds, or to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about each Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
WWW.DEANWITTER.COM/FUNDS
Information about the Funds (including the STATEMENT OF ADDITIONAL INFORMATION)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800) SEC-0330. Reports and
other information about the Funds are available on the SEC's Internet site at
www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by writing the Public Reference Section of the SEC, Washington,
DC 20549-6009.
ACTIVE ASSETS
MONEY TRUST
TAX-FREE TRUST
CALIFORNIA TAX-FREE TRUST
GOVERNMENT SECURITIES TRUST
[BACK COVER PHOTO]
FOUR DIFFERENT MONEY
MARKET FUNDS OFFERED
EXCLUSIVELY TO
PARTICIPANTS IN THE ACTIVE
ASSETS
ACCOUNT-Registered Trademark-
FINANCIAL SERVICE PROGRAM
AND TO OTHER INVESTORS
WHO HAVE BROKERAGE
ACCOUNTS WITH DEAN WITTER
REYNOLDS.
TICKER SYMBOLS:
ACTIVE ASSETS MONEY TRUST AAMT
ACTIVE ASSETS TAX-FREE TRUST AATF
ACITVE ASSETS CALIFORNIA TAX-FREE TRUST AACT
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST AAGS
(THE FUNDS' INVESTMENT COMPANY ACT
FILE NOS. ARE 811-3159
811-3162
811-6530
811-3165)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION ACTIVE
, 1999 ASSETS
MONEY TRUST
ACTIVE
ASSETS
TAX-FREE
TRUST
ACTIVE
ASSETS
CALIFORNIA
TAX-FREE
TRUST
ACTIVE
ASSETS
GOVERNMENT
SECURITIES
TRUST
- --------------------------------------------------------------------------------
This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
(dated , 1999) for Active Assets Money Trust, Active Assets Tax-Free Trust,
Active Assets California Tax-Free Trust and Active Assets Government Securities
Trust (each a "Fund") may be obtained without charge from the Funds at their
address or telephone number listed below or from Dean Witter Reynolds at any of
its branch offices.
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
I. History of the Funds................................................................ 4
II. Description of the Funds and Their Investments and Risks........................... 4
A. Classification.................................................................... 4
B. Investment Strategies and Risks................................................... 4
C. Investment Objective/Policies/Investment Restrictions............................. 12
III. Management of the Funds........................................................... 17
A. Board of Trustees................................................................. 17
B. Management Information............................................................ 17
C. Compensation...................................................................... 22
IV. Control Persons and Principal Holders of Securities................................ 26
V. Investment Management and Other Services............................................ 26
A. Investment Manager................................................................ 26
B. Principal Underwriter............................................................. 27
C. Services Provided by the Investment Manager and Fund Expenses Paid by Third
Parties............................................................................. 28
D. Rule 12b-1 Plan................................................................... 28
E. Other Service Providers........................................................... 31
VI. Brokerage Allocation and Other Practices........................................... 31
A. Brokerage Transactions............................................................ 31
B. Commissions....................................................................... 32
C. Brokerage Selection............................................................... 32
D. Directed Brokerage................................................................ 33
E. Regular Broker-Dealers............................................................ 33
VII. Capital Stock and Other Securities................................................ 33
VIII. Purchase, Redemption and Pricing of Shares....................................... 34
A. Purchase/Redemptions of Shares.................................................... 34
B. Offering Price.................................................................... 34
IX. Taxation of the Funds and Their Shareholders....................................... 36
X. Underwriters........................................................................ 38
XI. Calculation of Performance Data.................................................... 38
XII. Financial Statements.............................................................. 39
</TABLE>
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CUSTODIAN"--The Bank of New York is the Custodian of the Funds' assets.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.
"FUND"--Any of the Active Assets Money Trust, the Active Assets Tax-Free Trust,
the Active Assets California Tax-Free Trust and the Active Assets Government
Securities Trust, each a registered no-load open-end investment company.
"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.
"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.
"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor and (ii) that hold
themselves out to investors as related companies for investment and investor
services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Funds.
3
<PAGE>
I. HISTORY OF THE FUNDS
- --------------------------------------------------------------------------------
Each Fund is organized as a Massachusetts business trust, under a separate
Declaration of Trust. With the exception of ACTIVE ASSETS CALIFORNIA TAX-FREE
TRUST, each Fund was organized on March 30, 1981. ACTIVE ASSETS CALIFORNIA
TAX-FREE TRUST was organized on July 10, 1991.
II. DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
Each Fund is an open-end, diversified management investment company. Each
Fund's investment objective(s) is as follows:
<TABLE>
<CAPTION>
ACTIVE ASSETS MONEY TRUST-- high current income, preservation of capital
and liquidity.
<S> <C>
ACTIVE ASSETS TAX-FREE to provide as high a level of daily income
TRUST-- exempt from federal personal income tax as is
consistent with stability of principal and
liquidity.
ACTIVE ASSETS CALIFORNIA TAX- to provide as high a level of daily income
FREE TRUST-- exempt from federal and California personal
income tax as is consistent with stability of
principal and liquidity.
ACTIVE ASSETS GOVERNMENT high current income, preservation of capital
SECURITIES TRUST-- and liquidity.
</TABLE>
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Funds' investment strategies and risks
should be read with the sections of the Funds' PROSPECTUS titled "Principal
Investment Strategies" and "Principal Risks."
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Funds in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Funds. These agreements, which may be viewed
as a type of secured lending by the Funds, typically involve the acquisition by
the Funds of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides that
the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The Funds will accrue interest from the institution until the
time when the repurchase is to occur. Although this date is deemed by the Funds
to be the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Funds follow procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well capitalized and well established financial institutions, whose
financial condition will be continuously monitored. In addition, the value of
the collateral underlying the repurchase agreement will always be at least equal
to the resale price which consists of the acquisition price paid to the seller
of the securities plus the accrued resale premium which is defined as the amount
specified in the repurchase agreement or the daily amortization of the
difference between the acquisition price and the resale price specified in the
repurchase agreement. Such collateral will consist entirely of securities that
are direct obligations of, or that are fully guaranteed as to principal and
interest by, the United States or any agency thereof, and/or certificates of
deposit, or other securities that, at the time the repurchase agreement is
entered into, are rated in the highest rating category by the Requisite NRSROs
(as defined under Rule 2a-7 of the Investment Company Act of 1940).
Additionally, upon an Event of Insolvency (as defined under Rule 2a-7) with
respect to the seller, the collateral must qualify the repurchase agreement for
preferential treatment under a provision of applicable insolvency
4
<PAGE>
law providing an exclusion from any automatic stay of creditors' rights against
the seller. In the event of a default or bankruptcy by a selling financial
institution, the Funds will seek to liquidate such collateral. However, the
exercise of the Funds' right to liquidate such collateral could involve certain
costs or delays and, to the extent that proceeds from any sale upon a default of
the obligation to repurchase were less than the repurchase price, the Funds
could suffer a loss. It is the current policy of each Fund not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 10% of its total assets. A Fund's investments in repurchase agreements
may at times be substantial when, in the view of the Fund's Investment Manager,
liquidity or other considerations warrant.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. Each of the Funds may invest
in variable rate and floating rate obligations. ACTIVE ASSETS TAX-FREE TRUST and
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may only invest in variable rate and
floating rate municipal obligations. The interest rate payable on a variable
rate obligation is 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. Other features may include
the right whereby the Fund may demand prepayment of the principal amount of the
obligation prior to its stated maturity (a "demand feature") and the right of
the issuer to prepay the principal amount prior to maturity. The principal
benefit of a variable rate obligation is that the interest rate adjustment
minimizes changes in the market value of the obligation. As a result, the
purchase of variable rate and floating rate obligations should enhance the
ability of the applicable Funds to maintain a stable net asset value per share
and to sell obligations prior to maturity at a price that is approximately the
full principal amount of the obligations. The principal benefit to a Fund of
purchasing obligations with a demand feature is that liquidity, and the ability
of the Fund to obtain repayment of the full principal amount of an obligation
prior to maturity, is enhanced. The payment of principal and interest by issuers
of certain obligations purchased by a Fund may be guaranteed by letters of
credit or other credit facilities offered by banks or other financial
institutions. Such guarantees will be considered in determining whether an
obligation meets a Fund's investment quality requirements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time each of the
Funds other than ACTIVE ASSETS MONEY TRUST may purchase eligible portfolio
securities, on a when-issued or delayed delivery basis. When these transactions
are negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of commitment. While a
Fund will only purchase securities on a when-issued or delayed delivery basis
with the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date.
At the time a Fund makes the commitment to purchase or sell securities on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of such security purchased, or if a
sale, the proceeds to be received, in determining its net asset value. At the
time of delivery of the securities, their value may be more or less than the
purchase or sale price. An increase in the percentage of a Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of its net asset value. A Fund will also
establish a segregated account on its books in which it will continually
maintain cash or cash equivalents or other liquid portfolio securities equal in
value to commitments to purchase securities on a when-issued or delayed delivery
basis.
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO ACTIVE ASSETS--TAX-FREE TRUST AND
CALIFORNIA TAX-FREE TRUST ONLY
LEASE OBLIGATIONS. Included within the revenue bonds category in which
ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may
invest are participations in lease obligations or installment purchase contracts
(collectively called "lease obligations") of municipalities. State and local
governments issue lease obligations to acquire equipment and facilities.
5
<PAGE>
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.
PUT OPTIONS. Each of ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS
CALIFORNIA TAX-FREE TRUST may purchase securities together with the right to
resell them to the seller at an agreed upon price or yield within a specified
period prior to the maturity date of such securities. Such a right to resell is
commonly known as a "put," and the aggregate price which a Fund pays for
securities with puts may be higher than the price which otherwise would be paid
for the securities. The primary purpose of this practice is to permit these
Funds to be fully invested in securities, the interest on which is exempt from
Federal income tax and, with respect to ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST,
California personal income tax, while preserving the necessary flexibility and
liquidity to purchase securities on a when-issued basis, to meet unusually large
redemptions and to purchase at a later date securities other than those subject
to the put. The Funds' policy is, generally, to exercise the puts on their
expiration date, when the exercise price is higher than the current market price
for the related securities. Puts may be exercised prior to the expiration date
in order to fund obligations to purchase other securities or to meet redemption
requests. These obligations may arise during periods in which proceeds from
sales of Fund shares and from recent sales of portfolio securities are
insufficient to meet such obligations or when the funds available are otherwise
allocated for investment. In addition, puts may be exercised prior to their
expiration date in the event the Investment Manager revises its evaluation of
the creditworthiness of the issuer of the underlying security. In determining
whether to exercise puts prior to their expiration date and in selecting which
puts to exercise in such circumstances, the Investment Manager considers, among
other things, the amount of cash available to the Funds, the expiration dates of
the available puts, any future commitments for securities purchases, the yield,
quality and maturity dates of the underlying securities, alternative investment
opportunities and the desirability of retaining the underlying securities in the
Funds' portfolios.
A Fund values securities which are subject to puts at its amortized cost and
values the put, apart from the security, at zero. Thus, the cost of the put will
be carried on a Fund's books as an unrealized loss from the date of acquisition
and will be reflected in realized gain or loss when the put is exercised or
expires. Since the value of the put is dependent on the ability of the put
writer to meet its obligation to repurchase, a Fund enters into put transactions
only with municipal securities dealers who are approved by the Trustees. Each
dealer will be approved on its own merits and it is the Funds' general policy to
enter into put transactions only with those dealers which are determined to
present minimal credit risks. In connection with such determination, the
Trustees will review, among other things, the ratings, if available, of equity
and debt securities of such municipal securities dealers, their reputations in
the municipal securities markets, the net worth of such dealers and their
efficiency in consummating transactions. Bank dealers normally will be members
of the Federal Reserve System, and other dealers will be members of the National
Association of Securities Dealers, Inc. or members of a national securities
exchange. The Trustees have directed the Investment Manager not to enter into
put transactions with, and to exercise outstanding puts of, any municipal
securities dealer which, in the judgment of the Investment Manager, ceases at
any time to present a minimal credit risk. In the event that a dealer should
default on its obligation to repurchase an underlying security, a Fund is unable
to predict whether all or any portion of any loss sustained could be
subsequently recovered from such dealer.
6
<PAGE>
In Revenue Ruling 82-144, the Internal Revenue Service stated that, under
certain circumstances, a purchaser of tax-exempt obligations which are subject
to puts will be considered the owner of the obligations for Federal income tax
purposes.
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS. Each of ACTIVE ASSETS
TAX-FREE TRUST and ACTIVE ASSETS CALIFORNIA TAX-FREE 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 Funds 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.
TAXABLE SECURITIES. Each of ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS
CALIFORNIA TAX-FREE TRUST may invest up to 20% of its total assets in taxable
money market instruments including, with respect to CALIFORNIA TAX-FREE TRUST,
non-California tax-exempt securities. Investments in taxable money market
instruments would generally be made under any one of the following
circumstances: (a) pending investment proceeds of sale of Fund shares or of
portfolio securities; (b) pending settlement of purchases of portfolio
securities; and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. Only those non-California tax-exempt securities which satisfy the
standards established for California tax-exempt securities may be purchased by
CALIFORNIA TAX-FREE TRUST.
The types of taxable money market instruments in which TAX-FREE TRUST and
CALIFORNIA TAX-FREE 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, its agencies,
instrumentalities or authorities; (ii) commercial paper rated P-1 by Moody's
Investors Services, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P"); (iii) certificates of deposit and bankers' acceptances of domestic
banks with assets of $1 billion or more; and (iv) repurchase agreements with
respect to portfolio securities.
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO ACTIVE ASSETS--MONEY TRUST AND/OR
GOVERNMENT SECURITIES TRUST ONLY
LENDING PORTFOLIO SECURITIES. Each of ACTIVE ASSETS MONEY TRUST and ACTIVE
ASSETS GOVERNMENT SECURITIES TRUST may lend its portfolio securities to brokers,
dealers and other financial institutions, provided that the loans are callable
at any time by the Fund, and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of these loans is that a Fund
continues to receive the income on the loaned securities while at the same time
earning interest on the cash amounts deposited as collateral, which will be
invested in short-term obligations. A Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than 10%
of the value of its total assets.
As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by management to be creditworthy and when the
income which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, a Fund will follow the policy of calling the loaned securities, to be
delivered within one day after notice, to permit the exercise of the rights if
the matters involved would have a material effect on the Fund's investment in
the loaned securities. The Funds will pay reasonable finder's, administrative
and custodial fees in connection with a loan of their securities.
7
<PAGE>
REVERSE REPURCHASE AGREEMENTS. ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
may also use reverse repurchase agreements as part of its investment strategy.
Reverse repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase agreement is less than the cost of obtaining the
cash otherwise. Opportunities to achieve this advantage may not always be
available, and the Fund intends to use the reverse repurchase technique only
when it will be to its advantage to do so. The Fund will establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other portfolio securities equal in value to its obligations in
respect of reverse repurchase agreements. Reverse repurchase agreements are
considered borrowings by the Fund.
YEAR 2000. The investment management services provided to the Funds 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 each
Fund 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.
Corporate and governmental data processing errors also 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 and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, each Fund's investments may be adversely affected.
THE STATE OF CALIFORNIA--SPECIAL INVESTMENT CONSIDERATIONS APPLICABLE TO
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST ONLY. The following describes certain
risks with respect to municipal obligations of California issuers in which
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may invest. This summarized information
is based on information drawn from official statements and prospectuses relating
to securities offerings of the State of California and other public documents
available as of the date of this Statement of Additional Information.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will be affected by any political,
economic or regulatory developments affecting the ability of California issuers
to pay interest or repay principal. Provisions of the California Constitution
and 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. Future California political and economic
developments, constitutional amendments, legislative measures, executive orders,
administrative regulations, litigation and voter initiatives could have an
adverse effect on the debt obligations of California issuers.
Certain debt obligations held by ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may
be obligations of issuers which rely in whole or in substantial part on
California state revenues for the continuance of their operations and payment of
their obligations. Whether and to what extent the California Legislature will
continue to appropriate a portion of the State's General Fund to counties,
cities and their various entities, is not entirely certain. To the extent local
entities do not receive money from the State to pay for their operations and
services, their ability to pay debt service on obligations held by the Fund may
be impaired.
8
<PAGE>
In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources. Legislation adopted after Proposition 13 provided for
assistance to local governments, including the redistribution of the
then-existing surplus in the General Fund, reallocation of revenues to local
governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in future years. In NORDLINGER V. HAHN, the
United States Supreme Court upheld certain provisions of Proposition 13 against
claims that it violated the equal protection clause of the Constitution.
In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the State and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by State and local government entities.
"Appropriations limit" does not include appropriations for qualified capital
outlay projects, certain increases in transportation-related taxes, and certain
emergency appropriations.
If a government entity raises revenues beyond its "appropriations limit" in
any year, a portion of the excess which cannot be appropriated within the
following year's limit must be returned to the entity's taxpayers within two
subsequent fiscal years, generally by a tax credit, refund or temporary
suspension of tax rates or fee schedules. "Debt service" is excluded from these
limitations, and is defined as "appropriations required to pay the cost of
interest and redemption charges, including the funding of any reserve or sinking
fund required in connection therewith, on indebtedness existing or legally
authorized as of January 1, 1979 or on bonded indebtedness thereafter approved
[by the voters]." In addition, Article XIIIB requires the State Legislature to
establish a prudent State reserve, and to require the transfer of 50% of excess
revenue to the State School Fund; any amounts allocated to the State School Fund
will increase the appropriations limit.
In June 1982, the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to account for the effects of inflation. Decreases in State and local
revenues in future fiscal years as a consequence of these initiatives may result
in reductions in allocations of state revenues to California issuers or in the
ability of California issuers to pay their obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and (viii)
permits these provisions to be amended exclusively by the voters of the State of
California.
9
<PAGE>
In September 1995, the California Supreme Court upheld the constitutionality
of Proposition 62, creating uncertainty as to the legality of certain local
taxes enacted by non-charter cities in California without voter approval. It is
not possible to predict the impact of the decision.
In November 1996, California voters approved Proposition 218. The initiative
applied the provisions of Proposition 62 to all entities, including charter
cities. It requires that all taxes for general purposes obtain a simple majority
popular vote and that taxes for special purposes obtain a two-thirds majority
vote. Prior to the effectiveness of Proposition 218, charter cities could levy
certain taxes such as transient occupancy taxes and utility user's taxes without
a popular vote. Proposition 218 will also limit the authority of local
governments to impose property-related assessments, fees and charges, requiring
that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal
previously-authorized taxes, assessments, fees and charges.
In 1988, State voters approved Proposition 87, which amended Article XVI of
the State Constitution to authorize the State Legislature to prohibit
redevelopment agencies from receiving any property tax revenues raised by
increased property taxes to repay bonded indebtedness of local government which
is not approved by voters on or before January 1, 1989. It is not possible to
predict whether the State Legislature will enact such a prohibition, nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.
In November 1988, California voters approved Proposition 98. This initiative
requires that (i) revenues in excess of amounts permitted to be spent and which
would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits to be annually increased
for any such allocation made in the prior year. Proposition 98 also requires the
State of California to provide a minimum level of funding for public schools and
community colleges. The initiative permits the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.
Certain tax-exempt securities in which the Fund may invest may be
obligations payable solely from the revenues of specific institutions, or may be
secured by specific properties, which are subject to provisions of California
law which could adversely affect the holders of such obligations. For example,
the revenues of California health care institutions may be subject to state
laws, and California law limits the remedies of a creditor secured by a mortgage
or deed of trust on real property.
California is the most populous state in the nation with a total population
estimated at 32.9 million. The State now comprises 12.3% 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 an average of 5.9%
in 1998, 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 year, the increases in employment and
income may exceed those of the nation as a whole. The unsettled financial
situation occurring in certain Asian economies, and its spillover effect
elsewhere, may adversely affect the State's export-related industries and,
therefore, the State's rate of economic growth.
10
<PAGE>
The Governor signed the 1998-99 Budget Act on August 21, 1998. The 1998-99
Budget Act is based on projected General Fund revenues and transfers of $57.0
billion (after giving effect to various tax reductions enacted in 1997 and
1998), a 4.2% increase from the revised 1997-98 figures. Special Fund revenues
were estimated at $14.3 billion. The revenue projections were based on the
Governor's May Revision to the 1998-99 Budget and may be overstated in light of
the possible effect on California's economic growth of worsening economic
problems in various international markets.
The Budget Act provides authority for expenditures of $57.3 billion from the
General Fund (a 7.3% increase from 1997-98), $14.7 billion from Special Funds,
and $3.4 billion from bond funds. The Budget Act projects a balance in the SFEU
at June 30, 1999 of $1.255 billion, a little more than 2% of General Fund
revenues. The Budget Act assumes the State will carry out its normal intra-year
cash flow borrowing in the amount of $1.7 billion of revenue anticipation notes
issued in October, 1998.
The most significant feature of the 1998-99 budget was agreement on a total
of $1.4 billion of tax cuts. The central element is a bill which provides for a
phased-in reduction of the Vehicle License Fee (VLF). Since the VLF is currently
transferred to cities and counties, the bill provides for the General Fund to
replace the lost revenues. Starting on January 1, 1999, the VLF will be reduced
by 25%, at a cost to the General Fund of approximately $500 million in the
1998-99 Fiscal Year and about $1 billion annually thereafter.
The Governor's proposed budget for fiscal year 1999-2000 proposes total
State spending of $76.2 billion (excluding the expenditure of federal funds and
selected bond funds), which is up 4.1% from the 1998-1999 budget. This total
includes $60.5 billion in General Fund spending (a 3.8% increase) and $15.7 in
special funds spending. The Governor's proposed budget anticipates a $415
million reserve by the close of the fiscal year. The proposed budget addresses
an anticipated funding shortfall of $2.3 billion (which includes funds to
rebuild the reserve) through a combination of new state and federal resources,
the rescheduling of certain expenditures, under budgeting certain expenditures,
spending cutbacks, and savings assumptions.
As of February 1, 1999, the State had over $19.1 billion aggregate amount of
its general obligation bonds outstanding. General obligation bond authorizations
in an aggregate amount of approximately $14.3 billion remained unissued as of
February 1, 1999. At the November 3, 1998 election voters approved a bond
measure totaling $9.2 billion for public school construction and renovation, and
for higher education facilities. The State also builds and acquires capital
facilities through the use of lease purchase borrowing. As of February 1, 1999,
the State had approximately $6.7 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities
had approximately $24.6 billion aggregate principal amount of revenue bonds and
notes outstanding as of September 30, 1998. Revenue bonds represent both
obligations payable from State revenue-producing enterprises and projects, which
are not payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, educational facilities (including the California
State University and University of California systems), housing, health
facilities, and pollution control facilities.
Because of the State of California's budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by S&P, and to A from AA by Fitch. Moody's, Fitch and S&P 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
S&P 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. In October 1998,
Moody's raised its rating from A1 to Aa3 citing the State's continuing economic
recovery and a number of actions taken to improve the State's credit condition,
including the rebuilding of cash and budget reserves.
11
<PAGE>
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations and which, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
YEAR 2000. In October 1997 the Governor issued Executive Order W-163-97
stating that Year 2000 solutions would be a State priority and requiring each
agency of the State, no later than December 31, 1998, to address Year 2000
problems in their essential systems and protect those systems from corruption by
non-compliant systems, in accordance with the Department of Information
Technology's California 2000 Program. The State reports that, although
substantial progress has been made toward the goal of Y2K compliance, the task
is still very large and will likely encounter unexpected difficulties. The State
cannot predict whether all mission critical systems will be ready and tested by
late 1999 or what impact the failure of any particular information technology
systems or of outside interfaces with technology information systems might have.
The State Treasurer's Office reports that as of December 31, 1998, its systems
for bond payments were fully Y2K compliant. There can be no assurance that steps
being taken by state or local government agencies with respect to the Year 2000
problem will be sufficient to avoid any adverse impact upon the budgets or
operations of those agencies.
ORANGE COUNTY. On December 6, 1994, Orange County, California, became the
largest municipality in the United States to file for protection under the
Federal bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the County's investment pool due to investments in high risk
"derivative" securities. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay off
the last of its creditors. On January 7, 1997, Orange County returned to the
municipal bond market with a $136 million bond issue maturing in 13 years at an
insured yield of 7.23%. In December, 1997, Moody's raised its ratings on $325
million of Orange County pension obligation bonds to Baa3 from Ba. In February
1998, Fitch assigned outstanding Orange County pension obligation bonds a BBB
rating.
LOS ANGELES COUNTY. Los Angeles County, the nation's largest county, has
also experienced financial difficulty. In August 1995 the credit rating of the
county's long-term bonds was downgraded for the third time since 1992 as a
result of, and among other things, severe operating deficits for the county's
health care system. In addition, the county was affected by an ongoing loss of
revenue caused by state property tax shift initiatives in 1993 through 1995. In
December 1998, Moody's raised the ratings on the County's general obligation
bonds to A1 from A2. The City of Los Angeles is the largest city in the county
and its general obligation bonds are rated AA by S&P and Aa by Moody's. In April
1999, the Los Angeles County Chief Administrative Officer proposed an
approximately $14.4 billion 1999-00 budget, approximately 5.1% larger than the
1998-99 budget. For a second year in a row the budget would not require cuts in
services and jobs to cover a deficit in the County's health department.
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.
C. INVESTMENT OBJECTIVE/POLICIES/INVESTMENT RESTRICTIONS
Each Fund's investment objective/policies/restrictions listed below have
been adopted by the Funds as fundamental policies. Under the Investment Company
Act of 1940 (the "Investment Company Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the applicable Fund. The Investment Company Act defines a majority as the lesser
of (a) 67% or more of the shares present at a meeting of shareholders, if the
holders of 50% of the outstanding shares of the applicable Fund are present or
represented by proxy; or (b) more than 50% of the outstanding shares of the
applicable Fund. For purposes of the following restrictions: (i) all
percent-
12
<PAGE>
age limitations apply immediately after a purchase or initial investment; and
(ii) any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.
In addition, 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 guaranteed by the guarantor and
owned by a Fund does not exceed 10% of the value of the total assets of the
Fund; (b) a "taxable security" is any security the interest on which is subject
to federal income tax; and (c) all percentage limitations apply immediately
after a purchase or initial investment, and any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
ACTIVE ASSETS MONEY TRUST
ACTIVE ASSETS MONEY TRUST will:
1. Seek high current income, preservation of capital and liquidity.
ACTIVE ASSETS MONEY TRUST will 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 Fund'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 Fund'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 Fund'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 Fund (for this purpose all indebtedness of an issuer shall
be deemed a single class of security);
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 Fund'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;
5. Purchase any common stocks or other equity securities;
6. Make loans to others, except through permitted purchases of debt
obligations and repurchase agreements and loans of portfolio securities, not in
excess of 10% of the value of the Fund's total assets, made in accordance with
guidelines of the Trustees, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned;
7. Purchase or sell real estate; however, the Fund may purchase marketable
securities issued by companies which invest in real estate or interests therein;
8. Purchase securities on margin or sell short;
9. Purchase or sell commodities or commodity futures contracts, or oil, gas,
or mineral exploration or development programs;
13
<PAGE>
10. Purchase securities for which there are legal or contractual
restrictions on resale (I.E. restricted securities), except for repurchase
agreements;
11. Underwrite securities of other issuers;
12. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof;
13. Participate on a joint or joint and several basis in any securities
trading account;
14. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
15. Purchase securities of any issuer for the purpose of exercising control
or management; and
16. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer, Trustee or director of the Fund or of the Investment Manager owns more
than 1/2 of 1% of the outstanding securities of such issuer and such officers,
Trustees and directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
ACTIVE ASSETS TAX-FREE TRUST
ACTIVE ASSETS TAX-FREE TRUST will:
1. Seek to provide as high a level of daily income exempt from federal
personal income tax as is consistent with stability of principal and liquidity.
ACTIVE ASSETS TAX-FREE TRUST will 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 than
three years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or instrumentalities;
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 Fund's total assets (including the amount borrowed),
less liabilities (not including the amount borrowed) at the time the borrowing
is made;
6. Invest in common stock;
7. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer, Trustee of the Fund or of the Investment Manager owns more than 1/2 of
1% of the outstanding securities of such issuer, and such officers or Trustees
who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer;
8. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein;
9. Purchase or sell commodities or commodity futures contracts;
14
<PAGE>
10. Purchase oil, gas or other mineral leases, rights or royalty contracts,
or exploration or development programs;
11. Write, purchase or sell puts, calls, or combinations thereof except that
it may acquire rights to resell municipal obligations at an agreed upon price
and at or within an agreed upon time;
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets;
13. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Investment Restriction
5. To meet the requirements of regulations in certain states, the Fund, as a
matter of operating policy but not as a fundamental policy, will limit any
pledge of its assets to 10% of its net assets so long as shares of the Fund are
being sold in those states;
14. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by reason of:
(a) entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; or (c) borrowing money in accordance with
restrictions described above;
15. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; and (b) by investment in repurchase agreements;
16. Make short sales of securities;
17. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities;
18. Engage in the underwriting of securities, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security; and
19. Invest for the purpose of exercising control or management of any other
issuer.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will:
1. Seek 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.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will not:
1. Invest in common stock;
2. Write, purchase or sell puts, calls, or combinations thereof, except
that the Fund may acquire rights to resell municipal obligations at an agreed
upon price and at or within an agreed upon time;
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);
4. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or trustee of the Fund or of the Investment Manager owns more than 1/2
of 1% of the outstanding securities of the issuer, and the officers and trustees
who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of the issuer;
5. Purchase or sell real estate or interests therein, although the Fund may
purchase securities secured by real estate or interests therein;
6. Purchase or sell commodities or commodity futures contracts;
15
<PAGE>
7. Borrow money, except that the Fund may borrow from a bank or the
Investment Manager for temporary or emergency purposes in amounts not exceeding
5% (taken at the lower of cost or current value) of the value of its total
assets (not including the amount borrowed);
8. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. To meet the requirements of regulations in certain states,
the Fund, as a matter of operating policy but not as a fundamental policy, will
limit any pledge of its assets to 10% of its net assets so long as shares of the
Fund are being sold in those states;
9. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by reason of:
(a) purchasing any securities on a when-issued or delayed delivery basis; or (b)
borrowing money;
10. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; and (b) by investment in repurchase agreements;
11. Make short sales of securities;
12. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities;
13. Engage in the underwriting of securities, except insofar as the Fund may
be deemed an underwriter under the Securities Act in disposing of a portfolio
security;
14. Invest for the purpose of exercising control or management of any other
issuer;
15. Purchase oil, gas or other mineral leases, rights or royalty contracts,
or exploration or development programs;
16. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets;
17. 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); and
18. 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).
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST will:
1. Seek high current income, preservation of capital and liquidity.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST will not:
1. Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bond debentures, state bonds, municipal bonds or
industrial revenue bonds;
2. 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 Fund's
total assets (including the amount borrowed), less liabilities (not including
the amount borrowed) at the time the borrowing is made;
16
<PAGE>
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net assets but only to secure
borrowings for temporary or emergency purposes;
4. Sell securities short or purchase securities on margin;
5. Write or purchase put or call options;
6. Underwrite the securities of other issuers or purchase securities with
contractual or other restrictions on resale;
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts or oil and gas interests;
8. Make loans to others except through the purchase of qualified debt
obligations, loans of portfolio securities and entry into permitted repurchase
agreements;
9. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by reason of:
(a) entering into any repurchase or reverse repurchase agreement; (b) borrowing
money; or (c) lending portfolio securities;
10. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets; and
11. Lend its portfolio securities in excess of 10% of its total assets,
taken at value. Any loans of portfolio securities will be made according to
guidelines established by the Trustees, including maintenance of collateral of
the borrower equal at all times to the current market value of the securities
loaned.
III. MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of each of the Funds oversees the management of each
Fund but does not itself manage the Fund. The Trustees review various services
provided by or under the direction of the Investment Manager to ensure that the
Funds' general investment policies and programs are properly carried out. The
Trustees also conduct their review to ensure that administrative services are
provided to the Funds in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Funds and not the Trustee's
own interest or the interest of another person or organization. A Trustee
satisfies his or her duty of care by acting in good faith with the care of an
ordinarily prudent person and in a manner the Trustee reasonably believes to be
in the best interest of each Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of each of the Funds consists of the same
eight (8) Trustees. These same individuals also serve as directors or trustees
for all of the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total
number) have no affiliation or business connection with the Investment Manager
or any of its affiliated persons and do not own any stock or other securities
issued by the Investment Manager's parent company, MSDW. These are the
"non-interested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with the Investment Manager. All of the
Independent Trustees also serve as Trustees of "Discover Brokerage Index
Series," a mutual fund for which the Investment Manager is the investment
advisor.
17
<PAGE>
The Trustees and executive officers of the Funds, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 90 Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (58) ................................... Vice Chairman of Kmart Corporation (since December, 1998);
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Kmart Corporation Funds and Discover Brokerage Index Series; formerly
3100 West Big Beaver Road Chairman and Chief Executive Officer of Levitz Furniture
Troy, Michigan Corporation (November, 1995-November, 1998) and President
and Chief Executive Officer of Hills Department Stores
(May, 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) ......................... Chairman, Director or Trustee and Chief Executive Officer
Chairman of the Board of the Morgan Stanley Dean Witter Funds and Discover
Chief Executive Officer and Trustee Brokerage Index Series; formerly Chairman, Chief Executive
Two World Trade Center Officer and Director of the Investment Manager, the
New York, New York Distributor and MSDW Services Company; Executive Vice
President and Director of Dean Witter Reynolds; Chairman
and Director of the Transfer Agent; formerly Director
and/or officer of various MSDW subsidiaries (until June,
1998).
Edwin J. Garn (66) ................................... Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds and Discover Brokerage Index Series; formerly United
c/o Huntsman Corporation States Senator (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor of Salt Lake
Salt Lake City, Utah City, Utah (1971-1974); formerly Astronaut, Space Shuttle
Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of Franklin Covey
(time management systems), BMW Bank of North America, Inc.
(industrial loan corporation), United Space Alliance
(joint venture between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific (multilevel marketing);
member of the board of various civic and charitable
organizations.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Wayne E. Hedien (65) ................................. Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds and Discover Brokerage Index Series; Director
c/o Gordon Altman Butowsky of The PMI Group, Inc. (private mortgage insurance);
Weitzen Shalov & Wein Trustee and Vice Chairman of The Field Museum of Natural
Counsel to the Independent Trustees History; formerly associated with the Allstate Companies
114 West 47th Street (1966-1994), most recently as Chairman of The Allstate
New York, New York Corporation (March, 1993-December, 1994) and Chairman and
Chief Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July, 1989-December, 1994);
director of various other business and charitable
organizations.
Dr. Manuel H. Johnson (50) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Chairman of the Audit Committee and Director or Trustee of
Washington, D.C. the Morgan Stanley Dean Witter Funds and Discover
Brokerage Index Series; Director of Greenwich Capital
Markets, Inc. (broker-dealer) and NVR, Inc. (home
construction); Chairman and Trustee of the Financial
Accounting Foundation (oversight organization of the
Financial Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of the U.S.
Treasury.
Michael E. Nugent (63) ............................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Chairman of the Insurance
c/o Triumph Capital, L.P. Committee and Director or Trustee of the Morgan Stanley
237 Park Avenue Dean Witter Funds and Discover Brokerage Index Series;
New York, New York formerly Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (55) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, Dean Witter Reynolds and Novus Credit
1585 Broadway Services Inc.; Director of the Distributor; Director or
New York, New York Trustee of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series; Director and/or officer
of various MSDW subsidiaries.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
John L. Schroeder (68) ............................... Retired; Chairman of the Derivatives Committee and
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Gordon Altman Butowsky Funds and Discover Brokerage Index Series; Director of
Weitzen Shalov & Wein Citizens Utilities Company (telecommunications, gas,
Counsel to the Independent Trustees electric and water utility company); formerly Executive
114 West 47th Street Vice President and Chief Investment Officer of the Home
New York, New York Insurance Company (August, 1991-September, 1995).
Mitchell M. Merin (45) ............................... President and Chief Operating Officer of Asset Management
President of MSDW (since December, 1998); President and Director
Two World Trade Center (since April, 1997) and Chief Executive Officer (since
New York, New York June, 1998) of the Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and Director of
the Distributor (since June, 1998); Chairman and Chief
Executive Officer (since June, 1998) and Director (since
January, 1998) of the Transfer Agent; Director of various
MSDW subsidiaries; President of the Morgan Stanley Dean
Witter Funds and Discover Brokerage Index Series (since
May, 1999); previously Chief Strategic Officer of the
Investment Manager and MSDW Services Company and Executive
Vice President of the Distributor (April, 1997-June,
1998), Vice President of the Morgan Stanley Dean Witter
Funds and Discover Brokerage Index Series (May,
1997-April, 1999), and Executive Vice President of Dean
Witter, Discover & Co.
Barry Fink (44) ...................................... Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) and Director
Secretary and General Counsel (since July, 1998) of the Investment Manager and MSDW
Two World Trade Center Services Company; Senior Vice President (since March,
New York, New York 1997) and Assistant Secretary and Assistant General
Counsel (since February, 1997) of the Distributor;
Assistant Secretary of Dean Witter Reynolds (since August,
1996); Vice President, Secretary and General Counsel of
the Morgan Stanley Dean Witter Funds (since February,
1997); Vice President, Secretary and General Counsel of
Discover Brokerage Index Series; previously First Vice
President (June, 1993-February, 1997), Vice President and
Assistant Secretary and Assistant General Counsel of the
Investment Manager and MSDW Services Company and Assistant
Secretary of the Morgan Stanley Dean Witter Funds.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Jonathan R. Page (52) ................................ Senior Vice President of the Investment Manager; Vice
Vice President President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Katherine H. Stromberg (51) .......................... Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (53) ................................ First Vice President and Assistant Treasurer of the
Treasurer Investment Manager, the Distributor and MSDW Services
Two World Trade Center Company; Treasurer of the Morgan Stanley Dean Witter Funds
New York, New York and Discover Brokerage Index Series.
</TABLE>
- ------------------------
*Denotes Trustees who are "interested persons" of each Fund as defined by the
Investment Company Act.
In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
PETER M. AVELAR and JAMES F. WILLISON, Senior Vice Presidents of the Investment
Manager, and JOSEPH R. ARCIERI and GERARD J. LIAN, Vice Presidents of the
Investment Manager, are Vice Presidents of each Fund.
In addition, FRANK BRUTTOMESSO, MARILYN K. CRANNEY, LOU ANNE D. MCLNNIS,
CARSTEN OTTO and RUTH ROSSI, First Vice Presidents and Assistant General
Counsels of the Investment Manager and MSDW Services Company, TODD LEBO, Vice
President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of each Fund.
INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The Morgan
Stanley Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; these are people whose advice and counsel are in demand by others and
for whom there is often competition. To accept a position on the Funds' Boards,
such individuals may reject other attractive assignments because the Funds make
substantial demands on their time. All of the Independent Trustees serve as
members of the Audit Committee. In addition, three of the Trustees, including
two Independent Trustees, serve as members of the Derivatives Committee and the
Insurance Committee.
The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill any
Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1 plan
of distribution. Most of the Morgan Stanley Dean Witter Funds have a Rule 12b-1
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Funds' independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional
21
<PAGE>
services provided by the independent accountants and other accounting firms
prior to the performance of the services; reviewing the independence of the
independent accountants; considering the range of audit and non-audit fees;
reviewing the adequacy of the Funds' system of internal controls; and preparing
and submitting Committee meeting minutes to the full Board.
The Board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Fund.
Finally, the Board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS. The Independent Trustees and the Funds' management
believe that having the same Independent Trustees for each of the Morgan Stanley
Dean Witter Funds avoids the duplication of effort that would arise from having
different groups of individuals serving as Independent Trustees for each of the
Morgan Stanley Dean Witter Funds or even of these Funds. They believe that
having the same individuals serve as Independent Trustees of all the Funds tends
to increase their knowledge and expertise regarding matters which affect the
Fund complex generally and enhances their ability to negotiate on behalf of each
Fund with the Fund's service providers. This arrangement also precludes the
possibility of separate groups of Independent Trustees arriving at conflicting
decisions regarding operations and management of the Morgan Stanley Dean Witter
Funds and avoids the cost and confusion that would likely ensue. Finally, having
the same Independent Trustees serve on all Fund Boards enhances the ability of
each Morgan Stanley Dean Witter Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. Each Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
C. COMPENSATION
Each Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (each
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by each Fund. Each Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Funds who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Funds for their services as Trustee. Dr. Johnson
serves as Chairman of the Audit Committee.
22
<PAGE>
The following tables illustrate the compensation that each Fund paid to its
Independent Trustees for the fiscal year ended June 30, 1999.
FUND COMPENSATION
ACTIVE ASSETS MONEY TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $
Edwin J. Garn.................................................
Wayne E. Hedien...............................................
Dr. Manuel H. Johnson.........................................
Michael E. Nugent.............................................
John L. Schroeder.............................................
</TABLE>
ACTIVE ASSETS TAX-FREE TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $
Edwin J. Garn.................................................
Wayne E. Hedien...............................................
Dr. Manuel H. Johnson.........................................
Michael E. Nugent.............................................
John L. Schroeder.............................................
</TABLE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $
Edwin J. Garn.................................................
Wayne E. Hedien...............................................
Dr. Manuel H. Johnson.........................................
Michael E. Nugent.............................................
John L. Schroeder.............................................
</TABLE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $
Edwin J. Garn.................................................
Wayne E. Hedien...............................................
Dr. Manuel H. Johnson.........................................
Michael E. Nugent.............................................
John L. Schroeder.............................................
</TABLE>
23
<PAGE>
The following table illustrates the compensation paid to the Funds'
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 90 Morgan Stanley Dean Witter Funds that were in operation at December
31, 1998. No compensation was paid to the Funds' Independent Trustees by
Discover Brokerage Index Series for the calendar year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES
TO
90 MORGAN
STANLEY
NAME OF DEAN WITTER
INDEPENDENT TRUSTEE FUNDS
- --------------------------- -------------
<S> <C>
Michael Bozic.............. $120,150
Edwin J. Garn.............. 132,450
Wayne E. Hedien............ 132,350
Dr. Manuel H. Johnson...... 155,681
Michael E. Nugent.......... 159,731
John L. Schroeder.......... 160,731
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including each Fund, have adopted a retirement
program under which an Independent Trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "Adopting Fund"
and each such Trustee referred to as an "Eligible Trustee") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation plus
0.5036662% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 60.44% after ten years of service. The foregoing percentages may
be changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses by the Adopting
Funds. Such benefits are not secured or funded by the Adopting Funds.
- ------------------------
1 An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.
24
<PAGE>
The following tables illustrate the retirement benefits accrued to the
Funds' Independent Trustees by each Fund for the fiscal year ended June 30, 1999
and by the 55 Morgan Stanley Dean Witter Funds (including each Fund) for the
calendar year ended December 31, 1998, and the estimated retirement benefits for
the Independent Trustees, to commence upon their retirement, from the Funds as
of June 30, 1999 and from the 55 Morgan Stanley Dean Witter Funds as of December
31, 1998.
RETIREMENT BENEFITS FROM THE FUNDS AND ALL MORGAN STANLEY DEAN WITTER FUNDS
ACTIVE ASSETS MONEY TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ $ 22,377 $ $ 52,250
Edwin J. Garn..................... 10 60.44 35,225 52,250
Wayne E. Hedien................... 9 51.37 41,979 44,413
Dr. Manuel H. Johnson............. 10 60.44 14,047 52,250
Michael E. Nugent................. 10 60.44 25,336 52,250
John L. Schroeder................. 8 50.37 45,117 44,343
</TABLE>
- ------------------------
2 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
ACTIVE ASSETS TAX-FREE TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(3)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ $ 22,377 $ $ 52,250
Edwin J. Garn..................... 10 60.44 35,225 52,250
Wayne E. Hedien................... 9 51.37 41,979 44,413
Dr. Manuel H. Johnson............. 10 60.44 14,047 52,250
Michael E. Nugent................. 10 60.44 25,336 52,250
John L. Schroeder................. 8 50.37 45,117 44,343
</TABLE>
- ------------------------
3 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
25
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ $ 22,377 $ $ 52,250
Edwin J. Garn..................... 10 60.44 35,225 52,250
Wayne E. Hedien................... 9 51.37 41,979 44,413
Dr. Manuel H. Johnson............. 10 60.44 14,047 52,250
Michael E. Nugent................. 10 60.44 25,336 52,250
John L. Schroeder................. 8 50.37 45,117 44,343
</TABLE>
- ------------------------
4 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(5)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ $ 22,377 $ $ 52,250
Edwin J. Garn..................... 10 60.44 35,225 52,250
Wayne E. Hedien................... 9 51.37 41,979 44,413
Dr. Manuel H. Johnson............. 10 60.44 14,047 52,250
Michael E. Nugent................. 10 60.44 25,336 52,250
John L. Schroeder................. 8 50.37 45,117 44,343
</TABLE>
- ------------------------
5 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
As of , 1999, no person owned 5% or more of the outstanding
shares of any Fund.
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate
number of shares of beneficial interest of each Fund owned by the Fund's
officers and Trustees as a group was less than 1% of the Fund's shares of
beneficial interest outstanding.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to each Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New York,
New York 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a
Delaware corporation. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
Pursuant to separate Investment Management Agreements (the "Management
Agreements") with the Investment Manager, each Fund has retained the Investment
Manager to provide administrative services and manage the investment of the
Fund's assets, including the placing of orders for the
26
<PAGE>
purchase and sale of portfolio securities. Each Fund pays the Investment Manager
monthly compensation calculated daily by applying the following annual rates to
the net assets of the Fund, determined as of the close of business on every
business day: 0.50% of the portion of the daily net assets not exceeding $500
million; 0.425% of the portion of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.375% of the portion of the daily net assets
exceeding $750 million but not exceeding $1 billion; 0.35% of the portion of the
daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% of
the portion of the daily net assets exceeding $1.5 billion but not exceeding $2
billion; 0.30% of the portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.275% of the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3 billion; 0.25% of the portion of the
daily net assets exceeding $3 billion; and with respect to ACTIVE ASSETS MONEY
TRUST, 0.249% of the portion of daily net assets exceeding $15 billion and
0.248% of the portion of daily net assets exceeding $17.5 billion.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS MONEY
TRUST accrued to the Investment Manager total compensation under its Management
Agreement in the amounts of $23,990,221, $29,850,539 and $ ,
respectively.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS
TAX-FREE TRUST accrued to the Investment Manager total compensation under its
Management Agreement in the amounts of $6,784,852, $7,412,622 and $ ,
respectively.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS
CALIFORNIA TAX-FREE TRUST accrued to the Investment Manager total compensation
under its Management Agreement in the amounts of $2,156,152, $2,663,643 and
$ , respectively.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS
GOVERNMENT SECURITIES TRUST accrued to the Investment Manager total compensation
under its Management Agreement in the amounts of $3,146,897, $3,338,933 and
$ , respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for each Fund.
B. PRINCIPAL UNDERWRITER
Each Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, each Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of each Fund. The Distributor, a Delaware corporation,
is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services under
each Distribution Agreement. The Distributor also pays certain expenses in
connection with the distribution of each Fund's shares, including the costs of
preparing, printing and distributing advertising or promotional materials, and
the costs of printing and distributing prospectuses and supplements thereto used
in connection with the offering and sale of each Fund's shares. Each Fund bears
the costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. Each Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws and
pays filing fees in accordance with state securities laws.
Each Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to each Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
27
<PAGE>
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND FUND EXPENSES PAID BY THIRD
PARTIES
The Investment Manager manages the investment of each Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Investment Manager obtains and evaluates the information and
advice relating to the economy, securities markets, and specific securities as
it considers necessary or useful to continuously manage the assets of each Fund
in a manner consistent with its investment objective.
Under the terms of each Management Agreement, in addition to managing each
Fund's investments, the Investment Manager maintains certain of each Fund's
books and records and furnishes, at its own expense, the office space,
facilities, equipment, clerical help, bookkeeping and certain legal services as
the Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, proxy statements and reports required to be filed
with federal and state securities commissions (except insofar as the
participation or assistance of independent accountants and attorneys is, in the
opinion of the Investment Manager, necessary or desirable). In addition, the
Investment Manager pays the salaries of all personnel, including officers of the
Funds, who are employees of the Investment Manager. The Investment Manager also
bears the cost of telephone service, heat, light, power and other utilities
provided to the Funds.
Expenses not expressly assumed by the Investment Manager under each
Management Agreement or by the Distributor, will be paid by the applicable Fund.
These expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs; the cost
and expense of printing, including typesetting, and distributing prospectuses;
all expenses of shareholders' and Trustees' meetings and of preparing, printing
and mailing of proxy statements and reports to shareholders; fees and travel
expenses of Trustees or members of any advisory board or committee who are not
employees of the Investment Manager or any corporate affiliate of the Investment
Manager; all expenses incident to any dividend, withdrawal or redemption
options; charges and expenses of any outside service used for pricing of the
Fund's shares; fees and expenses of legal counsel, including counsel to the
Trustees who are not interested persons of the Funds or of the Investment
Manager (not including compensation or expenses of attorneys who are employees
of the Investment Manager); fees and expenses of the Fund's independent
accountants; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other costs
of the Fund's operation.
Each Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.
Each Management Agreement will remain in effect from year to year
thereafter, provided continuance of the Management Agreement is approved at
least annually by the vote of the holders of a majority, as defined in the
Investment Company Act, of the outstanding shares of the applicable Fund, or by
the Trustees; provided that in either event such continuance is approved
annually by the vote of a majority of the Trustees.
D. RULE 12b-1 PLAN
In accordance with a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act between each Fund and the Distributor, the Distributor
provides certain services in connection with the promotion of sales of each
Fund's shares (a "Plan").
Each Plan provides that the Distributor bears the expense of all promotional
and distribution related activities on behalf of the respective Fund, except for
expenses that the Trustees determine to reimburse, as described below. The
following activities and services may be provided by the Distributor under each
28
<PAGE>
Plan: (1) compensation to and expenses of Dean Witter Reynolds' and other
selected Broker-Dealers' Financial Advisors and other employees, including
overhead and telephone expenses; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
each Fund's shares; (3) expenses incurred in connection with promoting sales of
each Fund's shares; (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.
Dean Witter Reynolds Financial Advisors are paid an annual residual
commission, currently a residual of up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record. The
residual is a charge which reflects residual commissions paid by Dean Witter
Reynolds to its Financial Advisors and Dean Witter Reynolds' expenses associated
with the servicing of shareholders' accounts, including the expenses of
operating Dean Witter Reynolds' branch offices in connection with the servicing
of shareholders' accounts, which expenses include lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies and other expenses
relating to branch office serving of shareholder accounts.
Each Fund is authorized to reimburse specific expenses incurred or to be
incurred in promoting the distribution of the Fund's shares. Reimbursement is
made through payments at the end of each month. The amount of each monthly
payment may in no event exceed an amount equal to a payment at the annual rate
of 0.15 of 1% of each Fund's average daily net assets during the month. No
interest or other financing charges will be incurred for which reimbursement
payments under the Plan will be made. In addition, no interest charges, if any,
incurred on any distribution expense incurred by the Distributor or other
selected dealers pursuant to the Plan, will be reimbursable under the Plan. In
the case of all expenses other than expenses representing a residual to
Financial Advisors, such amounts shall be determined at the beginning of each
calendar quarter by the Trustees, including a majority of the Independent 12b-1
Trustees. Expenses representing a residual to Financial Advisors may be
reimbursed without prior determination. In the event that the Distributor
proposes that monies shall be reimbursed for other than such expenses, then in
making quarterly determinations of the amounts that may be expended by each
Fund, the Investment Manager provides and the Trustees review a quarterly budget
of projected incremental distribution expenses to be incurred on behalf of the
Fund, together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees determine which particular expenses, and
the portions thereof, that may be borne by each Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's shares.
ACTIVE ASSETS MONEY TRUST reimbursed $ to the Distributor pursuant
to the Plan which amounted to % of 1% of the Fund's average daily net assets
for the fiscal year ended June 30, 1999. Based upon the total amounts spent by
the Distributor during the period, it is estimated that the amount paid by
ACTIVE ASSETS MONEY TRUST to the Distributor for distribution was spent in
approximately the following ways: (i) advertising -- $0; (ii) printing and
mailing PROSPECTUSES to other than current shareholders -- $0; (iii)
compensation to underwriters -- $0; (iv) compensation to dealers -- $0; (v)
compensation to sales personnel -- $0; (vi) and other, which includes payments
to Dean Witter Reynolds for expenses substantially all of which relate to
compensation of sales personnel and other associated overhead expenses --
$ . No payments under the Plan were made for interest, carrying or other
financing charges.
ACTIVE ASSETS TAX-FREE TRUST reimbursed $ to the Distributor
pursuant to the Plan which amounted to % of 1% of the Fund's average daily net
assets for the fiscal year ended June 30, 1999. Based upon the total amounts
spent by the Distributor during the period, it is estimated that the amount paid
by ACTIVE ASSETS TAX-FREE TRUST to the distributor for distribution was spent in
approximately the following ways: (i) advertising -- $0; (ii) printing and
mailing PROSPECTUSES to other than current shareholders -- $0; (iii)
compensation to underwriters -- $0; (iv) compensation to dealers -- $0; (v)
compensation to sales personnel -- $0; and (vi) other, which includes payments
to Dean Witter
29
<PAGE>
Reynolds for expenses substantially all of which relate to compensation of sales
personnel and other associated overhead expenses -- $ . No payments
under the Plan were made for interest, carrying or other financing charges.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST reimbursed $ to the
Distributor pursuant to the Plan which amounted to % of 1% of the Fund's
average daily net assets for the fiscal year ended June 30, 1999. Based upon the
total amounts spent by the Distributor during the period, it is estimated that
the amount paid by ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST to the Distributor
for distribution was spent in approximately the following ways: (i) advertising
- -- $0; (ii) printing and mailing PROSPECTUSES to other than current shareholders
- -- $0; (iii) compensation to underwriters -- $0; (iv) compensation to dealers --
$0; (v) compensation to sales personnel -- $0; and (vi) other, which includes
payments to Dean Witter Reynolds for expenses substantially all of which relate
to compensation of sales personnel and other associated overhead expenses --
$ . No payments under the Plan were made for interest, carrying or other
financing charges.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST reimbursed $ to the
Distributor pursuant to the Plan which amounted to % of 1% of the Fund's
average daily net assets for the fiscal year ended June 30, 1999. Based upon the
total amounts spent by the Distributor during the period, it is estimated that
the amount paid by ACTIVE ASSETS GOVERNMENT SECURITIES TRUST to the Distributor
for distribution was spent in approximately the following ways: (i) advertising
- -- $0; (ii) printing and mailing PROSPECTUSES to other than current shareholders
- -- $0; (iii) compensation to underwriters -- $0; (iv) compensation to dealers --
$0; (v) compensation to sales personnel -- $0; and (vi) other, which includes
payments to Dean Witter Reynolds for expenses substantially all of which relate
to compensation of sales personnel and other associated overhead expenses --
$ . No payments under the Plan were made for interest, carrying or other
financing charges.
Under each Plan, the Distributor uses its best efforts in rendering services
to each Fund, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations, the Distributor is not
liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
Under each Plan, the Distributor provides each Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the incremental distribution expenses
incurred on behalf of the Fund during such calendar quarter, which report
includes (1) an itemization of the types of expenses and the purposes therefore;
(2) the amounts of such expenses; and (3) a description of the benefits derived
by the Fund. In the Trustees' quarterly review of each Plan they consider its
continued appropriateness and the level of compensation provided therein.
No interested person of each Fund nor any Independent Trustee has any direct
financial interest in the operation of each Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of each Plan or as a result of
receiving a portion of the amounts expended thereunder by the respective Fund.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether each Plan should be continued. Prior to approving the
most recent continuation of each Plan, the Trustees requested and received from
the Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
each Plan, the Trustees considered: (1) the applicable Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the applicable Fund had obtained, was obtaining
and would be likely to obtain under the Plan, including that the Plan is
essential to enable the Fund to continue to grow and avoid a pattern of net
redemptions which, in turn, is essential for effective investment management;
and without the reimbursement of distribution and account maintenance expenses
of Dean Witter Reynolds's branch offices made possible by the 12b-1 fees, Dean
Witter Reynolds could not establish and maintain an effective system for
distribution, servicing of the Funds' shareholders and maintenance of
shareholder accounts; and (3) what services had
30
<PAGE>
been provided and were continuing to be provided under the Plan to the
applicable Fund and its shareholders. Based upon their review, the Trustees,
including each of the Independent Trustees, determined that continuation of each
Plan would be in the best interest of the applicable Fund and would have a
reasonable likelihood of continuing to benefit the Fund and its shareholders. In
the Trustees' quarterly review of each Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
Each Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
respective Fund, and all material amendments to the Plan must also be approved
by the Trustees. Each Plan may be terminated at any time, without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the respective Fund (as defined
in the Investment Company Act) on not more than thirty days' written notice to
any other party to the Plan. So long as a Fund's Plan is in effect, the election
and nomination of Independent Trustees shall be committed to the discretion of
the Independent Trustees.
E. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the transfer agent for each Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans. The principal business address of the Transfer Agent is Harborside
Financial Center, Plaza Two, Jersey City, New Jersey 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian for each Fund's assets. Any of the Funds' cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.
_________________________________ serves as the independent accountants of
each Fund. The independent accountants are responsible for auditing the annual
financial statements of each Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from each Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for each Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Each Fund expects that the primary market for
the securities in which it intends to invest will generally be the
over-the-counter market. Securities are generally traded in the over-the-counter
market on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually includes
a profit to the dealer. Each Fund also expects that securities will be purchased
at times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, each Fund may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid.
31
<PAGE>
During the fiscal years ended June 30, 1997, 1998 and 1999, the Funds paid
no such brokerage commissions or concessions.
B. COMMISSIONS
Pursuant to an order of the SEC, each Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. Each Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e. Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper (not including Tax-Exempt
Municipal Paper). The transactions will be effected with Dean Witter Reynolds
only when the price available from Dean Witter Reynolds is better than that
available from other dealers.
During the fiscal years ended June 30, 1997, 1998 and 1999, the Funds did
not effect any principal transactions with Dean Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for a Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Trustees, including the Independent
Trustees, have adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to an affiliated broker or
dealer are consistent with the foregoing standard. The Funds do not reduce the
management fee they pay to the Investment Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer.
During the fiscal years ended June 30, 1997, 1998 and 1999, the Funds paid
no brokerage commissions to an affiliated broker or dealer.
C. BROKERAGE SELECTION
The policy of each Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions.
In seeking to implement the Funds' policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes the prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Funds or the Investment Manager. The services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Funds
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the Funds do not reduce the management fee
they pay to the Investment Manager by any amount that may be attributable to the
value of such services.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or advisor to others. It is
32
<PAGE>
the practice of the Investment Manager to cause purchase and sale transactions
to be allocated among the Funds and others whose assets it manages in such
manner as it deems equitable. In making such allocations among the Funds and
other client accounts, various factors may be considered, including the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of each Fund and other client accounts.
In the case of certain initial and secondary public offerings, the Investment
Manager utilizes a pro rata allocation process based on the size of the Morgan
Stanley Dean Witter Funds involved and the number of shares available from the
public offering.
D. DIRECTED BROKERAGE
During the fiscal year ended June 30, 1999, the Funds did not pay any
brokerage commissions to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended June 30, 1999, the Funds did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers which executed transactions for or with each Fund in the largest
dollar amounts during the year. At June 30, 1999, the Funds did not own any
securities issued by any of such issuers.
VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The shareholders of each Fund are entitled to a full vote for each full
share of beneficial interest held. The Funds are authorized to issue an
unlimited number of shares of beneficial interest. All shares of beneficial
interest of each Fund are of $0.01 par value and are equal as to earnings,
assets and voting privileges.
Each Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional Classes of shares
within any series. The Trustees have not presently authorized any such
additional series or Classes of shares.
The Funds are not required to hold annual meetings of shareholders and in
ordinary circumstances the Funds do not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or each Fund's Declaration
of Trust. Under certain circumstances the Trustees may be removed by action of
the Trustees. In addition, under certain circumstances the shareholders may call
a meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of each Fund. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the respective Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of each Fund's assets and operations, the possibility of a Fund being
unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Funds, the risk to each Fund's shareholders of
personal liability is remote.
All of the Trustees have been elected by the shareholders of each Fund, most
recently at a special meeting of each Fund's shareholders held on May 21, 1997.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees (as provided for in each Fund's Declaration of
33
<PAGE>
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 the respective Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how the Funds' shares are offered (and how they are
redeemed) is provided in the Funds' PROSPECTUS.
TRANSFER AGENT AS AGENT. With respect to the redemption of the Funds'
shares or the application of proceeds to the purchase of new shares in a Fund,
the Transfer Agent acts as agent for the Distributor and for the shareholder's
authorized broker-dealer in the performance of such functions. With respect to
redemptions, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.
B. OFFERING PRICE
The price of each Fund's shares, called "net asset value," is based on the
value of the Fund's portfolio securities.
Each Fund utilizes the amortized cost method in valuing its portfolio
securities for purposes of determining the net asset value of its shares. Each
Fund utilizes the amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in market value,
generally in connection with changes in interest rates. The amortized cost
method of valuation involves valuing a security at its cost at the time of
purchase adjusted by a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the investment.
During such periods, the yield to investors in the Fund may differ somewhat from
that obtained in a similar company which uses market-to-market values for all of
its portfolio securities. For example, if the use of amortized cost resulted in
a lower (higher) aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher (lower) yield
than would result from investment in such a similar company and existing
investors would receive less (more) investment income. The purpose of this
method of calculation is to facilitate the maintenance of a constant net asset
value per share of $1.00.
The use of the amortized cost method to value the portfolio securities of
each Fund and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the Investment Company Act (the "Rule") and
is conditioned on its compliance with various conditions contained in the Rule
including: (a) the Trustees are obligated, as a particular responsibility within
the overall duty of care owed to the Funds' shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and each Fund's investment objectives, to stabilize the net asset value per
share as computed for the purpose of distribution and redemption at $1.00 per
share; (b) the procedures include (i) calculation, at such intervals as the
Trustees determine are appropriate and as are reasonable in light of current
market conditions, of the deviation, if any, between net asset value per share
using amortized cost to value portfolio securities and net asset value per share
based upon available market quotations with respect to such portfolio
securities; (ii) periodic review by the Trustees of the amount of deviation as
well as methods used to calculate it; and (iii) maintenance of written records
of the procedures, and the Trustees' considerations made pursuant to them and
any actions taken upon such consideration; (c) the Trustees should consider what
steps should be taken, if any, in the event of a difference of more than 1/2 of
1% between the two methods of valuation; and (d) the Trustees should take such
action as they deem appropriate (such as shortening the average portfolio
maturity, realizing gains or losses, withholding dividends or, as provided by
the Declaration of Trust,
34
<PAGE>
reducing the number of outstanding shares of the Fund) to eliminate or reduce to
the extent reasonably practicable material dilution or other unfair results to
investors or existing shareholders which might arise from differences between
the two method of valuation.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio security is deemed to be the period remaining
(calculated from the trade date or such other date on which a Fund's interest in
the instrument is subject to market action) until the date on which in
accordance with the terms of the security the principal amount must
unconditionally be paid, or in the case of a security called for redemption, the
date on which the redemption payment must be made.
A variable rate security that is subject to a demand feature is deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand. A floating rate security that is subject to a demand
feature is deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
An "NRSRO" is a nationally recognized statistical rating organization. The
term "Requisite NRSROs" means (i) any two NRSROs that have issued a rating with
respect to a security or class of debt obligations of an issuer, or (ii) if only
one NRSRO has issued a rating with respect to such security or issuer at the
time a fund purchases or rolls over the security, that NRSRO.
An Eligible Security is generally defined in the Rule to mean (i) a rated
security with a remaining maturity of 397 calendar days or less that has
received a rating from the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) An Unrated Security that is of comparable
quality to a security meeting the requirements of (1) above, as determined by
Trustees; (iii) In addition, in the case of a security that is subject to a
Demand Feature or Guarantee: (A) The Guarantee has received a rating from an
NRSRO or the Guarantee is issued by a guarantor that has received a rating from
an NRSRO with respect to a class of debt obligations (or any debt obligation
within that class) that is comparable in priority and security to the Guarantee,
unless: (1) the Guarantee is issued by a person that directly or indirectly,
controls, is controlled by or is under a common control with the issuer of the
security subject to the Guarantee (other than a sponsor or a Special Purpose
Entity with respect to an Asset Backed Security: (2) the security subject to the
Guarantee is a repurchase agreement that is Collateralized Fully; or (3) the
Guarantee itself is a Government Security and (B) the issuer of the Demand
Feature, or another institution, has undertaken promptly to notify the holder of
the security in the event the Demand Feature or Guarantee is substituted with
another Demand Feature or Guarantee (if such substitution is permissible under
the terms of the Demand Feature or Guarantee). Each Fund will limit its
investments to securities that meet the requirements for Eligible Securities.
As permitted by the Rule, the Trustees have delegated to the Funds'
Investment Manager the authority to determine which securities present minimal
credit risks and which unrated securities are comparable in quality to rated
securities.
Also, as required by the Rule, each Fund will limit its investments in
securities, other than Government securities, so that, at the time of purchase:
(a) except as further limited in (b) below with regard to certain securities,
with respect to 75% of its total assets no more than 5% of its total assets will
be invested in the securities of any one issuer; and (b) with respect to
Eligible Securities that have received a rating in less than the highest
category by any one of the NRSROs whose ratings are used to qualify the security
as an Eligible Security, or that have been determined to be of comparable
quality: (i) no more than 5% in the aggregate of the Fund's total assets in all
such securities, and (ii) no more than the greater of 1% of total assets, or $1
million, in the securities on any one issuer.
The presence of a line of credit or other credit facility offered by a bank
or other financial institution which guarantees the payment obligation of the
issuer, in the event of a default in the payment of principal or interest of an
obligation, may be taken into account in determining whether an investment is an
Eligible Security, provided that the guarantee itself is an Eligible Security.
35
<PAGE>
The Rule further requires that each Fund limit its investments to U.S.
dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities. The Rule also requires each Fund
to maintain a dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to its objective of maintaining a stable net asset value of $1.00
per share and precludes the purchase of any instrument with a remaining maturity
of more than 397 days. Should the disposition of a portfolio security result in
a dollar-weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash in such a manner as to reduce such maturity to 90 days
or less as soon as is reasonably practicable.
If the Trustees determine that it is no longer in the best interests of a
Fund and its shareholders to maintain a stable price of $1 per share or if the
Trustees believe that maintaining such price no longer reflects a market-based
net asset value per share, the Trustees have the right to change from an
amortized cost basis of valuation to valuation based on market quotations. The
Fund will notify shareholders of the Fund of any such change.
IX. TAXATION OF THE FUNDS AND THEIR SHAREHOLDERS
- --------------------------------------------------------------------------------
ACTIVE ASSETS MONEY TRUST and ACTIVE ASSETS GOVERNMENT SECURITIES TRUST will
generally pay ordinary dividends. ACTIVE ASSETS TAX-FREE TRUST will generally
pay tax-exempt dividends that are normally exempt from federal (but not state)
income tax. ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will generally pay tax-
exempt dividends that are normally exempt from federal and California income
tax. Each Fund also makes distributions of any short-term gains which will be
taxed as ordinary income when distributed to shareholders. Long-term capital
gain distributions may also be made, although it is not anticipated that there
will be any significant long-term capital gains. These types of distributions
are reported differently on a shareholder's income tax return and they are also
subject to different rates of tax. The tax treatment of the investment
activities of a Fund will affect the amount and timing and character of the
distributions made by the Fund. Shareholders are urged to consult their own tax
professionals regarding specific questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. Each Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, each Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.
Each Fund generally intends to distribute sufficient income and gains so
that the Fund will not pay corporate income tax on its earnings. Each Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, a Fund may instead determine to retain all or part
of any ordinary income or capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.
Gains or losses on sales of securities by a Fund will be long-term capital
gains or losses if the securities have a tax holding period of more than one
year. Gains or losses on the sale of securities with a tax holding period of one
year or less will be short-term gains or losses.
In computing net investment income, each Fund will amortize any premiums and
original issue discounts on securities owned, if applicable. Capital gains or
losses realized upon sale or maturity of such securities will be based on their
amortized cost.
All or a portion of any of a Fund's gain from tax-exempt obligations
purchased at a market discount may be treated as ordinary income rather than
capital gain.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may
36
<PAGE>
be introduced in the future. If such a proposal were enacted, the availability
of municipal securities for investment by the Tax-Free Trust and the California
Tax-Free Trust could be affected. In that event, the Funds would re-evaluate
their investment objective and policies.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. ACTIVE ASSETS TAX-FREE TRUST and
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST intend to qualify to pay
"exempt-interest dividends" to their shareholders by maintaining, as of the
close of each of its taxable years, at least 50% of the value of their assets in
tax-exempt securities. An exempt-interest dividend is that part of the dividend
distributions made by a Fund which consists of interest received by the Fund on
tax-exempt securities upon which the shareholder incurs no federal income taxes.
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.
ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
intend to invest a portion of their assets in certain "private activity bonds".
As a result, a portion of the exempt-interest dividends paid by each Fund will
be an item of tax preference to shareholders subject to the alternative minimum
tax. Certain corporations which are subject to the alternative minimum tax may
also have to include exempt-interest dividends in calculating their alternative
minimum taxable income in situations where the "adjusted current earnings" of
the corporation exceeds its alternative minimum taxable income.
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of net
short-term capital gains. Such dividends and distributions are taxable to the
shareholder as ordinary dividend income. Distributions of long-term capital
gains, if any, are taxable as long-term capital gains, regardless of how long
the shareholder has held the applicable Fund's shares. Since each Fund's income
is expected to be derived entirely from interest rather than dividends, it is
anticipated that no portion of such dividend distributions will be eligible for
the federal dividends received deduction available to corporations.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from a Fund in the year they are actually distributed. However, if
any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by a Fund of any taxable interest income and short term
capital gains.
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the percentage of any distributions which constitute
an item of tax preference for purposes of the alternative minimum tax.
PURCHASES AND REDEMPTIONS OF THE FUNDS' SHARES. Any dividend or capital
gains distribution received by a shareholder from a Fund will have the effect of
reducing the net asset value of the shareholder's beneficial interest in the
Fund by the exact amount of the dividend or capital gains distribution.
Furthermore, capital gains distributions and some portion of the dividends may
be subject to federal income taxes. If the net asset value of the shares should
be reduced below a shareholder's cost as a result of the payment of dividends or
the distribution of realized long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing a Fund's shares immediately prior to
a distribution record date.
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less will, for tax purposes, generally result in short-term gains or
losses and those held for more than one year generally result in long-term gain
or loss. Any loss realized by shareholders upon a
37
<PAGE>
redemption of shares within six months of the date of their purchase will be
treated as a long-term capital loss to the extent of any distributions of net
long-term capital gains with respect to such shares during the six-month period.
Gain or loss on the sale or redemption of shares in a Fund is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.
If a shareholder realizes a loss on the redemption of a Fund's shares and
reinvests in that Fund's shares within 30 days before or after the redemption,
the transactions may be subject to the "wash sale" rules, resulting in a
postponement of the recognition of such loss for tax purposes.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Fund is not deductible. Furthermore, entities or persons who are
"substantial users" (or related persons) of facilities financed by industrial
development bonds should consult their tax advisers before purchasing shares of
a Fund. "Substantial user" is defined generally by Income Tax Regulation
1.103-11(b) as including a "non-exempt person" who regularly uses in a trade or
business a part of a facility financed from the proceeds of industrial
development bonds.
CALIFORNIA STATE TAX
To the extent that dividends paid by ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
are derived from interest on California tax-exempt securities and on certain
U.S. government securities, such dividends will also be exempt from California
personal income taxes. Under California law, a fund which qualifies as a
regulated investment company must have at least 50% of its total assets invested
in California state and local issues or in U.S. obligations which pay interest
excludable from income or in a combination of such obligations at the end of
each quarter of its taxable year in order to be eligible to pay dividends to
California residents which will be exempt from California personal income taxes.
Unlike federal law, California law provides that no portion of the
exempt-interest dividends will constitute an item of tax preference for
California personal income alternative minimum tax purposes.
For California personal income tax purposes, the shareholders of ACTIVE
ASSETS CALIFORNIA TAX-FREE TRUST will not be subject to tax, or receive a credit
for taxes paid by the Fund, on undistributed capital gains, if any. Under the
California Revenue and Taxation Code, interest on indebtedness incurred or
continued to purchase or carry shares of an investment company paying
exempt-interest dividends, such as the Fund, will not be deductible by the
investor for state 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 the PROSPECTUS. Distributions
from interest 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.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
Each Fund's shares are offered on a continuous basis. The Distributor, as
the principal underwriter of the shares, has certain obligations under the
Distribution Agreement concerning the distribution of the shares. These
obligations and the compensation the Distributor receives are described above in
the sections titled "Principal Underwriter" and "Rule 12b-1 Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
Each Fund's annualized current yield, as may be quoted from time to time in
advertisements and other communications to shareholders and potential investors,
is computed by determining, for a stated seven-day period, the net change,
exclusive of capital changes and including the value of additional shares
purchased with dividends and any dividends declared therefrom (which reflect
deductions of all
38
<PAGE>
expenses of the Fund such as management fees), in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, and dividing the difference by the value of the account at the beginning
of the base period to obtain the base period return, and then multiplying the
base period return by (365/7).
Each Fund's annualized effective yield, as may be quoted from time to time
in advertisements and other communications to shareholders and potential
investors, is computed by determining (for the same stated seven-day period as
for the current yield), the net change, exclusive of capital changes and
including the value of additional shares purchased with dividends and any
dividends declared therefrom (which reflect deductions of all expenses of the
Fund such as management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the particular Fund in the future
since the yield is not fixed. Actual yields will depend not only on the type,
quality and maturities of the investments held by the Fund and changes in
interest rates on such investments, but also on changes in the Fund's expenses
during the period.
Tax-equivalent yield is computed by dividing that portion of the current
yield (calculated as described above) which is tax-exempt by 1 minus a stated
tax rate and adding the quotient to that portion, if any, of the yield of the
Fund that is not tax-exempt.
Yield information may be useful in reviewing the performance of a Fund and
for providing a basis for comparison with other investment alternatives.
However, unlike bank deposits or other investments which typically pay a fixed
yield for a stated period of time, each Fund's yield fluctuates.
ACTIVE ASSETS MONEY TRUST'S current yield for the seven days ending June 30,
1999 was %. The effective annual yield on June 30, 1999 was %, assuming
daily compounding.
ACTIVE ASSETS TAX-FREE TRUST'S current yield for the seven days ending June
30, 1999 was %. The effective annual yield on June 30, 1999 was %, assuming
daily compounding. Based upon a Federal personal income tax bracket of 39.6%,
ACTIVE ASSETS TAX-FREE TRUST'S tax-equivalent yield for the seven days ending
June 30, 1999 was %.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST'S current yield for the seven days
ending June 30, 1999 was %. The effective annual yield on June 30, 1999 was
%, assuming daily compounding. Based upon a combined Federal and California
personal income tax bracket of 45.22%, ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST'S
tax-equivalent yield for the seven days ended June 30, 1999 was %.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST'S current yield for the seven days
ending June 30, 1999 was %. The effective annual yield on June 30, 1999 was
%, assuming daily compounding.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of each Fund for its fiscal year ended
June 30, 1999 are included herein in reliance on the report of independent
accountants, and on the authority of that firm as experts in auditing and
accounting.
*****
This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain
all of the information set forth in the REGISTRATION STATEMENT the Funds have
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
39
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PART C OTHER INFORMATION
ITEM 23. EXHIBITS
1(a). Declaration of Trust of the Registrant, dated March 27, 1981, is
incorporated by reference to Exhibit 1(a) of Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A, filed
on August 29, 1995.
1(b). Amendment dated May 21, 1994 to the Declaration of Trust is
incorporated by reference to Exhibit 1(b) of Post-Effective
Amendment No. 17 to the Registration Statement on Form N1-A, filed
on August 29, 1995.
1(c). Amendment dated December 17, 1984 to the Declaration of Trust is
incorporated by reference to Exhibit 1(c) of Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A, filed
on August 29, 1995.
2. Amended and Restated By-Laws of the Registrant, dated May 1, 1999.
3. Not Applicable.
4. Amended and Restated Investment Management Agreement dated
April 30, 1998.
5(a). Amended and Restated Distribution Agreement dated May 31, 1997 is
incorporated by reference to Exhibit 6 of Post-Effective Amendment
No. 19 to the Registration Statement on Form N-1A, filed on
August 22, 1997.
5(b). Selected Dealer Agreement, dated January 4, 1993, between the
Registrant and Dean Witter Distributors Inc. is incorporated by
reference to Exhibit 6(b) of Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A, filed on August 20, 1993, and
filed herein.
6. Retirement Plan for Non-Interested Directors or Trustees.
7(a). Custody Agreement between The Bank of New York and the Registrant is
incorporated by reference to Exhibit 8 of Post-Effective Amendment
No. 17 to the Registration Statement on Form N-1A, Filed on
August 29, 1995.
7(b). Amendment dated April 17, 1996 to the Custody Agreement is
incorporated by reference to Exhibit 8 of Post-Effective Amendment
No. 18 to the Registration Statement on Form N-1A, filed on
August 22, 1996.
8(a). Amended and Restated Transfer Agency and Service Agreement is
incorporated by reference to Exhibit 8 of Post-Effective Amendment
No. 20 to the Registration Statement on Form N-1A, filed on
August 20, 1998.
<PAGE>
8(b). Amended and Restated Services Agreement is incorporated by reference
to Exhibit 9 of Post-Effective No. 20 to the Registration Statement
on Form N-1A, filed on August 20, 1998.
9(a). Opinion of Dennis H. Greenwald, Esq. dated June 2, 1981.
10. Not Applicable.
11. Not Applicable.
12. Not Applicable.
13. Amended and Restated Plan of Distribution pursuant to Rule 12b-1 is
incorporated by reference to Exhibit 15 of Post-Effective Amendment
No 19 on Form N-1A, filed on August 22, 1997.
Other Powers of Attorney of Trustees are incorporated by reference to
Exhibit (Other) of Post-Effective Amendment No. 16 on Form N-1A,
Filed on August 24, 1994 and of Post-Effective Amendment No. 20 on
Form N-1A, filed on August 20, 1998.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None
Item 25. INDEMNIFICATION.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
<PAGE>
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such trustee,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act, and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding officers
of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW Advisors is
a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
<PAGE>
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities
OPEN-END INVESTMENT COMPANIES
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund,"BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Latin American Growth Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
<PAGE>
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter North American Government Income Trust
(45) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(46) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(47) Morgan Stanley Dean Witter Real Estate Fund
(48) Morgan Stanley Dean Witter S&P 500 Index Fund
(49) Morgan Stanley Dean Witter S&P 500 Select Fund
(50) Morgan Stanley Dean Witter Select Dimensions Investment Series
(51) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(52) Morgan Stanley Dean Witter Short-Term Bond Fund
(53) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(54) Morgan Stanley Dean Witter Small Cap Growth Fund
(55) Morgan Stanley Dean Witter Special Value Fund
(56) Morgan Stanley Dean Witter Strategist Fund
(57) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(58) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(59) Morgan Stanley Dean Witter Total Return Trust
(60) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(61) Morgan Stanley Dean Witter U.S. Government Securities Trust
(62) Morgan Stanley Dean Witter Utilities Fund
(63) Morgan Stanley Dean Witter Value-Added Market Series
(64) Morgan Stanley Dean Witter Value Fund
(65) Morgan Stanley Dean Witter Variable Investment Series
(66) Morgan Stanley Dean Witter World Wide Income Trust
The term "TCW/DW Funds" refers to the following registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and Director
Director of Morgan Stanley Dean Witter Distributors Inc. ("MSDW
Distributors") and Morgan Stanley Dean Witter Trust FSB
("MSDW Trust"); President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Services Company
Inc. ("MSDW Services"); President of the Morgan Stanley
Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series; Executive Vice President and
Director of Dean Witter Reynolds Inc. ("DWR"); Director of
various MSDW subsidiaries.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds
Executive Vice President and Discover Brokerage Index Series; Director of MSDW
and Chief Investment Trust.
Officer
Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds,
Officer and Director TCW/DW Funds and Discover Brokerage Index Series.
Edward C. Oelsner, III
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary and
Counsel and Director Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds, TCW/DW Funds and Discover
Brokerage Index Series.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
High Yield Group
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of
Marketing
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds,
TCW/DW Funds and Discover Brokerage Index Series.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer -
Investments
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds and Discover Brokerage Index Series.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Sector
Rotation
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Money
Market Group
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Growth Group
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
James Solloway
Senior Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
and Income Group
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Tax-Exempt Fixed
Income Group
Frank Bruttomesso First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds, TCW/DW
Funds and Discover Brokerage Index Series..
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors, the Morgan Stanley Dean Witter Funds,
TCW/DW Funds and Discover Brokerage Index Series.
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors, the
and Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Armon Bar-Tur
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Raymond Basile
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Dale Boettcher
Vice President
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
Aaron Clark
Vice President
William Connerly
Vice President
David Dineen
Vice President
Sheila Finnerty Vice President of Morgan Stanley Dean Witter Prime
Vice President Income Trust
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Michael Geringer
Vice President
Gail Gerrity
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Trey Hancock
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
David T. Hoffman
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carol Espejo-Kane
Vice President
Nancy Karole-Kennedy
Vice President
Doug Ketterer
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Todd Lebo Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds, TCW/DW Funds and
Discover Brokerage Index Series.
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
Teresa McRoberts Vice President of Morgan Stanley Dean Witter S&P 500
Vice President Select Fund.
Mark Mitchell
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
Dawn Rorke
Vice President
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Michael Strayhorn
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ----------------------------------------------------------
<S> <C>
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
The principal address of MSDW Advisors, MSDW Services, MSDW Distributors,
DWR, the Morgan Stanley Dean Witter Funds, the TCW/DW Funds and Discover
Brokerage Index Series is Two World Trade Center, New York, New York 10048. The
principal address of MSDW is 1585 Broadway, New York, New York 10036. The
principal address of MSDW Trust is 2 Harborside Financial Center, Jersey City,
New Jersey 07311.
Item 27. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
<PAGE>
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Latin American Growth Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter North American Government Income Trust
(45) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(46) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(47) Morgan Stanley Dean Witter Prime Income Trust
(48) Morgan Stanley Dean Witter Real Estate Fund
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter S&P 500 Select Fund
(51) Morgan Stanley Dean Witter Short-Term Bond Fund
(52) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(53) Morgan Stanley Dean Witter Small Cap Growth Fund
(54) Morgan Stanley Dean Witter Special Value Fund
(55) Morgan Stanley Dean Witter Strategist Fund
(56) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(57) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(58) Morgan Stanley Dean Witter Total Return Trust
(59) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(60) Morgan Stanley Dean Witter U.S. Government Securities Trust
(61) Morgan Stanley Dean Witter Utilities Fund
(62) Morgan Stanley Dean Witter Value-Added Market Series
(63) Morgan Stanley Dean Witter Value Fund
(64) Morgan Stanley Dean Witter Variable Investment Series
(65) Morgan Stanley Dean Witter World Wide Income Trust
(b) The following information is given regarding directors and officers of
MSDW Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than Mr.
Purcell, who is a Trustee of the Registrant, none of the following persons has
any position or office with the Registrant.
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS
<S> <C>
Christine A. Edwards Executive Vice President, Secretary, Director and Chief Legal
Officer.
Michael T. Gregg Vice President and Assistant Secretary.
<PAGE>
NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS
<S> <C>
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief Compliance
Officer.
Philip J. Purcell Director
John Schaeffer Director
Charles Vadala Senior Vice President and Financial Principal.
</TABLE>
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
Item 30. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 16th day of June, 1999.
ACTIVE ASSETS TAX-FREE TRUST
By /s/ Barry Fink
-------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 21 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer Chief Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 6/16/99
------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 6/16/99
------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 6/16/99
------------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By /s/ David M. Butowsky 6/16/99
------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
EXHIBIT INDEX
2. Amended and Restated By-Laws of the Registrant, dated May 1, 1999.
4. Amended and Restated Investment Management Agreement dated
April 30, 1998.
5. Selected Dealer Agreement dated January 4, 1993.
6. Retirement Plan for Non-Interested Directors or Trustees.
9. Opinion of Dennis H. Greenwald, Esq. dated June 2, 1981.
- ------------------------------------------------------------------------------
All other exhibits were previously filed via EDGAR and are hereby incorporated
by reference.
<PAGE>
BY-LAWS
OF
ACTIVE ASSETS TAX-FREE TRUST
AMENDED AND RESTATED AS OF MAY 1, 1999
ARTICLE I
DEFINITIONS
The terms "COMMISSION," "DECLARATION," "DISTRIBUTOR," "INVESTMENT
ADVISER," "MAJORITY SHAREHOLDER VOTE," "1940 ACT," "SHAREHOLDER," "SHARES,"
"TRANSFER AGENT," "TRUST," "TRUST PROPERTY," and "TRUSTEES" have the
respective meanings given them in the Declaration of Trust of Active Assets
Tax-Free Trust dated March 27, 1981, as amended from time to time.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Meetings of
Shareholders shall also be called by the Secretary upon the written request
of the holders of Shares entitled to vote not less than twenty-five percent
(25%) of all the votes entitled to be cast at such meeting. The Secretary
shall inform such Shareholders of the reasonable estimated cost of preparing
and mailing such notice of the meeting, and upon payment to the Trust of such
costs, the Secretary shall give notice stating the purpose or purposes of the
meeting to all entitled to vote at such meeting. No meeting need be called
upon the request of the holders of Shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting, to consider any
matter which is substantially the same as a matter voted upon at any meeting
of Shareholders held during the preceding twelve months.
SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting, either by mail or by presenting it to him personally, or by
leaving it at his residence or usual place of business. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the Shareholder at his address as it appears on
the records of the Trust.
SECTION 3.4. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business. In the absence of a quorum, the Shareholders present or represented
by proxy and entitled to vote thereat shall have the power to adjourn
1
<PAGE>
the meeting from time to time. The Shareholders present in person or
represented by proxy at any meeting and entitled to vote thereat also shall
have the power to adjourn the meeting from time to time if the vote required
to approve or reject any proposal described in the original notice of such
meeting is not obtained (with proxies being voted for or against adjournment
consistent with the votes for and against the proposal for which the required
vote has not been obtained). The affirmative vote of the holders of a
majority of the Shares then present in person or represented by proxy shall
be required to adjourn any meeting. Any adjourned meeting may be reconvened
without further notice or change in record date. At any reconvened meeting at
which a quorum shall be present, any business may be transacted that might
have been transacted at the meeting as originally called.
SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders,
each holder of record of Shares entitled to vote thereat shall be entitled to
one vote in person or by proxy for each Share of beneficial interest of the
Trust and for the fractional portion of one vote for each fractional Share
entitled to vote so registered in his or her name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. Without limiting the manner in which a
Shareholder may authorize another person or persons to act for such
Shareholder as proxy pursuant hereto, the following shall constitute a valid
means by which a Shareholder may grant such authority:
(i) A Shareholder may execute a writing authorizing another person or
persons to act for such Shareholder as proxy. Execution may be
accomplished by the Shareholder or such Shareholder's authorized
officer, director, employee, attorney-in-fact or another agent signing
such writing or causing such person's signature to be affixed to such
writing by any reasonable means including, but not limited to, by
facsimile or telecopy signature. No written evidence of authority of a
Shareholder's authorized officer, director, employee, attorney-in-fact
or other agent shall be required; and
(ii) A Shareholder may authorize another person or persons to act for
such Shareholder as proxy by transmitting or authorizing the
transmission of a telegram or cablegram or by other means of
telephonic, electronic or computer transmission to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such
transmission, provided that any such telegram or cablegram or other
means of telephonic, electronic or computer transmission must either
set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other transmission was
authorized by the Shareholder.
No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. In determining whether a
telegram, cablegram or other electronic transmission is valid, the chairman
or inspector, as the case may be, shall specify the information upon which he
or she relied. Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or Officers of
the Trust. Proxy solicitations may be made in writing or by using telephonic
or other electronic solicitation procedures that include appropriate methods
of verifying the identity of the Shareholder and confirming any instructions
given thereby.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall
2
<PAGE>
receive votes, ballots or consents, shall hear and determine all challenges
and questions in any way arising in connection with the right to vote, shall
count and tabulate all votes or consents, determine the results, and do such
other acts as may be proper to conduct the election or vote with fairness to
all Shareholders. On request of the chairman of the meeting, or of any
Shareholder or his proxy, the Inspectors of Election shall make a report in
writing of any challenge or question or matter determined by them and shall
execute a certificate of any facts found by them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Business Corporation Law
of the Commonwealth of Massachusetts.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.
SECTION 3.10. PRESENCE AT MEETINGS. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any
two (2) Trustees.
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust.
SECTION 4.3. TELEPHONE MEETINGS. Any Trustee or any member or members of
any committee designated by the Trustees, may participate in a meeting of the
Trustees, or any such committee, as the case may be, by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting
by these means constitutes presence in person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
3
<PAGE>
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee or officer is not
adjudged to be liable by reason of his willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
4
<PAGE>
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provisions of paragraphs (1) and (2) of this
subsection (d), no person shall be entitled to indemnification for any
liability, whether or not there is an adjudication of liability, arising
by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties as described in Section 17(h) and (i) of the
Investment Company Act of 1940 ("disabling conduct"). A person shall be
deemed not liable by reason of disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking, or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available facts,
that there is reason to believe that such person ultimately will be found
entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
5
<PAGE>
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in
place of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his or her successor is elected and has qualified.
6
<PAGE>
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the Chairman the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust shall
hold office until his or her successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. POWERS AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws or, to the extent not so provided, as may be prescribed by the
Trustees; provided that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless such third
party has knowledge thereof.
SECTION 6.6. THE CHAIRMAN. The Chairman shall be the chief executive officer
of the Trust, shall preside at all meetings of the Shareholders and of the
Trustees, shall have general and active management of the business of the
Trust, shall see that all orders and resolutions of the Trustees are carried
into effect and, in connection therewith, shall be authorized to delegate to
the President or to one or more Vice Presidents such of his or her powers and
duties at such times and in such manner as he or she may deem advisable,
shall be a signatory on all Annual and Semi-Annual Reports as may be sent to
Shareholders, and shall perform such other duties as the Trustees may from
time to time prescribe.
SECTION 6.7. THE PRESIDENT. The President shall perform such duties as the
Trustees and the Chairman may from time to time prescribe and shall, in the
absence or disability of the Chairman, exercise the powers and perform the
duties of the Chairman. The President shall be authorized to delegate to one
or more Vice Presidents such of his or her powers and duties at such times
and in such manner as he or she may deem advisable.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there shall be more than one, the
Vice Presidents in such order as may be determined from time to time by the
Trustees or the Chairman, shall, in the absence or disability of the
President, exercise the powers and perform the duties of the President, and
shall perform such other duties as the Trustees or the Chairman may from time
to time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there shall be more than one, the Assistant Vice Presidents in such
order as may be determined from time to time by the Trustees or the Chairman,
shall perform such duties and have such powers as may be assigned them from
time to time by the Trustees or the Chairman.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of the
Trustees and all meetings of the Shareholders and record all the proceedings
of the meetings of the Shareholders and of the Trustees in a book to be kept
for that purpose, and shall perform like duties for the standing committees
when required. He or she shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees or the
Chairman may from time to time prescribe. He or she shall keep in safe
custody the seal of the Trust and affix or cause the same to be affixed to
any instrument requiring it, and, when so affixed, it shall be attested by
his or her signature or by the signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there shall be more than one, the Assistant Secretaries in such order as may
be determined from time to time by the Trustees or the Chairman, shall, in
the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such duties and have such other
powers as the Trustees or the Chairman may from time to time prescribe.
7
<PAGE>
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He or she shall keep or cause to be kept full and
accurate accounts of receipts and disbursements in books belonging to the
Trust, and he or she shall render to the Trustees and the Chairman, whenever
any of them require it, an account of his or her transactions as Treasurer
and of the financial condition of the Trust, and he or she shall perform such
other duties as the Trustees or the Chairman may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in such order as may
be determined from time to time by the Trustees or the Chairman, shall, in
the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Trustees or the Chairman may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option, defer
the issuance of a certificate or certificates to evidence Shares owned of
record by any Shareholder until such time as demand therefor shall be made
upon the making of such demand each Shareholder shall be entitled to such
certificate or certificates.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the
8
<PAGE>
Trust alleged to have been lost, stolen or destroyed, upon satisfactory proof
of such loss, theft, or destruction; and the Trustees may, in their
discretion, require the owner of the lost, stolen or destroyed certificate,
or his legal representative, to give to the Trust and to such Registrar,
Transfer Agent and/or Transfer Clerk as may be authorized or required to
countersign such new certificate or certificates, a bond in such sum and of
such type as they may direct, and with such surety or sureties, as they may
direct, as indemnity against any claim that may be against them or any of
them on account of or in connection with the alleged loss, theft or
destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
Shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
9
<PAGE>
SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii)
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. The
record date, in any case, shall not be more than one hundred eighty (180)
days, and in the case of a meeting of Shareholders not less than ten (10)
days, prior to the date on which such meeting is to be held or the date on
which such other particular action requiring determination of Shareholders is
to be taken, as the case may be. In the case of a meeting of Shareholders,
the meeting date set forth in the notice to Shareholders accompanying the
proxy statement shall be the date used for purposes of calculating the 180
day or 10 day period, and any adjourned meeting may be reconvened without a
change in record date. In lieu of fixing a record date, the Trustees may
provide that the transfer books shall be closed for a stated period but not
to exceed, in any case, twenty (20) days. If the transfer books are closed
for the purpose of determining Shareholders entitled to notice of a vote at a
meeting of Shareholders, such books shall be closed for at least ten (10)
days immediately preceding the meeting.
SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders or if such
amendment, adoption or repeal changes or affects the provisions of this
Article XIII, and provided further that any By-Law or amendment or alteration
of the By-Laws adopted by the Trustees may be amended, altered or repealed,
and any By-Law repealed by the Trustees may be reinstated, by a Majority
Shareholder Vote. The Trustees shall in no event adopt By-Laws which are in
conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
10
<PAGE>
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Active Assets Tax-Free Trust, dated
March 27, 1981, a copy of which, together with all amendments thereto, is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name Active Assets Tax-Free Trust refers to the Trustees
under the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, Shareholder, officer, employee or agent of Active
Assets Tax-Free Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said
Active Assets Tax-Free Trust, but the Trust Estate only shall be liable.
11
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of April 30,
1998, by and between Active Assets Tax-Free Trust, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (hereinafter
called the "Fund"), and Dean Witter InterCapital Inc., a Delaware corporation
(hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Trustees, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities markets and securities as it deems necessary or useful to discharge
its duties hereunder; shall continuously manage the assets of the Fund in a
manner consistent with the investment objectives and policies of the Fund; shall
determine the securities to be purchased, sold or otherwise disposed of by the
Fund and the timing of such purchases, sales and dispositions; and shall take
such further action, including the placing of purchase and sale orders on behalf
of the Fund, as the Investment Manager shall deem necessary or appropriate. The
Investment Manager shall also furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Investment Manager in the discharge of its duties as the Fund
may, from time to time, reasonably request.
2. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent, registrar, custodian and other agents). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, the
Investment Manager shall surrender to the Fund such of the books and records so
requested.
3. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
4. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this
Agreement, and shall, at its own expense, pay the compensation of the officers
and employees, if any, of the Fund who are also directors, officers or employees
of the
<PAGE>
Investment Manager and provide such office space and equipment and such clerical
and bookkeeping services as the Fund shall reasonably require in the conduct of
its business. The Investment Manager shall also bear the cost of telephone
service, heat, light, power and other utilities provided to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any stock transfer or
dividend agent or agents appointed by the Fund; brokers' commissions chargeable
to the Fund in connection with portfolio securities transactions to which the
Fund is a party; all taxes, including securities issuance and transfer taxes,
and fees payable by the Fund to Federal, State or other governmental agencies;
the cost and expense of engraving or printing share certificates representing
shares of the Fund; all costs and expenses in connection with the registration
and maintenance of registration of the Fund and its shares with the Securities
and Exchange Commission and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel); the cost and expense
of printing (including typesetting) and distributing prospectuses of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants in connection with any matter relating to the Fund;
membership dues of the Investment Company Institute; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Fund which inure to its benefit; extraordinary
expenses (including but not limited to legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation determined by applying the following
annual rates to the Fund's daily net assets: 0.50% of the portion of the daily
net assets not exceeding $500 million; 0.425% of the portion of the daily net
assets exceeding $500 million but not exceeding $750 million; 0.375% of the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% of the portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.325% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.30% of the portion of the
daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% of
the portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% of the portion of the daily net assets exceeding $3 billion.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. Such calculations shall be made by applying 1/365ths of the annual
rates to the Fund's net assets each day determined as of the close of business
on that day or the last previous business day. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above. Subject to the provisions of paragraph 7 hereof,
payment of the Investment Manager's compensation for the preceding month shall
be made as promptly as possible after completion of the computation contemplated
by paragraph 7 hereof.
7. In the event the operating expenses of the Fund, including amounts
payable to the Investment Manager pursuant to paragraph 6 hereof, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by state securities laws or
regulations thereunder, as such limitations may be raised or lowered from time
to time, the Investment Manager shall reduce its management fee to the extent of
such excess and, if required, pursuant to any such laws or regulations, will
reimburse the Fund for annual operating expenses in excess of any expense
limitation that may be applicable; provided, however, there shall be excluded
from such expenses the amount of any
2
<PAGE>
interest, taxes, brokerage commissions and extraordinary expenses (including but
not limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund. Such reduction, if
any, shall be computed and accrued daily, shall be settled on a monthly basis,
and shall be based upon the expense limitation applicable to the Fund as at the
end of the last business day of the month. Should two or more such expense
limitations be applicable as at the end of the last business day of the month,
that expense limitation which results in the largest reduction in the Investment
Manager's fee shall be applicable.
For purposes of this provision, should any applicable expense limitation be
based upon the gross income of the Fund, such gross income shall include, but
not be limited to, interest on debt of fixed income securities in the Fund's
portfolio accrued to and including the last day of the Fund's fiscal year, and
dividends declared but not paid on any equity securities in the Fund's
portfolio, the record dates for which fall on or prior to the last day of such
fiscal year, but shall not include gains from the sales of securities.
8. The Investment Manager will use its best efforts in the supervision and
management of the investment activities of the Fund, but in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund or
any of its investors for any error of judgment or mistake of law or for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors.
9. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or commodities
for their own accounts or for the account of others for whom they may be acting.
Nothing in this Agreement shall limit or restrict the right of any director,
officer or employee of the Investment Manager to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business whether of a similar or dissimilar nature.
10. This Agreement shall remain in effect until April 30, 1999 and from year
to year thereafter provided such continuance is approved at least annually by
the vote of holders of a majority (as defined in the Act) of the outstanding
voting securities of the Fund or by the Board of Trustees of the Fund; provided
that in either event such continuance is also approved annually by the vote of
a majority of the Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote must
be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon thirty days' written
notice to the Investment Manager, either by majority vote of the Board of
Trustees of the Fund or by the vote of a majority of the outstanding voting
securities of the Fund; (b) this Agreement shall immediately terminate in the
event of its assignment (within the meaning of the Act) unless such automatic
termination shall be prevented by an exemptive order of the Securities and
Exchange Commission; and (c) the Investment Manager may terminate this
Agreement without payment of penalty on thirty days' written notice to the Fund.
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed post-paid, to the other party at the principal office of
such party.
11. This Agreement may be amended by the parties without the vote or
consent of shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the law of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
13. The Declaration of Trust establishing Active Assets Tax-Free Trust,
dated March 27, 1981, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of
3
<PAGE>
the Commonwealth of Massachusetts, provides that the name Active Assets Tax-Free
Trust refers to the Trustees under the Declaration collectively as Trustees, but
not as individuals or personally; and no Trustee, shareholder, officer, employee
or agent of Active Assets Tax-Free Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Active Assets Tax-Free Trust, but the Trust Estate only shall be
liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on April 30, 1998 on the day and year first above written
in New York, New York.
<TABLE>
<S> <C>
ACTIVE ASSETS TAX-FREE TRUST
By: /s/ Barry Fink
.................................................................
Attest:
/s/ Frank Bruttomesso
................................................................
DEAN WITTER INTERCAPITAL INC.
By: /s/ Charles A. Fiumefreddo
.................................................................
Attest:
/s/ Marilyn K. Cranney
................................................................
</TABLE>
4
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
SELECTED DEALERS AGREEMENT
Gentlemen:
DW Distributors Inc. (the "Distributor") has a distribution agreement
(the "Distribution Agreement") with Active Assets Tax-Free Trust, a
Massachusetts business trust (the "Fund"), pursuant to which it acts as the
Distributor for the sale of the Fund's shares of beneficial interest, par
value $0.01 per share (the "Shares"). Under the Distribution Agreement, the
Distributor has the right to distribute Shares for resale.
The Fund is an open-end management investment company registered under
the Investment Company Act of 1940, as amended, and the Shares being offered
to the public are registered under the Securities Act of 1933, as amended.
You have received a copy of the Distribution Agreement between us and the
Fund and reference is made herein to certain provisions of such Distribution
Agreement. The terms used herein, including "Prospectus" and "Registration
Statement" of the Fund and "Selected Dealer" shall have the same meaning in
this Agreement as in the Distribution Agreement. As principal, we offer to
sell shares to you, as a Selected Dealer, upon the following terms and
conditions:
1. In all sales of Shares to the public you shall act as dealer for
your own account, and in no transaction shall you have any authority to act
as agent for the Fund, for us or for any other Selected Dealer.
2. Orders received from you will be accepted through us or on our
behalf only at the net asset value applicable to each order, as set forth in
the current Prospectus. The procedure relating to the handling of orders
shall be subject to instructions which we or the Fund shall forward from time
to time to you. All orders are subject to acceptance or rejection by the
Distributor or the Fund in the sole discretion of either.
3. You shall not place orders for any Shares unless you have already
received purchase orders for such Shares at the applicable net asset values
and subject to the terms hereof and of the Distribution Agreement and the
Prospectus. You agree that you will not offer or sell any of the Shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and
offers to sell Shares you will furnish to each person to whom any such sale
or offer is made a copy of the Prospectus (as then amended or supplemented)
and will not furnish to any person any information relating to the Shares,
which is inconsistent in any respect with the information contained in the
Prospectus (as then amended or supplemented) or cause any advertisement to be
published by radio or television or in any newspaper or posted in any public
place or use any sales promotional material without our consent and the
consent of the Fund.
4. The Distributor will compensate you for sales of shares of the Fund
and personal services to Fund shareholders by paying you a sales charge
and/or other commissions, which may be in the form of a gross sales credit
and/or an annual residual commission and/or service fee, under the terms and
in the percentage amounts as may be in effect from time to time by the
Distributor.
5. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding; e.g., by a change
in the "net asset value" from that used in determining the offering price to
your customers.
6. If any Shares sold to you under the terms of this Agreement are
repurchased by us for the account of the Fund or are tendered for redemption
within seven business days after the date of the confirmation of the original
purchase by you, it is agreed that you shall forfeit your right to, and
refund to us, any commission received by you with respect to such Shares.
7. No person is authorized to make any representations concerning the
Shares or the Fund except those contained in the current Prospectus and in
such printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus. In purchasing Shares through us you
1
<PAGE>
shall rely solely on the representations contained in the Prospectus and
supplemental information above mentioned. Any printed information which we
furnish you other than the Prospectus and the Fund's periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no
liability or responsibility to you in these respects unless expressly assumed
in connection therewith.
8. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus at or prior to the time of
offering or sale and you agree thereafter to deliver to such purchasers
copies of the annual and interim reports and proxy solicitation materials of
the Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
9. You are hereby authorized (i) to place orders directly with the
Fund or its agent for shares of the Fund to be sold by us to you subject to
the applicable terms and conditions governing the placement of orders for the
purchase of Fund shares, as set forth in the Distribution Agreement, and (ii)
to tender shares directly to the Fund or its agent for redemption subject to
the applicable terms and conditions set forth in the Distribution Agreement.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Shares entirely. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the distribution and
redemption of Fund shares. We shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by us herein.
Nothing contained in this paragraph is intended to operate as, and the
provisions of this paragraph shall not in any way whatsoever constitute, a
waiver by you of compliance with any provision of the Securities Act of 1933,
as amended, or of the rules and regulations of the Securities and Exchange
Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but
we assume no responsibility or obligation as to your right to sell Shares in
any jurisdiction.
14. All communications to us should be sent to the address shown below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
15. This Agreement shall become effective as of the date of your
acceptance hereof, provided that you return to us promptly a signed and dated
copy.
DW DISTRIBUTORS INC.
By /s/
----------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
DW Distributors Inc.
Two World Trade Center
New York, New York 10048
Accepted:
Firm Name: Dean Witter Reynolds Inc.
-----------------------------
By: /s/
------------------------------------
Address: 2 WTC
-------------------------------
New York, New York 10048
- ----------------------------------------
Date: January 4, 1993
----------------------------------
2
<PAGE>
SECOND AMENDED AND RESTATED
RETIREMENT PLAN FOR
NON-INTERESTED TRUSTEES
OR DIRECTORS
Certain of the investment companies for which Morgan Stanley Dean Witter
Advisors Inc. ("MSDW Advisors") currently acts as manager or adviser adopted a
Retirement Plan for Non-Interested Trustees and Directors (the "Original Plan")
on February 21, 1991 (the "Commencement Date"). The Original Plan was amended
and restated on October 22, 1993, effective January 1, 1994 and further amended
by First Amendment dated December 19, 1995 and by Second Amendment dated May 8,
1997. The participating Funds now desire to amend and restate the Plan further
as provided herein effective as of the Commencement Date (as so amended, the
"Plan"), for the purposes of expanding the flexibility of Non-Interested
Trustees and Directors to make and change their elections of benefits.
1. DEFINITIONS
(a) "Independent Board Member" shall mean (i) a Trustee of an Adopting Fund
if the Adopting Fund is organized as a Massachusetts business trust, (ii) a
Director of an Adopting Fund if the Adopting Fund is organized as a corporation,
and (iii) a "director" (as such term is defined in Section 2(a)(12) of the
Investment Company Act of 1940, as amended [the "Act"]) of an Adopting Fund if
the Adopting Fund is any other type of organization, who in any such case is not
an interested person (as such term is defined in Section 2(a)(19) of the Act) of
MSDW Advisors.
(b) "Eligible Board Member" shall mean an Independent Board Member who at
the time of Retirement (as hereinafter defined) has served as an Independent
Board Member of any Adopting Fund for at least five years, or such lesser period
as may be determined by the Board.
(c) "Eligible Service" shall mean service as an Independent Board Member.
(d) "Eligible Retirement Date" shall mean, with respect to any Independent
Board Member, the later of (i) January 1, 1993, (ii) the first day of the
calendar month following the month in which such Independent Board Member's
seventy-second birthday occurs, or (iii) such later date as the Board may
establish as his or her "Eligible Retirement Date."
(e) "Retirement" shall mean any termination of service of an Independent
Board Member except any termination which the Board determines to have resulted
from the Independent Board Member's willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Independent Board Member.
(f) "Benefit" shall mean with respect to any Eligible Board Member, (i) the
Regular Benefit, unless the Alternate Benefit has been elected or the Early
Benefit granted, (ii) the Alternate Benefit, if elected by such Eligible Board
Member, unless the Early Benefit has been granted, or (iii) the Early Benefit,
if granted by the Board.
(g) "Eligible Compensation" shall mean, with respect to any Eligible Board
Member of any Adopting Fund, an amount equal to one-fifth of the total
compensation, inclusive of compensation as a member of the Board or of a Board
Committee or as chairperson of a Board Committee, earned by such Eligible Board
Member for Eligible Service with respect to such Adopting Fund (other than under
this Plan) in the five year period prior to the date of his or her Retirement.
(h) "Actuarial Equivalent" shall mean an actuarially equivalent benefit, as
computed by the Board with the advice of an enrolled actuary (as defined in the
Employee Retirement Income Security Act of 1974, as amended ["ERISA"]), using
assumptions determined by the Board at the time of the computation.
(i) "Board" shall mean, with respect to any Adopting Fund, the Board of
Directors or Trustee or "directors," (as such term is defined in Section
2(a)(12) of the Act, of such Adopting Fund.
(j) "Adoption Date" shall mean February 21, 1991.
<PAGE>
2. ELIGIBILITY
Each Eligible Board Member will be eligible to receive a Benefit from each
Adopting Fund commencing on such Eligible Board Member's Eligible Retirement
Date.
3. RETIREMENT DATE; AMOUNT OF BENEFIT
(a) RETIREMENT. Each Independent Board Member will retire not later than his
or her Eligible Retirement Date. The foregoing provision shall be deemed by the
adoption of this Plan by any Fund to be an amendment of such Fund's by-laws
superseding any provision therein that an Independent Board Member shall serve
until his or her successor shall have been elected and qualified.
Notwithstanding the foregoing, the Board of any Adopting Fund may, to avoid the
simultaneous retirement of more than one of the Independent Board Members or for
any other appropriate reason, waive the obligation of any Independent Board
Member to retire on such date and may establish a later date as his or her
"Eligible Retirement Date." Any establishment of an Eligible Retirement Date may
be further extended by the Board.
(b) REGULAR RETIREMENT BENEFIT. Upon Retirement, each Eligible Board Member
will receive, commencing as of such Eligible Board Member's Eligible Retirement
Date and continuing for the remainder of the Eligible Board Member's life, from
each Adopting Fund a retirement benefit (the "Regular Benefit") paid at an
annual rate equal to the percentage of his or her Eligible Compensation
established by resolution of the Board of such Adopting Fund most recently
adopted prior to the date of his or her retirement (the "Most Recent
Resolution") as the "Minimum Percentage," PLUS an additional percentage of such
Eligible Compensation for each full month of Eligible Service for any of the
Adopting Funds in excess of five years established by the Most Recent Resolution
as the "Monthly Additional Percentage," up to the percentage established by the
Most Recent Resolution as the "Maximum Percentage" of such Eligible Compensation
for ten or more years of Eligible Service for any of the Adopting Funds.
(c) ELECTION OF ALTERNATE PAYMENT OF BENEFIT. Each Independent Board Member
shall have the option, exercisable at any time, and revisable at any time and
from time to time, prior to his or her first acceptance of benefits under the
Plan to elect (i) to receive, subject to being or becoming an Eligible Board
Member, a retirement benefit (the "Alternate Benefit") based upon the combined
life expectancy of such Eligible Board Member and his or her spouse on the date
of such Eligible Board Member's Retirement (rather than solely upon such
Eligible Board Member's own life, as shall be the case unless such Eligible
Board Member shall otherwise elect as provided in this Section 3(c)), and (ii)
if the Independent Board Member elects to receive the Alternate Benefit, to
elect a benefit either (x) to the last survivor of the Eligible Board Member or
spouse, whether the Eligible Board Member or spouse is the last survivor (a
"joint and last survivor" benefit) or (y) to the Eligible Board Member's spouse
if the spouse survives the Eligible Board Member (a "joint and contingent
survivor" benefit) equal in periodic amount to a percentage (the "Designated
Survivor's Percentage") of the periodic amount that would be, or would be
assumed to be, in effect while both the Eligible Board Member and spouse were
alive. The Designated Survivor's Percentage shall be the percentage stated in
the most recently delivered notice of election given by such Independent Board
Member, or, if no percentage is stated in any such notice, 100%. Payment of the
Alternate Benefit shall commence on the later of such Eligible Board Member's
Eligible Retirement Date or the date of his or her Retirement, shall be reduced
to the Designated Survivor's Percentage (if less than 100%) upon the earlier of
the deceases of the Eligible Board Member and spouse in the case of a joint and
last survivor benefit, or of the Eligible Board Member in the case of a joint
and contingent survivor benefit, and shall be payable through the remainder of
the life of the survivor of such Eligible Board Member and spouse. The Alternate
Benefit shall be the Actuarial Equivalent of the Regular Benefit provided under
paragraph 3(b). In the event of the death of an Eligible Board Member who has
chosen the Alternate Benefit prior to such Eligible Board Member's Retirement,
his or her spouse shall be entitled to a retirement benefit, commencing upon
such death, which shall be the Actuarial Equivalent of the benefit such spouse
would have received had such Eligible Board Member died on his or her Eligible
Retirement Date.
2
<PAGE>
(d) EARLY PAYMENT OF BENEFIT. An Eligible Board Member for good cause may
apply to the Board of any Adopting Fund for, and, at the discretion of such
Board, may be granted, a retirement benefit (the "Early Benefit") which is
the Actuarial Equivalent of the Regular Benefit or Alternate Benefit
previously elected by such Eligible Board Member. Payment of the Early
Benefit shall commence on a date fixed by the Board in its sole discretion as
such Eligible Board Member's Eligible Retirement Date and shall be payable
through the remainder of such Eligible Board Member's life, or, if the
Alternate Benefit had been elected, the later of the lives of such Eligible
Board Member and spouse. Good cause for these purposes may include (but is
not limited to) the permanent disability of the Eligible Board Member.
(e) Anything contained herein to the contrary notwithstanding, upon the
adoption by an Adopting Fund of a plan of liquidation, such Adopting Fund shall
pay to each Eligible Board Member who has retired, in lieu of his or her Benefit
from such Adopting Fund, an amount (the "Lump Sum") equal to the then present
value of the Benefit, using a discount rate determined by the Board at the time
of the computation. The Lump Sum shall be paid by such Adopting Fund at or
before the final liquidation and dissolution of such Adopting Fund.
4. TIME OF PAYMENT
The Benefit to each Eligible Board Member or his or her spouse will, except
as provided in Section 3(c), 3(d) or 3(e) hereof, commence on such Eligible
Board Member's Eligible Retirement Date and will be paid each year in quarterly
installments that are as nearly equal as possible on the first day of each
calendar quarter.
5. PAYMENT OF BENEFIT; ALLOCATION OF COSTS
Each Adopting Fund is responsible for the payment of Benefits based upon
Eligible Compensation from such Adopting Fund, as well as its proportionate
share of all expenses of administration of the Plan, including without
limitation all accounting and legal fees and expenses and fees and expenses of
any enrolled actuary. The obligations of each Adopting Fund to pay such benefits
and expenses will not be secured or funded in any manner, and such obligations
will not have any preference over the lawful claims of the Adopting Funds'
creditors and stockholders, shareholders, beneficiaries or limited partners, as
the case may be. To the extent that an Adopting Fund consists of one or more
separate portfolios, such costs and expenses will be allocated among such
portfolios in the proportion that compensation of Independent Board Members is
allocated among such portfolios.
6. ADMINISTRATION
(a) ADMINISTRATION. Any question involving entitlement to payments under or
the administration of the Plan will be referred to the Board, which shall make
all interpretations and determinations necessary or desirable for the Plan's
administration (such interpretations and determinations to be final and
conclusive) and shall cause such records to be kept as may be necessary for the
administration of the Plan.
7. MISCELLANEOUS
(a) RIGHTS NOT ASSIGNABLE. The right to receive any payment under the Plan
is not transferable or assignable. Except as otherwise provided herein with
respect to the Alternate Benefit, the Plan shall not create any benefit, cause
of action, right of sale, transfer, assignment, pledge, encumbrance, or other
such right in any spouse or heirs or the estate of any Eligible Board Member or
retired Eligible Board Member.
(b) AMENDMENT, ETC. With respect to each Adopting Fund, the Board,
including a majority of the Independent Board Members of such Board, may at
any time amend or terminate the Plan or waive any provision of the Plan,
PROVIDED, that except as otherwise provided herein, no amendment, termination
or waiver will impair the rights of an Independent Board Member to receive
upon Retirement the payments which would have been made to such Independent
Board Member had there been no such amendment, termination or waiver (based
upon such Board Member's Eligible Service to the date of such amendment,
termination or waiver) or the rights of a retired Eligible Board Member to
receive any Benefit due under the Plan, without the consent of such
Independent Board Member or Eligible Board Member. Notwithstanding any
provision to the contrary, the Board, with the concurrence of a majority of
the Independent Board Members of such Board and without the consent of any
individual Independent
3
<PAGE>
Board Member, may at any time (i) amend or terminate the Plan to
comply with any applicable provision of law or any rule or regulation
adopted, or proposed to be adopted, by any governmental agency or any
decision of any court or administrative agency, (ii) change any assumptions
used to determine what benefit may be an Actuarial Equivalent, or (iii)
terminate the Plan of an Adopting Fund (an "Acquired Adopting Fund")
substantially all the assets of which are acquired by an entity which is
itself an Adopting Fund (the "Acquiring Adopting Fund") pursuant to a plan of
reorganization between the Acquired Adopting Fund and the Acquiring Adopting
Fund (the "Reorganization Plan"), such termination to be deemed approved upon
adoption of the Reorganization Plan and to be effective upon the
effectiveness of the reorganization contemplated thereby without liability or
further obligation for any benefits accrued or otherwise payable to an
Independent Board Member by the Acquired Adopting Fund.
(c) NO RIGHT TO REELECTION. Nothing in the Plan will create any obligation
on the part of the Board to nominate any Independent Board Member for
reelection.
(d) VACANCIES. Although the Board will retain the right to increase or
decrease its size, it shall be the general policy to replace each retired
Independent Board Member by selecting a new Independent Board Member from
candidates recommended by the remaining Independent Board Members.
(e) CONSULTING. Each retired Eligible Board Member may render such services
for any of the Adopting Funds, for such compensation, as may be agreed upon from
time to time by such retired Eligible Board Member and the Board.
(f) EFFECTIVENESS. The Plan will be effective for all Independent Board
Members who have dates of Retirement occurring on or after the Adoption Date.
Periods of Eligible Service shall include periods commencing prior to such date.
4
<PAGE>
SCHEDULE A
MORGAN STANLEY DEAN WITTER FUNDS:
FUNDS THAT HAVE ADOPTED THE RETIREMENT PLAN
FOR NON-INTERESTED TRUSTEES OR DIRECTORS
MARCH 1999
<TABLE>
<S> <C>
1) Active Assets California Tax-Free Trust
2) Active Assets Government Securities Trust
3) Active Assets Money Trust
4) Active Assets Tax-Free Trust
5) Morgan Stanley Dean Witter American Value Fund
6) Morgan Stanley Dean Witter California Insured Municipal Income Trust
7) Morgan Stanley Dean Witter California Quality Municipal Securities
8) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9) Morgan Stanley Dean Witter California Tax-Free Income Fund
10) Morgan Stanley Dean Witter Capital Growth Securities
11) Morgan Stanley Dean Witter Convertible Securities Trust
12) Morgan Stanley Dean Witter Developing Growth Securities Trust
13) Morgan Stanley Dean Witter Diversified Income Trust
14) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
15) Morgan Stanley Dean Witter European Growth Fund Inc.
16) Morgan Stanley Dean Witter Federal Securities Trust
17) Morgan Stanley Dean Witter Global Dividend Growth Securities
18) Morgan Stanley Dean Witter Government Income Trust
19) Morgan Stanley Dean Witter Health Sciences Trust
20) Morgan Stanley Dean Witter High Income Advantage Trust
21) Morgan Stanley Dean Witter High Income Advantage Trust II
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Securities Inc.
24) Morgan Stanley Dean Witter Insured Municipal Bond Trust
25) Morgan Stanley Dean Witter Insured Municipal Income Trust
26) Morgan Stanley Dean Witter Insured Municipal Securities
27) Morgan Stanley Dean Witter Insured Municipal Trust
28) Morgan Stanley Dean Witter Intermediate Income Securities
29) Morgan Stanley Dean Witter Limited Term Municipal Trust
30) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
31) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
32) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
33) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
34) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
35) Morgan Stanley Dean Witter Municipal Income Trust
36) Morgan Stanley Dean Witter Municipal Income Trust II
37) Morgan Stanley Dean Witter Municipal Premium Income Trust
38) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
39) Morgan Stanley Dean Witter New York Municipal Money Market Trust
40) Morgan Stanley Dean Witter New York Tax-Free Income Fund
41) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
42) Morgan Stanley Dean Witter Prime Income Trust
43) Morgan Stanley Dean Witter Quality Municipal Income Trust
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
44) Morgan Stanley Dean Witter Quality Municipal Investment Trust
45) Morgan Stanley Dean Witter Quality Municipal Securities
46) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
47) Morgan Stanley Dean Witter Strategist Fund
48) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
49) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
50) Morgan Stanley Dean Witter U.S. Government Money Market Trust
51) Morgan Stanley Dean Witter U.S. Government Securities Trust
52) Morgan Stanley Dean Witter Utilities Fund
53) Morgan Stanley Dean Witter Value-Added Market Series
54) Morgan Stanley Dean Witter Variable Investment Series
55) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
6
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
June 2, 1981
Active Assets Tax-Free Trust
Five World Trade Center
New York, New York 10048
Dear Sirs:
With respect to the Registration Statement on Form N-1 (File No.
2-71559) (the "Registration Statement") filed by Active Assets Tax-Free
Trust, a Massachusetts business trust (the "Trust"), with the
Securities and Exchange Commission for the purpose of registering under the
Securities Act of 1933, as amended, an indefinite number of shares of
beneficial interest of no par value of the Trust (the "Shares"), I, as your
counsel, have examined such Trust records, certificates and other documents
and reviewed such questions of law as I have considered necessary or
appropriate for the purposes of this opinion, and on the basis of such
examination and review, I advise you that, in my opinion, proper trust
proceedings have been taken by the Trust so that the Shares have been validly
authorized; and when the Shares have been issued and sold in accordance with
the terms of the Distribution Agreement referred to in the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Validity
of Shares" in the Prospectus forming a part of the Registration Statement.
In giving this consent, I do not thereby admit that I am within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Dennis H. Greenwald
Dennis H. Greenwald
General Counsel
SC/krp
