<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1995
REGISTRATION NOS.: 2-71560
811-3159
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 17 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 18 /X/
-------------------
ACTIVE ASSETS
MONEY 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
SHELDON CURTIS, 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)
_X_ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A) (1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT HAS FILED THE RULE 24F-2 NOTICE,
FOR ITS FISCAL YEAR ENDED JUNE 30, 1995, WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JULY 21, 1995.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
-------------------------------------------------------
-------------------------------------------------------
<PAGE>
ACTIVE ASSETS MONEY TRUST
CROSS-REFERENCE SHEET
FORM N-1A
ITEM CAPTION
PART A PROSPECTUS
1. ..................... Cover (page 1 of Active Assets Money Trust
Prospectus)
2........................ Highlights; Summary of Trust Expenses; Financial
Highlights
3........................ Dividends, Distributions and Taxes (Appendix)
4........................ Investment Objectives and Policies; Highlights; The
Trusts and Their Management (Appendix)
5........................ Investment Objectives and Policies; The Trusts and
Their Management (Appendix); Back Cover
6........................ Dividends, Distribution and Taxes (Appendix); General
Information (Appendix)
7........................ How Net Asset Value is Determined (Appendix);
Purchase and Redemption of Shares (Appendix)
8........................ Purchase and Redemption of Shares (Appendix)
9........................ Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10....................... Cover Page
11....................... Table of Contents
12....................... Not Applicable
13....................... Investment Practices and Policies; Investment
Restrictions
14....................... Investment Manager (Appendix); Trustees and Officers
(Appendix)
15....................... Investment Manager (Appendix); Trustees and Officers
(Appendix)
16....................... Investment Manager (Appendix); Custodian and Transfer
Agent (Appendix); Experts (Appendix)
17....................... Portfolio Transactions and Brokerage (Appendix)
18....................... General Information (Appendix)
19....................... How Net Asset Value is Determined; Experts (Appendix)
20....................... Dividends, Distributions and Taxes
21....................... Investment Manager (Appendix)
22....................... Dividends, Distributions and Taxes
23....................... Experts (Appendix)
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
ACTIVE ASSETS MONEY TRUST
ACTIVE ASSETS TAX-FREE TRUST
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
--------------------
THIS DOCUMENT CONSISTS OF THE PROSPECTUSES OF ACTIVE ASSETS MONEY TRUST,
ACTIVE ASSETS TAX-FREE TRUST, ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST AND ACTIVE
ASSETS GOVERNMENT SECURITIES TRUST (COLLECTIVELY, THE "TRUSTS") AND AN APPENDIX
TO SUCH PROSPECTUSES WHICH CONSTITUTES PART OF THE PROSPECTUSES. A TABLE OF
CONTENTS IS CONTAINED ON PAGE 1 OF EACH PROSPECTUS.
------------------------
Each Trust is a diversified open-end management investment company seeking
high current income, preservation of capital and liquidity from investments in
short-term securities. Active Assets Money Trust invests in money market
instruments generally; Active Assets Tax-Free Trust invests in high quality,
short-term tax-exempt securities and pays dividends exempt from federal personal
income taxation; Active Assets California Tax-Free Trust invests in high
quality, short-term California tax-exempt securities and pays dividends exempt
from federal and California personal income taxation; and Active Assets
Government Securities Trust invests in money market instruments issued or
guaranteed by the United States Government or its agencies or instrumentalities.
The Active Assets -Registered Trademark- Account financial service program
("Active Assets") of Dean Witter Reynolds Inc. ("Dean Witter") provides a medium
for the investment of free credit cash balances held in the Active Assets
account in shares of the Trusts. An Active Assets account is a Dean Witter
securities account (the "Securities Account") which is linked to the Trusts, a
Federal Deposit Insurance Corporation ("FDIC") insured bank account (the "Active
Assets Insured Account") maintained at a bank which has entered into an
agreement with Dean Witter to participate in Active Assets and a
Visa-Registered Trademark- check/card account maintained by Bank One, Columbus,
N.A., Columbus, Ohio ("Visa Account").
The annual fee for participation in the Active Assets program is presently
$80 ($100 for corporations). Dean Witter may charge certain group or special
accounts a different fee. Dean Witter reserves the right to change the fee for
participation in the Active Assets program at any time. As described in the
Appendix to the Prospectus under the section "Purchase of Shares", shares of the
Trusts may be purchased by investors maintaining brokerage accounts with Dean
Witter who are not subscribers to the Active Assets program. In addition,
certain other Securities Accounts which are not subscribers to the Active Assets
Program may be linked to the Trusts and the Active Assets Insured Account.
Shareholders of the Trusts not subscribing to the Active Assets program will not
be charged the program fee.
Subject to the conditions set forth herein, a subscriber to the Active
Assets program will have his or her free credit cash balances held in the
account automatically invested daily in shares of any of the Trusts or
transmitted to the bank for deposit into the Active Assets Insured Account,
depending upon which investment is selected by the investor, and earn a return
thereon pending further investment of such funds in other aspects of the Active
Assets program or utilization through the Visa Account. A program participant
may make additional investments in or change his or her chosen investment at any
time by following the procedures set forth in the Appendix under "Purchase and
Redemption of Shares".
------------------------
THE INFORMATION IN THIS DOCUMENT SHOULD BE READ IN CONJUNCTION WITH THE DEAN
WITTER CLIENT AGREEMENT WHICH IS BEING FURNISHED TO ALL ACTIVE ASSETS
SUBSCRIBERS (OR OTHER ACCOUNT AGREEMENT FOR NON-ACTIVE ASSETS SUBSCRIBERS) AND
WILL BE FURNISHED TO NEW SUBSCRIBERS PRIOR TO THE TIME AN ACTIVE ASSETS ACCOUNT,
OR OTHER SECURITIES ACCOUNT, IS OPENED. REFERENCE IS MADE TO SUCH MATERIAL FOR
INFORMATION WITH RESPECT TO THE ACTIVE ASSETS AND OTHER PROGRAMS, INCLUDING THE
FEES RELATED THERETO. FOR MORE COMPLETE DETAILS ABOUT THE ACTIVE ASSETS INSURED
ACCOUNT, INCLUDING PROCEDURES FOR TRANSFERRING FROM ANY OF THE TRUSTS, THE
SUBSCRIBER SHOULD CONSULT HIS OR HER DEAN WITTER ACCOUNT EXECUTIVE.
For information on participation in the Active Assets program and
information relating to a specific account, call:
- Anywhere in the United - In New York City (212)
States, Puerto Rico and the 392-5000
Virgin Islands toll free at
(800) 869-3326
ACTIVE ASSETS IS A REGISTERED TRADEMARK OF DEAN WITTER REYNOLDS INC. AUGUST 29,
1995
<PAGE>
TRUSTEES AND OFFICERS
ACTIVE ASSETS MONEY TRUST
ACTIVE ASSETS TAX-FREE TRUST
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Jonathan R. Page
Vice President
Katherine H. Stromberg
Vice President
Thomas F. Caloia
Treasurer
<PAGE>
ACTIVE ASSETS MONEY TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets Money Trust (the "Money Trust" or the "Trust") is a no-load,
diversified open-end management investment company the investment objectives of
which are high current income, preservation of capital and liquidity. The Trust
is authorized to reimburse Dean Witter Distributors Inc. for specific expenses
incurred in promoting the distribution of the Trust's shares pursuant to a Plan
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "Act"). Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15% of the average daily net assets of the
Trust.
The Trust will invest in a diversified portfolio of short-term money market
instruments consisting primarily of United States Government securities,
obligations of U.S. regulated banks and savings and loan associations having
assets of $1 billion or more, certificates of deposit of savings banks and
savings and loan associations having total assets of $1 billion or more, high
grade commercial paper, high grade corporate obligations maturing in one year or
less and certificates of deposit of $100,000 or less of U.S. regulated banks and
savings institutions, having total assets of less than $1 billion, which are
fully insured by the FDIC.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights/2 How Net Asset Value is Determined/A-4
Summary of Trust Expenses/3 Confirmations/A-5
Financial Highlights/3 The Trusts and Their Management/A-5
Investment Objectives and Policies/4 Plan of Distribution/A-6
Investment Restrictions/5 Dividends, Distributions and Taxes/A-6
Purchase and Redemption of Shares/A-1 General Information/A-9
Purchase of Shares/A-1 Voting Rights/A-9
Purchase of Shares by Non-Participants in Custodian/A-10
Active Assets Program/A-2 Shareholder Inquiries/A-10
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
Active Assets Program/A-4
</TABLE>
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 29, 1995, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING DEAN WITTER
INTERCAPITAL INC. (THE "INVESTMENT MANAGER" OR "INTERCAPITAL") AT (212)
392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY
REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE DEAN WITTER CLIENT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 29, 1995.
ACTIVE ASSETS MONEY TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing in money market
TRUST instruments. The Trust is authorized to reimburse Dean Witter Distributors Inc. for specific
expenses incurred in promoting the distribution of the Trust's shares pursuant to a Plan of
Distribution pursuant to Rule 12b-1 under the Act. (See page A-6). The Trust is organized as an
unincorporated business trust under the laws of Massachusetts. (See page A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Money Trust are offered to participants in the Active Assets program of Dean
OFFERED Witter and to non-participants who wish to invest directly in shares of the Trust (See page A-2).
The primary components of the Active Assets program are the Securities Account, which is linked to
the Active Assets Insured Account, the Money Trust, the Active Assets Tax-Free Trust, the Active
Assets California Tax-Free Trust or the Active Assets Government Securities Trust and to the Visa
Account. See the Dean Witter Client Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Dean Witter Client Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances will be automatically invested in shares of the Money Trust daily at their net asset value
without any sales charge. Dean Witter Distributors Inc. is the Distributor of shares of the Trust.
Investments in shares are made under the circumstances described under "Purchase and Redemption of
Shares" (see page A-1). Non-participants in the Active Assets program should refer to the
discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High current income, preservation of capital and liquidity (see page 4). There can be no assurance
OBJECTIVES that the Trust's objectives can be achieved.
- ------------------------------------------------------------------------------------------------------------------------
AUTHORIZED Money market instruments as follows (see page 4):
INVESTMENTS - United States Government securities;
- Obligations of U.S. regulated banks having assets of $1 billion or more;
- High grade commercial paper;
- High grade corporate obligations maturing in one year or less;
- Certificates of deposit of savings banks and savings institutions having assets of $1 billion or
more;
- Certificates of deposit of $100,000 or less, of U.S. regulated banks and savings institutions,
having total assets of less than $1 billion, fully insured by the FDIC;
- Repurchase Agreements (see page 4).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Dean Witter Services Company, Inc., serve in various investment management, advisory,
management and administrative capacities to ninety-four investment companies and other portfolios
with assets of approximately $73.2 billion at June 30, 1995 (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Fund is authorized to reimburse specific expenses incurred in promoting the distribution of the
DISTRIBUTION Fund's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Fund (see page 9).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Money Trust will be redeemed at net
OF SHARES asset value automatically to satisfy debit balances in the Securities Account created by activity
therein or to satisfy amounts owing in the Visa Account resulting from Visa card purchases, cash
advances or checks written against the Visa Account. Non-participants in the Active Assets program
should refer to the discussion appearing at page A-4. It is anticipated that the net asset value
will remain constant at $1.00 per share. Dean Witter has the right to terminate a shareholder's
Active Assets service, in which event all Trust shares held in a shareholder's account will be
involuntarily redeemed. The Trust also reserves the right to reduce the number of shares in all
accounts if the Trustees determine that this is necessary to maintain the constant $1.00 per share
net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust's investments are limited to U.S. Government securities, high grade corporate obligations
and obligations of banks and savings and loan associations having assets of $1 billion or more and
fully insured Certificates of Deposit; consequently, the portfolio securities of the Trust are
subject to minimal risk of loss of income and principal. However, the investor is directed to the
discussion of "Repurchase Agreements" (page 4) concerning the risks associated with such portfolio
securities and management techniques.
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE DEAN WITTER CLIENT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS MONEY TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
fiscal year ended June 30, 1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases.... None
Maximum Sales Charge Imposed on Reinvested
Dividends................................... None
Deferred Sales Charge........................ None
Redemption Fees.............................. None
Exchange Fee................................. None
ANNUAL TRUST OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees.............................. 0.32%
12b-1 Fees................................... 0.10%
Other Expenses............................... 0.07%
------
Total Trust Operating Expenses............... 0.49%
------
------
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period: $5 $16 $27 $62
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Trust may be greater or
less than those shown.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the report of independent
accountants which are contained in this Prospectus commencing on page 6.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income......... 0.051 0.029 0.029 0.045 0.068 0.081 0.083 0.066 0.058 0.072
Less dividends from net
investment income............ (0.051) (0.029) (0.029) (0.045) (0.068) (0.081) (0.083) (0.066) (0.058) (0.072)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN....... 5.23% 2.99% 2.95% 4.58% 7.05% 8.43% 8.57% 6.83% 5.90% 7.51%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................... 0.49% 0.51% 0.51% 0.54% 0.52% 0.50% 0.52% 0.54% 0.54% 0.56%
Net investment income....... 5.16% 2.95% 2.90% 4.45% 6.80% 8.10% 8.33% 6.63% 5.78% 7.23%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $5,709 $4,144 $3,604 $3,628 $3,688 $3,454 $3,021 $2,519 $2,299 $2,240
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
ACTIVE ASSETS MONEY TRUST
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVES OF THE TRUST ARE HIGH CURRENT INCOME, PRESERVATION
OF CAPITAL AND LIQUIDITY. THE TRUST SEEKS TO ACHIEVE THOSE OBJECTIVES BY
INVESTING IN THE FOLLOWING MONEY MARKET INSTRUMENTS:
U.S. GOVERNMENT SECURITIES--
obligations issued or guaranteed as to principal and interest by the United
States or its agencies (such as the Export-Import Bank of the United States,
Federal Housing Administration, and Government National Mortgage Association) or
its instrumentalities (such as the Federal Home Loan Bank, Federal Intermediate
Credit Banks and Federal Land Bank), including Treasury bills, notes, bonds
(including zero coupon bonds) and coupons;
BANK OBLIGATIONS--
obligations (including certificates of deposit, bankers' acceptances and bank
notes) of banks subject to regulation by the U.S. Government and having total
assets of $1,000,000,000 or more, and instruments secured by such obligations,
including obligations of foreign branches of domestic banks (because of its
relationship to the Active Assets program, the Trust will not purchase
securities of Bank One, Columbus, N.A. or its affiliates and will not deal with
such Bank or its affiliates as a principal in the purchase and sale of
securities);
OBLIGATIONS OF SAVINGS INSTITUTIONS--
certificates of deposit of savings banks and savings and loan associations,
having total assets of $1,000,000,000 or more;
FULLY INSURED CERTIFICATES OF DEPOSIT--
certificates of deposit of banks and savings institutions, having total assets
of less than $1,000,000,000, if the principal amount of the obligation is
insured by the FDIC, limited to $100,000 principal amount per certificate and to
10% or less of the Trust's total assets in all such obligations or in all
illiquid assets, in the aggregate;
COMMERCIAL PAPER--
commercial paper rated within the two highest grades by Standard & Poor's
Corporation ("S&P") or the highest grade by Moody's Investors Service, Inc.,
("Moody's") or, if not rated, issued by a company having an outstanding debt
issue rated at least AA by S&P or Aa by Moody's;
CORPORATE OBLIGATIONS--
corporate obligations, rated at least A by S&P or Moody's, maturing in one year
or less.
See the Appendix to the Statement of Additional Information for an
explanation of S&P and Moody's ratings.
REPURCHASE AGREEMENTS--
The Trust may enter into repurchase agreements, which may be viewed as a
type of secured lending by the Trust, and which typically involve the
acquisition by the Trust of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Trust will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future. The Trust will accrue
interest from the institution until the time when the repurchase is to occur.
Although such date is deemed by the Trust to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed thirteen months. While
repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Trust follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and specifying the required value of the collateral underlying the agreement.
The investment objectives and policies stated above may not be changed
without shareholder approval. There is no assurance that the Trust's objectives
will be achieved.
PORTFOLIO MANAGEMENT--
Although the Trust will generally not seek profits through short-term
trading, it may dispose of any portfolio security prior to its maturity if, on
the basis of a revised credit evaluation of the issuer or other circumstances or
considerations, it believes such disposition advisable.
4
ACTIVE ASSETS MONEY TRUST
<PAGE>
The Trust is expected to have a high portfolio turnover due to the short
maturities of securities purchased, but this should not affect income or net
asset value as brokerage commissions are not normally charged on the purchase or
sale of money market instruments.
The Trust will attempt to balance its objectives of high current income,
capital preservation and liquidity by investing in securities of varying
maturities and risks. The Trust will not, however, invest in securities that
mature in more than one year from the date of purchase.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. Certain of the types of
investments described above may be variable rate or floating rate obligations.
The interest rates payable on variable rate or floating rate obligations are not
fixed and may fluctuate based upon changes in market rates. The interest rate
payable on a variable rate obligation may be adjusted either at predesignated
periodic intervals and on a floating rate obligation whenever there is a change
in the market rate of interest on which the interest rate payable is based.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on the
purchase or sale of money market instruments, but such transactions may involve
transaction costs in the form of spreads between bid and asked prices. Although
the Trust is expected to have a high portfolio turnover rate due to the short
maturities of its portfolio securities, the Trust's income or the net asset
value of its shares should not be affected as brokers' commissions are not
normally incurred. Pursuant to an order of the Securities and Exchange
Commission, the Trust may effect principal transactions in certain money market
instruments with Dean Witter. In addition, the Trust may incur brokerage
commissions on transactions conducted through Dean Witter.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Trust as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Trust, as defined in the Act.
These restrictions provide that the Trust may not:
1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities. Borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Trust's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made;
2. Purchase securities of any issuer, except for securities issued by U.S.
Government agencies or instrumentalities, having a record, together with
predecessors, of less than three years' continuous operation, if, immediately
after such purchase, more than 5% of the value of the Trust's total assets would
be invested in such securities;
3. Purchase any securities, other than obligations of the U.S. Government,
or its agencies or instrumentalities, if, immediately after such purchase, more
than 5% of the value of the Trust's total assets would be invested in securities
of any one issuer, or more than 10% of the outstanding securities of one issuer
would be owned by the Trust (for this purpose all indebtedness of an issuer
shall be deemed a single class of security); and
4. Purchase any securities, other than obligations of banks or of the U.S.
Government, or its agencies or instrumentalities, if, immediately after such
purchase, more than 25% of the value of the Trust's total assets would be
invested in the securities of issuers in the same industry; however, there is no
limitation as to investments in bank obligations or in obligations issued or
guaranteed by the Federal Government or its agencies or instrumentalities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
5
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $5,705,239,089)......... $5,705,239,089
Cash..................................... 52,131
Interest receivable...................... 5,737,326
Prepaid expenses and other assets........ 500,660
--------------
TOTAL ASSETS....................... 5,711,529,206
--------------
LIABILITIES:
Payable for:
Investment management fee.............. 1,430,914
Plan of distribution fee............... 465,516
Shares of beneficial interest
repurchased........................... 1,529
Accrued expenses and other payables...... 720,249
--------------
TOTAL LIABILITIES.................. 2,618,208
--------------
NET ASSETS:
Paid-in-capital.......................... 5,708,906,497
Accumulated undistributed net investment
income.................................. 4,501
--------------
NET ASSETS......................... $5,708,910,998
--------------
--------------
NET ASSET VALUE PER SHARE, 5,708,906,497
shares outstanding (unlimited shares
authorized of $.01 par value)........... $1.00
--------------
--------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $279,899,061
--------------
EXPENSES
Investment management fee.............. 15,638,717
Plan of distribution fee............... 4,836,697
Transfer agent fees and expenses....... 2,575,464
Registration fees...................... 706,707
Custodian fees......................... 224,708
Shareholder reports and notices........ 169,596
Professional fees...................... 60,186
Trustees' fees and expenses............ 28,063
Other.................................. 32,230
--------------
TOTAL EXPENSES..................... 24,272,368
--------------
NET INVESTMENT INCOME.............. 255,626,693
NET REALIZED GAIN........................ 92,427
--------------
NET INCREASE....................... $255,719,120
--------------
--------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: JUNE 30, 1995 JUNE 30, 1994
-------------- --------------
<S> <C> <C>
Operations:
Net investment income.............................................................. $ 255,626,693 $ 115,379,736
Net realized gain.................................................................. 92,427 62,706
-------------- --------------
Net increase................................................................... 255,719,120 115,442,442
-------------- --------------
Dividends and distributions to shareholders from:
Net investment income.............................................................. (255,627,418) (115,376,388)
Net realized gain.................................................................. (92,427) (62,706)
-------------- --------------
Total.......................................................................... (255,719,845) (115,439,094)
-------------- --------------
Net increase from transactions in shares of beneficial interest...................... 1,564,838,536 539,762,623
-------------- --------------
Total increase................................................................. 1,564,837,811 539,765,971
NET ASSETS:
Beginning of period.................................................................. 4,144,073,187 3,604,307,216
-------------- --------------
END OF PERIOD (including undistributed net investment income of $4,501 and $5,226,
respectively)....................................................................... $5,708,910,998 $4,144,073,187
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Active Assets Money Trust (the
"Trust") is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end management investment company. The Trust was
organized as a Massachusetts business trust on March 30, 1981 and commenced
operations on July 7, 1981.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--Portfolio securities are valued at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts on securities
purchased over the life of the respective securities. Interest income is
accrued daily.
C. FEDERAL INCOME TAX STATUS--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Trust records dividends
and distributions to shareholders as of the close of each business day.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays its Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to the net assets of the Trust
determined as of the close of each business day: 0.50% to the portion of the
daily net assets not exceeding $500 million; 0.425% to the portion of the daily
net assets exceeding $500 million but not exceeding $750 million; 0.375% to the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% to the portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.325% to the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of the
daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to
the portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% to the portion of the daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. PLAN OF DISTRIBUTION--Dean Witter Distributors Inc. (the "Distributor"), an
affiliate of the Investment Manager, is the distributor of the Trust's shares
and, in accordance with a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Trust, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor and other
broker-dealers under the Plan: (1) compensation to, and expenses of, the
Distributor and other broker-dealers; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
the Trust's shares; (3) expenses incurred in connection with promoting sales of
the Trust's shares; (4) preparing
7
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
and distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
The Trust is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Trust's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of 0.15% of the Trust's
average daily net assets. For the year ended June 30, 1995, the distribution fee
was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and proceeds from sales/maturities of portfolio securities for the
year ended June 30, 1995 aggregated $21,368,562,540 and $20,065,010,226,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1995, the Trust had
transfer agent fees and expenses payable of approximately $146,000.
The Trust established an unfunded noncontributory defined benefit pension
plan covering all independent Trustees of the Trust who will have served as
independent Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended June 30, 1995,
included in Trustees' fees and expenses in the Statement of Operations, amounted
to $8,161. At June 30, 1995, the Trust had an accrued pension liability of
$49,921 included in accrued expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial
interest, at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1995 JUNE 30, 1994
------------------ ------------------
<S> <C> <C>
Shares sold.................................................................... 21,295,444,660 18,356,737,820
Shares issued in reinvestment of dividends..................................... 255,223,533 115,190,871
------------------ ------------------
21,550,668,193 18,471,928,691
Shares repurchased............................................................. (19,985,829,657) (17,932,166,068)
------------------ ------------------
Net increase in shares outstanding............................................. 1,564,838,536 539,762,623
------------------ ------------------
------------------ ------------------
</TABLE>
6. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
8
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL ANNUALIZED YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
- ----------- ----------------------- ---------------- ---------------
<C> <S> <C> <C>
COMMERCIAL PAPER (79.5%)
AUTOMOTIVE - FINANCE (10.6%)
$ 73,900 Daimler-Benz North
America Corp. 08/16/95
to 02/12/96........... 6.141 to 6.410 % $ 72,571,687
267,600 Ford Motor Credit Co.
07/05/95 to 11/07/95.. 5.965 to 6.215 264,614,365
274,500 General Motors
Acceptance Corp.
07/03/95 to 12/29/95.. 5.952 to 6.253 271,111,840
---------------
608,297,892
---------------
BANK HOLDING COMPANIES (19.8%)
30,000 Bank of New York Co.
Inc. 11/16/95......... 6.076 29,321,500
100,000 BankAmerica Corp.
08/28/95 to 12/05/95.. 5.616 to 5.973 98,225,019
266,900 Chemical Banking Corp.
07/11/95 to
08/22/95.............. 6.156 to 6.452 265,188,016
25,000 Corestates Capital
Corp. 07/10/95........ 6.388 24,961,125
80,000 First Chicago Corp.
10/02/95 to 10/31/95.. 5.834 to 6.296 78,558,318
70,000 First Union Corp.
07/26/95 to 08/01/95.. 6.024 to 6.120 69,658,028
55,000 Morgan (J.P.) & Co.
Inc. 09/06/95 to
10/10/95.............. 6.326 to 6.359 54,227,089
205,000 NationsBank Corp.
07/06/95 to 09/25/95.. 6.214 to 6.337 203,623,069
20,000 Norwest Corp.
09/28/95.............. 5.996 19,709,267
178,500 PNC Funding Corp.
07/03/95 to 08/29/95.. 5.960 to 6.032 177,436,816
60,000 Republic New York Corp.
07/24/95 to
10/06/95.............. 6.260 to 6.301 59,389,192
50,000 Wells Fargo & Co.
07/27/95.............. 6.080 49,783,333
---------------
1,130,080,772
---------------
BANKS - COMMERCIAL (11.1%)
57,540 Abbey National North
America Corp. 09/07/95
to 09/15/95........... 5.954 to 6.350 56,807,231
20,000 ABN-AMRO North America
Finance Inc.
08/17/95.............. 6.294 19,839,939
<CAPTION>
PRINCIPAL ANNUALIZED YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
- ----------- ----------------------- ---------------- ---------------
<C> <S> <C> <C>
$ 32,150 Canadian Imperial
Holdings Inc.
09/28/95.............. 5.948% $ 31,684,236
106,400 Dresdner U.S. Finance
Inc. 07/07/95 to
10/11/95.............. 5.791 to 6.363 105,210,448
80,000 National Australia
Funding (DE) Inc.
10/11/95 to 12/01/95.. 5.678 to 6.054 78,426,651
134,600 National Westminster
Bancorp Inc. 07/24/95
to 09/22/95........... 5.981 to 6.235 133,141,888
24,700 Societe Generale N.A.
Inc. 07/10/95......... 6.294 24,661,962
183,500 Toronto-Dominion
Holdings USA Inc.
08/15/95 to 09/21/95.. 5.861 to 6.398 181,387,996
---------------
631,160,351
---------------
CHEMICALS (0.9%)
30,000 Du Pont (E.I.) de
Nemours & Co.
09/20/95.............. 6.047 29,600,400
20,000 Monsanto Co.
07/19/95.............. 6.217 19,939,100
---------------
49,539,500
---------------
DRUGS (2.1%)
59,185 Lilly (Eli) & Co.
09/13/95 to 11/08/95.. 5.885 to 6.655 58,249,965
60,000 Warner-Lambert Co.
07/10/95 to 12/27/95.. 5.856 to 6.128 59,225,156
---------------
117,475,121
---------------
ENERGY (0.6%)
36,200 Shell Oil Co. 08/21/95
to 12/15/95........... 5.932 to 6.385 35,434,786
---------------
EQUIPMENT - FINANCE (1.7%)
98,400 Deere (John) Capital
Corp. 07/28/95 to
10/03/95.............. 5.852 to 6.035 97,472,334
---------------
FINANCE - COMMERCIAL (4.7%)
219,600 CIT Group Holdings Inc.
07/14/95 to
09/27/95.............. 5.756 to 6.272 217,650,628
50,300 Heller Financial Inc.
08/01/95 to 10/16/95.. 5.969 to 6.289 49,792,714
---------------
267,443,342
---------------
</TABLE>
9
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL ANNUALIZED YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
- ----------- ----------------------- ---------------- ---------------
<C> <S> <C> <C>
FINANCE - CONSUMER (5.3%)
$ 256,300 American Express Credit
Corp. 07/13/95 to
12/29/95.............. 5.760 to 6.315% $ 253,109,092
30,000 American General
Finance Corp.
09/13/95.............. 5.956 29,638,017
20,000 Household Finance Corp.
08/31/95.............. 6.145 19,795,989
---------------
302,543,098
---------------
FINANCE - CORPORATE (0.4%)
25,000 Corporate Asset Funding
Co. Inc. 09/12/95..... 5.959 24,702,424
---------------
FINANCE - DIVERSIFIED (4.8%)
277,700 General Electric
Capital Corp. 07/07/95
to 12/01/95........... 5.794 to 7.097 274,730,030
---------------
FOODS & BEVERAGES (1.8%)
25,000 Coca-Cola Co.
10/02/95.............. 6.303 24,605,396
30,000 Nestle Capital Corp.
10/13/95.............. 6.356 29,467,000
30,000 PepsiCo Inc. 10/25/95.. 6.785 29,373,600
20,000 Sara Lee Corp.
08/15/95.............. 5.970 19,853,000
---------------
103,298,996
---------------
HEALTHCARE - DIVERSIFIED (0.2%)
12,000 Abbott Laboratories
10/17/95.............. 6.219 11,782,920
---------------
INDUSTRIALS (1.5%)
60,000 Minnesota Mining &
Manufacturing Co.
08/10/95 to 08/11/95.. 5.985 to 5.987 59,601,075
23,350 Motorola Inc.
07/26/95.............. 5.974 23,253,681
---------------
82,854,756
---------------
OFFICE EQUIPMENT (6.3%)
43,700 Hewlett-Packard Co.
09/28/95 to 09/29/95.. 6.037 43,057,402
258,950 IBM Credit Corp.
07/18/95 to 08/11/95.. 5.884 to 6.106 257,492,964
61,000 Xerox Credit Corp.
07/26/95 to 08/09/95.. 6.002 to 6.097 60,720,296
---------------
361,270,662
---------------
<CAPTION>
PRINCIPAL ANNUALIZED YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
- ----------- ----------------------- ---------------- ---------------
<C> <S> <C> <C>
RETAIL (2.7%)
$ 153,650 Sears Roebuck
Acceptance Corp.
07/28/95 to 09/27/95.. 5.882 to 6.048% $ 152,183,301
---------------
TELEPHONES (4.4%)
66,000 Ameritech Corp.
07/28/95 to 03/06/96.. 5.765 to 6.608 64,476,540
190,000 AT&T Corp. 07/21/95 to
11/10/95.............. 5.639 to 6.220 187,471,811
---------------
251,948,351
---------------
UTILITIES - FINANCE (0.6%)
35,000 National Rural
Utilities Cooperative
Finance Corp. 09/26/95
to 11/03/95........... 5.877 to 5.990 34,416,804
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST
$4,536,635,440)......................... 4,536,635,440
---------------
SHORT-TERM BANK NOTES (8.8%)
30,000 First National Bank of
Boston 07/21/95....... 6.020 30,000,000
25,000 La Salle National Bank
07/20/95.............. 6.110 25,000,000
105,000 Mellon Bank, N.A.
08/09/95 to 10/30/95.. 6.220 to 6.480 105,000,000
50,000 NationsBank, N.A.
(Carolinas)
12/28/95.............. 5.800 50,000,000
95,000 NBD Bank 08/28/95 to
10/12/95.............. 6.320 to 6.380 94,999,507
196,650 Wachovia Bank of N.C.,
N.A. 07/25/95 to
08/10/95.............. 5.990 to 6.050 196,650,000
---------------
TOTAL SHORT-TERM BANK NOTES (AMORTIZED
COST $501,649,507)...................... 501,649,507
---------------
U.S. GOVERNMENT AGENCIES (5.9%)
42,000 Federal Farm Credit
Bank 07/07/95 to
09/05/95.............. 5.836 to 7.067 41,824,260
267,600 Federal Home Loan Banks
07/14/95 to
01/19/96.............. 5.737 to 7.369 263,519,912
15,000 Federal Home Loan
Mortgage Corp.
12/29/95.............. 5.966 14,566,354
</TABLE>
10
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL ANNUALIZED YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
- ----------- ----------------------- ---------------- ---------------
<C> <S> <C> <C>
$ 20,000 Federal National
Mortgage Association
12/29/95.............. 6.436% $ 19,386,611
---------------
TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED
COST $339,297,137)...................... 339,297,137
---------------
BANKERS' ACCEPTANCES (3.5%)
80,000 Corestates Bank, N.A.
07/20/95 to 09/22/95.. 6.093 to 6.641 79,317,856
41,000 Bank of America NT & SA
09/07/95 to
11/21/95.............. 5.931 to 5.947 40,178,800
45,500 Mellon Bank, N.A.
07/25/95 to 12/12/95.. 5.799 to 6.105 44,983,966
<CAPTION>
PRINCIPAL ANNUALIZED YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
- ----------- ----------------------- ---------------- ---------------
<C> <S> <C> <C>
$ 39,000 Republic National Bank
of N.Y. 09/11/95 to
09/15/95.............. 5.827 to 5.894% $ 38,540,987
---------------
TOTAL BANKERS' ACCEPTANCES (AMORTIZED
COST $203,021,609)...................... 203,021,609
---------------
CERTIFICATE OF DEPOSIT (1.4%)
80,000 Union Bank 08/24/95 to
01/08/96 (Amortized
Cost $80,000,000)..... 5.780 to 6.140 80,000,000
---------------
U.S. GOVERNMENT OBLIGATIONS (0.8%)
45,000 U.S. Treasury Bills
07/27/95 to 09/21/95
(Amortized Cost
$44,635,396).......... 5.561 to 5.857 44,635,396
---------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (AMORTIZED COST
$5,705,239,089) (A)........................ 99.9 % 5,705,239,089
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................ 0.1 3,671,909
------ --------------
NET ASSETS................................... 100.0 % $5,708,910,998
------ --------------
------ --------------
<FN>
- -------------
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Active Assets Money Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights (which appear under the
heading "Financial Highlights" on page 3 of this Prospectus) present fairly, in
all material respects, the financial position of Active Assets Money Trust (the
"Trust") at June 30, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the ten years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1995 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 4, 1995
12
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets Tax-Free Trust (the "Tax-Free Trust" or the "Trust") is a
no-load, diversified open-end management investment company. The Trust is
authorized to reimburse Dean Witter Distributors Inc. for specific expenses
incurred in promoting the distribution of the Trust's shares pursuant to a Plan
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "Act"). Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15% of the average daily net assets of the
Trust.
The investment objective of the Tax-Free Trust is to provide as high a level
of daily income exempt from federal personal income tax as is consistent with
stability of principal and liquidity. The Trust seeks to achieve its objective
by investing primarily in high quality, tax-exempt securities with short-term
maturities including Municipal Bonds, Municipal Notes and Municipal Commercial
Paper.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights/2 How Net Asset Value is Determined/A-4
Summary of Trust Expenses/3 Confirmations/A-5
Financial Highlights/3 The Trusts and Their Management/A-5
Investment Objective and Policies/4 Plan of Distribution/A-6
Investment Restrictions/7 Dividends, Distributions and Taxes/A-6
Purchase and Redemption of Shares/A-1 General Information/A-9
Purchase of Shares/A-1 Voting Rights/A-9
Purchase of Shares by Non-Participants in Custodian/A-10
the Active Assets Program/A-2 Shareholder Inquiries/A-10
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
the Active Assets Program/A-4
</TABLE>
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 29, 1995, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING DEAN WITTER
INTERCAPITAL INC. (THE "INVESTMENT MANAGER" OR "INTERCAPITAL") AT (212)
392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY
REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE DEAN WITTER CLIENT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 29, 1995.
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing principally in short-term
TRUST securities exempt from federal income tax. The Trust is authorized to reimburse Dean Witter
Distributors Inc. for specific expenses incurred in promoting the distribution of the Trust's
shares pursuant to a Plan of Distribution pursuant to Rule 12b-1 under the Act (See page A-6). The
Trust is organized as an unincorporated business trust under the laws of Massachusetts. (See page
A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Tax-Free Trust are offered to participants in the Active Assets program of Dean
OFFERED Witter and to non-participants who wish to invest directly in shares of the Trust. (See page A-2).
The primary components of the Active Assets program are the Securities Account, which is linked to
the Active Assets Insured Account, the Active Assets Money Trust, the Tax-Free Trust, the Active
Assets California Tax-Free Trust or the Active Assets Government Securities Trust and to the Visa
Account. See the Dean Witter Client Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Dean Witter Client Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances will be automatically invested daily in shares of the Trust at their current net asset
value without any sales charge. Dean Witter Distributors Inc. is the Distributor of shares of the
Trust. Investments in shares are made under the circumstances described under "Purchase and
Redemption of Shares" (see page A-1). Non-participants in the Active Assets program should refer to
the discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High level of daily tax-exempt income consistent with stability of principal and liquidity (see
OBJECTIVE page 4). There can be no assurance that the Trust's investment objective will be achieved.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT A diversified portfolio of tax-exempt, fixed-income securities with short-term maturities (see page
POLICY 4).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Dean Witter Services Company, Inc., serve in various investment management, advisory,
management and administrative capacities to ninety-four investment companies with assets under
management of approximately $73.2 billion at June 30, 1995 (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Fund is authorized to reimburse specific expenses incurred in promoting the distribution of the
DISTRIBUTION Fund's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Fund (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Trust will be redeemed at net asset
OF SHARES value automatically to satisfy debit balances in the Securities Account created by activity therein
or to satisfy amounts owing in the Visa Account resulting from Visa card purchases, cash advances
or checks written against the Visa Account. Non-participants in the Active Assets program should
refer to the discussion appearing at page A-4. It is anticipated that the net asset value will
remain constant at $1.00 per share. Dean Witter has the right to terminate a shareholder's Active
Assets service, in which event all Trust shares held in a shareholder's account will be
involuntarily redeemed. The Trust also reserves the right to reduce the number of shares in all
accounts if the Trustees determine that this is necessary to maintain the constant $1.00 per share
net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust invests principally in high quality, short-term fixed-income securities issued or
guaranteed by state and local governments which are subject to minimal risk of loss of income and
principal. However, the investor is directed to the discussions of "lease obligations" (page 5) and
"When-Issued and Delayed Delivery Securities" (page 6) concerning the risks associated with such
portfolio securities and management techniques.
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE DEAN WITTER CLIENT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
fiscal year ended June 30, 1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases.............................. None
Maximum Sales Charge Imposed on
Reinvested Dividends................... None
Deferred Sales Charge................... None
Redemption Fees......................... None
Exchange Fee............................ None
ANNUAL TRUST OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees......................... 0.42%
12b-1 Fees.............................. 0.10%
Other Expenses.......................... 0.04%
-------
Total Trust Operating Expenses.......... 0.56%
-------
-------
</TABLE>
<TABLE>
<CAPTION>
10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS YEARS
------- ------- ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period: $ 6 $18 $31 $70
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Trust may be greater or
less than those shown.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the report of independent
accountants which are contained in this Prospectus commencing on page 8.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income......... 0.030 0.020 0.021 0.033 0.047 0.054 0.056 0.043 0.039 0.046
Less dividends from net
investment income............ (0.030) (0.020) (0.021) (0.033) (0.047) (0.054) (0.056) (0.043) (0.039) (0.046)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN....... 3.09% 2.01% 2.15% 3.38% 4.84% 5.57% 5.77% 4.45% 4.00% 4.75%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................... 0.56% 0.56% 0.57% 0.59% 0.60% 0.56% 0.58% 0.57% 0.58% 0.62%
Net investment income....... 3.05% 1.98% 2.13% 3.30% 4.71% 5.44% 5.66% 4.35% 3.89% 4.62%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $1,499 $1,416 $1,355 $1,304 $1,342 $1,174 $1,112 $1,034 $1,045 $ 952
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF THE TRUST IS TO PROVIDE AS HIGH A LEVEL OF DAILY
INCOME EXEMPT FROM FEDERAL PERSONAL INCOME TAX AS IS CONSISTENT WITH STABILITY
OF PRINCIPAL AND LIQUIDITY. It is a fundamental policy of the Trust that at
least 80% of its total assets will be invested in securities the interest on
which is exempt from federal personal income tax ("tax-exempt securities"). This
policy and the Trust's investment objective may not be changed without a vote of
a majority of the Trust's outstanding voting securities (as defined in the Act).
There is no assurance that the objective will be achieved.
The Trust seeks to achieve its investment objective by investing primarily
in high quality tax-exempt securities with short-term maturities. Such
securities will include Municipal Bonds, Municipal Notes and Municipal
Commercial Paper ("Municipal Obligations") with maturities of thirteen months or
less, which are rated in one of the two highest rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations ("NRSROs" -- primarily Moody's Investors Service ("Moody's") and
Standard & Poor's Corporation ("S&P")), or one NRSRO if the obligation is rated
by only one NRSRO. Unrated obligations may be purchased if they are determined
to be of comparable quality by the Trust's Trustees.
Municipal Bonds and Municipal Notes are debt obligations of states, cities,
municipalities and municipal agencies which generally have maturities, at the
time of their issuance, of either one year or more (Bonds) or from six months to
three years (Notes). Municipal Commercial Paper refers to short-term obligations
of municipalities.
The Trust may purchase certain Municipal Obligations which have a final
maturity of more than thirteen months but which are subject to short-term demand
features or tenders prior to final maturity, either determined by the issuer or
selected at the holder's option. The former are commonly referred to as
"variable rate" obligations (see below) and the latter as municipal commercial
paper. The Trust may purchase Municipal Bonds and Notes if they are within
either the short-term or long-term rating levels set forth above for Municipal
Obligations.
See the Appendix to the Statement of Additional Information for an
explanation of Moody's and S&P ratings.
Any municipal obligation which depends on the credit of the Federal
Government shall be considered to have a rating in the highest category.
Up to 20% of the Trust's total assets may be invested in securities the
interest on which is not exempt from federal personal income tax ("taxable
securities") and in tax-exempt securities subject to the federal alternative
minimum tax for individual ("AMT") (tax-exempt securities which are subject to
the AMT will not be included in the 80% total referred to above for investment
in tax-exempt securities).
Up to 20% of the Trust's total assets may be invested in taxable securities
of the type described below. The Trust may temporarily invest more than 20% in
taxable securities and tax-exempt securities subject to AMT to maintain a
"defensive" posture when, in the opinion of the Investment Manager, it is
advisable to do so because of market conditions. The types of taxable securities
in which the Trust may invest are limited to the following short-term,
fixed-income securities (maturing in thirteen months or less from the time of
purchase): (i) obligations of the United States Government or its agencies,
instrumentalities or authorities; (ii) prime commercial paper rated P-1 by
Moody's or A-1 by S&P; (iii) certificates of deposit and banker's acceptances of
domestic banks with assets of $1 billion or more; and (iv) repurchase agreements
with respect to any of the foregoing portfolio securities.
4
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
The foregoing percentage and rating limita-
tions apply at the time of acquisition of a security based on the last previous
determination of the Trust's net asset value. Any subsequent change in any
rating by a rating service or change in percentages resulting from market
fluctuations or amount of total or net assets may not require elimination of any
security from the Trust's portfolio.
The ratings assigned by NRSROs represent their opinions as to the quality of
the securities which they undertake to rate. It should be emphasized, however,
that the ratings are general and not absolute standards of quality. However, in
accordance with procedures adopted by the Trust's Trustees pursuant to federal
securities regulations governing money market funds, the Investment Manager will
perform a creditworthiness analysis of such downgraded securities, which
analysis will be reported to the Trustees who will, in turn, determine whether
the securities continue to present minimal credit risks to the Trust.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General obligation
bonds, notes or commercial paper are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include a state,
its counties, cities, towns and other governmental units. Revenue bonds, notes
or commercial paper are payable from the revenues derived from a particular
facility or class of facilities or, in some cases, from specific revenue
sources. Revenue bonds, notes or commercial paper are issued for a wide variety
of purposes, including the financing of electric, gas, water and sewer systems
and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports, transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local agencies or authorities
issue lease obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases, and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer), have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
In addition, lease obligations represent a relatively new type of financing
that has not yet developed the depth of marketability associated with more
conventional municipal obligations, and, as a result, certain of such lease
obligations may be considered illiquid securities. To determine whether or not
the Trust will consider such securities to be
5
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
illiquid (the Trust may not invest more than ten percent of its net assets in
illiquid securities), the Trustees of the Trust have established guidelines to
be utilized by the Trust in determining the liquidity of a lease obligation. The
factors to be considered in making the determination include: 1) the frequency
of trades and quoted prices for the obligation; 2) the number of dealers willing
to purchase or sell the security and the number of other potential purchasers;
3) the willingness of dealers to undertake to make a market in the security; and
4) the nature of the marketplace trades, including, the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of the
transfer. All lease obligations purchased by the Trust are subject to the
creditworthiness standards discussed above for Municipal Obligations.
The Trust does not generally intend to invest more than 25% of its total
assets in securities of governmental units located in any one state, territory,
or possession of the United States. The Trust may invest more than 25% of its
total assets in industrial development and pollution control bonds (two kinds of
tax-exempt Municipal Bonds) whether or not the users of facilities financed by
such bonds are in the same industry. In cases where such users are in the same
industry, there may be additional risk to the Trust in the event of an economic
downturn in such industry, which may result generally in a lowered need for such
facilities and a lowered ability of such users to pay for the use of such
facilities.
The high quality, short-term fixed income securities in which the Trust
principally invests are issued and/or guaranteed by state and local governments
and their agencies and authorities and are subject to minimal risk of loss of
income and principal.
PORTFOLIO MANAGEMENT
Although the Trust will generally acquire
securities for investment with the intent of holding them to maturity and will
not seek profits through short-term trading, the Trust may dispose of any
security prior to its maturity to meet redemption requests. Securities may also
be sold when the Trust's Investment Manager believes such disposition to be
advisable on the basis of a revised evaluation of the issuer or based upon
relevant market considerations. There may be occasions when, as a result of
maturities of portfolio securities or sales of Trust shares, or in order to meet
anticipated redemption requests, the Trust may hold cash which is not earning
income.
The average weighted maturity of the portfolio will be 90 days or less. The
relatively short-term nature of the Trust portfolio is expected to result in a
lower yield than portfolios comprised of longer-term tax-exempt securities.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. The interest rates payable on
certain Municipal Bonds and Municipal Notes are not fixed and may fluctuate
based upon changes in market rates. Municipal obligations of this type are
called "variable rate" or "floating rate" obligations. The interest rate payable
on a variable rate obligation is adjusted at predesignated periodic intervals
and on a floating rate obligation, whenever there is a change in the market rate
of interest on which the interest rate payable is based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Trust may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., delivery
and payment can take place a month or more after the date of the transaction.
These securities are subject to market fluctuation and no interest accrues to
the purchaser prior to settlement. At the time the Trust makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such security in determining its net asset value.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on
purchases and sales of short-term municipal obligations, but such transactions
may involve transaction costs in the form of spreads between bid and asked
prices. Pursuant to an order of the Securities and Exchange Commission, the
Trust may effect principal transactions in
6
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
certain money market instruments with Dean Witter. In addition, the Trust may
incur brokerage commissions on transactions conducted through Dean Witter.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Trust as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Trust, as defined in the Act. For purposes
of the following limitations: (a) an "issuer" of a security is the entity whose
assets and revenues are committed to the payment of interest and principal on
that particular security, provided that the guarantee of a security will be
considered a separate security; (b) a "taxable security" is any security the
interest on which is subject to federal income tax; and (c) all percentage
limitations apply immediately after a purchase or initial investment, and any
subsequent change in any applicable percentage resulting from market
fluctuations or amount of total or net assets does not require elimination of
any security from the portfolio.
The Trust may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than obligations issued, or guaranteed
by, the United States Government, its agencies or instrumentalities);
2. Purchase more than 10% of all outstanding taxable debt securities of
any one issuer;
3. Invest more than 25% of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities or to investments in bank
obligations;
4. Invest more than 5% of the value of its total assets in taxable
securities of issuers having a record, together with predecessors, of less
than three years of continuous operation. This restriction shall not apply
to any obligation of the United States Government, its agencies or
instrumentalities; and
5. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require
the untimely disposition of securities. Borrowing in the aggregate may not
exceed 20%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the value of the Trust's total assets (including the
amount borrowed), less liabilities (not including the amount borrowed) at
the time the borrowing is made.
7
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $1,554,700,278)......... $1,554,700,278
Cash..................................... 1,974,655
Receivable for:
Interest............................... 12,640,542
Investments sold....................... 10,000,000
Prepaid expenses and other assets........ 78,377
--------------
TOTAL ASSETS....................... 1,579,393,852
--------------
LIABILITIES:
Payable for:
Investments purchased.................. 79,281,648
Investment management fee.............. 517,772
Plan of distribution fee............... 124,547
Shares of beneficial interest
repurchased........................... 184
Accrued expenses and other payables...... 138,813
--------------
TOTAL LIABILITIES.................. 80,062,964
--------------
NET ASSETS:
Paid-in-capital.......................... 1,499,399,344
Accumulated undistributed net investment
income.................................. 1,125
Accumulated net realized loss............ (69,581)
--------------
NET ASSETS......................... $1,499,330,888
--------------
--------------
NET ASSET VALUE PER SHARE, 1,499,399,344
shares outstanding (unlimited shares
authorized of $.01 par value)........... $1.00
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 54,391,247
--------------
EXPENSES
Investment management fee.............. 6,276,658
Plan of distribution fee............... 1,476,861
Transfer agent fees and expenses....... 384,026
Registration fees...................... 121,853
Professional fees...................... 56,512
Shareholder reports and notices........ 55,688
Trustees' fees and expenses............ 29,833
Custodian fees......................... 6,828
Other.................................. 25,309
--------------
TOTAL EXPENSES..................... 8,433,568
--------------
NET INVESTMENT INCOME AND NET
INCREASE.......................... $ 45,957,679
--------------
--------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: JUNE 30, 1995 JUNE 30, 1994
-------------- --------------
<S> <C> <C>
Operations:
Net investment income.............................................................. $ 45,957,679 $ 29,143,761
Net realized loss.................................................................. -- (12,019)
-------------- --------------
Net increase..................................................................... 45,957,679 29,131,742
-------------- --------------
Dividends to shareholders from net investment income................................. (45,956,910) (29,144,673)
Net increase from transactions in shares of beneficial interest...................... 83,029,307 61,295,026
-------------- --------------
Total increase................................................................. 83,030,076 61,282,095
NET ASSETS:
Beginning of period.................................................................. 1,416,300,812 1,355,018,717
-------------- --------------
END OF PERIOD (including undistributed net investment income of $1,125 and $356,
respectively)....................................................................... $1,499,330,888 $1,416,300,812
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Active Assets Tax-Free Trust (the
"Trust") is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end management investment company. The Trust was
organized as a Massachusetts business trust on March 30, 1981 and commenced
operations on July 7, 1981.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--Portfolio securities are valued at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts on securities
purchased over the life of the respective securities. Interest income is
accrued daily.
C. FEDERAL INCOME TAX STATUS--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Trust records dividends
and distributions to shareholders as of the close of each business day.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays its Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to the net assets of the Trust
determined as of the close of each business day: 0.50% to the portion of the
daily net assets not exceeding $500 million; 0.425% to the portion of the daily
net assets exceeding $500 million but not exceeding $750 million; 0.375% to the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% to the portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.325% to the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of the
daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to
the portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% to the portion of the daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. PLAN OF DISTRIBUTION--Dean Witter Distributors Inc. (the "Distributor"), an
affiliate of the Investment Manager, is the distributor of the Trust's shares
and, in accordance with a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Trust, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor and other
broker-dealers under the Plan: (1) compensation to, and expenses of, the
Distributor and other broker-dealers; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
the Trust's shares; (3) expenses incurred in connection with promoting sales of
the Trust's shares; (4) preparing
9
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
and distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
The Trust is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Trust's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of 0.15% of the Trust's
average daily net assets. For the year ended June 30, 1995, the distribution fee
was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and proceeds from sales/maturities of portfolio securities for the
year ended June 30, 1995 aggregated $2,727,869,639 and $2,622,807,664,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1995, the Trust had
transfer agent fees and expenses payable of approximately $34,700.
The Trust established an unfunded noncontributory defined benefit pension
plan covering all independent Trustees of the Trust who will have served as
independent Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended June 30, 1995,
included in Trustees' fees and expenses in the Statement of Operations amounted
to $8,161. At June 30, 1995, the Trust had an accrued pension liability of
$49,921 included in accrued expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial
interest, at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 5,690,475,533 5,847,211,623
Shares issued in reinvestment of dividends....................................... 45,956,910 29,144,673
----------------- -----------------
5,736,432,443 5,876,356,296
Shares repurchased............................................................... (5,653,403,136) (5,815,061,270)
----------------- -----------------
Net increase in shares outstanding............................................... 83,029,307 61,295,026
----------------- -----------------
----------------- -----------------
</TABLE>
6. FEDERAL INCOME TAX STATUS--At June 30, 1995, the Trust had capital loss
carryovers of approximately $59,000 of which $47,000 will be available through
June 30, 2000 and $12,000 will be available through June 30, 2003 to offset
future capital gains to the extent provided by regulations.
7. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
10
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS* (78.2%) YIELD VALUE
- ---------- ------- ---------------
<C> <S> <C> <C>
ALASKA
$ 5,000 Alaska Housing Finance Corporation, Ser 1994 A, 4.00% due
07/07/95.................................................. 4.00% $ 5,000,000
12,750 Valdez, Marine Terminal Exxon Pipeline Co Ser A, 4.10% due
07/03/95.................................................. 4.10 12,750,000
ARIZONA
3,725 Phoenix Civic Improvement Corporation, Excise Tax Ser 1994
(MBIA),
4.30% due 07/01/95........................................ 4.30 3,725,000
ARKANSAS
15,000 Arkansas Student Loan Authority, Ser 1993 B-1 (AMT), 4.40%
due 07/07/95.............................................. 4.40 15,000,000
20,000 Crossett, Georgia Pacific Corp Ser 1984, 3.95% due
07/07/95.................................................. 3.95 20,000,000
COLORADO
28,000 Arapahoe County, Highway E-470 Ser 1986 E & F, 4.45% due
08/31/95.................................................. 4.45 28,000,000
11,500 Colorado Health Facilities Authority, Kaiser Permanente 1994
Ser A,
4.00% due 07/07/95........................................ 4.00 11,500,000
8,100 Colorado Student Obligation Bond Ser 1990 A (AMT), 4.30% due
07/07/95.................................................. 4.30 8,100,000
CONNECTICUT
6,200 Connecticut, Economic Recovery Ser B, 3.95% due 07/07/95.... 3.95 6,200,000
38,000 Connecticut Development Authority, Connecticut Light & Power
Co 1993 A Ser, 4.10% due 07/07/95......................... 4.10 38,000,000
Connecticut Housing Finance Authority, 1994
10,000 Subser E-1, 4.40% due 11/15/95.............................. 4.40 10,000,000
5,000 Subser H-1, 4.30% due 09/01/95.............................. 4.30 5,000,000
5,000 Subser H-2 (AMT), 4.40% due 09/01/95........................ 4.40 5,000,000
30,000 Connecticut Special Assessment, Unemployment Compensation
1993 Ser C (FGIC), dtd 07/01/95 3.90% due 07/01/96 (WI)... 3.90 30,000,000
DISTRICT OF COLUMBIA
7,450 District of Columbia, Georgetown University Ser 1988 B,
4.30% due 07/07/95........................................ 4.30 7,450,000
FLORIDA
17,000 Dade County, Water & Sewer System Ser 1994 (FGIC), 4.20% due
07/07/95.................................................. 4.20 17,000,000
3,500 Dade County Health Facilities Authority, Miami Childrens
Hospital Ser 1990,
4.45% due 07/03/95........................................ 4.45 3,500,000
23,100 Dade County Industrial Development Authority, Dolphins
Stadium Ser 1985 B & C, 4.20% due 07/07/95................ 4.20 23,100,000
6,205 Gulf Breeze, Local Government Ser 1985 B (FGIC), 3.90% due
07/07/95.................................................. 3.90 6,205,000
9,400 Sarasota County Health Facilities Authority, Venice
Hospital, 4.35% due 07/03/95.............................. 4.35 9,400,000
32,800 Volusia County Health Facilities Authority, Pooled Ser 1985
(FGIC),
3.85% due 07/07/95........................................ 3.85 32,800,000
GEORGIA
10,000 Albany-Dougherty County Hospital Authority, Phoebe-Putney
Memorial Hospital Ser 1991 (AMBAC), 4.00% due 07/07/95.... 4.00 10,000,000
17,500 Burke County Development Authority, Oglethorpe Power Corp
Vogtle Proj
Ser 1993 A, 4.20% due 07/07/95............................ 4.20 17,500,000
16,113 Georgia Municipal Association, Pool Ser 1990 COPs (MBIA),
4.00% due 07/07/95........................................ 4.00 16,113,382
HAWAII
Hawaii Department of Budget & Finance,
5,000 Kaiser Permanente Semiannual Tender Ser 1984 B, 4.40% due
09/01/95.................................................. 4.40 5,000,000
22,800 Queens Medical Center Ser 1985 B (FGIC), 4.25% due
07/07/95.................................................. 4.25 22,800,000
IDAHO
20,000 Idaho Health Facilities Authority, Pooled Ser 1985, 4.20%
due 07/07/95.............................................. 4.20 20,000,000
</TABLE>
11
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ---------- ------- ---------------
<C> <S> <C> <C>
ILLINOIS
Chicago,
$ 15,000 Chicago O'Hare International Airport 2nd Lien Ser 1994 B
(AMT),
4.10% due 07/07/95...................................... 4.10% $ 15,000,000
4,000 Gas Supply People's Gas, Light, & Coke Ser 1993 B (AMT),
4.95% due 12/01/95........................................ 4.95 4,000,000
15,000 Tender Notes Ser 1994 A, 4.15% due 07/19/95................. 4.15 15,000,000
Illinois Health Facilities Authority,
8,600 Elmhurst Memorial Hospital Ser 1993 B, 4.35% due 07/03/95... 4.35 8,600,000
9,000 Gottlieb Health Resources Inc Ser 1990, 4.10% due
07/07/95.................................................. 4.10 9,000,000
16,300 Highland Park Hospital Ser 1991 A (FGIC), 4.00% due
05/30/96.................................................. 4.00 16,300,000
22,500 Lutheran General Health Care System Ser 1985 B, 3.75% due
07/07/95.................................................. 3.75 22,500,000
10,000 Parkside Development Corp Ser 1991, 4.10% due 07/07/95...... 4.10 10,000,000
22,000 Resurrection Health Care System Ser 1993, 4.65% due
07/03/95.................................................. 4.65 22,000,000
INDIANA
13,300 Indiana Hospital Equipment Financing Authority, Ser 1985
(MBIA),
4.50% due 07/07/95........................................ 4.50 13,300,000
6,760 Indianapolis, Resource Recovery Ogden Martin System Inc Ser
1987 (AMT),
4.45% due 07/03/95........................................ 4.45 6,760,000
5,000 Petersburg, Indianapolis Power & Light Co Ser 1994 A (AMT),
4.10% due 07/07/95........................................ 4.10 5,000,000
5,000 Purdue University, Student Fee Ser 1995 K, 4.00% due
07/07/95.................................................. 4.00 5,000,000
KENTUCKY
7,000 Jamestown, Union Underwear Co, 4.25% due 07/07/95........... 4.25 7,000,000
5,000 Kentucky Pollution Abatement & Water Resources Authority,
Toyota Motor Manufacturers USA Inc Ser 1986 (AMT), 4.70%
due 07/03/95.............................................. 4.70 5,000,000
LOUISIANA
9,300 East Baton Rouge Parish, Exxon Corp Ser 1993, 4.35% due
07/03/95.................................................. 4.35 9,300,000
30,000 Louisiana Offshore Terminal Authority, LOOP Inc 1991 Ser A,
4.00% due 07/07/95........................................ 4.00 30,000,000
24,000 New Orleans Aviation Board, Ser 1993 B (MBIA), 4.10% due
07/07/95.................................................. 4.10 24,000,000
MAINE
8,900 Biddeford, Maine Energy Recovery Co Ser 1985, 3.95% due
07/07/95.................................................. 3.95 8,900,000
MARYLAND
7,350 Maryland Energy Financing Administration, Baltimore Ferst
Ltd Partnership
Ser 1991 (AMT), 4.20% due 07/03/95........................ 4.20 7,350,000
MASSACHUSETTS
5,000 Massachusetts Bay Transportation Authority, 1984 Ser A,
4.40% due 09/01/95........................................ 4.40 5,000,000
Massachusetts Health & Educational Facilities Authority,
6,200 Capital Asset Prog Ser B (MBIA), 4.10% due 07/03/95......... 4.10 6,200,000
30,000 Harvard University Ser 1985 I, 3.55% due 07/07/95........... 3.55 30,000,000
6,100 Massachusetts Municipal Wholesale Electric Company, Power
Supply System 1994 Ser C, 3.85% due 07/07/95.............. 3.85 6,100,000
MICHIGAN
10,000 University of Michigan, Hospital Ser 1992 A, 4.20% due
07/03/95.................................................. 4.20 10,000,000
MINNESOTA
3,000 Beltrami County, Environmental Northwood Panelboard Co Ser
1991,
4.25% due 07/03/95........................................ 4.25 3,000,000
10,000 St. Cloud, St. Cloud Hospital Ser 1990 A, 4.10% due
07/07/95.................................................. 4.10 10,000,000
12,000 University of Minnesota, Ser 1985 F, 4.50% due 08/01/95..... 4.50 12,000,000
</TABLE>
12
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ---------- ------- ---------------
<C> <S> <C> <C>
MISSOURI
Missouri Economic Development Export & Infrastructure Board,
$ 10,000 Advance Fdg Ser 1994 B, 3.90% due 08/01/95.................. 3.90% $ 10,000,000
5,000 Advance Fdg Ser 1994 C, 3.95% due 08/01/95.................. 3.95 5,000,000
Missouri Health & Educational Facilities Authority,
10,000 Sisters of Mercy Health System St Louis Inc Ser 1989 A,
4.00% due 07/07/95........................................ 4.00 10,000,000
9,800 St Anthony's Medical Center Ser 1989 A, 4.00% due
07/07/95.................................................. 4.00 9,800,000
NEBRASKA
Nebraska Higher Education Loan Program Inc,
10,000 1985 Ser E (MBIA), 4.00% due 07/07/95....................... 4.00 10,000,000
8,600 1986 Ser C (AMT), 4.15% due 07/07/95........................ 4.15 8,600,000
NEVADA
20,000 Clark County, Airport System Refg Ser 1993 A (MBIA), 4.20%
due 07/07/95.............................................. 4.20 20,000,000
NEW HAMPSHIRE
2,500 New Hampshire Higher Educational & Health Facilities
Authority, Dartmouth Education Loan Corp Ser 1993 (AMT),
4.20% due 06/01/96........................................ 4.20 2,500,000
6,000 New Hampshire Housing Finance Authority, Single Family 1995
Ser F-1 (AMT), 4.30% due 11/01/95......................... 4.30 6,000,000
NEW JERSEY
8,300 New Jersey Economic Development Authority, Center For Aging
Inc-Applewood Estates Ser 1989, 4.00% due 07/07/95........ 4.00 8,300,000
8,000 New Jersey Turnpike Authority, Ser 1991 D (FGIC), 2.80% due
07/14/95.................................................. 2.80 8,000,000
NEW MEXICO
10,000 Albuquerque, Airport Sub Lien Ser 1995 (AMBAC), 4.15% due
07/07/95.................................................. 4.15 10,000,000
NEW YORK
15,000 New York State Power Authority, Tender Notes, 4.40% due
09/01/95.................................................. 4.40 15,000,000
NORTH CAROLINA
26,985 North Carolina Medical Care Commission, Duke University
Hospital Ser 1985 B & C,
3.95% due 07/07/95........................................ 3.95 26,985,000
21,700 Person County Industrial Facilities & Pollution Control
Financing Authority, Carolina Power & Light Co Ser 1992 A,
4.30% due 07/07/95........................................ 4.30 21,700,000
OKLAHOMA
16,000 Oklahoma Water Resources Board, State Loan Prog Ser 1994 A,
4.50% due 09/01/95........................................ 4.50 16,000,000
OREGON
10,000 Klamath Falls, Electric Ser B, 4.40% due 05/02/96........... 4.40 10,000,000
10,000 Oregon, Veterans' Welfare Ser 73 H, 4.10% due 07/07/95...... 4.10 10,000,000
PENNSYLVANIA
10,000 Allegheny County Hospital Development Authority, Health
Education & Research Corp Ser 1988 B, 3.70 % due
07/07/95.................................................. 3.70 10,000,000
10,000 Beaver County Industrial Development Authority, Toledo
Edison Co 1992 Ser E, 4.15% due 08/03/95.................. 4.15 10,000,000
6,400 Delaware County Industrial Development Authority, UPS Ser
1995,
4.25% due 07/03/95........................................ 4.25 6,400,000
10,500 Pennsylvania Energy Development Authority, Clarion Co Piney
Creek Ser A (AMT), 4.25% due 07/07/95..................... 4.25 10,500,000
6,000 Pennsylvania Higher Education Facilities Authority, Temple
University Ser 1984-1, 4.35% due 07/03/95................. 4.35 6,000,000
8,300 Washington County Authority, Pooled Ser 1985 A-1 Subser B,
4.15% due 07/07/95........................................ 4.15 8,300,000
SOUTH CAROLINA
6,000 York County, Saluda River Electric Coop Inc Ser 1984 E-2
(NRU-CFC Gtd),
4.55% due 08/15/95........................................ 4.55 6,000,000
</TABLE>
13
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ---------- ------- ---------------
<C> <S> <C> <C>
SOUTH DAKOTA
$ 10,000 South Dakota Housing Development Authority, Homeownership
1994 Ser H (AMT), 4.95% due 12/13/95...................... 4.95% $ 10,000,000
TENNESSEE
8,384 Clarksville Public Building Authority Ser 1990 (MBIA), 4.15%
due 07/07/95.............................................. 4.15 8,384,000
Tennessee,
10,000 Ser 1994 B BANs, 4.00% due 07/07/95......................... 4.00 10,000,000
15,000 Ser 1995 A BANs, 4.00% due 07/07/95......................... 4.00 15,000,000
31,400 Volunteer State Student Funding, Ser A-3 (AMT), 4.30% due
07/07/95.................................................. 4.30 31,400,000
TEXAS
9,700 Gulf Coast Industrial Development Authority, Amoco Oil Co
Ser 1993 (AMT), 4.35% due 07/03/95........................ 4.35 9,700,000
Gulf Coast Waste Disposal Authority, Amoco Oil Co
2,000 Ser 1991 (AMT), 4.30% due 10/01/95.......................... 4.30 2,000,000
6,500 Ser 1992, 4.10% due 07/03/95................................ 4.10 6,500,000
28,000 Harris County, Toll Road Unlimited Tax Sub Lien Ser 1994 A &
E,
3.75% due 07/07/95........................................ 3.75 28,000,000
20,000 Harris County Health Facilities Development Corp, Methodist
Hospital Ser 1994, 4.50% due 07/03/95..................... 4.50 20,000,000
UTAH
10,000 Intermountain Power Agency, 1985 Ser E & F, 4.15% due
9/15/95................................................... 4.15 10,000,000
VIRGINIA
Richmond Redevelopment & Housing Authority, Tobacco Row 1989
24,660 Ser B-4, Ser B-7, & Ser B-10 (AMT), 4.40% due 07/07/95...... 4.40 24,660,000
WASHINGTON
5,800 Seattle, Municipal Light & Power Ser 1993, 4.00% due
07/07/95.................................................. 4.00 5,800,000
WISCONSIN
10,000 Wisconsin Health Facilities Authority, Franciscan Health
Care Inc Ser 1985 A-1, 4.40% due 07/07/95................. 4.40 10,000,000
---------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS
(AMORTIZED COST $1,171,982,382)....................................... 1,171,982,382
---------------
</TABLE>
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
ON DATE
OF
TAX-EXEMPT COMMERCIAL PAPER (13.6%) PURCHASE
-------
<C> <S> <C> <C>
FLORIDA
9,200 Jacksonville Electric Authority, 3.65% due 09/19/95......... 3.65 9,200,000
GEORGIA
7,900 Burke County Development Authority, Oglethorpe Power Corp
Ser 1992 A,
4.10% due 07/27/95........................................ 4.10 7,900,000
MASSACHUSETTS
Massachusetts Industrial Finance Agency, New England Power
Co Ser 1992 B,
6,000 3.70% due 08/21/95.......................................... 3.70 6,000,000
10,000 4.00% due 10/19/95.......................................... 4.00 10,000,000
10,000 Massachusetts Water Resources Authority, Ser 1994, 4.15% due
09/07/95.................................................. 4.15 10,000,000
13,000 Michigan Building Authority, Ser 1, 3.85% due 07/26/95...... 3.85 13,000,414
MINNESOTA
12,000 Southern Minnesota Municipal Power Agency, Ser B, 4.05% due
10/19/95.................................................. 4.05 12,000,000
</TABLE>
14
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
PRINCIPAL ON DATE
AMOUNT (IN OF
THOUSANDS) PURCHASE VALUE
- ---------- ------- ---------------
<C> <S> <C> <C>
NEW HAMPSHIRE
$ 10,000 New Hampshire Business Finance Authority, New England Power
Co 1990 Ser A (AMT), 4.35% due 07/13/95................... 4.35% $ 10,000,000
NORTH CAROLINA
North Carolina Municipal Power Agency No. 1, Catawba Elec,
10,000 4.15% due 08/08/95.......................................... 4.15 10,000,000
17,000 3.20% due 09/20/95.......................................... 3.20 17,000,000
13,780 4.10% due 10/12/95.......................................... 4.10 13,780,000
PENNSYLVANIA
10,000 Montgomery County Industrial Development Authority, PECO
Energy Co 1994
Ser A, 4.15% due 08/22/95................................. 4.15 10,000,000
TENNESSEE
5,000 Metropolitan Government of Nashville & Davidson County
Health & Educational Board, Baptist Hospital Inc Ser 1992,
3.60% due 09/18/95........................................ 3.60 5,000,000
TEXAS
10,000 Brazos River Authority, Texas Utilities Electric Co Ser 1994
B (AMT),
4.20% due 08/15/95........................................ 4.20 10,000,000
10,000 Harris County Health Facilities Development Corporation,
Sisters of Charity of the Incarnate Word, 4.20% due
09/11/95.................................................. 4.20 10,000,000
15,000 Lower Colorado River Authority, Ser C, 4.15% due 07/12/95... 4.15 15,000,000
9,700 North Central Texas Health Facilities Development
Corporation, Methodist Hospitals of Dallas Ser 1991 A
(MBIA), 3.70% due 09/22/95................................ 3.70 9,700,000
San Antonio, Electric & Gas Ser A,
4,900 4.10% due 08/24/95.......................................... 4.10 4,900,000
5,000 4.15% due 08/24/95.......................................... 4.15 5,000,000
15,000 Texas Public Finance Authority, Ser 1993 A, 4.20% due
08/23/95.................................................. 4.20 15,000,000
---------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $203,480,414)......................................... 203,480,414
---------------
SHORT-TERM MUNICIPAL NOTES (11.9%)
CALIFORNIA
12,000 Alameda County, 1994-1995 TRANs, dtd 07/21/94 4.75% due
08/11/95.................................................. 4.20 12,007,074
20,000 California School Cash Reserve Program Authority, 1994 Pool
Ser A, dtd 07/05/94 4.50% due 07/05/95.................... 3.75 20,001,582
25,000 California Statewide Communities Development Authority, 1994
Ser A TRANs,
dtd 07/06/94 4.50% due 07/17/95........................... 3.65 25,008,979
13,000 Los Angeles County Local Educational Agencies, Pooled
1994-1995 Ser A TRANs, dtd 07/07/94 4.50% due 07/06/95.... 3.75 13,001,286
IDAHO
18,000 Idaho, Ser 1995 TRANs, dtd 07/06/95 4.50% due 06/27/96
(WI)...................................................... 3.80 18,118,440
INDIANA
Indianapolis, Local Public Improvement Bond Bank
10,850 Ser 1994 E, dtd 12/21/94 5.25% due 07/14/95................. 4.85 10,851,500
7,850 Ser 1995 B, dtd 06/15/95 4.25% due 01/11/96................. 3.50 7,880,603
IOWA
Iowa School Corporations, Warrant Certificates
25,000 Ser A 1994 (CGIC), dtd 06/29/94 4.25% due 07/17/95.......... 3.60 25,006,862
24,000 Ser A 1995-6 (CGIC), dtd 06/28/95 4.75% due 06/28/96........ 3.85 24,206,136
</TABLE>
15
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
PRINCIPAL ON DATE
AMOUNT (IN OF
THOUSANDS) PURCHASE VALUE
- ---------- ------- ---------------
<C> <S> <C> <C>
MICHIGAN
$ 23,000 Michigan Municipal Bond Authority, Ser 1995 B Notes, dtd
07/03/95
4.50% due 07/03/96 (WI)................................... 3.80% $ 23,155,020
---------------
TOTAL SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $179,237,482)......................................... 179,237,482
---------------
TOTAL INVESTMENTS (AMORTIZED COST $1,554,700,278) (A)....... 103.7% 1,554,700,278
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.............. (3.7 ) (55,369,390)
----- --------------
NET ASSETS.................................................. 100.0% $1,499,330,888
----- --------------
----- --------------
</TABLE>
- ------------
AMT ALTERNATIVE MINIMUM TAX.
BANS BOND ANTICIPATION NOTES.
COPS CERTIFICATES OF PARTICIPATION.
TRANS TAX AND REVENUE ANTICIPATION NOTES.
WI SECURITY PURCHASED ON A WHEN ISSUED BASIS.
* DUE DATE REFLECTS NEXT RATE CHANGE.
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
BOND INSURANCE:
AMBAC AMBAC INDEMNITY CORPORATION.
CGIC CAPITAL GUARANTY INSURANCE COMPANY.
FGIC FINANCIAL GUARANTY INSURANCE COMPANY.
MBIA MUNICIPAL BOND INVESTORS ASSURANCE COMPANY.
SEE NOTES TO FINANCIAL STATEMENTS
16
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Active Assets Tax-Free Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights (which appear under the
heading "Financial Highlights" on page 3 of this Prospectus) present fairly, in
all material respects, the financial position of Active Assets Tax-Free Trust
(the "Trust") at June 30, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the ten years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 4, 1995
1995 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended June 30, 1995, the Trust paid to shareholders $0.030 per
share from net investment income. All of the Trust's dividends from net
investment income were exempt interest dividends, excludable from gross income
for Federal income tax purposes.
17
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets California Tax-Free Trust (the "California Tax-Free Trust" or
the "Trust") is a no-load, diversified open-end management investment company.
The Trust is authorized to reimburse Dean Witter Distributors Inc. for specific
expenses incurred in promoting the distribution of the Trust's shares pursuant
to a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "Act"). Reimbursement may in no event exceed an
amount equal to payments at the annual rate of 0.15% of the average daily net
assets of the Trust.
The investment objective of the Trust is to provide as high a level of daily
income exempt from federal and California personal income tax as is consistent
with stability of principal and liquidity. The Trust seeks to achieve its
objective by investing primarily in high quality, California tax-exempt
securities with short-term maturities including Municipal Bonds, Municipal Notes
and Municipal Commercial Paper.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights/2 How Net Asset Value is Determined/A-4
Summary of Trust Expenses/3 Confirmations/A-5
Financial Highlights/3 The Trusts and Their Management/A-5
Investment Objective and Policies/4 Plan of Distribution/A-6
Investment Restrictions/9 Dividends, Distributions and Taxes/A-6
Purchase and Redemption of Shares/A-1 General Information/A-9
Purchase of Shares/A-1 Voting Rights/A-9
Purchase of Shares by Non-Participants in Custodian/A-10
the Active Assets Program/A-2 Shareholder Inquiries/A-10
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
the Active Assets Program/A-4
</TABLE>
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 29, 1995, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING THE DEAN WITTER
INTERCAPITAL INC. (THE "INVESTMENT MANAGER" OR "INTERCAPITAL") AT (212)
392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY
REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE DEAN WITTER CLIENT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 29, 1995.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing principally in short-term
TRUST securities exempt from federal and California personal income tax. The Trust is authorized to
reimburse Dean Witter Distributors Inc. for specific expenses incurred in promoting the
distribution of the Trust's shares pursuant to a Plan of Distribution pursuant to Rule 12b-1 under
the Act (See page A-6). The Trust is organized as an unincorporated business trust under the laws
of Massachusetts. (See page A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Trust are offered to participants in the Active Assets program of Dean Witter and
OFFERED to non- participants who wish to invest directly in shares of the Trust. (See page A-2). The
primary components of the Active Assets program are the Securities Account, which is linked to the
Active Assets Insured Account, the Active Assets Money Trust, the Active Assets Tax-Free Trust, the
California Tax-Free Trust or the Active Assets Government Securities Trust and to the Visa Account.
See the Dean Witter Client Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Dean Witter Client Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances will be automatically invested daily in shares of the Trust at their current net asset
value without any sales charge. Dean Witter Distributors Inc. is the Distributor of shares of the
Trust. Investments in shares are made under the circumstances described under "Purchase and
Redemption of Shares" (see page A-1). Non-participants in the Active Assets program should refer to
the discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High level of daily California tax-exempt income consistent with stability of principal and
OBJECTIVE liquidity (see page 4). There can be no assurance that the Trust's investment objective will be
achieved.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT A diversified portfolio of tax-exempt, fixed-income securities with short-term maturities (see page
POLICY 4).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Dean Witter Services Company, Inc., serve in various investment management, advisory,
management and administrative capacities to ninety-four investment companies with assets under
management of approximately $73.2 billion at June 30, 1995 (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Fund is authorized to reimburse specific expenses incurred in promoting the distribution of the
DISTRIBUTION Fund's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Fund (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Trust will be redeemed at net asset
OF SHARES value automatically to satisfy debit balances in the Securities Account created by activity therein
or to satisfy amounts owing in the Visa Account resulting from Visa card purchases, cash advances
or checks written against the Visa Account. Non-participants in the Active Assets program should
refer to the discussion appearing at page A-4. It is anticipated that the net asset value will
remain constant at $1.00 per share. Dean Witter has the right to terminate a shareholder's Active
Assets service, in which event all Trust shares held in a shareholder's account will be
involuntarily redeemed. The Trust also reserves the right to reduce the number of shares in all
accounts if the Trustees determine that this is necessary to maintain the constant $1.00 per share
net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust invests principally in high quality, short-term fixed-income securities issued or
guaranteed by the state of California and its local governments which are subject to minimal risk
of loss of income and principal. However, the investor is directed to the discussions of "lease
obligations" (page 5) and "When-Issued and Delayed Delivery Securities" (page 6) concerning the
risks associated with such portfolio securities and management techniques. Since the Trust
concentrates its investments in California tax-exempt securities, the Trust is affected by any
political, economic or regulatory developments affecting the ability of California issuers to pay
interest or repay principal (page 6).
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE DEAN WITTER CLIENT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
year ended June 30, 1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases.............................. None
Maximum Sales Charge Imposed on
Reinvested Dividends................... None
Deferred Sales Charge................... None
Redemption Fees......................... None
Exchange Fee............................ None
ANNUAL TRUST OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees......................... 0.50%
12b-1 Fees.............................. 0.10%
Other Expenses.......................... 0.07%
-------
Total Trust Operating Expenses.......... 0.67%
-------
-------
</TABLE>
<TABLE>
<CAPTION>
10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS YEARS
- ---------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period: $ 7 $21 $37 $83
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Trust may be greater or
less than those shown.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the report of independent
accountants which are contained in this Prospectus commencing on page 11.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JUNE 30, NOVEMBER 12, 1991*
------------------------------------ THROUGH
1995 1994 1993 JUNE 30, 1992
---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- -----
Net investment income................... 0.029 0.018 0.018 0.017
Less dividends from net investment
income................................. (0.029) (0.018) (0.018) (0.017)
----- ----- ----- -----
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- -----
----- ----- ----- -----
TOTAL INVESTMENT RETURN................. 2.89% 1.78% 1.84% 1.66%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................. 0.67% 0.68% 0.71% 0.56%(2)(3)
Net investment income................. 2.86% 1.77% 1.82% 2.42%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $313,566 $288,506 $202,149 $170,364
<FN>
- -----------------
* COMMENCEMENT OF OPERATIONS.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE TRUST HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN 0.80% AND 2.18%, RESPECTIVELY.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF THE TRUST IS TO PROVIDE AS HIGH A LEVEL OF DAILY
INCOME EXEMPT FROM FEDERAL AND CALIFORNIA PERSONAL INCOME TAX AS IS CONSISTENT
WITH STABILITY OF PRINCIPAL AND LIQUIDITY. It is a fundamental policy of the
Trust that at least 80% of its total assets will be invested in securities the
interest on which is exempt from federal and California personal income tax
("California tax-exempt securities"). This policy and the Trust's investment
objective may not be changed without a vote of a majority of the Trust's
outstanding voting securities, as defined in the Act. There is no assurance that
the objective will be achieved.
The Trust seeks to achieve its investment objective by investing primarily
in high quality tax-exempt securities with short-term maturities. Such
securities will include California Municipal Bonds, California Municipal Notes
and California Municipal Commercial Paper ("Municipal Obligations") with
maturities of thirteen months or less, which are rated in one of the two highest
rating categories for debt obligations by at least two nationally recognized
statistical rating organizations ("NRSRO's"-- primarily Moody's Investors
Service ("Moody's") and Standard & Poor's Corporation ("S&P")), or one NRSRO if
the obligation is rated by only one NRSRO. Unrated obligations may be purchased
if they are determined to be of comparable quality by the Trust's Trustees.
Up to 20% of the Trust's total assets may also be invested in securities
exempt from federal personal income tax but not from California personal income
tax ("non-California tax-exempt securities"), in taxable securities and in
tax-exempt securities subject to the federal alternative minimum tax for
individual shareholders ("AMT") (California tax-exempt securities subject to AMT
will not be included in the 80% total referred to above for investment in
California tax-exempt securities). In addition, the Trust may temporarily invest
more than 20% of its total assets in taxable securities, non-California
tax-exempt securities, or in tax-exempt securities subject to AMT, to maintain a
"defensive" posture when, in the opinion of the Investment Manager, it is
advisable to do so because of market conditions. The types of taxable securities
in which the Trust may temporarily invest are limited to the following
short-term fixed-income securities (maturing in thirteen months or less from the
time of purchase); (i) obligations of the United States Government or its
agencies, instrumentalities or authorities; (ii) commercial paper rated P-1 by
Moody's or A-1 by S&P; (iii) certificates of deposit of domestic banks with
assets of $1 billion or more; and (iv) repurchase agreements with respect to any
of the foregoing portfolio securities.
California Municipal Bonds and California Municipal Notes are debt
obligations of a state, its cities, municipalities and municipal agencies which
generally have maturities, at the time of their issuance, of either one year or
more (Bonds) or from six months to three years (Notes). California Municipal
Commercial Paper refers to short-term obligations of municipalities. Any
Municipal Obligation which depends on the credit of the Federal Government, its
agencies or instrumentalities shall be considered to have a Moody's rating of
Aaa or S&P rating of AAA. An obligation shall be considered a Municipal
Obligation only if, in the opinion of bond counsel, the interest payable
therefrom is exempt from both federal income tax and California personal income
tax.
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the
Trust's net asset value. Any subsequent change in any rating by a rating service
or change in percentages resulting from market fluctuations may not require
elimination of any security from the Trust's portfolio. However, in accordance
with procedures adopted by the Trust's Trustees pursuant to federal securities
regulations governing money market funds, the Investment Manager will perform a
4
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
creditworthiness analysis of such downgraded securities, which analysis will be
reported to the Trustees who will, in turn, determine whether the securities
continue to present minimal credit risks to the Trust. The Trust does not
anticipate that more than 5% of its net assets are likely to be downgraded below
the rating requirements described above for Municipal Obligations.
The ratings assigned by NRSROs represent their opinions as to the quality of
the securities which they undertake to rate (see the Appendix to the Statement
of Additional Information for an explanation of Moody's and S&P ratings). It
should be emphasized, however, that the ratings are general and not absolute
standards of quality.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General obligation
bonds, notes or commercial paper are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include a state,
its counties, cities, towns and other governmental units. Revenue bonds, notes
or commercial paper are payable from the revenues derived from a particular
facility or class of facilities or, in some cases, from specific revenue
sources. Revenue bonds, notes or commercial paper are issued for a wide variety
of purposes, including the financing of electric, gas, water and sewer systems
and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports, transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local agencies or authorities
issue lease obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases, and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer), have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
In addition, lease obligations represent a relatively new type of financing
that has not yet developed the depth of marketability associated with more
conventional municipal obligations, and, as a result, certain of such lease
obligations may be considered illiquid securities. To determine whether or not
the Trust will consider such securities to be illiquid (the Trust may not invest
more than ten percent of its net assets in illiquid securities), the Trustees of
the Trust have established guidelines to be utilized by the Trust in determining
the liquidity of a lease obligation. The factors to be considered in making the
determination include: 1) the frequency of trades and quoted prices for the
obliga-
5
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
tion; 2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers; 3) the willingness of dealers to undertake
to make a market in the security; and 4) the nature of the marketplace trades,
including, the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer. All lease obligations purchased by
the Trust are subject to the creditworthiness standards discussed above for
Municipal Obligations.
The Trust does not generally intend to invest more than 25% of its total
assets in securities of any one governmental unit. The Trust may invest more
than 25% of its total assets in industrial development and pollution control
bonds (two kinds of tax-exempt Municipal Bonds) whether or not the users of
facilities financed by such bonds are in the same industry. In cases where such
users are in the same industry, there will be additional risk to the Trust in
the event of an economic downturn in such industry, which may result generally
in a lowered need for such facilities and a lowered ability of such users to pay
for the use of such facilities.
PORTFOLIO MANAGEMENT
Although the Trust will generally acquire securities for investment with the
intent of holding them to maturity and will not seek profits through short-term
trading, the Trust may dispose of any security prior to its maturity to meet
redemption requests. Securities may also be sold when the Trust's Investment
Manager believes such disposition to be advisable on the basis of a revised
evaluation of the issuer or based upon relevant market considerations. There may
be occasions when, as a result of maturities of portfolio securities or sale of
Trust shares, or in order to meet anticipated redemption requests, the Trust may
hold cash which is not earning income.
The Trust anticipates that the average weighted maturity of the portfolio
will be 90 days or less. The relatively short-term nature of the Trust's
portfolio is expected to result in a lower yield than portfolios comprised of
longer-term tax-exempt securities.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. The interest rates payable on
certain Municipal Bonds and Municipal Notes are not fixed and may fluctuate
based upon changes in market rates. Municipal obligations of this type are
called "variable rate" or "floating rate" obligations. The interest rate payable
on a variable rate obligation is adjusted at predesignated periodic intervals
and on a floating rate obligation, whenever there is a change in the market rate
of interest on which the interest rate payable is based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Trust may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., delivery
and payment can take place a month or more after the date of the transaction.
These securities are subject to market fluctuation and no interest accrues to
the purchaser prior to settlement. At the time the Trust makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on
purchases and sales of short-term municipal obligations, but such transactions
may involve transaction costs in the form of spreads between bid and asked
prices. Pursuant to an order of the Securities and Exchange Commission, the
Trust may effect principal transactions in certain money market instruments with
Dean Witter. In addition, the Trust may incur brokerage commissions on
transactions conducted through Dean Witter.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA TAX-EXEMPT SECURITIES
The Trust will be affected by any political, economic or regulatory
developments affecting the ability of California issuers to pay interest or
repay principal on their obligations. Various subsequent developments regarding
the California Constitution and State of California ("State") statutes which
limit the taxing and spending authority of California governmental entities may
impair the ability of California issuers to maintain debt service on their
6
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
obligations. Of particular impact are constitutional voter initiatives, which
have become common in recent years. The following information constitutes only a
brief summary and is not intended as a complete description.
California is the most populous state in the nation with a total population
at the 1990 census of 29,976,000. Growth has been incessant since World War II,
with population gains in each decade since 1950 of between 18% and 49%. During
the last decade, the population rose 20%. The State now comprises 12% of the
nation's population and 13.3% 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, real estate,
and financial services. After experiencing strong growth throughout much of the
1980s, the State was adversely affected by both the national recession and the
cutbacks in aerospace and defense spending which had a severe impact on the
economy in Southern California. Although the national economic recovery
continued at a strong pace in the fourth quarter of 1994, California is still
experiencing the effects of a recession. However, the State's budget for fiscal
year 1994-95 assumes that the State will begin to recover from recessionary
conditions in 1994, with a modest upturn in 1994 and continuing in 1995.
These economic difficulties have exacerbated the structural budget imbalance
which has been evident since fiscal year 1985-1986. Since that time, budget
shortfalls have become increasingly more difficult to solve. The State has
recorded General Fund operating deficits in five of the past six fiscal years.
Many of these problems have been attributable to the fact that the great
population influx has produced increased demand for education and social
services at a far greater pace than the growth in the State's tax revenues.
Despite substantial tax increases, expenditure reductions and the shift of some
expenditure responsibilities to local government, the budget condition remains
problematic.
In July 1991, California increased taxes by adding two new marginal tax
rates, at 10% and 11%, effective for tax years 1991 through 1995. After 1995,
the maximum personal income tax rate is scheduled to return to 9.3%, and the
alternative minimum tax rate is scheduled to drop from 8.5% to 7%. In addition,
legislation in July 1991 raised the sales tax by 1.25%. 0.5% was a permanent
addition to counties, but with the money earmarked to trust funds to pay for
health and welfare programs whose administration was transferred to counties.
This tax increase will be cancelled if a court rules that such transfer and tax
increase violate any constitutional requirements. 0.5% of the State tax rate was
scheduled to expire on June 30, 1993, but was extended for six months for the
benefit of counties and cities. On November 2, 1993, voters made this
half-percent levy a permanent source of funding for local government. The
1994-1995 State budget does not include any additional sales tax rate.
On July 8, 1994, the Governor of California signed into law a $57.5 billion
budget which, among other things: (a) reduces welfare grants and aid to families
and to the aged, blind and disabled, and (b) relies on the State's ability to
obtain $2.8 billion in new reimbursement from the federal government for the
State's cost of serving illegal immigrants. Although the State legislature has
passed a standby measure which could trigger automatic budget reductions if the
state's fiscal condition worsens over the next two years, the stability of the
budget would be jeopardized if the state is unable to obtain the hoped-for
federal funds.
The current budget includes General Fund spending of $40.9 billion, up 4.2%
from the level of spending during the 1993-94 fiscal year. The budget also
envisions General Fund spending climbing another 8.4% in the 1995-96 fiscal
year. The budget forecasts levels of revenues and expenditures which will result
in operating surpluses in both 1994-95 and 1995-96, leading to the elimination
of an estimated $2.0 billion accumulated budget deficit by June 30, 1996.
Because of the State's continuing budget problems, the State's General
Obligation bonds
7
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
were downgraded in July 1994 from Aa to A1 by Moody's, to A from A+ by Standard
& Poor's, and from AA to A by Fitch Investors Service, Inc. All three rating
agencies expressed uncertainty in the State's ability to balance its budget by
1996.
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
For a more detailed discussion of the State of California economic factors,
see the Statement of Additional Information.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Investment restrictions listed below are among the restrictions which have
been adopted by the Trust as fundamental policies. Under the Act, a fundamental
policy may not be changed without the vote of a majority of the outstanding
voting securities of the Trust, as defined in the Act.
For purposes of the following restrictions: (a) an "issuer" of a security is
the entity whose assets and revenues are committed to the payment of interest
and principal on that particular security, provided that the guarantee of a
security will be considered a separate security; (b) a "taxable security" is any
security the interest on which is subject to federal income tax; and (c) all
percentage limitations apply immediately after a purchase or initial investment,
and any subsequent change in any applicable percentage resulting from market
fluctuations does not require elimination of any security from the portfolio.
The Trust may not:
1. With respect to 75% of its total assets, purchase securities of any
issuer if, immediately thereafter, more than 5% (10% where the security is
the guarantee of a security) of the value of its total assets are in the
securities of any one issuer (other than obligations issued, or guaranteed
by, the United States Government, its agencies or instrumentalities or by
the State of California or its political subdivisions).
2. With respect to 75% of its total assets, purchase more than 10% of
all outstanding taxable debt securities of any one issuer (other than debt
securities issued, or guaranteed as to principal and interest by, the United
States Government, its agencies or instrumentalities).
3. Invest 25% or more of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities or by the State of California
or its political subdivisions, or to domestic bank obligations (including
domestic branches of foreign banks).
The Trust will comply with any investment policies necessitated by rules
governing the pricing of shares of money market funds (see "How Net Asset Value
is Determined" in the Appendix), even though an investment restriction of the
Trust is less restrictive than the related policy.
8
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $322,552,743)............ $ 322,552,743
Cash...................................... 6,685,105
Interest receivable....................... 2,677,157
Deferred organizational expenses.......... 12,750
Prepaid expenses and other assets......... 10,162
-------------
TOTAL ASSETS........................ 331,937,917
-------------
LIABILITIES:
Payable for:
Investments purchased................... 18,147,600
Investment management fee............... 128,014
Plan of distribution fee................ 25,603
Shares of beneficial interest
repurchased............................ 69
Accrued expenses and other payables....... 70,444
-------------
TOTAL LIABILITIES................... 18,371,730
-------------
NET ASSETS:
Paid-in-capital........................... 313,583,094
Accumulated undistributed net investment
income................................... 50
Accumulated net realized loss............. (16,957)
-------------
NET ASSETS.......................... $ 313,566,187
-------------
-------------
NET ASSET VALUE PER SHARE, 313,583,094
shares outstanding (unlimited shares
authorized of $.01 par value)............ $1.00
-------------
-------------
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME........................... $ 10,618,223
-------------
EXPENSES
Investment management fee............... 1,502,742
Plan of distribution fee................ 295,306
Transfer agent fees and expenses........ 74,495
Professional fees....................... 50,841
Trustees' fees and expenses............. 32,732
Shareholder reports and notices......... 27,725
Registration fees....................... 16,607
Organizational expenses................. 9,289
Custodian fees.......................... 5,223
Other................................... 10,289
-------------
TOTAL EXPENSES........................ 2,025,249
-------------
NET INVESTMENT INCOME AND NET
INCREASE............................. $ 8,592,974
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
Operations:
Net investment income................................................................ $ 8,592,974 $ 4,707,676
Net realized loss.................................................................... -- (900)
------------- -------------
Net increase....................................................................... 8,592,974 4,706,776
------------- -------------
Dividends to shareholders from net investment income................................... (8,593,044) (4,707,587)
Net increase from transactions in shares of beneficial interest........................ 25,060,313 86,358,020
------------- -------------
Total increase................................................................... 25,060,243 86,357,209
NET ASSETS:
Beginning of period.................................................................... 288,505,944 202,148,735
------------- -------------
END OF PERIOD (including undistributed net investment income of $50 and $120,
respectively)......................................................................... $313,566,187 $288,505,944
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Active Assets California Tax-Free
Trust (the "Trust") is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a diversified, open-end management investment company.
The Trust was organized as a Massachusetts business trust on July 10, 1991 and
commenced operations on November 12, 1991.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--Portfolio securities are valued at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts on securities
purchased over the life of the respective securities. Interest income is
accrued daily.
C. FEDERAL INCOME TAX STATUS--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Trust records dividends
and distributions to shareholders as of the close of each business day.
E. ORGANIZATIONAL EXPENSES--Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Trust in the amount of
approximately $46,500. Such expenses have been deferred and are being
amortized by the Trust on a straight-line basis over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement, the Trust pays its Investment Manager a management fee, accrued daily
and payable monthly, by applying the following annual rates to the net assets of
the Trust determined as of the close of each business day: 0.50% to the portion
of the daily net assets not exceeding $500 million; 0.425% to the portion of the
daily net assets exceeding $500 million but not exceeding $750 million; 0.375%
to the portion of the daily net assets exceeding $750 million but not exceeding
$1 billion; 0.35% to the portion of the daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.325% to the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of the
daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to
the portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% to the portion of the daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. PLAN OF DISTRIBUTION--Dean Witter Distributors Inc. (the "Distributor"), an
affiliate of the Investment Manager, is the distributor of the Trust's shares
and, in accordance with a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Trust, except for expenses that
the Trustees determine to reimburse, as described below. The
10
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
following activities and services may be provided by the Distributor and other
broker-dealers under the Plan: (1) compensation to, and expenses of, the
Distributor and other broker-dealers; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
the Trust's shares; (3) expenses incurred in connection with promoting sales of
the Trust'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.
The Trust is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Trust's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of 0.15% of the Trust's
average daily net assets during the month. Expenses incurred by the Distributor
pursuant to the Plan in any fiscal year will not be reimbursed by the Trust
through payments accrued in any subsequent fiscal year. For the year ended June
30, 1995, the distribution fee was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and proceeds from sales/maturities of portfolio securities for the
year ended June 30, 1995 aggregated $637,226,836 and $629,230,000, respectively.
The Trust adopted an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Trust who will have served as an
independent Trustee for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension cost for the year ended June 30, 1995,
included in Trustees' fees and expenses in the Statement of Operations, amounted
to $12,000. At June 30, 1995, the Trust had an accrued pension liability of
$17,307 which is included in accrued expenses in the Statement of Assets and
Liabilities.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1995, the Trust had
transfer agent fees and expenses payable of approximately $6,900.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial
interest, at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 1,156,418,032 1,106,266,195
Shares issued in reinvestment of dividends....................................... 8,593,044 4,707,587
----------------- -----------------
1,165,011,076 1,110,973,782
Shares repurchased............................................................... (1,139,950,763) (1,024,615,762)
----------------- -----------------
Net increase in shares outstanding............................................... 25,060,313 86,358,020
----------------- -----------------
----------------- -----------------
</TABLE>
6. FEDERAL INCOME TAX STATUS--At June 30, 1995, the Trust had capital loss
carryovers of approximately $16,900 of which $16,000 will be available through
June 30, 2002 and $900 will be available through June 30, 2003 to offset future
capital gains to the extent provided by regulations.
7. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
11
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL CURRENT YIELD VALUE
- -------------- ------------- -------------
<C> <S> <C> <C>
OBLIGATIONS* (65.1%)
$ 4,000 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT), 4.10% due 07/05/95....... 4.10% $ 4,000,000
13,000 California Alternative Energy Finance Authority, GE Capital Corp Arroyo
Energy Ser 1993 B (AMT), 4.05% due 07/05/95................................ 4.05 13,000,000
6,000 California Department of Water Resources, Central Valley Project Ser N-V2,
3.75% due 07/05/95......................................................... 3.75 6,000,000
California Health Facilities Financing Authority,
2,800 Catholic HealthCare West 1988 Ser A, 3.90% due 07/05/95...................... 3.90 2,800,000
3,800 Childrens Hospital of Orange County Ser 1991 (MBIA), 3.85% due 07/06/95...... 3.85 3,800,000
8,965 Health Dimensions Inc Ser 1987 A, 4.50% due 08/01/95......................... 4.50 8,965,000
5,260 Huntington Memorial Hospital Ser 1985, 3.75% due 07/05/95.................... 3.75 5,260,000
4,700 Kaiser Permanente Ser 1993 A, 3.90% due 07/05/95............................. 3.90 4,700,000
4,000 Memorial Health Services Ser 1994, 4.00% due 07/05/95........................ 4.00 4,000,000
10,000 St. Francis Medical Series E 1995, 3.90% due 07/05/95........................ 3.90 10,000,000
3,300 St. Francis Memorial Hospital Series 1993 B, 4.15% due 07/03/95.............. 4.15 3,300,000
6,095 St. Joseph Health, Ser 1985 B & 1991 B, 4.10% due 07/03/95................... 4.10 6,095,000
2,300 Sutter Health Ser 1990 A, 4.10% due 07/03/95................................. 4.10 2,300,000
2,655 California Housing Finance Agency, 1995 Ser E (AMT), 4.60% due 08/01/95...... 4.60 2,655,000
California Pollution Control Financing Authority,
4,895 Chevron USA Ser 1984 B, 4.25% due 12/15/95................................... 4.25 4,901,958
1,750 Noranda-Grey Eagle Mines Inc 1984 Ser B, 4.40% due 07/05/95.................. 4.40 1,750,000
5,000 North County Recycling Center 1991 Ser B, 4.05% due 07/05/95................. 4.05 5,000,000
200 Stanislaus Inc Ser 1987 (AMT), 4.35% due 07/03/95............................ 4.35 200,000
14,000 California Public Capital Improvements Financing Authority,
Pooled Ser 1988 C, 3.70% due 09/15/95...................................... 3.70 14,000,000
3,700 California Statewide Communities Development Authority, House Ear Institute
1993 Ser A COPs, 4.35% due 07/03/95........................................ 4.35 3,700,000
10,300 Contra Costa Transportation Authority, Sales Tax 1993 Ser A (FGIC),
3.90% due 07/05/95......................................................... 3.90 10,300,000
8,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1995 B, 3.90%
due 07/03/95............................................................... 3.90 8,000,000
10,000 Long Beach, Memorial Health Services Ser 1991, 3.90% due 07/05/95............ 3.90 10,000,000
Los Angeles, Multi-family,
2,900 1985 Ser K, 3.75% due 07/04/95............................................... 3.75 2,900,000
6,000 1994 Ser A (AMT), 4.20% due 07/03/95......................................... 4.20 6,000,000
10,500 Los Angeles County Metropolitan Transportation Authority, Prop C Sales Tax
Refg Ser 1993 A (MBIA), 3.90% due 07/06/95................................. 3.90 10,500,000
10,000 Newport Beach, Hoag Memorial Hospital/Presbyterian 1992 Ser A,
4.25% due 07/03/95......................................................... 4.25 10,000,000
4,600 Ontario Redevelopment Agency, Daisy XX Assoc Ltd Ser 1984,
3.60% due 07/06/95......................................................... 3.60 4,600,000
3,900 Redlands, Orange Village Apts 1988 Ser A (AMT), 4.00% due 07/05/95........... 4.00 3,900,000
6,100 Sacramento County, Administration Center & Courthouse Ser 1990 COPs, 3.65%
due 07/06/95............................................................... 3.65 6,100,000
5,700 San Diego County Regional Transportation Commission, Second Senior Sales Tax
1992 Ser A (FGIC), 4.05% due 07/05/95...................................... 4.05 5,700,000
1,500 Santa Ana, Town & Country Manor Ser 1990, 4.35% due 07/03/95................. 4.35 1,500,000
9,400 Southern California Public Power Authority, Transmission 1991 Refg Ser (AMBAC),
3.90% due 07/05/95......................................................... 3.90 9,400,000
4,220 Tri City Housing Finance Agency, Single Family Ser 1994 (AMT),
4.75% due 07/03/95......................................................... 4.75 4,220,000
4,415 Turlock, Irrigation District Ser 1988 A, 3.65% due 07/05/95.................. 3.65 4,415,000
-------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE
MUNICIPAL OBLIGATIONS (AMORTIZED COST $203,961,958)....................................... 203,961,958
-------------
</TABLE>
12
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY AT
AMOUNT (IN DATE OF
THOUSANDS) CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (22.1%) PURCHASE VALUE
- -------------- ------------- -------------
<C> <S> <C> <C>
$ 5,000 California Department of Water Resources, Ser I, 4.10% due 09/13/95.......... 4.10% $ 5,000,000
California Pollution Control Financing Authority, Pacific Gas & Electric Co
5,000 1988 Ser C, 4.05% due 08/18/95............................................... 4.05 5,000,000
7,500 1988 Ser C, 4.10% due 09/08/95............................................... 4.10 7,500,000
Chula Vista, San Diego Gas & Electric Co Ser 1992 C (AMT),
5,000 4.15% due 07/13/95........................................................... 4.15 5,000,000
5,000 3.40% due 09/21/95........................................................... 3.40 5,000,000
3,000 Delmar Race Track Authority, 1993 BANs, 3.40% due 08/30/95................... 3.40 3,000,000
5,000 Long Beach Harbor Department, Ser A (AMT), 3.50% due 08/09/95................ 3.50 5,000,000
6,300 Los Angeles Department of Water & Power, Electric, 3.85% due 08/29/95........ 3.85 6,300,000
Los Angeles Wastewater System,
3,235 3.80% due 08/24/95........................................................... 3.80 3,235,000
4,700 3.80% due 09/28/95........................................................... 3.80 4,700,000
Sacramento Municipal Utility District, Ser H,
6,694 3.35% due 08/21/95........................................................... 3.35 6,694,000
4,000 2.95% due 09/20/95........................................................... 2.95 4,000,000
4,000 San Diego Gas & Electric Co Ser 1995 B, 3.35% due 08/22/95................... 3.35 4,000,000
5,000 West & Central Basin Financing Authority, W. Basin Municipal Water District
TRANs, 2.75% due 08/08/95.................................................. 2.75 5,000,000
-------------
TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $69,429,000).............................................................. 69,429,000
-------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (15.7%)
6,000 Alameda County, 1994-95 TRANs, dtd 07/21/94 4.75% due 08/11/95............... 4.20 6,003,537
California School Cash Reserve Program Authority,
8,000 1994 Pool Ser A, dtd 07/05/94 4.50% due 07/05/95............................. 3.75 8,000,633
9,000 1995 Pool Ser A, dtd 07/05/95 4.75% due 07/03/96 (WI)........................ 3.75 9,086,220
9,000 California Statewide Communities Development Authority, 1994 Ser A TRANs, dtd
07/06/94 4.50% due 07/17/95................................................ 3.65 9,003,232
5,000 Los Angeles County Local Educational Agencies, Pooled 1994-95 Ser A TRANs,
dtd 07/07/94 4.50% due 07/06/95............................................ 3.75 5,000,495
9,000 Santa Barbara County, 1995-96 Ser A TRANs, dtd 07/06/95
4.50% due 07/05/96 (WI).................................................... 3.79 9,061,380
3,000 Solano County, 1994-95 TRANs, dtd 11/01/94 5.00% due 11/01/95................ 4.35 3,006,288
-------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $49,161,785).............................................................. 49,161,785
-------------
TOTAL INVESTMENTS (AMORTIZED COST $322,552,743) (A)........................ 102.9% 322,552,743
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................. (2.9) (8,986,556)
----------- ------------
NET ASSETS................................................................. 100.0% $313,566,187
----------- ------------
----------- ------------
<FN>
- ------------
AMT ALTERNATIVE MINIMUM TAX.
BANS BOND ANTICIPATION NOTES.
COPS CERTIFICATES OF PARTICIPATION.
TRANS TAX AND REVENUE ANTICIPATION NOTES.
WI SECURITY PURCHASED ON A WHEN ISSUED BASIS.
* DUE DATE REFLECTS NEXT RATE CHANGE.
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
BOND INSURANCE:
AMBAC AMBAC INDEMNITY CORPORATION.
FGIC FINANCIAL GUARANTY INSURANCE COMPANY.
MBIA MUNICIPAL BOND INVESTORS ASSURANCE COMPANY.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Active Assets California Tax-Free Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights (which appear under the
heading "Financial Highlights" on page 3 of this Prospectus) present fairly, in
all material respects, the financial position of Active Assets California
Tax-Free Trust (the "Trust") at June 30, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the three years
in the period then ended and for the period November 12, 1991 (commencement of
operations) through June 30, 1992, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1995 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 4, 1995
1995 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended June 30, 1995, the Trust paid to shareholders $0.029 per
share from net investment income. All of the Trust's dividends from net
investment income were exempt interest dividends, excludable from gross income
for Federal income tax purposes.
14
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048 - (212) 392-5000
Active Assets Government Securities Trust (the "Government Securities Trust"
or the "Trust") is a no-load, diversified open-end management investment
company. The Trust is authorized to reimburse Dean Witter Distributors Inc. for
specific expenses incurred in promoting the distribution of the Trust's shares
pursuant to a Plan of Distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"). Reimbursement may in no event
exceed an amount equal to payments at the annual rate of 0.15% of the average
daily net assets of the Trust.
The investment objectives of the Trust are high current income, preservation
of capital and liquidity. The Trust will seek to achieve these objectives by
investing in a diversified portfolio of short-term money market instruments
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights/2 How Net Asset Value is Determined/A-4
Summary of Trust Expenses/3 Confirmations/A-5
Financial Highlights/3 The Trusts and Their Management/A-5
Investment Objectives and Policies/4 Plan of Distribution/A-6
Purchase and Redemption of Shares/A-1 Dividends, Distributions and Taxes/A-6
Purchase of Shares/A-1 General Information/A-9
Purchase of Shares by Non-Participants in Voting Rights/A-9
Active Assets Program/A-2 Custodian/A-10
Redemption of Shares/A-3 Shareholder Inquiries/A-10
Redemption of Shares by Non-Participants in
Active Assets Program/A-4
</TABLE>
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN THE TRUST. IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
ADDITIONAL INFORMATION ABOUT THE TRUST IS CONTAINED IN THE STATEMENT OF
ADDITIONAL INFORMATION, DATED AUGUST 29, 1995, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, AND WHICH IS AVAILABLE AT NO CHARGE UPON
REQUEST OF THE TRUST AT THE ADDRESS LISTED ABOVE OR BY CALLING DEAN WITTER
INTERCAPITAL INC. (THE "INVESTMENT MANAGER" OR "INTERCAPITAL") AT (212)
392-2550. THE STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED HEREIN BY
REFERENCE.
THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION APPEARING ELSEWHERE IN THIS DOCUMENT, INCLUDING THE APPENDIX HERETO,
WHICH IS PART OF THIS PROSPECTUS, AND IN THE DEAN WITTER CLIENT AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 29, 1995.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
HIGHLIGHTS
<TABLE>
<S> <C>
THE A no-load, open-end diversified management investment company investing principally in short-term
TRUST money market instruments issued or guaranteed by the United States Government or its agencies or
instrumentalities. The Trust is authorized to reimburse Dean Witter Distributors Inc. for specific
expenses incurred in promoting the distribution of the Trust's shares pursuant to a Plan of
Distribution pursuant to Rule 12b-1 under the Act. (see page A-6). The Trust is organized as an
unincorporated business trust under the laws of Massachusetts. (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
SHARES The shares of the Government Securities Trust are offered to participants in the Active Assets
OFFERED program of Dean Witter and to non-participants who wish to invest directly in shares of the Trust
(See page A-2). The primary components of the Active Assets program are the Securities Account,
which is linked to the Active Assets Insured Account, the Active Assets Money Trust, the Active
Assets Tax-Free Trust, the Active Assets California Tax-Free Trust or the Government Securities
Trust, and to the Visa Account. See the Dean Witter Client Agreement for further information.
- ------------------------------------------------------------------------------------------------------------------------
PURCHASE Pursuant to the Dean Witter Client Agreement between Dean Witter and the customer, free credit cash
OF SHARES balances in an Active Assets account will automatically be invested in shares of the Government
Securities Trust daily at their net asset value without any sales charge. Dean Witter Distributors
Inc. is the Distributor of shares of the Trust. Investments in shares are made under the
circumstances described under "Purchase and Redemption of Shares" (see page A-1). Non-participants
in the Active Assets program should refer to the discussion appearing at page A-2.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT High current income, preservation of capital and liquidity (see page 4). There can be no assurance
OBJECTIVES that the Trust's investment objectives will be achieved.
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT A diversified portfolio of short-term money market instruments issued or guaranteed by the United
POLICY States Government or its agencies or instrumentalities (see page 4).
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Trust, and its wholly-owned
MANAGER subsidiary, Dean Witter Services Company, Inc., serve in various investment management, advisory,
management and administrative capacities to ninety-four investment companies and other portfolios
with assets under management of approximately $73.2 billion at June 30, 1995 (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
MANAGEMENT Monthly fee at an annual rate of 1/2 of 1% of average daily net assets, scaled down on assets over
FEE $500 million (see page A-5).
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page 9).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Fund is authorized to reimburse specific expenses incurred in promoting the distribution of the
DISTRIBUTION Fund's shares pursuant to a plan of Distribution with the Distributor pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Fund (see page 9).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Government Securities Trust will be
OF SHARES redeemed at net asset value automatically to satisfy debit balances in the securities account
created by activity therein or to satisfy amounts owing in the Visa Account resulting from Visa
card purchases, cash advances or checks written against the Visa Account. Non-participants in the
Active Assets program should refer to the discussion appearing at page A-4. It is anticipated that
the net asset value will remain constant at $1.00 per share. Dean Witter has the right to terminate
a shareholder's Active Assets service, in which event all Trust shares held in a shareholder's
account will be involuntarily redeemed. The Trust also reserves the right to reduce the number of
shares in all accounts if the Trustees determine that this is necessary to maintain the constant
$1.00 per share net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust invests principally in high quality, short-term securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities which are subject to minimal risk of loss of
income and principal. However, the investor is directed to the discussion under the captions
"Investment Objectives and Policies" (page 4), "Repurchase Agreements" (page 5), and "When-Issued
and Delayed Delivery Securities" (page 5) concerning the risks associated with such portfolio
securities and management strategies.
- ------------------------------------------------------------------------------------------------------------------------
THE SUMMARY INFORMATION ABOVE SHOULD BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE APPENDIX HERETO, IN THE DEAN WITTER CLIENT AGREEMENT AND IN THE TRUST'S STATEMENT OF ADDITIONAL
INFORMATION, INCLUDING THE APPENDIX THERETO.
</TABLE>
2
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Trust will incur. The expenses and fees set forth in the table are for the
fiscal year ended June 30, 1995.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------
<S> <C>
Maximum Sales Charge Imposed on
Purchases.............................. None
Maximum Sales Charge Imposed on
Reinvested Dividends................... None
Deferred Sales Charge................... None
Redemption Fees......................... None
Exchange Fee............................ None
<CAPTION>
ANNUAL TRUST OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
<S> <C>
Management Fees......................... 0.50%
12b-1 Fees.............................. 0.10%
Other Expenses.......................... 0.07%
-------
Total Trust Operating Expenses.......... 0.67%
-------
-------
</TABLE>
<TABLE>
<CAPTION>
10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS YEARS
- ---------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment,
assuming (1) 5% annual return and (2)
redemption at the end
of each time period: $ 7 $21 $37 $83
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Trust may be greater or
less than those shown.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the report of independent
accountants which are contained in this Prospectus commencing on page 6.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income......... 0.048 0.027 0.027 0.043 0.065 0.077 0.079 0.062 0.055 0.069
Less dividends from net
investment income............ (0.048) (0.027) (0.027) (0.043) (0.065) (0.077) (0.079) (0.062) (0.055) (0.069)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN....... 4.92% 2.76% 2.71% 4.37% 6.72% 8.03% 8.20% 6.41% 5.62% 7.10%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................... 0.67% 0.66% 0.66% 0.68% 0.70% 0.68% 0.70% 0.68% 0.70% 0.71%
Net investment income....... 4.84% 2.72% 2.68% 4.28% 6.39% 7.74% 7.94% 6.22% 5.47% 6.85%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $542 $472 $509 $533 $597 $300 $244 $236 $177 $182
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVES OF THE TRUST ARE HIGH CURRENT INCOME, PRESERVATION
OF CAPITAL AND LIQUIDITY.
The Trust seeks to achieve its objectives by investing in U.S. Government
securities, including a variety of securities which are issued or guaranteed by
the United States Treasury, by various agencies of the United States Government,
and by various instrumentalities which have been established or sponsored by the
United States Government, and certain interests in the foregoing securities.
Except for U.S. Treasury securities, these obligations, even those which are
guaranteed by Federal agencies or instrumentalities, may or may not be backed by
the "full faith and credit" of the United States. In the case of securities not
backed by the full faith and credit of the United States, they may be backed, in
part, by a line of credit with the U.S. Treasury (such as the Federal National
Mortgage Association), or the Trust must look to the agency issuing or
guaranteeing the obligation for ultimate repayment (such as securities of the
Federal Farm Credit System) in which case the Trust may not be able to assert a
claim against the United States itself in the event the agency or
instrumentality does not meet its commitments.
Treasury securities include Treasury bills, Treasury coupons, Treasury
notes, and Treasury bonds (including zero coupon bonds). Some of the Government
agencies and instrumentalities which issue or guarantee securities include the
Federal Farm Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Government National Mortgage Association, the Federal
National Mortgage Association, the Farmers Home Administration, the Federal Land
Banks, the Small Business Administration, the Export-Import Bank, the Federal
Intermediate Credit Banks and the Banks for Cooperatives.
The Trust may invest in securities issued or guaranteed by any agency or
instrumentality established or sponsored by the United States Government. Such
investments may take the form of participation interests in, and may be
evidenced by deposit or safekeeping receipts for, any of the foregoing.
Participation interests are pro rata interests in U.S. Government securities
held by others such as interests in pools of mortgages sold by the Government
National Mortgage Association; instruments evidencing deposit or safekeeping are
documentary receipts for such original securities held in custody by others.
The Federal Deposit Insurance Corporation is the administrative authority
over the Bank Insurance Fund and the Savings Insurance Fund which are the
agencies of the U.S. Government which insure (including both principal and
interest) the deposits of certain banks and savings and loan associations up to
$100,000 per deposit. Current federal regulations also permit such institutions
to issue insured negotiable certificates of deposit ("CDs") in principal amounts
of $100,000 or more without regard to the interest rate ceilings on other
deposits. To remain fully insured as to principal, these investments must
currently be limited to $100,000 per bank or savings and loan association. The
interest on such investments is not insured. The Trust may invest in such CDs of
banks and savings and loan institutions having total assets of less than
$1,000,000,000, limited to the insured amount of principal ($100,000) in each
case and limited with regard to all such CDs and all illiquid assets, in the
aggregate, to 10% of the Trust's total assets.
The Trust intends normally to hold its portfolio securities to maturity.
Historically, securities issued or guaranteed by the U.S. Government or its
agencies and instrumentalities have involved minimal risk of loss of principal
or interest, if held to maturity.
The Trust may not borrow money, except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might otherwise
require the untimely disposition of securities. Borrowing in the aggregate,
including reverse repurchase agreements, may not exceed 20%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the value of the
Trust's total assets (including the amount borrowed), less liabilities (not
including
4
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
the amount borrowed) at the time the borrowing is made.
The investment objectives and policies stated above may not be changed
without shareholder approval. There is no assurance that the Trust's objectives
will be achieved.
PORTFOLIO MANAGEMENT
REPURCHASE AGREEMENTS. The Trust may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Trust, and which
typically involve the acquisition by the Trust of government securities from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Trust will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral") at a specified price and at a fixed time in the future. The Trust
will accrue interest from the institution until the time when the repurchase is
to occur. Although such date is deemed by the Trust to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed thirteen months. While
repurchase agreements involve certain risks not associated with direct
investments in U.S. Government securities, the Trust follows procedures designed
to minimize such risks. These procedures include effecting repurchase
transactions only with large, well capitalized and well established financial
institutions and specifying the required value of the collateral underlying the
agreement.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Trust may purchase
securities on a when-issued or delayed delivery basis; i.e., delivery and
payment can take place a month or more after the date of the transaction. When
such transactions are negotiated, the price is fixed at the time of commitment,
but delivery and payment can take place between one month and 120 days after the
date of the commitment. These securities are subject to market fluctuation and
no interest accrues to the purchaser during this period. At the time the Trust
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, it will record the transaction and thereafter reflect the value, each
day, of such security in determining its net
asset value.
All the foregoing strategies may subject the Trust to the effects of
interest rate fluctuations to a greater extent than would occur if such
strategies were not used. While such strategies listed above may be used by the
Trust if, in the opinion of the Investment Manager, they will be advantageous to
the Trust, the Trust will be free to reduce or eliminate its activity in any of
these areas without changing its fundamental investment policies. Certain
provisions of the Internal Revenue Code, related regulations, and rulings of the
Internal Revenue Service may also have the effect of reducing the extent to
which the previously cited techniques may be used by the Trust, either
individually or in combination. Furthermore, there is no assurance that any of
these strategies or any other strategies and methods available to the Trust will
result in the achievement of its objectives.
The Trust will invest in securities of varying maturities and risks,
although it will not invest in securities with an effective maturity of more
than one year. The Trust will generally not seek profits through short-term
trading, although it may dispose of any portfolio security prior to maturity if,
on the basis of a revised evaluation or other circumstance or consideration, the
Investment Manager deems such disposition advisable.
The Trust is expected to have a high portfolio turnover due to the short
maturities of securities purchased, but this should not affect income or net
asset value as brokerage commissions are not normally charged on the purchase or
sale of money market instruments such as U.S. Government obligations.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on the
purchase or sale of money market instruments such as U.S. Government
obligations, but such transactions may involve transaction costs in the form of
spreads between bid and asked prices. Pursuant to an order of the Securities and
Exchange Commission, the Trust may effect principal transactions in certain
money market instruments with Dean Witter. In addition, the Trust may incur
brokerage commissions on transactions conducted through Dean Witter.
5
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $542,459,392)............ $ 542,459,392
Cash...................................... 97,846
Prepaid expenses and other assets......... 49,625
-------------
TOTAL ASSETS........................ 542,606,863
-------------
LIABILITIES:
Payable for:
Investment management fee............... 224,629
Plan of distribution fee................ 45,602
Shares of beneficial interest
repurchased............................ 71
Accrued expenses and other payables....... 117,491
-------------
TOTAL LIABILITIES................... 387,793
-------------
NET ASSETS:
Paid-in-capital........................... 542,218,978
Accumulated undistributed net investment
income................................... 92
-------------
NET ASSETS.......................... $542,219,070
-------------
-------------
NET ASSET VALUE PER SHARE, 542,218,978
shares outstanding (unlimited shares
authorized of $.01 par value)............ $1.00
-------------
-------------
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME........................... $ 28,771,067
-------------
EXPENSES
Investment management fee............... 2,595,218
Plan of distribution fee................ 515,161
Registration fees....................... 118,708
Transfer agent fees and expenses........ 118,383
Professional fees....................... 49,927
Custodian fees.......................... 32,639
Trustees' fees and expenses............. 29,134
Shareholder reports and notices......... 26,038
Other................................... 9,815
-------------
TOTAL EXPENSES...................... 3,495,023
-------------
NET INVESTMENT INCOME AND NET
INCREASE........................... $ 25,276,044
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30,1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income and net increase............................................... $25,276,044 $14,190,506
Dividends to shareholders from net investment income................................... (25,276,526) (14,190,247)
Net increase (decrease) from transactions in shares of beneficial interest............. 70,718,948 (37,081,813)
------------- -------------
Total increase (decrease).......................................................... 70,718,466 (37,081,554)
NET ASSETS:
Beginning of period.................................................................... 471,500,604 508,582,158
------------- -------------
END OF PERIOD (including undistributed net investment income of $92 and $574,
respectively)......................................................................... $542,219,070 $471,500,604
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Active Assets Government Securities
Trust (the "Trust") is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a diversified, open-end management investment company.
The Trust was organized as a Massachusetts business trust on March 30, 1981 and
commenced operations on July 7, 1981.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--Portfolio securities are valued at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and accretes discounts on securities
purchased over the life of the respective securities. Interest income is
accrued daily.
C. FEDERAL INCOME TAX STATUS--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Trust records dividends
and distributions to shareholders as of the close of each business day.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays its Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to the net assets of the Trust
determined as of the close of each business day: 0.50% to the portion of the
daily net assets not exceeding $500 million; 0.425% to the portion of the daily
net assets exceeding $500 million but not exceeding $750 million; 0.375% to the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% to the portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.325% to the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of the
daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to
the portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% to the portion of the daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Trust who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Trust.
3. PLAN OF DISTRIBUTION--Dean Witter Distributors Inc. (the "Distributor"), an
affiliate of the Investment Manager, is the distributor of the Trust's shares
and, in accordance with a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Trust, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor and other
broker-dealers under the Plan: (1) compensation to, and expenses of, the
Distributor and other broker-dealers; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
the Trust's shares; (3) expenses incurred in connection with promoting sales of
the Trust's shares; (4) preparing
7
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
and distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
The Trust is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Trust's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of 0.15% of the Trust's
average daily net assets during the month. Expenses incurred by the Distributor
pursuant to the Plan in any fiscal year will not be reimbursed by the Trust
through payments accrued in any subsequent fiscal year. For the year ended June
30, 1995, the distribution fee was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and proceeds from sales/maturities of portfolio securities for the
year ended June 30, 1995 aggregated $7,638,901,868 and $7,595,098,565,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1995, the Trust had
transfer agent fees and expenses payable of approximately $10,400.
The Trust established an unfunded noncontributory defined benefit pension
plan covering all independent Trustees of the Trust who will have served as
independent Trustees for at least five years at the time of retirement. Benefits
under this plan are based on years of service and compensation during the last
five years of service. Aggregate pension costs for the year ended June 30, 1995,
included in Trustees' fees and expenses in the Statement of Operations, amounted
to $8,161. At June 30, 1995, the Trust had an accrued pension liability of
$50,063 included in accrued expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial
interest, at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 1,974,285,922 1,898,931,530
Shares issued in reinvestment of dividends....................................... 25,245,423 14,176,134
----------------- -----------------
1,999,531,345 1,913,107,664
Shares repurchased............................................................... (1,928,812,397) (1,950,189,477)
----------------- -----------------
Net increase (decrease) in shares outstanding.................................... 70,718,948 (37,081,813)
----------------- -----------------
----------------- -----------------
</TABLE>
6. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
8
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATE PURCHASE VALUE
- ----------- ----------------------------------------------------------------------------- -------------- -------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES (99.1%)
$ 90,605 Federal Farm Credit Bank
08/02/95 to 01/18/96....................................................... 5.71 to 6.23% $ 89,229,415
245,515 Federal Home Loan Banks
07/03/95 to 02/01/96....................................................... 5.67 to 6.89 242,794,190
79,503 Federal Home Loan Mortgage Corp.
07/05/95 to 11/01/95....................................................... 5.58 to 6.13 78,820,444
111,250 Federal National Mortgage Association
08/09/95 to 10/31/95....................................................... 5.80 to 6.42 109,686,438
17,000 Tennessee Valley Authority
07/11/95 to 07/26/95....................................................... 5.91 to 5.97 16,947,972
-------------
TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST $537,478,459)................................. 537,478,459
-------------
U.S. GOVERNMENT OBLIGATION (0.9%)
5,000 U.S. Treasury Bill 07/27/95 (Amortized Cost $4,980,933) 5.57 4,980,933
-------------
TOTAL INVESTMENTS (AMORTIZED COST $542,459,392)(A).............................. 100.0% 542,459,392
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.................................. (0.0) (240,322)
------ -------------
NET ASSETS...................................................................... 100.0% $ 542,219,070
------ -------------
------ -------------
</TABLE>
- ------------
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
SEE NOTES TO FINANCIAL STATEMENTS
9
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Active Assets Government Securities Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights (which appear under the
heading "Financial Highlights" on page 3 of this Prospectus) present fairly, in
all material respects, the financial position of Active Assets Government
Securities Trust (the "Trust") at June 30, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the ten years
in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 4, 1995
10
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
APPENDIX
THIS APPENDIX CONSTITUTES PART OF THE PROSPECTUSES OF THE ACTIVE ASSETS
MONEY TRUST (THE "MONEY TRUST"), THE ACTIVE ASSETS TAX-FREE TRUST (THE "TAX-FREE
TRUST"), THE ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST (THE "CALIFORNIA TAX-FREE
TRUST") AND THE ACTIVE ASSETS GOVERNMENT SECURITIES TRUST (THE "GOVERNMENT
SECURITIES TRUST"). THE MONEY TRUST, THE TAX-FREE TRUST, THE CALIFORNIA TAX-FREE
TRUST AND THE GOVERNMENT SECURITIES TRUST ARE REFERRED TO IN THIS APPENDIX
COLLECTIVELY AS THE "TRUSTS". UNLESS OTHERWISE INDICATED, THE INFORMATION SET
FORTH HEREIN IS APPLICABLE TO EACH TRUST.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE OF SHARES
The shares of the Trusts are offered to participants in the Active Assets
financial service program (non-participants see below). Persons subscribing to
the program will have the free credit cash balances in their Active Assets
securities account invested in shares of the Money Trust, the Tax-Free Trust,
the California Tax-Free Trust or the Government Securities Trust or deposited in
the Active Assets Insured Account (a Federal Deposit Insurance Corporation
insured bank account), depending upon which investment vehicle has been
designated by the participant. For further information consult the Dean Witter
Client Agreement.
Purchases of shares of the Trusts by program participants will be made only
pursuant to the Active Assets automatic purchase procedures described below.
Subscribers to Active Assets services have the option to change the
designation of their Trust at any time by notifying their Dean Witter Account
Executive.
The purchase price for shares of the Trusts is the net asset value per share
next determined after receipt by a Trust of a purchase order, pursuant to the
Active Assets program, in proper form. The Trusts anticipate that the net asset
value will remain constant at $1.00 per share and that any fluctuations in value
will be reflected in the daily dividend or in the number of outstanding shares
in the shareholder's account rather than in the per share dollar value. The net
asset value is determined at 12 noon, New York time, on each day that the New
York Stock Exchange is open for business, immediately after the daily
declaration of dividends or on each other day in which there is a sufficient
degree of trading in the Trust's portfolio securities that the current net asset
value of the Trust's shares might be materially affected by changes in the value
of such portfolio securities, but only if on any such day the Trust is required
by the provisions of the Active Assets program to purchase or redeem Trust
shares or receives a request from a non-participant in the Active Assets program
to purchase or redeem shares of the Trust. Shares purchased will receive the
next dividend declared after such shares are issued which will be immediately
prior to the 12 noon pricing on the following business day. The net asset value
per share will not be determined on Good Friday and on such other federal and
non-federal holidays as are observed by the New York Stock Exchange.
A purchase order will not be effective until Federal funds become available
to the Trusts. Federal funds are a commercial bank's deposits in a Federal
Reserve Bank and can be transferred from one member bank's account to that of
another member bank on the same day and thus are considered to be immediately
available funds. There are no minimum investment requirements for the Trusts
(with the exception of non-participants in the Active Assets Program--see below)
although the minimum requirement for entry in the Active Assets program is
currently $10,000 in cash and/or securities. Dean Witter reserves the right to
alter or
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waive the conditions upon which an Active Assets account may be opened.
Free credit cash balances held in an Active Assets account will be
automatically invested daily in shares of either the Money Trust, the Tax-Free
Trust, the California Tax-Free Trust or the Government Securities Trust, if a
Trust has been selected for investment by the participant, on each business day
on which the New York Stock Exchange is open. Free credit cash balances will be
invested in shares at the price next determined, which is 12 noon New York time,
on the next business day following the credit of any such amounts to the Active
Assets account. Free credit balances arising from a cash payment into an Active
Assets account shall be so invested unless such payment is made after the
cashiering deadline of the Dean Witter office in which the payment is made, in
which case the resulting free credit balance shall be invested on the second
following business day and the investor will not receive the daily dividend
which would have been received had such balance been invested in the designated
Trust. An Active Assets participant desiring to make such a cash payment should
contact his or her Dean Witter Account Executive for information concerning the
local office's cashiering deadline, which is dependent on such office's
arrangements with its commercial banks.
Each Trust has entered into a Distribution Agreement with Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of InterCapital, which has
its principal executive offices at Two World Trade Center, New York, New York
10048. The Distribution Agreements obligate the Distributor to pay certain
expenses in connection with the offering of the shares of the Trusts, including
costs involved in the distribution of prospectuses and periodic reports to
investors, other supplementary sales literature and advertising costs. However,
costs and expenses incurred by the Distributor may be reimbursed by the Trusts
pursuant to the provisions of the respective Plans of Distribution pursuant to
Rule 12b-1 (see page A-6).
From time to time, certain state administrative agencies may raise questions
as to whether the operation of the Active Assets program constitutes banking
under the laws of their state. In addition, legislation has been proposed in
certain states which, if enacted, could require a modification of the Active
Assets program in those states. The Distributor and Dean Witter are not banks
and believe that the operation of the Active Assets program does not constitute
banking under the laws of any state. The Distributor and Dean Witter intend to
fully contest and resist any regulatory or legislative challenges to the Active
Assets program. Final adverse rulings in any state that the Active Assets
program constitutes unauthorized banking therein or the adoption of legislation
by any state affecting the Active Assets program could force the Trusts to
liquidate shares of residents in such state or to cease offering their shares in
such state as part of the Active Assets program.
PURCHASE OF SHARES BY NON-PARTICIPANTS IN ACTIVE ASSETS PROGRAM
Shares of the Trusts may be purchased by investors maintaining brokerage
accounts with Dean Witter who choose not to participate in the Active Assets
program. Shareholders of the Trusts not participating in the Active Assets
program will not be charged a program fee. The minimum initial purchase for
non-participants is $5,000 and the minimum subsequent purchase is $1,000.
Non-participants in the Active Assets program who are participating in other
brokerage account programs with Dean Witter may have different initial and/or
subsequent purchase minimum accounts, and may make share purchases automatically
through their account programs. Dean Witter account holders should contact their
account executive for further information concerning methods of purchase.
The Trusts have been created for the purpose of serving as investments for
participants in the Active Assets program and, as such, do not in themselves
offer such typical money market fund features as check writing and exchange
privileges. There are other money market funds, including funds managed by
InterCapital, which have investment objectives similar to the Trusts and which
offer check writing and exchange privileges. Prior to making an investment in
any such money market fund, an investor should obtain and read the prospectus.
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REDEMPTION OF SHARES
Each Trust is required to redeem for cash all full and fractional shares of
the Trust. The redemption price is the net asset value per share next determined
after receipt by Dean Witter Trust Company (the "Transfer Agent") of
instructions from Dean Witter in accordance with the automatic procedure set
forth below (non-participants in the Active Assets program see below). Such
instructions are delivered to the Transfer Agent prior to the determination of
net asset value at 12 noon, New York time, on any day that the New York Stock
Exchange is open for business, or on each other day in which there is a
sufficient degree of trading in the Trust's portfolio securities that the
current net asset value of the Trust's shares might be materially affected by
changes in the value of such portfolio securities, but only if on any such day
the Trust is required by the provisions of the Active Assets program to purchase
or redeem Trust shares. Payment of the redemption proceeds will be made on the
same day the redemption becomes effective. Shareholders will receive upon
redemption all dividends declared and reinvested until the time of redemption.
Redemption will be automatically effected by Dean Witter to satisfy debit
balances in the Securities Account created by activity therein or to satisfy
debit balances created by Visa credit card purchases, cash advances or checks
written against the Visa Account. Each Active Assets account will be
automatically scanned for debits each business day that the New York Stock
Exchange is open for business as of the close of business on that day, and after
application of any free credit cash balances in the account to such debits, a
sufficient number of Trust shares owned by the Active Assets participants will
be redeemed at 12 noon the following business day to satisfy any remaining
debits in either the Securities Account or the Visa Account. Margin loans will
be utilized to satisfy debits remaining after the liquidation of all Trust
shares in an Active Assets participant's account and shares may not be purchased
until all debits and margin loans in the account are satisfied. Dean Witter (not
the Trusts) may impose a fee for the use of the Visa credit card to obtain cash
advances.
The right to receive payment with respect to any redemption may be suspended
by each Trust for a period of up to seven days. Suspensions of more than seven
days may not be made except (1) for any period (a) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings or
(b) during which trading on the New York Stock Exchange is restricted; (2) for
any period during which an emergency exists as a result of which (a) disposal by
the Trust of securities owned by it is not reasonably practicable or (b) it is
not reasonably practicable for the Trust to fairly determine the value of its
net assets; or (3) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of security holders of the
Trust. The Commission shall by rules and regulations determine the conditions
under which (i) trading shall be deemed to be restricted and (ii) an emergency
shall be deemed to exist within the meaning of clause (2) above. At various
times the Trusts may be requested to redeem shares with respect to which good
payment has not yet been received by the Distributor. A Trust may delay, or
cause to be delayed, the payment of the redemption proceeds until such time as
it has assured itself that good payment has been collected for the purchase of
such shares. In addition, where the shares to be redeemed have been purchased by
check (including a certified or bank cashier's check), automatic and manual
redemptions may be delayed for the minimum time needed to verify that the check
used for investment has been honored (not more than fifteen days from the time
of receipt of the check).
The total value of a shareholder's investment in a Trust at the time of
redemption may be more or less than his or her cost, depending on the value of
the securities held by the Trust at such time and income earned.
If a participant wishes to reduce or eliminate his or her investment in the
Trust shares component of the Active Assets program, he or she should first call
the Active Assets information number shown on the cover page preceding the
Active Assets Money Trust Prospectus, to ascertain the balance in his or her
Trust Account. He or she may then withdraw an amount equal to the value of
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<PAGE>
such shares, less any charges pending in his or her Active Assets account, in
any of the following ways:
(a) by writing a check against the Visa Account in such amount;
(b) by obtaining a cash advance from a Visa participating bank or branch
thereof for such amount (which the bank may limit to $5,000 per account
per day); or
(c) by calling his or her Dean Witter Account Executive and requesting a
cash disbursement from the Active Assets program for such amount.
In any of the above methods, the Trust share balance at any time is subject
to reduction due to prior debits against the participant's account. Accordingly,
if payment is requested through the Visa Account check or the cash advance
methods and if any other debits are paid by automatic redemption of Trust shares
prior to the time the check or cash advance charge is presented for payment,
then the Trust share balance will be reduced. If so, payment of the check or
cash advance may be paid in part from the margin loan value of the Securities
Account or may result in an overdraft. In addition, Dean Witter (not the Trusts)
may impose a fee for the checkwriting service on certain Active Assets accounts.
Under the Active Assets program, both Dean Witter and Bank One have the
right to terminate an Active Assets account for any reason. In such event, all
shares held in a shareholder's account will be redeemed.
REDEMPTION OF SHARES BY NON-PARTICIPANTS IN ACTIVE ASSETS PROGRAM
Shareholders who are not participating in the Active Assets program should
contact Dean Witter, through his or her account executive, on any day the New
York Stock Exchange is open, to effect a redemption of shares of the Trust. All
such redemption requests will be promptly forwarded to the Transfer Agent;
redemption requests should not be sent directly to the Trusts or the Transfer
Agent. If such requests are inadvertently sent to the Trust or Transfer Agent,
they will be forwarded to the Distributor. Cash proceeds from the manual
redemption of Trust shares ordinarily will be credited to the shareholder's Dean
Witter brokerage account or, on request, will be mailed to the shareholder at
his or her address of record. In certain instances, as where redemption requests
are received in writing, such redemption requests will require written notices
containing the signatures of all persons in whose name the shares are
registered, or additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. Non-participants in the Active Assets
program who are participating in other brokerage account programs with Dean
Witter may effect redemption of shares automatically, as provided for in their
account program. Dean Witter account holders should contact their account
executive for further information concerning methods of redemption.
HOW NET ASSET VALUE IS DETERMINED
The net asset value per share of each Trust, for the purpose of calculating
the price at which shares are issued and redeemed, is determined by the
Investment Manager as of 12 noon New York time on each day that the New York
Stock Exchange is open for business, immediately after the daily declaration of
dividends. Each Trust will also calculate such price on each other day in which
there is a sufficient degree of trading in that Trust's portfolio securities,
such that the current net asset value of the Trust's shares might be materially
affected by changes in the value of such portfolio securities, but only if on
any such day the Trust is required by the provisions of the Active Assets
program to purchase or redeem Trust shares or receives a request from a
non-participant in the Active Assets program to purchase or redeem Trust shares.
The determination of net asset value is made by subtracting from the value of
the assets of a Trust the amount of its liabilities, and dividing the remainder
by the number of outstanding shares of the Trust.
The Trusts utilize the amortized cost method in valuing their portfolio
securities, even though the portfolio securities may increase or decrease in
market value, generally, in regards to changes in interest rates. The amortized
cost method of
valua-
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<PAGE>
tion involves valuing a security at its cost adjusted by a constant amortization
to maturity of any original issue discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. The purpose
of this method of calculation is to facilitate the maintenance of a constant net
asset value per share of $1.00, although there is no assurance that the $1.00
net asset value will be maintained.
CONFIRMATIONS
All purchases and redemptions of Trust shares and dividend reinvestments
will be confirmed monthly to the shareholder (rounded to the nearest share) in
the Active Assets Account Statement. Dean Witter has received an exemptive order
from the Securities and Exchange Commission which permits it to omit sending out
more frequent confirmations with respect to purchases and redemptions.
In the interest of economy and convenience and because of the operating
procedures of the Trusts, certificates representing the Trusts' shares will not
be physically issued. Shares are maintained by the Trusts on the register
maintained by the Transfer Agent and the holders thereof will have the same
rights of ownership with respect to such shares as if certificates had been
issued.
THE TRUSTS AND THEIR MANAGEMENT
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Money Trust, Tax-Free Trust, California Tax-Free Trust and Government
Securities Trust are all no-load, open-end diversified investment management
companies. Money Trust, Tax-Free Trust and Government Securities Trust were
organized under the laws of the Commonwealth of Massachusetts as business trusts
on March 30, 1981. California Tax-Free Trust was organized under the laws of the
Commonwealth of Massachusetts as a business trust on July 10, 1991.
InterCapital, located at Two World Trade Center, New York, New York 10048,
is the Trusts' Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter. Dean
Witter is a wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a
balanced financial services organization providing a broad range of nationally
marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-four investment companies (the "Dean Witter
Funds"), thirty of which are listed on the New York Stock Exchange, with
combined assets of approximately $71 billion at June 30, 1995. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.2 billion at such date.
The Trusts have retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Trusts' Trustees review the various services provided by the Investment
Manager to ensure that the Trusts' general investment policies and programs are
being properly carried out and that administrative services are being provided
to the Trusts in a satisfactory manner.
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As full compensation for the services and facilities furnished to the Trusts
and expenses of the Trusts assumed by the Investment Manager, the Trusts pay the
Investment Manager monthly compensation calculated daily by applying a
percentage rate to the daily net assets of each of the respective Trusts which
declines as net assets of the Trusts reach specified levels (up to $3 billion).
For the fiscal years ended June 30, 1995, the Trusts accrued total compensation
to the Investment Manager amounting to 0.32% (Money Trust), 0.42% (Tax-Free
Trust), 0.50% (California Tax-Free Trust) and 0.50% (Government Securities
Trust) of the respective Trusts' average daily net assets and the Trusts' total
expenses amounted to 0.49% (Money Trust), 0.56% (Tax-Free Trust), 0.67%
(California Tax-Free Trust) and 0.67% (Government Securities Trust) of the
respective Trusts' average daily net assets.
PLAN OF DISTRIBUTION
Each Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act. Under the respective Plans, the Distributor has expanded the nature of
its promotional activities on behalf of the respective Trusts and uses its best
efforts to foster additional sales of Trust shares. The respective Plans provide
that the Distributor bear the expense of all promotional and distribution
related activities on behalf of the respective Trusts, except for expenses that
the respective Trustees determine to reimburse, as described below. The
following activities and services may be provided by the Distributor under the
respective Plans: (1) compensation to sales representatives of Dean Witter and
other broker-dealers; (2) sales incentives and bonuses to sales representatives
and to marketing personnel in connection with promoting sales of shares of the
Trusts; (3) expenses incurred in connection with promoting sales of shares of
the Trusts; (4) preparing and distributing sales literature; and (5) providing
advertising and promotional activities, including direct mail solicitation and
television, radio, newspaper, magazine and other media advertisements.
Reimbursements for these services are made in monthly payments by each Trust at
the annual rate of up to 0.15 of 1% of the average daily net assets of each
Trust. Such payments were made by Money Trust, Tax-Free Trust, California
Tax-Free Trust and Government Securities Trust at the annual rate of 0.10 of 1%
of each Trust's average daily net assets for their respective fiscal years ended
June 30, 1995. Dean Witter account executives are paid an annual residual
commission, currently a gross residual of up to 0.10 of 1% of the current value
of the respective accounts of which they are the account executive of record. In
addition, some Dean Witter sales personnel will receive various types of
non-cash compensation as special sales incentives, including trips, educational
and/ or business seminars and merchandise. Expenses incurred by the Distributor
pursuant to the Plans in any fiscal year will not be reimbursed by any Trust
through payments accrued in any subsequent fiscal year.
Each Trust's expenses include: the Investment Management fee; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
certain legal, transfer agent, custodian and auditing fees; and printing and
other expenses relating to the Trust's operations which are not expressly
assumed by the Investment Manager under its Investment Management Agreement with
each Trust.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS
Each Trust declares dividends, payable on each day the New York Stock
Exchange is open for business, of all of its daily net investment income (and,
with respect to Money Trust and Government Securities Trust, net short-term
capital gains, if any) to shareholders of record as of 12 noon New York time of
the preceding business day. With respect to Tax-Free Trust and California
Tax-Free Trust, dividends from net short-term capital gains, if any, will be
paid periodically. The amount of dividend may fluctuate from day to day and may
be
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omitted on some days if net realized losses on portfolio securities exceed a
Trust's net investment income. Dividends are automatically reinvested daily in
additional full and fractional shares of a Trust at the net asset value per
share determined at 12 noon, New York time on that day.
Each Trust intends to distribute dividends from net long-term capital gains,
if any, at least once each year. A Trust may, however, elect to retain all or a
portion of any net long-term capital gains in any year for reinvestment.
Dean Witter will send to each shareholder a monthly summary of his or her
account, including information as to dividends reinvested, on the Dean Witter
Transaction Statement.
TAXES
Because the Trusts currently intend to distribute all of their net
investment income and net capital gains, if any, to shareholders and intend to
otherwise comply with all the provisions of Subchapter M of the Internal Revenue
Code, as amended (the "Code"), to qualify as regulated investment companies, it
is not expected that the Trust will be required to pay any federal income tax.
To avoid being subject to a 31% federal withholding tax on taxable
dividends, capital gains distributions and proceeds of redemptions,
shareholders' taxpayer identification numbers must be furnished and certified as
to accuracy.
MONEY TRUST AND GOVERNMENT SECURITIES TRUST. Distributions of net investment
income and realized net short-term capital gains are taxable to shareholders as
ordinary income, whether such distributions are taken in cash or reinvested in
additional shares. Distributions of long-term capital gains, if any, are taxable
as long-term capital gains, regardless of how long the shareholder has held a
Trust's shares. No portion of such dividends or distributions will be eligible
for the federal dividends received deduction for corporations. The Trusts advise
their shareholders annually as to the federal income tax status of distributions
paid during each calendar year.
TAX-FREE TRUST AND CALIFORNIA TAX-FREE TRUST. The Trusts intend to qualify
to pay "exempt-interest dividends" to their shareholders by maintaining as of
the close of each quarter of their taxable year, at least 50% of the value of
their total assets in tax-exempt securities. If a Trust satisfies such
requirement, dividends from net investment income to shareholders, whether taken
in cash or reinvested in additional Trust shares, will be excludable from gross
income for federal income tax purposes to the extent net interest income is
represented by interest on tax-exempt securities. Exempt-interest dividends are
included, however, in determining what portion, if any, of a person's Social
Security benefits are subject to federal income tax.
The Code now subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax applies
to interest received on "private activity bonds" (in general, bonds that benefit
non-government entities) issued after August 7, 1986 which, although tax-exempt
are used for purposes other than those generally performed by governmental units
(e.g., bonds used for commercial or housing purposes). Income received on such
bonds is classified as a "tax preference item", under the alternative minimum
tax, for both individual and corporate investors. A portion of a Trust's
investments may be made in such "private activity bonds," with the result that a
portion of the exempt-interest dividends paid by a Trust will be an item of tax
preference to shareholders subject to the alternative minimum tax. In addition,
certain corporations which are subject to the alternative minimum tax may have
to include a portion of exempt-interest dividends in calculating their
alternative minimum taxable income in situations where the "adjusted current
earnings" of the corporation exceeds its preadjustment alternative minimum
taxable income.
Under California law, an investment company which qualifies as a regulated
investment company
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must have at least 50% of the value of its total assets invested in California
state and local issues or in obligations of the United States which if held by
an individual, would pay interest excludable from income (or in a combination
thereof), at the end of each quarter of its taxable year in order to be eligible
to pay dividends which will be exempt from California personal income tax.
Shareholders of California Tax-Free Trust who are California residents will not
incur any federal or California income tax on the amount of exempt-interest
dividends received by them from the Trust and derived from California state and
local issues or certain United States issues whether taken in cash or reinvested
in additional shares to the extent that such dividends are derived from
California securities.
Within 60 days after the end of its fiscal year, the Trusts will mail to
shareholders statements indicating the percentage of the dividend distributions
for such fiscal year which constitutes exempt-interest dividends and the
percentage, if any, that is taxable, and the percentage, if any, of the exempt-
interest dividends which constitutes an item of tax preference. This percentage
should be applied uniformly to any distributions made during the fiscal year to
determine the proportion of dividends that is tax-exempt. The percentage may
differ from the percentage of tax-exempt dividend distributions for any
particular month.
Unlike federal law, no portion of the exempt-interest dividends will
constitute an item of tax preference for California personal income tax
purposes. Moreover, unlike federal law, an individual's Social Security benefits
are not subject to California personal income tax, so that the receipt of
California exempt-interest dividends (from the California Tax-Free Trust) will
have no effect on an individual's California personal income tax.
Shareholders will normally be subject to federal and California personal
income tax on dividends paid from interest income derived from taxable
securities and on distributions of net capital gains, if any. For federal income
tax purposes, distributions of long-term capital gains, if any, are taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held a Trust's shares and regardless of whether the distribution is received
in additional shares or cash. In addition, for California personal income tax
purposes, the shareholders of the California Tax-Free Trust will not be subject
to tax, or receive a credit for tax paid by the Trust, on undistributed capital
gains, if any. With respect to the Tax-Free Trust, the exemption of interest
income for federal income tax purposes does not necessarily result in exemption
under the income or other tax laws of any state or local taxing authority. Thus,
shareholders of the Trust may be subject to state and local taxes on
exempt-interest dividends.
Distributions from investment income and long-term and short-term capital
gains will not be excluded from taxable income in determining the California
corporate income or franchise tax for corporate shareholders. Such distributions
also may be includable in income subject to the alternative minimum tax. In
addition, distributions from investment income and long-term and short-term
capital gains may be subject to state taxes in states other than California and
to local taxes.
Interest on indebtedness incurred by shareholders or related parties to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the Trust, generally will not be deductible by the investor
for federal or California personal income tax purposes.
The foregoing relates to federal income taxation and to California personal
income taxation as in effect as of the date of this Prospectus. Distributions
from investment income and capital gains, including exempt-interest dividends,
may be subject to California franchise taxes if received by a corporation doing
business in California, to state taxes in states other than California and to
local taxes.
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Shareholders should consult their tax advisers as to the applicability of
the above to their own tax situation.
CURRENT AND EFFECTIVE YIELD
From time to time the Trusts advertise their "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Trust refers to the income
generated by an investment in the Trust over a given seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that seven-day
period is assumed to be generated each seven-day period within a 365-day period
and is shown as a percentage of the investment. The "effective yield" for a
seven-day period is calculated similarly but, when annualized, the income earned
by an investment in a Trust is assumed to be reinvested each week within a
365-day period. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The Tax-Free
Trust and California Tax-Free Trust may also quote tax-equivalent yield, which
is calculated by determining the pre-tax yield which, after being taxed at a
stated rate, would be equivalent to the yield determined as described above.
GENERAL INFORMATION
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VOTING RIGHTS
All shares of beneficial interest of a Trust are of $0.01 par value and are
equal as to earnings, assets and voting privileges. There are no conversion,
pre-emptive or other subscription rights. In the event of liquidation, each
share of beneficial interest of a Trust is entitled to its portion of all of the
Trust's assets after all debts and expenses have been paid. The shares do not
have cumulative voting rights.
In accordance with each Trust's Declaration of Trust, the Trustees of a
Trust will be elected by a majority shareholder vote at the first meeting of
shareholders held following the initial offering of the shares of that Trust.
The Trustees will be elected for unlimited terms at the first meeting of
shareholders. The Trustees themselves have the power to alter the number and the
terms of office of the Trustees (as provided for in the Declaration of Trust),
and they may at any time lengthen or shorten their own terms or make their terms
of unlimited duration and appoint their own successors, provided that always at
least a majority of the Trustees has been elected by the shareholders of each
Trust. Under certain circumstances the Trustees may be removed by action of the
Trustees. The shareholders also have the right under certain circumstances to
remove the Trustees. The voting rights of shareholders are not cumulative, so
that holders of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being elected, while the holders of the remaining shares
would be unable to elect any Trustees. The Trust is not required to hold Annual
Meetings of Shareholders and in ordinary circumstances the Trust does not intend
to hold such meetings. The Trustees may call Special Meetings of Shareholders
for action by shareholder vote as may be required by the Act or the Declaration
of Trust.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares and the Trust has no present
intention to add additional series or classes of shares. Trustees may call
Special Meetings of Shareholders for action by shareholder vote as may be
required by the Act or the Declaration of Trust.
A-9
<PAGE>
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of a
Trust. The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of a Trust and requires that notice of such
disclaimer be given in each instrument entered into or executed by a Trust. The
Declaration of Trust provides for indemnification out of the Trust's property
for any shareholder held personally liable for the obligations of the Trust.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations. Given the nature of the Trusts' assets
and operations, the possibility of a Trust being unable to meet its obligations
is remote and, in the opinion of Massachusetts counsel to the Trusts, the risk
to Trust shareholders is remote.
CUSTODIAN
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Trusts' assets. The Custodian has no part in deciding the
Trusts' investment policies or which securities are to be purchased or sold for
the Trusts' portfolios. Any of the Trust's cash balances with the Custodian in
excess of $100,000 are unprotected by Federal deposit insurance. Such balances
may, at times, be substantial.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and option transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the recent report by the Investment Company Institute
Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Trusts should be
directed to the Trusts at the telephone number or at the address set forth on
the front cover of these Prospectuses.
A-10
<PAGE>
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in these
Prospectuses or in the Statements of Additional Information, in connection with
the offer contained in these Prospectuses or in the Statements of Additional
Information and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trusts or the
Distributor. These Prospectuses and the Statements of Additional Information do
not constitute an offer by the Trusts or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trusts or the
Distributor to make such offer in such jurisdiction.
ACTIVE ASSETS
MONEY TRUST
ACTIVE ASSETS
TAX-FREE TRUST
ACTIVE ASSETS
CALIFORNIA TAX-FREE
TRUST
ACTIVE ASSETS
GOVERNMENT
SECURITIES TRUST
PROSPECTUSES
AUGUST 29, 1995
The enclosed Prospectuses describe four fully managed money market trusts.
Shares of the Trusts are offered directly to clients of Dean Witter and to
participants in the Active Assets-Registered Trademark- Account program of Dean
Witter Reynolds Inc.
Investors should be aware that the Active Assets Account service is not a bank
account. As with any investment in securities, the value of a shareholder's
investment in the Trusts may fluctuate.
Principal Office of the Trusts
Two World Trade Center
New York, New York 10048
[LOGO]
<PAGE>
STATEMENTS OF ADDITIONAL INFORMATION
AUGUST 29, 1995 [LOGO]
- --------------------------------------------------------------------------------
Active Assets Money Trust (the "Money Trust" or the "Trust") is a no-load,
diversified open-end management investment company whose investment objectives
are high current income, preservation of capital and liquidity. The Money Trust
seeks to achieve its objectives by investing in a diversified portfolio of
short-term money market instruments.
Active Assets Tax-Free Trust (the "Tax-Free Trust" or the "Trust") is a
no-load, diversified open-end management investment company whose investment
objective is to provide as high a level of daily income exempt from federal
personal income tax as is consistent with stability of principal and liquidity.
The Tax-Free Trust seeks to achieve its objective by investing primarily in high
quality tax-exempt securities with short-term maturities.
Active Assets California Tax-Free Trust (the "California Tax-Free Trust" or
the "Trust") is a no-load, diversified open-end management investment company
whose investment objective is to provide as high a level of daily income exempt
from federal and California personal income tax as is consistent with stability
of principal and liquidity. The California Tax-Free Trust seeks to achieve its
objective by investing primarily in high quality tax-exempt securities with
short-term maturities.
Active Assets Government Securities Trust (the "Government Securities Trust"
or the "Trust") is a no-load, diversified open-end management investment company
whose investment objectives are high current income, preservation of capital and
liquidity. The Government Securities Trust seeks to achieve its objective by
investing in U.S. Government securities, including a variety of securities which
are issued or guaranteed by the United States Government, its agencies or
instrumentalities.
Prospectuses for the Money Trust, the Tax-Free Trust, the California
Tax-Free Trust and the Government Securities Trust, all dated August 29, 1995,
which provide the basic information you should know before investing in any of
the aforementioned Trusts, may be obtained without charge from any of the Trusts
at the address or telephone number listed below. These Statements of Additional
Information are not Prospectuses. They contain information in addition to and
more detailed than that set forth in the Prospectuses. They are intended to
provide additional information regarding the activities and operations of the
Trusts, and should be read in conjunction with the Prospectuses. They should be
read with the information appearing in the Appendix hereto which is a part of
these Statements of Additional Information.
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
(212) 392-2550
The shares of the Money Trust, the Tax-Free Trust, the California Tax-Free
Trust and the Government Securities Trust are offered to participants in the
Active Assets Account program of Dean Witter Reynolds Inc. ("Dean Witter"). In
addition, shares of the Trusts are offered to investors maintaining brokerage
accounts with Dean Witter who are not subscribers to the Active Assets program.
For further information, either consult the Dean Witter Client Agreement or
consult your Dean Witter Account Executive.
Active Assets Money Trust
<PAGE>
ACTIVE ASSETS MONEY TRUST
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Practices and Policies..................................... 3
Investment Restrictions............................................... 4
How Net Asset Value is Determined..................................... 5
Dividends, Distributions and Taxes.................................... 7
Financial Statements.................................................. 9
Report of Independent Accountants..................................... 14
APPENDIX
Investment Manager.................................................... A-1
Trustees and Officers................................................. A-7
Portfolio Transactions and Brokerage.................................. A-11
General Information................................................... A-12
Custodian and Transfer Agent.......................................... A-12
Independent Accountants............................................... A-13
Reports to Shareholders............................................... A-13
Legal Counsel......................................................... A-13
Experts............................................................... A-13
Registration Statement................................................ A-13
Information with Respect to Securities Ratings........................ A-14
</TABLE>
Active Assets Money Trust 2
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. As discussed in the Prospectus, when cash may be
available for only a few days, it may be invested by the Trust in repurchase
agreements until such time as it may otherwise be invested or used for payments
of obligations of the Trust. These agreements, which may be viewed as a type of
secured lending by the Trust, typically involve the acquisition by the Trust of
debt securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The agreement provides that the Trust will
sell back to the institution, and that the institution will repurchase, the
underlying security ("collateral"), which is held by the Trust's Custodian, at a
specified price and at a fixed time in the future, which is usually not more
than seven days from the date of purchase. The Trust will accrue interest from
the institution until the time when the repurchase is to occur. Although such
date is deemed by the Trust to be the maturity date of a repurchase agreement,
the maturities of securities subject to repurchase agreements are not subject to
any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Trust follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well capitalized and well established financial institutions,
whose financial condition will be continually monitored. In addition, the value
of the collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. Such collateral will consist of Government securities or
"Eligible Securities" (as described below under the caption "How Net Asset Value
is Determined") rated in the highest grade by a nationally recognized
statistical rating organization (a "NRSRO") whose ratings qualify the collateral
security as an Eligible Security. In the event of a default or bankruptcy by a
selling financial institution, the Trust will seek to liquidate such collateral.
However, the exercise of the Trust's 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 Trust could suffer a loss. It is the current policy of the Trust not
to invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid asset held by the Trust,
amount to more than 10% of its total assets. The Trust's investments in
repurchase agreements may, at times, be substantial when, in the view of the
Trust's investment manager, liquidity or other considerations warrant.
LENDING OF PORTFOLIO SECURITIES. Subject to Investment Restriction (2)
below, the Trust may lend portfolio securities to brokers, dealers and financial
institutions provided that cash equal to at least 100% of the market value
(including accrued interest) of the securities loaned is deposited by the
borrower with the Trust and is maintained each business day in a segregated
account pursuant to applicable regulations. While such securities are on loan,
the borrower will pay the Trust any income accruing thereon, and the Trust may
invest the cash collateral in portfolio securities, thereby earning additional
income. The Trust 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. The creditworthiness of firms to which the Fund lends its portfolio
securities will be monitored on an ongoing basis. Loans would be subject to
termination by the Trust in the normal settlement time, currently two business
days after notice, or by the borrower on one day's notice. Borrowed securities
must be returned when the loan is terminated. Any gain or loss in the market
price of the borrowed securities which occurs during the term of the loan inures
to the Trust and its shareholders. The Trust may pay reasonable finders,
borrowers, administrative, and custodial fees in connection with a loan. During
its fiscal year ended June 30, 1995, the Trust did not lend any of its portfolio
securities and it has no intention of doing so in the foreseeable future.
VARIABLE AND FLOATING RATE OBLIGATIONS. As stated in the Prospectus, the
Trust may invest in variable and floating rate obligations. The interest rate
payable on a variable rate obligation is adjusted at predesignated periodic
intervals and, on floating rate obligations, 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 Trust may demand prepayment of the
principal amount of the obligation prior to its stated
Active Assets Money Trust 3
<PAGE>
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 Trust to maintain a stable
net asset value per share (see "How Net Asset Value is Determined") and to sell
obligations prior to maturity at a price approximating the full principal amount
of the obligations. The principal benefit to the Trust of purchasing obligations
with a demand feature is that liquidity, and the ability of the Trust 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 the Trust 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 the
Trust's investment quality requirements.
------------
The Trust will attempt to balance its objectives of high current income,
preservation of capital and liquidity by investing in securities of varying
maturities and risks. The Trust will not, however, invest in securities with an
effective maturity of more than one year from the date of purchase (see "How Net
Asset Value is Determined"). The amounts invested in obligations of various
maturities of one year or less will depend on management's evaluation of the
risks involved. Longer-term issues, while generally paying higher interest
rates, are subject to greater fluctuations in value resulting from general
changes in interest rates than shorter-term issues. Thus, when rates on new debt
securities increase, the value of outstanding securities may decline, and vice
versa. Such changes may also occur, to a lesser degree, with short-term issues.
These changes, if experienced, may cause fluctuations in the amount of daily
dividends and, in extreme cases, could cause the net asset value per share to
decline (see "How Net Asset Value is Determined"). Longer-term issues also
increase the risk that the issuer may be unable to pay an installment of
interest or principal at maturity. In the event of unusually large redemption
demands, such securities may have to be sold at a loss prior to maturity, or the
Trust might have to borrow money and incur interest expenses. Either occurrence
would adversely impact upon the amount of daily dividends and could result in a
decline in the daily net asset value per share or the reduction by the Trust of
shares held in a shareholder's account. The Trust will attempt to minimize these
risks by investing in relatively longer-term securities when it appears to
management that yields on such securities are not likely to increase
substantially during the period of expected holding, and then only in securities
which are readily marketable. However, there can be no assurance that the Trust
will be successful in achieving this objective.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted as fundamental policies
which cannot be changed without the approval of the holders of a "majority" of
the outstanding shares of the Trust as defined in the Investment Company Act of
1940, as amended (the "Act"). Majority is defined in the Act as the lesser of
(a) sixty-seven percent or more of the shares present at a meeting of
shareholders, if the holders of more than fifty percent of the outstanding
shares of the Trust are present or represented by proxy, or (b) more than fifty
percent of the outstanding shares of the Trust.
These restrictions provide that the Trust may not:
1. Purchase any common stocks or other equity securities;
2. Make loans to others, except through the purchase of the debt
obligations and repurchase agreements referred to under "Investment
Practices and Policies" above and under "Investment Objectives and Policies"
in the Prospectus and loans of portfolio securities, not in excess of 10% of
the value of the Trust'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;
Active Assets Money Trust 4
<PAGE>
3. Purchase or sell real estate; however, the Trust may purchase
marketable securities issued by companies which invest in real estate or
interests therein;
4. Purchase securities on margin or sell short;
5. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs;
6. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities), except for repurchase
agreements;
7. Underwrite securities of other issuers;
8. Purchase warrants, or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof;
9. Participate on a joint or joint and several basis in any securities
trading account;
10. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
11. Purchase securities of any issuer for the purpose of exercising
control or management; and
12. Invest in securities of any issuer if, to the knowledge of the
Trust, any officer, Trustee or director of the Trust 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.
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
As discussed in the Appendix to the Prospectus, the net asset value of the
Trust is determined as of 12 noon New York time on each day that the New York
Stock Exchange is open. The New York Stock Exchange currently observes the
following holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
The Trust utilizes the amortized cost method in valuing its portfolio
securities for purposes of determining the net asset value of the shares of the
Trust. The Trust 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
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 Trust would receive if it sold the instrument. During
such periods the yield to investors in the Trust may differ somewhat from that
obtained in a similar company which uses mark to market values for all 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 Trust 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 Trust's use of the amortized cost method to value its portfolio
securities is permitted pursuant to Rule 2a-7 of the 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
Active Assets Money Trust 5
<PAGE>
care owed to the Trust's shareholders, to establish procedures reasonably
designed, taking into account current market conditions and the Trust'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)(i) the
procedures include 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 will 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 reducing the number of the outstanding
shares of the Trust) 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 methods of valuation. Any
reduction of outstanding shares will be effected by having each shareholder
proportionately contribute to the Trust's capital the necessary shares that
represent the amount of excess upon such determination. Each shareholder will be
deemed to have agreed to such contribution in these circumstances by investment
in the Trust. See "Dividends, Distributions and Taxes" for a discussion of the
tax effect of such reduction.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Trust's interest
in the instrument is subject to market action) until the date noted on the face
of the instrument as the date on which the principal amount must be paid, or in
the case of an instrument called for redemption, the date on which the
redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument 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 Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b)(i) is rated in the two
highest short-term rating categories by any two NRSRO that have issued a
short-term rating with respect to the security or class of debt obligations of
the issuer, or (ii) if only one NRSRO has issued a short-term rating with
respect to the security, then by that NRSRO; (c) was a long-term security at the
time of issuance whose issuer has outstanding a short-term debt obligation which
is comparable in priority and security and has a rating as specified in clause
(b) above; or (d) if no rating is assigned by any NRSRO as provided in clauses
(b) and (c) above, the unrated security is determined by the Board to be of
comparable quality to any such rated security. The Trust will limit its
investments to securities that meet the requirements for Eligible Securities
including the required ratings by S&P or Moody's, as set forth in the
prospectus.
As permitted by the Rule, the Board has delegated to the Trust's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, 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, the Trust 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, 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 determined
Active Assets Money Trust 6
<PAGE>
to be of comparable quality: (i) no more than 5% in the aggregate of the Trusts
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.
The Rule further requires that the Trust 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 the Trust
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 Trust
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 Board determines that it is no longer in the best interests of the
Trust and its shareholders to maintain a stable price of $1 per share or if the
Board believes that maintaining such price no longer reflects a market-based net
asset value per share, the Board has the right to change from an amortized cost
basis of valuation to valuation based on market quotations. The Trust will
notify shareholders of any such change.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Appendix to the Prospectus, the Trust intends to declare
dividends payable on each day the New York Stock Exchange is open for business
of all of its daily net investment income and net short-term capital gains, if
any, to shareholders of record as of 12 noon New York time of the preceding
business day. Net income, for dividend purposes, includes accrued interest and
amortization of original issue and market discount, plus or minus any short-term
gains or losses realized on sales of portfolio securities, less the amortization
of market premium and the estimated expenses of the Trust. Net income will be
calculated immediately prior to the determination of net asset value per share
of the Trust.
Gains or losses on the sales of securities by the Trust will be long-term
capital gains or losses if the securities have been held by the Trust for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
The Trustees may revise the above dividend policy, or postpone the payment
of dividends, if the Trust should have or anticipate any large unexpected
expense, loss or fluctuation in net assets which, in the opinion of the
Trustees, might have a significant adverse effect on shareholders. On occasion,
in order to maintain a constant $1 per share net asset value, the Trustees may
direct that the number of outstanding shares be reduced in each shareholder's
account. Such reduction may result in taxable income to a shareholder in excess
of the net increase (i.e., dividends, less such reductions), if any, in the
shareholder's account for a period. Furthermore, such reduction may be realized
as a capital loss when the shares are liquidated.
The Trust has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, the Trust will not be subject to federal
income or excise taxes provided that it distributes all of its taxable net
investment income and all of its net realized capital gains.
Active Assets Money Trust 7
<PAGE>
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of realized
net short-term capital gains. Such interest and realized net short-term capital
gains dividends and distributions are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Since the Trust's income is
expected to be derived entirely from interest rather than dividends, none of the
Trust's dividends/distributions will be eligible for the federal dividends
received deduction available to corporations.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined in general on an October 31 year end,
plus certain undistributed amounts from previous years. The Trust anticipates
that it will make sufficient timely distributions to avoid imposition of the
excise tax.
Under present Massachusetts law, the Trust is not subject to any
Massachusetts income tax during any fiscal year in which the Trust qualifies as
a regulated investment company. The Trust might be subject to Massachusetts
income taxes for any taxable year in which it does not so qualify as a regulated
investment company.
The Trust may be subject to tax or taxes in certain states where it does
business. Furthermore, in those states which have income tax laws, the tax
treatment of the Trust and of shareholders with respect to distributions by the
Trust may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state or local taxes.
INFORMATION ON COMPUTATION OF YIELD
The Trust'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 expenses of the Trust 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).
The Trust'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
Trust 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 Trust 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 Trust and changes in interest rates on
such investments, but also on changes in the Trust's expenses during the period.
Yield information may be useful in reviewing the performance of the Trust
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, the Trust's yield fluctuates.
The Trust's current yield for the seven days ending June 30, 1995 was 5.62%.
The effective annual yield on 5.62% is 5.77%, assuming daily compounding.
Active Assets Money Trust 8
<PAGE>
STATEMENTS OF ADDITIONAL INFORMATION
AUGUST 29, 1995 [LOGO]
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Active Assets Money Trust (the "Money Trust" or the "Trust") is a no-load,
diversified open-end management investment company whose investment objectives
are high current income, preservation of capital and liquidity. The Money Trust
seeks to achieve its objectives by investing in a diversified portfolio of
short-term money market instruments.
Active Assets Tax-Free Trust (the "Tax-Free Trust" or the "Trust") is a
no-load, diversified open-end management investment company whose investment
objective is to provide as high a level of daily income exempt from federal
personal income tax as is consistent with stability of principal and liquidity.
The Tax-Free Trust seeks to achieve its objective by investing primarily in high
quality tax-exempt securities with short-term maturities.
Active Assets California Tax-Free Trust (the "California Tax-Free Trust" or
the "Trust") is a no-load, diversified open-end management investment company
whose investment objective is to provide as high a level of daily income exempt
from federal and California personal income tax as is consistent with stability
of principal and liquidity. The California Tax-Free Trust seeks to achieve its
objective by investing primarily in high quality tax-exempt securities with
short-term maturities.
Active Assets Government Securities Trust (the "Government Securities Trust"
or the "Trust") is a no-load, diversified open-end management investment company
whose investment objectives are high current income, preservation of capital and
liquidity. The Government Securities Trust seeks to achieve its objective by
investing in U.S. Government securities, including a variety of securities which
are issued or guaranteed by the United States Government, its agencies or
instrumentalities.
Prospectuses for the Money Trust, the Tax-Free Trust, the California
Tax-Free Trust and the Government Securities Trust, all dated August 29, 1995,
which provide the basic information you should know before investing in any of
the aforementioned Trusts, may be obtained without charge from any of the Trusts
at the address or telephone number listed below. These Statements of Additional
Information are not Prospectuses. They contain information in addition to and
more detailed than that set forth in the Prospectuses. They are intended to
provide additional information regarding the activities and operations of the
Trusts, and should be read in conjunction with the Prospectuses. They should be
read with the information appearing in the Appendix hereto which is a part of
these Statements of Additional Information.
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
(212) 392-2550
The shares of the Money Trust, the Tax-Free Trust, the California Tax-Free
Trust and the Government Securities Trust are offered to participants in the
Active Assets Account program of Dean Witter Reynolds Inc. ("Dean Witter"). In
addition, shares of the Trusts are offered to investors maintaining brokerage
accounts with Dean Witter who are not subscribers to the Active Assets program.
For further information, either consult the Dean Witter Client Agreement or
consult your Dean Witter Account Executive.
Active Assets Tax-Free Trust
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Investment Practices and Policies..................................... 3
Investment Restrictions............................................... 5
How Net Asset Value is Determined..................................... 7
Dividends, Distributions and Taxes.................................... 9
Financial Statements.................................................. 13
Report of Independent Accountants..................................... 23
APPENDIX
Investment Manager.................................................... A-1
Trustees and Officers................................................. A-7
Portfolio Transactions and Brokerage.................................. A-11
General Information................................................... A-12
Custodian and Transfer Agent.......................................... A-12
Independent Accountants............................................... A-13
Reports to Shareholders............................................... A-13
Legal Counsel......................................................... A-13
Experts............................................................... A-13
Registration Statement................................................ A-13
Information with Respect to Securities Ratings........................ A-14
</TABLE>
Active Assets Tax-Free Trust 2
<PAGE>
INVESTMENT PRACTICES AND POLICIES
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MUNICIPAL BONDS. Municipal Bonds, as referred to in the Prospectus, are
debt obligations of states, cities, municipalities and municipal agencies (all
of which are generally referred to as "municipalities") which generally have a
maturity at the time of issuance of one year or more. They are issued to raise
funds for various public purposes, such as construction of a wide range of
public facilities, to refund outstanding obligations and to obtain funds for
general operating expenses or to loan to other public institutions and
facilities. In addition, certain types of industrial development bonds and
pollution control bonds are issued by or on behalf of public authorities to
provide funding for various privately operated facilities.
MUNICIPAL NOTES. Municipal Notes are short-term obligations of
municipalities, generally with a maturity, at the time of issuance, ranging from
six months to three years. The principal types of Municipal Notes include tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
project notes. In addition, there are other types of Municipal Notes in which
the Trust may invest. Notes sold in anticipation of collection of taxes, a bond
sale, or receipt of other revenues are usually general obligations of the
issuing municipality or agency. Project Notes are issued by local agencies and
are guaranteed by the United States Department of Housing and Urban Development.
Such notes are secured by the full faith and credit of the United States.
The two principal classifications of Municipal Bonds and Notes are "general
obligation" and "revenue" bonds or notes. General obligation bonds and notes are
secured by the issuer's pledge of its faith, credit, and taxing power for the
payment of principal and interest. Issuers of general obligation bonds and notes
include states, counties, cities, towns and other governmental units. Revenue
bonds and notes are payable from the revenues derived from a particular facility
or class of facilities or, in some cases, from specific revenue sources. Revenue
bonds and notes and commercial paper are issued for a wide variety of purposes,
including the financing of electric, gas, water and sewer systems and other
public utilities; industrial development and pollution control facilities;
single and multi-family housing units; public buildings and facilities; air and
marine ports; transportation facilities such as toll roads, bridges and tunnels;
and health and educational facilities such as hospitals and dormitories. They
rely primarily on user fees to pay debt service although the principal revenue
source is often supplemented by additional security features which are intended
to enhance the creditworthiness of the issuer's obligations. In some cases,
particularly in the instance of revenue bonds issued to finance housing and
public buildings, a direct or implied "moral obligation" of a governmental unit
may be pledged to the payment of debt service. In other cases, a special tax or
other charge may augment user fees.
Obligations of issuers of Municipal Bonds and Municipal Notes are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any,
which may be enacted by Congress or state legislatures to extend the time for
payment of principal or interest, or both, or to impose other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that, as a result of litigation or other conditions, the
power or ability of any one or more issuer to pay, when due, principal of and
interest on its, or their, Municipal Bonds and Municipal Notes may be materially
affected.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. As stated in the Prospectus,
the Trust may invest in Municipal Bonds and Municipal Notes ("Municipal
Obligations") of the type called "variable rate" and "floating rate"
obligations.
The interest rate payable on a variable rate Municipal Obligation is
adjusted either at predesignated periodic intervals and on floating rate
Municipal Obligations, 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 Trust 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 and a floating rate Municipal Obligation is that the
interest rate adjustment minimizes changes in the market value of the
obligation. As a result, the purchases of variable rate and floating rate
Municipal Obligations could enhance the ability of the Trust to maintain a
Active Assets Tax-Free Trust 3
<PAGE>
stable net asset value per share (see "How Net Asset Value is Determined" in the
Prospectus") and to sell Municipal Obligations prior to maturity at a price
approximating the full principal amount of the obligation. The principal benefit
to the Trust of purchasing Municipal Obligations with a demand feature is that
liquidity, and the ability of the Trust to obtain repayment of the full
principal amount of a Municipal Obligation prior to maturity, is enhanced. The
payment of principal and interest by issuers of certain Municipal Obligations
purchased by the Trust 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 a Municipal Obligation meets the
Trust's investment quality requirements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Trust may purchase tax-exempt securities on a when-issued or delayed
delivery basis. When such transactions are negotiated, the price is fixed at the
time of commitment, but delivery and payment can take place a month or more
after the date of the commitment. While the Trust will only purchase securities
on a when-issued or delayed delivery basis with the intention of acquiring the
securities, the Trust 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 accrues to the purchaser during this period. At the
time the Trust makes the commitment to purchase a Municipal Obligation on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of the Municipal Obligation in
determining its net asset value. The Trust will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other Municipal Obligations equal in value to commitments for
such when-issued or delayed delivery securities. The Trust does not believe that
its net asset value or income will be adversely affected by its purchase of
Municipal Obligations on a when-issued or delayed delivery basis.
REPURCHASE AGREEMENTS. When cash may be available for only a few days, it
may be invested by the Trust in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Trust. These
agreements, which may be viewed as a type of secured lending by the Trust,
typically involve the acquisition by the Trust of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Trust will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral") at a specified price and at a fixed time in the future, which is
usually not more than seven days from the date of purchase. The Trust will
receive interest from the institution until the time when the repurchase is to
occur. Although such date is deemed by the Trust to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Trust follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well capitalized and well established financial institutions,
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 repurchase price, including any accrued interest earned on the
repurchase agreement. Such collateral will consist of Government securities or
"Eligible Securities" (as described below under the caption "How Net Asset Value
is Determined") rated in the highest grade by a nationally recognized
statistical rating organization (a "NRSRO") whose ratings qualify the collateral
as an Eligible Security. In the event of a default or bankruptcy by a selling
financial institution, the Trust will seek to liquidate such collateral.
However, the exercising of the Trust's 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 Trust could suffer a loss. It is the current policy of the Trust 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 Trust,
amount to more than 10% of its total assets. The Trust's investments in
repurchase agreements may at times be substantial when, in the view of the
Trust's investment manager, liquidity or other considerations warrant. However,
during the fiscal year ended June 30, 1994, the Trust did not enter into any
repurchase agreements and the Trust does not intend to enter into any repurchase
agreements during the foreseeable future.
Active Assets Tax-Free Trust 4
<PAGE>
PUT OPTIONS. The 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 the Trust pays for
securities with puts may be higher than the price which otherwise would be paid
for the securities. Consistent with the Trust's investment objectives and
subject to the supervision of the Trust's Trustees, the primary purpose of this
practice is to permit the Trust to be fully invested in securities the interest
on which is exempt from Federal income taxes 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 Trust's 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 Trust 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 Trust, 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 Trust's portfolio.
The Trust values securities which are subject to puts at their amortized
cost and values the put, apart from the security, at zero. Thus, the cost of the
put will be carried on the Trust'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, the Trust's policy is to
enter into put transactions only with municipal securities dealers who are
approved by the Trust's Trustees. Each dealer will be approved on its own merits
and it is the Trust's general policy to enter into put transactions only with
those dealers which have been 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, or 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, the Trust is unable to predict whether all
or any portion of any loss sustained could be subsequently recovered from such
dealer. During the fiscal year ended June 30, 1995, the Trust did not purchase
any put options and it has no intention of purchasing such securities during the
coming year.
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. In connection therewith, the Trust has received an opinion of counsel
to the effect that interest on Municipal Obligations subject to puts will be
tax-exempt to the Trust.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Trust as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of the holders of a
majority of the outstanding voting securities of the Trust, as defined in the
Investment Company Act of 1940, as amended (the "Act"). Such a majority is
defined in the Act as the lesser of (a) 67% or more of the shares
Active Assets Tax-Free Trust 5
<PAGE>
present at a Meeting of Shareholders of the Trust, if the holders of more than
50% of the outstanding shares of the Trust are present or represented by proxy
at the meeting or (b) more than 50% of the outstanding shares of the Trust. For
purposes of the following restrictions and those contained in the Prospectus:
(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; (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.
The restrictions provide that the Trust may not:
1. Invest in common stock;
2. Invest in securities of any issuer if, to the knowledge of the
Trust, any officer, Trustee or director of the Trust 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;
3. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein;
4. Purchase or sell commodities or commodity futures contracts;
5. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs;
6. 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;
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
8. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in Investment
Restriction 5, as disclosed in the Prospectus. To meet the requirements of
regulations in certain states, the Trust, 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 Trust are being sold in those
states;
9. Issue senior securities as defined in the Act except insofar as the
Trust 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;
10. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Trust 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
Trust may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security; and
14. Invest for the purpose of exercising control or management of any
other issuer.
Active Assets Tax-Free Trust 6
<PAGE>
HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
As discussed in the Appendix to the Prospectus, the net asset value of the
Trust is determined as of 12 noon New York time on each day that the New York
Stock Exchange is open. The New York Stock Exchange currently observes the
following holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
The Trust utilizes the amortized cost method in valuing its portfolio
securities for purposes of determining the net asset value of the Trust's
shares. The Trust 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
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 Trust would receive it if sold the instrument. During
such periods, the yield to investors in the Trust may differ somewhat from that
obtained in a similar company which uses mark to market values for all 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 Trust 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 Trust's use of the amortized cost method to value its portfolio
securities and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the Act (the "Rule"), and is conditioned on
its compliance with various conditions contained in the Rule including: (a) the
Trust's Trustees are obligated, as a particular responsibility within the
overall duty of care owed to the Trust's shareholders, to establish procedures
reasonably designed, taking into account current market conditions and the
Trust'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)
(i) the procedures include calculation, at such intervals 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 (for the purpose of determining market value, securities as
to which the Trust has a "put" will be valued at the higher of market value or
exercise price); (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, the Trustees considerations made pursuant to them and
any actions taken upon such consideration; the Trustees will 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 to eliminate or reduce, to the extent reasonably
practicable, material dilution or other unfair results to investors or existing
shareholders. Such action may include: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity of the Trust; withholding dividends; utilizing a net asset value per
share as determined by using available market quotations or reducing the number
of its outstanding shares. Any reduction of outstanding shares will be effected
by having each shareholder proportionately contribute to the Trust's capital a
number of shares which represent the difference between the amortized cost
valuation and market valuation of the portfolio. Each shareholder will be deemed
to have agreed to such contribution by his or her investment in the Trust.
The Rule further requires that the Trust limit its investments to U.S.
dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities (as defined below). The Rule also
requires the Trust 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 thirteen months.
Active Assets Tax-Free Trust 7
<PAGE>
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Trust 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.
At the time the Trust makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and thereafter reflect the value, each day, of the Municipal
Obligation in determining its net asset value. Repurchase agreements are valued
at the face value of the repurchase agreement plus any accrued interest thereon
to date.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Trust's interest
in the instrument is subject to market action) until the date noted on the face
of the instrument as the date on which the principal amount must be paid, or in
the case of an instrument called for redemption, the date on which the
redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument 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 Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of 397 days or less; (b)(i) is rated in the two highest
short-term rating categories by any two NRSRO's that have issued a short-term
rating with respect to the security or class of debt obligations of the issuer,
or (ii) if only one NRSRO has issued a short-term rating with respect to the
security, then by that NRSRO; (c) was a long-term security at the time of
issuance whose issuer has outstanding a short-term debt obligation which is
comparable in priority and security and has a rating as specified in clause (b)
above; or (d) if no rating is assigned by any NRSRO as provided in clauses (b)
and (c) above, the unrated security is determined by the Board to be of
comparable quality to any such rated security. The Trust will limit its
investments to securities that meet the requirements for Eligible Securities, as
set forth in the prospectus.
As permitted by the Rule, the Board has delegated to the Trust's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, 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, the Trust 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, 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 are determined to be of
comparable quality: (i) no more than 5% in the aggregate of the Trusts total
assets in all such securities, and (ii) no more than the greater of 1% of total
assets, or $1 million, in the securities of any one issuer.
If the Board determines that it is no longer in the best interests of the
Trust and its shareholders to maintain a stable price of $1 per share or if the
Board believes that maintaining such price no longer reflects a market-based net
asset value per share, the Board has the right to change from an amortized cost
basis of valuation to valuation based on market quotations. The Trust will
notify shareholders of any such changes.
The Trust will manage its portfolio in an effort to maintain a constant
$1.00 per share price, but it cannot assure that the value of its shares will
never deviate from the $1.00 price. Since dividends from net investment income
are declared and reinvested on a daily basis, the net asset value per share,
under ordinary circumstances, is likely to remain constant. Realized and
unrealized gains and losses will not be distributed on a daily basis but will be
reflected in the Trust's net asset value. The amount of such gains and losses
will be considered by the Trustees in determining the action to be taken to
maintain the
Active Assets Tax-Free Trust 8
<PAGE>
Trust's $1.00 per share net asset value. Such action may include distribution at
any time of part or all of the then accumulated undistributed net realized
capital gains, or reduction or elimination of daily dividends by an amount equal
to part or all of the then accumulated net realized capital losses. However, if
realized losses should exceed the sum of net investment income plus realized
gains on any day, the net asset value per share on that day might decline below
$1.00 per share. In such circumstances, the Trust may reduce or eliminate the
payment of daily dividends for a period of time in an effort to restore the
Trust's $1.00 per share net asset value. A decline in prices of securities could
result in significant unrealized depreciation on a mark to market basis. In
these circumstances, the Trust may reduce or eliminate the payment of dividends
and utilize a net asset value per share as determined by using available market
quotations or reduce the number of its outstanding shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As stated in the Appendix to the Prospectus, the Trust intends to declare
dividends, payable on each day the New York Stock Exchange is open for business,
of all of its net investment income to shareholders of record as of 12 noon New
York time of the preceding business day.
In computing interest income, the Trust will amortize any premiums and
original issue discounts on securities owned. Capital gains or losses realized
upon sale or maturity of such securities will be based on their amortized cost.
Gains or losses on the sales of securities by the Trust will be long-term
capital gains or losses if the securities have been held by the Trust for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
At June 30, 1995, the Trust had capital loss carryovers of approximately
$59,000 of which $47,000 will be available through June 30, 2000 and $12,000
will be available through June 30, 2003 to offset future gains to the extent
provided by regulations. To the extent that this capital loss carryover is used
to offset future gains, it is probable that the gains so offset will not be
distributed to shareholders. Any net capital loss incurred after October 31
("post-October losses") within the taxable year is deemed to arise on the first
day of the fund's next taxable year.
The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Trust should have or anticipate any large unexpected expense,
loss or fluctuation in net assets which, in the opinion of the Trustees, might
have a significant adverse effect on shareholders. On occasion, in order to
maintain a constant $1.00 per share net asset value, the Trustees may direct
that the number of outstanding shares be reduced in each shareholder's account.
Such reduction may result in taxable income, if any, to a shareholder in excess
of the net increase (i.e., dividends, less such reductions), if any, in the
shareholder's account for a period. Furthermore, such reduction may be realized
as a capital loss when the shares are liquidated.
As discussed in the Prospectus, the Trust intends to invest a portion of its
assets in certain "private activity bonds" issued after August 7, 1986. As a
result, a portion of the exempt-interest dividends paid by the Trust will be an
item of tax preference for taxable years beginning after December 31, 1986.
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 preadjustment alternative minimum taxable income.
The Trust has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Code. If so qualified, the Trust
will not be subject to federal income and excise tax on its net investment
income and capital gains, if any, realized during any fiscal year in which it
distributes such income and capital gains to its shareholders.
As discussed in the Prospectus, the Trust intends to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each of its taxable years, at least 50% of its assets in tax-exempt
securities. An exempt-interest dividend is that part of a dividend distribution
made by the Trust which consists of interest received by the Trust on tax-exempt
securities upon which the shareholder
Active Assets Tax-Free Trust 9
<PAGE>
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 and in certain circumstances may affect the
determination of the supplemental premium applicable to Medicare eligible
individuals.
Alternative minimum taxable income is generally equal to taxable income with
certain adjustments and increased by certain "tax preference items" which may
include a portion of the Trust's dividends as described above. In addition, the
Code further provides that for taxable years beginning in 1990 and thereafter,
corporations are subject to an alternative minimum tax based, in part, on 75% of
any excess of "adjusted current earnings" over taxable income as adjusted for
other tax preferences. Because an exempt-interest dividend paid by the Trust
will be included in adjusted current earnings, a corporate shareholder may
therefore be required to pay an increased alternative minimum tax as the result
of receiving exempt-interest dividends paid by the Trust.
The Superfund Amendments and Reauthorization Act of 1986 (the "Superfund
Act") imposes a deductible tax on a corporation's alternative minimum taxable
income (computed without regard to the alternative tax net operating loss
deduction) at a rate of $12 per $10,000 (0.12%) of alternative minimum taxable
income in excess of $2,000,000. The tax will be imposed for taxable years
beginning after December 31, 1986 and before January 1, 1996. The tax will be
imposed even if the corporation is not required to pay an alternative minimum
tax because the corporation's regular income tax liability exceeds its minimum
tax liability. Exempt-interest dividends paid by the Trust that create
alternative minimum tax preferences for corporate shareholders under the Code
(as described above) may be subject to the tax.
Within 60 days after the end of its fiscal year, the Trust will mail to
shareholders a statement indicating the percentage of the dividend distributions
for such fiscal year which constitutes exempt-interest dividends and the
percentage, if any, that is taxable, and to what extent the taxable portion is
long-term capital gain, short-term capital gain or ordinary income. This
percentage should be applied uniformly to all monthly distributions made during
the fiscal year to determine the proportion of dividends that is tax-exempt. The
percentage may differ from the percentage of tax-exempt dividend distributions
for any particular month.
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of realized
net short-term capital gains. Such interest and realized net short-term capital
gains dividends and distributions are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Distributions of long-term
capital gains, if any, are taxable as long-term capital gains, regardless of how
long the shareholder has held the Fund shares and regardless of whether the
distribution is received in additional shares or cash. Since the Trust's income
is expected to be derived entirely from interest rather than dividends, it is
anticipated that none of such dividend distributions will be eligible for the
federal dividends received deduction available to corporations.
Any loss on the sale or exchange of shares of the Trust which are held for 6
months or less is disallowed to the extent of the amount of any exempt-interest
dividend paid with respect to such shares. Treasury Regulations may provide for
a reduction in such required holding periods.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined in general on an October 31 year end,
plus certain undistributed amounts from previous years. The required
distributions, however, are based only on the taxable income of a regulated
investment company such as the Trust, which pays exempt-interest dividends. The
Trust anticipates that it will make sufficient timely distributions to avoid
imposition of the excise tax.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Trust 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
purchas-
10
Active Assets Tax-Free Trust
<PAGE>
ing shares of the Trust. "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.
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 be introduced in the
future. If such a proposal were to be enacted, the availability of tax-exempt
municipal securities for investment by the Trust could be affected. If such
legislation is enacted, the Trust may reevaluate its investment objective and
policies.
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Thus, shareholders of the Trust may be subject to
state and local taxes on exempt-interest dividends. Shareholders should consult
their tax advisers about the status of dividends from the Trust in their own
states and localities. The Trust will report annually to shareholders the
percentage of interest income received by the Trust during the preceding year on
tax-exempt obligations, indicating, on a state-by-state basis, the source of
such income.
Under present Massachusetts law, the Trust is not subject to any
Massachusetts income tax during any fiscal year in which the Trust qualifies as
a regulated investment company. The Trust might be subject to Massachusetts
income taxes for any taxable year in which it does not so qualify as a regulated
investment company.
Any dividends or capital gains distributions received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that fund by the exact amount of the dividends or
capital gains distribution. Furthermore, capital gains distributions are, and
some portion of the dividends may be, subject to income tax. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the distribution of realized net long-term capital gains, such distribution
would be a return of capital but nonetheless taxable at capital gains rates.
Therefore, an investor should not purchase Trust shares immediately prior to a
distribution record date and sell them immediately thereafter solely for the
purpose of receiving the distribution.
INFORMATION ON COMPUTATION OF YIELD
The Trust'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 expenses of the Trust 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).
The Trust'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
Trust 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 Trust 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 Trust and changes in interest rates on
such investments, but also on changes in the Trust's expenses during the period.
Active Assets Tax-Free Trust 11
<PAGE>
Yield information may be useful in reviewing the performance of the Trust
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, the Trust's yield fluctuates.
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
Trust that is not tax-exempt.
The Trust's current yield for the seven days ending June 30, 1995 was 3.58%.
The effective annual yield on 3.58% is 3.65%, assuming daily compounding.
Based upon a Federal personal income tax bracket of 39.6%, the Trust's
tax-equivalent yield for the seven days ending June 30, 1995 was 5.93%.
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 Trust that
is not tax-exempt.
Active Assets Tax-Free Trust 12
<PAGE>
STATEMENTS OF ADDITIONAL INFORMATION
AUGUST 29, 1995 [LOGO]
- --------------------------------------------------------------------------------
Active Assets Money Trust (the "Money Trust" or the "Trust") is a no-load,
diversified open-end management investment company whose investment objectives
are high current income, preservation of capital and liquidity. The Money Trust
seeks to achieve its objectives by investing in a diversified portfolio of
short-term money market instruments.
Active Assets Tax-Free Trust (the "Tax-Free Trust" or the "Trust") is a
no-load, diversified open-end management investment company whose investment
objective is to provide as high a level of daily income exempt from federal
personal income tax as is consistent with stability of principal and liquidity.
The Tax-Free Trust seeks to achieve its objective by investing primarily in high
quality tax-exempt securities with short-term maturities.
Active Assets California Tax-Free Trust (the "California Tax-Free Trust" or
the "Trust") is a no-load, diversified open-end management investment company
whose investment objective is to provide as high a level of daily income exempt
from federal and California personal income tax as is consistent with stability
of principal and liquidity. The California Tax-Free Trust seeks to achieve its
objective by investing primarily in high quality tax-exempt securities with
short-term maturities.
Active Assets Government Securities Trust (the "Government Securities Trust"
or the "Trust") is a no-load, diversified open-end management investment company
whose investment objectives are high current income, preservation of capital and
liquidity. The Government Securities Trust seeks to achieve its objective by
investing in U.S. Government securities, including a variety of securities which
are issued or guaranteed by the United States Government, its agencies or
instrumentalities.
Prospectuses for the Money Trust, the Tax-Free Trust, the California
Tax-Free Trust and the Government Securities Trust, all dated August 29, 1995,
which provide the basic information you should know before investing in any of
the aforementioned Trusts, may be obtained without charge from any of the Trusts
at the address or telephone number listed below. These Statements of Additional
Information are not Prospectuses. They contain information in addition to and
more detailed than that set forth in the Prospectuses. They are intended to
provide additional information regarding the activities and operations of the
Trusts, and should be read in conjunction with the Prospectuses. They should be
read with the information appearing in the Appendix hereto which is a part of
these Statements of Additional Information.
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
(212) 392-2550
The shares of the Money Trust, the Tax-Free Trust, the California Tax-Free
Trust and the Government Securities Trust are offered to participants in the
Active Assets Account program of Dean Witter Reynolds Inc. ("Dean Witter"). In
addition, shares of the Trusts are offered to investors maintaining brokerage
accounts with Dean Witter who are not subscribers to the Active Assets program.
For further information, either consult the Dean Witter Client Agreement or
consult your Dean Witter Account Executive.
Active Assets California Tax-Free Trust
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Practices and Policies..................................... 3
Investment Restrictions............................................... 6
Special Considerations Relating to California Tax-Exempt Securities... 8
How Net Asset Value is Determined..................................... 11
Dividends, Distributions and Taxes.................................... 13
Financial Statements.................................................. 17
Report of Independent Accountants..................................... 22
APPENDIX
Investment Manager.................................................... A-1
Trustees and Officers................................................. A-7
Portfolio Transactions and Brokerage.................................. A-11
General Information................................................... A-12
Custodian and Transfer Agent.......................................... A-12
Independent Accountants............................................... A-13
Reports to Shareholders............................................... A-13
Legal Counsel......................................................... A-13
Experts............................................................... A-13
Registration Statement................................................ A-13
Information with Respect to Securities Ratings........................ A-14
</TABLE>
Active Assets California Tax-Free Trust 2
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
PORTFOLIO SECURITIES
TAXABLE SECURITIES. As discussed in the Prospectus, the Trust may invest up
to 20% of its total assets in taxable money market instruments, repurchase
agreements and 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 Trust 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
the Fund.
In addition, the Trust may temporarily invest more than 20% of its total
assets in non-California tax-exempt securities and taxable money market
instruments, or in short-term tax-exempt securities subject to the federal
alternative minimum tax for individual shareholders, to maintain a "defensive"
posture when, in the opinion of the Investment Manager, it is advisable to do so
because of market conditions. The types of taxable money market instruments in
which the Trust may invest are limited to the following short-term fixed-income
securities (maturing in one year or less from the time of purchase): (i)
obligations of the United States Government, its agencies, instrumentalities or
authorities; (ii) commercial paper rated P-1 by Moody's Investors Services, Inc.
("Moody's") or A-1 by Standard & Poor's Corporation ("S&P"); (iii) certificates
of deposit of domestic banks with assets of $1 billion or more; and (iv)
repurchase agreements with respect to portfolio securities.
TAX-EXEMPT SECURITIES. As discussed in the Prospectus, at least 80% of the
Trust's total assets will be invested in California tax-exempt securities
(California Municipal Bonds, California Municipal Notes and California Municipal
Commercial Paper). In regard to the Moody's and S&P ratings discussed in the
Prospectus, it should be noted that the ratings represent the organizations'
opinions as to the quality of the securities which they undertake to rate and
the ratings are general and not absolute standards of quality. For a description
of Municipal Bond, Municipal Note and Municipal Commercial Paper ratings by
Moody's and S&P, see "Information with Respect to Securities Ratings" in the
Appendix to this Statement of Additional Information.
The percentage and rating limitations discussed above and in the Prospectus
apply at the time of acquisition of a security based upon the last previous
determination of the Trust's net asset value; any subsequent change in any
ratings by a rating service or change in percentages resulting from market
fluctuations or other changes in total assets will not require elimination of
any security from the Fund's portfolio.
The payment of principal and interest by issuers of certain Municipal
Obligations purchased by the Trust 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 a Municipal Obligation
meets the Trust's investment quality requirements. In addition, some issues may
contain provisions which permit the Trust to demand from the issuer repayment of
principal at some specified period(s) prior to maturity.
MUNICIPAL BONDS. Municipal Bonds, as referred to in the Prospectus, are
debt obligations of a state, its cities, municipalities and municipal agencies
(all of which are generally referred to as "municipalities") which generally
have a maturity at the time of issue of one year or more, and the interest from
which is, in the opinion of bond counsel, exempt from federal income tax. In
addition to these requirements, the interest from California Municipal Bonds
must be, in the opinion of bond counsel, exempt from California personal income
tax. They are issued to raise funds for various public purposes, such as
construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for general operating expenses or to loan to
other public institutions and facilities. In addition, certain types of
industrial development bonds and pollution control bonds are issued by or on
behalf of public authorities to provide funding for various privately operated
facilities.
Active Assets California Tax-Free Trust 3
<PAGE>
MUNICIPAL NOTES. Municipal Notes are short-term obligations of
municipalities, generally with a maturity at the time of issuance ranging from
six months to three years, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax. In addition to those requirements, the
interest from California Municipal Notes must be, in the opinion of bond
counsel, exempt from California personal income tax. The principal types of
Municipal Notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes, although there are other types of
Municipal Notes in which the Trust may invest. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project Notes are
issued by local agencies and are guaranteed by the United States Department of
Housing and Urban Development. Such notes are secured by the full faith and
credit of the United States Government.
MUNICIPAL COMMERCIAL PAPER. Municipal Commercial Paper refers to short-term
obligations of municipalities the interest from which is, in the opinion of bond
counsel, exempt from federal income tax. In addition to those requirements, the
interest from California Commercial Paper must be, in the opinion of bond
counsel, exempt from California personal income tax. It may be issued at a
discount and is sometimes referred to as Short-Term Discount Notes. Municipal
Commercial Paper is likely to be used to meet seasonal working capital needs of
a municipality or interim construction financing and to be paid from general
revenues of the municipality or refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending agreements,
note repurchase agreements or other credit facility agreements offered by banks
or other institutions.
The two principal classifications of Municipal Bonds, Notes and Commercial
Paper are "general obligation" and "revenue" bonds, notes or commercial paper.
General obligation bonds, notes or commercial paper are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Issuers of general obligation bonds, notes or commercial paper include
a state, its counties, cities, towns and other governmental units. Revenue
bonds, notes or commercial paper are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from specific
revenue sources. Revenue bonds, notes or commercial paper are issued for a wide
variety of purposes, including the financing of electric, gas, water and sewer
systems and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports; transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly with respect to revenue bonds issued to finance
housing and public buildings, a direct or implied "moral obligation" of a
governmental unit may be pledged to the payment of debt service. In other cases,
a special tax or other charge may augment user fees.
Issuers of these obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or any state extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. There is also the possibility that as a
result of litigation or other conditions the power or ability of any one or more
issuers to pay, when due, principal of and interest on its, or their, Municipal
Bonds, Municipal Notes and Municipal Commercial Paper may be materially
affected.
PORTFOLIO MANAGEMENT
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. As stated in the Prospectus,
the Trust may invest in Municipal Bonds and Municipal Notes ("Municipal
Obligations") of the type called "variable rate" and "floating rate"
obligations.
The interest rate payable on a variable rate obligation is adjusted either
at predesignated periodic intervals and on floating rate Municipal Obligations
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
Active Assets California Tax-Free Trust 4
<PAGE>
Trust 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
Municipal 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 Municipal Obligations could enhance the ability of the Trust
to maintain a stable net asset value per share (see "How Net Asset Value is
Determined' in the Prospectus). The principal benefit to the Trust of purchasing
obligations with a demand feature is that liquidity, and the ability of the
Trust to obtain repayment of the full principal amount of a Municipal Obligation
prior to maturity, is enhanced.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Trust may purchase tax-exempt securities on a when-issued or delayed
delivery basis. When such transactions are negotiated, the price is fixed at the
time of commitment, but delivery and payment can take place a month or more
after the date of the commitment. While the Trust will only purchase securities
on a when-issued or delayed delivery basis with the intention of acquiring the
securities, the Trust 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 accrues to the purchaser during this period. At the
time the Trust makes the commitment to purchase a Municipal Obligation on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of the Municipal Obligation in
determining its net asset value. The Trust will also establish a segregated
account with its custodian bank in which it will maintain liquid assets such as
cash, U.S. government securities or other appropriate high grade debt
obligations equal in value to commitments for such when-issued or delayed
delivery securities. The Trust does not believe that its net asset value or
income will be adversely affected by its purchase of Municipal Obligations on a
when-issued or delayed delivery basis.
REPURCHASE AGREEMENTS. When cash may be available for only a few days, it
may be invested by the Trust in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Trust. These
agreements, which may be viewed as a type of secured lending by the Trust,
typically involve the acquisition by the Trust of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Trust will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral"), which is held by the Trust's Custodian, at a specified price and
at a fixed time in the future, which is usually not more than seven days from
the date of purchase. The Trust will accrue interest from the institution until
the time when the repurchase is to occur. Although such date is deemed by the
Trust to be the maturity date of a repurchase agreement, the maturities of
securities subject to repurchase agreements are not subject to any limits and
may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Trust follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well capitalized and well established financial institutions,
whose financial condition will be continually monitored. In addition, the value
of the collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. Such collateral will consist of Government securities or
"Eligible Securities" (as described under the caption "How Net Asset Value is
Determined") rated in the highest grade by a nationally recognized statistical
rating organization (a "NRSRO") whose ratings qualify the collateral as an
Eligible Security. In the event of a default or bankruptcy by a selling
financial institution, the Trust will seek to liquidate such collateral.
However, the exercise of the Trust's 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 Trust could suffer a loss. It is the current policy of the Trust not
to invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid asset held by the Trust,
amount to more than 10% of its total assets. The Trust's investments in
repurchase agreements may, at times, be substantial when, in the view of the
Trust's investment manager, liquidity or other considerations warrant. The Trust
has not to date and has no intention to enter into any repurchase agreements
during the coming fiscal year.
Active Assets California Tax-Free Trust 5
<PAGE>
PUT OPTIONS. The 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 the Trust pays for
securities with puts may be higher than the price which otherwise would be paid
for the securities. Consistent with the Trust's investment objectives and
subject to the supervision of the Board of Trustees, the primary purpose of this
practice is to permit the Trust to be fully invested in securities the interest
on which is exempt from Federal and 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 Trust's 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 Trust 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 Trust, 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 Trust's portfolio.
The Trust values securities which are subject to puts at their amortized
cost and values the put, apart from the security, at zero. Thus, the cost of the
put will be carried on the Trust'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, the Trust's policy is to
enter into put transactions only with municipal securities dealers who are
approved by the Trust's Board of Trustees. Each dealer will be approved on its
own merits and it is the Trust's 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 Board of 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 Board
has 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, the Trust is unable to predict whether all or
any portion of any loss sustained could be subsequently recovered from such
dealer. The Trust has not to date and has no intention to purchase put options
during the coming fiscal year.
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. In connection therewith, the Trust has received an opinion of counsel
to the effect that interest on Municipal Obligations subject to puts will be
tax-exempt to the Trust.
INVESTMENT RESTRICTIONS
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In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Trust as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of the holders of a
majority of the outstanding voting securities of the Trust, as defined in the
Investment Company Act of 1940, as
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amended (the "Act"). Such a majority is defined in the Act as the lesser of (a)
67% or more of the shares present at a Meeting of Shareholders of the Trust, if
the holders of more than 50% of the outstanding shares of the Trust are present
or represented by proxy at the meeting, or (b) more than 50% of the outstanding
shares of the Trust. For purposes of the following restrictions and those
recited in the Prospectus: (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; (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.
The term "bank obligations" as referred to in Investment Restriction 3 in
the Prospectus refers to short-term obligations (including certificates of
deposit and bankers' acceptances) of banks (including domestic branches of
foreign banks) subject to regulation by the U.S. Government and having total
assets of $1 billion or more, and instruments secured by such obligations, not
including obligations of foreign branches of domestic banks.
The Trust may not:
1. Invest in common stock.
2. Invest in securities of any issuer if, to the knowledge of the
Trust, any officer or trustee of the Trust or any officer or director 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.
3. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein.
4. Purchase or sell commodities or commodity futures contracts.
5. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.
6. 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.
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
8. Borrow money, except that the Trust 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).
9. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(8). To meet the requirements of regulations in certain states, the Trust,
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
Trust are being sold in those states.
10. Issue senior securities as defined in the Act except insofar as the
Trust 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 in accordance with restrictions described above.
11. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Trust may invest consistent with its
investment objective and policies; and (b) by investment in repurchase
agreements.
12. Make short sales of securities.
Active Assets California Tax-Free Trust 7
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13. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
14. Engage in the underwriting of securities, except insofar as the
Trust may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
15. Invest for the purpose of exercising control or management of any
other issuer.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA TAX-EXEMPT SECURITIES
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The Trust will be affected by any political, economic or regulatory
developments affecting the ability of California issuers to pay interest or
repay principal on their obligations. Various developments regarding the State
of California ("State") 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. The
following information constitutes only a brief summary and is not intended as a
complete description.
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 1985-86 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
Active Assets California Tax-Free Trust 8
<PAGE>
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 (vii) permits
these provisions to be amended exclusively by the voters of the State of
California.
In September 1988, the California Court of Appeals in CITY OF WESTMINSTER V.
COUNTY OF ORANGE held that Proposition 62 is unconstitutional to the extent that
it requires a general tax by a general city law enacted on or after August 1,
1985, and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is not
possible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62.
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 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 on a
two-thirds vote, to suspend the minimum funding requirement for one year.
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain
other legal proceedings that, if decided against the State, might require the
State to make significant future expenditures or impair future revenue sources.
Two such court cases may upset California's budgetary balance. In 1992-93 and
1993-94, the State met part of its Proposition 98 commitment to education
through $1.8 billion in off-book loans. These loans were held to be illegal in a
lower court decision, CALIFORNIA TEACHERS ASSOCIATION V. GOULD. If this decision
is upheld on appeal, the schools will not be required to repay these loans, and
the officially recognized 1994-95 year-end deficit would increase by $1.8
billion. In July, 1994, a federal appeals court invalidated the Bush
Administration's approval of a 5.8% welfare benefits cut imposed in December,
1992. The ruling could also nullify a further 2.7% reduction approved in 1993
and a 2.3% reduction scheduled to go into effect in September, 1994. It has been
estimated that, if the ruling is upheld on appeal, it could cost the State up to
$175 million per year in additional welfare benefit payments.
Since 1990, California has faced the worst economic, fiscal and budget
conditions since the 1930's. After experiencing strong growth throughout much of
the 1980's, the State was adversely affected by the
Active Assets California Tax-Free Trust 9
<PAGE>
national recession and cutbacks in aerospace and defense spending, both of which
have had a severe impact on the economy in Southern California. The State's tax
revenue experience clearly reflects sharp declines in employment, income and
retail sales on a scale not seen in over fifty years. Although the national
economic recovery continued at a strong pace in the first quarter of 1994,
California is still experiencing the effects of the recession. However, the
State's budget for fiscal year 1994-95 assumes that the State will begin to
recover from recessionary conditions in 1994, with a modest upturn in 1994 and
continuing in 1995.
On July 8, 1994, the Governor signed into law a $57.5 billion budget which,
among other things: (a) reduces welfare grants and aid to families and to the
aged, blind and disabled, and (b) relies on the State's ability to obtain $2.8
billion in new reimbursement from the federal government for the State's cost of
serving illegal immigrants. Although the State legislature has passed a standby
measure which could trigger automatic budget reductions if the state's fiscal
condition worsens over the next two years, the stability of the budget would be
jeopardized if the state is unable to obtain the hoped-for federal funds.
The current budget includes General Fund spending of $40.9 billion, up 4.2%
from the level of spending during the 1993-94 fiscal year. The budget also
envisions General Fund spending climbing another 8.4% in the 1995-96 fiscal
year. The budget forecasts levels of revenues and expenditures which will result
in operating surpluses in both 1994-95 and 1995-96, leading to the elimination
of an estimated $2.0 billion accumulated budget deficit by June 30, 1996.
Although an improving economy and healthier tax revenues are anticipated,
the political environment and voter initiatives may constrain the State's
financial flexibility. For example, according to the Legislative Analyst's
Office the passage of Proposition 187 in the November 1994 election, which in
part denies certain social services to illegal immigrants, could jeopardize $15
billion in federal funding. In addition, the passage of Proposition 184 in the
November 1994 election, which imposes mandatory, lengthy prison sentences on
individuals convicted of three felonies, is expected to increase prison
operating costs by $3 billion annually and increase prison construction costs by
$20 billion.
Because of the State of California's continuing budget problems, the State's
General Obligation bonds were downgraded in July 1994 from Aa to A by Moody's,
from A+ to A by Standard & Poor's, and from AA to A by Fitch Investors Service,
Inc. All three rating agencies expressed uncertainty in the State's ability to
balance its budget by 1996.
On December 6, 1994, Orange County 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. Over 185 public agencies had funds invested in the pool, and these
funds may be accessed only with permission of the bankruptcy court. It is
unclear whether the State will lend financial or other assistance to Orange
County to prevent the County from defaulting on its other obligations.
The bipartisan Commission on State Finance believes that, although it may
carry long-term implications for the City of Los Angeles, the earthquake which
struck Northridge California on January 17, 1994 will not derail the state's
economic recovery.
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.
Active Assets California Tax-Free Trust 10
<PAGE>
HOW NET ASSET VALUE IS DETERMINED
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As discussed in the Appendix to the Prospectus, the net asset value of the
Trust is determined as of 12 noon New York time on each day that the New York
Stock Exchange is open. The New York Stock Exchange currently observes the
following holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
The Trust utilizes the amortized cost method in valuing its portfolio
securities for purposes of determining the net asset value of the Trust's
shares. The Trust 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
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 Trust would receive it if sold the instrument. During
such periods, the yield to investors in the Trust may differ somewhat from that
obtained in a similar company which uses mark to market values for all 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 Trust 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 Trust's use of the amortized cost method to value its portfolio
securities and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the Act (the "Rule"), and is conditioned on
its compliance with various conditions contained in the Rule including: (a) the
Trust's Trustees are obligated, as a particular responsibility within the
overall duty of care owed to the Trust's shareholders, to establish procedures
reasonably designed, taking into account current market conditions and the
Trust'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)
(i) the procedures include calculation, at such intervals 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 (for the purpose of determining market value, securities as
to which the Trust has a "put" will be valued at the higher of market value or
exercise price); (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, the Trustees' considerations made pursuant to them
and any actions taken upon such consideration; the Trustees will 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 to eliminate or reduce, to the extent reasonably
practicable, material dilution or other unfair results to investors or existing
shareholders. Such action may include: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity of the Trust; withholding dividends; utilizing a net asset value per
share as determined by using available market quotations or reducing the number
of its outstanding shares. Any reduction of outstanding shares will be effected
by having each shareholder proportionately contribute to the Trust's capital a
number of shares which represent the difference between the amortized cost
valuation and market valuation of the portfolio. Each shareholder will be deemed
to have agreed to such contribution by his or her investment in the Trust.
The Rule further requires that the Trust limit its investments to U.S.
dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities (as defined below). The Rule also
requires the Trust 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
Active Assets California Tax-Free Trust 11
<PAGE>
the disposition of a portfolio security result in a dollar-weighted average
portfolio maturity of more than 90 days, the Trust 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.
At the time the Trust makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and thereafter reflect the value, each day, of the Municipal
Obligation in determining its net asset value. Repurchase agreements are valued
at the face value of the repurchase agreement plus any accrued interest thereon
to date.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is to be deemed the period remaining
(calculated from the trade date or such other date on which the Trust's interest
in the instrument is subject to market action) until the date noted on the face
of the instrument as the date on which the principal amount must be paid, or in
the case of an instrument called for redemption, the date on which the
redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument 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 Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b) (i) is rated in the two
highest short-term rating categories by any two NRSROs that have issued a
short-term rating with respect to the security or class of debt obligations of
the issuer, or (ii) if only one NRSRO has issued a short-term rating with
respect to the security, then by that NRSRO; (c) was a long-term security at the
time of issuance whose issuer has outstanding a short-term debt obligation which
is comparable in priority and security and has a rating as specified in clause
(b) above; or (d) if no rating is assigned by any NRSRO as provided in clauses
(b) and (c) above, the unrated security is determined by the Board to be of
comparable quality to any such rated security.
As permitted by the Rule, the Board has delegated to the Trust's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, 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, the Trust 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, no
more than 5% (10% if a guarantee) 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 determined to be of comparable quality: (i) no more than 5% will be invested
in the aggregate of the Trust's total assets in all such securities, and (ii) no
more than the greater of 1% of total assets, or $1 million, will be invested in
the securities of any one issuer.
If the Board determines that it is no longer in the best interests of the
Trust and its shareholders to maintain a stable price of $1 per share or if the
Board believes that maintaining such price no longer reflects a market-based net
asset value per share, the Board has the right to change from an amortized cost
basis of valuation to valuation based on market quotations. The Trust will
notify shareholders of any such changes.
The Trust will manage its portfolio in an effort to maintain a constant
$1.00 per share price, but it cannot assure that the value of its shares will
never deviate from the $1.00 price. Since dividends from net investment income
are declared and reinvested on a daily basis, the net asset value per share,
under ordinary circumstances, is likely to remain constant. Realized and
unrealized gains and losses will not be distributed on a daily basis but will be
reflected in the Trust's net asset value. The amount of such gains and losses
will be considered by the Trustees in determining the action to be taken to
maintain the Trust's $1.00 per share net asset value. Such action may include
distribution at any time of part or all of the then accumulated undistributed
net realized capital gains, or reduction or elimination of daily
Active Assets California Tax-Free Trust 12
<PAGE>
dividends by an amount equal to part or all of the then accumulated net realized
capital losses. However, if realized losses should exceed the sum of net
investment income plus realized gains on any day, the net asset value per share
on that day might decline below $1.00 per share. In such circumstances, the
Trust may reduce or eliminate the payment of daily dividends for a period of
time in an effort to restore the Trust's $1.00 per share net asset value. A
decline in prices of securities could result in significant unrealized
depreciation on a mark to market basis. In these circumstances, the Trust may
reduce or eliminate the payment of dividends and utilize a net asset value per
share as determined by using available market quotations or reduce the number of
its outstanding shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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As stated in the Appendix to the Prospectus, the Trust intends to declare
dividends, payable on each day the New York Stock Exchange is open for business,
of all of its net investment income to shareholders of record as of 12 noon New
York time of the preceding business day.
In computing interest income, the Trust will amortize any premiums and
original issue discounts on securities owned. Capital gains or losses realized
upon sale or maturity of such securities will be based on their amortized cost.
Gains or losses on the sales of securities by the Trust will be long-term
capital gains or losses if the securities have been held by the Trust for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
At June 30, 1995, the Trust had a net capital loss carryover of
approximately $16,900 of which $16,000 will be available through June 30, 2002
and $900 will be available through June 30, 2003 to offset future capital gains
to the extent provided by regulations. Any net capital losses incurred after
October 31 ("Post--October losses") within the taxable year are deemed to arise
on the first business day of the Trust's next taxable year.
The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Trust should have or anticipate any large unexpected expense,
loss or fluctuation in net assets which, in the opinion of the Trustees, might
have a significant adverse effect on shareholders. On occasion, in order to
maintain a constant $1.00 per share net asset value, the Trustees may direct
that the number of outstanding shares be reduced in each shareholder's account.
Such reduction may result in taxable income, if any, to a shareholder in excess
of the net increase (i.e., dividends, less such reductions), if any, in the
shareholder's account for a period. Furthermore, such reduction may be realized
as a capital loss when the shares are liquidated.
As discussed in the Prospectus, the Trust intends to invest a portion of its
assets in certain "private activity bonds" issued after August 7, 1986. As a
result, a portion of the exempt-interest dividends paid by the Trust will be an
item of tax preference for taxable years beginning after December 31, 1986.
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 preadjustment alternative minimum taxable income.
The Trust has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Code. If so qualified, the Trust
will not be subject to federal income and excise tax on its net investment
income and capital gains, if any, realized during any fiscal year in which it
distributes such income and capital gains to its shareholders.
As discussed in the Prospectus, the Trust intends to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each of its taxable years, at least 50% of its assets in tax-exempt
securities. An exempt-interest dividend is that part of a dividend distribution
made by the Trust which consists of interest received by the Trust on tax-exempt
securities upon which the shareholder incurs no federal income taxes.
Exempt-interest dividends are included, however, in determining what
Active Assets California Tax-Free Trust 13
<PAGE>
portion, if any, of a person's Social Security benefits are subject to federal
income tax and in certain circumstances may affect the determination of the
supplemental premium applicable to Medicare eligible individuals.
Alternative minimum taxable income is generally equal to taxable income with
certain adjustments and increased by certain "tax preference items" which may
include a portion of the Trust's dividends as described above. In addition, the
Code further provides that for taxable years beginning in 1990 and thereafter,
corporations are subject to an alternative minimum tax based, in part, on 75% of
any excess of "adjusted current earnings" over taxable income as adjusted for
other tax preferences. Because an exempt-interest dividend paid by the Trust
will be included in adjusted current earnings, a corporate shareholder may
therefore be required to pay an increased alternative minimum tax as the result
of receiving exempt-interest dividends paid by the Trust.
The Superfund Amendments and Reauthorization Act of 1986 (the "Superfund
Act") imposes a deductible tax on a corporation's alternative minimum taxable
income (computed without regard to the alternative tax net operating loss
deduction) at a rate of $12 per $10,000 (0.12%) of alternative minimum taxable
income in excess of $2,000,000. The tax will be imposed for taxable years
beginning after December 31, 1986 and before January 1, 1996. The tax will be
imposed even if the corporation is not required to pay an alternative minimum
tax because the corporation's regular income tax liability exceeds its minimum
tax liability. Exempt-interest dividends paid by the Trust that create
alternative minimum tax preferences for corporate shareholders under the Code
(as described above) may be subject to the tax.
Within 60 days after the end of its fiscal year, the Trust will mail to
shareholders a statement indicating the percentage of the dividend distributions
for such fiscal year which constitutes exempt-interest dividends and the
percentage, if any, that is taxable, and to what extent the taxable portion is
long-term capital gain, short-term capital gain or ordinary income. This
percentage should be applied uniformly to all monthly distributions made during
the fiscal year to determine the proportion of dividends that is tax-exempt. The
percentage may differ from the percentage of tax-exempt dividend distributions
for any particular month.
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of realized
net short-term capital gains. Such interest and realized net short-term capital
gains dividends and distributions are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Distributions of long-term
capital gains, if any, are taxable as long-term capital gains, regardless of how
long the shareholder has held the Fund shares and regardless of whether the
distribution is received in additional shares or cash. Since the Trust's income
is expected to be derived entirely from interest rather than dividends, it is
anticipated that none of such dividend distributions will be eligible for the
federal dividends received deduction available to corporations.
Any loss on the sale or exchange of shares of the Trust which are held for 6
months or less is disallowed to the extent of the amount of any exempt-interest
dividend paid with respect to such shares. Treasury Regulations may provide for
a reduction in such required holding periods.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined in general on an October 31 year end,
plus certain undistributed amounts from previous years. The required
distributions, however, are based only on the taxable income of a regulated
investment company such as the Trust, which pays exempt-interest dividends. The
Trust anticipates that it will make sufficient timely distributions to avoid
imposition of the excise tax.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Trust 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 the Trust. "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.
Active Assets California Tax-Free Trust 14
<PAGE>
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 be introduced in the
future. If such a proposal were to be enacted, the availability of tax-exempt
municipal securities for investment by the Trust could be affected. If such
legislation is enacted, the Trust may reevaluate its investment objective and
policies.
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Thus, shareholders of the Trust may be subject to
state and local taxes on exempt-interest dividends. Shareholders should consult
their tax advisers about the status of dividends from the Trust in their own
states and localities. The Trust will report annually to shareholders the
percentage of interest income received by the Trust during the preceding year on
tax-exempt obligations, indicating, on a state-by-state basis, the source of
such income.
Under present Massachusetts law, the Trust is not subject to any
Massachusetts income tax during any fiscal year in which the Trust qualifies as
a regulated investment company. The Trust might be subject to Massachusetts
income taxes for any taxable year in which it does not so qualify as a regulated
investment company.
To the extent that dividends 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, and in U.S.
obligations which, if held by an individual, would 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. In addition, unlike federal law, the California personal
income tax does not apply to any portion of an individual's Social Security
benefits.
For California personal income tax purposes, distributions paid from capital
gains are taxable as ordinary income. In addition, unlike federal law, the
shareholders of the Trust will not be subject to tax, or receive a credit for
taxes paid by the Trust, 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 Trust, 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.
Any dividends or capital gains distributions received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that fund by the exact amount of the dividends or
capital gains distribution. Furthermore, capital gains distributions are, and
some portion of the dividends may be, subject to income tax. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the distribution of realized net long-term capital gains, such distribution
would be a return of capital but nonetheless taxable at capital gains rates.
Therefore, an investor should not purchase Trust shares immediately prior to a
distribution record date and sell them immediately thereafter solely for the
purpose of receiving the distribution.
INFORMATION ON COMPUTATION OF YIELD
The Trust'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 expenses of the Trust 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).
Active Assets California Tax-Free Trust 15
<PAGE>
The Trust'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
Trust 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 Trust 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 Trust and changes in interest rates on
such investments, but also on changes in the Trust's expenses during the period.
Yield information may be useful in reviewing the performance of the Trust
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, the Trust's yield fluctuates.
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
Trust that is not tax-exempt.
The Trust's current yield for the seven days ended June 30, 1995 was 3.20%.
The effective annual yield on 3.20% is 3.25%, assuming daily compounding.
Based upon a combined Federal and California personal income tax bracket of
46.24%, the Trust's tax-equivalent yield for the seven days ended June 30, 1995
was 5.95%. 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 Trust that is not tax-exempt.
Active Assets California Tax-Free Trust 16
<PAGE>
STATEMENTS OF ADDITIONAL INFORMATION
AUGUST 29, 1995 [LOGO]
- --------------------------------------------------------------------------------
Active Assets Money Trust (the "Money Trust" or the "Trust") is a no-load,
diversified open-end management investment company whose investment objectives
are high current income, preservation of capital and liquidity. The Money Trust
seeks to achieve its objectives by investing in a diversified portfolio of
short-term money market instruments.
Active Assets Tax-Free Trust (the "Tax-Free Trust" or the "Trust") is a
no-load, diversified open-end management investment company whose investment
objective is to provide as high a level of daily income exempt from federal
personal income tax as is consistent with stability of principal and liquidity.
The Tax-Free Trust seeks to achieve its objective by investing primarily in high
quality tax-exempt securities with short-term maturities.
Active Assets California Tax-Free Trust (the "California Tax-Free Trust" or
the "Trust") is a no-load, diversified open-end management investment company
whose investment objective is to provide as high a level of daily income exempt
from federal and California personal income tax as is consistent with stability
of principal and liquidity. The California Tax-Free Trust seeks to achieve its
objective by investing primarily in high quality tax-exempt securities with
short-term maturities.
Active Assets Government Securities Trust (the "Government Securities Trust"
or the "Trust") is a no-load, diversified open-end management investment company
whose investment objectives are high current income, preservation of capital and
liquidity. The Government Securities Trust seeks to achieve its objective by
investing in U.S. Government securities, including a variety of securities which
are issued or guaranteed by the United States Government, its agencies or
instrumentalities.
Prospectuses for the Money Trust, the Tax-Free Trust, the California
Tax-Free Trust and the Government Securities Trust, all dated August 29, 1995,
which provide the basic information you should know before investing in any of
the aforementioned Trusts, may be obtained without charge from any of the Trusts
at the address or telephone number listed below. These Statements of Additional
Information are not Prospectuses. They contain information in addition to and
more detailed than that set forth in the Prospectuses. They are intended to
provide additional information regarding the activities and operations of the
Trusts, and should be read in conjunction with the Prospectuses. They should be
read with the information appearing in the Appendix hereto which is a part of
these Statements of Additional Information.
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
(212) 392-2550
The shares of the Money Trust, the Tax-Free Trust, the California Tax-Free
Trust and the Government Securities Trust are offered to participants in the
Active Assets Account program of Dean Witter Reynolds Inc. ("Dean Witter"). In
addition, shares of the Trusts are offered to investors maintaining brokerage
accounts with Dean Witter who are not subscribers to the Active Assets program.
For further information, either consult the Dean Witter Client Agreement or
consult your Dean Witter Account Executive.
Active Assets Government Securities Trust
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Practices and Policies..................................... 3
Investment Restrictions............................................... 4
How Net Asset Value is Determined..................................... 5
Dividends, Distributions and Taxes.................................... 7
Financial Statements.................................................. 9
Report of Independent Accountants..................................... 13
APPENDIX
Investment Manager.................................................... A-1
Trustees and Officers................................................. A-7
Portfolio Transactions and Brokerage.................................. A-11
General Information................................................... A-12
Custodian and Transfer Agent.......................................... A-12
Independent Accountants............................................... A-13
Reports to Shareholders............................................... A-13
Legal Counsel......................................................... A-13
Experts............................................................... A-13
Registration Statement................................................ A-13
Information with Respect to Securities Ratings........................ A-14
</TABLE>
2
Active Assets Government Securities Trust
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. As discussed in the Prospectus, the Trust may enter
into repurchase agreements with financial institutions. The Trust follows
certain procedures, adopted by its Trustees, designed to minimize the risks
inherent in such agreements. 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 repurchase price, including any accrued interest
earned on the repurchase agreement. Such collateral will consist of Government
securities or "Eligible Securities" (as described under the caption "How Net
Asset Value is Determined") rated in the highest grade by a nationally
recognized statistical rating organization (a "NRSRO") whose ratings qualify the
collateral security as an "Eligible Security". In the event of a default or
bankruptcy by a selling financial institution, the Trust will seek to liquidate
such collateral. However, the exercising of the Trust's 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 Trust could suffer a loss. It is the current
policy of the Trust 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 Trust, amounts to more than 10% of its total assets. The
Trust's investments in repurchase agreements may at times be substantial when,
in the view of the Trust's investment manager, liquidity or other considerations
warrant.
REVERSE REPURCHASE AGREEMENTS. The Trust may also use reverse repurchase
agreements as part of its investment strategy, but to date has not entered into
nor does it have any intention of entering into any such agreements. Reverse
repurchase agreements involve sales by the Trust of portfolio assets
concurrently with an agreement by the Trust to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the Trust 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
Trust of the reverse repurchase transaction is less than the cost of otherwise
obtaining the cash. Opportunities to achieve this advantage may not always be
available, and the Trust intends to use the reverse repurchase technique only
when it will be to its advantage to do so. The Trust 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 with
respect to reverse repurchase agreements. Reverse repurchase agreements are
considered borrowings by the Trust.
LENDING OF PORTFOLIO SECURITIES. Subject to investment restriction (11)
below, the Trust may lend portfolio securities to brokers, dealers and financial
institutions provided that cash equal to at least 100% of the market value of
the securities loaned is deposited by the borrower with the Trust and is
maintained each business day in a segregated account pursuant to applicable
regulations. While such securities are on loan, the borrower will pay the Trust
any income accruing thereon, and the Trust may invest the cash collateral in
portfolio securities, thereby earning additional income. The Trust 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. The creditworthiness of
firms to which the Trust lends its portfolio securities will be monitored on an
ongoing basis. Loans would be subject to termination by the Trust in the normal
settlement time, currently two business days after notice, or by the borrower on
one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Trust and its
shareholders. The Trust may pay reasonable finders, borrowers, administrative,
and custodial fees in connection with a loan. During its fiscal year ended June
30, 1994, the Trust did not lend any of its portfolio securities and it has no
intention of doing so in the foreseeable future.
3
Active Assets Government Securities Trust
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As discussed in the
Prospectus, from time to time, in the ordinary course of business, the Trust may
purchase securities on a when-issued or delayed delivery basis--i.e., delivery
and payment can take place a month or more after the date of the transaction.
While the Trust will only purchase securities on a when-issued or delayed
delivery basis with the intention of acquiring the securities, the Trust may
sell the securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuations and no
interest accrues to the purchaser during this period. At the time the Trust
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, it will record the transaction and thereafter reflect the value, each
day, of such security in determining its net asset value. At the time of
delivery of the securities, the value may be more or less than the purchase
price. The Trust will also 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 commitments for such when-issued or delayed
delivery securities.
The foregoing strategies, and those discussed in the Prospectus under the
heading "Investment Objectives and Policies," may subject the Trust to the
effects of interest rate fluctuations to a greater extent than would occur if
such strategies were not used. While the strategies listed above may be used by
the Trust if, in the opinion of the Investment Manager, they will be
advantageous to the Trust, the Trust will be free to reduce or eliminate its
activity in any of those areas without changing its fundamental investment
policies. Certain provisions of the Internal Revenue Code, related regulations,
and rulings of the Internal Revenue Service may also have the effect of reducing
the extent to which the previously cited techniques may be used by the Trust,
either individually or in combination. Furthermore, there is no assurance that
any of these strategies or any other strategies and methods of investment
available to the Trust will result in the achievement of its objectives.
The Trust will attempt to balance its objectives of security of principal,
high current income and liquidity by investing in securities of varying
maturities and risks. The Trust will not, however, invest in securities with an
effective maturity of more than one year. The amounts invested in obligations of
various maturities of one year or less will depend on management's evaluation of
the risks involved. Longer-term U.S. Government issues, while generally paying
higher interest rates, are subject to greater fluctuations in value resulting
from general changes in interest rates than shorter-term issues. Thus, when
rates on new securities increase, the value of outstanding securities may
decline, and vice versa. Such changes may also occur, to a lesser degree, with
short-term issues. These changes, if realized, may cause fluctuations in the
amount of daily dividends and, in extreme cases, could cause the net asset value
per share to decline. In the event of unusually large redemption demands, such
securities may have to be sold at a loss prior to maturity, or the Trust might
have to borrow money and incur interest expense. Either occurrence would
adversely impact upon the amount of daily dividend and could result in a decline
in daily net asset value per share or the redemption by the Trust of shares held
in a shareholder's account. The Trust will attempt to minimize these risks by
investing in relatively longer-term securities when it appears to management
that yields on such securities are not likely to increase substantially during
the period of expected holding, and then only in securities which are readily
marketable. However, there can be no assurance that the Trust will be successful
in achieving this objective.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Trust has adopted certain investment restrictions as fundamental
policies which cannot be changed without the approval of the holders of a
"majority" of the outstanding shares of the Trust as defined in the Investment
Company Act of 1940, as amended (the "Act"). Majority is defined in the Act as
the lesser of (a) sixty-seven percent or more of the shares present at a meeting
of shareholders, if the holders of more than fifty percent of the outstanding
shares of the Trust are present or represented by proxy, or (b) more than fifty
percent of the outstanding shares of the Trust.
4
Active Assets Government Securities Trust
<PAGE>
These restrictions provide that the Trust may 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 Trust's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made;
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 repurchase
agreements referred to under "Investment Practices and Policies" above and
"Investment Objectives and Policies" in the Prospectus;
9. Issue senior securities as defined in the Act except insofar as the
Trust may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase or reverse repurchase agreement; (b) borrowing
money in accordance with restrictions described above; 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.
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not constitute a
violation of such restriction.
HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
As discussed in the Appendix to the Prospectus, the net asset value of the
Trust is determined as of 12 noon New York time on each day that the New York
Stock Exchange is open. The New York Stock Exchange currently observes the
following holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
The Trust utilizes the amortized cost method in valuing its portfolio
securities for purposes of determining the net asset value of the shares of the
Trust. The Trust 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
adjusted by a constant amortization to maturity of any discount or
5
Active Assets Government Securities Trust
<PAGE>
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 Trust would receive if it sold the
instrument. During such periods the yield to investors in the Trust may differ
somewhat from that obtained in a similar company which uses mark to market
values for all 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 Trust 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 Trust's use of the amortized cost method to value its portfolio
securities and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the Act (the "Rule"), and is conditioned on
its compliance with various conditions including: (a) the Trustees are
obligated, as a particular responsibility within the overall duty of care owed
to the Trust's shareholders, to establish procedures reasonably designed, taking
into account current market conditions and the Trust'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) (i) the procedures include
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 of 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, the Trustees'
considerations made pursuant to them and any actions taken upon such
considerations; (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 or, as provided by the Declaration of Trust, reducing the number of
the outstanding shares of the Trust) to eliminate or reduce to the extent
reasonably practicable material dilution or other unfair results to investors or
existing shareholders. Any reduction of outstanding shares will be effected by
having each shareholder proportionately contribute to the Trust's capital the
necessary shares that represent the amount of excess upon such determination.
Each shareholder will be deemed to have agreed to such contribution in these
circumstances by investment in the Trust. See "Dividends, Distributions and
Taxes" for a discussion of the tax effect of such a reduction.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Trust's interest
in the instrument is subject to market action) until the date noted on the face
of the instrument as the date on which the principal amount must be paid, or in
the case of an instrument called for redemption, the date on which the
redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument 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 Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b) (i) is rated in the two
highest short-term rating categories by any two NRSRO's that have issued a
short-term rating with respect to the security or class of debt obligations of
the issuer, or (ii) if only one NRSRO has issued a short-term rating with
respect to the security, then by that NRSRO; (c) was a long-term security at the
time of issuance whose issuer has outstanding a short-term debt obligation which
is comparable in priority and security and has a rating as specified in clause
(b) above; or (d) if no rating is assigned by any NRSRO as provided in clauses
(b) and (c) above, the unrated security is determined by the Board to be of
comparable quality to any such rated security.
6
Active Assets Government Securities Trust
<PAGE>
As permitted by the Rule, the Board has delegated to the Trust's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, 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, the Trust 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, 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 determined to be of
comparable quality: (i) no more than 5% in the aggregate of the Trust'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 of any one issuer.
If the Board determines that it is no longer in the best interests of the
Trust and its shareholders to maintain a stable price of $1 per share or if the
Board believes that maintaining such price no longer reflects a market-based net
asset value per share, the Board has the right to change from an amortized cost
basis of valuation to valuation based on market quotations. The Trust will
notify shareholders of any such change.
The Rule further requires that the Trust limit its investments to
instruments which the Trustees determine present minimal credit risks. The Rule
also requires the Trust 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 one year. Should the disposition of a
portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, the Trust is required to invest its available cash in such a
manner as to reduce such maturity to 90 days or less as soon as reasonably
practicable.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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As discussed in the Appendix to the Prospectus, the Trust intends to declare
dividends payable on each day the New York Stock Exchange is open for business
of all of its daily net investment income and net short-term capital gains, if
any, to shareholders of record as of 12 Noon New York time of the preceding
business day. Net income, for dividend purposes, includes accrued interest and
amortization of original issue and market discount, plus or minus any short-term
gains or losses realized on sales of portfolio securities, less the amortization
of market premium and the estimated expenses of the Trust. Net income will be
calculated immediately prior to the determination of net asset value per share
of the Trust.
Gains or losses on the sales of securities by the Trust will be long-term
capital gains or losses if the securities have been held by the Trust for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Trust should have or anticipate any large unexpected expense,
loss or fluctuation in net assets which, in the opinion of the Trustees, might
have a significant adverse effect on shareholders. On occasion, in order to
maintain a constant $1.00 per share net asset value, the Trustees may direct
that the number of outstanding shares be reduced in each shareholder's account.
Such reduction may result in taxable income to a shareholder in excess of the
net increase (i.e., dividends, less such reductions), if any, in the
shareholder's account for a period. Furthermore, such reduction may be realized
as a capital loss when the shares are liquidated.
The Trust has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, the Trust will not be subject to federal
income and excise taxes provided that it distributes all of its taxable net
investment income and all of its net realized gains.
7
Active Assets Government Securities Trust
<PAGE>
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of realized
net short-term capital gains. Such interest and realized net short-term capital
gains dividends and distributions are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Since the Trust's income is
expected to be derived entirely from interest rather than dividends, none of
such dividends/distributions will be eligible for the federal dividends received
deduction available to corporations.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined in general on an October 31 year end,
plus certain undistributed amounts from previous years. The Trust anticipates
that it will make sufficient timely distributions to avoid imposition of the
excise tax.
Under present Massachusetts law, the Trust is not subject to any
Massachusetts income tax during any fiscal year in which the Trust qualifies as
a regulated investment company. The Trust might be subject to Massachusetts
income taxes for any taxable year in which it does not so qualify as a regulated
investment company.
The Trust may be subject to tax or taxes in certain states where it does
business. Furthermore, in those states which have income tax laws, the tax
treatment of the Trust and of shareholders with respect to distributions by the
Trust may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state or local taxes.
INFORMATION ON COMPUTATION OF YIELD
The Trust'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 expenses of the Trust 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).
The Trust'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
Trust 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 Trust 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 Trust and changes in interest rates on
such investments, but also on changes in the Trust's expenses during the period.
Yield information may be useful in reviewing the performance of the Trust
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, the Trust's yield fluctuates.
The Trust's current yield for the seven days ended June 30, 1995 was 5.40%.
The effective annual yield on 5.40% is 5.54%, assuming daily compounding.
8
Active Assets Government Securities Trust
<PAGE>
APPENDIX
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This Appendix constitutes part of the Statements of Additional Information
of the Active Assets Money Trust (the "Money Trust"), the Active Assets Tax-Free
Trust (the "Tax-Free Trust"), the Active Assets California Tax-Free Trust (the
"California Tax-Free Trust") and the Active Assets Government Securities Trust
(the "Government Securities Trust"). The Money Trust, the Tax-Free Trust, the
California Tax-Free Trust and the Government Securities Trust are referred to in
this Appendix collectively as the "Trusts". Unless otherwise indicated, the
information set forth herein is applicable to each Trust.
INVESTMENT MANAGER
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Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Trusts' Investment Manager. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWDC") a Delaware corporation. The
daily management of the Trusts and research relating to the Trusts' portfolios
is conducted by or under the direction of officers of the Trusts and of the
Investment Manager, subject to review of investments by the Trusts' Trustees. In
addition, Trustees of the Trusts provide guidance on economic factors and
interest rate trends. Information as to these Trustees and Officers is contained
under the caption "Trustees and Officers."
InterCapital also serves as investment manager (or investment advisor and
administrator) of the following investment companies: Dean Witter Liquid Asset
Fund Inc., InterCapital Income Securities Inc., Dean Witter High Yield
Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter Developing
Growth Securities Trust, Dean Witter Tax-Exempt Securities Trust, Dean Witter
American Value Fund, Dean Witter Dividend Growth Securities Inc., Dean Witter
Natural Resource Development Securities Inc., Dean Witter U.S. Government Money
Market Trust, Dean Witter Variable Investment Series, Dean Witter World Wide
Investment Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter
U.S. Government Securities Trust, Dean Witter California Tax-Free Income Fund,
Dean Witter New York Tax-Free Income Fund, Dean Witter Convertible Securities
Trust, Dean Witter Federal Securities Trust, Dean Witter Value-Added Market
Series, High Income Advantage Trust, High Income Advantage Trust II, Dean Witter
Government Income Trust, Dean Witter Utilities Fund, Dean Witter Managed Assets
Trust, Dean Witter California Tax-Free Daily Income Trust, Dean Witter
Strategist Fund, Dean Witter World Wide Income Trust, High Income Advantage
Trust III, Dean Witter Capital Growth Securities, Dean Witter European Growth
Fund, Inc., Dean Witter New York Municipal Money Market Trust, Dean Witter
Precious Metals and Minerals Trust, Dean Witter Global Short-Term Income Fund
Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-State Municipal
Series Trust, InterCapital Insured Municipal Bond Trust, InterCapital Insured
Municipal Trust, InterCapital Quality Municipal Investment Trust, Dean Witter
Diversified Income Trust, InterCapital Quality Municipal Income Trust,
InterCapital California Insured Municipal Income Trust, Dean Witter Global
Dividend Growth Securities, Dean Witter Limited Term Municipal Trust, Dean
Witter Health Sciences Trust, Dean Witter Retirement Series, Dean Witter Premier
Income Trust, Dean Witter Short-Term U.S. Treasury Trust, InterCapital Quality
Municipal Securities, InterCapital California Quality Municipal Securities,
InterCapital New York Quality Municipal Securities, InterCapital Insured
Municipal Income Trust, InterCapital Insured Municipal Securities, InterCapital
Insured California Municipal Securities, Dean Witter Short-Term Bond Fund, Dean
Witter Global Utilities Fund, Dean Witter National Municipal Trust, Dean Witter
High Income Securities, Dean Witter International SmallCap Fund, Dean Witter
Mid-Cap Growth Fund, Dean Witter Intermediate Income Securities, Dean Witter
Select Dimensions Investment Series, Dean Witter Balanced Growth Fund, Dean
Witter Balanced Income Fund, Dean Witter Hawaii Municipal Trust, Municipal
Income Trust, Municipal Income Trust II, Municipal Income Trust III, Municipal
Income Opportunities Trust, Municipal Income Opportunities Trust II, Prime
Income Trust, Municipal Income Opportunities Trust III and Municipal Premium
Income Trust. The foregoing investment companies, together with the Trusts, are
collectively referred to as the Dean Witter Funds. In addition, Dean Witter
Services Company Inc. ("DWSC"), a wholly-owned subsidiary of InterCapital,
serves as manager for the following investment companies, for which TCW Funds
Management, Inc. is the investment adviser: TCW/DW Core Equity Trust, TCW/DW
North American Government
A-1
<PAGE>
Income Trust, TCW/DW Latin American Growth Fund, TCW/DW Term Trust 2002, TCW/DW
Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW Balanced Fund,
TCW/DW North American Intermediate Fund, TCW/DW Global Convertible Trust, TCW/DW
Total Return Trust, TCW/DW Term Trust 2000 and TCW/DW Term Trust 2003 (the
"TCW/DW Funds"). InterCapital also serves as: (i) sub-adviser to Templeton
Global Opportunities Trust, an open-end investment company; (ii) administrator
of The BlackRock Strategic Term Trust Inc., a closed-end investment company; and
(iii) sub-administrator of MassMutual Participation Investors and Templeton
Global Governments Income Trust, closed-end investment companies.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg. The shares of this company may not be offered in the United States
or purchased by American citizens outside the United States.
The Trusts have entered into separate Investment Management Agreements (the
"Agreements") with the Investment Manager. Pursuant to the Agreements, the
Trusts have retained the Investment Manager to manage the investment of each of
the Trusts' assets, including the placing of orders for the purchase and sale of
portfolio securities. The Investment Manager obtains and evaluates such
information and advice relating to the economy, securities markets, and specific
securities as it considers necessary or useful to continuously manage the assets
of the Trusts in a manner consistent with their investment objectives and
policies.
Under the terms of the Agreements, in addition to managing the Trusts'
investments, the Investment Manager maintains certain of the Trusts' books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping services as the Trusts may reasonably
require in the conduct of business. In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Trusts 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 Trusts.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Trusts which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital and DWSC on such date. The
foregoing internal reorganizations did not result in any change in the nature or
scope of the administrative services being provided to the Fund or any of the
fees being paid by the Fund for the overall services being performed under the
terms of the existing Management Agreement.
Expenses not expressly assumed by the Investment Manager under any of the
Agreements or by Dean Witter Distributors Inc. ("Distributors or the
Distributor"), the Distributor of the Trusts' shares (see "Plan and Agreement of
Distribution" below and in the Prospectus), will be paid by the Trusts. The
expenses borne by the Trusts include, but are not limited to: charges and
expenses of any registrar, custodian, stock transfer and dividend disbursing
agent; brokerage commissions; taxes; engraving and printing share certificates,
if any; registration costs of the Trusts and their shares under federal and
state securities laws; the cost and expense of printing, including typesetting,
and distributing prospectuses and statements of additional information of the
Trusts and supplements thereto to the Trusts' shareholders; 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 Trusts' portfolio
securities; fees and expenses of legal counsel, including counsel to the
Trustees who are not interested persons of the Trusts or of the Investment
Manager and independent accountants; membership dues of industry associations;
interest on Trust borrowings; postage; insurance premiums on property or
personnel (including officers and trustees) of the Trusts which inure to the
Trusts' 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 Trusts' operation.
A-2
<PAGE>
As full compensation for the services and facilities furnished to the Trusts
and Trust expenses assumed by the Investment Manager, the Trusts each pay the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the respective Trust, determined as
of the close of each 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; 0.3% 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.
The Money Trust accrued to the Investment Manager compensation in the amounts of
$12,588,084, $13,025,495 and $15,638,717 during the fiscal years ended June 30,
1993, June 30, 1994 and June 30, 1995, respectively. The Tax-Free Trust accrued
to the Investment Manager compensation in the amounts of $5,846,579, $6,138,744
and $6,276,658 for the fiscal years ended June 30, 1993, June 30, 1994 and June
30, 1995, respectively. The California Tax-Free Trust accrued to the Investment
Manager compensation in the amounts of $908,488, $1,328,271 and $1,502,742 for
the fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995,
respectively. The Government Securities Trust accrued to the Investment Manager
compensation in the amounts of $2,699,656, $2,594,882 and $2,595,218 for the
fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995, respectively.
Under the Agreements, total operating expenses of each Trust, exclusive of
taxes, interest, brokerage fees and extraordinary expenses (to the extent
permitted by applicable state securities laws and regulations), are subject to
applicable limitations under rules and regulations of states where each Trust is
authorized to sell its shares. Therefore, such expenses are effectively subject
to the most restrictive of such limitations as the same may be amended from time
to time. Presently, the most restrictive limitation is as follows: 2 1/2% of the
first $30,000,000 of average daily net assets, 2% of the next $70,000,000 of
average daily net assets and 1 1/2% of any excess over $100,000,000 of average
daily net assets. Under the Agreements, if in any fiscal year such operating
expenses exceed this limitation, the Investment Manager will reimburse the
Trust(s) for the amount of such excess. Such amount, if any, will be calculated
daily and credited on a monthly basis. During the fiscal years ended June 30,
1993, June 30, 1994 and June 30, 1995 the expenses of Money Trust, Tax-Free
Trust, California Tax-Free Trust and Government Securities Trust did not exceed
this limitation or the then existing most restrictive limitation.
The Agreements provide 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 Trusts or any of their investors for any
act or omission by the Investment Manager or for any losses sustained by the
Trusts or their investors. The Agreements in no way restrict the Investment
Manager from acting as investment manager or adviser to others.
The Agreements between Money Trust, Tax-Free Trust and Government Securities
Trust and the Investment Manager were initially approved by the Trustees on
January 18, 1983 and were approved by the shareholders of the respective Trusts
on March 17, 1983 and March 18, 1983. Pursuant to their terms, these Agreements
remained in effect until October 31, 1984 and were continued from year to year
thereafter, as the continuance of each Agreement was approved at least annually
by the vote of a majority, as defined in the Investment Company Act of 1940 (the
"Act"), of the outstanding voting securities of the Trust or by the Trustees of
the Trust, provided that in either event such continuance was approved annually
by the vote of a majority of the Trustees who were not parties to the Agreement
or "interested persons" (as defined in the Act) of any such party ("the
Independent Trustees"), which vote was cast in person at a meeting called for
the purpose of voting on such approval.
At their meeting held on April 29, 1992, which was specifically called for
the purpose of voting on the approval of the continuance of the Agreements, the
Trustees, including a majority of the non-interested Trustees as described
above, voted to continue the current Agreements until April 30, 1993. These
Agreements may be terminated at any time, without penalty, on thirty days'
notice, by the Trustees of the
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<PAGE>
Trust, by the holders of a majority, as defined in the Act, of the Trust's
shares, or by the Investment Manager. These Agreements will automatically
terminate in the event of their assignment (as defined in the Act).
At their meetings held on October 30, 1992, the Trustees, including all of
the Independent Trustees, of Money Trust, Tax-Free Trust and Government
Securities Trust approved the assumption of the rights and duties of Dean Witter
(InterCapital's predecessor as the Trust's Investment Manager) under the
Agreements by InterCapital, upon the internal reorganization of Dean Witter
Reynolds Inc. ("Dean Witter") (which reorganization took place in January,
1993). At the same meetings, the Trustees approved new investment management
agreements to take effect upon the spin-off by Sears, Roebuck and Co. ("Sears")
of its remaining shares of DWDC. This spin-off was consummated on June 30, 1993,
whereupon the new agreements took effect. The new investment management
agreements are substantially identical in all material respects to the
Agreements. The approvals of the Trustees were subsequently ratified by the
shareholders of Money Trust, Tax-Free Trust Government Securities Trust at
Special Meetings held on January 12, 1993. Subsequently, at their meetings held
on April 20, 1995, the Trustees approved the continuance of the Agreements until
April 30, 1996.
The Agreement between California Tax-Free Trust and the Investment Manager
was approved by the Trustees on July 18, 1991 and by Dean Witter as the sole
shareholder on October 4, 1991. Under its terms, this Agreement remained in
effect until April 30, 1993, and will continue in effect from year to year
thereafter, provided continuance of each Agreement is approved at least annually
by the vote of a majority, as defined in the Act, of the outstanding voting
securities of the Trust or by the Trustees of the Trust, provided that in either
event such continuance is approved annually by the vote of a majority of the
Independent Trustees of the California Tax-Free Trust, which vote must be cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement may, be terminated at any time, without penalty, on thirty day's
notice, by the Trustees of the California Tax-Free Trust, by the holders of a
majority, as defined in the Act, of the California Tax-Free Trust's shares, or
by the Investment Manager. The Agreement will automatically terminate in the
event of its assignment (as defined in the Act).
At its meeting held on October 30, 1992, the Trustees of California Tax-Free
Trust, including all of the Independent Trustees, approved the assumption by
InterCapital of Dean Witter's rights and duties under the Agreement (which
assumption took place upon the reorganization referred to above, and a new
investment management agreement identical in all material respects to the
Agreement) to take effect upon the spin-off described above. At their Special
Meeting held on January 13, 1993, the shareholders of California Tax-Free Trust
approved the Agreement's continuation as well as the aforementioned assumption
of rights and duties and the new investment management agreement (which went
into effect on June 30, 1993). Subsequently, at their meetings held on April 20,
1995, the Trustees approved the continuance of the Agreement until April 30,
1996.
The Investment Manager has paid the organizational expenses of the
California Tax-Free Trust incurred prior to the offering of its shares. The
California Tax-Free Trust has reimbursed the Investment Manager for such
expenses in an amount of approximately $46,500. The California Tax-Free Trust
has deferred and is amortizing the reimbursed expenses on the straight line
method over a period not to exceed five years from the date of commencement of
its operations.
PLAN OF DISTRIBUTION
As discussed in the Prospectus, each Trust has entered into a Distribution
Agreement with Dean Witter Distributors Inc. (the "Distributor") in connection
with the continuous offering of the shares of the Trust. The Distribution
Agreements obligate the Distributor to pay certain expenses in connection with
the offering of the shares of the Trust, including costs involved in the
distribution of prospectuses and periodic reports to investors, the cost of
other supplementary sales literature and advertising costs.
The Distributor has entered into selected dealer agreements with Dean
Witter, which through its own sales organization sells shares of the Trusts. The
Distributor, a Delaware corporation, is an indirect wholly-owned subsidiary of
DWDC. The Trustees who are not, and were not at the time they voted,
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<PAGE>
interested persons of the Trusts, as defined in the Act (the "Independent
Trustees"), approved, at their meeting held on October 30, 1992, Distribution
Agreements appointing the Distributor as exclusive distributor of the Trusts'
shares and providing for the Distributor to bear distribution expenses not borne
by the Trusts. At the same meeting, the Trustees of the Trusts, including all of
the Independent Trustees, approved new Distribution Agreements between the
Trusts and the Distributor, to take effect upon the spin-off by Sears. The new
Distribution Agreements are substantively identical to the current Distribution
Agreements in all material respects, except for the dates of effectiveness. By
their terms, the Distribution Agreements had initial terms ending April 30,
1994, and they will remain in effect from year to year thereafter if approved by
the Trustees. At their meetings held on April 20, 1995, the Trustees, including
all of the Independent Trustees, voted to approve the continuance of the
Distribution Agreements until April 30, 1996.
As discussed in the Appendix to the Prospectuses, the Trusts have each
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The adoptions of the Plans of Money Trust, Tax-Free Trust, and Government
Securities Trust were made on March 21, 1983. These respective Plans were
initially approved by the Trustees of the respective Trusts on January 18, 1983
and by the respective Trust's shareholders on March 17, 1983 and March 18, 1983.
The Plan of California Tax-Free Trust was adopted by the Trustees of the Trust
on July 18, 1991 and by DWR, as sole shareholder, on October 4, 1991, whereupon
it went into effect. On April 29, 1992, the Trustees approved continuance of
these Plans until April 30, 1993. In all instances, the vote of the respective
Trustees included a majority of the Trustees who are not and were not at the
time of their votes interested persons of the Trust and who have and had no
direct or indirect financial interest in the operation of the Plan (the
"Independent 12b-1 Trustees"), cast in person at meetings called for the purpose
of voting on such Plans and Agreements. The California Tax-Free Trust has
undertaken, in its Registration Statement, to seek subsequent shareholder
approval of the Plan at its first Annual or Special Meeting of Shareholders held
after the effective date of the Registration Statement of which this Statement
of Additional Information is a part.
At their meetings held on October 30, 1992, the Trustees of the Trusts,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon the reorganization referred to above the share distribution
activities theretofore performed for the Trusts by Dean Witter were assumed by
the Distributor, and Dean Witter's sales activities are now being performed
pursuant to the terms of a selected dealer agreement between the Distributor and
Dean Witter. The amendments provide that payments under the Plans will be made
to the Distributor rather than to Dean Witter, as before the amendment, and that
the Distributor in turn is authorized to make payments to Dean Witter, its
affiliates or other selected broker-dealers (or direct that the Trusts pay such
entities directly). The Distributor is also authorized to retain part of such
payments as compensation for its own distribution-related expenses. This amended
Plan was approved by the shareholders of California Tax-Free Trust at their
meeting held on January 13, 1993.
Under the respective Plans, the Distributor has expanded the nature of its
promotional activities on behalf of the respective Trusts and used its best
efforts to foster additional sales of Trust shares. The respective Plans provide
that the Distributor bears the expense of all promotional and distribution
related activities on behalf of the respective Trusts, except for expenses that
the respective Trustees determine to reimburse, as described below. The
following activities and services may be provided by the Distributor under the
respective Plans: (1) compensation to sales representatives of the Distributor
and other broker-dealers; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
shares; (3) expenses incurred in connection with promoting sales of shares of
the Trust; (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 account executives are paid an annual residual commission,
currently a gross residual of up to 0.10% of the current value of the respective
accounts for which they are the account executives of record. The "gross
residual" is a charge which reflects residual commissions paid by Dean Witter to
its account executives and Dean Witter's expenses associated with the servicing
of shareholder's
A-5
<PAGE>
accounts, including the expenses of operating Dean Witter's branch offices in
connection with the servicing of shareholder's 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 Trust is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
respective Trust's shares. Reimbursement is made through monthly payments in
such amounts determined in advance of each fiscal quarter by the respective
Trustees, including a majority of the Independent Trustees. The amount of each
monthly payment may in no event exceed an amount equal to a payment at the
annual rate of .15 of 1% of the Trust's average daily net assets during the
month. No interest or other financing charges will be incurred by Dean Witter
for which reimbursement payments under the Plan will be made. In making
quarterly determinations of the amounts that may be expended by each Trust, the
Distributor provides, and the respective Trustees review, a quarterly budget of
projected incremental distribution expenses to be incurred on behalf of each
Trust, together with a report explaining the purposes and anticipated benefits
of incurring such expenses. The respective Trustees determine which particular
expenses, and the portions thereof, that may be borne by each Trust, and in
making such determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the respective Trusts' shares.
Money Trust, Tax-Free Trust, California Tax-Free Trust and Government
Securities Trust accrued $4,836,697, $1,476,861, $295,306 and $515,161,
respectively, to the Distributor pursuant to the Plans for the fiscal year ended
June 30, 1995. Based upon the total amounts spent by the Distributor during the
period, it is estimated that the amounts paid by the Trusts to the Distributor
for distribution were spent in approximately the following ways: for the Money
Trust: (i) advertising -- $-0-; (ii) printing and mailing of 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 to Dean Witter for expenses
substantially all of which relate to compensation of sales personnel --
$4,836,697; for the Tax-Free Trust: (i) advertising -- $-0-; (ii) printing and
mailing of 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 to Dean
Witter for expenses substantially all of which relate to compensation of sales
personnel -- $1,476,861; for the California Tax-Free Trust: (i) advertising --
$-0-; (ii) printing and mailing of 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 to Dean Witter for expenses substantially all of
which relate to compensation of sales personnel -- $295,306 ; and for Government
Securities Trust: (i) advertising -- $-0-; (ii) printing and mailing of
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 to Dean Witter for
expenses substantially all of which relate to compensation of sales personnel --
$515,161.
Under each Plan, the Distributor will use its best efforts in rendering
services to the respective Trusts, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations, the
Distributor will not be liable to any of such Trusts or any of its shareholders
for any error of judgment or mistake of law or for any act of omission or for
any losses sustained by any of such Trusts or their shareholders.
The respective Plans of Money Trust, Tax-Free Trust and Government
Securities Trust remained in effect until December 31, 1984, and the Plan of
California Tax-Free Trust remained in effect until April 30, 1992, and such
Plans will remain in effect from year to year thereafter, provided such
continuances are approved annually by a vote of the Trustees, including a
majority of the Independent 12b-1 Trustees. Any amendment to increase materially
the maximum amount authorized to be spent under each Plan must be approved by
the shareholders of each Trust, and all material amendments to each Plan must be
approved by the Trustees in the manner described above. Each Plan may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Independent 12b-1 Trustees or by a vote of
A-6
<PAGE>
the holders of a majority of the outstanding voting securities of each Trust (as
defined in the Act) on not more than 30 days written notice to any other party
to the Plan. The authority to make reimbursement payments to the Distributor
automatically terminates in the event of an assignment (as defined in the Act);
however, the Trustees' authority under each Plan to utilize its proceeds to
finance the distribution of Trust shares would continue. After such an
assignment, the Trusts' authority to make payments to their Distributor would
resume, subject to certain conditions. So long as the Plans are in effect, the
selection or nomination of the Independent Trustees is committed to the
discretion of the Independent 12b-1 Trustees.
Under each Plan, the Distributor provides the respective Trust, for review
by its Trustees, and the Trustees review, promptly after the end of each fiscal
quarter, a written report regarding the incremental distribution expenses
incurred by the Distributor on behalf of each Trust during such fiscal quarter,
which report includes (1) an itemization of the types of expenses and the
purposes therefor; (2) the amounts of such expenses; and (3) a description of
the benefits derived by each Trust. In the Trustees' quarterly review of the
Plans they consider their continued appropriateness and the level of
compensation provided therein.
Pursuant to the Plans of all Trusts, the Distributor provided the Trustees,
at their Meetings held on April 20, 1995, with all the information the Trustees
deemed necessary to make an informed determination on whether each Plan should
be continued. In making their determination to continue each of the Plans until
April 30, 1996, the Trustees, including all of the Independent 12b-1 Trustees,
arrived at the conclusion that the Plans had benefited each of the Trusts. This
conclusion was based upon the Distributor's belief that the expenditures made
pursuant to the Plans had tended to arrest the decline of the Trusts' assets by
meeting the competitive efforts of other, similar financial products, and had
encouraged the account executives employed by Dean Witter to increase their
efforts in selling shares of the Trusts. The Trustees, including the Independent
12b-1 Trustees, also concluded that, in their judgment, there is a reasonable
likelihood that the Plans will continue to benefit each of the Trusts and their
shareholders.
No interested person of the Trusts nor any Trustee of the Trusts who is not
an interested person of the Trusts, as defined in the Act, had any direct or
indirect financial interest in the operation of the Plans except to the extent
that the Distributor or certain of its employees may be deemed to have such an
interest as a result of benefits derived from the successful operation of the
Plans or as a result of receiving a portion of the amounts expended thereunder
by the Trusts.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Trusts, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, the 77 Dean Witter Funds and the 13 TCW/DW Funds, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH
TRUSTS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Jack F. Bennett (71) ......... Retired; Director or Trustee of the Dean
Trustee Witter Funds; formerly Senior Vice President
c/o Gordon Altman Butowsky and Director of Exxon Corporation
Weitzen (1975--January 31, 1989) and Under Secretary
Shalov & Wein of the U.S. Treasury for Monetary Affairs
Counsel to the Independent (1974-1975); Director of Philips Electronics
Trustees N.V., Tandem Computers, Inc. and Massachusetts
114 West 47th Street Mutual Insurance Co.; director or trustee of
New York, New York various not-for-profit and business
organizations.
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH
TRUSTS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Michael Bozic (54) ........... Private Investor; Director or Trustee of the
Trustee Dean Witter Funds; formerly President and
c/o Gordon Altman Butowsky Chief Executive Officer of Hills Department
Weitzen Stores (May, 1991-June, 1995); formerly
Shalov & Wein Chairman and Chief Executive Officer (January,
Counsel to the Independent 1987-August, 1990) and President and Chief
Trustees Operating Officer (August, 1990-February,
114 West 47th Street 1991) of the Sears Merchandise Group of Sears,
New York, New York Roebuck and Co.; Director of Eaglemark
Financial Services, Inc., the United Negro
College Fund, Wierton Steel Corporation and
Domain Inc. (home decor retailer).
Charles A. Fiumefreddo* Chairman, Chief Executive Officer and Director
(62) ......................... of InterCapital, Distributors and DWSC;
Chairman, Trustee, Executive Vice President and Director of Dean
President and Chief Witter; Chairman, Trustee or Director,
Executive Officer President and Chief Executive Officer of the
Two World Trade Center Dean Witter Funds; Chairman, Chief Executive
New York, New York Officer and Trustee of the TCW/DW Funds;
formerly Executive Vice President and Director
of DWDC; Chairman and Director of Dean Witter
Trust Company ("DWTC"); (since October, 1989);
Director of various DWDC subsidiaries and
affiliates; formerly Executive Vice President
and Director of DWDC (until February, 1993).
Edwin J. Garn (62) ........... Director or Trustee of the Dean Witter Funds;
Trustee formerly United States Senator (R-Utah)
c/o Huntsman Chemical (1974-1992) and Chairman, Senate Banking
Corporation Committee (1980-1986); formerly Mayor of Salt
2000 Eagle Gate Tower Lake City, Utah (1971-1974); formerly
Salt Lake City, Utah Astronaut, Space Shuttle Discovery (April
12-19, 1985); Vice Chairman, Huntsman Chemical
Corporation (since January, 1993); Member of
the board of various civic and charitable
organizations.
John R. Haire (70) ........... Chairman of the Audit Committee and Chairman
Trustee of the Committee of Independent Directors or
Two World Trade Center Trustees and Director or Trustee of the Dean
New York, New York Witter Funds; Trustee of the TCW/DW Funds;
formerly President, Council for Aid to
Education (1978-October 1989) and Chairman and
Chief Executive Officer of Anchor Corporation,
an Investment Adviser (1964-1978); Director of
Washington National Corporation (insurance).
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH
TRUSTS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (46) ... Senior Partner, Johnson Smick International,
Trustee Inc., a consulting firm; Koch Professor of
c/o Johnson Smick International Economics and Director of the
International, Inc. Center for Global Market Studies at George
1133 Connecticut Avenue N.W. Mason University (since September, 1990);
Washington, D.C. Co-Chairman and a founder of the Group of
Seven Council (G7C), an international economic
commission (since September, 1990); Director
or Trustee of the Dean Witter Funds; Trustee
of the TCW/DW Funds; Director of NASDAQ (since
June, 1995); Director of Greenwich Capital
Markets Inc. (broker-dealer); formerly Vice
Chairman of the Board of Governors at the
Federal Reserve System (February, 1986-August
1990) and Assistant Secretary of the U.S.
Treasury (1982-1986).
Paul Kolton (72) ............. Director or Trustee of the Dean Witter Funds;
Trustee Chairman of the Audit Committee and Committee
c/o Gordon Altman Butowsky of Independent Trustees and Trustee of the
Weitzen TCW/DW Funds; formerly Chairman of the
Shalov & Wein Financial Accounting Standards Advisory
Counsel to the Independent Council and Chairman and Chief Executive
Trustees Officer of the American Stock Exchange;
114 West 47th Street Director of UCC Investors Holding Inc.
New York, New York (Uniroyal Chemical Company, Inc.); director
and/or trustee of various not-for-profit
organizations.
Michael E. Nugent (59) ....... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership (since April,
c/o Triumph Capital, L.P. 1988); Director or Trustee of the Dean Witter
237 Park Avenue Funds; Trustee of the TCW/DW Funds; formerly
New York, New York Vice President, Bankers Trust Company and BT
Capital Corporation (September, 1984-March
1988); Director of various business
organizations.
Philip J. Purcell* (51) ...... Chairman of the Board of Directors and Chief
Trustee Executive Officer of DWDC, Dean Witter and
Two World Trade Center Novus Credit Services Inc.; Director of
New York, New York InterCapital, DWSC and Distributors; Director
or Trustee of the Dean Witter Funds; Director
and/or officer of various DWDC subsidiaries.
John L. Schroeder (65) ....... Executive Vice President and Chief Investment
Trustee Officer of the Home Insurance Company (since
c/o The Home Insurance Company August, 1991); Director or Trustee of the Dean
59 Maiden Lane Witter Funds; Trustee of the TCW/DW Funds;
New York, New York Director of Citizens Utilities Company;
formerly Chairman and Chief Investment Officer
of Axe-Houghton Management and the
Axe-Houghton Funds (April, 1983-June, 1991)
and President of USF&G Financial Services,
Inc. (June 1990-June, 1991).
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH
TRUSTS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Sheldon Curtis (63) .......... Senior Vice President, Secretary and General
Vice President, Secretary Counsel of InterCapital and DWSC; Senior Vice
and General Counsel President and Secretary of Dean Witter Trust
Two World Trade Center Company (since October, 1989); Senior Vice
New York, New York President, Assistant Secretary and Assistant
General Counsel of Dean Witter Distributors
Inc.; Assistant Secretary of DWR; Vice
President, Secretary and General Counsel of
the Dean Witter Funds and the TCW/DW Funds.
Patricia A. Cuddy (41) ....... Vice President of InterCapital (since June,
Vice President 1994); Vice President of various Dean Witter
Two World Trade Center Funds; formerly Senior Vice President of
New York, New York various investment companies managed by
Dreyfus Corporation.
Jonathan R. Page (48) ........ Senior Vice President of InterCapital; Vice
Vice President President of various Dean Witter Funds.
Two World Trade Center
New York, New York
Katherine H. Stromberg Vice President of InterCapital since October,
(47) ......................... 1991. Previously Vice President and Investment
Vice President Officer of Kidder Peabody Asset Management for
Two World Trade Center over five years.
New York, New York
Thomas F. Caloia (49) ........ First Vice President (since May, 1991) and
Treasurer Assistant Treasurer (since January 1993) of
Two World Trade Center InterCapital; First Vice President and
New York, New York Assistant Treasurer of DWSC and Treasurer of
the Dean Witter Funds and the TCW/DW Funds;
previously Vice President of InterCapital.
</TABLE>
- ------------------------
*Denotes Trustees who are "Interested persons" of the Trusts, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of DWTC and Distributors and
Director of DWTC, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC and Distributors and President and
Director of DWTC, Edmund C. Puckhaber, Executive Vice President of InterCapital,
Robert S. Giambrone, Senior Vice President of InterCapital, DWSC, Distributors
and DWTC and Joseph J. McAlinden and James F. Willison, Senior Vice Presidents
of InterCapital are Vice Presidents of the Fund. Barry Fink and Marilyn Cranney,
First Vice Presidents and Assistant General Counsels of InterCapital and DWSC
and Lou Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital and DWSC are Assistant Secretaries of the Funds.
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
As mentioned above under the caption "Investment Manager," the Trusts are
four of the Dean Witter Funds, a group of investment companies managed by
InterCapital. As of the date of this Statement of Additional Information, there
are a total of 77 Dean Witter Funds, comprised of 117 portfolios. As of July 31,
1995, the Dean Witter Funds had total net assets of approximately $67.25 billion
and more than five million shareholders.
The Board of Directors or Trustees, consisting of ten (10) directors or
trustees, is the same for each of the Dean Witter Funds. Some of the Funds are
organized as business trusts, others as corporations, but the functions and
duties of directors and trustees are the same. Accordingly, directors and
trustees of the Dean Witter Funds are referred to in this section as Trustees.
A-10
<PAGE>
Eight Trustees, that is, 80% of the total number, have no affiliation or
business connection with InterCapital or any of its affiliated persons and do
not own any stock or other securities issued by InterCapital's parent company,
DWDC. These are the "disinterested" or "independent" Trustees. Five of the eight
Independent Trustees are also Independent Trustees of the TCW/DW Funds. As of
the date of this Statement of Additional Information, there are a total of 13
TCW/DW Funds. Two of the Funds' Trustees, that is, the management Trustees, are
affiliated with InterCapital.
As noted in a federal court ruling, "[T]he independent directors . . . are
expected to look after the interests of shareholders by 'furnishing an
independent check upon management,' especially with respect to fees paid to the
investment company's sponsor." In addition to their general "watchdog" duties,
the Independent Trustees are charged with a wide variety of responsibilities
under the Act. In order to perform their duties effectively, the Independent
Trustees are required to review and understand large amounts of material, often
of a highly technical and legal nature.
The Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; that is, people whose advice and counsel are valuable and 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
of the demands made on their time by the Funds. Indeed, to serve on the Funds'
Boards, certain Trustees who would be qualified and in demand to serve on bank
boards would be prohibited by law from serving at the same time as a director of
a national bank and as a Trustee of a Fund.
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. Since most of the Dean Witter Funds have such a
plan, and since all of the Funds' Boards have the same members, the Independent
Trustees effectively control the selection of other Independent Trustees of all
the Dean Witter Funds.
GOVERNANCE STRUCTURE OF THE DEAN WITTER FUNDS
While the regulatory system establishes both general guidelines and specific
duties for the Independent Trustees, the governance arrangements from one
investment company group to another vary significantly. In some groups the
Independent Trustees perform their role by attendance at periodic meetings of
the board of directors with study of materials furnished to them between
meetings. At the other extreme, an investment company complex may employ a
full-time staff to assist the Independent Trustees in the performance of their
duties.
The governance structure of the Dean Witter Funds lies between these two
extremes. The Independent Trustees and the Funds' Investment Manager alike
believe that these arrangements are effective and serve the interests of the
Funds' shareholders. All of the Independent Trustees serve as members of the
Audit Committee and the Committee of the Independent Trustees. Three of them
also serve as members of the Derivatives Committee.
The Committee of the Independent Trustees is 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 Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's 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 services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of
A-11
<PAGE>
audit and non-audit fees; reviewing the adequacy of the Fund's system of
internal controls; advising the independent accountants and management personnel
that they have direct access to the Committee at all times; and preparing and
submitting Committee meeting minutes to the full Board.
Finally, the Board of each Fund has established a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
During the calendar year ended December 31, 1994, the three Committees held
a combined total of eleven meetings. Committee meetings are sometimes held away
from the offices of InterCapital and sometimes in the Board room of
InterCapital. These meetings are held without management directors or officers
being present, unless and until they may be invited to the meeting for purposes
of furnishing information or making a report. These separate meetings provide
the Independent Trustees an opportunity to explore in depth with their own
independent legal counsel, independent auditors and other independent
consultants, as needed, the issues they believe should be addressed and resolved
in the interests of the Funds' shareholders.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees maintains an office at the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He screens
and/or prepares written materials and identifies critical issues for the
Independent Trustees to consider, develops agendas for Committee meetings,
determines the type and amount of information that the Committees will need to
form a judgment on the issues, and arranges to have the information furnished.
He also arranges for the services of independent experts to be provided to the
Committees and consults with them in advance of meetings to help refine reports
and to focus on critical issues. Members of the Committees believe that the
person who serves as Chairman of all three Committees and guides their efforts
is pivotal to the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment management and other operating
contracts of the Funds and, on behalf of the Committees, conducts negotiations
with the Investment Manager and other service providers. In effect, the Chairman
of the Committees serves as a combination of chief executive and support staff
of the Independent Trustees.
The Chairman of the Committees is not employed by any other organization and
devotes his time primarily to the services he performs as Committee Chairman and
Independent Trustee of the Dean Witter Funds and as an Independent Trustee of
the TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
VALUE OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN WITTER
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds is in the best
interests of all the Funds' shareholders. This arrangement avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. It is believed 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 likelihood of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, it is believed that having the same Independent Trustees serve
on all Fund Boards enhances the ability of each Fund to obtain, at modest cost
to each separate Fund, the services of Independent Trustees, and a Chairman of
their Committees, of the caliber, experience and business acumen of the
individuals who serve as Independent Trustees of the Dean Witter Funds.
A-12
<PAGE>
COMPENSATION OF INDEPENDENT TRUSTEES
The Trusts pay each Independent Trustee an annual fee of $1,200 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Trusts pay the Chairman of the
Audit Committee an annual fee of $1,000 and pay the Chairman of the Committee of
the Independent Trustees an additional annual fee of $2,400, in each case
inclusive of the Committee meeting fees). The Trusts also reimburse such
Trustees for travel and other out-of-pocket expenses incurred by them in
connection with attending such meetings. Trustees and officers of the Trusts who
are or have been employed by the Investment Manager or an affiliated company
receive no compensation or expense reimbursement from the Trusts.
The Trusts 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
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 Trusts, 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 28.75% of his or her Eligible
Compensation plus 0.4791666% 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 57.50% 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 Trusts in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Trusts. As of the date of this Statement of Additional
Information, 58 Dean Witter Funds have adopted the retirement program.
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
A-13
<PAGE>
The following tables illustrates the compensation paid and the retirement
benefits accrued to the Trusts' Independent Trustees by the Trusts for the
fiscal year ended June 30, 1995 and the estimated retirement benefits for the
Trusts' Independent Trustees as of June 30, 1995.
<TABLE>
<CAPTION>
ACTIVE ASSETS MONEY TRUST
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
TRUST COMPENSATION ESTIMATED RETIREMENT BENEFITS
------------------------------- -------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE TRUST TRUST EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------- -------------- -------------- ---------------- -------------- --------------- -------------
Jack F. Bennett..... $ 2,200 $ 1,111 8 46.0% $2,209 1$,016
Michael Bozic....... 2,150 227 10 57.5% 1,950 1,121
Edwin J. Garn....... 2,300 569 10 57.5% 1,950 1,121
John R. Haire....... 6,050(4) 2,574 10 57.5% 5,093 2,929
Dr. Manuel H.
Johnson............ 2,250 233 10 57.5% 1,950 1,121
Paul Kolton......... 2,300 1,151 10 57.0% 2,425 1,383
Michael E. Nugent... 2,100 403 10 57.5% 1,950 1,121
John L. Schroeder... 2,150 447 8 47.9% 1,950 934
</TABLE>
<TABLE>
<CAPTION>
ACTIVE ASSETS TAX-FREE TRUST
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
TRUST COMPENSATION ESTIMATED RETIREMENT BENEFITS
------------------------------- -------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE TRUST TRUST EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------- -------------- -------------- ---------------- -------------- --------------- -------------
Jack F. Bennett..... $ 2,200 $ 1,111 8 46.0% $2,209 1$,016
Michael Bozic....... 2,150 227 10 57.5% 1,950 1,121
Edwin J. Garn....... 2,300 569 10 57.5% 1,950 1,121
John R. Haire....... 6,050(4) 2,574 10 57.5% 5,093 2,929
Dr. Manuel H.
Johnson............ 2,250 233 10 57.5% 1,950 1,121
Paul Kolton......... 2,300 1,151 10 57.0% 2,425 1,383
Michael E. Nugent... 2,100 403 10 57.5% 1,950 1,121
John L. Schroeder... 2,150 447 8 47.9% 1,950 934
</TABLE>
<TABLE>
<CAPTION>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
TRUST COMPENSATION ESTIMATED RETIREMENT BENEFITS
------------------------------- -------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE TRUST TRUST EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------- -------------- -------------- ---------------- -------------- --------------- -------------
Jack F. Bennett..... $ 2,200 $ 2,627 8 46.0% $1,633 $751
Michael Bozic....... 2,150 227 10 57.5% 1,950 1,121
Edwin J. Garn....... 2,300 653 10 57.5% 1,950 1,121
John R. Haire....... 6,050(4) 6,113 10 57.5% 4,868 2,799
Dr. Manuel H.
Johnson............ 2,250 257 10 57.5% 1,950 1,121
Paul Kolton......... 2,300 2,949 10 57.0% 1,805 1,029
Michael E. Nugent... 2,100 488 10 57.5% 1,950 1,121
John L. Schroeder... 2,150 447 8 47.9% 1,950 934
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
TRUST COMPENSATION ESTIMATED RETIREMENT BENEFITS
------------------------------- -------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE TRUST TRUST EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------- -------------- -------------- ---------------- -------------- --------------- -------------
Jack F. Bennett..... $ 1,900 $ 1,111 8 46.0% $2,209 1$,016
Michael Bozic....... 1,227 227 10 57.5% 1,950 1,121
Edwin J. Garn....... 1,900 569 10 57.5% 1,950 1,121
John R. Haire....... 4,900(4) 2,574 10 57.5% 5,093 2,929
Dr. Manuel H.
Johnson............ 1,850 233 10 57.5% 1,950 1,121
Paul Kolton......... 1,950 1,151 10 57.0% 2,425 1,383
Michael E. Nugent... 1,750 403 10 57.5% 1,950 1,121
John L. Schroeder... 1,277 477 8 47.9% 1,950 934
</TABLE>
- ------------------------
(2) Based on current levels of compensation.
(3) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
(4) Of Mr. Haire's compensation from the Trusts, $3,400 is paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
The following table illustrates the compensation paid to the Trusts'
Independent Trustees for the calendar year ended December 31, 1994 for services
to the 73 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 13 TCW/DW Funds that were in operation at December 31, 1994.
With respect to Messrs. Haire, Johnson, Kolton and Nugent, the TCW/DW Funds are
included solely because of a limited exchange privilege between those Funds and
five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee of
the TCW/DW Funds on April 20, 1995.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
FOR SERVICE CHAIRMAN OF COMPENSATION
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 73 DEAN
OF 73 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 13 TCW/DW AUDIT FUNDS AND 13
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Jack F. Bennett............ $125,761 -- -- $125,761
Michael Bozic.............. 82,637 -- -- 82,637
Edwin J. Garn.............. 125,711 -- -- 125,711
John R. Haire.............. 101,061 $66,950 $225,563(5) 393,574
Dr. Manuel H. Johnson...... 122,461 60,750 -- 183,211
Paul Kolton................ 128,961 51,850 34,200(6) 215,011
Michael E. Nugent.......... 115,761 52,650 -- 168,411
John L. Schroeder.......... 85,938 -- -- 85,938
<FN>
- ------------------------
(5) For the 73 Dean Witter Funds.
(6) For the 13 TCW/DW Funds.
</TABLE>
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Trusts owned by the Trusts'
officers and Trustees as a group was less than 1 percent of the Trusts' shares
of beneficial interest outstanding.
A-15
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
The Investment Manager is responsible for decisions to buy and sell
securities for the Trusts and arranges for the execution of portfolio security
transactions on behalf of the Trusts. Purchases of portfolio securities are made
from dealers, underwriters and issuers; sales, if any, prior to maturity, are
made to dealers and issuers. The Trusts do not normally incur any brokerage
commission expense on such transactions. Money market instruments are generally
traded 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. Securities purchased in underwritten offerings include a
fixed amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased or sold
directly from or to an issuer, no commissions or discounts are paid. No
brokerage commissions were paid on any transactions entered into by the Trusts
during the fiscal year ended June 30, 1995.
The policy of the Trusts regarding purchases and sales of securities for
their respective portfolios is that primary consideration will be given to
obtaining the most favorable price and efficient execution of transactions with
those dealers who the Investment Manager believes provide the most favorable
prices and are capable of providing efficient executions. If the Investment
Manager believes such price and execution can be obtained from more than one
dealer, it may give consideration to placing portfolio transactions with those
dealers who also furnish research and other services to the Trusts or the
Investment Manager. Such services may include but are not limited to, any one or
more of the following: information as to the availability of securities for
purchases or sale; statistical or factual information or opinions pertaining to
investments; wire services; and appraisals or evaluations of portfolio
securities.
The information and services received by the Investment Manager from dealers
may be of benefit to the Investment Manager in the management of accounts of
some or all of its other clients and may not in all cases benefit the Trusts
directly. While the receipt of such information and services are useful and
important in supplementing its own research and facilities, the Investment
Manager believes the value of such services is not determinable and does not
significantly reduce its expenses. The Trusts 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.
Pursuant to an order of the Securities and Exchange Commission, the Trusts
may effect principal transactions in certain money market instruments with Dean
Witter. The Trusts will limit their transactions with Dean Witter to U.S.
Government and Government Agency Securities, Bank Money Instruments (I.E.,
Certificates of Deposit and Banker's Acceptances) and Commercial Paper (not
including Tax-Exempt Municipal Paper). Such transactions will be effected with
Dean Witter only when the price available from Dean Witter is better than that
available from other dealers.
While the Trusts do not anticipate that they will incur any brokerage
commissions, consistent with the policy described above, brokerage transactions
in securities listed on exchanges or admitted to unlisted trading privileges may
be effected through Dean Witter. In order for Dean Witter to effect portfolio
transactions for any of the Trusts, the commissions, fees or other remuneration
received by Dean Witter 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 Dean Witter 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 of the Trust, including a majority of the Trustees who are not
"interested" Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Dean Witter are
consistent with the foregoing standard.
A-16
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the shareholders of the Trusts are entitled
to a full vote for each full share held. All of the Trustees except for Messrs.
Bozic, Purcell and Schroeder have been elected by the shareholders of the
Trusts. Messrs. Bozic, Purcell and Schroeder were elected by the Trustees of the
Trusts on April 8, 1994. The Trustees themselves have the power to alter the
number and the terms of office of the Trustees, and they may at any time
lengthen 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 Trust. Under certain circumstances a
Trustee may be removed by action of the Trustees. The shareholders also have the
right under certain circumstances to remove the Trustees. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
The Declarations of Trust permit the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
The Declarations of Trust further provide that no Trustee, officer, employee
or agent of the Trusts is liable to any Trust or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of any Trust, 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 a Trust's property for satisfaction of claims arising in
connection with the affairs of that Trust. With the exceptions stated, the
Declarations of Trust provide that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of any Trust.
The Trusts shall be of unlimited duration subject to the provisions in the
Declarations of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Trusts' assets. The Custodian has no part in deciding the
Trusts' investment policies or which securities are to be purchased or sold for
the Trusts' portfolios. Any of the Trust's cash balances with the Custodian in
excess of $100,000 are unprotected by Federal deposit insurance. Such balances
may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Trust's shares, Dividend
Disbursing Agent for payment of dividends and distributions on Trust shares, and
Agent for shareholders under various investment plans described herein, Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Trusts' Investment Manager, and of Dean Witter Distributors Inc., the Trusts'
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts including
providing subaccounting and recordkeeping services for certain retirement
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 Dean Witter Trust Company receives a per shareholder account
fee.
A-17
<PAGE>
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Trusts.
The independent accountants are responsible for auditing the annual financial
statements of the Trusts.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Trusts will send to shareholders, at least semiannually, reports showing
the Trusts' portfolios and other information. An annual report, containing
financial statements audited by independent accountants, will be sent to
shareholders each year.
The Trusts' fiscal years end on June 30. The financial statements of the
Trusts must be audited at least once a year by independent accountants whose
selection is approved annually by the Trusts' Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Trusts.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Trusts included in the Prospectuses and
incorporated by reference in these Statements of Additional Information have
been so included and incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
These Statements of Additional Information and the Prospectuses do not
contain all of the information set forth in the Registration Statements the
Trusts have filed with the Securities and Exchange Commission. The complete
Registration Statements may be obtained from the Securities and Exchange
Commission upon payment of the fees prescribed by the rules and regulations of
the Commission.
The Declaration of Trust establishing each Trust, a copy of which is on file
in the office of the Secretary of the Commonwealth of Massachusetts, provides
that the Trust refer to the Trustees under the Declaration of Trust collectively
as Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of such 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 Trusts but that the Trust Estate only shall be liable.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of each Fund for the fiscal year ended June
30, 1995, and the report of the independent accountants thereon, are set forth
in each Fund's Prospectus, and are incorporated herein by reference.
A-18
<PAGE>
INFORMATION WITH RESPECT TO SECURITIES RATINGS
- --------------------------------------------------------------------------------
CORPORATE AND TAX-EXEMPT BOND RATINGS:
The four highest ratings of Moody's Investors Service, Inc. ("Moody's") for
tax-exempt and corporate bonds are Aaa, Aa, A and Baa, all of which are
considered investment grade. Bonds rated Aaa are judged to be of the "best
quality". The rating of Aa is assigned to bonds which are of "high quality by
all standards", but as to which margins of protection or other elements make
long-term risks appear somewhat larger than Aaa rated bonds. The Aaa and Aa
rated bonds comprise what are generally known as "high grade bonds". Bonds which
are rated A by Moody's possess many favorable investment attributes and are
considered "upper medium grade obligations". Factors giving security to
principal and interest of A-rated bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Bonds rated Baa are considered as "medium grade" obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Moody's applies numerical modifiers, 1, 2
and 3 in each rating classification for Aa and below. The modifier 1 indicates
that the security ranks in the higher end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its category. The foregoing ratings are sometimes presented
in parentheses preceded with a "con" indicating that the bonds are rated
conditionally. Bonds, the security for which depends upon the completion of some
act or the fulfillment of some condition, are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Such parenthetical rating denotes the probable credit stature upon
completion of construction or elimination of the basis of the condition.
The four highest ratings of Standard & Poor's Corporation ("Standard &
Poor's") for tax-exempt and corporate bonds are AAA, AA, A, and BBB all of which
are considered investment grade. Bonds rated AAA bear the highest rating
assigned by Standard & Poor's to a debt obligation, and the rating indicates an
extremely strong capacity to pay principal and interest. Bonds rated AA also
qualify as high quality debt obligations. Capacity to pay principal and interest
is very strong, and in the majority of instances they differ from AAA issues
only in small degree. Bonds rated A have strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions. The BBB rating, which is the
lowest "investment grade" security rating by Standard & Poor's, indicates an
adequate capacity to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay principal
and interest for bonds in this category than for bonds in the A category. The
ratings for AA and below may be modified by the addition of a plus or minus sign
to show relative standing within the major rating categories. The foregoing
ratings are sometimes followed by a "p", which indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion.
TAX-EXEMPT NOTES
The two highest ratings of Moody's for Notes are MIG 1 and MIG 2. Notes
bearing the designation MIG 1 are judged to be of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or
A-19
<PAGE>
both. Notes bearing the designation MIG 2 are judged to be of high quality, with
margins of protection ample although not so large as in the preceding group. The
ratings of Standard & Poor's for Notes are the same as for Bonds, although
somewhat different criteria is applied.
The three highest ratings of Standard & Poor's for Notes are SP-1+, SP-1 and
SP-2. Notes designated SP-1+ are determined to possess overwhelming safety
characteristics regarding capacity to pay principal and interest. Notes
designated SP-1 are determined to possess very strong or strong capacity to pay
principal and interest. Notes designated SP-2 are determined to possess
satisfactory capacity to pay principal and interest.
COMMERCIAL PAPER
Moody's and Standard & Poor's ratings grades for commercial paper and
short-term Municipal Obligations, set forth below, are applied to short-term
Municipal Obligations as well as taxable commercial paper.
Moody's ratings are opinions of the ability of issuers to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers: Prime-1,
Highest Quality; Prime-2, Higher Quality; and Prime-3, High Quality.
Standard & Poor's ratings are a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days. The
rating is not a recommendation to purchase or sell a security. The ratings are
based upon current information furnished by the issuer or obtained by S&P from
other sources it considers reliable. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Issues assigned A ratings are
regarded as having the greatest capacity for timely payment. Issues in this
category are further refined with the designation 1, 2 and 3 to indicate the
relative degree of safety. The "A-1+" and "A-1" designations indicate that the
degree of safety regarding timely payment is very strong.
VARIABLE RATE DEMAND OBLIGATIONS
In addition to the Bond or MIG ratings of variable rate obligations with a
demand feature, Moody's may assign a second rating to the demand feature itself.
Such ratings are designated as VMIG, or if the demand feature is not rated, as
NR. Short-term ratings on issues with demand features are differentiated by use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand, rather than fixed maturity dates and payment relying on external
liquidity. The two highest ratings for the demand feature are VMIG 1 and VMIG 2.
These ratings reflect Moody's judgements regarding the quality of the demand
features which are identical to the criteria involved in assigning the ratings
MIG 1 and MIG 2, respectively, to tax-exempt Notes as discussed above.
A-20
<PAGE>
ACTIVE ASSETS MONEY TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
Prospectus
----------
Financial highlights for the fiscal year
ended June 30, 1986 through the fiscal years
ended June 30, 1995 . . . . . . . . . . . . . . . . 3
Statement of assets and liabilities at
June 30, 1995 . . . . . . . . . . . . . . . . . . . 6
Statement of operations for the year ended
June 30, 1995 . . . . . . . . . . . . . . . . . . . 6
Statement of changes in net assets for the
years ended June 30, 1994 and June 30, 1995 . . . . 6
Notes to Financial Statements . . . . . . . . . . . 7
Portfolio of Investments at June 30, 1995 . . . . . 9
(2) Financial statements included in the Statement of
Additional Information (Part B):
None
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
1.(a) - Declaration of Trust
1.(b) - Amendment dated May 21, 1984 to Declaration of
Trust
1.(c) - Amendment dated December 17, 1984 to Declaration
of Trust
2. - Amended and Restated By-Laws
8. - Form of Custody Agreement
1
<PAGE>
9. - Form of Services Agreement between InterCapital
and Dean Witter Services Company Inc.
11. - Consent of Independent Accountants
16. - Schedules for Computation of Performance
Quotations
27. - Financial Data Schedule
--------------------------------
All other exhibits were previously filed and are hereby incorporated
by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of Record Holders
Title of Class at August 31, 1995
-------------- ------------------------
Shares of Beneficial Interest 240,629
Item 27. 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,
2
<PAGE>
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 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment adviser. The following information is given regarding
officers of Dean Witter InterCapital Inc. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. The principal address of the Dean
Witter Funds is Two World Trade Center, New York, New York 10048.
3
<PAGE>
The term "Dean Witter Funds" used below refers to the following registered
investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
OPEN-END INVESTMENT COMPANIES:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Managed Assets Trust
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
4
<PAGE>
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Global Asset Allocation Fund
(51) Dean Witter Balanced Growth Fund
(52) Dean Witter Balanced Income Fund
(53) Dean Witter Hawaii Municipal Trust
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW North American Intermediate Income Trust
(8) TCW/DW Global Convertible Trust
(9) TCW/DW Total Return Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
5
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee, President
and Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Formerly Executive
Vice President and Director of Dean Witter,
Discover & Co. ("DWDC"); Director and/or officer
of various DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
David A. Hughey Executive Vice President and Chief Administrative
Executive Vice Officer of DWSC, Distributors and DWTC; Director
President and Chief of DWTC; Vice President of the Dean Witter Funds
Administrative Officer and the TCW/DW Funds.
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Edmund C. Puckhaber Director of DWTC; Vice President of the Dean
Executive Vice Witter Funds.
President
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Thomas H. Connelly
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Vice President of the Dean Witter Funds and the
TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Joseph McAlinden
Senior Vice President Vice President of the Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer of the Dean Witter Funds and the TCW/DW
Treasurer Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Douglas Brown
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
Russell Harper
Vice President
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of Dean Witter Mid-Cap Growth Fund.
David Hoffman
Vice President
David Johnson
Vice President
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Christopher Jones
Vice President
Stanley Kapica
Vice President
Michael Knox Vice President of Dean Witter Convertible
Vice President Securities Trust.
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paul LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
Lou Anne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Hugh Rose
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Rafael Scolari
Vice President Vice President of Prime Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
Marianne Zalys
Vice President
Item 29. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Managed Assets Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
11
<PAGE>
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premium Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Global Asset Allocation Fund
(52) Dean Witter Variable Investment Investment Series
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW North American Intermediate Income Trust
(8) TCW/DW Global Convertible Trust
(9) TCW/DW Total Return Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048.
None of the following persons has any position or office with the
Registrant.
Positions and
Office with
Name Distributors
- ---- -------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
12
<PAGE>
Item 30. 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 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. 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.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 29th day of August, 1995.
ACTIVE ASSETS MONEY TRUST
By /s/ Sheldon Curtis
----------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 17 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 08/29/95
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 08/29/95
----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 08/29/95
----------------------------
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett Manuel H. Johnson
Michael Bozic Paul Kolton
Edwin J.Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/ David M. Butowsky 08/29/95
----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
1.(a) - Declaration of Trust
1.(b) - Amendment dated May 21, 1984 to Declaration of
Trust
1.(c) - Amendment dated December 17, 1984 to Declaration
of Trust
2. - Amended and Restated By-Laws
8. - Form of Custody Agreement
9. - Form of Services Agreement between InterCapital
and Dean Witter Services Company Inc.
11. - Consent of Independent Accountants
16. - Schedules for Computation of Performance
Quotations
27. - Financial Data Schedule
--------------------------------
All other exhibits were previously filed and are hereby
incorporated by reference.
<PAGE>
ACTIVE ASSETS MONEY TRUST
DECLARATION OF TRUST
DATED: MARCH 27, 1981
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- NAME AND DEFINITIONS 2
Section 1.1. Name 2
Section 1.2. Definitions 2
ARTICLE II -- TRUSTEES 4
Section 2.1. Number of Trustees 4
Section 2.2. Election and Term 4
Section 2.3. Resignation and Removal 4
Section 2.4. Vacancies 5
Section 2.5. Delegation of Power to
Other Trustees 5
ARTICLE III -- POWERS OF TRUSTEES 6
Section 3.1. General 6
Section 3.2. Investments 6
Section 3.3. Legal Title 7
Section 3.4. Issuance and Repurchase
of Securities 8
Section 3.5. Borrowing Money;
Lending Trust Assets 8
Section 3.6. Delegation; Committees 8
Section 3.7. Collection and Payment 8
Section 3.8. Expenses 8
Section 3.9. Manner of Acting; By-Laws 9
Section 3.10. Miscellaneous Powers 9
Section 3.11. Principal Transactions 10
ARTICLE IV -- INVESTMENT ADVISER, DISTRIBUTOR
AND TRANSFER AGENT 11
Section 4.1. Investment Adviser 11
Section 4.2. Distributor 11
Section 4.3. Transfer Agent 11
Section 4.4. Parties to Contract 12
<PAGE>
PAGE
ARTICLE V -- LIMITATIONS OF LIABILITY
OF SHAREHOLDERS, TRUSTEES
AND OTHERS 13
Section 5.1. No Personal Liability of
Shareholders, Trustees, etc. 13
Section 5.2. Non-Liability of Trustees, etc. 13
Section 5.3. Indemnification 13
Section 5.4. No Bond Required of Trustees 14
Section 5.5. No Duty of Investigation;
Notice in Trust
Instruments, etc. 14
Section 5.6. Reliance on Experts, etc. 15
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST 16
Section 6.1. Beneficial Interest 16
Section 6.2. Rights of Shareholders 16
Section 6.3. Trust Only 16
Section 6.4. Issuance of Shares 17
Section 6.5. Register of Shares 17
Section 6.6. Transfer of Shares 18
Section 6.7. Notices 18
Section 6.8. Voting Powers 18
Section 6.9. Series or Classes of Shares 19
ARTICLE VII -- REDEMPTIONS 22
Section 7.1. Redemptions 22
Section 7.2. Redemption of Shares;
Disclosure of Holding 22
Section 7.3. Redemptions of Accounts of
Less Than $1,000 23
Section 7.4. Redemptions Pursuant to
Constant Net Asset Value
Provisions 23
-ii-
<PAGE>
PAGE
ARTICLE VIII -- DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 8.1. Net Asset Value 24
Section 8.2. Distributions to Shareholders 24
Section 8.3. Determination of Net Income;
Constant Net Asset Value; Re-
duction of Outstanding Shares 25
Section 8.4. Power to Modify Foregoing
Procedures 25
ARTICLE IX -- DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC. 26
Section 9.1. Duration 26
Section 9.2. Termination of Trust 26
Section 9.3. Amendment Procedure 27
Section 9.4. Merger, Consolidation and
Sale of Assets 28
Section 9.5. Incorporation 28
ARTICLE X -- REPORTS TO SHAREHOLDERS 30
ARTICLE XI -- MISCELLANEOUS 31
Section 11.1. Filing 31
Section 11.2. Governing Law 31
Section 11.3. Resident Agent 31
Section 11.4. Counterparts 31
Section 11.5. Reliance by Third Parties 31
Section 11.6. Provisions in Conflict with
Law or Regulations 32
SIGNATURE PAGE 32
-iii-
<PAGE>
DECLARATION OF TRUST
OF
ACTIVE ASSETS MONEY TRUST
Dated March 27, 1981
THE DECLARATION OF TRUST of Active Assets Money Trust is made the 27th day
of March 1981 by the parties signatory hereto, as trustees (such persons, so
long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust assets be
divided into transferable shares of beneficial interest as hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust,
all money and property contributed to the trust fund to manage and dispose of
the same for the benefit of the holders from time to time of the shares of
beneficial interest issued hereunder and subject to the provisions hereof, to
wit:
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. NAME. The name of the trust created hereby is the Active
Assets Money Trust.
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the
following terms have the following respective meanings:
(a) "BY-LAWS" means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(b) the terms "COMMISSION", "AFFILIATED PERSON" and "INTERESTED
PERSON", have the meanings given them in the 1940 Act.
(c) "DECLARATION" means this Declaration of Trust as amended from
time to time. Reference in this Declaration of Trust to "DECLARATION",
"HEREOF", "HEREIN" and "HEREUNDER" shall be deemed to refer to this Declaration
rather than the article or section in which such words appear.
(d) "DISTRIBUTOR" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(e) "FUNDAMENTAL POLICIES" shall mean the investment restrictions set
forth in the Prospectus and designated as fundamental policies therein.
(f) "INVESTMENT ADVISER" means the party, other than the Trust, to
the contract described in Section 4.1 hereof.
(g) "MAJORITY SHAREHOLDER VOTE" means the vote of the holders of
a majority of Shares, which shall consist of: (i) a majority of Shares
represented in person or by proxy and entitled to vote at a meeting of
Shareholders at which a quorum, as determined in accordance with the By-Laws, is
present; (ii) a majority of Shares issued and outstanding and entitled to vote
when action is taken by written consent of Shareholders; and (iii) a "majority
of the outstanding voting securities", as that phrase is defined in the 1940
Act, when action is taken by Shareholders with respect to approval of an
investment advisory or management contract or an underwriting or distribution
agreement or continuance thereof.
-2-
<PAGE>
(h) "1940 ACT" means the Investment Company Act of 1940 and the rules
and regulations thereunder as amended from time to time.
(i) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(j) "PROSPECTUS" means the prospectus constituting part of the
Registration Statement of the Trust under the Securities Act of 1933 as such
prospectus may be amended or supplemented and filed with the Commission from
time to time.
(k) "SHAREHOLDER" means a record owner of outstanding Shares.
(l) "SHARES" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the shares
of any and all series or classes which may be established by the Trustees, and
includes fractions of Shares as well as whole Shares.
(m) "TRANSFER AGENT" means the party, other than the Trust, to the
contract described in Section 4.3 hereof.
(n) "TRUST" means the Active Assets Money Trust.
(o) "TRUST PROPERTY" means any and all property, real or
personal,tangible or intangible, which is owned or held by or for the account of
the Trust or the Trustees.
(p) "TRUSTEES" mean the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
-3-
<PAGE>
ARTICLE II
TRUSTEES
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three (3) nor more than fifteen (15).
SECTION 2.2. ELECTION AND TERM. The Trustees shall be elected by a
Majority Shareholder Vote at the first meeting of Shareholders following the
public offering of Shares of the Trust. The Trustees shall have the power to
set and alter the terms of office of the Trustees, and they may at any time
lengthen or lessen their own terms or make their terms of unlimited duration,
subject to the resignation and removal provisions of Section 2.3 hereof.
Subject to Section 16(a) of the 1940 Act, the Trustees may elect their own
successors and may, pursuant to Section 2.4 hereof, appoint Trustees to fill
vacancies. The Trustees shall adopt By-Laws not inconsistent with this
Declaration or any provision of law to provide for election of Trustees by
Shareholders at such time or times as the Trustees shall determine to be
necessary or advisable.
SECTION 2.3. RESIGNATION AND REMOVAL. Any Trustee may resign his
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than the number required
by Section 2.1 hereof) with cause, by the action of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
-4-
<PAGE>
SECTION 2.4. VACANCIES. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees or, prior to
the public offering of Shares of the Trust, if only one Trustee shall then
remain in office, the remaining Trustee, shall fill such vacancy by the
appointment of such other person as they or he, in their or his discretion,
shall see fit, made by a written instrument signed by a majority of the
remaining Trustees or by the remaining Trustee, as the case may be.
Any such appointment shall not become effective, however, until the person named
in the written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.4, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted to
the Trustees under the Declaration except as herein otherwise expressly
provided.
-5-
<PAGE>
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions
of the Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2. INVESTMENTS. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of
deposit or indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, options and other securities of any kind, including,
without limitation, those issued, guaranteed or sponsored
-6-
<PAGE>
by any and all Persons including, without limitation, states, territories
and possessions of the United States, the District of Columbia and any of
the political subdivisions, agencies or instrumentalities thereof, and by
the United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank or savings institution, or
by any corporation or organization organized under the laws of the United
States or of any state, territory or possession thereof, and of
corporations or organizations organized under foreign laws, or in "when
issued" contracts for any such securities, or retain Trust assets in cash
and from time to time change the investments of the assets of the Trust;
and to exercise any and all rights, powers and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more
persons, firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments; and
the Trustees shall be deemed to have the foregoing powers with respect to
any additional securities in which the Trust may invest should the
Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by any
law limiting the investments which may be made by fiduciaries.
SECTION 3.3. LEGAL TITLE. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and
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the right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VII, VIII and IX and Section 6.9 hereof,
to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust, whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts governing business corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST ASSETS. Subject to the
Fundamental Policies, the Trustees shall have power to borrow money or otherwise
obtain credit and to secure the same by mortgaging, pledging or otherwise
subjecting as security the assets of the Trust, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any other
Person and to lend Trust assets.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient.
SECTION 3.7. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
SECTION 3.8. EXPENSES. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable
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compensation from the funds of the Trust to themselves as Trustees. The
Trustees shall fix the compensation of all officers, employees and Trustees.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws or by any provision of law, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted to be taken by any
such Person in such capacity, whether or not constituting negligence, or whether
or not the Trust would have the power to indemnify such Person against such
liability; (e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees
and agents of the Trust; (f) to the extent permitted by law, indemnify any
person with whom the Trust has dealings, including the Investment Adviser,
Distributor, Transfer Agent and selected dealers, to such extent as the Trustees
shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the fiscal year of the Trust and the method by
which its accounts shall be kept; and (i) adopt a seal for the Trust but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
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SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions
permitted by the 1940 Act or any rule or regulation thereunder, or any order of
exemption issued by the Commission, or effected to implement the provisions of
any agreement to which the Trust is a party the Trustees shall not, on behalf of
the Trust, buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets of the Trust to, any Trustee or
officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with the Investment
Adviser, Distributor or Transfer Agent or with any Affiliated Person of such
Person; but the Trust may employ any such Person, or firm or company in which
such Person is an Interested Person, as broker, legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian upon customary terms.
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ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
SECTION 4.1. INVESTMENT ADVISER. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time enter
into an investment advisory or management contract whereby the other party to
such contract shall undertake to furnish the Trust such management, investment
advisory, administration, accounting, legal, statistical and research facilities
and services, promotional activities, and such other facilities and services, if
any, as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of the Declaration, the Trustees may authorize
the Investment Adviser (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of portfolio securities of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Investment Adviser (and
all without further action by the Trustees). Any such purchases, sales, loans
and exchanges shall be deemed to have been authorized by all of the Trustees.
The Trustees may, in their sole discretion, call a meeting of Shareholders in
order to submit to a vote of Shareholders at such meeting the approval of
continuance of any such investment advisory or management contract.
SECTION 4.2. DISTRIBUTOR. The Trustees may in their discretion from
time to time enter into a contract, providing for the sale of Shares to net the
Trust not less than the net asset value per Share (as described in Article VIII
hereof) and pursuant to which the Trust may either agree to sell the Shares to
the other party to the contract or appoint such other party its sales agent for
such Shares. In either case, the contract shall be on such terms and conditions
as the Trustees may in their discretion determine not inconsistent with the
provisions of this Article IV, including, without limitation, the provision for
the repurchase or sale of shares of the Trust by such other party as principal
or as agent of the Trust.
SECTION 4.3. TRANSFER AGENT. The Trustees may in their discretion
from time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
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agency and shareholder services to the Trust. The contract shall have such
terms and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
SECTION 4.4. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1, 4.2 or 4.3 of this Article IV and any other contract
may be entered into with any Person, although one or more of the Trustees or
officers of the Trust may be an officer, director, trustee, shareholder, or
member of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship; nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article IV. The same Person may be the
other party to any contracts entered into pursuant to Sections 4.1, 4.2 and 4.3
above or otherwise, and any individual may be financially interested or
otherwise affiliated with Persons who are parties to any or all of the contracts
mentioned in this Section 4.4.
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ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee or agent, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties.
SECTION 5.3. INDEMNIFICATION.
(a) The Trustees shall provide for indemnification by the Trust of
every person who is, or has been, a Trustee or officer of the Trust against all
liability and against all expenses reasonably incurred or paid by him in
connection
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with any claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof, in such
manner as the Trustees may provide from time to time in the By-Laws.
(b) The words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under the Declaration or in
their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees shall recite that the same
is executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of any such instrument are not binding
upon any of the Trustees or Shareholders, individually, but bind only the Trust
Estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees or Shareholders individually. The Trustees shall at all times maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
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SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
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ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest
without par value. The number of such shares of beneficial interest authorized
hereunder is unlimited. The Trustees may initially issue whole and fractional
shares of a single class, each of which shall represent an equal proportionate
share in the Trust with each other Share. The Trustees may divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate interests in the Trust. Subject to the provisions of Section
6.9 hereof, the Trustees may also authorize the creation of additional series of
shares (the proceeds of which may be invested in separate, independently managed
portfolios) and additional classes of shares within any series. All Shares
issued hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split in Shares, shall be fully paid and
nonassessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to assume any losses of the Trust or suffer an
assessment of any kind by virtue of their ownership of Shares. The Shares shall
be personal property giving only the rights in the Decclaration specifically set
forth. The Shares shall not entitle the holder to preference, preemptive,
appraisal, conversion or exchange rights, except as the Trustees may determine
with respect to any series of Shares.
SECTION 6.3. TRUST ONLY. It is the intention of the Trustees to
create only the relationship of Trustee and beneficiary between the Trustees and
each Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint
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stock association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in the Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion
may, from time to time without vote of the Shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day in accordance with the maintenance of a
constant net asset value per Share), and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Reductions in the number of
outstanding Shares may be made pursuant to the provisions of Section 8.3 in
order to maintain a constant net asset value per Share. Contributions to the
Trust may be accepted for, and Shares shall be redeemed as, whole Shares and/or
fractions of a Share as described in the Prospectus.
SECTION 6.5. REGISTER OF SHARES. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
may be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
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SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law, except as may otherwise be provided by the laws of
the Commonwealth of Massachusetts.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at his
last known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1, (iii) with respect to termination of the Trust as provided in
Section 9.2, (iv) with respect to any amendment of the Declaration to the extent
and as provided in Section 9.3, (v) with respect to any merger, consolidation or
sale of assets as provided in Section 9.4, (vi) with respect to incorporation of
the Trust to the extent and as provided in Section 9.5, (vii) to the same extent
as the stockholders of a Massachusetts business corporation as to whether or not
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a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to the
Trust as may be required by law, the Declaration, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as and when the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote, except that Shares held in the treasury of the Trust as of the
record date, as determined in accordance with the By-Laws, shall not be voted
and except that the Trustees may, in conjunction with the establishment of any
series or classes of Shares, establish conditions under which the several series
or classes shall have separate voting rights or no voting rights. Unless and
until otherwise determined by the Trustees, any vote of Shareholders shall be
taken without regard to class or series. There shall be no cumulative voting in
the election of Trustees. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, the
Declaration or the By-Laws to be taken by Shareholders. The By-Laws may include
further provisions for Shareholders' votes and meetings and related matters.
SECTION 6.9. SERIES OR CLASSES OF SHARES. If the Trustees shall
divide the shares of the Trust into two or more series or two or more classes of
any series, as provided in Section 6.1 hereof, the following provisions shall be
applicable:
(a) The number of authorized shares and the number of shares of each
series or of each class that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued shares or any shares previously issued and
reacquired of any series or class into one or more series or one or more classes
that may be established and designated from time to time. The Trustees may hold
as treasury shares (of the same or some other series or class), reissue for such
consideration and on such terms as they may determine, or cancel any shares of
any series or any class reacquired by the Trust at their discretion from time to
time.
(b) The power of the Trustees to invest and reinvest the Trust
Property shall be governed by Section 3.2 of this Declaration with respect to
any one or more series which represents the interests in the assets of the Trust
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immediately prior to the establishment of two or more series and the power of
the Trustees to invest and reinvest assets applicable to any other series shall
be as set forth in the instrument of the Trustees establishing such series which
is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular series or class together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series or class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series or class, the Trustees shall allocate them
among any one or more of the series or classes established and designated from
time to time in such manner and on such basis as they, in their sole discretion,
deem fair and equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the shareholders of all series or classes for all
purposes.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
costs, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the shareholders.
(e) The power of the Trustees to pay dividends and make
distributions shall be governed by Section 8.2 of
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this Declaration with respect to any one or more series or classes which
represents the interests in the assets of the Trust immediately prior to the
establishment of two or more series or classes. With respect to any other
series or class, dividends and distributions on shares of a particular series or
class may be paid with such frequency as the Trustees may determine, which may
be daily or otherwise, pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of shares of that series or class, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series or class, as the
Trustees may determine, after providing for actual and accrued liabilities
belonging to that series or class. All dividends and distributions on shares of
a particular series or class shall be distributed pro rata to the holders of
that series or class in proportion to the number of shares of that series or
class held by such holders at the date and time of record established for the
payment of such dividends or distributions.
(f) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each class and series of Shares.
(g) The establishment and designation of any series or class of
shares shall be effective upon the execution by a majority of the then Trustees
of an instrument setting forth such establishment and designation and the
relative rights and preferences of such series or class, or as otherwise
provided in such instrument. At any time that there are no shares outstanding
of any particular series or class previously established and designated, the
Trustees may by an instrument executed by a majority of their number abolish
that series or class and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
to this Declaration.
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ARTICLE VII
REDEMPTIONS
7.1. REDEMPTIONS. All outstanding Shares may be redeemed at the
option of the holders thereof, upon and subject to the terms and conditions
provided in this Article VII. The Trust shall, upon application of any
Shareholder or pursuant to authorization from any Shareholder, redeem or
repurchase from such Shareholder outstanding Shares for an amount per share
determined by the Trustees in accordance with any applicable laws and
regulations; provided that (a) such amount per share shall not exceed the cash
equivalent of the proportionate interest of each share or of any class or series
of shares in the assets of the Trust at the time of the redemption or repurchase
and (b) if so authorized by the Trustees, the Trust may, at any time and from
time to time, charge fees for effecting such redemption or repurchase, at such
rates as the Trustees may establish, as and to the extent permitted under the
1940 Act and the rules and regulations promulgated thereunder, and may, at any
time and from time to time, pursuant to such Act and such rules and regulations,
suspend such right of redemption. The procedures for effecting and suspending
redemption shall be as set forth in the Prospectus from time to time. Payment
will be made in such manner as described in the Prospectus.
7.2. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust sufficient, in the opinion of the Trustees, to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would in the opinion of the Trustees result in such disqualification.
The redemption shall be effected at a redemption price determined in accordance
with Section 7.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
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Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
SECTION 7.3. REDEMPTIONS OF ACCOUNTS OF LESS THAN $1,000. The
Trustees shall have the power at any time to redeem Shares of any Shareholder at
a redemption price determined in accordance with Section 7.1 if at such time the
aggregate net asset value of the Shares in such Shareholder's account is less
than $1,000. A Shareholder will be notified that the value of his account is
less than $1,000 and allowed sixty (60) days to make an additional investment
before redemption is processed.
SECTION 7.4. REDEMPTIONS PURSUANT TO CONSTANT NET ASSET VALUE
PROVISIONS. The Trust may also reduce the number of outstanding Shares pursuant
to the provisions of Section 8.3.
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ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
SECTION 8.1. NET ASSET VALUE. The net asset value of each outstanding
Share of the Trust shall be determined on such days and at such time or times as
the Trustees may determine. The method of determination of net asset value
shall be determined by the Trustees and shall be as set forth in the Prospectus.
The power and duty to make the daily calculations may be delegated by the
Trustees to the Investment Adviser, the Custodian, the Transfer Agent or such
other person as the Trustees by resolution may determine. The Trustees may
suspend the daily determination of net asset value to the extent permitted by
the 1940 Act.
SECTION 8.2. DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall from
time to time distribute ratably among the Shareholders such proportion of the
net profits, surplus (including paid-in surplus), capital, or assets held by the
Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares issuable hereunder in such manner, at such times,
and on such terms as the Trustees may deem proper. Such distributions may be
among the Shareholders of record at the time of declaring a distribution or
among the Shareholders of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders such dividend reinvestment
plans, cash dividend payout plans or related plans as the Trustees shall deem
appropriate.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
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<PAGE>
SECTION 8.3. DETERMINATION OF NET INCOME. The Trustees shall have
the power to determine the net income of the Trust one or more times on each
business day and at each such determination declare such net income as dividends
in additional shares. The determination of net income and the resultant
declaration of dividends shall be as set forth in the Prospectus. It is
expected that the Trust will have a positive net income at the time of each
determination. If for any reason the net income of the Trust is a negative
amount, the Trust shall have authority to reduce the number of its outstanding
Shares. Such reduction will be effected by having each Shareholder
proportionately contribute to the Trust's capital the necessary Shares that
represent the amount of the excess upon such determination. Each Shareholder
will be deemed to have agreed to such contribution in these circumstances by his
investment in the Trust. The Trustees shall have full discretion to determine
whether any cash or property received shall be treated as income or as principal
and whether any item of expenses shall be charged to the income or the principal
account, and their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much, if any, of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
SECTION 8.4. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding
any of the foregoing provisions of this Article VIII, the Trustees may
prescribe, in their absolute discretion, such other bases and times for
determining the per Share net asset value of the Shares or net income, or the
declaration and payment of dividends and distributions, as they may deem
necessary or desirable to enable the Trust to comply with any provision of the
1940 Act, or any rule or regulation thereunder, including any rule or regulation
adopted pursuant to Section 22 of the 1940 Act by the Commission or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by said Commission, all as in effect now or
hereafter amended or modified. Without limiting the generality of the
foregoing, the Trustees may establish classes of series of Shares in accordance
with Section 6.9.
-25-
<PAGE>
ARTICLE IX
DURATION; TERMINATION OF
TRUST; AMENDMENT; MERGERS, ETC.
SECTION 9.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust may be terminated (i)
by the affirmative vote of the holders of not less than two-thirds of the Shares
outstanding and entitled to vote at any meeting of Shareholders, or (ii) by an
instrument in writing, without a meeting, signed by a majority of the Trustees
and consented to by the holders of not less than two-thirds of such Shares, or
by such other vote as may be established by the Trustees with respect to any
class or series of Shares, or (iii) by the Trustees by written notice to the
Shareholders. Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and to do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require Shareholder approval in accordance with Section 9.4
hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
-26-
<PAGE>
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. (a) This Declaration may be amended
by a Majority Shareholder Vote, at a meeting of Shareholders, or by written
consent without a meeting. The Trustees may also amend this Declaration without
the vote or consent of Shareholders to change the name of the Trust, 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
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made under this Section 9.3 which would
change any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares outstanding and entitled to vote, or by such
other vote as may be established by the Trustees with respect to any series or
class of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment
and reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, and
-27-
<PAGE>
executed by a majority of the Trustee or certified by the Secretary or any
Assistant Secretary of the Trust, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized, at any meeting of Shareholders called
for the purpose, by the affirmative vote of the holders of not less than two-
thirds of the Shares outstanding and entitled to vote, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, or by such other vote as may be established
by the Trustees with respect to any series or class of Shares; provided,
however, that, if such merger, consolidation, sale, lease or exchange is
recommended by the Trustees, a Majority Shareholder Vote shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been acccomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts. In respect of any such merger,
consolidation, sale or exchange of assets, any Shareholder shall be entitled to
rights of appraisal of his Shares to the same extent as a shareholder of a
Massachusetts business corporation in respect of a merger, consolidation, sale
or exchange of assets of a Massachusetts business corporation, and such rights
shall be his exclusive remedy in respect of his dissent from any such action.
SECTION 9.5. INCORPORATION. With approval of a Majority Shareholder
Vote, or by such other vote as may be established by the Trustees with respect
to any series or class of Shares, the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all of the
-28-
<PAGE>
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization in exchange
for the shares or securities thereof or otherwise, and to lend money to,
subscribe for the shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization in which the
Trust holds or is about to acquire shares or any other interest. The Trustees
may also cause a merger or consolidation between the Trust or any successor
thereto and any such corporation, trust, partnership, association or other
organization if and to the extent permitted by law, as provided under the law
then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organization or entities.
-29-
<PAGE>
ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
-30-
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. FILING. This Declaration and any amendment hereto
shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee or by the Secretary or any
Assistant Secretary of the Trust stating that such action was duly taken in a
manner provided herein, and unless such amendment or such certificate sets forth
some later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, integrating into a single
instrument all of the provisions of the Declaration which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall, upon filing with the Secretary of the Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
SECTION 11.2. RESIDENT AGENT. The Trust may appoint and maintain a
resident agent in the Commonwealth of Massachusetts.
SECTION 11.3. GOVERNING LAW. This Declaration is executed by the
Trustees with reference to the laws of the Commonwealth of Massachusetts, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed according to the laws of said State.
SECTION 11.4. COUNTERPARTS. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 11.5. RELIANCE BY THIRD PARTIES. Any certificate executed by
an individual who, according to the records of the Trust, appears to be a
Trustee hereunder, or Secretary or Assistant Secretary of the Trust, certifying
to: (a) the number or identity of Trustees or Shareholders, (b) the due
authorization of the execution of any instrument or
-31-
<PAGE>
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
SECTION 11.6. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of the Declaration are severable, and if the Trustee shall determine,
with the advice of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the Internal Revenue
Code or with other applicable laws and regulations, the conflicting provisions
shall be deemed never to have constituted a part of the Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of the Declaration or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attain only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
27th day of March, 1981.
/s/ C Fiumefreddo , as Trustee /s/ Andrew J. Melton Jr., as Trustee
- ----------------------- ------------------------
and not Individually and not Individually
/s/ Dennis H. Greenwald, as Trustee , as Trustee
- ----------------------- -------------------------
and not Individually and not Individually
-32-
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 27th day of March, 1981, Charles A. Fiumefreddo, Andrew J.
Melton, Jr. and Dennis H. Greenwald , known to me and known to be the
individuals described in and who executed the foregoing instrument, personally
appeared before me and they severally acknowledged the foregoing instrument to
be their free act and deed.
/s/ Barbara Coffey
------------------
Notary Public
My commission expires:
BARBARA COFFEY
Notary Public, State of New York
No. 43-4714868
Qualified in Richmond County
Certificate filed in New York County
Commission Expires March 30, 1982
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this
30th day of March, 1981.
/s/ John W. Belash
--------------------------
John W. Belash, as Trustee and
not individually
One Federal Street
Boston, MA 02110
COMMONWEALTH OF MASSACHUSETTS
Suffolk, SS. Boston, MA
March 30, 1981
Then personally appeared the above-named John W. Belash who acknowledged
the foregoing instrument to be his free act and deed,
before me,
/s/ Judith B. Cleveland
-----------------------
Judith B. Cleveland,
Notary Public
JUDITH B. CLEVELAND
My commission expires: My Commission Expires Oct. 1, 1987.
-----------------------------------
<PAGE>
RECEIVED
May 22 1984
C E R T I F I C A T E SECRETARY OF STATE
CORPORATION DIVISION
The undersigned hereby certifies that he is the Secretary of Active Assets
Government Securities Trust (the "Trust"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts, that annexed
hereto is an Amendment to the Declaration of Trust of the Trust adopted by the
unanimous written consent of the Trustees of the Trust on may 18, 1984, as
provided in Section 9.3 of the said Declaration, said Amendment to take effect
on May 18, 1984, and I do hereby further certify that such Amendment has not
been amended and is on the date hereof in full force and effect.
Dated this 21st day of May, 1984.
/s/ Sheldon Curtis
--------------------------
Sheldon Curtis
Secretary
(SEAL) CITY CLERK'S OFFICE
MAY 22 1984
CITY OF BOSTON
<PAGE>
A M E N D M E N T
Dated: May 18, 1984
To Be Effective: May 18, 1984
TO
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
DECLARATION OF TRUST
DATED MARCH 27, 1981
<PAGE>
Amendment dated May 18, 1984
to the Declaration of Trust
(the "Declaration") of Active
Assets Government Securities
Trust dated March 27, 1981.
WHEREAS, the Trust was established by the Declaration on the date hereinabove
set forth under the laws of The Commonwealth of Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to appoint a
resident agent of the Trust in The Commonwealth of Massachusetts, such provision
to be effective on May 18, 1984.
NOW, THEREFORE, pursuant to Section 9.3 of the Declaration, the Trustees hereby
amend the Declaration as follows, to be effective on May 18, 1984.
1. Section 11.2 of Article XI of the Declaration is hereby amended so
that that Section shall read in its entirety as follows:
"SECTION 11.2. RESIDENT AGENT. The Prentice-Hall Corporation System,
Inc., 84 State Street, Boston, Massachusetts 02109 is the resident
agent of the Trust in The Commonwealth of Massachusetts."
2. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
in all respects.
<PAGE>
3. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have
executed this instrument this 18th day of May 1984.
/s/ Irwin Friend /s/ John R. Haire
- ------------------------- -----------------------
Irwin Friend, as Trustee John R. Haire, as Trustee
and not individually and not individually
1250 Round Hill Road 439 East 51st Street
Bryn Mawr, PA 19010 New York, NY 10022
/s/ Andrew J. Melton /s/ John J. Scanlon
- ------------------------- ------------------------
Andrew J. Melton), Jr., as John J. Scanlon, as
Trustee and not individually Trustee and not individually
Five World Trade Center 2345 Redding Road
New York, NY 10048 Fairfield, CT 06436
/s/ Albert T. Sommers, as /s/ Edward R. Telling, as
- -------------------------- --------------------------
Trustee and not individually Trustee and not individually
16 Bonnie Heights Road Sears, Roebuck & Company
Manhasset, NY 10030 Sears Tower, 68th floor
Dept. 902
Chicago, IL 60684
<PAGE>
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this 18th day of May, 1984, Irwin Friend, John R. Haire, Andrew J.
Melton, Jr., John J. Scanlon, Albert T. Sommers and Edward R. Telling, known to
me and known to me to be the individuals described in and who executed the
foregoing instrument, personally appeared before me and they severally
acknowledged the foregoing instrument to be their free act and deed.
/s/ Rodd M. Baxter
---------------------
Notary Public
RODD M. BAXTER
NOTARY Public, State OF NEW YORK
No. 41-4637346
Qualified in Nassau County
COMMISSION Expires March 30, 1986
<PAGE>
Amendment dated May 18, 1984 to the
Declaration of Trust (the
"Declaration") of Active Assets
Money Trust dated March 27, 1981.
WHEREAS, the Trust was established by the Declaration on the date
hereinabove set forth under the laws of The Commonwealth of
Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to
appoint a resident agent of the Trust in The Commonwealth of
Massachusetts, such provision to be effective on May 18, 1984.
NOW, THEREFORE, pursuant to Section 9.3 of the Declaration, the
Trustees hereby amend the Declaration as follows, to be effective
on May 18, 1984.
1. Section 11.2 of Article XI of the Declaration is hereby
amended so that that Section shall read in its entirety
as follows:
"SECTION 11.2. RESIDENT AGENT. The Prentice-Hall
Corporation System, Inc., 84 State Street, Boston,
Massachusetts 02109 is the resident agent of the Trust
in The Commonwealth of Massachusetts."
2. The Trustees of the Trust hereby reaffirm the
Declaration, as amended, in all respects.
<PAGE>
3. This Amendment may be executed in more than one
counterpart, each of which shall be deemed an original,
but all of which together shall constitute one and the
same document.
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust,
have executed this instrument this 18th day of May , 1984.
/s/ Irwin Friend /s/ John R. Haire
------------------------- --------------------------
Irwin Friend, as Trustee John R. Haire, as Trustee
and not individually and not individually
1250 Round Hill Road 439 East 51st Street
Bryn Mawr, PA 19010 New York, NY 10022
/s/ Andrew J. Melton, Jr. /s/ John J. Scanlon
------------------------- --------------------------
Andrew J. Melton, Jr. , as John J. Scanlon, as
Trustee and not individually Trustee and not individually
Five World Trade Center 2345 Redding Road
New York, NY 10048 Fairfield, CT 06436
/s/ Albert T. Sommers /s/ Edward R. Telling
------------------------- --------------------------
Albert T. Sommers, as Edward R. Telling, as
Trustee and not individually Trustee and not individually
16 Bonnie Heights Road Sears, Roebuck & Company
Manhasset, NY 10030 Sears Tower, 68th floor
Dept. 902
Chicago, IL 60684
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
On this 18th day of May, 1984, Irwin Friend, John R. Haire, Andrew J.
Melton, Jr., John J. Scanlon, Albert T. Sommers and Edward R. Telling, known to
me and known to me to be the individuals described in and who executed the
foregoing instrument, personally appeared before me and they severally
acknowledged the foregoing instrument to be their free act and deed.
/s/ Rodd M. Baxter
------------------
Notary Public
RODD M. BAXTER
Notary Public, State of New York
No. 41-4637340
Qualified in Nassau County
Commission Expires March 20, 1986
<PAGE>
CERTIFICATE
The undersigned hereby certifies that be is the Secretary of Active Assets
Money Trust (the "Trust"), an unincorporated business trust organized under the
laws of The Commonwealth of Massachusetts, that annexed hereto is an Amendment
to the Declaration of Trust of the Trust adopted by a Majority Shareholder Vote
(as defined in Section 1.2 (g) of the Declaration of Trust) at a meeting of
Shareholders of the Trust held on December 17, 1984, as provided in Section 9.3
of the said Declaration, said Amendment to take effect immediately, and I do
hereby further certify that such Amendment has not been amended and is on the
date hereof in full force and effect.
Dated this 31st day of December, 1984.
/s/ Sheldon Curtis
------------------
Sheldon Curtis
Secretary
(SEAL)
<PAGE>
A M E N D M E N T
-----------------
Dated: December 17, 1984
To Be Effective: December 17, 1984
TO
--
ACTIVE ASSETS MONEY TRUST
-------------------------
DECLARATION OF TRUST
--------------------
DATED MARCH 27, 1981
--------------------
<PAGE>
Amendment dated December 17, 1984 to the
Declaration of Trust (the "Declaration") of Active
Assets Money Trust (the "Trust") dated March 27,
1981.
WHEREAS, the Trust was established by the Declaration on the date
hereinabove set forth under the laws of the Commonwealth of Massachusetts;
and
WHEREAS, the Trustees of the Trust have deemed it advisable to provide that
the shares of beneficial interest of the Trust shall be of $.O1 par value,
and such provision has been adopted by a Majority Shareholder Vote (as
defined in the Declaration) at a meeting of Shareholders held on December
17, 1984, to be effective on December 17, 1984.
NOW, THEREFORE, pursuant to Section 9.3 of the Declaration, the
Shareholders of the Trust have amended the Declaration as follows, to be
effective on December 17, 1984, and the Trustees of the Trust have executed
this Amendment on December 17, 1984.
1. Section 6.1 of Article VI of the Declaration is hereby amended so
that that Section shall read in its entirety as follows:
"SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial
interest of $.Ol par value. The number of such shares of beneficial
interest authorized hereunder is unlimited. The Trustees may initially
issue whole and fractional shares of a single class, each of which
shall represent an equal proportionate share in the Trust with each
other Share. The Trustees may divide or combine the shares into a
greater or lesser number of shares without thereby changing the
proportionate interests in the Trust. Subject to the provisions of
Section 6.9 hereof, the Trustees may also authorize the creation of
additional series of shares (the proceeds of which may be invested in
separate, independently managed portfolios) and additional classes of
shares within any series. All Shares issued hereunder including,
without limitation, Shares issued in connection with a dividend in
Shares or a split Shares, shall be fully paid and nonassessable."
2. The Trustees of the Trust hereby reaffirm the Declaration, as
amended, in all respects.
<PAGE>
3. This Amendment may be executed in more than one counterpart, each
of which shall be deemed an original, but all of which together shall
constitute one and the same document.
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have
executed this instrument this 17th day of December, 1984.
/s/ Irwin Friend /s/ John R. Haire
- ----------------------------- -------------------------------
Irwin Friend, as Trustee John R. Haire, as Trustee
and not individually and not individually
1250 Round Hill Road 439 East 51st Street
Bryn Mawr, PA 19010 New York, NY 10022
/s/ Andrew J. Melton, Jr. /s/ John J. Scanlon
- ----------------------------- -------------------------------
Andrew J. Melton, Jr. as John J. Scanlon, as
Trustee and not individually Trustee and not individually
Five World Trade Center 2345 Redding Road
New York, NY 10048 Fairfield, CT 06436
/s/ Albert T. Sommers /s/ Edward R. Telling
- ----------------------------- -------------------------------
Albert T. Sommers, as Edward R. Telling, as
Trustee and not individually Trustee and not individually
16 Bonnie Heights Road Sears, Roebuck & Company
Manhasset, NY 10030 Sears Tower, 68th floor
Dept. 902
Chicago, IL 60684
-2-
<PAGE>
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK)
On this 17th day of December, 1984, JOHN R. HAIRE, ANDREW J.
MELTON, JR., JOHN J. SCANLON, and ALBERT T. SOMMERS, known to me to be the
individuals described in and who executed the foregoing instrument,
personally appeared before me and they severally acknowledged the foregoing
instrument to be their free act and deed.
/s/ Marilyn K. Cranney
----------------------
Notary Public
My commission expires:
MARILYN K. CRANNEY
Notary Public, State of New York
No. 24-4795538
Qualified in Kings County
Commission Expires March 30, 1985
<PAGE>
BY-LAWS
OF
ACTIVE ASSETS MONEY TRUST
(AMENDED AND RESTATED AS OF JANUARY 25, 1995)
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
Money 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 power to adjourn the
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meeting from time to time. Any adjourned meeting may be held as adjourned
without further notice. At any adjourned meeting at which a quorum shall be
present, any business may be transacted if the meeting had been held 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, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, 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 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. 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. 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.
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 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 the Corporations and Associations Law of
the State of Maryland.
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.
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
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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.
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
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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).
(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
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(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.
(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.
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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 of the Board, a President, one or more Vice Presidents, a
Secretary and a Treasurer. The Chairman of the Board shall be selected from
among the Trustees but none of the other executive officers need be a member
of the Board of Trustees. 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 Board of
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Board of Trustees may also
elect one or more Assistant Vice Presidents, Assistant Secretaries and
Assistant Treasurers and may elect, or may delegate to the President the
power to appoint, such other officers and agents as the Board of Trustees
shall at any time or from time to time deem advisable.
SECTION 6.3. TERM, REMOVAL AND VACANCIES. Each officer of the Trust shall
hold office until his successor is elected and has qualified. Any officer or
agent of the Trust may be removed by the Board of 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 Board of Trustees, or by the
President to the extent provided by the Board of Trustees with respect to
officers appointed by the President.
SECTION 6.5. POWER 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
Board of Trustees; provided, that no rights of any third party shall be
affected or impaired by any such By-Law or resolution of the Board of
Trustees unless he has knowledge thereof.
SECTION 6.6. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders and of the Board of Trustees,
shall be a signatory on all Annual and Semi-Annual Reports as may be sent to
shareholders, and he shall perform such other duties as the Board of Trustees
may prescribe from time to time.
SECTION 6.7. THE PRESIDENT. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the Board
of Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
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 be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the Executive Vice President, shall, in the absence
or disability of the President, and the Executive Vice President, exercise
the powers and perform the duties of those officers, and he or they shall
perform such other duties as the Trustees or the Executive Vice President may
from time to time prescribe.
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SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the Executive Vice President.
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 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
Executive Vice President, may from time to time prescribe. He 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 signature or by the signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the Executive Vice President, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of
the Secretary and shall perform such other duties and have such other powers
as the Trustees or the Executive Vice President may from time to time
prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the Executive Vice President whenever any
of them require it, an account of his transactions as Treasurer and of the
financial condition of the Trust; and he shall perform such other duties as
the Trustees, or the Executive Vice President, 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 the order
determined by the Trustees or the Executive Vice President, 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 Executive Vice President, 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 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
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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 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
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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.
SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining Shareholders entitled to notice
of, or to vote at, any meeting of Shareholders, or Shareholders entitled to
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. Such
date, in any case, shall be not more than sixty (60) days, and in case of a
meeting of Shareholders not less than ten (10) days, prior to the date on
which particular action requiring such determination of Shareholders is to be
taken. 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 such 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.
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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.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Active Assets Money 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 Money 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 Money 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
Money Trust, but the Trust Estate only shall be liable.
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CUSTODY AGREEMENT
Agreement made as of this 20th day of September, 1991, between ACTIVE
ASSETS MONEY TRUST, a Massachusetts business trust organized and existing
under the laws of the Commonwealth of Massachusetts, having its principal office
and place of business at 2 World Trade Center, New York, New York 10048
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York
corporation authorized to do a banking business, having its principal office and
place of business at 48 Wall Street, New York, New York 10286 (hereinafter
called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, shall
have the following meanings:
1. "Agreement" shall mean this Custody Agreement and all Appendices and
Certifications described in the Exhibits delivered in connection herewith.
2. "Authorized Person" shall mean any person, whether or not such person
is an Officer or employee of the Fund, duly authorized by the Board of Trustees
of the Fund to give Oral Instructions and Written Instructions on behalf of the
Fund and listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time, provided that
each person who is designated in any such Certificate as an "Officer of DWTC"
shall be an Authorized Person only for purposes of Articles XII and XIII hereof.
3. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.
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4. "Call Option" shall mean an exchange traded option with respect to
Securities other than Index, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
instruments, currency, or Securities.
5. "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the
Custodian which is actually received (irrespective of constructive receipt) by
the Custodian and signed on behalf of the Fund by any two Officers. The term
Certificate shall also include instructions by the Fund to the Custodian
communicated by a Terminal Link.
6. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
7. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein.
8. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying
instruments, currency, or Securities (excluding Futures Contracts) which are
owned by the writer thereof.
9. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm commitment to buy or
sell financial instruments on a U.S. commodities exchange or board of trade at a
specified future time at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures Contract and/or
Index Futures Contracts.
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12. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
13. "Investment Company Act of 1940" shall mean the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
14. "Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
index at the close of the last business day of the contract and the price at
which the futures contract is originally struck.
15. "Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
16. "Margin Account" shall mean a segregated account in the name of a broker,
dealer, futures commission merchant, or a Clearing Member, or in the name of the
Fund for the benefit of a broker, dealer, futures commission merchant, or
Clearing Member, or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant or a Clearing
Member (a "Margin Account Agreement"), separate and distinct from the custody
account, in which certain Securities and/or money of the Fund shall be deposited
and withdrawn from time to time in connection with such transactions as the Fund
may from time to time determine. Securities held in the Book-Entry System or a
Depository shall be deemed to have been deposited in, or withdrawn from, a
Margin Account upon the Custodian's effecting an appropriate entry in its books
and records.
17. "Money Market Security" shall mean all instruments and obligations
commonly known as a money market instruments, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale, including, without limitation, certain Reverse Repurchase
Agreements, debt obligations issued or guaranteed as to interest and/or
principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to Securities and bank time deposits.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the
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Securities Exchange Act of 1934, its successor or successors, and its nominee or
nominees.
19. "Officers" shall mean the President, any Vice President, the
Secretary, the Clerk, the Treasurer, the Controller, any Assistant Secretary,
any Assistant Clerk, any Assistant Treasurer, and any other person or persons,
whether or not any such other person is an officer or employee of the Fund, but
in each case only if duly authorized by the Board of Trustees of the Fund to
execute any Certificate, instruction, notice or other instrument on behalf of
the Fund and listed in the Certificate annexed hereto as Appendix B or such
other Certificate as may be received by the Custodian from time to time;
provided that each person who is designated in any such Certificate as holding
the position of "Officer of DWTC" shall be an Officer only for purposes of
Articles XII and XIII hereof.
20. "Option" shall mean a Call Option, Covered Call Option, Index Option
and/or a Put Option.
21. "Oral Instructions" shall mean verbal instructions actually received
(irrespective of constructive receipt) by the Custodian from an Authorized
Person or from a person reasonably believed by the Custodian to be an Authorized
Person.
22. "Put Option" shall mean an exchange traded option with respect to
instruments, currency, or Securities other than Index Options, Futures
Contracts, and Futures Contract Options entitling the holder, upon timely
exercise and tender of the specified underlying instruments, currency, or
Securities, to sell such instruments, currency, or Securities to the writer
thereof for the exercise price.
23. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
24. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Index Options, Index Futures
Contracts, Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, over the
counter options on Securities, common stocks and other securities having
characteristics similar to common stocks, preferred stocks, debt obligations
issued by state or municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds, industrial bonds
and industrial development bonds), bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe
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for the same, or evidencing or representing any other rights or interest
therein, or rights to any property or assets.
25. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
26. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the
Fund, except that if the Fund does not have more than one portfolio, "Series"
shall mean the Fund or be ignored where a requirement would be imposed on the
Fund or the Custodian which is unnecessary if there is only one portfolio.
27. "Shares" shall mean the shares of beneficial interest of the Fund and
its Series.
28. "Terminal Link" shall mean an electronic data transmission link
between the Fund and the Custodian requiring in connection with each use of the
Terminal Link the use of an authorization code provided by the Custodian and at
least two access codes established by the Fund, provided, that the Fund shall
have delivered to the Custodian a Certificate substantially in the form of
Appendix C.
29. "Transfer Agent" shall mean Dean Witter Trust Company, a New Jersey
limited purpose trust company, its successors and assigns.
30. "Transfer Agent Account" shall mean any account in the name of the
Transfer Agent maintained with The Bank of New York pursuant to a Cash
Management and Related Services Agreement between The Bank of New York and the
Transfer Agent.
31. "Written Instructions" shall mean written communications actually
received (irrespective of constructive receipt) by the Custodian from an
Authorized Person or from a person reasonably believed by the Custodian to be an
Authorized Person by telex or any other such system whereby the receiver of such
communications is able to verify by codes or otherwise with a reasonable degree
of certainty the identity of the sender of such communication.
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ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of
the Securities and moneys at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees
to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated, and the Custodian shall not
be responsible for any Securities or money not so delivered. The Custodian shall
physically segregate, keep and maintain the Securities of the Series separate
and apart from each other Series and from other assets held by the Custodian.
Except as otherwise expressly provided in this Agreement, the Custodian will not
be responsible for any Securities and moneys not actually received by it, unless
the Custodian has been negligent or has engaged in willful misconduct with
respect thereto. The Custodian will be entitled to reverse any credits of money
made on the Fund's behalf where such credits have been previously made and
moneys are not finally collected, unless the Custodian has been negligent or has
engaged in willful misconduct with respect thereto. The Fund shall deliver to
the Custodian a certified resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit A hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis to deposit in the
Book-Entry System all Securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated and to utilize the
Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securities specifically
allocated to a Series in any Depository, the Fund shall deliver to the Custodian
a certified resolution of the Board of Trustees of the Fund,
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<PAGE>
substantially in the form of Exhibit B hereto, approving, authorizing and
instructing the Custodian on a continuous and ongoing basis until instructed to
the contrary by a Certificate to deposit in such Depository all Securities
specifically allocated to such Series eligible for deposit therein, and to
utilize such Depository to the extent possible with respect to such Securities
in connection with its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities collateral. Securities and
moneys deposited in either the Book-Entry System or a Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including, but not limited to, accounts in which the Custodian acts
in a fiduciary or representative capacity and will be specifically allocated on
the Custodian's books to the separate account for the applicable Series. Prior
to the Custodian's accepting, utilizing and acting with respect to Clearing
Member confirmations for Options and transactions in Options for a Series as
provided in this Agreement, the Custodian shall have received a certified
resolution of the Fund's Board of Trustees, substantially in the form of Exhibit
C hereto, approving, authorizing and instructing the Custodian on a continuous
and on-going basis, until instructed to the contrary by a Certificate, to
accept, utilize and act in accordance with such confirmations as provided in
this Agreement with respect to such Series. All securities are to be held or
disposed of by the Custodian for, and subject at all times to the instructions
of, the Fund pursuant to the terms of this Agreement. The Custodian shall have
no power or authority to assign, hypothecate, pledge or otherwise dispose of any
Securities except as provided by the terms of this Agreement, and shall have the
sole power to release and deliver Securities held pursuant to this Agreement.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Such moneys will be held in such manner and account as the Fund and the
Custodian shall agree upon in writing from time to time. Money credited to a
separate account for a Series shall be subject only to drafts, orders, or
charges of the Custodian pursuant to this Agreement and shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Resolutions of the Fund's Board of Trustees certified
by an Officer and by the Secretary or Assistant Secretary of the Fund setting
forth the name and address of the person to whom the payment is to be made, the
Series account from which payment is to be made, the purpose for which payment
is to be made, and declaring such purpose to
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<PAGE>
be a proper corporate purpose; provided, however, that amounts representing
dividends, distributions, or redemptions proceeds with respect to Shares shall
be paid only to the Transfer Agent Account;
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series and authorized by this
Agreement; or
(d) Pursuant to Certificates to pay interest, taxes, management fees
or operating expenses (including, without limitation thereto, Board of Trustees'
fees and expenses, and fees for legal accounting and auditing services), which
Certificates set forth the name and address of the person to whom payment is to
be made, state the purpose of such payment and designate the Series for whose
account the payment is to be made.
3. Promptly after the close of business on each day, the Custodian shall
furnish the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series but held in a Depository, the Custodian shall upon such
transfer also by book-entry or otherwise identify such Securities as belonging
to such Series in a fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account on the books of
the Book-Entry System or the Depository. At least monthly and from time to time,
the Custodian shall furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held under this Agreement for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or a
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or a
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in a Depository in a separate
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account in the name of such Series physically segregated at all times from those
of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or a Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all Securities held for
the Fund hereunder in accordance with preceding paragraph 4:
(a) Promptly collect all income and dividends due or payable;
(b) Promptly give notice to the Fund and promptly present for payment
and collect the amount of money or other consideration payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix D annexed hereto, which may be amended at
any time by the Custodian without the prior consent of the Fund, provided the
Custodian gives prior notice of such amendment to the Fund;
(c) Promptly present for payment and collect for the Fund's account
the amount payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form in exchange for
definitive Securities;
(e) Promptly execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series, all
rights and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies, proxy
soliciting materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities held
pursuant to this Agreement which are actually received by the Custodian, such
proxies and other similar materials to be executed by the registered holder (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
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6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Promptly execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held hereunder for
the Series specified in such Certificate may be exercised;
(b) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of any
right, warrant or conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to such Series in exchange
therefor such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery or such Securities as
may be issued upon such delivery; and
(d) Promptly present for payment and collect the amount payable upon
Securities which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940 in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates in connection with any such purchase, sale, writing, settlement or
closing out upon its receipt from a broker, dealer, or futures commission
merchant of a statement or confirmation reasonably believed by the Custodian to
be in the form customarily used by brokers, dealers, or future
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commission merchants with respect to such Futures Contracts, Options, or Futures
Contract Options, as the case may be, confirming that such Security is held by
such broker, dealer or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstanding the foregoing,
payments to or deliveries from the Margin Account and payments with respect to
Securities to which a Margin Account relates, shall be made in accordance with
the terms and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall, notwithstanding
any provision in this Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each execution of a purchase of Securities by the Fund,
other than a purchase of an Option, a Futures Contract, or a Futures Contract
Option, the Fund shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Certificate, and
(ii) with respect to each purchase of Money Market Securities, a Certificate,
Oral Instructions or Written Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase price per unit; (f)
the total amount payable upon such purchase; (g) the name of the person from
whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of such Securities purchased by or for
the Fund, pay to the broker specified in
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the Certificate out of the moneys held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate, Oral Instructions or Written
Instructions.
2. Promptly after each execution of a sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures Contract Option, or
any Reverse Repurchase Agreement, the Fund shall deliver such to the Custodian
(i) with respect to each sale of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each sale of Money Market
Securities, a Certificate, Oral Instructions or Written Instructions, specifying
with respect to each such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale and settlement; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. On the settlement date, the Custodian shall
deliver the Securities specifically allocated to such Series to the broker in
accordance with generally accepted street practices and as specified in the
Certificate upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after each execution of a purchase of any Option by the Fund
other than a closing purchase transaction the Fund shall deliver to the
Custodian a Certificate specifying with respect to each Option purchased: (a)
the Series to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the instrument, currency, or Security underlying such
Option and the number of Options, or the name of the in the case of an Index
Option, the index to which such Option relates and the number of Index Options
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the total amount payable by the Fund in connection
with such purchase; and (h) the name of the Clearing Member through whom such
Option was purchased. The Custodian shall pay, upon receipt of a Clearing
Member's statement confirming the purchase of such Option held by such Clearing
Member for the account of the Custodian (or any duly appointed and registered
nominee of the
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<PAGE>
Custodian) as custodian for the Fund, out of moneys held for the account of the
Series to which such Option is to be specifically allocated, the total amount
payable upon such purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Certificate.
2. Promptly after the execution of a sale of any Option purchased by the
Fund, other than a closing sale transaction, pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
each such sale: (a) the Series to which such Option was specifically allocated;
(b) the type of Option (put or call); (c) the instrument, currency, or Security
underlying such Option and the number of Options, or the name of the issuer and
the title and number of shares subject to such Option or, in the case of a Index
Option, the index to which such Option relates and the number of Index Options
sold; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g)
the total amount payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian shall consent to
the delivery of the Option sold by the Clearing Member which previously supplied
the confirmation described in preceding paragraph 1 of this Article with respect
to such Option against payment to the Custodian of the total amount payable to
the Fund, provided that the same conforms to the total amount payable as set
forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Put Option: (a) the Series to
which such Put Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Put Option; (c) the expiration
date; (d) the date of exercise
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<PAGE>
and settlement; (e) the exercise price per share; (f) the total amount to be
paid to the Fund upon such exercise; and (g) the name of the Clearing Member
through whom such Put Option was exercised. The Custodian shall, upon receipt of
the amount payable upon the exercise of the Put Option, deliver or direct a
Depository to deliver the Securities specifically allocated to such Series,
provided the same conforms to the amount payable to the Fund as set forth in
such Certificate.
5. Promptly after the exercise by the Fund of any Index Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Index Option: (a) the
Series to which such Index Option was specifically allocated; (b) the type of
Index Option (put or call); (c) the number of Options being exercised; (d) the
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the total amount to be received by the Fund in connection with such
exercise; and (h) the Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct a
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with a Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
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<PAGE>
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct a Depository to deliver, the underlying Securities as specified in the
Certificate against payment of the amount to be received as set forth in such
Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to such Put Option: (a)
the Series for which such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate, against delivery of such
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<PAGE>
Securities, and shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes an Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) whether such
Index Option is a put or a call; (c) the number of options written; (d) the
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the Clearing Member through whom such Option was written; (h) the
premium to be received by the Fund; (i) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Collateral Account for such Series; and (k) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The Custodian shall, upon
receipt of the premium specified in the Certificate, make the deposits, if any,
into the Senior Security Account specified in the Certificate, and either (1)
deliver such receipts, if any, which the Custodian has specifically agreed to
issue, which are in accordance with the customs prevailing among Clearing
Members in Index Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever an Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) such
information as may be necessary to identify the Index Option being exercised;
(c) the Clearing Member through whom such Index Option is being exercised; (d)
the total amount payable upon such exercise, and whether such amount is to be
paid by or to the Fund; (e) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Margin Account; and (f) the amount
of cash and/or amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
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<PAGE>
12. Promptly after the execution of a purchase or sale by the Fund of any
Option identical to a previously written Option described in paragraphs, 6, 8 or
10 of this Article in a transaction expressly designated as a "Closing Purchase
Transaction" or a "Closing Sale Transaction", the Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction or a
Closing Sale Transaction; (b) the Series for which the Option was written; (c)
the instrument, currency, or Security subject to the Option, or, in the case of
an Index Option, the index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by or the
amount to be paid to the Fund; (f) the expiration date; (g) the type of Option
(put or call); (h) the date of such purchase or sale; (i) the name of the
Clearing Member to whom the premium is to be paid or from whom the amount is to
be received; and (j) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium or receipt of the amount, as the case may be,
specified in the Certificate and the return and/or cancellation of any receipt
issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to the
Option being liquidated through the Closing Purchase Transaction or the Closing
Sale Transaction, the Custodian shall remove, or direct a Depository to remove,
the previously imposed restrictions on the Securities underlying the Call
Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
14. Securities acquired by the Fund through the exercise of an Option
described in this Article shall be subject to Article IV hereof.
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<PAGE>
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract, (or with respect to any number of identical Futures Contract(s)): (a)
the Series for which the Futures Contract is being entered; (b) the category of
Futures Contract (the name of the underlying index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures Contract(s)
was (were) entered into and the maturity date; (f) whether the Fund is buying
(going long) or selling (going short) such Futures Contract(s); (g) the amount
of cash and/or the amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series; (h) the name of the broker, dealer, or
futures commission merchant through whom the Futures Contract was entered into;
and (i) the amount of fee or commission, if any, to be paid and the name of the
broker, dealer, or futures commission merchant to whom such amount is to be
paid. The Custodian shall make the deposits, if any, to the Margin Account in
accordance with the terms and conditions of the Margin Account Agreement. The
Custodian shall make payment out of the moneys specifically allocated to such
Series of the fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the amount of cash and/or
the amount and kind of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian prior to the delivery or
settlement date a Certificate specifying: (a) the Futures Contract and the
Series to which the same relates; (b) with respect to an Index Futures
Contract, the total cash settlement amount to be paid
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<PAGE>
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the execution of a purchase of any Futures Contract
Option by the Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the Series to which
such Option is specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other information as
may be necessary to identify the Futures Contract underlying the Futures
Contract Option purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the amount of premium to be paid by
the Fund upon such purchase; (h) the name of the broker or futures commission
merchant through whom such option was purchased; and (i) the name of the broker,
or futures commission merchant, to whom payment is to be made. The Custodian
shall pay out of the moneys specifically allocated to such Series the total
amount to be paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
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<PAGE>
2. Promptly after the execution of a sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to each such sale: (a)
Series to which such Futures Contract Option was specifically allocated; (b) the
type of Future Contract Option (put or call); (c) the type of Futures Contract
and such other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures
Contract Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments of money, if any,
and the deposits of Securities, if any, into the Senior Security Account as
specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in
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<PAGE>
the Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call
is exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
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<PAGE>
7. Promptly after the execution by the Fund of a purchase of any Futures
Contract Option identical to a previously written Futures Contract Option
described in this Article in order to liquidate its position as a writer of such
Futures Contract Option, the Fund shall deliver to the Custodian a Certificate
specifying with respect to the Futures Contract Option being purchased: (a) the
Series to which such Option is specifically allocated; (b) that the transaction
is a closing transaction; (c) the type of Future Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Option Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h) the amount of
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after the execution of any short sales of Securities by any
Series of the Fund, the Fund shall deliver to the Custodian a Certificate
specifying: (a) the Series for which such short sale was made; (b) the name of
the issuer and the title of the Security; (c) the number of shares or principal
amount sold, and accrued interest or dividends, if any; (d) the dates of the
sale and settlement; (e) the sale
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price per unit; (f) the total amount credited to the Fund upon such sale, if
any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. Promptly after the execution of a purchase to close-out any short sale
of Securities, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such closing out: (a) the Series for which such
transaction is being made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or the principal amount, and accrued interest
or dividends, if any, required to effect such closing-out to be delivered to the
broker; (d) the dates of closing-out and settlement; (e) the purchase price per
unit; (f) the net total amount payable to the Fund upon such closing-out; (g)
the net total amount payable to the broker upon such closing-out; (h) the amount
of cash and the amount and kind of Securities to be withdrawn, if any, from the
Margin Account; (i) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to the Fund upon such
closing-out, and the return and/ or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the Certificate.
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ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate, Oral Instructions, or
Written Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker, dealer, or financial institution with whom the Reverse
Repurchase Agreement is entered; (d) the amount and kind of Securities to be
delivered by the Fund to such broker, dealer, or financial institution; (e) the
date of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such Series to
be deposited in a Senior Security Account for such Series in connection with
such Reverse Repurchase Agreement. The Custodian shall, upon receipt of the
total amount payable to the Fund specified in the Certificate, Oral
Instructions, or Written Instructions make the delivery to the broker, dealer,
or financial institution and the deposits, if any, to the Senior Security
Account, specified in such Certificate, Oral Instructions, or Written
Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate, Oral Instructions, or Written Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated and
the Series for which same was entered; (b) the total amount payable by the Fund
in connection with such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series in connection
with such termination; (d) the date of termination; (e) the name of the broker,
dealer, or financial institution with whom the Reverse Repurchase Agreement is
to be terminated; and (f) the amount of cash and/or the amount and kind of
Securities to be withdrawn from the Senior Securities Account for such Series.
The Custodian shall, upon receipt of the amount and kind of Securities to be
received by the Fund specified in the Certificate, Oral Instructions, or Written
Instructions, make the payment to the broker, dealer, or financial institution
and the withdrawals, if any, from the Senior Security Account, specified in such
Certificate, Oral Instructions, or Written Instructions.
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3. The Certificates, Oral Instructions, or Written Instructions described
in paragraphs 1 and 2 of this Article may with respect to any particular Reverse
Repurchase Agreement be combined and delivered to the Custodian at the time of
entering into such Reverse Repurchase Agreement.
ARTICLE X
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated in the
Certificate as to be delivered against the loan of Securities. The Custodian may
accept payment in connection with a delivery otherwise than through the
Book-Entry System or a Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds.
2. In connection with each termination of a loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
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ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall establish a Senior Security Account and from time
to time make such deposits thereto, or withdrawals therefrom, as specified in a
Certificate. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Senior Security Account for such Series. In the event that
the Fund fails to specify in a Certificate the Series, the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall promptly notify the Fund that no such deposit
has been made.
2. The Custodian shall make deliveries or payments from a Margin Account
to the broker, dealer, futures commission merchant or Clearing Member in whose
name, or for whose benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the
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Margin Account; (b) the amount and kind of Securities held therein; and (c) the
amount of money held therein. The Custodian shall make available upon request to
any broker, dealer, or futures commission merchant specified in the name of a
Margin Account a copy of the statement furnished the Fund with respect to such
Margin Account.
6. The Custodian shall establish a Collateral Account and from time to
time shall make such deposits thereto as may be specified in a Certificate.
Promptly after the close of business on each business day in which cash and/or
Securities are maintained in a Collateral Account for any Series, the Custodian
shall furnish the Fund with a statement with respect to such Collateral Account
specifying the amount of cash and/or the amount and kind of Securities held
therein. No later than the close of business next succeeding the delivery to the
Fund of such statement, the Fund shall furnish to the Custodian a Certificate or
Written Instructions specifying the then market value of the Securities
described in such statement. In the event such then market value is indicated to
be less than the Custodian's obligation with respect to any outstanding Put
Option guarantee letter or similar document, the Fund shall promptly specify in
a Certificate the additional cash and/or Securities to be deposited in such
Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein and the declaration of dividends and
distributions thereon the Custodian to rely on Oral Instructions, Written
Instructions, or a Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
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2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions, or Certificate, as the case may be, the
Custodian shall pay to the Transfer Agent Account out of the moneys held for
the account of the Series specified therein the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund
with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver or cause to
be delivered, to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale
of such Shares and specifically allocated to the separate account in the name of
such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series the Custodian shall pay, out
of the money held for the account of such Series, all original issue or other
taxes required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish, or cause to be
furnished, to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt of an advice from an Authorized Person setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent Account out of the moneys held in the separate
account in the name of the Series the total amount
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specified in the Certificate issued pursuant to the foregoing paragraph 4 of
this Article.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate, Oral Instructions, or
Written Instructions or which results in an overdraft in the separate account of
such Series for some other reason, or if the Fund is for any other reason
indebted to the Custodian with respect to a Series, (except a borrowing for
investment or for temporary or emergency purposes using Securities as collateral
pursuant to a separate agreement and subject to the provisions of paragraph 2 of
this Article), such overdraft or indebtedness shall be deemed to be a loan made
by the Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to the Federal Funds Rate plus 1/2%,
such rate to be adjusted on the effective date of any change in such Federal
Funds Rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in the aggregate amount of such overdrafts and indebtedness as may from
time to time exist in and to any property specifically allocated to such Series
at any time held by it for the benefit of such Series or in which the Fund may
have an interest which is then in the Custodian's possession or control or in
possession or control of any third party acting in the Custodian's behalf. The
Fund authorizes the Custodian, in its sole discretion, at any time to charge any
such overdraft or indebtedness together with interest due thereon against any
money balance of account standing to such Series' credit on the Custodian's
books. In addition, the Fund hereby covenants that on each Business Day on which
either it intends to enter a Reverse Repurchase Agreement and/or otherwise
borrow from a third party, or which next succeeds a Business Day on which at the
close of business the Fund had outstanding a Reverse Repurchase Agreement or
such a borrowing, it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify the Series to which
the same relates, and shall not incur any indebtedness, including pursuant to
any Reverse Repurchase Agreement, not so specified other than from the
Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a
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separate agreement, the Custodian) from which it borrows money for investment or
for temporary or emergency purposes using Securities held by the Custodian
hereunder as collateral for such borrowings, a notice or undertaking in the form
currently employed by any such bank setting forth the amount which such bank
will loan to the Fund against delivery of a stated amount of collateral. The
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to each such borrowing: (a) the Series to which such borrowing relates;
(b) the name of the bank, (c) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promissory note, duly
endorsed by the Fund, or other loan agreement, (d) the time and date, if known,
on which the loan is to be entered into, (e) the date on which the loan becomes
due and payable, (f) the total amount payable to the Fund on the borrowing date,
(g) the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act of
1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing
date specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to specify
in a Certificate the Series, the name of the issuer, the title and number of
shares or the principal amount of any particular Securities to be delivered as
collateral by the Custodian, to any such bank, the Custodian shall not be under
any obligation to deliver any Securities.
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ARTICLE XV
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the performance of its
duties hereunder, and, except as hereinafter provided, neither the Custodian nor
its nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence, bad faith, or willful misconduct or that of its
officers, employees, or agents. The Custodian may, with respect to questions of
law arising hereunder or under any Margin Account Agreement, apply for and
obtain the advice and opinion of counsel to the Fund, at the expense of the
Fund, or of its own counsel, at its own expense, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Notwithstanding the foregoing, the Custodian shall be under no
obligation to inquire into, and shall not be liable for:
(a) The validity (but not the authenticity) of the issue of any
Securities purchased, sold, or written by or for the Fund, the legality of the
purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor, as specified in a Certificate, Oral Instructions, or Written
Instructions;
(b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor, as specified in a
Certificate;
(c) The legality of the declaration or payment of any dividend by the
Fund, as specified in a resolution, Certificate, Oral Instructions, or Written
Instructions;
(d) The legality of any borrowing by the Fund using Securities as
collateral;
(e) The legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that the cash collateral
delivered to it by a broker, dealer, or financial institution or held by it at
any time as a result of such loan of portfolio Securities of the
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Fund is adequate collateral for the Fund against any loss it might sustain as a
result of such loan, except that this subparagraph shall not excuse any
liability the Custodian may have for failing to act in accordance with Article X
hereof or any Certificate, Oral Instructions, or Written Instructions given in
accordance with this Agreement. The Custodian specifically, but not by way of
limitation, shall not be under any duty or obligation periodically to check or
notify the Fund that the amount of such cash collateral held by it for the Fund
is sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund, except that this
sub-paragraph shall not excuse any liability the Custodian may have for failing
to establish, maintain, make deposits to or withdrawals from such accounts in
accordance with this Agreement. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer, futures commission merchant
or Clearing Member makes payment to the Fund of any variation margin payment or
similar payment which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see that any payment
received by the Custodian from any broker, dealer, futures commission merchant
or Clearing Member is the amount the Fund is entitled to receive, or to notify
the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives such money directly or by the final
crediting of the account representing the Fund's interest at the Book-Entry
System or the Depository.
4. With respect to Securities held in a Depository, except as otherwise
provided in paragraph 5(b) of Article III hereof, the Custodian shall have no
responsibility and shall not be liable for ascertaining or acting upon any
calls, conversions, exchange offers, tenders, interest rate changes or similar
matters relating to such Securities, unless the Custodian shall have actually
received timely notice from the
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Depository in which such Securities are held. In no event shall the Custodian
have any responsibility or liability for the failure of a Depository to collect,
or for the late collection or late crediting by a Depository of any amount
payable upon Securities deposited in a Depository which may mature or be
redeemed, retired, called or otherwise become payable. However, upon receipt of
a Certificate from the Fund of an overdue amount on Securities held in a
Depository the Custodian shall make a claim against the Depository on behalf of
the Fund, except that the Custodian shall not be under any obligation to appear
in, prosecute or defend any action suit or proceeding in respect to any
Securities held by a Depository which in its opinion may involve it in expense
or liability, unless indemnity satisfactory to it against all expense and
liability be furnished as often as may be required, or alternatively, the Fund
shall be subrogated to the rights of the Custodian with respect to such claim
against the Depository should it so request in a Certificate. This paragraph
shall not, however, excuse any failure by the Custodian to act in accordance
with a Certificate, Oral Instructions, or Written Instructions given in
accordance with this Agreement.
5. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount due to the Fund from the Transfer Agent of
the Fund nor to take any action to effect payment or distribution by the
Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after the Custodian has timely
and properly, in accordance with this Agreement, made due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action, but the Custodian
shall have such a duty if the Securities were not in default on the payable date
and the Custodian failed to timely and properly make such demand for payment and
such failure is the reason for the non-receipt of payment.
7. The Custodian may appoint one or more banking institutions as
Sub-Custodian or Sub-Custodians, or as Co-Custodian or Co-Custodians including,
but not limited to, banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in an agreement
executed by the Custodian, the Fund and the appointed institution.
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8. The Custodian agrees to indemnify the Fund against and save the Fund
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of the negligence, bad
faith or willful misconduct of any Sub-Custodian of the Securities and moneys
owned by the Fund, provided such Sub-Custodian is a banking institution located
in a foreign country and appointed by the Custodian pursuant to paragraph 7 of
this Article.
9. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it, for
the account of the Fund and specifically allocated to a Series are such as
properly may be held by the Fund or such Series under the provisions of its then
current prospectus, or (b) to ascertain whether any transactions by the Fund,
whether or not involving the Custodian, are such transactions as may properly be
engaged in by the Fund.
10. The Custodian shall be entitled to receive and the Fund agrees to pay
to the Custodian all reasonable out-of-pocket expenses and such compensation as
may be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge such compensation, and any such expenses with respect to a
Series incurred by the Custodian in the performance of its duties under this
Agreement against any money specifically allocated to such Series. The Custodian
shall also be entitled to charge against any money held by it for the account of
a Series the amount of any loss, damage, liability or expense, including counsel
fees, for which it shall be entitled to reimbursement under the provisions of
this Agreement attributable to, or arising out of, its serving as Custodian for
such Series. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund. Notwithstanding the foregoing or anything else contained
in this Agreement to the contrary, the Custodian shall, prior to effecting any
charge for compensation, expenses, or any overdraft or indebtedness or interest
thereon, submit an invoice therefor to the Fund.
11. The Custodian shall be entitled to rely upon any Certificate, notice
or other instrument in writing, Oral Instructions, or Written Instructions
received by the Custodian and reasonably believed by the Custodian to be
genuine. The Fund agrees to forward to the Custodian a Certificate or facsimile
thereof confirming Oral Instructions or Written Instructions in such manner so
that such Certificate or facsimile thereof is received by the Custodian, whether
by hand delivery, telecopier or other similar device,
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or otherwise, by the close of business of the same day that such Oral
Instructions or Written Instructions are given to the Custodian. The Fund agrees
that the fact that such confirming instructions are not received by the
Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions thereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions or Written Instructions given to the Custodian hereunder
concerning such transactions provided such instructions reasonably appear to
have been received from an Authorized Person.
12. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member. This paragraph shall not excuse any failure by the Custodian to
have acted in accordance with any Margin Agreement it has executed or any
Certificate, Oral Instructions, or Written Instructions given in accordance with
this Agreement.
13. The books and records pertaining to the Fund, as described in Appendix
E hereto, which are in the possession of the Custodian shall be the property of
the Fund. Such books and records shall be prepared and maintained by the
Custodian as required by the Investment Company Act of 1940, as amended, and
other applicable securities laws and rules and regulations. The Fund, or the
Fund's authorized representatives, shall have access to such books and records
during the Custodian's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by the Custodian to
the Fund or the Fund's authorized representative, and the Fund shall reimburse
the Custodian its expenses of providing such copies. Upon reasonable request of
the Fund, the Custodian shall provide in hard copy or on micro-film, whichever
the Custodian elects, any records included in any such delivery which are
maintained by the Custodian on a computer disc, or are similarly maintained, and
the Fund shall reimburse the Custodian for its expenses of providing such hard
copy or micro-film.
14. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
each Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
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15. The Custodian shall furnish upon request annually to the Fund a letter
prepared by the Custodian's accountants with respect to the Custodian's internal
systems and controls in the form generally provided by the Custodian to other
investment companies for which the Custodian acts as custodian.
16. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising out of, or related to, the
Custodian's performance of its obligations under this Agreement, except for any
such liability, claim, loss and demand arising out of the Custodian's own
negligence, bad faith, or willful misconduct or that of its officers, employees,
or agents.
17. Subject to the foregoing provisions of this Agreement, the Custodian
shall deliver and receive Securities, and receipts with respect to such
Securities, and shall make and receive payments only in accordance with the
customs prevailing from time to time among brokers or dealers in such Securities
and, except as may otherwise be provided by this Agreement or as may be in
accordance with such customs, shall make payment for Securities only against
delivery thereof and deliveries of Securities only against payment therefor.
18. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVI
TERMINATION
1. Except as provided in paragraph 3 of this Article, this Agreement
shall continue until terminated by either the Custodian giving to the Fund, or
the Fund giving to the Custodian, a notice in writing specifying the date of
such termination, which date shall be not less than 60 days after the date of
the giving of such notice. In the event such notice or a notice pursuant to
paragraph 3 of this Article is given by the Fund, it shall be accompanied by a
copy of a resolution of the Board of Trustees of the Fund, certified by an
Officer and the Secretary or an Assistant Secretary of the Fund, electing to
terminate this Agreement and designating a successor custodian or custodians,
each of which shall be eligible to serve as a custodian for the securities of a
management investment company under the Investment Company Act of 1940. In the
event such notice is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of the Board
of Trustees
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<PAGE>
of the Fund, certified by the Secretary, the Clerk, any Assistant Secretary or
any Assistant Clerk, designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
3. Notwithstanding the foregoing, the Fund may terminate this Agreement
upon the date specified in a written notice in the event of the "Bankruptcy" of
The Bank of New York. As used in this sub-paragraph, the term "Bankruptcy" shall
mean The Bank of New York's making a general assignment, arrangement or
composition with or for the benefit of its creditors, or instituting or having
instituted against it a proceeding seeking a judgment of insolvency or
bankruptcy or the entry of a order for relief under any applicable bankruptcy
law or any other relief under any bankruptcy or insolvency law or other similar
law affecting creditors' rights, or if a petition is presented for the winding
up or liquidation of the party or a resolution is passed for its winding up or
liquidation, or it seeks, or becomes subject to, the appointment of an
administrator, receiver, trustee, custodian or other similar official for it or
for all or substantially all of its assets or its taking any action in
furtherance or, or indicating its consent to approval of, or acquiescence in,
any of the foregoing.
- 37 -
<PAGE>
ARTICLE XVII
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to and to receive notices
from the Custodian.
2. The parties hereto shall utilize the Terminal Link only for the
purpose of the Fund providing Certificates to the Custodian and the Custodian
providing notices to the Fund and only after the Fund and the Custodian shall
have established access codes and internal safekeeping procedures to safeguard
and protect the confidentiality and availability of such access codes. Each use
of the Terminal Link by the Fund shall constitute a representation and warranty
that at least two such access codes have been utilized and that such procedures
have been established.
3. Each party shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the other party shall not be
responsible for the reliability or availability of any such equipment or
services, except that the Custodian shall not pay any communications costs of
any line leased by the Fund, even if such line is also used by the Custodian.
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, each Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
- 38 -
<PAGE>
6. The Custodian reserves the right to modify the Terminal Link from time
to time without notice to the Fund, except that the Custodian shall give the
Fund notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees not to
modify or attempt to modify the Terminal Link without the Bank's prior written
consent. The Fund acknowledges that the Terminal Link is the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund or the Custodian and whether with or without
the Custodian's consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it utilizes
or the Fund utilizes in connection with the Terminal Link makes any warranties
or representations, express or implied, in fact or in law, including but not
limited to warranties of merchantability and fitness for a particular purpose.
8. Each party will, and will cause its officers and employees to, treat
the user and authorization codes, passwords and authentication keys applicable
to Terminal Link with extreme care. Each party hereby irrevocably authorizes the
other to act in accordance with and rely on Certificates and notices received by
it through the Terminal Link. Each party acknowledges that it is its
responsibility to assure that only its authorized persons use the Terminal Link
on its behalf, and that a party shall not be responsible nor liable for use of
the Terminal Link on its behalf of the other party by unauthorized persons
except that the other party shall be liable for such use thereof by unauthorized
persons who have obtained access thereto as a result of the bad faith or willful
misconduct of such party or any of its officers or employees.
9. Notwithstanding anything else in this Agreement to the contrary,
neither party shall have any liability to the other for any losses, damages,
injuries, claims, costs or expenses arising as a result of a delay, omission or
error in the transmission of a Certificate or notice by use of the Terminal Link
except for money damages for those suffered as the result of the negligence, bad
faith or willfull misconduct of such party or its officers, employees or agents
in an amount not exceeding for any incident $100,000, provided, however, that a
party shall have no liability under this Section 9 if the other party fails to
comply with the provisions of Section 11.
10. Without limiting the generality of the foregoing, it is hereby agreed
that in no event shall either party or any manufacturer or supplier of its
computer equipment, software or services relating to the Terminal Link be
responsible for
- 39 -
<PAGE>
any special, indirect, incidental or consequential damages which the other party
may incur or experience by reason of its use of the Terminal Link even if such
party, manufacturer or supplier has been advised of the possibility of such
damages, nor with respect to the use of the Terminal Link shall either party or
any such manufacturer or supplier be liable for acts of God, or with respect to
the following to the extent beyond such person's reasonable control: machine or
computer breakdown or malfunction, interruption or malfunction of communication
facilities, labor difficulties or any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
12. Each party shall, as soon as practicable after its receipt of a
Certificate or of any notice transmitted by the Terminal Link, verify to the
other party by use of the Terminal Link its receipt of such Certificate or
notice, and in the absence of such verification a party to whom a Certificate or
notice is sent shall not be liable for any failure to act in accordance with
such Certificate or notice, and the sending party may not claim that such
Certificate or notice was received by the other.
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Authorized Persons. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that any such present
Authorized Person ceases to be an Authorized Person or in the event that other
or additional Authorized Persons are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be entitled to rely and to
act upon Oral Instructions, Written Instructions, or signatures of the present
Authorized Persons as set forth in the last delivered Certificate to the extent
provided by this Agreement.
- 40 -
<PAGE>
2. Annexed hereto as Appendix B is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers of the Fund. The Fund agrees to furnish to
the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Fund, or in the event that other or
additional Officers are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be entitled to rely and to act upon the
signatures of the Officers as set forth in the last delivered Certificate to the
extent provided by this Agreement.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, other than any Certificate or
Written Instructions, shall be sufficiently given if addressed to the Custodian
and mailed or delivered to it at its offices at 90 Washington Street, New York,
New York 10286, or at such other place as the Custodian may from time to time
designate in writing.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
5. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund,
except that Appendices A and B may be amended unilaterally by the Fund without
such an approving resolution.
6. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian or The Bank of New York without the
written consent of the Fund, authorized or approved by a resolution of the
Fund's Board of Trustees. For purposes of this paragraph, no merger,
consolidation, or amalgamation of the Custodian, The Bank of New York, or the
Fund shall be deemed to constitute an assignment of this Agreement.
7. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
- 41 -
<PAGE>
8. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
9. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
- 42 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
ACTIVE ASSETS MONEY TRUST
[SEAL] By:_______________________
Attest:
_______________________
THE BANK OF NEW YORK
[SEAL] By:_______________________
Attest:
_______________________
- 43 -
<PAGE>
APPENDIX A
I, , President and I, , of
, a Massachusetts business trust (the "Fund"), do hereby certify
that:
The following individuals have been duly authorized by the Board of
Trustees of the Fund in conformity with the Fund's Declaration of Trust and
By-Laws to give Oral Instructions and Written Instructions on behalf of the
Fund, except that those persons designated as being an "Officer of DWTC" shall
be an Authorized Person only for purposes of Articles XII and XIII. The
signatures set forth opposite their respective names are their true and correct
signatures:
Name Position Signature
_________________ ________________ _________________
<PAGE>
APPENDIX B
I, , President and I, , of
, a Massachusetts business trust (the "Fund"), do hereby certify
that:
The following individuals for whom a position other than "Officer of DWTC"
is specified serve in the following positions with the Fund and each has been
duly elected or appointed by the Board of Trustees of the Fund to each such
position and qualified therefor in conformity with the Fund's Declaration of
Trust and By-Laws. With respect to the following individuals for whom a position
of "Officer of DWTC" is specified, each such individual has been designated by a
resolution of the Board of Trustees of the Fund to be an Officer for purposes of
the Fund's Custody Agreement with The Bank of New York, but only for purposes of
Articles XII and XIII thereof and a certified copy of such resolution is
attached hereto. The signatures of each individual below set forth opposite
their respective names are their true and correct signatures:
Name Position Signature
____________________ ___________________ _________________
<PAGE>
APPENDIX C
The undersigned, hereby certifies that he
or she is the duly elected and acting of
(the "Fund"), further certifies that the following resolutions were adopted by
the Board of Trustees of the Fund at a meeting duly held on , 1991, at
which a quorum at all times present and that such resolutions have not been
modified or rescinded and are in full force an effect as of the date hereof.
RESOLVED, that The Bank New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 1991 (the
"Custody Agreement") is authorized and instructed on a continuous and ongoing
basis to act in accordance with, and to rely on instructions by the Fund to the
Custodian communicated by a Terminal Link as defined in the Custody Agreement.
RESOLVED, that the Fund shall establish access codes and grant use of such
access codes only to officers of the Fund as defined in the Custody Agreement,
and shall establish internal safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes.
RESOLVED, that Officers of the Fund as defined in the Custody Agreement
shall, following the establishment of such access codes and such internal
safekeeping procedures, advise the Custodian that the same have been established
by delivering a Certificate, as defined in the Custody Agreement, and the
Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand in the seal of ,
as of the day of , 1991.
----------------------------
<PAGE>
APPENDIX D
I, Richard P. Lando, an Assistant Vice President with THE BANK OF NEW YORK
do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
APPENDIX E
The following books and records pertaining to Fund shall be prepared and
maintained by the Custodian and shall be the property of the Fund:
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he
or she is the duly elected and acting of ,
a Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to deposit in the Book-Entry System, as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Book-Entry System to the extent possible in
connection with its performance thereunder, including, without limitation,
in connection with settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
, as of the day of , 1991.
--------------------------
,
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he
or she is the duly elected and acting of ,
a Massachusetts business Trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it receives a Certificate,
as defined in the Custody Agreement, to the contrary to deposit in The
Depository Trust Company ("DTC"), as a "Depository" as defined in the
Custody Agreement, all securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated, and to utilize
DTC to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases
and sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ,
as of the day of , 1991.
--------------------------
,
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he
or she is the duly elected and acting of ,
a Massachusetts business Trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it receives a Certificate,
as defined in the Custody Agreement, to the contrary to deposit in the
Participants Trust Company as a Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated, and to utilize the
Participants Trust Company to the extent possible in connection with its
performance thereunder, including, without limitation, in connection with
settlements of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ,
as of the day of , 1991.
--------------------------
,
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he
or she is the duly elected and acting of ,
a Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it receives a Certificate,
as defined in the Custody Agreement, to the contrary, to accept, utilize
and act with respect to Clearing Member confirmations for Options and
transaction in Options, regardless of the Series to which the same are
specifically allocated, as such terms are defined in the Custody Agreement,
as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ,
as of the day of , 1991.
--------------------------
,
[SEAL]
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a Delaware
corporation (herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which InterCapital is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice);
(ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts
and other records required under the Investment Company Act of 1940, as
amended (the "Act"), the notification to the Fund and InterCapital of
available funds for investment, the reconciliation of account information and
balances among the Fund's custodian, transfer agent and dividend disbursing
agent and InterCapital, and the calculation of the net asset value of the
Fund's shares; (iii) provide the Fund with the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Fund; (iv) oversee the
performance of administrative and professional services rendered to the Fund
by others, including its custodian, transfer agent and dividend disbursing
agent, as well as accounting, auditing and other services; (v) provide the
Fund with adequate general office space and facilities; (vi) assist in the
preparation and the printing of the periodic updating of the Fund's
registration statement and prospectus (and, in the case of an open-end Fund,
the statement of additional information), tax returns, proxy statements, and
reports to its shareholders and the Securities and Exchange Commission; and
(vii) monitor the compliance of the Fund's investment policies and
restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to
perform administrative services hereunder, it shall notify DWS in writing. If
DWS is willing to render such services, it shall notify InterCapital in
writing, whereupon such other Fund shall become a Fund as defined herein.
2. DWS 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 DWS shall be deemed to include officers
of DWS and persons employed or otherwise retained by DWS (including officers
and employees of InterCapital, with the consent of InterCapital) to furnish
services, statistical and other factual data, information with respect to
technical and scientific developments, and such other information, advice and
assistance as DWS may desire. DWS shall maintain each Fund's records and
books of account (other than those maintained by the Fund's transfer agent,
registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, DWS
shall surrender to InterCapital or to the Fund such of the books and records
so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as DWS may
reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation
or request of the Board of Directors/Trustees of the Fund.
1
<PAGE>
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule
B to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be
calculated by applying 1/365th of the annual rate or rates to the Fund's or
the Series' daily net assets determined as of the close of business on that
day or the last previous business day and (ii) in the case of a closed-end
Fund, compensation under this Agreement shall be calculated by applying the
annual rate or rates to the Fund's average weekly net assets determined as of
the close of the last business day of each week. 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 on Schedule B. Subject to the provisions
of paragraph 5 hereof, payment of DWS' compensation for the preceding month
shall be made as promptly as possible after completion of the computations
contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof
imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, or, in the case of
InterCapital Income Securities Inc. or Dean Witter Variable Investment Series
or any Series thereof, the expense limitation specified in the Fund's
Investment Management Agreement, the fee payable hereunder shall be reduced
on a pro rata basis in the same proportion as the fee payable by the Fund
under the Investment Management Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative 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 employed by
DWS, and such clerical help and bookkeeping services as DWS shall reasonably
require in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activities on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, DWS 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 DWS or for any losses sustained by the Fund or its investors. It
is understood that, subject to the terms and conditions of the Investment
Management Agreement between each Fund and InterCapital, InterCapital shall
retain ultimate responsibility for all services to be performed hereunder by
DWS. DWS shall indemnify InterCapital and hold it harmless from any liability
that InterCapital may incur arising out of any act or failure to act by DWS
in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person
controlling, controlled by or under common control with DWS, and that DWS and
any person controlling, controlled by or under common control with DWS may
have an interest in the Fund. It is also understood that DWS and any
affiliated persons thereof or any persons controlling, controlled by or under
common control with DWS have and may have advisory, management,
administration service or other contracts with other organizations and
persons, and may have other interests and businesses, and further may
purchase, sell or trade any securities or commodities for their own accounts
or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1995, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party
on 30 days' written notice delivered to the other party. In the event that
the Investment Management Agreement between any Fund and InterCapital is
terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
2
<PAGE>
11. This Agreement may be assigned by either party with the written
consent of the other party.
12. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By:
-------------------------------
Attest:
- -------------------------------
DEAN WITTER SERVICES COMPANY INC.
By:
-------------------------------
Attest:
- -------------------------------
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AT APRIL 17, 1995
OPEN-END FUNDS
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. Dean Witter American Value Fund
6. Dean Witter Balanced Growth Fund
7. Dean Witter Balanced Income Fund
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter California Tax-Free Income Fund
10. Dean Witter Capital Growth Securities
11. Dean Witter Convertible Securities Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter Diversified Income Trust
14. Dean Witter Dividend Growth Securities Inc.
15. Dean Witter European Growth Fund Inc.
16. Dean Witter Federal Securities Trust
17. Dean Witter Global Asset Allocation Fund
18. Dean Witter Global Dividend Growth Securities
19. Dean Witter Global Short-Term Income Fund Inc.
20. Dean Witter Global Utilities Fund
21. Dean Witter Health Sciences Trust
22. Dean Witter High Income Securities
23. Dean Witter High Yield Securities Inc.
24. Dean Witter Intermediate Income Securities
25. Dean Witter International Small Cap Fund
26. Dean Witter Limited Term Municipal Trust
27. Dean Witter Liquid Asset Fund Inc.
28. Dean Witter Managed Assets Trust
29. Dean Witter Mid-Cap Growth Fund
30. Dean Witter Multi-State Municipal Series Trust
31. Dean Witter National Municipal Trust
32. Dean Witter Natural Resource Development Securities Inc.
33. Dean Witter New York Municipal Money Market Trust
34. Dean Witter New York Tax-Free Income Fund
35. Dean Witter Pacific Growth Fund Inc.
36. Dean Witter Precious Metals and Minerals Trust
37. Dean Witter Premier Income Trust
38. Dean Witter Retirement Series
39. Dean Witter Select Dimensions Series
40. Dean Witter Select Municipal Reinvestment Fund
41. Dean Witter Short-Term Bond Fund
42. Dean Witter Short-Term U.S. Treasury Trust
43. Dean Witter Strategist Fund
44. Dean Witter Tax-Exempt Securities Trust
45. Dean Witter Tax-Free Daily Income Trust
46. Dean Witter U.S. Government Money Market Trust
47. Dean Witter U.S. Government Securities Trust
48. Dean Witter Utilities Fund
49. Dean Witter Value-Added Market Series
50. Dean Witter Variable Investment Series
51. Dean Witter World Wide Income Trust
52. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
53. High Income Advantage Trust
54. High Income Advantage Trust II
55. High Income Advantage Trust III
56. InterCapital Income Securities Inc.
57. Dean Witter Government Income Trust
58. InterCapital Insured Municipal Bond Trust
59. InterCapital Insured Municipal Trust
60. InterCapital Insured Municipal Income Trust
61. InterCapital California Insured Municipal Income Trust
62. InterCapital Insured Municipal Securities
63. InterCapital Insured California Municipal Securities
64. InterCapital Quality Municipal Investment Trust
65. InterCapital Quality Municipal Income Trust
66. InterCapital Quality Municipal Securities
67. InterCapital California Quality Municipal Securities
68. InterCapital New York Quality Municipal Securities
4
<PAGE>
SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995
Monthly compensation calculated daily by applying the following annual rates
to a fund's net assets:
FIXED INCOME FUNDS
Dean Witter Balanced Income Fund 0.60% to the net assets.
Dean Witter California Tax-Free 0.055% of the portion of daily net
Income Fund assets not exceeding $500 million;
0.0525% of the portion exceeding $500
million but not exceeding $750 million;
0.050% of the portion exceeding $750
million but not exceeding $1 billion;
and 0.0475% of the portion of the daily
net assets exceeding $1 billion.
Dean Witter Convertible Securities 0.060% of the portion of the daily net
Securities Trust assets not exceeding $750 million; .055%
of the portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.050% of the portion of the
daily net assets of the exceeding $1
billion but not exceeding $1.5 billion;
0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.045% of the
portion of the daily net assets
exceeding $2 billion but not exceeding
$3 billion; and 0.0425% of the portion
of the daily net assets exceeding $3
billion.
Dean Witter Diversified 0.040% of the net assets.
Income Trust
Dean Witter Federal Securities Trust 0.055% of the portion of the daily net
assets not exceeding $1 billion; 0.0525%
of the portion of the daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; 0.050% of the portion of
the daily net assets exceeding $1.5
billion but not exceeding $2 billion;
0.0475% of the portion of the daily net
assets exceeding $2 billion but not
exceeding $2.5 billion; 0.045% of the
portion of daily net assets exceeding
$2.5 billion but not exceeding $5
billion; 0.0425% of the portion of the
daily net assets exceeding $5 billion
but not exceeding $7.5 billion; 0.040%
of the portion of the daily net assets
exceeding $7.5 billion but not exceeding
$10 billion; 0.0375% of the portion of
the daily net assets exceeding $10
billion but not exceeding $12.5 billion;
and 0.035% of the portion of the daily
net assets exceeding $12.5 billion.
Dean Witter Global Short-Term 0.055% of the portion of the daily net
Income Fund assets not exceeding $500 million; and
0.050% of the portion of the daily net
assets exceeding $500 million.
Dean Witter High Income 0.050% to the net assets.
Securities
Dean Witter High Yield 0.050% of the portion of the daily net
Securities Inc. assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of
B-1
<PAGE>
the daily net assets exceeding $1
billion but not exceeding $2 billion;
0.0325% of the portion of the daily net
assets exceeding $2 billion but not
exceeding $3 billion; and 0.030% of the
portion of daily net assets exceeding $3
billion.
Dean Witter Intermediate 0.060% of the portion of the daily net
Income Securities assets not exceeding $500 million;
0.050% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.040% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.030% of the portion of
the daily net assets exceeding $1
billion.
Dean Witter Limited Term 0.050% to the net assets.
Municipal Trust
Dean Witter Multi-State Municipal 0.035% to the net assets.
Series Trust (10)
Dean Witter National 0.035% to the net assets.
Municipal Trust
Dean Witter New York Tax-Free 0.055% to the net assets not exceeding
Income Fund $500 million and 0.0525% of the net
assets exceeding $500 million.
Dean Witter Premier 0.050% to the net assets.
Income Trust
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities Trust
Dean Witter Select Dimensions 0.65% to the net assets.
Series-North American Government
Securities Portfolio
Dean Witter Short-Term 0.070% to the net assets.
Bond Fund
Dean Witter Short-Term U.S. 0.035% to the net assets.
Treasury Trust
Dean Witter Tax-Exempt 0.050% of the portion of the daily net
Securities Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.035% of the portion of
the daily net assets exceeding $1
billion but not exceeding $1.25 billion;
.0325% of the portion of the daily net
assets exceeding $1.25 billion.
Dean Witter U.S. Government 0.050% of the portion of such daily net
Securities Trust assets not exceeding $1 billion; 0.0475%
of the portion of such daily net assets
exceeding $1 billion but not exceeding
$1.5 billion; 0.045% of the portion of
such daily net assets exceeding $1.5
billion but not exceeding $2 billion;
0.0425% of the portion of such daily net
assets exceeding $2 billion but not
exceeding $2.5 billion; 0.040% of that
portion of such daily net assets
exceeding $2.5 billion but not exceeding
$5 billion; 0.0375% of that portion
B-2
<PAGE>
of such daily net assets exceeding $5
billion but not exceeding $7.5 billion;
0.035% of that portion of such daily net
assets exceeding $7.5 billion but not
exceeding $10 billion; 0.0325% of that
portion of such daily net assets
exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of that
portion of such daily net assets
exceeding $12.5 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-High Yield
Dean Witter Variable Investment 0.050% to the net assets.
Series-Quality Income
Dean Witter World Wide Income 0.075% of the daily net assets up to
Trust $250 million; 0.060% of the portion of
the daily net assets exceeding $250
million but not exceeding $500 million;
0.050% of the portion of the daily net
assets of the exceeding $500 million but
not exceeding $750 milliion; 0.040% of
the portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; and 0.030% of the daily net
assets exceeding $1 billion.
Dean Witter Select Municipal 0.050% to the net assets.
Reinvestment Fund
EQUITY FUNDS
Dean Witter American Value 0.0625% of the portion of the daily net
Fund assets not exceeding $250 million and
0.050% of the portion of the daily net
assets exceeding $250 million.
Dean Witter Balanced Growth Fund 0.60% to the net assets.
Dean Witter Capital Growth 0.065% to the portion of daily net
Securities assets not exceeding $500 million;
0.055% of the portion exceeding $500
million but not exceeding $1 billion;
0.050% of the portion exceeding $1
billion but not exceeding $1.5 billion;
and 0.0475% of the net assets exceeding
$1.5 billion.
Dean Witter Developing Growth 0.050% of the portion of daily net
Securities Trust assets not exceeding $500 million; and
0.0475% of the portion of daily net
assets exceeding $500 million.
Dean Witter Dividend Growth 0.0625% of the portion of the daily net
Securities Inc. assets not exceeding $250 million;
0.050% of the portion exceeding $250
million but not exceeding $1 billion;
0.0475% of the portion of daily net
assets exceeding $1 billion but not
exceeding $2 billion; 0.045% of the
portion of daily net assets exceeding $2
billion but not exceeding $3 billion;
0.0425% of the portion of daily net
assets exceeding $3 billion but not
exceeding $4 billion; 0.040% of the
portion of daily net assets exceeding $4
billion but not exceeding $5 billion;
0.0375% of the portion of the daily net
assets exceeding $5 billion but not
exceeding $6 billion; 0.035% of the
portion of the daily net assets
exceeding $6 billion but not exceeding
$8 billion; and 0.0325% of the portion
of the daily net assets exceeding $8
billion.
B-3
<PAGE>
Dean Witter European Growth 0.060% of the portion of daily net
Fund Inc. assets not exceeding $500 million; and
0.057% of the portion of daily net
assets exceeding $500 million.
Dean Witter Global Asset Allocation 1.0% to the net assets.
Fund
Dean Witter Global Dividend 0.075% to the net assets.
Growth Securities
Dean Witter Global Utilities Fund 0.065% to the net assets.
Dean Witter Health Sciences Trust 0.10% to the net assets.
Dean Witter International 0.075% to the net assets.
Small Cap Fund
Dean Witter Managed Assets Trust 0.060% to the daily net assets not
exceeding $500 million and 0.055% to the
daily net assets exceeding $500 million.
Dean Witter Mid-Cap Growth Fund 0.75% to the net assets.
Dean Witter Natural Resource 0.0625% of the portion of the daily net
Development Securities Inc. assets not exceeding $250 million and
0.050% of the portion of the daily net
assets exceeding $250 million.
Dean Witter Pacific Growth 0.060% of the portion of daily net
Fund Inc. assets not exceeding $1 billion; and
0.057% of the portion of daily net
assets exceeding $1 billion.
Dean Witter Precious Metals 0.080% to the net assets.
and Minerals Trust
Dean Witter Retirement Series 0.085% to the net assets.
American Value
Dean Witter Retirement Series 0.085% to the net assets.
Capital Growth
Dean Witter Retirement Series 0.075% to the net assets.
Dividend Growth
Dean Witter Retirement Series 0.10% to the net assets.
Global Equity
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income Securities
Dean Witter Retirement Series 0.050% to the net assets.
Liquid Asset
Dean Witter Retirement Series 0.085% to the net assets.
Strategist
Dean Witter Retirement Series 0.050% to the net assets.
U.S. Government Money Market
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Dean Witter Retirement Series 0.075% to the net assets.
Utilities
B-4
<PAGE>
Dean Witter Retirement Series 0.050% to the net assets.
Value Added
Dean Witter Select Dimensions Series-
American Value Portfolio 0.625% to the net assets.
Balanced Portfolio 0.75% to the net assets.
Core Equity Portfolio 0.85% to the net assets.
Developing Growth Portfolio 0.50% to the net assets.
Diversified Income Portfolio 0.40% to the net assets.
Dividend Growth Portfolio 0.625% to the net assets.
Emerging Markets Portfolio 1.25% to the net assets.
Global Equity Portfolio 1.0% to the net assets.
Utilities Portfolio 0.65% to the net assets.
Value-Added Market Portfolio 0.50% to the net assets.
Dean Witter Strategist Fund 0.060% of the portion of daily net
assets not exceeding $500 million;
0.055% of the portion of the daily net
assets exceeding $500 million but not
exceeding $1 billion; and 0.050% of the
portion of the daily net assets
exceeding $1 billion.
Dean Witter Utilities Fund 0.065% of the portion of daily net
assets not exceeding $500 million;
0.055% of the portion exceeding $500
million but not exceeding $1 billion;
0.0525% of the portion exceeding $1
billion but not exceeding $1.5 billion;
0.050% of the portion exceeding $1.5
billion but not exceeding $2.5 billion;
0.0475% of the portion exceeding $2.5
billion but not exceeding $3.5 billion;
0.045% of the portion of the daily net
assets exceeding $3.5 but not exceeding
$5 billion; and 0.0425% of the portion
of daily net assets exceeding $5
billion.
Dean Witter Value-Added Market 0.050% of the portion of daily net
Series assets not exceeding $500 million; and
0.45% of the portion of daily net assets
exceeding $500 million.
Dean Witter Variable Investment 0.065% to the net assets.
Series-Capital Growth
Dean Witter Variable Investment 0.0625% of the portion of daily net
Series-Dividend Growth assets not exceeding $500 million; and
0.050% of the portion of daily net
assets exceeding $500 million.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Equity
Dean Witter Variable Investment 0.060% to the net assets.
Series-European Growth
Dean Witter Variable Investment 0.050% to the net assets.
Series-Managed
Dean Witter Variable Investment 0.065% of the portion of daily net
Series-Utilities assets exceeding $500 million and 0.055%
of the portion of daily net assets
exceeding $500 million.
Dean Witter World Wide 0.055% of the portion of daily net
Investment Trust assets not exceeding $500 million; and
0.05225% of the portion of daily net
assets exceeding $500 million.
B-5
<PAGE>
MONEY MARKET FUNDS
Active Assets Account (4) 0.050% of the portion of the daily net
assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter California Tax-Free 0.050% of the portion of the daily net
Daily Income Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter Liquid Asset 0.050% of the portion of the daily net
Fund Inc. assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.35 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.35 billion but not
exceeding $1.75 billion; 0.030% of the
portion of the daily net assets
exceeding $1.75 billion but not
exceeding $2.15 billion; 0.0275% of the
portion of the daily net assets
exceeding $2.15 billion but not
exceeding $2.5 billion; 0.025% of the
portion of the daily net assets
exceeding $2.5 billion but not exceeding
$15 billion; 0.0249% of the portion of
the daily net assets exceeding $15
billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily
net assets exceeding $17.5 billion.
Dean Witter New York Municipal 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 bil-
B-6
<PAGE>
lion but not exceeding $2.5 billion;
0.0275% of the portion of the daily net
assets exceeding $2.5 billion but not
exceeding $3 billion; and 0.025% of the
portion of the daily net assets
exceeding $3 billion.
Dean Witter Retirement Series 0.050% of the net assets.
Liquid Assets
Dean Witter Retirement Series 0.050% of the net assets.
U.S. Government Money Market
Dean Witter Select Dimensions Series- 0.50% to the net assets.
Money Market Portfolio
Dean Witter Tax-Free Daily 0.050% of the portion of the daily net
Income Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter U.S. Government 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million;
0.0425% of the portion of the daily net
assets exceeding $500 million but not
exceeding $750 million; 0.0375% of the
portion of the daily net assets
exceeding $750 million but not exceeding
$1 billion; 0.035% of the portion of the
daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets
exceeding $1.5 billion but not exceeding
$2 billion; 0.030% of the portion of the
daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of
the daily net assets exceeding $3
billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Money Market
Monthly compensation calculated weekly by applying the following annual
rates to the weekly net assets.
CLOSED-END FUNDS
Dean Witter Government Income 0.060% to the average weekly net
Trust assets.
High Income Advantage Trust 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of average weekly net assets
exceeding
B-7
<PAGE>
$750 million and not exceeding $1
billion; and 0.030% of the portion of
average weekly net assets exceeding $1
billion.
High Income Advantage Trust II 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of average weekly net assets
exceeding $750 million and not exceeding
$1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1
billion.
High Income Advantage Trust III 0.075% of the portion of the average
weekly net assets not exceeding $250
million; 0.060% of the portion of
average weekly net assets exceeding $250
million and not exceeding $500 million;
0.050% of the portion of average weekly
net assets exceeding $500 million and
not exceeding $750 million; 0.040% of
the portion of the average weekly net
assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the
portion of average weekly net assets
exceeding $1 billion.
InterCapital Income Securities Inc. 0.050% to the average weekly net assets.
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% to the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Securities
InterCapital California Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Securities
InterCapital Insured California 0.035% to the average weekly net assets.
Municipal Securities
B-8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 17 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated August 4, 1995, relating to the
financial statements and financial highlights of Active Assets Money Trust,
which appears in such Prospectus. We also consent to the references to us under
the headings "Independent Accountants" and "Experts" in the Statement of
Additional Information which constitutes part of this Registration Statement and
to the reference to us under the heading "Financial Highlights" in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 29, 1995
<PAGE>
ACTIVE ASSETS MONEY TRUST
Exhibit 16: Schedule for computation of each performance
quotation provided in the Statement of Additional Information.
(16) The Trust's current yield for the seven days ending
June 30, 1995
(A-B) x 365/N
(1.001077 -1) x 365/7 = 5.62%
The Trust's effective annualized yield for the seven days ending
June 30, 1995
365/N
A - 1
365/7
1.001077 - 1 = 5.77%
A = Value of a share of the Trust at end of period.
A = Value of a share of the Trust at beginning of period.
N = Number of days in the period.
CALCULATION
(1.001077 - 1) x 365/7
= 5.62%
((1.001077) x 52.14285714 - 1)
= 5.77%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
ACTIVE ASSETS MONEY TRUST
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 5,705,239,089
<INVESTMENTS-AT-VALUE> 5,705,239,089
<RECEIVABLES> 5,737,326
<ASSETS-OTHER> 552,791
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,711,529,206
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,618,208
<TOTAL-LIABILITIES> 2,618,208
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,708,906,497
<SHARES-COMMON-STOCK> 5,708,906,497
<SHARES-COMMON-PRIOR> 4,144,067,961
<ACCUMULATED-NII-CURRENT> 4,501
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,708,910,998
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 279,899,061
<OTHER-INCOME> 0
<EXPENSES-NET> 24,272,368
<NET-INVESTMENT-INCOME> 255,626,693
<REALIZED-GAINS-CURRENT> 92,427
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 255,719,120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (255,627,418)
<DISTRIBUTIONS-OF-GAINS> (92,427)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,295,444,660
<NUMBER-OF-SHARES-REDEEMED> (19,985,829,657)
<SHARES-REINVESTED> 255,223,533
<NET-CHANGE-IN-ASSETS> 1,564,837,811
<ACCUMULATED-NII-PRIOR> 5,226
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15,638,717
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24,272,368
<AVERAGE-NET-ASSETS> 4,955,487,315
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.051
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.051)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
