<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1996
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. 18 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 19 /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, 1996, WITH THE SECURITIES AND EXCHANGE
COMMISSION ON AUGUST 7, 1996.
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 22,
1996
<PAGE>
TRUSTEES AND OFFICERS
ACTIVE ASSETS MONEY TRUST
ACTIVE ASSETS TAX-FREE TRUST
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
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
Financial Statements -- June 30, 1996/6 General Information/A-9
Report of Independent Accountants/11 Voting Rights/A-9
Purchase and Redemption of Shares/A-1 Custodian/A-10
Purchase of Shares/A-1 Shareholder Inquiries/A-10
Purchase of Shares by Non-Participants in
Active Assets Program/A-2
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
Active Assets Program/A-4
</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 22, 1996, 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 22, 1996.
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-eight investment companies and other portfolios
with assets of approximately $84.6 billion at June 30, 1996 (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 Trust through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-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, 1996.
<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.............................. 0.30%
12b-1 Fees................................... 0.10%
Other Expenses............................... 0.07%
------
Total Trust Operating Expenses............... 0.47%
------
------
</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 $15 $26 $59
</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 unqualified report of
independent accountants which are contained in the Prospectus commencing on page
6.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income......... 0.052 0.051 0.029 0.029 0.045 0.068 0.081 0.083 0.066 0.058
Less dividends from net
investment income............ (0.052) (0.051) (0.029) (0.029) (0.045) (0.068) (0.081) (0.083) (0.066) (0.058)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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+...... 5.33% 5.23% 2.99% 2.95% 4.58% 7.05% 8.43% 8.57% 6.83% 5.90%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................... 0.47% 0.49% 0.51% 0.51% 0.54% 0.52% 0.50% 0.52% 0.54% 0.54%
Net investment income....... 5.21% 5.16% 2.95% 2.90% 4.45% 6.80% 8.10% 8.33% 6.63% 5.78%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $7,170 $5,709 $4,144 $3,604 $3,628 $3,688 $3,454 $3,021 $2,519 $2,299
</TABLE>
- ------------
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $7,160,110,336).......... $7,160,110,336
Cash....................................... 7,044
Interest receivable........................ 13,060,782
Prepaid expenses and other assets.......... 98,115
--------------
TOTAL ASSETS....................... 7,173,276,277
--------------
LIABILITIES:
Payable for:
Investment management fee................ 1,641,346
Plan of distribution fee................. 557,085
Shares of beneficial interest
repurchased............................ 1,953
Accrued expenses and other payables........ 932,603
--------------
TOTAL LIABILITIES.................. 3,132,987
--------------
NET ASSETS:
Paid-in-capital............................ 7,170,136,722
Accumulated undistributed net investment
income................................... 6,568
--------------
NET ASSETS......................... $7,170,143,290
--------------
--------------
NET ASSET VALUE PER SHARE, 7,170,136,722
shares outstanding (unlimited shares
authorized of $.01 par value).............
$1.00
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME.............................. $ 376,507,894
-------------
EXPENSES
Investment management fee.................. 19,802,633
Plan of distribution fee................... 6,495,409
Transfer agent fees and expenses........... 3,112,938
Registration fees.......................... 1,274,800
Custodian fees............................. 278,338
Shareholder reports and notices............ 205,750
Professional fees.......................... 58,233
Trustees' fees and expenses................ 17,465
Other...................................... 68,425
-------------
TOTAL EXPENSES......................... 31,313,991
-------------
NET INVESTMENT INCOME AND
NET INCREASE......................... $ 345,193,903
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................................................... $ 345,193,903 $ 255,626,693
Net realized gain.......................................................... -- 92,427
------------------ ------------------
Net increase........................................................... 345,193,903 255,719,120
------------------ ------------------
Dividends and distributions from:
Net investment income...................................................... (345,191,836) (255,627,418)
Net realized gain.......................................................... -- (92,427)
------------------ ------------------
Total.................................................................. (345,191,836) (255,719,845)
------------------ ------------------
Net increase from transactions in shares of beneficial interest............ 1,461,230,225 1,564,838,536
------------------ ------------------
Total increase......................................................... 1,461,232,292 1,564,837,811
NET ASSETS:
Beginning of period.......................................................... 5,708,910,998 4,144,073,187
------------------ ------------------
END OF PERIOD (including undistributed net investment income of $6,568 and
$4,501, respectively)....................................................... $ 7,170,143,290 $ 5,708,910,998
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
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's
investment objective is high current income, preservation of capital and
liquidity. The Trust was organized as a Massachusetts business trust on March
30, 1981 and commenced operations on July 7, 1981.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 the 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
7
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (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. For the year ended June 30, 1996, 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, 1996 aggregated $23,586,285,233 and $22,455,376,131,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $236,000.
The Trust has 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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,238. At June 30, 1996, the Trust had an accrued pension liability of
$48,883 which is 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, 1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
Shares sold.................................................................... 26,645,844,853 21,295,444,660
Shares issued in reinvestment of dividends..................................... 344,415,057 255,223,533
------------------ ------------------
26,990,259,910 21,550,668,193
Shares repurchased............................................................. (25,529,029,685) (19,985,829,657)
------------------ ------------------
Net increase in shares outstanding............................................. 1,461,230,225 1,564,838,536
------------------ ------------------
------------------ ------------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
COMMERCIAL PAPER (76.6%)
AUTOMOTIVE - FINANCE (6.5%)
$ 121,150 Ford Motor Credit Co.
07/12/96 - 10/11/96...... 5.36 - 5.53 % $ 120,550,912
345,650 General Motors Acceptance
Corp. 07/02/96 -
01/17/97................. 5.07 - 5.67 341,847,614
---------------
462,398,526
---------------
BANK HOLDING COMPANIES (13.7%)
180,300 BankAmerica Corp. 07/30/96
- 11/18/96............... 5.23 - 5.48 178,351,622
150,000 Chase Manhattan Corp.
09/10/96 - 12/30/96...... 5.44 - 5.47 147,566,778
20,000 Corestates Capital Corp.
07/16/96................. 5.15 19,952,306
105,000 Fleet Financial Group,
Inc. 07/08/96 -
08/08/96................. 5.37 - 5.39 104,683,350
70,000 Mellon Financial Co.
08/07/96................. 5.38 69,595,808
320,000 Morgan (J.P.) & Co. Inc.
08/01/96 - 12/20/96...... 5.00 - 5.62 316,608,272
30,000 NationsBank Corp.
09/27/96................. 5.46 29,600,250
67,850 PNC Funding Corp. 08/12/96
- 09/17/96............... 5.47 - 5.49 67,237,469
50,000 Republic New York Corp.
07/12/96................. 5.05 49,910,805
---------------
983,506,660
---------------
BANKS - COMMERCIAL (27.6%)
359,400 Abbey National North
America Corp.
08/09/96 - 12/26/96...... 5.00 - 5.65 352,786,118
237,890 ABN-AMRO North America
Finance Inc. 08/23/96 -
12/20/96................. 5.00 - 5.50 234,578,741
240,000 Canadian Imperial Holdings
Inc.
07/08/96 - 09/13/96...... 5.35 - 5.52 237,777,503
33,475 Commerzbank U.S. Finance
Inc. 08/13/96............ 5.36 33,253,646
295,000 Deutsche Bank Financial
Inc. 07/19/96 -
12/31/96................. 4.97 - 5.62 291,696,197
182,850 Dresdner U.S. Finance Inc.
07/22/96 - 12/09/96...... 5.05 - 5.56 180,394,941
95,000 International Nederlanden
(U.S.) Funding Corp.
07/09/96................. 5.34 94,860,931
145,000 National Australia Funding
(DE) Inc. 08/05/96 -
11/07/96................. 5.14 - 5.50 143,524,856
30,000 SBC Finance (DE) Inc.
12/27/96................. 5.64 29,173,433
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
$ 210,000 Toronto-Dominion Holdings
USA Inc. 07/11/96 -
12/02/96................. 5.33 - 5.50% $ 207,738,700
153,000 Union Commercial Funding
Corp.
07/23/96 - 11/05/96...... 5.39 - 5.49 151,106,144
19,800 WestPac Capital Corp.
12/05/96................. 5.66 19,319,025
---------------
1,976,210,235
---------------
BROKERAGE (4.3%)
230,800 Goldman Sachs Group L.P.
07/15/96 - 09/24/96...... 5.34 - 5.45 229,380,311
80,000 Morgan Stanley Group, Inc.
07/09/96 - 07/18/96...... 5.33 - 5.34 79,816,319
---------------
309,196,630
---------------
CANADIAN GOVERNMENT (0.4%)
25,000 British Columbia (Province
of) 10/28/96............. 5.17 24,579,861
---------------
CHEMICALS (0.3%)
24,000 Monsanto Co. 08/22/96..... 5.37 23,809,920
---------------
FINANCE - COMMERCIAL (2.5%)
181,050 CIT Group Holdings, Inc.
07/12/96 - 08/28/96...... 5.31 - 5.43 180,250,119
---------------
FINANCE - CONSUMER (5.5%)
305,950 American Express Credit
Corp.
07/03/96 - 08/30/96...... 5.13 - 5.77 305,051,328
65,000 Avco Financial Services
Inc. 07/08/96 -
07/31/96................. 5.39 - 5.42 64,809,716
27,000 Norwest Financial Inc.
07/15/96................. 5.35 26,936,640
---------------
396,797,684
---------------
FINANCE - DIVERSIFIED (7.6%)
199,000 Associates Corp. of
North America
07/24/96 - 10/09/96...... 5.06 - 5.54 197,537,075
354,690 General Electric Capital
Corp.
07/10/96 - 02/18/97...... 5.14 - 5.82 349,674,892
---------------
547,211,967
---------------
FINANCE - EQUIPMENT (0.9%)
66,150 Deere (John) Capital Corp.
07/19/96 - 07/29/96...... 5.34 - 5.38 65,887,828
---------------
FOOD & BEVERAGES (0.6%)
40,000 Coca-Cola Co. 07/25/96.... 5.32 39,848,333
---------------
INDUSTRIALS (0.2%)
10,950 Motorola Inc. 08/12/96.... 5.41 10,878,132
---------------
</TABLE>
9
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
OFFICE EQUIPMENT (2.7%)
$ 75,000 Hewlett-Packard Co.
08/14/96 - 09/30/96...... 5.26 - 5.45% $ 74,207,650
90,000 IBM Credit Corp.
08/19/96................. 5.42 89,315,325
30,000 Xerox Credit Corp.
07/29/96................. 5.34 29,868,000
---------------
193,390,975
---------------
RETAIL (3.4%)
247,800 Sears Roebuck Acceptance
Corp. 07/11/96 -
10/22/96................. 5.36 - 5.54 245,639,669
---------------
TELEPHONES (0.4%)
30,000 Ameritech Corp. 07/30/96.. 5.33 29,864,892
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST
$5,489,471,431)......................... 5,489,471,431
---------------
SHORT-TERM BANK NOTES (12.8%)
60,000 Bank of New York 08/23/96
- 10/04/96............... 4.97 - 5.38 60,000,000
259,500 F.C.C. National Bank
07/03/96 - 09/12/96...... 5.11 - 5.43 259,500,000
55,000 First National Bank of
Boston 07/31/96 -
08/09/96................. 5.00 - 5.22 55,000,000
50,000 First National Bank of
Chicago 11/29/96......... 5.45 50,000,000
354,000 First Union National Bank
07/01/96 - 10/30/96...... 5.00 - 5.47 354,000,000
45,000 La Salle National Bank
08/26/96................. 5.37 45,000,000
95,000 NationsBank, N.A. 07/17/96
- 08/01/96............... 5.35 - 5.48 95,000,000
---------------
TOTAL SHORT-TERM BANK NOTES (AMORTIZED
COST $918,500,000)...................... 918,500,000
---------------
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (5.2%)
$ 65,000 Federal Home Loan Banks
07/10/96 - 01/31/97...... 5.15 - 5.53% $ 64,293,638
195,000 Federal National Mortgage
Assoc. 08/29/96 -
10/10/96................. 5.25 - 5.42 192,878,818
115,000 U.S. Treasury Bills
07/25/96 - 03/06/97...... 5.14 - 5.71 112,374,654
---------------
TOTAL U.S. GOVERNMENT & AGENCIES
OBLIGATIONS
(AMORTIZED COST $369,547,110)........... 369,547,110
---------------
CERTIFICATES OF DEPOSIT (3.1%)
45,000 Chase Manhattan Bank (USA)
09/20/96................. 5.40 45,000,000
180,000 Union Bank 09/12/96 -
11/19/96................. 5.45 - 5.55 180,000,000
---------------
TOTAL CERTIFICATES OF DEPOSIT (AMORTIZED
COST $225,000,000)...................... 225,000,000
---------------
BANKERS' ACCEPTANCES (2.2%)
33,000 Chase Manhattan Bank
09/09/96 - 11/26/96...... 5.45 - 5.55 32,433,600
42,000 Chemical Bank
07/30/96 - 08/19/96...... 5.32 - 5.33 41,722,407
62,500 Corestates Bank, N.A.
08/08/96 - 11/08/96...... 5.37 - 5.41 61,806,731
10,000 First Bank, N.A.
10/11/96................. 5.43 9,847,177
12,000 Morgan Guaranty Tr. Co. of
NY 10/30/96.............. 5.46 11,781,880
---------------
TOTAL BANKERS' ACCEPTANCES (AMORTIZED
COST $157,591,795)...................... 157,591,795
---------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (AMORTIZED COST
$7,160,110,336) (A)........................ 99.9 % 7,160,110,336
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................ 0.1 10,032,954
------ --------------
NET ASSETS................................... 100.0 % $7,170,143,290
------ --------------
------ --------------
<FN>
- -------------
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
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, 1996, 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, 1996 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 7, 1996
11
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
Financial Statements -- June 30, 1996/8 General Information/A-9
Report of Independent Accountants/17 Voting Rights/A-9
Purchase and Redemption of Shares/A-1 Custodian/A-10
Purchase of Shares/A-1 Shareholder Inquiries/A-10
Purchase of Shares by Non-Participants in
the Active Assets Program/A-2
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
the Active Assets Program/A-4
</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 22, 1996, 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 22, 1996.
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-eight investment companies with assets under
management of approximately $84.6 billion at June 30, 1996 (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 Trust through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-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, 1996.
<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......................... 0.41%
12b-1 Fees.............................. 0.10%
Other Expenses.......................... 0.04%
-------
Total Trust Operating Expenses.......... 0.55%
-------
-------
</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 $68
</TABLE>
Dean Witter charges an annual Active Assets program participation fee of $80
($100 for corporate participants). Shareholders of the Trust who are not program
participants will not be charged an Active Assets program fee.
The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Trust may be greater or
less than those shown.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see
pages A-5 and A-6 in the Appendix to this Prospectus.
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 unqualified report of
independent accountants which are contained in this Prospectus commencing on
page 8.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income......... 0.031 0.030 0.020 0.021 0.033 0.047 0.054 0.056 0.043 0.039
Less dividends from net
investment income............ (0.031) (0.030) (0.020) (0.021) (0.033) (0.047) (0.054) (0.056) (0.043) (0.039)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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+...... 3.12% 3.09% 2.01% 2.15% 3.38% 4.84% 5.57% 5.77% 4.45% 4.00%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................... 0.55% 0.56% 0.56% 0.57% 0.59% 0.60% 0.56% 0.58% 0.57% 0.58%
Net investment income....... 3.08% 3.05% 1.98% 2.13% 3.30% 4.71% 5.44% 5.66% 4.35% 3.89%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $1,542 $1,499 $1,416 $1,355 $1,304 $1,342 $1,174 $1,112 $1,034 $1,045
</TABLE>
- -------------
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
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.
Certain lease obligations have not developed the depth of marketability
associated with more conventional municipal obligations, and, as a result, may
be considered illiquid securities. To determine whether or not the Trust will
consider such securities to be illiquid (the Trust may not invest more than ten
percent of its net assets in illiquid securi-
5
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ties), 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 certain money market instruments with
Dean Witter. In addition, the Trust may incur brokerage commissions on
transactions conducted through Dean Witter.
6
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Trust as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Trust, as defined in the Act. For purposes
of the following limitations: (a) an "issuer" of a security is the entity whose
assets and revenues are committed to the payment of interest and principal on
that particular security provided that the guarantee of a security will be
considered a separate security and, provided further, that a guarantee of a
security shall not be deemed to be a security issued by the guarantor if the
value of all securities issued or guaranteed by the guarantor and owned by the
Fund does not exceed 10% of the value of the total assets of the Fund; (b) a
"taxable security" is any security the interest on which is subject to federal
income tax; and (c) all percentage limitations apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations or amount of total or net assets
does not require elimination of any security from the portfolio.
The Trust may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than obligations issued, or guaranteed
by, the United States Government, its agencies or instrumentalities);
2. Purchase more than 10% of all outstanding taxable debt securities of
any one issuer;
3. Invest more than 25% of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities or to investments in bank
obligations;
4. Invest more than 5% of the value of its total assets in taxable
securities of issuers having a record, together with predecessors, of less
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $1,643,339,150).......... $1,643,339,150
Cash....................................... 2,322,982
Interest receivable........................ 7,426,219
Receivable from affiliate.................. 2,849,017
Prepaid expenses and other assets.......... 50,662
--------------
TOTAL ASSETS....................... 1,655,988,030
--------------
LIABILITIES:
Payable for:
Investments purchased.................... 113,338,770
Investment management fee................ 505,007
Plan of distribution fee................. 123,020
Accrued expenses and other payables........ 134,104
--------------
TOTAL LIABILITIES.................. 114,100,901
--------------
NET ASSETS:
Paid-in-capital............................ 1,541,888,167
Accumulated undistributed net investment
income................................... 1,091
Accumulated net realized loss.............. (2,129)
--------------
NET ASSETS......................... $1,541,887,129
--------------
--------------
NET ASSET VALUE PER SHARE, 1,541,888,167
shares outstanding (unlimited shares
authorized of $.01 par value).............
$1.00
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................... $58,069,820
-----------
EXPENSES
Investment management fee................... 6,571,351
Plan of distribution fee.................... 1,560,662
Transfer agent fees and expenses............ 355,031
Registration fees........................... 145,672
Shareholder reports and notices............. 62,080
Professional fees........................... 54,523
Trustees' fees and expenses................. 17,381
Custodian fees.............................. 79,140
Other....................................... 23,721
-----------
TOTAL EXPENSES BEFORE EXPENSE OFFSET.... 8,869,561
LESS: EXPENSE OFFSET.................... (72,184)
-----------
TOTAL EXPENSES AFTER EXPENSE OFFSET..... 8,797,377
-----------
NET INVESTMENT INCOME................... 49,272,443
NET REALIZED GAIN........................... 67,452
-----------
NET INCREASE............................ $49,339,895
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income........................................................ $ 49,272,443 $ 45,957,679
Net realized gain............................................................ 67,452 --
----------------- -----------------
Net increase............................................................. 49,339,895 45,957,679
Dividends from net investment income......................................... (49,272,477) (45,956,910)
Net increase from transactions in shares of beneficial interest.............. 42,488,823 83,029,307
----------------- -----------------
Total increase........................................................... 42,556,241 83,030,076
NET ASSETS:
Beginning of period............................................................ 1,499,330,888 1,416,300,812
----------------- -----------------
END OF PERIOD (including undistributed net investment income of $1,091 and
$1,125, respectively)......................................................... $ 1,541,887,129 $ 1,499,330,888
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
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's
investment objective is to provide a high level of daily income which is exempt
from federal income tax consistent with stability of principal and liquidity.
The Trust was organized as a Massachusetts business trust on March 30, 1981 and
commenced operations on July 7, 1981.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 the 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 daily
net assets not exceeding $500 million; 0.425% to the portion of daily net assets
exceeding $500 million but not exceeding $750 million; 0.375% to the portion of
daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to
the portion of daily net assets exceeding $1 billion but not exceeding $1.5
billion; 0.325% to the portion of daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2
billion but not exceeding $2.5 billion; 0.275% to the portion of daily net
assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the
portion of 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
9
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
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. For the year ended June 30, 1996, 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, 1996 aggregated $3,045,910,870 and $2,956,347,425,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $24,000.
The Trust has 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, 1996,
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,238. At June 30, 1996, the Trust had an accrued pension liability of
$48,883 which is 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, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 5,666,091,760 5,690,475,533
Shares issued in reinvestment of dividends....................................... 49,272,477 45,956,910
----------------- -----------------
5,715,364,237 5,736,432,443
Shares repurchased............................................................... (5,672,875,414) (5,653,403,136)
----------------- -----------------
Net increase in shares outstanding............................................... 42,488,823 83,029,307
----------------- -----------------
----------------- -----------------
</TABLE>
6. FEDERAL INCOME TAX STATUS--During the year ended June 30, 1996, the Trust
utilized all of its net capital loss carrryovers of approximately $59,000.
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (77.4%)
ARIZONA
$ 6,500 Maricopa County, Arizona Public Service Co 1994 Ser F....... 3.70% 07/01/96 $ 6,500,000
ARKANSAS
20,000 Crossett, Georgia Pacific Corp Ser 1984..................... 3.25 07/08/96 20,000,000
CALIFORNIA
California Pollution Control Financing Authority,
14,000 Pacific Gas & Electric Co Ser 1996 F...................... 3.40 07/01/96 14,000,000
5,900 Southern California Edison Co 1986 Ser A.................. 3.45 07/01/96 5,900,000
25,000 Riverside County, 1996-97 Ser B TRANs (WI).................. 3.00 07/08/96 25,000,000
COLORADO
11,500 Colorado Health Facilities Authority, Kaiser Permanente 1994
Ser A..................................................... 3.40 07/08/96 11,500,000
CONNECTICUT
38,000 Connecticut Development Authority, Connecticut Light & Power
Co
1993 A Ser................................................ 3.35 07/01/96 38,000,000
Connecticut Special Assessment,
30,000 Unemployment Compensation 1993 Ser C (FGIC)............... 3.90 07/01/96 30,000,000
30,000 Unemployment Compensation 1993 Ser C (FGIC)............... 3.90 07/01/97 30,000,000
FLORIDA
15,000 Dade County, Water & Sewer Ser 1994 (FGIC).................. 3.30 07/08/96 15,000,000
Dade County Industrial Development Authority,
22,700 Dolphins Stadium Ser 1985 B & C........................... 3.35 07/08/96 22,700,000
7,700 Florida Power & Light Co Ser 1993......................... 3.60 07/01/96 7,700,000
11,200 Jacksonville Health Facilities Authority, Baptist Medical
Center Ser 1993 (MBIA).................................... 3.65 07/01/96 11,200,000
5,000 Orange County Housing Finance Authority, Single Family Ser
1996 B (AMT).............................................. 3.65 04/01/97 5,000,000
32,600 Volusia County Health Facilities Authority, Pooled Ser 1985
(FGIC).................................................... 3.70 07/08/96 32,600,000
GEORGIA
10,000 Albany-Dougherty County Hospital Authority, Phoebe-Putney
Memorial Hospital Ser 1991 (AMBAC)........................ 3.40 07/08/96 10,000,000
16,102 Georgia Municipal Association, Pool Ser 1990 COPs (MBIA).... 3.30 07/08/96 16,101,957
HAWAII
Hawaii Department of Budget & Finance,
5,000 Kaiser Permanente Semiannual Tender Ser 1984 B............ 3.20 09/01/96 5,000,000
22,100 Queens Medical Center Ser 1985 B (FGIC)................... 3.10 07/08/96 22,100,000
IDAHO
Idaho Health Facilities Authority,
20,000 Pooled Ser 1985........................................... 3.40 07/08/96 20,000,000
12,910 St Luke's Regional Medical Center Ser 1995................ 3.65 07/01/96 12,910,000
ILLINOIS
Chicago,
24,900 Chicago O'Hare Int'l Airport 2nd Lien 1994 Ser B (AMT).... 3.50 07/08/96 24,900,000
25,000 General Obligation Tender Notes Ser 1995 A................ 3.65 10/31/96 25,000,000
</TABLE>
11
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
$ 5,900 Illinois Development Finance Authority, Palos Community
Hospital Ser 1994......................................... 3.30% 07/08/96 $ 5,900,000
Illinois Health Facilities Authority,
9,000 Gottlieb Health Resources Inc Ser 1990.................... 3.35 07/08/96 9,000,000
19,600 Highland Park Hospital Ser 1991 A (FGIC).................. 3.40 07/08/96 19,600,000
22,500 Lutheran General Health Care System Ser 1985 B............ 3.60 07/01/96 22,500,000
12,100 Northwestern Memorial Hospital Ser 1995................... 3.65 07/01/96 12,100,000
10,000 Parkside Development Corp Ser 1991........................ 3.45 07/08/96 10,000,000
3,640 Illinois Housing Development Authority, Homeowner Mtg 1995
Subser E-2 (AMT).......................................... 3.75 09/03/96 3,640,000
INDIANA
17,000 Indiana Hospital Equipment Financing Authority, Ser 1985
(MBIA).................................................... 3.55 07/08/96 17,000,000
Petersburg,
8,400 Indianapolis Power & Light Co Ser 1995 B (AMBAC).......... 3.30 07/08/96 8,400,000
5,000 Indianapolis Power & Light Co Ser 1994 A (AMT)............ 3.35 07/08/96 5,000,000
5,000 Purdue University, Student Fee Ser 1995 K................... 3.30 07/08/96 5,000,000
KENTUCKY
7,000 Jamestown, Union Underwear Co 1983 Ser A.................... 3.50 07/08/96 7,000,000
LOUISIANA
30,000 Louisiana Offshore Terminal Authority, LOOP Inc 1992 Ser
A......................................................... 3.40 07/08/96 30,000,000
23,200 New Orleans Aviation Board, Ser 1993 B (MBIA)............... 3.25 07/08/96 23,200,000
MASSACHUSETTS
15,000 Massachusetts Bay Transportation Authority, 1984 Ser A...... 3.05 09/01/96 15,000,000
29,500 Massachusetts Health & Educational Facilities Authority,
Harvard University Ser 1985 I............................. 3.05 07/08/96 29,500,000
6,100 Massachusetts Municipal Wholesale Electric Company, Power
Supply 1994 Ser C......................................... 3.05 07/08/96 6,100,000
14,800 Massachusetts Port Authority, Refg Ser 1995 A............... 3.50 07/01/96 14,800,000
MICHIGAN
3,000 Delta County Economic Development Corporation, Mead-Escanaba
Paper Co Ser 1985 E....................................... 3.60 07/01/96 3,000,000
MINNESOTA
2,200 Beltrami County, Environmental Northwood Panelboard Co Ser
1991...................................................... 3.60 07/01/96 2,200,000
8,500 Minneapolis & St Paul Housing & Redevelopment Authority,
Childrens Health Care Ser 1995 B (CGIC)................... 3.75 07/01/96 8,500,000
10,500 University of Minnesota Regents, Ser 1985 F................. 3.25 08/01/96 10,500,000
MISSISSIPPI
7,000 Jackson County, Chevron USA Inc Ser 1993.................... 3.55 07/01/96 7,000,000
5,500 Mississippi Business Finance Corporation, Mississippi Power
Co (AMT).................................................. 3.75 07/01/96 5,500,000
MISSOURI
20,000 Missouri Health & Educational Facilities Authority, Sisters
of Mercy Health System St Louis Inc Ser 1989 A............ 3.35 07/01/96 20,000,000
NEBRASKA
Nebraska Higher Education Loan Program Inc,
10,000 1985 Ser E (MBIA)......................................... 3.40 07/08/96 10,000,000
8,600 1986 Ser C (AMT).......................................... 3.50 07/08/96 8,600,000
NEW HAMPSHIRE
2,500 New Hampshire Higher Educational & Health Facilities
Authority, Dartmouth Education Loan Corp Ser 1993 (AMT)... 3.90 06/01/97 2,500,000
</TABLE>
12
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
NEW JERSEY
$ 11,000 New Jersey Economic Development Authority, New Jersey
Natural Gas Co Ser 1995 A (AMBAC)......................... 3.50% 07/01/96 $ 11,000,000
8,000 New Jersey Turnpike Authority, Ser 1991 D (FGIC)............ 3.00 07/08/96 8,000,000
6,400 Union County Industrial Pollution Control Financing
Authority, Exxon Corp Ser 1994............................ 2.90 07/01/96 6,400,000
NEW MEXICO
39,200 Albuquerque, Airport Sub Lien Ser 1995 (AMBAC).............. 3.30 07/08/96 39,200,000
NEW YORK
14,800 New York Local Government Assistance Corporation, Ser 1995
B......................................................... 3.10 07/08/96 14,800,000
1,000 St Lawrence County Industrial Development Agency, Reynolds
Metals Co Ser 1995 (AMT).................................. 3.35 07/08/96 1,000,000
NORTH CAROLINA
9,400 Craven County Industrial Facilities & Pollution Control
Financing Authority, Craven County Wood Energy Ltd 1989
Ser C (AMT)............................................... 3.75 07/01/96 9,400,000
9,800 Durham, Ser 1993 A COPs..................................... 3.20 07/08/96 9,800,000
26,985 North Carolina Medical Care Commission, Duke University
Hospital Ser 1985 B & C................................... 3.25 07/08/96 26,985,000
21,700 Person County Industrial Facilities & Pollution Control
Financing Authority, Carolina Power & Light Co Ser 1992
A......................................................... 3.25 07/08/96 21,700,000
OHIO
1,300 Dayton, Emery Air Freight Co 1988 Ser C..................... 3.70 07/01/96 1,300,000
5,600 Ohio Air Quality Development Authority, Cincinnati Gas &
Electric Co Ser A......................................... 3.50 07/01/96 5,600,000
12,000 Ohio Housing Financing Agency, Residential Mtg 1996 Ser A-3
(AMT)..................................................... 3.40 03/03/97 12,000,000
OKLAHOMA
Oklahoma Water Resources Board,
18,750 State Loan Prog Ser 1994 A................................ 3.25 09/01/96 18,750,000
10,000 State Loan Prog Ser 1995.................................. 3.10 09/03/96 10,000,000
PENNSYLVANIA
10,000 Allegheny County Hospital Development Authority, Health
Education & Research Corp Ser 1988 B...................... 3.30 07/08/96 10,000,000
10,000 Beaver County Industrial Development Authority, Toledo
Edison Co 1992 Ser E...................................... 3.65 07/05/96 10,000,000
6,800 Delaware County Industrial Development Authority, United
Parcel Service of America Inc Ser 1995.................... 3.60 07/01/96 6,800,000
10,500 Pennsylvania Energy Development Authority, Clarion Co Piney
Creek Ser A (AMT)......................................... 3.55 07/08/96 10,500,000
Pennsylvania Higher Education Facilities Authority,
7,000 Temple University Ser 1984-1.............................. 3.60 07/08/96 7,000,000
5,000 Thomas Jefferson University Ser 1992 C.................... 3.25 08/26/96 5,000,000
10,000 Philadelphia Hospitals & Higher Educational Facilities
Authority, Children's Hospital of Philadelphia 1996 Ser
A......................................................... 3.60 07/01/96 10,000,000
8,300 Washington County Authority, Pooled Ser 1985 A-1 Subser B... 3.25 07/08/96 8,300,000
SOUTH CAROLINA
5,905 York County, Saluda River Electric Coop Inc Ser 1984 E-2
(NRU-CFC Gtd)............................................. 3.10 08/15/96 5,905,000
TENNESSEE
7,704 Clarksville Public Building Authority Ser 1990 (MBIA)....... 3.30 07/08/96 7,704,000
7,900 Memphis, Airport Refg Ser 1995 B............................ 3.50 07/08/96 7,900,000
20,000 Volunteer State Student Funding, Ser A-3 (AMT).............. 3.60 07/08/96 20,000,000
</TABLE>
13
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
TEXAS
$ 8,400 Gulf Coast Waste Disposal Authority, Amoco Oil Co Ser
1992...................................................... 3.50% 07/01/96 $ 8,400,000
28,000 Harris County, Toll Road Unlimited Tax Sub Lien Ser 1994 B &
C......................................................... 3.40 07/08/96 28,000,000
10,000 Hockley County Industrial Development Corporation, Amoco Oil
Co Ser 1985............................................... 3.60 11/01/96 10,000,000
6,500 Sabine River Authority, Texas Utilities Co Ser 1996 A
(AMBAC)................................................... 3.60 07/01/96 6,500,000
15,000 Texas, Veterans' Housing Assistance Fund I Ser 1995......... 3.30 07/08/96 15,000,000
UTAH
25,000 Intermountain Power Agency, 1985 Ser E...................... 3.35 09/15/96 25,000,000
VIRGINIA
15,000 Virginia Housing Development Authority, 1995 Subser D STEM
IV........................................................ 3.35 07/16/96 15,000,000
WASHINGTON
5,800 Seattle, Municipal Light & Power Ser 1993................... 3.40 07/08/96 5,800,000
WISCONSIN
9,500 Brokaw, Wausau Paper Mills Co Ser 1995 (AMT)................ 3.60 07/08/96 9,500,000
10,000 Wisconsin Health Facilities Authority, Franciscan Health
Care Inc Ser 1985 A-1..................................... 3.45 07/08/96 10,000,000
WYOMING
10,200 Lincoln County, Exxon Corp Ser 1987 A (AMT)................. 3.70 07/01/96 10,200,000
8,250 Sublette County, Exxon Corp Ser 1987 A (AMT)................ 3.65 07/01/96 8,250,000
4,100 Sweetwater County, PacifiCorp Ser 1994 (AMBAC).............. 3.70 07/01/96 4,100,000
---------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS
(AMORTIZED COST $1,193,445,957).................................................... 1,193,445,957
---------------
</TABLE>
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
ON DATE
COUPON MATURITY OF
RATE DATE PURCHASE
------------ --------- -------
<C> <S> <C> <C> <C> <C>
TAX-EXEMPT COMMERCIAL PAPER (19.7%)
FLORIDA
7,000 Florida Local Government Finance Commission, Ser 1991....... 3.60% 08/28/96 3.60% 7,000,000
8,690 Jacksonville, Florida Power & Light Co Ser 1994............. 3.60 11/15/96 3.60 8,690,000
10,700 Jacksonville Electric Authority, Ser A...................... 3.65 10/24/96 3.65 10,700,000
Palm Beach County Health Facilities Authority,
6,500 Pooled Hospital Ser 1985 (MBIA)........................... 3.55 07/11/96 3.55 6,500,000
5,500 Pooled Hospital Ser 1985 (MBIA)........................... 3.60 07/25/96 3.60 5,500,000
12,425 Sunshine State Governmental Financing Commission, Ser 1994
B......................................................... 3.30 07/30/96 3.30 12,425,000
GEORGIA
10,400 Burke County Development Authority, Oglethorpe Power Corp
Ser 1992 A................................................ 3.55 11/07/96 3.55 10,400,000
8,000 Georgia Municipal Gas Authority, Transco Portfolio 1 Ser
A......................................................... 3.35 08/27/96 3.35 8,000,000
HAWAII
4,000 Hawaii Department of Budget & Finance, Citizens Utilities Co
1988 Ser B (AMT).......................................... 3.70 08/20/96 3.70 4,000,000
INDIANA
10,000 Indianapolis, Citizens Gas & Coke Utility................... 3.55 09/09/96 3.55 10,000,000
MARYLAND
12,000 Baltimore County, Ser 1995 BANs............................. 3.45 09/11/96 3.45 12,000,000
</TABLE>
14
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
PRINCIPAL ON DATE
AMOUNT (IN COUPON MATURITY OF
THOUSANDS) RATE DATE PURCHASE VALUE
- ---------- ------------ --------- ------- ---------------
MASSACHUSETTS
<C> <S> <C> <C> <C> <C>
$ 10,000 Massachusetts Health & Educational Facilities Authority,
Boston University Ser H................................... 3.65% 08/22/96 3.65% $ 10,000,000
Massachusetts Water Resources Authority,
10,000 Ser 1994.................................................. 3.30 07/31/96 3.30 10,000,000
10,000 Ser 1994.................................................. 3.30 08/14/96 3.30 10,000,000
MINNESOTA
10,000 Southern Minnesota Municipal Power Agency, Ser B............ 3.60 10/17/96 3.60 10,000,000
MISSOURI
15,145 Missouri Environmental Improvement & Energy Resources
Authority, Union Electric Co Ser 1985 A................... 3.50 07/15/96 3.50 15,145,000
NEBRASKA
15,000 Nebraska Public Power District, Ser B Notes................. 3.65 09/12/96 3.65 15,000,000
NEW HAMPSHIRE
10,000 New Hampshire Business Finance Authority, New England Power
Co 1990 Ser A (AMT)....................................... 3.80 08/08/96 3.80 10,000,000
NORTH CAROLINA
North Carolina Municipal Power Agency Number 1,
11,510 Catawba Ser A............................................. 3.60 10/11/96 3.60 11,510,000
10,000 Catawba Ser A............................................. 3.60 11/12/96 3.60 10,000,000
SOUTH CAROLINA
South Carolina Public Service Authority,
10,000 Promissory Notes.......................................... 3.60 10/10/96 3.60 10,000,000
10,542 Promissory Notes.......................................... 3.60 10/22/96 3.60 10,542,000
10,000 Promissory Notes.......................................... 3.60 10/29/96 3.60 10,000,000
TEXAS
Houston,
16,000 1993 Ser A................................................ 3.43 07/10/96 3.43 16,000,000
4,000 1993 Ser A................................................ 3.50 10/30/96 3.50 4,000,000
10,900 1993 Ser A................................................ 3.50 10/30/96 3.50 10,900,000
10,000 Houston, Water & Sewer Ser A................................ 3.50 10/23/96 3.50 10,000,000
9,400 San Antonio, Water Ser 1995................................. 3.60 10/18/96 3.60 9,400,000
10,000 Texas Municipal Power Agency................................ 3.50 11/13/96 3.50 10,000,000
WASHINGTON
8,000 Seattle, Municipal Light & Power Ser 1990................... 3.65 10/15/96 3.65 8,000,000
WYOMING
7,500 Converse County, PacifiCorp Ser 1992........................ 3.55 07/31/96 3.55 7,500,000
---------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $303,212,000).................................................................. 303,212,000
---------------
SHORT-TERM MUNICIPAL NOTES (9.5%)
COLORADO
15,000 Colorado, Ser 1996 A TRANs, dtd 07/01/96 (WI)............... 4.50 06/27/97 3.86 15,091,350
IDAHO
23,000 Idaho, Ser 1996 TANs, dtd 07/02/96 (WI)..................... 4.50 06/30/97 3.90 23,132,020
INDIANA
10,000 Indiana Bond Bank Advance Funding Notes Ser 1996 A-2, dtd
02/01/96.................................................. 4.25 01/09/97 3.50 10,038,517
</TABLE>
15
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
PRINCIPAL ON DATE
AMOUNT (IN COUPON MATURITY OF
THOUSANDS) RATE DATE PURCHASE VALUE
- ---------- ------------ --------- ------- ---------------
IOWA
<C> <S> <C> <C> <C> <C>
$ 30,000 Iowa School Corporations, Warrant Certificates Ser 1996-97
(FSA), dtd 06/27/96....................................... 4.75% 06/27/97 3.95% $ 30,229,436
MASSACHUSETTS
15,000 Massachusetts, 1996 Ser A Notes, dtd 06/11/96............... 4.25 06/10/97 3.90 15,047,754
MICHIGAN
Michigan Municipal Bond Authority,
23,000 Ser 1995 B Notes, dtd 07/03/95............................ 4.50 07/03/96 3.80 23,001,694
20,000 Ser 1996 A Notes, dtd 07/03/96 (WI)....................... 4.50 07/03/97 3.90 20,115,400
10,000 Michigan, Notes dtd 02/20/96................................ 4.00 09/30/96 3.00 10,025,022
---------------
TOTAL SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $146,681,193).................................................................. 146,681,193
---------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS (AMORTIZED COST $1,643,339,150) (A)....... 106.6% 1,643,339,150
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.............. (6.6 ) (101,452,021)
----- --------------
NET ASSETS.................................................. 100.0% $1,541,887,129
----- --------------
----- --------------
</TABLE>
- ------------
AMT ALTERNATIVE MINIMUM TAX.
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
TANs Tax Anticipation Notes.
TRANs Tax and Revenue Anticipation Notes.
WI Security purchased on a when issued basis.
+ Rate shown is the rate in effect at June 30, 1996.
* Date in which the principal amount can be
recovered through demand.
(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.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
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, 1996, 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, 1996 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 7, 1996
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended June 30, 1996, the Trust paid to shareholders $0.031 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. The Trust may invest a significant percentage of
its assets in the securities of a single issuer and therefore an investment in
the Trust may be riskier than an investment in other types of money funds.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE TRUST WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
<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/8 Dividends, Distributions and Taxes/A-6
Financial Statements -- June 30, 1996/9 General Information/A-9
Report of Independent Accountants/16 Voting Rights/A-9
Purchase and Redemption of Shares/A-1 Custodian/A-10
Purchase of Shares/A-1 Shareholder Inquiries/A-10
Purchase of Shares by Non-Participants in
the Active Assets Program/A-2
Redemption of Shares/A-3
Redemption of Shares by Non-Participants in
the Active Assets Program/A-4
</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 22, 1996, 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 22, 1996.
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-eight investment companies with assets under
management of approximately $84.6 billion at June 30, 1996 (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 Trust through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a Plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
REPORTS Individual monthly account statements from Dean Witter on the Dean Witter Transaction Statement;
annual and semi-annual Trust financial statements.
- ------------------------------------------------------------------------------------------------------------------------
REDEMPTION For participants in the Active Assets program, shares of the Trust will be redeemed at net asset
OF SHARES value automatically to satisfy debit balances in the Securities Account created by activity therein
or to satisfy amounts owing in the Visa Account resulting from Visa card purchases, cash advances
or checks written against the Visa Account. Non-participants in the Active Assets program should
refer to the discussion appearing at page A-4. It is anticipated that the net asset value will
remain constant at $1.00 per share. Dean Witter has the right to terminate a shareholder's Active
Assets service, in which event all Trust shares held in a shareholder's account will be
involuntarily redeemed. The Trust also reserves the right to reduce the number of shares in all
accounts if the Trustees determine that this is necessary to maintain the constant $1.00 per share
net asset value. See "Purchase and Redemption of Shares" (page A-1).
- ------------------------------------------------------------------------------------------------------------------------
RISKS The Trust invests principally in high quality, short-term fixed-income securities issued or
guaranteed by the state of California and its local governments which are subject to minimal risk
of loss of income and principal. However, the investor is directed to the discussions of "lease
obligations" (page 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
fiscal year ended June 30, 1996.
<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 unqualified report of
independent accountants which are contained in this Prospectus commencing on
page 9.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JUNE 30, NOVEMBER 12, 1991*
------------------------------------------------- THROUGH
1996 1995 1994 1993 JUNE 30, 1992
---------- ---------- ---------- ---------- ----------------------
<S> <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
---------- ---------- ---------- ---------- -------
Net investment income................... 0.028 0.029 0.018 0.018 0.017
Less dividends from net investment
income................................. (0.028) (0.029) (0.018) (0.018) (0.017)
---------- ---------- ---------- ---------- -------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- -------
---------- ---------- ---------- ---------- -------
TOTAL INVESTMENT RETURN+................ 2.82% 2.89% 1.78% 1.84% 1.66%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................. 0.67% 0.67% 0.68% 0.71% 0.56%(2)(3)
Net investment income................. 2.79% 2.86% 1.77% 1.82% 2.42%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $384,218 $313,566 $288,506 $202,149 $170,364
</TABLE>
- -----------------
<TABLE>
<C> <S>
* COMMENCEMENT OF OPERATIONS.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(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>
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.
Certain lease obligations have not developed the depth of marketability
associated with more conventional municipal obligations, and, as a result, may
be considered illiquid securities. To determine whether or not the Trust will
consider such securities to be illiquid (the Trust may not invest more than ten
percent of its net assets in illiquid securities), the Trustees of the Trust
have established guidelines to be utilized by the Trust in determining the
liquidity of a lease obligation. The factors to be considered in making the
determination include: 1) the frequency of trades and quoted prices for the
obligation; 2) the number of dealers willing to purchase or sell the security
and the
5
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
number of other potential purchasers; 3) the willingness of dealers to undertake
to make a market in the security; and 4) the nature of the marketplace trades,
including, the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer. All lease obligations purchased by
the Trust are subject to the creditworthiness standards discussed above for
Municipal Obligations.
The Trust does not generally intend to invest more than 25% of its total
assets in securities of any one governmental unit. The Trust may invest more
than 25% of its total assets in industrial development and pollution control
bonds (two kinds of tax-exempt Municipal Bonds) whether or not the users of
facilities financed by such bonds are in the same industry. In cases where such
users are in the same industry, there will be additional risk to the Trust in
the event of an economic downturn in such industry, which may result generally
in a lowered need for such facilities and a lowered ability of such users to pay
for the use of such facilities.
PORTFOLIO MANAGEMENT
Although the Trust will generally acquire securities for investment with the
intent of holding them to maturity and will not seek profits through short-term
trading, the Trust may dispose of any security prior to its maturity to meet
redemption requests. Securities may also be sold when the Trust's Investment
Manager believes such disposition to be advisable on the basis of a revised
evaluation of the issuer or based upon relevant market considerations. There may
be occasions when, as a result of maturities of portfolio securities or sale of
Trust shares, or in order to meet anticipated redemption requests, the Trust may
hold cash which is not earning income.
The Trust anticipates that the average weighted maturity of the portfolio
will be 90 days or less. The relatively short-term nature of the Trust's
portfolio is expected to result in a lower yield than portfolios comprised of
longer-term tax-exempt securities.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. The interest rates payable on
certain Municipal Bonds and Municipal Notes are not fixed and may fluctuate
based upon changes in market rates. Municipal obligations of this type are
called "variable rate" or "floating rate" obligations. The interest rate payable
on a variable rate obligation is adjusted at predesignated periodic intervals
and on a floating rate obligation, whenever there is a change in the market rate
of interest on which the interest rate payable is based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Trust may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., delivery
and payment can take place a month or more after the date of the transaction.
These securities are subject to market fluctuation and no interest accrues to
the purchaser prior to settlement. At the time the Trust makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on
purchases and sales of short-term municipal obligations, but such transactions
may involve transaction costs in the form of spreads between bid and asked
prices. Pursuant to an order of the Securities and Exchange Commission, the
Trust may effect principal transactions in certain money market instruments with
Dean Witter. In addition, the Trust may incur brokerage commissions on
transactions conducted through Dean Witter.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA TAX-EXEMPT SECURITIES
Because the Trust's investments are concentrated in securities issued by the
State of California or entities within the State, an investment in the Trust may
be riskier than an investment in other types of money funds which do not
similarly concentrate their investments. The Trust will be affected by any
political, economic or regulatory developments affecting the ability of
California issuers to pay interest or repay principal on their
6
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
obligations. Various subsequent developments regarding the California
Constitution and State of California ("State") statutes which limit the taxing
and spending authority of California governmental entities may impair the
ability of California issuers to maintain debt service on their obligations. Of
particular impact are constitutional voter initiatives, which have become common
in recent years. The following information constitutes only a brief summary and
is not intended as a complete description.
California is the most populous state in the nation with a total population
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 12.3% of the
nation's population and 12.9% 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. California is still experiencing some effects of
the recession. Unemployment has remained above the national average since 1990.
Substantial contraction in California's defense related industries, overbuilding
in commercial real estate and consolidation and decline in the State's financial
services industry will likely produce slower overall growth for several years.
Economists predict that the State's economy will experience modest growth in
1996.
These economic difficulties have exacerbated the structural budget imbalance
which has been evident since fiscal year 1985-1986. Since that time, budget
shortfalls have become increasingly more difficult to solve and the State has
recorded General Fund operating deficits in several fiscal years. Many of these
problems have been attributable to the fact that the great population influx has
produced increased demand for education and social services at a far greater
pace than the growth in the State's tax revenues. Despite substantial tax
increases, expenditure reductions and the shift of some expenditure
responsibilities to local government, the budget condition remains problematic.
On August 3, 1995, the Governor signed into law a new $57.5 billion budget
which, among other things, reduces welfare payments and increases education
spending from the previous fiscal year. The fiscal 1995-96 budget calls for
$44.1 billion in revenues and $43.4 billion in spending, an increase of over
3.5% and 4.0%, respectively, from the fiscal 1994-95 budget. Although the
State's budget projects an operating surplus of approximately $600 million, it
continues to rely on federal actions, both to fund programs relating to MediCal
and incarceration costs associated with illegal immigrants and to relieve the
State from federally mandated spending, which are not certain of occurring.
Accordingly, the surplus may not be realized unless the economy outperforms
expectations or spending falls below planned levels.
Because of the State's continuing budget problems, the State's General
Obligation bonds were downgraded in July 1994 from Aa to A1 by Moody's, to A
from A+ by Standard & Poor's, and from AA to A by Fitch Investors Service, Inc.
All three rating agencies expressed uncertainty in the State's ability to
balance its budget by 1996.
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
7
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
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 and, provided further, that a
guarantee of a security shall not be deemed a security issued by the guarantor
if the value of all securities issued or guaranteed by the guarantor and owned
by the Fund does not exceed 10% of the value of the total assets of the Fund;
(b) a "taxable security" is any security the interest on which is subject to
federal income tax; and (c) all percentage limitations apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations does not require elimination of
any security from the portfolio.
The Trust may not:
1. With respect to 75% of its total assets, purchase securities of any
issuer if, immediately thereafter, more than 5% (10% where the security is
the guarantee of a security) of the value of its total assets are in the
securities of any one issuer (other than obligations issued, or guaranteed
by, the United States Government, its agencies or instrumentalities or by
the State of California or its political subdivisions).
2. With respect to 75% of its total assets, purchase more than 10% of
all outstanding taxable debt securities of any one issuer (other than debt
securities issued, or guaranteed as to principal and interest by, the United
States Government, its agencies or instrumentalities).
3. Invest 25% or more of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities or by the State of California
or its political subdivisions, or to domestic bank obligations (including
domestic branches of foreign banks).
The Trust will comply with any investment policies necessitated by rules
governing the pricing of shares of money market funds (see "How Net Asset Value
is Determined" in the Appendix), even though an investment restriction of the
Trust is less restrictive than the related policy.
8
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $430,773,691).............. $ 430,773,691
Cash......................................... 1,222,292
Interest receivable.......................... 2,297,311
Deferred organizational expenses............. 3,486
Prepaid expenses and other assets............ 11,964
-------------
TOTAL ASSETS......................... 434,308,744
-------------
LIABILITIES:
Payable for:
Investments purchased...................... 49,813,510
Investment management fee.................. 147,543
Plan of distribution fee................... 29,509
Shares of beneficial interest
repurchased.............................. 30
Accrued expenses............................. 99,988
-------------
TOTAL LIABILITIES.................... 50,090,580
-------------
NET ASSETS:
Paid-in-capital.............................. 384,229,943
Accumulated undistributed net investment
income..................................... 85
Accumulated net realized loss................ (11,864)
-------------
NET ASSETS........................... $ 384,218,164
-------------
-------------
NET ASSET VALUE PER SHARE, 384,229,943 shares
outstanding (unlimited shares authorized of
$.01 par value).............................
$1.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................... $12,316,979
-----------
EXPENSES
Investment management fee................... 1,781,282
Plan of distribution fee.................... 351,571
Transfer agent fees and expenses............ 73,519
Professional fees........................... 52,993
Shareholder reports and notices............. 36,587
Registration fees........................... 33,292
Trustees' fees and expenses................. 30,508
Custodian fees.............................. 21,790
Organizational expenses..................... 9,264
Other....................................... 7,126
-----------
TOTAL EXPENSES BEFORE EXPENSE OFFSET.... 2,397,932
LESS: EXPENSE OFFSET.................... (21,574)
-----------
TOTAL EXPENSES AFTER EXPENSE OFFSET..... 2,376,358
-----------
NET INVESTMENT INCOME................... 9,940,621
NET REALIZED GAIN........................... 5,093
-----------
NET INCREASE............................ $ 9,945,714
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30,1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................................................... $ 9,940,621 $ 8,592,974
Net realized gain.......................................................... 5,093 --
------------------ ------------------
Net increase........................................................... 9,945,714 8,592,974
Dividends from net investment income....................................... (9,940,586) (8,593,044)
Net increase from transactions in shares of beneficial interest............ 70,646,849 25,060,313
------------------ ------------------
Total increase......................................................... 70,651,977 25,060,243
NET ASSETS:
Beginning of period.......................................................... 313,566,187 288,505,944
------------------ ------------------
END OF PERIOD (including undistributed net investment income of $85 and $50,
respectively)............................................................... $ 384,218,164 $ 313,566,187
------------------ ------------------
------------------ ------------------
</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, 1996
- --------------------------------------------------------------------------------
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's investment objective is to provide a high level of daily income
which is exempt from federal and California income tax consistent with stability
of principal and liquidity. The Trust was organized as a Massachusetts business
trust on July 10, 1991 and commenced operations on November 12, 1991.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 which have been reimbursed for the full amount
thereof. 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 the 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.
10
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
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 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, 1996, 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, 1996 aggregated $903,720,425 and $795,338,000, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $5,800.
The Trust has 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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $14,185. At June 30, 1996, the Trust had an accrued pension liability of
$30,297 which is 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, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 1,301,311,516 1,156,418,032
Shares issued in reinvestment of dividends....................................... 9,940,586 8,593,044
----------------- -----------------
1,311,252,102 1,165,011,076
Shares repurchased............................................................... (1,240,605,253) (1,139,950,763)
----------------- -----------------
Net increase in shares outstanding............................................... 70,646,849 25,060,313
----------------- -----------------
----------------- -----------------
</TABLE>
11
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAX STATUS--At June 30, 1996, the Trust had a capital loss
carryover of approximately $11,800 of which $10,900 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. During the year ended June
30, 1996, the Trust had utilized capital loss carryovers of approximately
$5,100.
7. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
12
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON DEMAND
THOUSANDS) RATE+ DATE* VALUE
- -------------- ------------ --------- -------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE
MUNICIPAL OBLIGATIONS (63.1%)
$ 4,000 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT)..................... 3.30% 07/08/96 $ 4,000,000
11,970 California Alternative Energy Finance Authority, General Electric
Capital Corp-Arroyo Energy Ser 1993 B (AMT).......................... 3.10 07/08/96 11,970,000
California Health Facilities Financing Authority,
2,700 Catholic HealthCare West 1988 Ser A.................................. 3.00 07/08/96 2,700,000
3,800 Childrens Hospital of Orange County Ser 1991 (MBIA).................. 3.00 07/08/96 3,800,000
5,360 Huntington Memorial Hospital Ser 1985................................ 3.15 07/08/96 5,360,000
6,900 Kaiser Permanente Ser 1993 A......................................... 3.00 07/08/96 6,900,000
19,000 Memorial Health Services Ser 1994.................................... 3.00 07/08/96 19,000,000
10,000 St Francis Medical Center 1995 Ser E (MBIA).......................... 3.00 07/08/96 10,000,000
4,570 St. Joseph Health System Ser 1985 B.................................. 3.00 07/01/96 4,570,000
California Housing Finance Agency,
3,000 1995 Ser E (AMT)..................................................... 3.50 08/01/96 3,000,000
5,000 Home Mtg 1996 Ser J (AMT) (WI)....................................... 4.00 07/24/97 5,000,000
California Pollution Control Financing Authority,
2,720 Chevron USA Inc Ser 1983............................................. 4.00 11/15/96 2,727,096
7,300 Chevron USA Inc Ser 1984 B........................................... 3.70 06/16/97 7,306,129
1,750 Noranda-Grey Eagle Mines Inc 1984 Ser B.............................. 3.40 07/08/96 1,750,000
5,000 North County Recycling Center 1991 Ser B............................. 2.80 07/08/96 5,000,000
10,000 Pacific Gas & Electric Co Ser 1996 B (AMT)........................... 3.40 07/08/96 10,000,000
6,700 Pacific Gas & Electric Co Ser 1996 F................................. 3.40 07/01/96 6,700,000
7,800 Stanislaus Inc Ser 1987 (AMT)........................................ 3.70 07/01/96 7,800,000
14,000 California Public Capital Improvements Financing Authority, Pooled Ser
1988 C............................................................... 3.65 09/15/96 14,000,000
California Statewide Communities Development Authority,
5,000 House Ear Institute 1993 Ser A COPs.................................. 3.35 07/01/96 5,000,000
9,000 Kaiser Permanente Ser 1995 COPs...................................... 3.00 07/08/96 9,000,000
5,000 St Joseph Health System Grp COPs..................................... 3.00 07/01/96 5,000,000
10,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1995 C.. 3.10 07/08/96 10,000,000
10,000 Long Beach, Memorial Health Services Ser 1991.......................... 3.00 07/08/96 10,000,000
2,900 Los Angeles, Multi-Family 1985 Ser K................................... 3.10 07/08/96 2,900,000
8,000 Los Angeles County Metropolitan Transportation Authority, Prop C Sales
Tax Refg Ser 1993 A (MBIA)........................................... 3.00 07/08/96 8,000,000
5,000 Northern California Public Power Agency, Geothermal No 3 1996 Ser A
(AMBAC).............................................................. 3.15 07/08/96 5,000,000
4,600 Ontario Redevelopment Agency, Daisy XX Assoc Ltd Ser 1984.............. 2.90 07/08/96 4,600,000
3,900 Redlands, Orange Village Apts 1988 Ser A (AMT)......................... 3.15 07/08/96 3,900,000
10,400 Sacramento County, Administration Center & Courthouse Ser 1990 COPs.... 3.10 07/08/96 10,400,000
6,600 San Jose-Santa Clara Clean Water Financing Authority, Sewer Ser 1995 B
(FGIC)............................................................... 3.15 07/08/96 6,600,000
7,000 Santa Clara County-El Camino Hospital District Hospital Facilities
Authority, Valley Medical Center 1985 Ser A.......................... 3.10 07/08/96 7,000,000
14,800 Southern California Public Power Authority, Transmission 1991 Refg Ser
(AMBAC).............................................................. 3.10 07/08/96 14,800,000
4,315 Tri City Housing Finance Agency, Single Family Ser 1994 (AMT).......... 4.00 07/01/96 4,315,000
4,310 Turlock, Irrigation District Ser 1988 A................................ 3.10 07/08/96 4,310,000
-------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE
MUNICIPAL OBLIGATIONS (AMORTIZED COST $242,408,225)........................................... 242,408,225
-------------
</TABLE>
13
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT (IN COUPON MATURITY ON DATE OF
THOUSANDS) RATE DATE PURCHASE VALUE
- -------------- ------------ --------- ------------- -------------
<C> <S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (32.7%)
$ 6,000 California, Ser 1996...................................... 3.55% 08/22/96 3.55 % $ 6,000,000
California Department of Water Resources,
4,400 Ser I................................................... 3.30 10/10/96 3.30 4,400,000
4,500 Ser I................................................... 3.30 10/30/96 3.30 4,500,000
California Pollution Control Financing Authority,
4,000 Pacific Gas & Electric Co 1988 Ser C.................... 3.30 07/25/96 3.30 4,000,000
4,000 Pacific Gas & Electric Co 1988 Ser C.................... 3.30 08/08/96 3.30 4,000,000
4,000 Pacific Gas & Electric Co 1988 Ser C.................... 3.30 08/15/96 3.30 4,000,000
2,100 Southern California Edison Co Ser 1985 B................ 3.05 08/13/96 3.05 2,100,000
3,000 Southern California Edison Co Ser 1985 A................ 3.50 08/13/96 3.50 3,000,000
3,500 Southern California Edison Co Ser 1985 A................ 3.30 10/08/96 3.30 3,500,000
2,900 Southern California Edison Co Ser 1985 A................ 3.40 10/08/96 3.40 2,900,000
5,000 Thermal Energy Dev Ptnrsp Ser A (AMT)................... 3.65 08/23/96 3.65 5,000,000
5,000 Chula Vista, San Diego Gas & Electric Co Ser 1992 C
(AMT)................................................... 3.55 08/29/96 3.55 5,000,000
5,000 Delmar Race Track Authority, 1993 BANs.................... 3.35 08/15/96 3.35 5,000,000
East Bay Municipal Utility District,
5,500 Water................................................... 3.40 08/27/96 3.40 5,500,000
3,500 Water................................................... 3.50 08/27/96 3.50 3,500,000
4,000 Long Beach Harbor Department, Ser A (AMT)................. 3.35 07/12/96 3.35 4,000,000
Los Angeles Department of Water & Power,
4,000 Electric................................................ 3.55 07/31/96 3.55 4,000,000
5,600 Electric................................................ 3.45 08/21/96 3.45 5,600,000
4,500 Metropolitan Water District of Southern California, Ser
1991.................................................... 3.45 08/26/96 3.45 4,500,000
6,000 Ser 1995 B.............................................. 3.40 09/19/96 3.40 6,000,000
5,000 Ser 1995 B.............................................. 3.40 09/24/96 3.40 5,000,000
Sacramento Municipal Utility District,
3,000 Ser I................................................... 3.35 07/30/96 3.35 3,000,000
4,000 Ser I................................................... 3.30 09/25/96 3.30 4,000,000
San Diego,
7,500 San Diego Gas & Electric Co Ser 1995 B.................. 3.50 08/06/96 3.50 7,500,000
4,050 San Diego Gas & Electric Co Ser 1995 A.................. 3.50 10/24/96 3.50 4,050,000
West & Central Basin Financing Authority,
3,000 West Basin Municipal Water District TRANs............... 3.05 08/07/96 3.05 3,000,000
4,000 West Basin Municipal Water District TRANs............... 3.50 08/19/96 3.50 4,000,000
PUERTO RICO
4,000 Puerto Rico Government Development Bank,.................. 3.65 09/11/96 3.65 4,000,000
4,500 Puerto Rico Government Development Bank,.................. 3.60 09/18/96 3.60 4,500,000
-------------
TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $125,550,000)................................................................... 125,550,000
-------------
</TABLE>
14
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT (IN COUPON MATURITY ON DATE OF
THOUSANDS) RATE DATE PURCHASE VALUE
- -------------- ------------ --------- ------------- -------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (16.3%)
<C> <S> <C> <C> <C> <C>
$ 9,000 California School Cash Reserve Program Authority, 1995
Pool Ser A, dtd 07/05/95................................ 4.75% 07/03/96 3.75 % $ 9,000,947
13,000 Contra Costa County, 1996-1997 TRANs, dtd 07/01/96 (WI)... 4.50 07/03/97 3.76 13,094,110
7,000 Riverside County, 1996-1997 Ser A TRANs, dtd 07/01/96
(WI).................................................... 4.50 06/30/97 3.90 7,040,250
7,000 San Bernadino County, 1996-1997 TRANs, dtd 07/01/96
(WI).................................................... 4.50 06/30/97 3.875 7,042,000
10,000 San Diego, 1996-1997 Ser A TANs, dtd 07/02/96 (WI)........ 4.50 07/02/97 3.75 10,072,200
9,000 Santa Barbara County, 1995-1996 Ser A TRANs, dtd
07/06/95................................................ 4.50 07/05/96 3.79 9,001,009
7,500 Ventura County, Ser 1996 TRANs, dtd 07/02/96 (WI)......... 4.75 07/02/97 3.85 7,564,950
-------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $62,815,466).................................................................... 62,815,466
-------------
TOTAL INVESTMENTS (AMORTIZED COST $430,773,691) (A)........................ 112.1% 430,773,691
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................. (12.1) (46,555,527)
----------- ------------
NET ASSETS................................................................. 100.0% $384,218,164
----------- ------------
----------- ------------
</TABLE>
- ------------
AMT ALTERNATIVE MINIMUM TAX.
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
TANs Tax Anticipation Notes.
TRANs Tax and Revenue Anticipation Notes.
WI Security purchased on a when issued basis.
+ Rate shown is rate in effect at June 30, 1996.
* Date in which the principal amount can be
recovered through demand.
(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 Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
15
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, 1996, 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 four 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, 1996 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 7, 1996
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended June 30, 1996, the Trust paid to shareholders $0.028 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.
16
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
Financial Statements -- June 30, 1996/6 Dividends, Distributions and Taxes/A-6
Report of Independent Accountants/10 General Information/A-9
Purchase and Redemption of Shares/A-1 Voting Rights/A-9
Purchase of Shares/A-1 Custodian/A-10
Purchase of Shares by Non-Participants in Shareholder Inquiries/A-10
Active Assets Program/A-2
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 22, 1996, 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 22, 1996.
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-eight investment companies and other portfolios
with assets under management of approximately $84.6 billion at June 30, 1996 (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 Trust through Dean Witter
Reynolds Inc. Other than the reimbursement to the Distributor pursuant to the Rule 12b-1
Distribution Plan, the Distributor receives no distribution fees (see page A-2).
- ------------------------------------------------------------------------------------------------------------------------
PLAN OF The Trust is authorized to reimburse specific expenses incurred in promoting the distribution of
DISTRIBUTION the Trust's shares pursuant to a plan of Distribution with the Distributor pursuant to Rule 12b-1
under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15 of 1% of average daily net assets of the Trust (see page A-6).
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Automatically reinvested daily in additional shares at net asset value (see page A-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, 1996.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases.............................. None
Maximum Sales Charge Imposed on
Reinvested Dividends................... None
Deferred Sales Charge................... None
Redemption Fees......................... None
Exchange Fee............................ None
ANNUAL TRUST OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees......................... 0.49%
12b-1 Fees.............................. 0.10%
Other Expenses.......................... 0.06%
-------
Total Trust Operating Expenses.......... 0.65%
-------
-------
</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 $36 $81
</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 unqualified report of
independent accountants which are contained in this Prospectus commencing on
page 6.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income......... 0.049 0.048 0.027 0.027 0.043 0.065 0.077 0.079 0.062 0.055
Less dividends from net
investment income............ (0.049) (0.048) (0.027) (0.027) (0.043) (0.065) (0.077) (0.079) (0.062) (0.055)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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+...... 5.03% 4.92% 2.76% 2.71% 4.37% 6.72% 8.03% 8.20% 6.41% 5.62%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................... 0.65% 0.67% 0.66% 0.66% 0.68% 0.70% 0.68% 0.70% 0.68% 0.70%
Net investment income....... 4.93% 4.84% 2.72% 2.68% 4.28% 6.39% 7.74% 7.94% 6.22% 5.47%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $571 $542 $472 $509 $533 $597 $300 $244 $236 $177
<FN>
- -----------------
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
</TABLE>
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $571,666,258).............. $ 571,666,258
Cash......................................... 90,000
Interest receivable.......................... 93
Prepaid expenses and other assets............ 21,226
-------------
TOTAL ASSETS......................... 571,777,577
-------------
LIABILITIES:
Payable for:
Investment management fee.................. 220,885
Plan of distribution fee................... 45,223
Shares of beneficial interest
repurchased.............................. 92
Accrued expenses and other payables.......... 111,289
-------------
TOTAL LIABILITIES.................... 377,489
-------------
NET ASSETS:
Paid-in-capital.............................. 571,399,751
Accumulated undistributed net investment
income..................................... 337
-------------
NET ASSETS........................... $ 571,400,088
-------------
-------------
NET ASSET VALUE PER SHARE, 571,399,751 shares
outstanding (unlimited shares authorized of
$.01 par value).............................
$1.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................... $32,406,748
-----------
EXPENSES
Investment management fee................... 2,841,130
Plan of distribution fee.................... 570,309
Transfer agent fees and expenses............ 121,843
Registration fees........................... 110,736
Professional fees........................... 45,683
Shareholder reports and notices............. 37,493
Custodian fees.............................. 33,551
Trustees' fees and expenses................. 17,577
Other....................................... 8,619
-----------
TOTAL EXPENSES.......................... 3,786,941
-----------
NET INVESTMENT INCOME AND NET INCREASE.. $28,619,807
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income and net increase..................................... $ 28,619,807 $ 25,276,044
Dividends from net investment income....................................... (28,619,562) (25,276,526)
Net increase from transactions in shares of beneficial interest............ 29,180,773 70,718,948
------------------ ------------------
Total increase......................................................... 29,181,018 70,718,466
NET ASSETS:
Beginning of period.......................................................... 542,219,070 471,500,604
------------------ ------------------
END OF PERIOD (including undistributed net investment income of $337 and $92,
respectively)............................................................... $ 571,400,088 $ 542,219,070
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
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's investment objectives are high current income, preservation of
capital and liquidity. The Trust was organized as a Massachusetts business trust
on March 30, 1981 and commenced operations on July 7, 1981.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 the 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 daily
net assets not exceeding $500 million; 0.425% to the portion of daily net assets
exceeding $500 million but not exceeding $750 million; 0.375% to the portion of
daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to
the portion of daily net assets exceeding $1 billion but not exceeding $1.5
billion; 0.325% to the portion of daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2
billion but not exceeding $2.5 billion; 0.275% to the portion of daily net
assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the
portion of 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.
7
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
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 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, 1996, 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, 1996 aggregated $7,798,198,359 and $7,800,002,083,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $8,800.
The Trust has 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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,096. At June 30, 1996, the Trust had an accrued pension liability of
$48,883 which is 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, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 2,060,055,907 1,974,285,922
Shares issued in reinvestment of dividends....................................... 28,586,199 25,245,423
----------------- -----------------
2,088,642,106 1,999,531,345
Shares repurchased............................................................... (2,059,461,333) (1,928,812,397)
----------------- -----------------
Net increase in shares outstanding............................................... 29,180,773 70,718,948
----------------- -----------------
----------------- -----------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATES PURCHASE VALUE
- ----------- ------------------------------------------------------------------------------ ------------ -------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES (99.1%)
$ 101,925 Federal Farm Credit Bank
07/11/96 - 12/02/96......................................................... 4.86 - 5.55% $ 100,763,284
220,240 Federal Home Loan Banks
07/01/96 - 12/17/96......................................................... 4.95 - 5.54 217,770,349
113,336 Federal Home Loan Mortgage Corp.
07/03/96 - 09/27/96......................................................... 5.22 - 5.42 112,502,650
119,555 Federal National Mortgage Assoc.
07/03/96 - 10/11/96......................................................... 4.99 - 5.42 118,583,575
7,000 Student Loan Marketing Assoc.
07/01/96.................................................................... 5.52 6,997,853
10,000 Tennessee Valley Authority
08/29/96.................................................................... 5.37 9,910,025
-------------
TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST $566,527,736)................................ 566,527,736
-------------
U.S. GOVERNMENT OBLIGATION (0.9%)
5,000 U.S. Treasury Bill 10/17/96 (Amortized Cost $4,919,945)......................... 5.53 4,919,945
-------------
REPURCHASE AGREEMENT (0.1%)
219 The Bank of New York due 07/01/96 (dated 06/28/96; proceeds $218,670;
collateralized by $146,249 U.S. Treasury Note due 07/31/98 valued at $146,876
and $76,368 U.S. Treasury Note due 11/30/97 valued at $76,073) (Identified
Cost $218,577)................................................................ 5.125 218,577
-------------
TOTAL INVESTMENTS (AMORTIZED COST $571,666,258) (A)............................. 100.1% 571,666,258
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.................................. (0.1) (266,170)
------ -------------
NET ASSETS...................................................................... 100.0% $ 571,400,088
------ -------------
------ -------------
</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, 1996, 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, 1996 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 7, 1996
10
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
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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-eight investment companies (the "Dean Witter
Funds"), thirty of which are listed on the New York Stock Exchange, with
combined assets of approximately $81.8 billion at June 30, 1996. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.8 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, 1996, the Trusts accrued total compensation
to the Investment Manager amounting to 0.30% (Money Trust), 0.41% (Tax-Free
Trust), 0.50% (California Tax-Free Trust) and 0.49% (Government Securities
Trust) of the respective Trusts' average daily net assets and the Trusts' total
expenses amounted to 0.47% (Money Trust), 0.55% (Tax-Free Trust), 0.67%
(California Tax-Free Trust) and 0.65% (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, 1996. 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.
[LOGO]
ACTIVE ASSETS
MONEY TRUST
ACTIVE ASSETS
TAX-FREE TRUST
ACTIVE ASSETS
CALIFORNIA TAX-FREE
TRUST
ACTIVE ASSETS
GOVERNMENT
SECURITIES TRUST
PROSPECTUSES
AUGUST 22, 1996
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 22, 1996 [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 22, 1996,
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-15
General Information................................................... A-16
Custodian and Transfer Agent.......................................... A-16
Independent Accountants............................................... A-17
Reports to Shareholders............................................... A-17
Legal Counsel......................................................... A-17
Experts............................................................... A-17
Registration Statement................................................ A-17
Information with Respect to Securities Ratings........................ A-17
</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 resale price which consists of the purchase price paid to the
seller of the securities plus the accrued resale premium which is defined as the
amount specified in the repurchase agreement or the daily amortization of the
difference between the purchase price and the resale price specified in the
repurchase agreement. Such collateral will consist entirely of securities that
are direct obligations of, or that are fully guaranteed as to principal and
interest by, the United States or any agency thereof, and/or certificates of
deposit, bankers' acceptances which are eligible for acceptance by a Federal
Reserve Bank, and, if the seller is a bank, mortgage related securities (as such
term is defined in section 3(a)(41) of the Securities Exchange Act of 1934 that,
at the time the repurchase agreement is entered into, are rated in the highest
rating category by the Requisite NRSROs. Additionally, the collateral must
quality the repurchase agreement for preferential treatment under the Federal
Deposit Insurance Act or the Federal Bankruptcy Code. 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
Active Assets Money Trust 3
<PAGE>
may pay reasonable finders, borrowers, administrative, and custodial fees in
connection with a loan. During its fiscal year ended June 30, 1996, 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 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.
Active Assets Money Trust 4
<PAGE>
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;
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
Active Assets Money Trust 5
<PAGE>
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 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 generally is defined in the Rule to mean (i) A security
with a remaining maturity of 397 calendar days or less that has received a
short-term rating (or that has been issued by an issuer that has received a
short-term rating with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority and security with
the security) by the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) A security: (A) That at the time of
issuance had a remaining maturity of more than 397 calendar days but that has a
remaining maturity of 397 calendar days or less; and (B) Whose issuer has
received from the Requisite NRSROs a rating with respect to a class of debt
obligations (or any debt obligation within that class) that is now comparable in
priority and security with the security, in one of the two highest short-term
rating categories (within which there may be sub-
Active Assets Money Trust 6
<PAGE>
categories or gradations indicating relative standing); or (iii) An Unrated
Security that is of comparable quality to a security meeting the requirements of
(i) or (ii) above, as determined by the money market fund's board of directors.
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 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
Active Assets Money Trust 7
<PAGE>
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.
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.
Active Assets Money Trust 8
<PAGE>
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, 1996 was 4.91%.
The effective annual yield on 4.91% is 5.03%, assuming daily compounding.
Active Assets Money Trust 9
<PAGE>
ACTIVE ASSETS MONEY TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $7,160,110,336).......... $7,160,110,336
Cash....................................... 7,044
Interest receivable........................ 13,060,782
Prepaid expenses and other assets.......... 98,115
--------------
TOTAL ASSETS....................... 7,173,276,277
--------------
LIABILITIES:
Payable for:
Investment management fee................ 1,641,346
Plan of distribution fee................. 557,085
Shares of beneficial interest
repurchased............................ 1,953
Accrued expenses and other payables........ 932,603
--------------
TOTAL LIABILITIES.................. 3,132,987
--------------
NET ASSETS:
Paid-in-capital............................ 7,170,136,722
Accumulated undistributed net investment
income................................... 6,568
--------------
NET ASSETS......................... $7,170,143,290
--------------
--------------
NET ASSET VALUE PER SHARE, 7,170,136,722
shares outstanding (unlimited shares
authorized of $.01 par value).............
$1.00
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME.............................. $ 376,507,894
-------------
EXPENSES
Investment management fee.................. 19,802,633
Plan of distribution fee................... 6,495,409
Transfer agent fees and expenses........... 3,112,938
Registration fees.......................... 1,274,800
Custodian fees............................. 278,338
Shareholder reports and notices............ 205,750
Professional fees.......................... 58,233
Trustees' fees and expenses................ 17,465
Other...................................... 68,425
-------------
TOTAL EXPENSES......................... 31,313,991
-------------
NET INVESTMENT INCOME AND
NET INCREASE......................... $ 345,193,903
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................................................... $ 345,193,903 $ 255,626,693
Net realized gain.......................................................... -- 92,427
------------------ ------------------
Net increase........................................................... 345,193,903 255,719,120
------------------ ------------------
Dividends and distributions from:
Net investment income...................................................... (345,191,836) (255,627,418)
Net realized gain.......................................................... -- (92,427)
------------------ ------------------
Total.................................................................. (345,191,836) (255,719,845)
------------------ ------------------
Net increase from transactions in shares of beneficial interest............ 1,461,230,225 1,564,838,536
------------------ ------------------
Total increase......................................................... 1,461,232,292 1,564,837,811
NET ASSETS:
Beginning of period.......................................................... 5,708,910,998 4,144,073,187
------------------ ------------------
END OF PERIOD (including undistributed net investment income of $6,568 and
$4,501, respectively)....................................................... $ 7,170,143,290 $ 5,708,910,998
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
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's
investment objective is high current income, preservation of capital and
liquidity. The Trust was organized as a Massachusetts business trust on March
30, 1981 and commenced operations on July 7, 1981.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 the 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
11
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (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. For the year ended June 30, 1996, 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, 1996 aggregated $23,586,285,233 and $22,455,376,131,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $236,000.
The Trust has 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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,238. At June 30, 1996, the Trust had an accrued pension liability of
$48,883 which is 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, 1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
Shares sold.................................................................... 26,645,844,853 21,295,444,660
Shares issued in reinvestment of dividends..................................... 344,415,057 255,223,533
------------------ ------------------
26,990,259,910 21,550,668,193
Shares repurchased............................................................. (25,529,029,685) (19,985,829,657)
------------------ ------------------
Net increase in shares outstanding............................................. 1,461,230,225 1,564,838,536
------------------ ------------------
------------------ ------------------
</TABLE>
6. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
12
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
COMMERCIAL PAPER (76.6%)
AUTOMOTIVE - FINANCE (6.5%)
$ 121,150 Ford Motor Credit Co.
07/12/96 - 10/11/96...... 5.36 - 5.53 % $ 120,550,912
345,650 General Motors Acceptance
Corp. 07/02/96 -
01/17/97................. 5.07 - 5.67 341,847,614
---------------
462,398,526
---------------
BANK HOLDING COMPANIES (13.7%)
180,300 BankAmerica Corp. 07/30/96
- 11/18/96............... 5.23 - 5.48 178,351,622
150,000 Chase Manhattan Corp.
09/10/96 - 12/30/96...... 5.44 - 5.47 147,566,778
20,000 Corestates Capital Corp.
07/16/96................. 5.15 19,952,306
105,000 Fleet Financial Group,
Inc. 07/08/96 -
08/08/96................. 5.37 - 5.39 104,683,350
70,000 Mellon Financial Co.
08/07/96................. 5.38 69,595,808
320,000 Morgan (J.P.) & Co. Inc.
08/01/96 - 12/20/96...... 5.00 - 5.62 316,608,272
30,000 NationsBank Corp.
09/27/96................. 5.46 29,600,250
67,850 PNC Funding Corp. 08/12/96
- 09/17/96............... 5.47 - 5.49 67,237,469
50,000 Republic New York Corp.
07/12/96................. 5.05 49,910,805
---------------
983,506,660
---------------
BANKS - COMMERCIAL (27.6%)
359,400 Abbey National North
America Corp.
08/09/96 - 12/26/96...... 5.00 - 5.65 352,786,118
237,890 ABN-AMRO North America
Finance Inc. 08/23/96 -
12/20/96................. 5.00 - 5.50 234,578,741
240,000 Canadian Imperial Holdings
Inc.
07/08/96 - 09/13/96...... 5.35 - 5.52 237,777,503
33,475 Commerzbank U.S. Finance
Inc. 08/13/96............ 5.36 33,253,646
295,000 Deutsche Bank Financial
Inc. 07/19/96 -
12/31/96................. 4.97 - 5.62 291,696,197
182,850 Dresdner U.S. Finance Inc.
07/22/96 - 12/09/96...... 5.05 - 5.56 180,394,941
95,000 International Nederlanden
(U.S.) Funding Corp.
07/09/96................. 5.34 94,860,931
145,000 National Australia Funding
(DE) Inc. 08/05/96 -
11/07/96................. 5.14 - 5.50 143,524,856
30,000 SBC Finance (DE) Inc.
12/27/96................. 5.64 29,173,433
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
$ 210,000 Toronto-Dominion Holdings
USA Inc. 07/11/96 -
12/02/96................. 5.33 - 5.50% $ 207,738,700
153,000 Union Commercial Funding
Corp.
07/23/96 - 11/05/96...... 5.39 - 5.49 151,106,144
19,800 WestPac Capital Corp.
12/05/96................. 5.66 19,319,025
---------------
1,976,210,235
---------------
BROKERAGE (4.3%)
230,800 Goldman Sachs Group L.P.
07/15/96 - 09/24/96...... 5.34 - 5.45 229,380,311
80,000 Morgan Stanley Group, Inc.
07/09/96 - 07/18/96...... 5.33 - 5.34 79,816,319
---------------
309,196,630
---------------
CANADIAN GOVERNMENT (0.4%)
25,000 British Columbia (Province
of) 10/28/96............. 5.17 24,579,861
---------------
CHEMICALS (0.3%)
24,000 Monsanto Co. 08/22/96..... 5.37 23,809,920
---------------
FINANCE - COMMERCIAL (2.5%)
181,050 CIT Group Holdings, Inc.
07/12/96 - 08/28/96...... 5.31 - 5.43 180,250,119
---------------
FINANCE - CONSUMER (5.5%)
305,950 American Express Credit
Corp.
07/03/96 - 08/30/96...... 5.13 - 5.77 305,051,328
65,000 Avco Financial Services
Inc. 07/08/96 -
07/31/96................. 5.39 - 5.42 64,809,716
27,000 Norwest Financial Inc.
07/15/96................. 5.35 26,936,640
---------------
396,797,684
---------------
FINANCE - DIVERSIFIED (7.6%)
199,000 Associates Corp. of
North America
07/24/96 - 10/09/96...... 5.06 - 5.54 197,537,075
354,690 General Electric Capital
Corp.
07/10/96 - 02/18/97...... 5.14 - 5.82 349,674,892
---------------
547,211,967
---------------
FINANCE - EQUIPMENT (0.9%)
66,150 Deere (John) Capital Corp.
07/19/96 - 07/29/96...... 5.34 - 5.38 65,887,828
---------------
FOOD & BEVERAGES (0.6%)
40,000 Coca-Cola Co. 07/25/96.... 5.32 39,848,333
---------------
INDUSTRIALS (0.2%)
10,950 Motorola Inc. 08/12/96.... 5.41 10,878,132
---------------
</TABLE>
13
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
OFFICE EQUIPMENT (2.7%)
$ 75,000 Hewlett-Packard Co.
08/14/96 - 09/30/96...... 5.26 - 5.45% $ 74,207,650
90,000 IBM Credit Corp.
08/19/96................. 5.42 89,315,325
30,000 Xerox Credit Corp.
07/29/96................. 5.34 29,868,000
---------------
193,390,975
---------------
RETAIL (3.4%)
247,800 Sears Roebuck Acceptance
Corp. 07/11/96 -
10/22/96................. 5.36 - 5.54 245,639,669
---------------
TELEPHONES (0.4%)
30,000 Ameritech Corp. 07/30/96.. 5.33 29,864,892
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST
$5,489,471,431)......................... 5,489,471,431
---------------
SHORT-TERM BANK NOTES (12.8%)
60,000 Bank of New York 08/23/96
- 10/04/96............... 4.97 - 5.38 60,000,000
259,500 F.C.C. National Bank
07/03/96 - 09/12/96...... 5.11 - 5.43 259,500,000
55,000 First National Bank of
Boston 07/31/96 -
08/09/96................. 5.00 - 5.22 55,000,000
50,000 First National Bank of
Chicago 11/29/96......... 5.45 50,000,000
354,000 First Union National Bank
07/01/96 - 10/30/96...... 5.00 - 5.47 354,000,000
45,000 La Salle National Bank
08/26/96................. 5.37 45,000,000
95,000 NationsBank, N.A. 07/17/96
- 08/01/96............... 5.35 - 5.48 95,000,000
---------------
TOTAL SHORT-TERM BANK NOTES (AMORTIZED
COST $918,500,000)...................... 918,500,000
---------------
<CAPTION>
PRINCIPAL ANNUALIZED
AMOUNT (IN DESCRIPTION AND YIELD ON DATE
THOUSANDS) MATURITY DATES OF PURCHASE VALUE
- ----------- -------------------------- ------------- ---------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (5.2%)
$ 65,000 Federal Home Loan Banks
07/10/96 - 01/31/97...... 5.15 - 5.53% $ 64,293,638
195,000 Federal National Mortgage
Assoc. 08/29/96 -
10/10/96................. 5.25 - 5.42 192,878,818
115,000 U.S. Treasury Bills
07/25/96 - 03/06/97...... 5.14 - 5.71 112,374,654
---------------
TOTAL U.S. GOVERNMENT & AGENCIES
OBLIGATIONS
(AMORTIZED COST $369,547,110)........... 369,547,110
---------------
CERTIFICATES OF DEPOSIT (3.1%)
45,000 Chase Manhattan Bank (USA)
09/20/96................. 5.40 45,000,000
180,000 Union Bank 09/12/96 -
11/19/96................. 5.45 - 5.55 180,000,000
---------------
TOTAL CERTIFICATES OF DEPOSIT (AMORTIZED
COST $225,000,000)...................... 225,000,000
---------------
BANKERS' ACCEPTANCES (2.2%)
33,000 Chase Manhattan Bank
09/09/96 - 11/26/96...... 5.45 - 5.55 32,433,600
42,000 Chemical Bank
07/30/96 - 08/19/96...... 5.32 - 5.33 41,722,407
62,500 Corestates Bank, N.A.
08/08/96 - 11/08/96...... 5.37 - 5.41 61,806,731
10,000 First Bank, N.A.
10/11/96................. 5.43 9,847,177
12,000 Morgan Guaranty Tr. Co. of
NY 10/30/96.............. 5.46 11,781,880
---------------
TOTAL BANKERS' ACCEPTANCES (AMORTIZED
COST $157,591,795)...................... 157,591,795
---------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (AMORTIZED COST
$7,160,110,336) (A)........................ 99.9 % 7,160,110,336
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................ 0.1 10,032,954
------ --------------
NET ASSETS................................... 100.0 % $7,170,143,290
------ --------------
------ --------------
<FN>
- -------------
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
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, 1996, 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, 1996 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 7, 1996
15
ACTIVE ASSETS MONEY TRUST
<PAGE>
STATEMENTS OF ADDITIONAL INFORMATION
AUGUST 22, 1996 [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 22, 1996,
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............................................... 6
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-15
General Information................................................... A-16
Custodian and Transfer Agent.......................................... A-16
Independent Accountants............................................... A-17
Reports to Shareholders............................................... A-17
Legal Counsel......................................................... A-17
Experts............................................................... A-17
Registration Statement................................................ A-17
Information with Respect to Securities Ratings........................ A-17
</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.
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 resale price which consists of the purchase price paid to the
seller of the securities plus the accrued resale premium which is defined as the
amount specified in the repurchase agreement or the daily amortization of the
difference between the purchase price and the resale price specified in the
repurchase agreement. Such collateral will consist entirely of securities that
are direct obligations of, or that are fully guaranteed as to principal and
interest by, the United States or any agency thereof, and/or certificates of
deposit, bankers' acceptances which are eligible for acceptance by a Federal
Reserve Bank, and, if the seller is a bank, mortgage related securities (as such
term is defined in section 3(a)(41) of the Securities Exchange Act of 1934 that,
at the time the repurchase agreement is entered into, are rated in the highest
rating category by the Requisite NRSROs. Additionally, the collateral must
qualify the repurchase agreement for preferential treatment under the Federal
Deposit Insurance Act or the Federal Bankruptcy Code. 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
Active Assets Tax-Free Trust 4
<PAGE>
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, 1996, 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.
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, 1996, 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.
Active Assets Tax-Free Trust 5
<PAGE>
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 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 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;
Active Assets Tax-Free Trust 6
<PAGE>
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.
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
Active Assets Tax-Free Trust 7
<PAGE>
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. 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 generally is defined in the Rule to mean (i) A security
with a remaining maturity of 397 calendar days or less that has received a
short-term rating (or that has been issued by an issuer that has received a
short-term rating with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority and security with
the security) by the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) A security: (A) That at the time of
issuance had a remaining maturity of more than 397 calendar days but that has a
remaining maturity of 397 calendar days or less; and (B) Whose issuer has
received from the Requisite NRSROs a rating with respect to a class of debt
obligations (or any debt obligation within that class) that is now comparable in
priority and security with the security, in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (iii) An Unrated Security that is of
comparable quality to a security meeting the requirements of (i) or (ii) above,
as determined by the money market fund's board of directors. 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 that are "conduit securities" as that term is defined in the
Rule: (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
Active Assets Tax-Free Trust 8
<PAGE>
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 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.
During the fiscal year ended June 30, 1996, the Trust utilized all of its
net capital loss carryovers of approximately $59,000. To the extent that capital
loss carryovers are 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.
Active Assets Tax-Free Trust 9
<PAGE>
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 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,
deter-
10
Active Assets Tax-Free Trust
<PAGE>
mined 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.
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
Active Assets Tax-Free Trust 11
<PAGE>
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 ending June 30, 1996 was 2.95%.
The effective annual yield on 2.95% is 2.99%, 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, 1996 was 4.88%.
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>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $1,643,339,150).......... $1,643,339,150
Cash....................................... 2,322,982
Interest receivable........................ 7,426,219
Receivable from affiliate.................. 2,849,017
Prepaid expenses and other assets.......... 50,662
--------------
TOTAL ASSETS....................... 1,655,988,030
--------------
LIABILITIES:
Payable for:
Investments purchased.................... 113,338,770
Investment management fee................ 505,007
Plan of distribution fee................. 123,020
Accrued expenses and other payables........ 134,104
--------------
TOTAL LIABILITIES.................. 114,100,901
--------------
NET ASSETS:
Paid-in-capital............................ 1,541,888,167
Accumulated undistributed net investment
income................................... 1,091
Accumulated net realized loss.............. (2,129)
--------------
NET ASSETS......................... $1,541,887,129
--------------
--------------
NET ASSET VALUE PER SHARE, 1,541,888,167
shares outstanding (unlimited shares
authorized of $.01 par value).............
$1.00
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................... $58,069,820
-----------
EXPENSES
Investment management fee................... 6,571,351
Plan of distribution fee.................... 1,560,662
Transfer agent fees and expenses............ 355,031
Registration fees........................... 145,672
Shareholder reports and notices............. 62,080
Professional fees........................... 54,523
Trustees' fees and expenses................. 17,381
Custodian fees.............................. 79,140
Other....................................... 23,721
-----------
TOTAL EXPENSES BEFORE EXPENSE OFFSET.... 8,869,561
LESS: EXPENSE OFFSET.................... (72,184)
-----------
TOTAL EXPENSES AFTER EXPENSE OFFSET..... 8,797,377
-----------
NET INVESTMENT INCOME................... 49,272,443
NET REALIZED GAIN........................... 67,452
-----------
NET INCREASE............................ $49,339,895
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income........................................................ $ 49,272,443 $ 45,957,679
Net realized gain............................................................ 67,452 --
----------------- -----------------
Net increase............................................................. 49,339,895 45,957,679
Dividends from net investment income......................................... (49,272,477) (45,956,910)
Net increase from transactions in shares of beneficial interest.............. 42,488,823 83,029,307
----------------- -----------------
Total increase........................................................... 42,556,241 83,030,076
NET ASSETS:
Beginning of period............................................................ 1,499,330,888 1,416,300,812
----------------- -----------------
END OF PERIOD (including undistributed net investment income of $1,091 and
$1,125, respectively)......................................................... $ 1,541,887,129 $ 1,499,330,888
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
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's
investment objective is to provide a high level of daily income which is exempt
from federal income tax consistent with stability of principal and liquidity.
The Trust was organized as a Massachusetts business trust on March 30, 1981 and
commenced operations on July 7, 1981.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 the 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 daily
net assets not exceeding $500 million; 0.425% to the portion of daily net assets
exceeding $500 million but not exceeding $750 million; 0.375% to the portion of
daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to
the portion of daily net assets exceeding $1 billion but not exceeding $1.5
billion; 0.325% to the portion of daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2
billion but not exceeding $2.5 billion; 0.275% to the portion of daily net
assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the
portion of 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
14
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
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. For the year ended June 30, 1996, 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, 1996 aggregated $3,045,910,870 and $2,956,347,425,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $24,000.
The Trust has 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, 1996,
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,238. At June 30, 1996, the Trust had an accrued pension liability of
$48,883 which is 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, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 5,666,091,760 5,690,475,533
Shares issued in reinvestment of dividends....................................... 49,272,477 45,956,910
----------------- -----------------
5,715,364,237 5,736,432,443
Shares repurchased............................................................... (5,672,875,414) (5,653,403,136)
----------------- -----------------
Net increase in shares outstanding............................................... 42,488,823 83,029,307
----------------- -----------------
----------------- -----------------
</TABLE>
6. FEDERAL INCOME TAX STATUS--During the year ended June 30, 1996, the Trust
utilized all of its net capital loss carrryovers of approximately $59,000.
7. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
15
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (77.4%)
ARIZONA
$ 6,500 Maricopa County, Arizona Public Service Co 1994 Ser F....... 3.70% 07/01/96 $ 6,500,000
ARKANSAS
20,000 Crossett, Georgia Pacific Corp Ser 1984..................... 3.25 07/08/96 20,000,000
CALIFORNIA
California Pollution Control Financing Authority,
14,000 Pacific Gas & Electric Co Ser 1996 F...................... 3.40 07/01/96 14,000,000
5,900 Southern California Edison Co 1986 Ser A.................. 3.45 07/01/96 5,900,000
25,000 Riverside County, 1996-97 Ser B TRANs (WI).................. 3.00 07/08/96 25,000,000
COLORADO
11,500 Colorado Health Facilities Authority, Kaiser Permanente 1994
Ser A..................................................... 3.40 07/08/96 11,500,000
CONNECTICUT
38,000 Connecticut Development Authority, Connecticut Light & Power
Co
1993 A Ser................................................ 3.35 07/01/96 38,000,000
Connecticut Special Assessment,
30,000 Unemployment Compensation 1993 Ser C (FGIC)............... 3.90 07/01/96 30,000,000
30,000 Unemployment Compensation 1993 Ser C (FGIC)............... 3.90 07/01/97 30,000,000
FLORIDA
15,000 Dade County, Water & Sewer Ser 1994 (FGIC).................. 3.30 07/08/96 15,000,000
Dade County Industrial Development Authority,
22,700 Dolphins Stadium Ser 1985 B & C........................... 3.35 07/08/96 22,700,000
7,700 Florida Power & Light Co Ser 1993......................... 3.60 07/01/96 7,700,000
11,200 Jacksonville Health Facilities Authority, Baptist Medical
Center Ser 1993 (MBIA).................................... 3.65 07/01/96 11,200,000
5,000 Orange County Housing Finance Authority, Single Family Ser
1996 B (AMT).............................................. 3.65 04/01/97 5,000,000
32,600 Volusia County Health Facilities Authority, Pooled Ser 1985
(FGIC).................................................... 3.70 07/08/96 32,600,000
GEORGIA
10,000 Albany-Dougherty County Hospital Authority, Phoebe-Putney
Memorial Hospital Ser 1991 (AMBAC)........................ 3.40 07/08/96 10,000,000
16,102 Georgia Municipal Association, Pool Ser 1990 COPs (MBIA).... 3.30 07/08/96 16,101,957
HAWAII
Hawaii Department of Budget & Finance,
5,000 Kaiser Permanente Semiannual Tender Ser 1984 B............ 3.20 09/01/96 5,000,000
22,100 Queens Medical Center Ser 1985 B (FGIC)................... 3.10 07/08/96 22,100,000
IDAHO
Idaho Health Facilities Authority,
20,000 Pooled Ser 1985........................................... 3.40 07/08/96 20,000,000
12,910 St Luke's Regional Medical Center Ser 1995................ 3.65 07/01/96 12,910,000
ILLINOIS
Chicago,
24,900 Chicago O'Hare Int'l Airport 2nd Lien 1994 Ser B (AMT).... 3.50 07/08/96 24,900,000
25,000 Tender Notes Ser 1995 A................................... 3.65 10/31/96 25,000,000
</TABLE>
16
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
$ 5,900 Illinois Development Finance Authority, Palos Community
Hospital Ser 1994......................................... 3.30% 07/08/96 $ 5,900,000
Illinois Health Facilities Authority,
9,000 Gottlieb Health Resources Inc Ser 1990.................... 3.35 07/08/96 9,000,000
19,600 Highland Park Hospital Ser 1991 A (FGIC).................. 3.40 07/08/96 19,600,000
22,500 Lutheran General Health Care System Ser 1985 B............ 3.60 07/01/96 22,500,000
12,100 Northwestern Memorial Hospital Ser 1995................... 3.65 07/01/96 12,100,000
10,000 Parkside Development Corp Ser 1991........................ 3.45 07/08/96 10,000,000
3,640 Illinois Housing Development Authority, Homeowner Mtg 1995
Subser E-2 (AMT).......................................... 3.75 09/03/96 3,640,000
INDIANA
17,000 Indiana Hospital Equipment Financing Authority, Ser 1985
(MBIA).................................................... 3.55 07/08/96 17,000,000
Petersburg,
8,400 Indianapolis Power & Light Co Ser 1995 B (AMBAC).......... 3.30 07/08/96 8,400,000
5,000 Indianapolis Power & Light Co Ser 1994 A (AMT)............ 3.35 07/08/96 5,000,000
5,000 Purdue University, Student Fee Ser 1995 K................... 3.30 07/08/96 5,000,000
KENTUCKY
7,000 Jamestown, Union Underwear Co............................... 3.50 07/08/96 7,000,000
LOUISIANA
30,000 Louisiana Offshore Terminal Authority, LOOP Inc 1992 Ser
A......................................................... 3.40 07/08/96 30,000,000
23,200 New Orleans Aviation Board, Ser 1993 B (MBIA)............... 3.25 07/08/96 23,200,000
MASSACHUSETTS
15,000 Massachusetts Bay Transportation Authority, 1984 Ser A...... 3.05 09/01/96 15,000,000
29,500 Massachusetts Health & Educational Facilities Authority,
Harvard University Ser 1985 I............................. 3.05 07/08/96 29,500,000
6,100 Massachusetts Municipal Wholesale Electric Company, Power
Supply 1994 Ser C......................................... 3.05 07/08/96 6,100,000
14,800 Massachusetts Port Authority, Refg Ser 1995 A............... 3.50 07/01/96 14,800,000
MICHIGAN
3,000 Delta County Economic Development Corporation, Mead-Escanaba
Paper Co Ser 1985 E....................................... 3.60 07/01/96 3,000,000
MINNESOTA
2,200 Beltrami County, Environmental Northwood Panelboard Co Ser
1991...................................................... 3.60 07/01/96 2,200,000
8,500 Minneapolis & St Paul Housing & Redevelopment Authority,
Childrens Health Care Ser 1995 B (CGIC)................... 3.75 07/01/96 8,500,000
10,500 University of Minnesota Regents, Ser 1985 F................. 3.25 08/01/96 10,500,000
MISSISSIPPI
7,000 Jackson County, Chevron USA Inc Ser 1993.................... 3.55 07/01/96 7,000,000
5,500 Mississippi Business Finance Corporation, Mississippi Power
Co (AMT).................................................. 3.75 07/01/96 5,500,000
MISSOURI
20,000 Missouri Health & Educational Facilities Authority, Sisters
of Mercy Health System St Louis Inc Ser 1989 A............ 3.35 07/01/96 20,000,000
NEBRASKA
Nebraska Higher Education Loan Program Inc,
10,000 1985 Ser E (MBIA)......................................... 3.40 07/08/96 10,000,000
8,600 1986 Ser C (AMT).......................................... 3.50 07/08/96 8,600,000
NEW HAMPSHIRE
2,500 New Hampshire Higher Educational & Health Facilities
Authority, Dartmouth Education Loan Corp Ser 1993 (AMT)... 3.90 06/01/97 2,500,000
</TABLE>
17
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
NEW JERSEY
$ 11,000 New Jersey Economic Development Authority, New Jersey
Natural Gas Co Ser 1995 A (AMBAC)......................... 3.50% 07/01/96 $ 11,000,000
8,000 New Jersey Turnpike Authority, Ser 1991 D (FGIC)............ 3.00 07/08/96 8,000,000
6,400 Union County Industrial Pollution Control Financing
Authority, Exxon Corp..................................... 2.90 07/01/96 6,400,000
NEW MEXICO
39,200 Albuquerque, Airport Sub Lien Ser 1995 (AMBAC).............. 3.30 07/08/96 39,200,000
NEW YORK
14,800 New York Local Government Assistance Corporation, Ser 1995
B......................................................... 3.10 07/08/96 14,800,000
1,000 St Lawrence County Industrial Development Agency, Reynolds
Metals Co Ser 1995 (AMT).................................. 3.35 07/08/96 1,000,000
NORTH CAROLINA
9,400 Craven County Industrial Facilities & Pollution Control
Financing Authority, Craven County Wood Energy Ltd 1989
Ser C (AMT)............................................... 3.75 07/01/96 9,400,000
9,800 Durham, Ser 1993 A COPs..................................... 3.20 07/08/96 9,800,000
26,985 North Carolina Medical Care Commission, Duke University
Hospital Ser 1985 B & C................................... 3.25 07/08/96 26,985,000
21,700 Person County Industrial Facilities & Pollution Control
Financing Authority, Carolina Power & Light Co Ser 1992
A......................................................... 3.25 07/08/96 21,700,000
OHIO
1,300 Dayton, Emery Air Freight Co 1988 Ser C..................... 3.70 07/01/96 1,300,000
5,600 Ohio Air Quality Development Authority, Cincinnati Gas &
Electric Co Ser A......................................... 3.50 07/01/96 5,600,000
12,000 Ohio Housing Financing Agency, Residential Mtg 1996 Ser A-3
(AMT)..................................................... 3.40 03/03/97 12,000,000
OKLAHOMA
Oklahoma Water Resources Board,
18,750 State Loan Prog Ser 1994 A................................ 3.25 09/01/96 18,750,000
10,000 State Loan Prog Ser 1995.................................. 3.10 09/03/96 10,000,000
PENNSYLVANIA
10,000 Allegheny County Hospital Development Authority, Health
Education & Research Corp Ser 1988 B...................... 3.30 07/08/96 10,000,000
10,000 Beaver County Industrial Development Authority, Toledo
Edison Co 1992 Ser E...................................... 3.65 07/05/96 10,000,000
6,800 Delaware County Industrial Development Authority, United
Parcel Service of America Inc Ser 1995.................... 3.60 07/01/96 6,800,000
10,500 Pennsylvania Energy Development Authority, Clarion Co Piney
Creek Ser A (AMT)......................................... 3.55 07/08/96 10,500,000
Pennsylvania Higher Education Facilities Authority,
7,000 Temple University Ser 1984-1.............................. 3.60 07/08/96 7,000,000
5,000 Thomas Jefferson University Ser 1992 C.................... 3.25 08/26/96 5,000,000
10,000 Philadelphia Hospitals & Higher Educational Facilities
Authority, Children's Hospital of Philadelphia 1996 Ser
A......................................................... 3.60 07/01/96 10,000,000
8,300 Washington County Authority, Pooled Ser 1985 A-1 Subser B... 3.25 07/08/96 8,300,000
SOUTH CAROLINA
5,905 York County, Saluda River Electric Coop Inc Ser 1984 E-2
(NRU-CFC Gtd)............................................. 3.10 08/15/96 5,905,000
TENNESSEE
7,704 Clarksville Public Building Authority Ser 1990 (MBIA)....... 3.30 07/08/96 7,704,000
7,900 Memphis, Airport Refg Ser 1995 B............................ 3.50 07/08/96 7,900,000
20,000 Volunteer State Student Funding, Ser A-3 (AMT).............. 3.60 07/08/96 20,000,000
</TABLE>
18
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT DEMAND
THOUSANDS) RATE+ DATE* VALUE
- ---------- ------- ------- ---------------
<C> <S> <C> <C> <C>
TEXAS
$ 8,400 Gulf Coast Waste Disposal Authority, Amoco Oil Co Ser
1992...................................................... 3.50% 07/01/96 $ 8,400,000
28,000 Harris County, Toll Road Unlimited Tax Sub Lien Ser 1994 B &
C......................................................... 3.40 07/08/96 28,000,000
10,000 Hockley County Industrial Development Corporation, Amoco Oil
Co Ser 1985............................................... 3.60 11/01/96 10,000,000
6,500 Sabine River Authority, Texas Utilities Co Ser 1996 A
(AMBAC)................................................... 3.60 07/01/96 6,500,000
15,000 Texas, Veterans' Housing Assistance Fund I Ser 1995......... 3.30 07/08/96 15,000,000
UTAH
25,000 Intermountain Power Agency, 1985 Ser E...................... 3.35 09/15/96 25,000,000
VIRGINIA
15,000 Virginia Housing Development Authority, 1995 Subser D STEM
IV........................................................ 3.35 07/16/96 15,000,000
WASHINGTON
5,800 Seattle, Municipal Light & Power Ser 1993................... 3.40 07/08/96 5,800,000
WISCONSIN
9,500 Brokaw, Wausau Paper Mills Co Ser 1995 (AMT)................ 3.60 07/08/96 9,500,000
10,000 Wisconsin Health Facilities Authority, Franciscan Health
Care Inc Ser 1985 A-1..................................... 3.45 07/08/96 10,000,000
WYOMING
10,200 Lincoln County, Exxon Corp Ser 1987 A (AMT)................. 3.70 07/01/96 10,200,000
8,250 Sublette County, Exxon Corp Ser 1987 A (AMT)................ 3.65 07/01/96 8,250,000
4,100 Sweetwater County, PacifiCorp Ser 1994 (AMBAC).............. 3.70 07/01/96 4,100,000
---------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS
(AMORTIZED COST $1,193,445,957).................................................... 1,193,445,957
---------------
</TABLE>
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
ON DATE
COUPON MATURITY OF
RATE DATE PURCHASE
------------ --------- -------
<C> <S> <C> <C> <C> <C>
TAX-EXEMPT COMMERCIAL PAPER (19.7%)
FLORIDA
7,000 Florida Local Government Finance Commission, Ser 1991....... 3.60% 08/28/96 3.60% 7,000,000
8,690 Jacksonville, Florida Power & Light Co Ser 1994............. 3.60 11/15/96 3.60 8,690,000
10,700 Jacksonville Electric Authority, Ser A...................... 3.65 10/24/96 3.65 10,700,000
Palm Beach County Health Facilities Authority,
6,500 Pooled Hospital Ser 1985 (MBIA)........................... 3.55 07/11/96 3.55 6,500,000
5,500 Pooled Hospital Ser 1985 (MBIA)........................... 3.60 07/25/96 3.60 5,500,000
12,425 Sunshine State Governmental Financing Commission, Ser 1994
B......................................................... 3.30 07/30/96 3.30 12,425,000
GEORGIA
10,400 Burke County Development Authority, Oglethorpe Power Corp
Ser 1992 A................................................ 3.55 11/07/96 3.55 10,400,000
8,000 Georgia Municipal Gas Authority, Transco Portfolio 1 Ser
A......................................................... 3.35 08/27/96 3.35 8,000,000
HAWAII
4,000 Hawaii Department of Budget & Finance, Citizens Utilities Co
1988 Ser B (AMT).......................................... 3.70 08/20/96 3.70 4,000,000
INDIANA
10,000 Indianapolis, Citizens Gas & Coke Utility................... 3.55 09/09/96 3.55 10,000,000
MARYLAND
12,000 Baltimore County, Ser 1995 BANs............................. 3.45 09/11/96 3.45 12,000,000
</TABLE>
19
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
PRINCIPAL ON DATE
AMOUNT (IN COUPON MATURITY OF
THOUSANDS) RATE DATE PURCHASE VALUE
- ---------- ------------ --------- ------- ---------------
MASSACHUSETTS
<C> <S> <C> <C> <C> <C>
$ 10,000 Massachusetts Health & Educational Facilities Authority,
Boston University Ser H................................... 3.65% 08/22/96 3.65% $ 10,000,000
Massachusetts Water Resources Authority,
10,000 Ser 1994.................................................. 3.30 07/31/96 3.30 10,000,000
10,000 Ser 1994.................................................. 3.30 08/14/96 3.30 10,000,000
MINNESOTA
10,000 Southern Minnesota Municipal Power Agency, Ser B............ 3.60 10/17/96 3.60 10,000,000
MISSOURI
15,145 Missouri Environmental Improvement & Energy Resources
Authority, Union Electric Co Ser 1985 A................... 3.50 07/15/96 3.50 15,145,000
NEBRASKA
15,000 Nebraska Public Power District, Ser B Notes................. 3.65 09/12/96 3.65 15,000,000
NEW HAMPSHIRE
10,000 New Hampshire Business Finance Authority, New England Power
Co 1990 Ser A (AMT)....................................... 3.80 08/08/96 3.80 10,000,000
NORTH CAROLINA
North Carolina Municipal Power Agency 1,
11,510 Catawba Elec Ser A........................................ 3.60 10/11/96 3.60 11,510,000
10,000 Catawba Elec Ser A........................................ 3.60 11/12/96 3.60 10,000,000
SOUTH CAROLINA
South Carolina Public Service Authority,
10,000 Promissory Notes.......................................... 3.60 10/10/96 3.60 10,000,000
10,542 Promissory Notes.......................................... 3.60 10/22/96 3.60 10,542,000
10,000 Promissory Notes.......................................... 3.60 10/29/96 3.60 10,000,000
TEXAS
Houston,
16,000 1993 Ser A................................................ 3.43 07/10/96 3.43 16,000,000
4,000 1993 Ser A................................................ 3.50 10/30/96 3.50 4,000,000
10,900 1993 Ser A................................................ 3.50 10/30/96 3.50 10,900,000
10,000 Houston, Water & Sewer Ser A................................ 3.50 10/23/96 3.50 10,000,000
9,400 San Antonio, Water Ser 1995................................. 3.60 10/18/96 3.60 9,400,000
10,000 Texas Municipal Power Agency................................ 3.50 11/13/96 3.50 10,000,000
WASHINGTON
8,000 Seattle, Municipal Light & Power Ser 1990................... 3.65 10/15/96 3.65 8,000,000
WYOMING
7,500 Converse County, PacifiCorp Ser 1992........................ 3.55 07/31/96 3.55 7,500,000
---------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $303,212,000).................................................................. 303,212,000
---------------
SHORT-TERM MUNICIPAL NOTES (9.5%)
COLORADO
15,000 Colorado, Ser 1996 A TRANs, dtd 07/01/96 (WI)............... 4.50 06/27/97 3.86 15,091,350
IDAHO
23,000 Idaho, Ser 1996 TANs, dtd 07/02/96 (WI)..................... 4.50 06/30/97 3.90 23,132,020
INDIANA
10,000 Indiana Bond Bank Advance Funding Notes Ser 1996 A-2, dtd
02/01/96.................................................. 4.25 01/09/97 3.50 10,038,517
</TABLE>
20
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD
TO
MATURITY
PRINCIPAL ON DATE
AMOUNT (IN COUPON MATURITY OF
THOUSANDS) RATE DATE PURCHASE VALUE
- ---------- ------------ --------- ------- ---------------
IOWA
<C> <S> <C> <C> <C> <C>
$ 30,000 Iowa School Corporations, Warrant Certificates Ser 1996-97
(FSA), dtd 06/27/96....................................... 4.75% 06/27/97 3.95% $ 30,229,436
MASSACHUSETTS
15,000 Massachusetts, 1996 Ser A Notes, dtd 06/11/96............... 4.25 06/10/97 3.90 15,047,754
MICHIGAN
Michigan Municipal Bond Authority,
23,000 Ser 1995 B Notes, dtd 07/03/95............................ 4.50 07/03/96 3.80 23,001,694
20,000 Ser 1996 A Notes, dtd 07/03/96 (WI)....................... 4.50 07/03/97 3.90 20,115,400
10,000 Michigan, Notes dtd 02/20/96................................ 4.00 09/30/96 3.00 10,025,022
---------------
TOTAL SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $146,681,193).................................................................. 146,681,193
---------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS (AMORTIZED COST $1,643,339,150) (A)....... 106.6% 1,643,339,150
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.............. (6.6 ) (101,452,021)
----- --------------
NET ASSETS.................................................. 100.0% $1,541,887,129
----- --------------
----- --------------
</TABLE>
- ------------
AMT ALTERNATIVE MINIMUM TAX.
BANS BOND ANTICIPATION NOTES.
COPS CERTIFICATES OF PARTICIPATION.
TANS TAX ANTICIPATION NOTES.
TRANS TAX AND REVENUE ANTICIPATION NOTES.
WI SECURITY PURCHASED ON A WHEN ISSUED BASIS.
+ RATE SHOWN IS THE RATE IN EFFECT AT JUNE 30, 1996.
DATE IN WHICH THE PRINCIPAL AMOUNT CAN BE
* RECOVERED THROUGH DEMAND.
(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.
FSA FINANCIAL SECURITY ASSURANCE INC.
MBIA MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION.
SEE NOTES TO FINANCIAL STATEMENTS
21
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, 1996, 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, 1996 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 7, 1996
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended June 30, 1996, the Trust paid to shareholders $0.031 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.
22
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
STATEMENTS OF ADDITIONAL INFORMATION
AUGUST 22, 1996 [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 22, 1996,
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............................................... 7
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-15
General Information................................................... A-16
Custodian and Transfer Agent.......................................... A-16
Independent Accountants............................................... A-17
Reports to Shareholders............................................... A-17
Legal Counsel......................................................... A-17
Experts............................................................... A-17
Registration Statement................................................ A-17
Information with Respect to Securities Ratings........................ A-17
</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.
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 resale price which consists of the purchase price paid to the
seller of the securities plus the accrued resale premium which is defined as the
amount specified in the repurchase agreement or the daily amortization of the
difference between the purchase price and the resale price specified in the
repurchase agreement. Such collateral will consist entirely of securities that
are direct obligations of, or that are fully guaranteed as to principal and
interest by, the United States or any agency thereof, and/or certificates of
deposit, bankers' acceptances which are eligible for acceptance by a Federal
Reserve Bank, and, if the seller is a bank, mortgage related securities (as such
term is defined in section 3(a)(41) of the Securities Exchange Act of 1934 that,
at the time the repurchase agreement is entered into, are rated in the highest
rating category by the Requisite NRSROs. Additionally, the collateral must
quality the repurchase agreement for preferential treatment under the Federal
Deposit Insurance Act or the Federal Bankruptcy Code. 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
Active Assets California Tax-Free Trust 5
<PAGE>
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.
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.
Active Assets California Tax-Free Trust 6
<PAGE>
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 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.
Active Assets California Tax-Free Trust 7
<PAGE>
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.
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.
Active Assets California Tax-Free Trust 8
<PAGE>
In June 1982, the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to account for the effects of inflation. Decreases in State and local
revenues in future fiscal years as a consequence of these initiatives may result
in reductions in allocations of State revenues to California issuers or in the
ability of California issuers to pay their obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and (vii)
permits these provisions to be amended exclusively by the voters of the State of
California.
In September 1995, the California Supreme Court upheld the constitutionality
of Proposition 62, creating uncertainty as to the legality of certain local
taxes enacted by non-charter cities in California without voter approval. It is
not possible to predict the impact of the decision.
In 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.
Active Assets California Tax-Free Trust 9
<PAGE>
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations and, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
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 national recession and
cutbacks in aerospace and defense spending, both of which have had a severe
impact on the economy in Southern California. California is still experiencing
some effects of the recession. However, economic data indicate that the State's
economy grew at a modest rate in 1995, and continued growth is expected in 1996.
On August 3, 1995, the Governor signed into law a new $57.5 billion budget
which, among other things, reduces welfare payments and increases education
spending from the previous fiscal year. The fiscal 1995-96 budget calls for
$44.1 billion in revenues and $43.4 billion in spending, an increase of over
3.5% and 4.0%, respectively, from the fiscal 1994-95 budget. Although the
State's budget projects an operating surplus of approximately $600 million, it
continues to rely on federal actions, both to fund programs relating to MediCal
and incarceration costs associated with illegal immigrants and to relieve the
State from federally mandated spending, which are not certain of occurring.
Accordingly, the surplus may not be realized unless the economy outperforms
expectations or spending falls below planned levels.
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 (California) became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in losses
suffered by the County's investment pool due to investments in high risk
"derivative" securities. In September 1995 the state legislature approved
legislation permitting Orange County to use for bankruptcy recovery $820 million
over 20 years in sales taxes previously earmarked for highways, transit and
development. Such legislation also permits the Governor to appoint a trustee to
take over Orange County's financial affairs if the County does not have a full
recovery plan filed with the Bankruptcy Court by May 1996.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. In August 1995 the credit rating of the county's long-term
bonds was downgraded for the third time since 1992 as a result of, and among
other things, severe operating deficits for the county's health care system. In
September 1995, federal and state aid to Los Angeles County totalling $514
million was pledged, providing a short-term solution to the County's budget
problems. Despite such efforts, the County is facing a potential budget gap of
$1.0 billion in the 1996-97 fiscal year.
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 generally is defined in the Rule to mean (i) A security
with a remaining maturity of 397 calendar days or less that has received a
short-term rating (or that has been issued by an issuer that has received a
short-term rating with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority and security with
the security) by the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) A security: (A) That at the time of
issuance had a remaining maturity of more than 397 calendar days but that has a
remaining maturity of 397 calendar days or less; and (B) Whose issuer has
received from the Requisite NRSROs a rating with respect to a class of debt
obligations (or any debt obligation within that class) that is now comparable in
priority and security with the security, in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (iii) An Unrated Security that is of
comparable quality to a security meeting the requirements of (i) or (ii) above,
as determined by the money market fund's board of directors.
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, with respect to 75% of its total assets, 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 that are "conduit securities" as that term is defined in the
Rule: (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
Active Assets California Tax-Free Trust 12
<PAGE>
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 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, 1996, the Trust had a net capital loss carryover of
approximately $11,800 of which $10,900 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. During the fiscal year ended June 30,
1996, the Trust had utilized capital loss carryovers of approximately $5,100.
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.
Active Assets California Tax-Free Trust 13
<PAGE>
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 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.
Active Assets California Tax-Free Trust 14
<PAGE>
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.
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
Active Assets California Tax-Free Trust 15
<PAGE>
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.
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, 1996 was 2.71%.
The effective annual yield on 2.71% is 2.74%, 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, 1996
was 5.04%. 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>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $430,773,691).............. $ 430,773,691
Cash......................................... 1,222,292
Interest receivable.......................... 2,297,311
Deferred organizational expenses............. 3,486
Prepaid expenses and other assets............ 11,964
-------------
TOTAL ASSETS......................... 434,308,744
-------------
LIABILITIES:
Payable for:
Investments purchased...................... 49,813,510
Investment management fee.................. 147,543
Plan of distribution fee................... 29,509
Shares of beneficial interest
repurchased.............................. 30
Accrued expenses............................. 99,988
-------------
TOTAL LIABILITIES.................... 50,090,580
-------------
NET ASSETS:
Paid-in-capital.............................. 384,229,943
Accumulated undistributed net investment
income..................................... 85
Accumulated net realized loss................ (11,864)
-------------
NET ASSETS........................... $ 384,218,164
-------------
-------------
NET ASSET VALUE PER SHARE, 384,229,943 shares
outstanding (unlimited shares authorized of
$.01 par value).............................
$1.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................... $12,316,979
-----------
EXPENSES
Investment management fee................... 1,781,282
Plan of distribution fee.................... 351,571
Transfer agent fees and expenses............ 73,519
Professional fees........................... 52,993
Shareholder reports and notices............. 36,587
Registration fees........................... 33,292
Trustees' fees and expenses................. 30,508
Custodian fees.............................. 21,790
Organizational expenses..................... 9,264
Other....................................... 7,126
-----------
TOTAL EXPENSES BEFORE EXPENSE OFFSET.... 2,397,932
LESS: EXPENSE OFFSET.................... (21,574)
-----------
TOTAL EXPENSES AFTER EXPENSE OFFSET..... 2,376,358
-----------
NET INVESTMENT INCOME................... 9,940,621
NET REALIZED GAIN........................... 5,093
-----------
NET INCREASE............................ $ 9,945,714
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30,1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................................................... $ 9,940,621 $ 8,592,974
Net realized gain.......................................................... 5,093 --
------------------ ------------------
Net increase........................................................... 9,945,714 8,592,974
Dividends from net investment income....................................... (9,940,586) (8,593,044)
Net increase from transactions in shares of beneficial interest............ 70,646,849 25,060,313
------------------ ------------------
Total increase......................................................... 70,651,977 25,060,243
NET ASSETS:
Beginning of period.......................................................... 313,566,187 288,505,944
------------------ ------------------
END OF PERIOD (including undistributed net investment income of $85 and $50,
respectively)............................................................... $ 384,218,164 $ 313,566,187
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
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's investment objective is to provide a high level of daily income
which is exempt from federal and California income tax consistent with stability
of principal and liquidity. The Trust was organized as a Massachusetts business
trust on July 10, 1991 and commenced operations on November 12, 1991.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 which have been reimbursed for the full amount
thereof. 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 the 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.
18
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
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 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, 1996, 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, 1996 aggregated $903,720,425 and $795,338,000, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $5,800.
The Trust has 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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $14,185. At June 30, 1996, the Trust had an accrued pension liability of
$30,297 which is 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, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 1,301,311,516 1,156,418,032
Shares issued in reinvestment of dividends....................................... 9,940,586 8,593,044
----------------- -----------------
1,311,252,102 1,165,011,076
Shares repurchased............................................................... (1,240,605,253) (1,139,950,763)
----------------- -----------------
Net increase in shares outstanding............................................... 70,646,849 25,060,313
----------------- -----------------
----------------- -----------------
</TABLE>
19
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAX STATUS--At June 30, 1996, the Trust had a capital loss
carryover of approximately $11,800 of which $10,900 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. During the year ended June
30, 1996, the Trust had utilized capital loss carryovers of approximately
$5,100.
7. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
20
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON DEMAND
THOUSANDS) RATE+ DATE* VALUE
- -------------- ------------ --------- -------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE
MUNICIPAL OBLIGATIONS (63.1%)
$ 4,000 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT)..................... 3.30% 07/08/96 $ 4,000,000
11,970 California Alternative Energy Finance Authority, General Electric
Capital Corp-Arroyo Energy Ser 1993 B (AMT).......................... 3.10 07/08/96 11,970,000
California Health Facilities Financing Authority,
2,700 Catholic HealthCare West 1988 Ser A.................................. 3.00 07/08/96 2,700,000
3,800 Childrens Hospital of Orange County Ser 1991 (MBIA).................. 3.00 07/08/96 3,800,000
5,360 Huntington Memorial Hospital Ser 1985................................ 3.15 07/08/96 5,360,000
6,900 Kaiser Permanente Ser 1993 A......................................... 3.00 07/08/96 6,900,000
19,000 Memorial Health Services Ser 1994.................................... 3.00 07/08/96 19,000,000
10,000 St Francis Medical Center 1995 Ser E (MBIA).......................... 3.00 07/08/96 10,000,000
4,570 St. Joseph Health System Ser 1985 B.................................. 3.00 07/01/96 4,570,000
California Housing Finance Agency,
3,000 1995 Ser E (AMT)..................................................... 3.50 08/01/96 3,000,000
5,000 Home Mtg 1996 Ser J (AMT) (WI)....................................... 4.00 07/24/97 5,000,000
California Pollution Control Financing Authority,
2,720 Chevron USA Ser 1983................................................. 4.00 11/15/96 2,727,096
7,300 Chevron USA Ser 1984 B............................................... 3.70 06/16/97 7,306,129
1,750 Noranda-Grey Eagle Mines Inc 1984 Ser B.............................. 3.40 07/08/96 1,750,000
5,000 North County Recycling Center 1991 Ser B............................. 2.80 07/08/96 5,000,000
10,000 Pacific Gas & Electric Co Ser 1996 B (AMT)........................... 3.40 07/08/96 10,000,000
6,700 Pacific Gas & Electric Co Ser 1996 F................................. 3.40 07/01/96 6,700,000
7,800 Stanislaus Inc Ser 1987 (AMT)........................................ 3.70 07/01/96 7,800,000
14,000 California Public Capital Improvements Financing Authority, Pooled Ser
1988 C............................................................... 3.65 09/15/96 14,000,000
California Statewide Communities Development Authority,
5,000 House Ear Institute 1993 Ser A COPs.................................. 3.35 07/01/96 5,000,000
9,000 Kaiser Permanente Ser 1995 COPs...................................... 3.00 07/08/96 9,000,000
5,000 St Joseph Health System Grp COPs..................................... 3.00 07/01/96 5,000,000
10,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1995 C.. 3.10 07/08/96 10,000,000
10,000 Long Beach, Memorial Health Services Ser 1991.......................... 3.00 07/08/96 10,000,000
2,900 Los Angeles, Multi-Family 1985 Ser K................................... 3.10 07/08/96 2,900,000
8,000 Los Angeles County Metropolitan Transportation Authority, Prop C Sales
Tax Refg Ser 1993 A (MBIA)........................................... 3.00 07/08/96 8,000,000
5,000 Northern California Public Power Agency, Geothermal No 3 1996 Ser A
(AMBAC).............................................................. 3.15 07/08/96 5,000,000
4,600 Ontario Redevelopment Agency, Daisy XX Assoc Ltd Ser 1984.............. 2.90 07/08/96 4,600,000
3,900 Redlands, Orange Village Apts 1988 Ser A (AMT)......................... 3.15 07/08/96 3,900,000
10,400 Sacramento County, Administration Center & Courthouse Ser 1990 COPs.... 3.10 07/08/96 10,400,000
6,600 San Jose-Santa Clara Clean Water Financing Authority, Sewer Ser 1995 B
(FGIC)............................................................... 3.15 07/08/96 6,600,000
7,000 Santa Clara County-El Camino Hospital District Hospital Facilities
Authority, Valley Medical Center 1985 Ser A.......................... 3.10 07/08/96 7,000,000
14,800 Southern California Public Power Authority, Transmission 1991 Refg Ser
(AMBAC).............................................................. 3.10 07/08/96 14,800,000
4,315 Tri City Housing Finance Agency, Single Family Ser 1994 (AMT).......... 4.00 07/01/96 4,315,000
4,310 Turlock, Irrigation District Ser 1988 A................................ 3.10 07/08/96 4,310,000
-------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE
MUNICIPAL OBLIGATIONS (AMORTIZED COST $242,408,225)........................................... 242,408,225
-------------
</TABLE>
21
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT (IN COUPON MATURITY ON DATE OF
THOUSANDS) RATE DATE PURCHASE VALUE
- -------------- ------------ --------- ------------- -------------
<C> <S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (32.7%)
$ 6,000 California, Ser 1996...................................... 3.55% 08/22/96 3.55 % $ 6,000,000
California Department of Water Resources,
4,400 Ser I................................................... 3.30 10/10/96 3.30 4,400,000
4,500 Ser I................................................... 3.30 10/30/96 3.30 4,500,000
California Pollution Control Financing Authority,
4,000 Pacific Gas & Electric Co 1988 Ser C.................... 3.30 07/25/96 3.30 4,000,000
4,000 Pacific Gas & Electric Co 1988 Ser C.................... 3.30 08/08/96 3.30 4,000,000
4,000 Pacific Gas & Electric Co 1988 Ser C.................... 3.30 08/15/96 3.30 4,000,000
2,100 Southern California Edison Co Ser 1985 B................ 3.05 08/13/96 3.05 2,100,000
3,000 Southern California Edison Co Ser 1985 A................ 3.50 08/13/96 3.50 3,000,000
3,500 Southern California Edison Co Ser 1985 A................ 3.30 10/08/96 3.30 3,500,000
2,900 Southern California Edison Co Ser 1985 A................ 3.40 10/08/96 3.40 2,900,000
5,000 Thermal Energy Dev Ptnrsp Ser A (AMT)................... 3.65 08/23/96 3.65 5,000,000
5,000 Chula Vista, San Diego Gas & Electric Co Ser 1992 C
(AMT)................................................... 3.55 08/29/96 3.55 5,000,000
5,000 Delmar Race Track Authority, 1993 BANs.................... 3.35 08/15/96 3.35 5,000,000
East Bay Municipal Utility District,
5,500 Water................................................... 3.40 08/27/96 3.40 5,500,000
3,500 Water................................................... 3.50 08/27/96 3.50 3,500,000
4,000 Long Beach Harbor Department, Ser A (AMT)................. 3.35 07/12/96 3.35 4,000,000
Los Angeles Department of Water & Power,
4,000 Electric................................................ 3.55 07/31/96 3.55 4,000,000
5,600 Electric................................................ 3.45 08/21/96 3.45 5,600,000
4,500 Metropolitan Water District of Southern California, Ser
1991.................................................... 3.45 08/26/96 3.45 4,500,000
6,000 Ser 1995 B.............................................. 3.40 09/19/96 3.40 6,000,000
5,000 Ser 1995 B.............................................. 3.40 09/24/96 3.40 5,000,000
Sacramento Municipal Utility District,
3,000 Ser I................................................... 3.35 07/30/96 3.35 3,000,000
4,000 Ser I................................................... 3.30 09/25/96 3.30 4,000,000
San Diego,
7,500 San Diego Gas & Electric Co Ser 1995 B.................. 3.50 08/06/96 3.50 7,500,000
4,050 San Diego Gas & Electric Co Ser 1995 A.................. 3.50 10/24/96 3.50 4,050,000
West & Central Basin Financing Authority,
3,000 West Basin Municipal Water District TRANs............... 3.05 08/07/96 3.05 3,000,000
4,000 West Basin Municipal Water District TRANs............... 3.50 08/19/96 3.50 4,000,000
PUERTO RICO
4,000 Puerto Rico Government Development Bank,.................. 3.65 09/11/96 3.65 4,000,000
4,500 Puerto Rico Government Development Bank,.................. 3.60 09/18/96 3.60 4,500,000
-------------
TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $125,550,000)................................................................... 125,550,000
-------------
</TABLE>
22
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT (IN COUPON MATURITY ON DATE OF
THOUSANDS) RATE DATE PURCHASE VALUE
- -------------- ------------ --------- ------------- -------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (16.3%)
<C> <S> <C> <C> <C> <C>
$ 9,000 California School Cash Reserve Program Authority, 1995
Pool Ser A, dtd 07/05/95................................ 4.75% 07/03/96 3.75 % $ 9,000,947
13,000 Contra Costa County, 1996-1997 TRANs, dtd 07/01/96 (WI)... 4.50 07/03/97 3.76 13,094,110
7,000 Riverside County, 1996-1997 Ser A TRANs, dtd 07/01/96
(WI).................................................... 4.50 06/30/97 3.90 7,040,250
7,000 San Bernadino County, 1996-1997 TRANs, dtd 07/01/96
(WI).................................................... 4.50 06/30/97 3.875 7,042,000
10,000 San Diego, 1996-1997 Ser A TANs, dtd 07/02/96 (WI)........ 4.50 07/02/97 3.75 10,072,200
9,000 Santa Barbara County, 1995-1996 Ser A TRANs, dtd
07/06/95................................................ 4.50 07/05/96 3.79 9,001,009
7,500 Ventura County, Ser 1996 TRANs, dtd 07/02/96 (WI)......... 4.75 07/02/97 3.85 7,564,950
-------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $62,815,466).................................................................... 62,815,466
-------------
TOTAL INVESTMENTS (AMORTIZED COST $430,773,691) (A)........................ 112.1% 430,773,691
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................. (12.1) (46,555,527)
----------- ------------
NET ASSETS................................................................. 100.0% $384,218,164
----------- ------------
----------- ------------
</TABLE>
- ------------
AMT ALTERNATIVE MINIMUM TAX.
BANS BOND ANTICIPATION NOTES.
COPS CERTIFICATES OF PARTICIPATION.
TANS TAX ANTICIPATION NOTES.
TRANS TAX AND REVENUE ANTICIPATION NOTES.
WI SECURITY PURCHASED ON A WHEN ISSUED BASIS.
+ RATE SHOWN IS RATE IN EFFECT AT JUNE 30, 1996.
DATE IN WHICH THE PRINCIPAL AMOUNT CAN BE
* RECOVERED THROUGH DEMAND.
(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 CORPORATION.
SEE NOTES TO FINANCIAL STATEMENTS
23
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, 1996, 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 four 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, 1996 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 7, 1996
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended June 30, 1996, the Trust paid to shareholders $0.028 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.
24
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
STATEMENTS OF ADDITIONAL INFORMATION
AUGUST 22, 1996 [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 22, 1996,
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............................................... 5
How Net Asset Value is Determined..................................... 6
Dividends, Distributions and Taxes.................................... 7
Financial Statements.................................................. 10
Report of Independent Accountants..................................... 14
APPENDIX
Investment Manager.................................................... A-1
Trustees and Officers................................................. A-7
Portfolio Transactions and Brokerage.................................. A-15
General Information................................................... A-16
Custodian and Transfer Agent.......................................... A-16
Independent Accountants............................................... A-17
Reports to Shareholders............................................... A-17
Legal Counsel......................................................... A-17
Experts............................................................... A-17
Registration Statement................................................ A-17
Information with Respect to Securities Ratings........................ A-17
</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 resale price, which consists of the purchase
price paid to the seller of the securities plus the accrued resale premium which
is defined as the amount specified in the repurchase agreement or the daily
amortization of the difference between the purchase price and the resale price
specified in the repurchase agreement. Such collateral will consist entirely of
securities that are direct obligations of, or that are fully guaranteed as to
principal and interest by, the United States or any agency thereof, and/or
certificates of deposit, bankers' acceptances which are eligible for acceptance
by a Federal Reserve Bank, and, if the seller is a bank, mortgage related
securities (as such term is defined in section 3(a)(41) of the Securities
Exchange Act of 1934 that, at the time the repurchase agreement is entered into,
are rated in the highest rating category by the Requisite NRSROs. Additionally,
the collateral must qualify the repurchase agreement for preferential treatment
under the Federal Deposit Insurance Act or the Federal Bankruptcy Code. 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. For the fiscal year ended June 30, 1996, the Trust
did not enter into repurchase agreements in an amount exceeding 5% of its total
net assets.
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
3
Active Assets Government Securities Trust
<PAGE>
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, 1996, the Trust did not lend any of its portfolio securities
and it has no intention of doing so in the foreseeable future.
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.
4
Active Assets Government Securities Trust
<PAGE>
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.
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.
5
Active Assets Government Securities Trust
<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 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 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
6
Active Assets Government Securities Trust
<PAGE>
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 generally is defined in the Rule to mean (i) A security
with a remaining maturity of 397 calendar days or less that has received a
short-term rating (or that has been issued by an issuer that has received a
short-term rating with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority and security with
the security) by the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) A security: (A) That at the time of
issuance had a remaining maturity of more than 397 calendar days but that has a
remaining maturity of 397 calendar days or less; and (B) Whose issuer has
received from the Requisite NRSROs a rating with respect to a class of debt
obligations (or any debt obligation within that class) that is now comparable in
priority and security with the security, in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (iii) An Unrated Security that is of
comparable quality to a security meeting the requirements of (i) or (ii) above,
as determined by the money market fund's board of directors.
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
- --------------------------------------------------------------------------------
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
7
Active Assets Government Securities Trust
<PAGE>
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.
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).
8
Active Assets Government Securities Trust
<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.
The Trust's current yield for the seven days ended June 30, 1996 was 4.67%.
The effective annual yield on 4.67% is 4.78%, assuming daily compounding.
9
Active Assets Government Securities Trust
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $571,666,258)........... $ 571,666,258
Cash...................................... 90,000
Interest receivable....................... 93
Prepaid expenses and other assets......... 21,226
-------------
TOTAL ASSETS...................... 571,777,577
-------------
LIABILITIES:
Payable for:
Investment management fee............... 220,885
Plan of distribution fee................ 45,223
Shares of beneficial interest
repurchased........................... 92
Accrued expenses and other payables....... 111,289
-------------
TOTAL LIABILITIES................. 377,489
-------------
NET ASSETS:
Paid-in-capital........................... 571,399,751
Accumulated undistributed net investment
income.................................. 337
-------------
NET ASSETS........................ $ 571,400,088
-------------
-------------
NET ASSET VALUE PER SHARE, 571,399,751
shares outstanding (unlimited shares
authorized of $.01 par value)............
$1.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................ $32,406,748
-----------
EXPENSES
Investment management fee................ 2,841,130
Plan of distribution fee................. 570,309
Transfer agent fees and expenses......... 121,843
Registration fees........................ 110,736
Professional fees........................ 45,683
Shareholder reports and notices.......... 37,493
Custodian fees........................... 33,551
Trustees' fees and expenses.............. 17,577
Other.................................... 8,619
-----------
TOTAL EXPENSES....................... 3,786,941
-----------
NET INVESTMENT INCOME AND NET
INCREASE............................ $28,619,807
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income and net increase............................... $ 28,619,807 $ 25,276,044
Dividends from net investment income................................. (28,619,562) (25,276,526)
Net increase from transactions in shares of beneficial interest...... 29,180,773 70,718,948
------------------ ------------------
Total increase................................................... 29,181,018 70,718,466
NET ASSETS:
Beginning of period.................................................... 542,219,070 471,500,604
------------------ ------------------
END OF PERIOD (including undistributed net investment income of $337
and $92, respectively)................................................ $ 571,400,088 $ 542,219,070
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
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's investment objectives are high current income, preservation of
capital and liquidity. The Trust was organized as a Massachusetts business trust
on March 30, 1981 and commenced operations on July 7, 1981.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates. 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 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 the 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 daily
net assets not exceeding $500 million; 0.425% to the portion of daily net assets
exceeding $500 million but not exceeding $750 million; 0.375% to the portion of
daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to
the portion of daily net assets exceeding $1 billion but not exceeding $1.5
billion; 0.325% to the portion of daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2
billion but not exceeding $2.5 billion; 0.275% to the portion of daily net
assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the
portion of 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.
11
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
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 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, 1996, 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, 1996 aggregated $7,798,198,359 and $7,800,002,083,
respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1996, the Trust had
transfer agent fees and expenses payable of approximately $8,800.
The Trust has 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, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,096. At June 30, 1996, the Trust had an accrued pension liability of
$48,883 which is 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, 1996 JUNE 30, 1995
----------------- -----------------
<S> <C> <C>
Shares sold...................................................................... 2,060,055,907 1,974,285,922
Shares issued in reinvestment of dividends....................................... 28,586,199 25,245,423
----------------- -----------------
2,088,642,106 1,999,531,345
Shares repurchased............................................................... (2,059,461,333) (1,928,812,397)
----------------- -----------------
Net increase in shares outstanding............................................... 29,180,773 70,718,948
----------------- -----------------
----------------- -----------------
</TABLE>
6. SELECTED PER SHARE DATA AND RATIOS--See the "Financial Highlights" table on
page 3 of this Prospectus.
12
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT (IN DESCRIPTION AND ON DATE OF
THOUSANDS) MATURITY DATES PURCHASE VALUE
- ----------- ------------------------------------------------------------------------------ ------------ -------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES (99.1%)
$ 101,925 Federal Farm Credit Bank
07/11/96 - 12/02/96......................................................... 4.86 - 5.55% $ 100,763,284
220,240 Federal Home Loan Banks
07/01/96 - 12/17/96......................................................... 4.95 - 5.54 217,770,349
113,336 Federal Home Loan Mortgage Corp.
07/03/96 - 09/27/96......................................................... 5.22 - 5.42 112,502,650
119,555 Federal National Mortgage Assoc.
07/03/96 - 10/11/96......................................................... 4.99 - 5.42 118,583,575
7,000 Student Loan Marketing Assoc.
07/01/96.................................................................... 5.52 6,997,853
10,000 Tennessee Valley Authority
08/29/96.................................................................... 5.37 9,910,025
-------------
TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST $566,527,736)................................ 566,527,736
-------------
U.S. GOVERNMENT OBLIGATION (0.9%)
5,000 U.S. Treasury Bill 10/17/96 (Amortized Cost $4,919,945)......................... 5.53 4,919,945
-------------
REPURCHASE AGREEMENT (0.1%)
219 The Bank of New York due 07/01/96 (dated 06/28/96; proceeds $218,670;
collateralized by $146,249 U.S. Treasury Note due 07/31/98 valued at $146,876
and $76,368 U.S. Treasury Note due 11/30/97 valued at $76,073) (Identified
Cost $218,577)................................................................ 5.125 218,577
-------------
TOTAL INVESTMENTS (AMORTIZED COST $571,666,258) (A)............................. 100.1% 571,666,258
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.................................. (0.1) (266,170)
------ -------------
NET ASSETS...................................................................... 100.0% $ 571,400,088
------ -------------
------ -------------
</TABLE>
- ------------
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
SEE NOTES TO FINANCIAL STATEMENTS
13
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, 1996, 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, 1996 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 7, 1996
14
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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 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, Dean Witter Capital Appreciation
Fund, Dean Witter Intermediate Term U.S. Treasury Trust, Dean Witter Information
Fund, Dean Witter Japan Fund, Dean Witter Income Builder Fund, 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
A-1
<PAGE>
following investment companies, for which TCW Funds Management, Inc. is the
investment adviser: TCW/DW Core Equity Trust, TCW/DW North American Government
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 Total Return Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom
Fund, 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 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.
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,
A-2
<PAGE>
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
$13,025,495, $15,638,717 and $19,802,633 during the fiscal years ended June 30,
1994, June 30, 1995 and June 30, 1996, respectively. The Tax-Free Trust accrued
to the Investment Manager compensation in the amounts of $6,138,744, $6,276,658
and $6,571,351 for the fiscal years ended June 30, 1994, June 30, 1995 and June
30, 1996, respectively. The California Tax-Free Trust accrued to the Investment
Manager compensation in the amounts of $1,328,271, $1,502,742 and $1,781,282 for
the fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996,
respectively. The Government Securities Trust accrued to the Investment Manager
compensation in the amounts of $2,594,882, $2,595,218 and $2,841,130 for the
fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996, 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,
1994, June 30, 1995 and June 30, 1996, 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 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).
A-3
<PAGE>
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 17, 1996, the Trustees approved the most recent continuance of the
Agreements until April 30, 1997.
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 17,
1996, the Trustees approved the most recent continuance of the Agreement until
April 30, 1997.
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, 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,
A-4
<PAGE>
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 17, 1996, the Trustees, including all of the
Independent Trustees, voted to approve the most recent continuance of the
Distribution Agreements until April 30, 1997.
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 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.
A-5
<PAGE>
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 $6,495,409, $1,560,662, $351,571 and $570,309,
respectively, to the Distributor pursuant to the Plans for the fiscal year ended
June 30, 1996. 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 --
$6,495,409; 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 -- $1,560,662; 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 -- $351,571; 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 --
$570,309.
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 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
A-6
<PAGE>
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 17, 1996, 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, 1997, 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 81 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>
Michael Bozic (55) ........... Chairman and Chief Executive Officer of Levitz
Trustee Furniture Corporation (since November, 1995);
c/o Levitz Furniture Director or Trustee of the Dean Witter Funds;
Corporation formerly President and Chief Executive Officer
6111 Broken Sound Parkway of Hills Department Stores (May, 1991-July,
Boca Raton, Florida 1995); formerly variously, Chairman, Chief
Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.;
Director of Eaglemark Financial Services,
Inc., the United Negro College Fund and
Wierton Steel Corporation.
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH
TRUSTS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Charles A. Fiumefreddo* Chairman, Chief Executive Officer and Director
(63) ......................... 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"); Director of various
DWDC subsidiaries and affiliates; formerly
Executive Vice President and Director of DWDC
(until February, 1993).
Edwin J. Garn (63) ........... 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
500 Huntsman Way 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); Director of
Franklin Quest (time management systems) and
John Alden Financial Corp.; Member of the
board of various civic and charitable
organizations.
John R. Haire (71) ........... 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; Chairman of the Audit Committee
and Chairman of the Committee of the
Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to
Education (1978-1989) and Chairman and Chief
Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978); Director of
Washington National Corporation (insurance).
Dr. Manuel H. Johnson (47) ... 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).
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH
TRUSTS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Michael E. Nugent (60) ....... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; Director or
c/o Triumph Capital, L.P. Trustee of the Dean Witter Funds; Trustee of
237 Park Avenue the TCW/DW Funds; formerly Vice President,
New York, New York Bankers Trust Company and BT Capital
Corporation (1984-1988); Director of various
business organizations.
Philip J. Purcell* (52) ...... 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 (66) ....... Retired; Director or Trustee of the Dean
Trustee Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Director of Citizens Utilities Company;
Weitzen Shalov & Wein formerly Executive Vice President and Chief
Counsel to the Independent Investment Officer of the Home Insurance
Trustees Company (August, 1991-September, 1995);
114 West 47th Street formerly Chairman and Chief Investment Officer
New York, New York 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).
Sheldon Curtis (64) .......... 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 (42) ....... 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 (49) ........ 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,
(48) ......................... 1991). Previously Vice President and
Vice President Investment Officer of Kidder Peabody Asset
Two World Trade Center Management.
New York, New York
Thomas F. Caloia (50) ........ First Vice President and Assistant Treasurer
Treasurer of InterCapital and DWSC; Treasurer of the
Two World Trade Center Dean Witter Funds and the TCW/DW Funds.
New York, New York
</TABLE>
- ------------------------
*Denotes Trustees who are "Interested persons" of the Trusts, as defined in the
Act.
A-9
<PAGE>
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, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital, and Director of DWTC, Robert S. Giambrone,
Senior Vice President of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC and James F. Willison, Senior Vice President of InterCapital are Vice
Presidents of the Fund. Barry Fink and Marilyn K. 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 and Carsten Otto, a Staff Attorney with InterCapital, are Assistant
Secretaries of the Trusts.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Statement of
Additional Information, there are a total of 81 Dean Witter Funds, comprised of
121 portfolios. As of June 30, 1996, the Dean Witter Funds had total net assets
of approximately $76.3 billion and more than five million shareholders.
Six Trustees (75% 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. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Four of the six
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
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. During the calendar year ended December 31, 1995,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
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 Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
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 audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
A-10
<PAGE>
Finally, the Board of each Fund has formed 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.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee 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 various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts 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 both
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 advisory, 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 Committee of the Independent Trustees and the Audit
Committee 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 and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee 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.
ADVANTAGES 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 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. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each 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.
COMPENSATION OF INDEPENDENT TRUSTEES
The Trusts pay each Independent Trustee an annual fee of $1,000 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 $750 and pay the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). 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 following tables illustrate the compensation paid to the Trusts'
Independent Trustees by the Trusts for the fiscal year ended June 30, 1996.
A-11
<PAGE>
TRUST COMPENSATION
ACTIVE ASSETS MONEY TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,750
John R. Haire................................................. 3,863(1)
Dr. Manuel H. Johnson......................................... 1,700
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,750
</TABLE>
ACTIVE ASSETS TAX-FREE TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,750
John R. Haire................................................. 3,863(1)
Dr. Manuel H. Johnson......................................... 1,700
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,750
</TABLE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,750
John R. Haire................................................. 3,863(1)
Dr. Manuel H. Johnson......................................... 1,700
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,750
</TABLE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,750
John R. Haire................................................. 3,863(1)
Dr. Manuel H. Johnson......................................... 1,700
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,750
</TABLE>
- ------------------------
(1) Of Mr. Haire's compensation from each of the Trusts, $3,150 was paid to him
as Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($750).
The following table illustrates the compensation paid to the Trusts'
Independent Trustees for the calendar year ended December 31, 1995 for services
to the 79 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 11 TCW/DW Funds that were in operation at December 31, 1995.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, 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.
A-12
<PAGE>
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
TOTAL
FOR SERVICE AS COMPENSATION
FOR SERVICE CHAIRMAN OF PAID
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 79 DEAN
OF 79 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Michael Bozic.............. $126,050 -- -- $126,050
Edwin J. Garn.............. 136,450 -- -- 136,450
John R. Haire.............. 98,450 $82,038 $217,350(2) 397,838
Dr. Manuel H. Johnson...... 136,450 82,038 -- 218,488
Michael E. Nugent.......... 124,200 75,038 -- 199,238
John L. Schroeder.......... 136,450 46,964 -- 183,414
</TABLE>
- ------------------------
(2) For the 79 Dean Witter Funds in operation at December 31, 1995. As noted
above, on July 1, 1996, Mr. Haire became Chairman of the Committee of the
Independent Trustees and the Audit Committee of the TCW/DW Funds in addition
to continuing to serve in such positions for the Dean Witter Funds.
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including 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 Adopting Fund, commencing as of
his or her retirement date and continuing for the remainder of his or her life,
an annual retirement benefit (the "Regular Benefit") equal to 25.0% of his or
her Eligible Compensation plus 0.4166666% 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 50.0% after ten years of service. The
foregoing percentages may be changed by the Board.(3) "Eligible Compensation" is
one-fifth of the total compensation earned by such Eligible Trustee for service
to the Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
The following tables illustrate the retirement benefits accrued to the
Trusts' Independent Trustees by the Trusts for the fiscal year ended June 30,
1996 and by the 57 Dean Witter Funds (including the Trusts) as of December 31,
1995, and the estimated retirement benefits for the Trusts' Independent Trustees
from the Trusts as of June 30, 1996 and from the 57 Dean Witter Funds as of
December 31, 1995.
RETIREMENT BENEFITS FROM THE TRUSTS AND ALL DEAN WITTER FUNDS
ACTIVE ASSETS MONEY TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION TRUST FUNDS TRUST FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 396 $ 26,359 $ 850 $ 51,550
Edwin J. Garn.................... 10 50.0 586 41,901 850 51,550
John R. Haire.................... 10 50.0 1,685 261,763 2,315 130,404
Dr. Manuel H. Johnson............ 10 50.0 242 16,748 850 51,550
Michael E. Nugent................ 10 50.0 418 30,370 850 51,550
John L. Schroeder................ 8 41.7 769 51,812 708 42,958
</TABLE>
A-13
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION TRUST FUNDS TRUST FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 396 $ 26,359 $ 850 $ 51,550
Edwin J. Garn.................... 10 50.0 586 41,901 850 51,550
John R. Haire.................... 10 50.0 1,685 261,763 2,315 130,404
Dr. Manuel H. Johnson............ 10 50.0 242 16,748 850 51,550
Michael E. Nugent................ 10 50.0 418 30,370 850 51,550
John L. Schroeder................ 8 41.7 769 51,812 708 42,958
</TABLE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION TRUST FUNDS TRUST FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 396 $ 26,359 $ 850 $ 51,550
Edwin J. Garn.................... 10 50.0 670 41,901 850 51,550
John R. Haire.................... 10 50.0 5,233 261,763 2,203 130,404
Dr. Manuel H. Johnson............ 10 50.0 267 16,748 850 51,550
Michael E. Nugent................ 10 50.0 503 30,370 850 51,550
John L. Schroeder................ 8 41.7 769 51,812 708 42,958
</TABLE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED ---------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION TRUST FUNDS TRUST FUNDS
- --------------------------------- ------------------- ----------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................... 10 50.0% $ 396 $ 26,359 $ 850 $ 51,550
Edwin J. Garn.................... 10 50.0 586 41,901 850 51,550
John R. Haire.................... 10 50.0 1,685 261,763 2,315 130,404
Dr. Manuel H. Johnson............ 10 50.0 242 16,748 850 51,550
Michael E. Nugent................ 10 50.0 418 30,370 850 51,550
John L. Schroeder................ 8 41.7 769 51,812 708 42,958
</TABLE>
- ------------------------
(3) 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.
(4) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (3) above.
A-14
<PAGE>
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of each Trust owned by the Trusts'
officers and Trustees as a group was less than 1 percent of each Trust's shares
of beneficial interest outstanding.
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, 1996.
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-15
<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-16
<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 Trust for the fiscal year ended
June 30, 1996, and the report of the independent accountants thereon, are set
forth in each Trust's Prospectus, and are incorporated herein by reference.
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
A-17
<PAGE>
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 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.
A-18
<PAGE>
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-19
<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, 1987 through the fiscal years
ended June 30, 1996 .............................. 3
Statement of assets and liabilities at
June 30, 1996 .................................... 6
Statement of operations for the year ended June
30, 1996 ......................................... 6
Statement of changes in net assets for the
years ended June 30, 1995 and June 30, 1996 ...... 6
Notes to Financial Statements .................... 7
Portfolio of Investments at June 30, 1996 ......... 9
(2) Financial statements included in the Statement of
Additional Information (Part B):
None
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
8. - Amendment to the Custody Agreement between the
Registrant and The Bank of New York
11. - Consent of Independent Accountants
16. - Schedule for Computation of Performance Quotations
27. - Financial Data Schedule
---------------------------------
All other exhibits were previously filed and are hereby incorporated
by reference.
1
<PAGE>
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 2, 1996
-------------- ------------------------
Shares of Beneficial Interest 275,156
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, 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
2
<PAGE>
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.
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
3
<PAGE>
(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 Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(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
4
<PAGE>
(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 Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
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 Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom 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
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
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
- ----------------- ------------------------------------------------
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; Member (since
January, 1993) and Chairman (since January, 1995)
of the Board of Directors of NASDAQ.
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
- ----------------- ------------------------------------------------
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment
Officer Vice President of the Dean Witter Funds and
Director of DWTC.
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.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC, Distributors and
DWTC and Director of DWTC; 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
- ----------------- ------------------------------------------------
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. 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 and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW 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.
Kirk Balzer
Vice President Vice President of Dean Witter Mid-Cap Growth Fund
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
Philip Casparius
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
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
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
- ----------------- ------------------------------------------------
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael Knox
Vice President Vice President of various Dean Witter Funds
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula 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.
LouAnne 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
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
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
- ----------------- ------------------------------------------------
Hugh Rose
Vice President
Robert Rossetti
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
Rafael Scolari
Vice President Vice President of Prime Income Trust
Peter Seeley Vice President of Dean Witter World
Vice President Wide 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.
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
11
<PAGE>
(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 Limited Term Municipal 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
(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 Premier 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 Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(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 Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
12
<PAGE>
(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.
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.
mm.aamt\partc.96
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 22nd day of August, 1996.
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. 18 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 08/22/96
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 08/22/96
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 08/22/96
--------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/ David M. Butowsky 08/22/96
--------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
8. - Amendment to the Custody Agreement between the
Registrant and The Bank of New York
11. - Consent of Independent Accountants
16. - Schedule for Computation of Performance
Quotations
27. - Financial Data Schedule
-------------------------------
All other exhibits were previously filed and are hereby incorporated
by reference.
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
Amendment made as of this 17th day of April, 1996 by and between Active
Assets Money Trust (the "Fund") and The Bank of New York (the "Custodian") to
the Custody Agreement between the Fund and the Custodian dated September 20,
1991 (the "Custody Agreement"). The Custody Agreement is hereby amended as
follows:
Article XV Section 8 of the Custody Agreement shall be deleted and be
replaced by Sections 8.(a), 8.(b) and 8.(c) as set forth below:
"8. (a) The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Securities and moneys
owned by the Fund. The Custodian shall indemnify the Fund against and save
the Fund harmless from all liability, claims, losses and demands whatsoever,
including attorneys' fees, howsoever arising or incurred as the result of the
failure of a subcustodian which is a banking insitution located in a foreign
country and identified on Schedule A attached hereto and as amended from time
to time upon mutual agreement of the parties (each, a "Subcustodian") to
exercise reasonable care with respect to the safekeeping of such Securities
and moneys to the same extent that the Custodian would be liable to the Fund
if the Custodian were holding such securities and moneys in New York. In the
event of any loss to the Fund by reason of the failure of the Custodian or a
Subcustodian to utilize reasonable care, the Custodian shall be liable to the
Fund only to the extent of the Fund's direct damages, to be determined based
on the market value of the Securities and moneys which are the subject of the
loss at the date of discovery of such loss and without reference to any
special conditions or circumstances.
8. (b) The Custodian shall not be liable for any loss which results from
(i) the general risk of investing, or (ii) investing or holding Securities and
moneys in a particular country including, but not limited to, losses resulting
from nationalization, expropriation or other governmental actions; regulation of
the banking or securities industry; currency restrictions, devaluations or
fluctuations; or market conditions which prevent the orderly execution of
securities transactions or affect the value of Securities or moneys.
8. (c) Neither party shall be liable to the other for any loss due to
forces beyond its control including, but not limited to, strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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:/s/ David A. Hughey
---------------------
Attest:
/s/ Robert M. Scanlan
- ------------------------
THE BANK OF NEW YORK
[SEAL] By:/s/ Steve Grunston
---------------------
Attest:
/s/ Vincent Blazewitcz
- ------------------------
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Argentina The Bank of Boston
Australia ANZ Banking Group Limited
Austria Girocredit Bank AG
Bangladesh* Standard Chartered Bank
Belgium Banque Bruxelles Lambert
Botswana* Stanbic Bank Botswana Ltd.
Brazil The Bank of Boston
Canada Royal Trust/Royal Bank of Canada
Chile The Bank of Boston/Banco de Chile
China Standard Chartered Bank
Colombia Citibank, N.A.
Denmark Den Danske Bank
Euromarket CEDEL
Euroclear
First Chicago Clearing Centre
Finland Union Bank of Finland
France Banque Paribas/Credit Commercial de France
Germany Dresdner Bank A.G.
Ghana* Merchant Bank Ghana Ltd.
Greece Alpha Credit Bank
Hong Kong Hong Kong and Shanghai Banking Corp.
Indonesia Hong Kong and Shanghai Banking Corp.
Ireland Allied Irish Bank
Israel Israel Discount Bank
Italy Banca Commerciale Italiana
Japan Yasuda Trust & Banking Co., Lt.
Korea Bank of Seoul
Luxembourg Kredietbank S.A.
Malaysia Hong Kong Bank Malaysia Berhad
Mexico Banco Nacional de Mexico (Banamex)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Limited
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Peru Citibank, N.A.
Philippines Hong Kong and Shanghai Banking Corp.
Poland Bank Handlowy w Warsawie
Portugal Banco Comercial Portugues
Singapore United Overseas Bank
South Africa Standard Bank of South Africa Limited
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
<PAGE>
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Hong Kong and Shanghai Banking Corp.
Thailand Siam Commercial Bank
Turkey Citibank, N.A.
United Kingdom The Bank of New York
United States The Bank of New York
Uruguay The Bank of Boston
Venezuela Citibank N.A.
Zimbabwe* Stanbic Bank Zimbabwe Ltd.
*Not yet 17(f)5 compliant
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 18 to the registration statement on Form N-JA (the
"Registration Statement") of our report dated August 7, 1996, relating to the
financial statements and financial highlights of Dean Witter Active Assets Money
Trust, which appears in such Prospectus. We also consent to the reference to us
under the heading "Financial Highlights" in such Prospectus and to the
references to us under the headings "Independent Accountants" and "Experts" in
the Statement of Additional Information constituting part of this Registration
Statement.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 22, 1996
<PAGE>
ACTIVE ASSET 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, 1996
(A - B) x 366/N
(1.000941 - 1) x 365/7 = 4.91%
The Trust's effective annualized yield for the seven days ending
June 30, 1996
365/N
A - 1
365/7
1.000941 - 1 = 5.03%
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
(1.000941 - 1) x 365/7
= 4.91%
((1.000941) x 52.142857 - 1)
= 5.03%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 7,160,110,336
<INVESTMENTS-AT-VALUE> 7,160,110,336
<RECEIVABLES> 13,060,782
<ASSETS-OTHER> 105,159
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,173,276,277
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,132,987
<TOTAL-LIABILITIES> 3,132,987
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,170,136,722
<SHARES-COMMON-STOCK> 7,170,136,722
<SHARES-COMMON-PRIOR> 5,708,906,497
<ACCUMULATED-NII-CURRENT> 6,568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 7,170,143,290
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 376,507,894
<OTHER-INCOME> 0
<EXPENSES-NET> 31,313,991
<NET-INVESTMENT-INCOME> 345,193,903
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 345,193,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (345,191,836)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,645,844,853
<NUMBER-OF-SHARES-REDEEMED> (25,529,029,685)
<SHARES-REINVESTED> 344,415,057
<NET-CHANGE-IN-ASSETS> 1,461,232,292
<ACCUMULATED-NII-PRIOR> 4,501
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,802,633
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,313,991
<AVERAGE-NET-ASSETS> 6,664,576,361
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .052
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.052)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
