<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1999
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. 22 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 23 /X/
-------------------
ACTIVE ASSETS MONEY TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
STUART M. STRAUSS, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
----------------
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
- ---
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS - AUGUST 23, 1999
ACTIVE ASSETS
MONEY TRUST
TAX-FREE TRUST
CALIFORNIA
TAX-FREE TRUST
GOVERNMENT
SECURITIES
TRUST
[COVER PHOTO]
FOUR DIFFERENT MONEY MARKET FUNDS OFFERED EXCLUSIVELY TO PARTICIPANTS
IN THE ACTIVE ASSETS ACCOUNT-Registered Trademark- FINANCIAL SERVICE PROGRAM
AND TO OTHER INVESTORS WHO HAVE BROKERAGE ACCOUNTS WITH DEAN WITTER REYNOLDS
FOR INFORMATION ON THE ACTIVE ASSETS PROGRAM, READ THE ENCLOSED
"CLIENT ACCOUNT AGREEMENT" AND/OR CALL TOLL FREE (800) 869-3326
OR IF YOU ARE IN NEW YORK CITY CALL (212) 392-5000.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
Eligible
Investors/Overview ...................................................... 1
The Funds
Active Assets Money
Trust Investment Objectives................................. 2
Principal Investment Strategies....................... 2
Principal Risks....................................... 3
Past Performance...................................... 4
Fees and Expenses..................................... 5
Active Assets
Tax-Free Trust Investment Objective.................................. 6
Principal Investment Strategies....................... 6
Principal Risks....................................... 7
Past Performance...................................... 8
Fees and Expenses..................................... 9
Active Assets
California
Tax-Free Trust Investment Objective.................................. 10
Principal Investment Strategies....................... 10
Principal Risks....................................... 11
Past Performance...................................... 12
Fees and Expenses..................................... 13
Active Assets
Government
Securities Trust Investment Objectives................................. 14
Principal Investment Strategies....................... 14
Principal Risks....................................... 15
Past Performance...................................... 16
Fees and Expenses..................................... 17
Fund Management ...................................................... 18
Shareholder Information Pricing Fund Shares................................... 19
How Are Fund Investments Made?........................ 19
How Are Fund Shares Sold?............................. 20
Distributions......................................... 22
Tax Consequences...................................... 23
The Funds' Financial
Information ...................................................... 24
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
</TABLE>
<PAGE>
ELIGIBLE INVESTORS/OVERVIEW
Active Assets Money Trust, Active Assets Tax-Free Trust, Active
Assets California Tax-Free Trust and Active Assets Government
Securities Trust (each, a Fund) are four separate money market funds
offered exclusively to: (i) participants in Dean Witter Reynolds'
Active Assets Account-Registered Trademark- Financial Service Program
(the Active Assets Program); and (ii) other investors that have a
brokerage account with Dean Witter Reynolds. (Dean Witter Reynolds is
affiliated with Morgan Stanley Dean Witter Advisors Inc., the Funds'
Investment Manager.)
The Active Assets Program offers its participants (Participants) a
Dean Witter brokerage account (an Active Assets Account) that is
linked to the Funds, a federally insured bank account, a
Visa-Registered Trademark- debit card and a checking account. Both
the debit card and the checkwriting privileges are offered through
Bank One, Columbus, N.A. The annual fee presently charged for
participating in the Active Assets Program is $80 ($100 for
businesses). At any time, Dean Witter may change the annual fee
charged and the services provided under the Program. For details on
the Active Assets Program please read the enclosed Client Account
Agreement carefully.
For details on how investments are made in the Funds, see "How Are
Fund Investments Made?" on p. 19.
1
<PAGE>
[Sidebar]
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
[End Sidebar]
THE FUNDS
ACTIVE ASSETS MONEY TRUST
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
Active Assets Money Trust is a money market fund that seeks to
provide high current income, preservation of capital and liquidity.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund invests in high quality, short-term debt
obligations. In selecting investments, the
"Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., seeks to maintain the Fund's share
price at $1.00. The share price remaining stable at
$1.00 means that the Fund would preserve the
principal value of your investment.
The Fund's investments include the following money
market instruments:
- - Commercial paper.
- - Corporate obligations.
- - Debt obligations of U.S.-regulated banks and instruments
secured by those obligations. These investments include
certificates of deposit.
- - Certificates of deposit of savings banks and savings and
loan associations.
- - Debt obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or its
instrumentalities.
- - Repurchase agreements, which may be viewed as a type of
secured lending by the Fund.
2
<PAGE>
[ICON] PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Fund will achieve its investment
objectives.
CREDIT AND INTEREST RATE RISKS. Principal risks of investing in the
Fund are associated with its debt obligation investments. All debt
obligations, such as bonds, are subject to two types of risk: credit
risk and interest rate risk. Credit risk refers to the possibility
that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt. Interest rate risk
refers to fluctuations in the value of a debt security resulting from
changes in the general level of interest rates.
The Investment Manager actively manages the Fund's assets to reduce
the risk of losing any principal investment as a result of credit or
interest rate risks. The Fund's assets are reviewed to maintain or
improve creditworthiness. In addition, federal regulations require
money market funds to invest only in debt obligations of high quality
and short-term maturities.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
corporate and governmental issuers in which the Fund invests do not
properly process and calculate date-related information from and
after January 1, 2000. While year 2000-related computer problems
could have a negative effect on the Fund, the Investment Manager and
its affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which
the Fund invests may be detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement
problems and liquidity issues. Corporate and governmental data
processing errors also may result in production problems for
individual companies and overall economic uncertainties. Earnings of
individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign
financial statements. Accordingly, the Fund's investments may be
adversely affected.
Shares of the Fund are not bank deposits and are not insured or
guaranteed by the FDIC or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per
share, if it is unable to do so, it is possible to lose money by
investing in the Fund.
3
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR OVER THE PAST 10 CALENDAR YEARS.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A COMPARABLE
MEASURE OF MARKET PERFORMANCE OVER TIME.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 9.04%
90 7.99%
91 5.77%
92 3.47%
93 2.80%
94 3.87%
95 5.72%
96 5.19%
97 5.32%
98 5.28%
</TABLE>
During the periods shown in the bar chart, the highest return for a
calendar quarter was 2.33% (quarter ended June 30, 1989) and the
lowest return for a calendar quarter was 0.67% (quarter ended June
30, 1993). Year-to-date total return information as of June 30,
1999 was 2.28%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Active Assets Money Trust 5.28% 5.07% 5.43%
- -------------------------------------------------------------------------------
Lipper Money Market Fund Index(1) 5.10% 4.90% 5.32%
- -------------------------------------------------------------------------------
</TABLE>
1 The Lipper Money Market Fund Index is an equally-weighted performance index
of the largest qualifying (based on net assets) in the Lipper Money Market
Funds Objective. The index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
index.
For the Fund's most recent 7-day annualized yield you may call (800)
869-NEWS.
4
<PAGE>
[Sidebar]
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund is a no-load
fund. The Fund does not impose any sales charges and does not charge
account or exchange fees.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
<S> <C>
- -----------------------------------------------------------------------
Management fee 0.27%
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees 0.10%
- -----------------------------------------------------------------------
Other expenses 0.06%
- -----------------------------------------------------------------------
Total annual Fund operating expenses 0.43%
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your
investment has a 5% return each year, and the Fund's operating
expenses remain the same. Although your actual costs may be higher or
lower, the table below shows your costs at the end of each period
based on these assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- --------------------------------------------------
$44 $138 $241 $542
- --------------------------------------------------
</TABLE>
5
<PAGE>
[Sidebar]
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
[End Sidebar]
ACTIVE ASSETS TAX-FREE TRUST
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Active Assets Tax-Free Trust is a money market fund that seeks to
provide as high a level of daily income exempt from federal personal
income tax as is consistent with stability of principal and
liquidity.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will invest in high quality, short-term
securities that are normally municipal obligations
that pay interest exempt from federal income taxes.
The Fund's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., seeks to maintain the Fund's
share price at $1.00. The share price remaining
stable at $1.00 means that the Fund would preserve
the principal value of your investment.
Municipal obligations are securities issued by state
and local governments, and their agencies. These
securities typically are "general obligation" or
"revenue" bonds, notes or commercial paper. General
obligation securities are secured by the issuer's
faith and credit, as well as its taxing power, for
payment of principal and interest. Revenue bonds,
however, are generally payable from a specific
revenue source. They are issued to fund a wide
variety of public and private projects in sectors
such as transportation, education and industrial
development. Included within the revenue bonds
category are participations in lease obligations and
installment purchase contracts of municipalities.
The Fund has a fundamental policy of investing at
least 80% of its total assets in securities the
interest on which is exempt from federal personal
income tax. This policy may not be changed without
shareholder approval.
The Fund may invest up to 20% of its total assets in securities that
pay interest income subject to the "alternative minimum tax," and
some taxpayers may have to pay tax on a Fund distribution of this
income; see the "Tax Consequences" section of this PROSPECTUS for
more details.
6
<PAGE>
[ICON] PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Fund will achieve its investment
objective.
CREDIT AND INTEREST RATE RISKS. Principal risks of investing in the
Fund are associated with its municipal investments. Municipal
obligations, as with all debt securities, are subject to two types of
risks: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security
will be unable to make interest payments and repay the principal on
its debt. Interest rate risk, another risk of debt securities, refers
to fluctuations in the value of a fixed-income security resulting
from changes in the general level of interest rates.
The Investment Manager, however, actively manages the Fund's assets
to reduce the risk of losing any principal investment as a result of
credit or interest rate risks. The Fund's assets are reviewed to
maintain or improve creditworthiness. In addition, federal
regulations require money market funds, such as the Fund, to invest
only in debt obligations of high quality and short-term maturities.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
governmental issuers in which the Fund invests do not properly
process and calculate date-related information from and after January
1, 2000. While year 2000-related computer problems could have a
negative effect on the Fund, the Investment Manager and its
affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which
the Fund invests may be detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement
problems and liquidity issues. Governmental data processing errors
also may result in overall economic uncertainties. Individual issuers
will be affected by remediation costs, which may be substantial.
Accordingly, the Fund's investments may be adversely affected.
Shares of the Fund are not bank deposits and are not insured or
guaranteed by the FDIC or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per
share, if it is unable to do so, it is possible to lose money by
investing in the Fund.
7
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR OVER A 10-YEAR PERIOD.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A COMPARABLE
MEASURE OF MARKET PERFORMANCE OVER TIME.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 5.96%
90 5.51%
91 4.08%
92 2.53%
93 1.99%
94 2.38%
95 3.36%
96 2.98%
97 3.14%
98 2.95%
</TABLE>
During the periods shown in the bar chart, the highest return for a
calendar quarter was 1.59% (quarter ended June 30, 1989) and the
lowest return for a calendar quarter was 0.46% (quarter ended March
31, 1994). Year-to-date total return information as of June 30,
1999 was 1.27%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
------------------------------------------------------------------------------
Active Assets Tax-Free Trust 2.95% 2.96% 3.48%
- -------------------------------------------------------------------------------
Lipper Tax-Exempt Money Market
Funds Index(1) 3.04% 3.06% 3.58%
- -------------------------------------------------------------------------------
</TABLE>
1 The Lipper Tax-Exempt Money Market Fund Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Tax-Exempt Money Market Funds objective. The index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this index.
For the Fund's most recent 7-day annualized yield you may call (800)
869-NEWS.
8
<PAGE>
[Sidebar]
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund is a no-load
fund. The Fund does not impose any sales charges and does not charge
account fees.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
<S> <C>
- -----------------------------------------------------------------------
Management fee 0.39%
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees 0.10%
- -----------------------------------------------------------------------
Other expenses 0.03%
- -----------------------------------------------------------------------
Total annual Fund operating expenses 0.52%
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
This example shows what expenses you could pay over time. The example
assumes that you invest $10,000 in the Fund, your investment has a 5%
return each year, and the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, the table below
shows your costs at the end of each period based on these
assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- --------------------------------------------------
$53 $168 $292 $656
- --------------------------------------------------
</TABLE>
9
<PAGE>
[Sidebar]
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
[End Sidebar]
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Active Assets California Tax-Free Trust is a money market fund that
seeks to provide as high a level of daily income exempt from federal
and California personal income tax as is consistent with stability of
principal and liquidity.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will invest in high quality, short-term securities that are
normally municipal obligations that pay interest exempt from federal
and California income taxes. The Fund's "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc., seeks to maintain the Fund's share
price at $1.00. The share price remaining stable at $1.00 means that
the Fund would preserve the principal value of your investment.
The Investment Manager generally invests substantially all of the
Fund's assets in California municipal obligations. The interest on
these investments is exempt from federal and California state income
tax. The Fund may invest up to 20% of its assets in securities that
pay interest income subject to the "alternative minimum tax," and
some taxpayers may have to pay tax on a Fund distribution of this
income; see the "Tax Consequences" section of this PROSPECTUS for
more details. Municipal obligations are securities issued by state
and local governments and regional government authorities. These
securities typically are "general obligation" or "revenue" bonds,
notes or commercial paper. General obligation securities are secured
by the issuer's faith and credit, as well as its taxing power, for
payment of principal and interest. Revenue bonds, however, are
generally payable from a specific revenue source. They are issued to
fund a wide variety of public and private projects in sectors such as
transportation, education and industrial development. Included within
the revenue bonds category are participations in lease obligations
and installment contracts of municipalities.
The Fund has a fundamental policy of investing at least 80% of its
total assets in securities the interest on which is exempt from
federal and California personal income tax. This policy may not be
changed without shareholder approval.
10
<PAGE>
[ICON] PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Fund will achieve its investment
objective.
CREDIT AND INTEREST RATE RISKS. A principal risk of investing in the
Fund is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal
obligations, as with all debt securities, are subject to two types of
risks: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security
will be unable to make interest payments and repay the principal on
its debt. However, unlike most fixed-income mutual funds, the Fund is
subject to the added credit risk of concentrating its investments in
a single state -- California -- and its municipalities. Because the
Fund concentrates its investments in securities issued by California
state and local governments and government authorities, the Fund
could be affected by political, economic and regulatory developments
concerning these issuers. Should any difficulties develop concerning
California issuers' ability to pay principal and/or interest on their
debt obligations, the Fund's value and yield could be adversely
affected.
Interest rate risk, another risk of debt securities, refers to
fluctuations in the value of a fixed-income security resulting from
changes in the general level of interest rates.
The Investment Manager, however, actively manages the Fund's assets
to reduce the risk of losing any principal investment as a result of
credit or interest rate risks. The Fund's assets are reviewed to
maintain or improve creditworthiness. In addition, federal
regulations require money market funds, such as the Fund, to invest
only in debt obligations of high quality and short-term maturities.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
governmental issuers in which the Fund invests do not properly
process and calculate date-related information from and after January
1, 2000. While year 2000-related computer problems could have a
negative effect on the Fund, the Investment Manager and its
affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which
the Fund invests may be detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement
problems and liquidity issues. Governmental data processing errors
also may result in overall economic uncertainties. Individual issuers
will be affected by remediation costs, which may be substantial.
Accordingly, the Fund's investments may be adversely affected.
Shares of the Fund are not bank deposits and are not insured or
guaranteed by the FDIC or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per
share, if it is unable to do so, it is possible to lose money by
investing in the Fund.
11
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR DURING THE LIFE OF THE FUND.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A COMPARABLE
MEASURE OF MARKET PERFORMANCE OVER TIME AND ASSUME YOU SOLD YOUR SHARES AT THE
END OF EACH PERIOD.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1992 2.14%
93 1.72%
94 2.20%
95 3.10%
96 2.73%
97 2.88%
98 2.58%
</TABLE>
During the periods shown in the bar chart, the highest return for a
calendar quarter was 0.82% (quarter ended June 30, 1995) and the
lowest return for a calendar quarter was 0.41% (quarter ended March
31, 1994). Year-to-date total return as of June 30, 1999 was 1.10%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- ----------------------------------------------------------------------------------
LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 11/12/91)
<S> <C> <C> <C>
---------------------------------------------------------------------------------
Active Assets California Tax-Free
Trust 2.58% 2.70% 2.51%
- ----------------------------------------------------------------------------------
Lipper California Tax-Exempt Money
Market Index(1) 2.77% 3.00% 2.82%(2)
- ----------------------------------------------------------------------------------
</TABLE>
1 The Lipper California Tax-Exempt Money Market Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper California Tax-Exempt Money Market objective. The index, which
is adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are currently
30 funds represented in this index.
2 For the period November 30, 1991 to December 31, 1998.
For the Fund's most recent 7-day annualized yield you may call (800)
869-NEWS.
12
<PAGE>
[Sidebar]
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund is a no-load
fund. The Fund does not impose any sales charges and does not charge
account fees.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
<S> <C>
- -----------------------------------------------------------------------
Management fee 0.48%
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees 0.10%
- -----------------------------------------------------------------------
Other expenses 0.05%
- -----------------------------------------------------------------------
Total annual Fund operating expenses 0.63%
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your
investment has a 5% return each year, and the Fund's operating
expenses remain the same. Although your actual costs may be higher or
lower, the table below shows your costs at the end of each period
based on these assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- --------------------------------------------------
$64 $201 $349 $782
- --------------------------------------------------
</TABLE>
13
<PAGE>
[Sidebar]
MONEY MARKET
A MUTUAL FUND HAVING THE GOAL TO SELECT SECURITIES TO PROVIDE CURRENT INCOME
WHILE SEEKING TO MAINTAIN A STABLE SHARE PRICE OF $1.00.
YIELD
THE FUND'S YIELD REFLECTS THE ACTUAL INCOME THE FUND PAYS TO YOU EXPRESSED AS A
PERCENTAGE OF THE FUND'S SHARE PRICE. BECAUSE THE FUND'S INCOME FROM ITS
PORTFOLIO SECURITIES WILL FLUCTUATE, THE INCOME IT IN TURN DISTRIBUTES TO YOU
AND THE FUND'S YIELD WILL VARY.
[End Sidebar]
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
[ICON] INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
Active Assets Government Securities Trust is a money market fund that
seeks to provide high current income, preservation of capital and
liquidity.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will invest in high quality, short-term U.S. Government
securities. The Fund's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., seeks to maintain the Fund's share price at
$1.00. The share price remaining stable at $1.00 means that the Fund
would preserve the principal value of your investment.
The U.S. Government securities that the Fund may purchase include:
- U.S. Treasury bills, notes and bonds, all of which
are direct obligations of the U.S. Government.
- Securities issued by agencies and instrumentalities
of the U.S. Government which are backed by the full
faith and credit of the United States. Among the
agencies and instrumentalities issuing these
obligations are the Government National Mortgage
Association and the Federal Housing Administration.
- Securities issued by agencies and instrumentalities
which are not backed by the full faith and credit
of the United States, but whose issuing agency or
instrumentality has the right to borrow from the
U.S. Treasury to meet its obligations. Among these
agencies and instrumentalities are the Federal
National Mortgage Association, the Federal Home
Loan Mortgage Corporation and the Federal Home Loan
Banks.
- Securities issued by agencies and instrumentalities
which are backed solely by the credit of the
issuing agency or instrumentality. Among these
agencies and instrumentalities is the Federal Farm
Credit System.
The Fund also may invest up to 10% of its total assets in FDIC
insured certificates of deposit of banks and savings and loan
institutions.
In addition, the Fund may invest in repurchase agreements which may
be viewed as a type of secured lending by the Fund.
14
<PAGE>
[ICON] PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Fund will achieve its investment
objectives.
CREDIT AND INTEREST RATE RISKS. A principal risk of investing in the
Fund is associated with its U.S. Government securities investments,
which are subject to two types of risks: credit risk and interest
rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and repay the
principal on its debt. Interest rate risk, another risk of debt
securities, refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest
rates.
Credit risk is minimal with respect to the Fund's U.S. Government
securities investments. Repurchase agreements involve a greater
degree of credit risk. The Investment Manager, however, actively
manages the Fund's assets to reduce the risk of losing any principal
investment as a result of credit or interest rate risks. In addition,
federal regulations require money market funds, such as the Fund, to
invest only in debt obligations of high quality and short-term
maturities.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
governmental issuers in which the Fund invests do not properly
process and calculate date-related information from and after January
1, 2000. While year 2000-related computer problems could have a
negative effect on the Fund, the Investment Manager and its
affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which
the Fund invests may be detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement
problems and liquidity issues. Governmental data processing errors
also may result in production problems for individual companies and
overall economic uncertainties. Earnings of individual issuers will
be affected by remediation costs, which may be substantial and may be
reported inconsistently in U.S. and foreign financial statements.
Accordingly, the Fund's investments may be adversely affected.
Shares of the Fund are not bank deposits and are not insured or
guaranteed by the FDIC or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per
share, if it is unable to do so, it is possible to lose money by
investing in the Fund.
15
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR OVER THE PAST 10 CALENDAR YEARS.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A COMPARABLE
MEASURE OF MARKET PERFORMANCE OVER TIME.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 8.61%
90 7.63%
91 5.52%
92 3.25%
93 2.57%
94 3.61%
95 5.40%
96 4.89%
97 4.99%
98 4.96%
</TABLE>
During the periods shown in the bar chart, the highest return for a
calendar quarter was 2.24% (quarter ended June 30, 1989) and the
lowest return for a calendar quarter was 0.62% (quarter ended June
30, 1993). Year-to-date total return information as of June 30,
1999 was 2.15%.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Active Assets Government
Securities Trust 4.96% 4.77% 5.13%
- -------------------------------------------------------------------------------
Lipper U.S. Government Money
Market Funds Index(1) 4.95% 4.79% 5.19%
- -------------------------------------------------------------------------------
</TABLE>
1 The Lipper U.S. Government Money Market Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper U.S. Government Money Market Funds objective. The index, which
is adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are currently
30 funds represented in this index.
For the Fund's most recent 7-day annualized yield you may call (800)
869-NEWS.
16
<PAGE>
[Sidebar]
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund is a no-load
fund. The Fund does not impose any sales charges and does not impose
account fees.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
<S> <C>
- -----------------------------------------------------------------------
Management fee 0.46%
- -----------------------------------------------------------------------
Distribution and service (12b-1) fees 0.10%
- -----------------------------------------------------------------------
Other expenses 0.05%
- -----------------------------------------------------------------------
Total annual Fund operating expenses 0.61%
- -----------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your
investment has a 5% return each year, and the Fund's operating
expenses remain the same. Although your actual costs may be higher or
lower, the table below shows your costs at the end of each period
based on these assumptions.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
- --------------------------------------------------
$63 $196 $342 $765
- --------------------------------------------------
</TABLE>
17
<PAGE>
[Sidebar]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
THE INVESTMENT MANAGER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND TOGETHER WITH MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC., ITS
WHOLLY-OWNED SUBSIDIARY, HAS MORE THAN $137 BILLION IN ASSETS UNDER MANAGEMENT
OR ADMINISTRATION AS OF JULY 31, 1999.
[End Sidebar]
FUND MANAGEMENT
Each Fund has retained the Investment Manager -- Morgan Stanley Dean
Witter Advisors Inc. -- to provide administrative services, manage
its business affairs and invest its assets, including the placing of
orders for the purchase and sale of portfolio securities. The
Investment Manager is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses: securities, asset management and credit services. Its
main business office is located at Two World Trade Center, New York,
NY 10048.
Each Fund pays the Investment Manager a monthly
management fee as full compensation for the services
and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Manager. The fee
is based on each Fund's average daily net assets.
For the fiscal year ended June 30, 1999, each Fund
accrued total compensation to the Investment Manager
as follows:
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT
FEE ACCRUED
(AS A PERCENT OF
FUND FUND'S AVERAGE NET ASSETS)
<S> <C>
- ------------------------------------------------------------------------------
Active Assets Money Trust 0.27%
- ------------------------------------------------------------------------------
Active Assets Tax-Free Trust 0.39%
- ------------------------------------------------------------------------------
Active Assets California Tax-Free Trust 0.48%
- ------------------------------------------------------------------------------
Active Assets Government Securities Trust 0.46%
- ------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
[Sidebar]
CONTACTING A
FINANCIAL ADVISOR
IF YOU ARE NEW TO THE
MORGAN STANLEY DEAN
WITTER FAMILY OF FUNDS AND
WOULD LIKE TO CONTACT A
FINANCIAL ADVISOR, CALL
(800) THE-DEAN FOR THE
TELEPHONE NUMBER OF THE
MORGAN STANLEY DEAN
WITTER OFFICE NEAREST YOU.
YOU MAY ALSO ACCESS OUR
OFFICE LOCATOR ON OUR
INTERNET SITE AT:
www.msdw.com/individual/funds
[End Sidebar]
SHAREHOLDER INFORMATION
[ICON] PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of each Fund's shares, called "net asset value," is based
on the amortized cost of the Fund's portfolio securities. The
amortized cost valuation method involves valuing a debt obligation in
reference to its cost, rather than market forces.
The net asset value per share of each Fund is determined once daily
at 12:00 noon Eastern time on each day that the New York Stock
Exchange is open. Shares will not be priced on days that the New York
Stock Exchange is closed.
[ICON] HOW ARE FUND INVESTMENTS MADE?
- --------------------------------------------------------------------------------
PARTICIPANTS:
Cash balances in your Active Assets Account that are not invested in
securities will be automatically invested in shares of the Fund of
your choice on days that the New York Stock Exchange is open for
business (a "business day"). Alternatively, you may choose to have
your cash balances deposited in a federally insured bank account
selected by Dean Witter. (Currently, the designated bank account is
held with MountainWest Financial Corporation.) You may change your
selection at any time to any of the other three Funds (or to deposit
account balances in the designated bank account) by notifying your
Morgan Stanley Dean Witter Financial Advisor. Upon selecting a
different Fund, all of your shares held in the previously designated
Fund will automatically be sold and reinvested in shares of the newly
selected Fund.
Your Active Assets Account will be reviewed on each business day to
determine whether the account has a cash balance as a result of any
credits accrued that day. Credits to your account may arise, for
example, from sales of securities or from direct cash payments into
the account. The cash balance, reduced by any debits to your Active
Assets Account incurred that day, will be used to purchase shares of
the Fund of your choice on the next business day at the Fund's share
price calculated on that next day. Debits may arise from purchases of
securities, margin calls, other account charges, Visa debit card
purchases or cash advances, and any checks written against the
account.
Dividends are not earned until the next business day following the
purchase of Fund shares.
If you make a cash payment into your Active Assets Account after your
Financial Advisor's deadline for processing checks has passed, then
investment in the Fund of your choice may not occur until the second
business day after the payment is made (and
19
<PAGE>
at the price of the Fund's shares calculated on that second business
day). No payments into the Active Assets Account will be credited
until federal or other immediately available funds become available
to the account.
There is no minimum investment amount for Participants, although the
current minimum initial deposit into an Active Assets Account is
$5,000 in cash or securities.
NON-PARTICIPANTS:
To invest in any of the Funds, contact your Morgan Stanley Dean
Witter Financial Advisor. Your Financial Advisor will assist you
step-by-step with the procedures to invest in a Fund. The minimum
investment amount is $5,000 for initial investments. We may offer
reduced minimums or automatic investment options for investors that
have certain brokerage accounts held with Dean Witter. Fund shares
are purchased at the next share price calculated after we receive
your purchase order (accompanied by federal or other immediately
available funds).
Non-Participants considering investing in any of the Funds should
recognize that the Funds have been created specifically for the
Active Assets Program and, as such, the Funds do not offer typical
money market fund features such as checkwriting privileges to
non-Participants. (We do offer other comparable money market funds
that have these features. For more information, call your Morgan
Stanley Dean Witter Financial Advisor.)
PLAN OF DISTRIBUTION:
Each Fund has adopted a Plan of Distribution in accordance with Rule
12b-1 under the Investment Company Act of 1940. The Plan allows each
Fund to pay distribution fees for the sale and distribution of these
shares. It also allows each Fund to pay for services to shareholders.
Because these fees are paid out of each Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
[ICON] HOW ARE FUND SHARES SOLD?
- --------------------------------------------------------------------------------
PARTICIPANTS:
AUTOMATIC SALES. Your Active Assets Account will be reviewed on each
business day to determine whether the account has a negative balance
as a result of debits incurred on that day. Of course, the negative
balance will be reduced by any credits accrued to the account on that
day. On the next business day, a sufficient number of your Fund
shares will automatically be sold to equal the value of the negative
balance. The sale price of the Fund's shares will be the share price
calculated on that next business day. If the value of your Fund
shares is insufficient to equal the negative balance, Dean Witter is
authorized to take the actions described in your Client Account
Agreement, including, if you are eligible, applying a margin loan to
your account to cover outstanding debits.
20
<PAGE>
In addition, if Dean Witter or Bank One exercises its right to
terminate the Active Assets Program, then all of your Fund shares
will be sold.
VOLUNTARY SALES. If you wish to sell all or some of your Fund shares,
you may do so by:
(a) writing a Bank One check against your account in an amount equal
to the value of shares you wish to sell (there may be fees
imposed for writing these checks);
(b) obtaining a cash advance using your Bank One Visa debit card
(there may be fees imposed on cash advances and you may be
limited to withdrawing up to $5,000 per day); or
(c) calling your Morgan Stanley Dean Witter Financial Advisor.
Once you have taken any of these steps, Fund shares will be sold at
the Fund's share price calculated on the next business day. Proceeds
from your sale of Fund shares will be reduced by any outstanding
debits to your Active Assets Account. Prior to selling any Fund
shares through any of the above methods you should call the Active
Assets information number appearing on the cover of this PROSPECTUS
to determine the value of Fund shares you own. If there is an
insufficient value of Fund shares to cover your account withdrawals
(I.E., debit card purchases or checks written), then Dean Witter may
take the authorized steps described in the Client Account Agreement.
NON-PARTICIPANTS:
You can sell some or all of your Fund shares at any time. Your shares
will be sold at the next share price calculated after we receive your
order to sell as described below.
To sell your shares, simply call your Morgan Stanley Dean Witter
Financial Advisor or other authorized financial representative.
Payment will be sent to the address to which the account is
registered or deposited in your brokerage account.
You may also sell your shares by writing a "letter of instruction"
that includes:
- your account number;
- the dollar amount or the number of shares you wish to sell; and
- the signature of each owner as it appears on the account.
If you are requesting payment to anyone other than the registered
owner(s) or that payment be sent to any address other than the
address of the registered owner(s) or pre-designated bank account,
you will need a signature guarantee. You can generally obtain a
signature guarantee from an eligible guarantor acceptable to Morgan
Stanley Dean Witter Trust FSB. (You should contact Morgan Stanley
Dean Witter Trust FSB at (800) 869-NEWS for a determination as to
whether a particular institution is an eligible guarantor.) A notary
public CANNOT provide a signature guarantee. Additional documentation
may be required for shares held by a corporation, partnership,
trustee or
21
<PAGE>
executor. Mail the letter to Morgan Stanley Dean Witter Trust FSB at
P.O. Box 983, Jersey City, NJ 07303. A check will be mailed to the
name(s) and address in which the account is registered, or otherwise
according to your instructions.
After we receive your complete instructions to sell as described
above, a check will be mailed to you within seven days, although we
will attempt to make payment within one business day. Payment may
also be sent to your brokerage account.
Certain Dean Witter brokerage accounts held by non-Participants may
be eligible for an automatic redemption option where Fund shares are
sold automatically under specified circumstances. For more
information contact your Morgan Stanley Dean Witter Financial
Advisor.
PARTICIPANTS AND NON-PARTICIPANTS:
Payment for Fund shares sold may be postponed or the right to have
Fund shares sold may be suspended under unusual circumstances. If you
request to sell shares that were recently purchased by check, payment
of the sale proceeds may be delayed for the minimum time needed to
verify that the check has been honored (not more than fifteen days
from the time the check is received).
[ICON] DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund passes substantially all of its earnings along to its
investors as "distributions." Each Fund earns interest from
fixed-income investments. These amounts are passed along to Fund
shareholders as "income dividend distributions." Each Fund realizes
capital gains whenever it sells securities for a higher price than it
paid for them. These amounts may be passed along as "capital gain
distributions;" the Investment Manager does not anticipate that there
will be significant capital gain distributions.
Each Fund declares income dividends, payable on each day the New York
Stock Exchange is open for business, of all of its daily net income
to shareholders of record as of 12:00 noon the preceding business
day. Dividends are reinvested automatically in additional shares of
the Fund (rounded to the last 1/100 of a share). With respect to each
of Active Assets Money Trust and Active Assets Government Securities
Trust, its short-term capital gains, if any, are declared and payable
on each business day. The other Funds' short-term capital gains, if
any, are distributed periodically. Each Fund's long-term capital
gains, if any, are distributed at least once in December.
22
<PAGE>
[ICON] TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your investment in a
Fund will be taxed. The tax information in this PROSPECTUS is
provided as general information. You should consult your own tax
professional about the tax consequences of an investment in a Fund.
Your income dividend distributions from Active Assets Money Trust and
Active Assets Government Securities Trust are normally subject to
federal and state income tax when they are paid.
Income dividend distributions from Active Assets Tax-Free Trust are
normally exempt from federal income tax and will generally be subject
to state income tax. Income dividend distributions from Active Assets
California Tax-Free Trust are exempt from federal and California
state income taxes -- to the extent they are derived from California
municipal obligations. With respect to these two Funds, income
derived from certain portfolio securities may be subject to federal,
state and/or local income taxes.
With respect to Active Assets Tax-Free Trust and Active Assets
California Tax-Free Trust, income derived from certain municipal
securities may be subject to the federal "alternative minimum tax."
Certain tax-exempt securities whose proceeds are used to finance
private, for-profit organizations are subject to this special tax
system that ensures that individuals pay at least some federal taxes.
Although interest on these securities is generally exempt from
federal income tax, some taxpayers who have many tax deductions or
exemptions nevertheless may have to pay tax on the income.
If a Fund makes any capital gain distributions, those distributions
will normally be subject to federal and state income tax when they
are paid. Any short-term capital gain distributions are taxable to
you as ordinary income. Any long-term capital gain distributions are
taxable to you as long-term capital gains, no matter how long you
have owned shares in a Fund.
Every January, you will be sent a statement (IRS Form 1099-DIV)
showing the distributions paid to you in the previous year. The
statement provides full information on your dividends and capital
gains for tax purposes.
You should provide your social security or tax identification number.
By providing this information, you will avoid being subject to a
federal backup withholding tax of 31% on taxable distributions and
sale proceeds. Any withheld amount would be sent to the IRS as an
advance tax payment.
23
<PAGE>
THE FUNDS' FINANCIAL INFORMATION
ACTIVE ASSETS MONEY TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance for the past 5 fiscal years of the Trust. Certain
information reflects financial results for a single Trust share throughout each
year. The total returns in the table represent the rate an investor would have
earned or lost on an investment in the Trust (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Trust's financial statements, is
included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net income from investment operations 0.048 0.052 0.051 0.052 0.051
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.048) (0.052) (0.051) (0.052) (0.051)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.92% 5.38% 5.23% 5.33% 5.23%
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses 0.43% 0.44% 0.45% 0.47% 0.49%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 4.78% 5.24% 5.07% 5.21% 5.16%
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in millions $15,989 $11,922 $8,928 $7,170 $5,709
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATES PURCHASE VALUE
----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
COMMERCIAL PAPER (66.6%)
BANKING (9.3%)
$ 140,000 Bank of America Corp.
07/07/99 - 07/21/99................... 4.91 - 4.92% $ 139,793,233
200,000 Bank One Corp.
08/18/99 - 08/20/99................... 5.15 198,608,944
295,100 Chase Manhattan Corp.
07/26/99 - 07/29/99................... 4.90 294,039,520
475,000 Morgan (J.P.) & Co. Inc.
07/20/99 - 09/21/99................... 4.86 - 5.12 471,428,417
100,000 Wachovia Corp.
01/14/00 - 02/04/00................... 5.00 - 5.11 97,188,500
296,400 Wells Fargo & Co.
07/06/99 - 08/25/99................... 4.88 - 5.06 294,777,134
------------------
1,495,835,748
------------------
COMPUTER HARDWARE (0.4%)
70,000 International Business Machines Corp.
08/19/99.............................. 5.07 69,521,706
------------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.6%)
100,000 Deere (John) Capital Corp.
07/09/99.............................. 5.25 99,883,556
------------------
DIVERSIFIED FINANCIAL SERVICES (8.8%)
335,000 Associates Corp. of North America
07/21/99 - 08/13/99................... 4.88 - 4.98 333,657,232
267,500 Associates First Capital Corp.
07/07/99 - 08/26/99................... 4.87 - 5.19 266,654,686
817,900 General Electric Capital Corp.
07/30/99 - 03/02/00................... 4.87 - 5.50 806,606,715
------------------
1,406,918,633
------------------
FINANCE - AUTOMOTIVE (14.7%)
140,000 BMW U.S. Capital Corp.
07/06/99 - 08/13/99................... 5.05 139,532,108
50,000 Chrysler Financial Co. LLC
07/07/99.............................. 4.96 49,959,417
656,750 DaimlerChrysler North America Holding
Corp.
07/21/99 - 09/23/99................... 4.86 - 5.13 653,161,594
800,450 Ford Motor Credit Co.
07/08/99 - 12/30/99................... 4.85 - 5.30 797,279,539
710,000 General Motors Acceptance Corp.
07/08/99 - 08/31/99................... 4.87 - 5.05 705,777,489
------------------
2,345,710,147
------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
25
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATES PURCHASE VALUE
----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
FINANCE - CONSUMER (10.3%)
$ 786,150 American Express Credit Corp.
07/01/99 - 08/13/99................... 4.84 - 5.25% $ 783,697,900
33,750 Commercial Credit Co.
07/06/99.............................. 4.92 33,727,031
50,000 Household Finance Corp.
08/09/99.............................. 5.07 49,727,000
710,000 New Center Asset Trust
08/25/99 - 10/07/99................... 4.88 - 5.07 703,436,804
70,000 Norwest Financial Inc.
07/30/99.............................. 5.13 69,712,417
------------------
1,640,301,152
------------------
FINANCE - CORPORATE (3.7%)
521,200 Ciesco, L.P.
08/09/99 - 09/15/99................... 4.87 - 5.26 516,902,511
70,000 CIT Group Inc. (The)
07/26/99.............................. 4.86 69,766,181
------------------
586,668,692
------------------
INSURANCE (0.1%)
18,900 Prudential Funding Corp.
07/27/99.............................. 4.93 18,833,115
------------------
INTEGRATED OIL COMPANIES (0.3%)
50,000 Chevron USA Inc.
08/11/99.............................. 5.14 49,709,014
------------------
INTERNATIONAL BANKS (16.3%)
740,000 Abbey National North America Corp.
07/08/99 - 09/17/99................... 4.87 - 5.10 736,272,789
100,000 ABN - AMRO North America Finance Inc.
08/12/99.............................. 4.87 99,438,833
117,650 Barclays U.S. Funding Corp.
07/07/99 - 07/09/99................... 5.26 117,536,848
245,000 Canadian Imperial Holdings, Inc.
07/13/99 - 09/07/99................... 4.90 - 4.97 243,579,449
20,000 CBA (DE) Finance Inc.
08/27/99.............................. 5.09 19,840,400
800,500 Deutsche Bank Financial Inc.
07/09/99 - 12/30/99................... 4.87 - 5.21 794,215,755
50,000 Dresdner U.S. Finance Inc.
08/24/99.............................. 5.18 49,614,500
60,000 Internationale Nederlanden (U.S.)
Funding Corp.
07/08/99.............................. 4.89 59,943,650
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
26
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATES PURCHASE VALUE
----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 335,000 Societe Generale N.A. Inc.
08/02/99 - 08/24/99................... 4.86 - 4.95% $ 333,126,014
100,000 Toronto-Dominion Holdings (USA) Inc.
09/13/99.............................. 4.98 98,990,722
49,525 UBS Finance (DE) LLC
07/01/99.............................. 5.75 49,525,000
------------------
2,602,083,960
------------------
INVESTMENT BANKERS/BROKERS/SERVICES (0.7%)
106,900 Goldman Sachs Group Inc.
07/13/99 - 08/02/99................... 4.90 - 5.17 106,559,530
------------------
RETAIL (1.2%)
195,350 Sears Roebuck Acceptance Corp.
07/13/99 - 07/29/99................... 4.89 - 5.08 194,857,547
------------------
TELECOMMUNICATIONS EQUIPMENT (0.2%)
32,250 Lucent Technologies Inc.
07/26/99.............................. 4.91 32,140,932
------------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $10,649,023,732)............................. 10,649,023,732
------------------
U.S. GOVERNMENT AGENCIES (23.8%)
100,000 Federal Farm Credit Bank
10/25//99 - 02/11/00.................. 4.87 - 4.89 97,789,750
635,000 Federal Home Loan Banks
07/14/99 - 04/07/00................... 4.71 - 5.07 618,101,204
1,573,400 Federal Home Loan Mortgage Corp.
07/12/99 - 12/31/99................... 4.73 - 5.10 1,553,850,974
1,570,000 Federal National Mortgage Assoc.
07/09/99 - 03/17/00................... 4.70 - 5.55 1,545,943,225
------------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $3,815,685,153).............................. 3,815,685,153
------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATES PURCHASE VALUE
----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM BANK NOTES (5.4%)
$ 450,000 FCC National Bank
10/01/99 - 10/06/99................... 5.04 - 5.05% $ 450,000,000
315,000 NationsBank N.A.
08/06/99 - 09/03/99................... 4.88 - 4.94 315,000,000
100,000 Wachovia Bank N.A.
08/12/99.............................. 4.85 100,000,000
------------------
TOTAL SHORT-TERM BANK NOTES
(AMORTIZED COST $865,000,000)................................ 865,000,000
------------------
CERTIFICATES OF DEPOSIT (4.1%)
500,000 Chase Manhattan Bank (USA)
07/27/99 - 08/05/99................... 4.90 - 4.96 500,000,000
150,000 U.S. Bank N.A.
07/08/99 - 09/30/99................... 4.92 - 4.96 150,000,000
------------------
TOTAL CERTIFICATES OF DEPOSIT
(AMORTIZED COST $650,000,000)................................ 650,000,000
------------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $15,979,708,885) (a)........................ 99.9 % 15,979,708,885
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............. 0.1 9,673,748
------ ----------------
NET ASSETS.................................................. 100.0 % $ 15,989,382,633
------ ----------------
------ ----------------
</TABLE>
- ---------------------
(a) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
28
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $15,979,708,885)......................................................... $15,979,708,885
Cash....................................................................................... 16,761
Interest receivable........................................................................ 16,339,636
Prepaid expenses and other assets.......................................................... 113,649
---------------
TOTAL ASSETS.......................................................................... 15,996,178,931
---------------
LIABILITIES:
Payable for:
Investment management fee.............................................................. 3,935,220
Plan of distribution fee............................................................... 1,456,957
Shares of beneficial interest repurchased.............................................. 31,966
Accrued expenses and other payables........................................................ 1,372,155
---------------
TOTAL LIABILITIES..................................................................... 6,796,298
---------------
NET ASSETS............................................................................ $15,989,382,633
---------------
---------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................ $15,989,367,901
Accumulated undistributed net investment income............................................ 14,732
---------------
NET ASSETS............................................................................ $15,989,382,633
---------------
---------------
NET ASSET VALUE PER SHARE,
15,989,367,901 SHARES OUTSTANDING
(UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE).......................................... $1.00
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................................................... $757,473,219
------------
EXPENSES
Investment management fee..................................................................... 39,612,403
Plan of distribution fee...................................................................... 14,255,340
Transfer agent fees and expenses.............................................................. 5,627,015
Registration fees............................................................................. 1,900,831
Custodian fees................................................................................ 566,628
Shareholder reports and notices............................................................... 388,157
Professional fees............................................................................. 69,557
Trustees' fees and expenses................................................................... 18,516
Other......................................................................................... 134,803
------------
TOTAL EXPENSES........................................................................... 62,573,250
------------
NET INVESTMENT INCOME.................................................................... 694,899,969
NET REALIZED GAIN........................................................................ 118,973
------------
NET INCREASE.................................................................................. $695,018,942
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................... $ 694,899,969 $ 557,753,091
Net realized gain......................................................... 118,973 52,509
--------------- ---------------
NET INCREASE......................................................... 695,018,942 557,805,600
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................................... (694,893,595) (557,754,793)
Net realized gain......................................................... (118,973) (52,509)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.................................... (695,012,568) (557,807,302)
--------------- ---------------
Net increase from transactions in shares of beneficial interest........... 4,067,695,663 2,993,642,870
--------------- ---------------
NET INCREASE......................................................... 4,067,702,037 2,993,641,168
NET ASSETS:
Beginning of period....................................................... 11,921,680,596 8,928,039,428
--------------- ---------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $14,732 AND $8,358,
RESPECTIVELY)......................................................... $15,989,382,633 $11,921,680,596
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999
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 Morgan Stanley Dean Witter
Advisors 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
32
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
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. Effective May 1, 1999, the Agreement was amended to reduce the
annual rate to 0.25% to the portion of daily net assets exceeding $3 billion but
not exceeding $15 billion; 0.249% to the portion of daily net assets exceeding
$15 billion but not exceeding $17.5 billion; and 0.248% to the portion of daily
net assets exceeding $17.5 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
Morgan Stanley 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 under the Plan: (1)
compensation to sales representatives of Dean Witter Reynolds Inc., an affiliate
of the Investment Manager and 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
33
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS MONEY TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
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, 1999, 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, 1999 aggregated $51,891,808,089 and $48,504,672,370,
respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1999, the Trust had
transfer agent fees and expenses payable of approximately $23,400.
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, 1999 included in
Trustees' fees and expenses in the Statement of Operations amounted to $5,900.
At June 30, 1999, the Trust had an accrued pension liability of $50,817 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, 1999 JUNE 30, 1998
--------------- ---------------
<S> <C> <C>
Shares sold...................................................... 56,769,537,371 43,883,134,528
Shares issued in reinvestment of dividends and distributions..... 693,725,182 556,771,082
--------------- ---------------
57,463,262,553 44,439,905,610
Shares repurchased............................................... (53,395,566,890) (41,446,262,740)
--------------- ---------------
Net increase in shares outstanding............................... 4,067,695,663 2,993,642,870
--------------- ---------------
--------------- ---------------
</TABLE>
34
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 present fairly, in all
material respects, the financial position of Active Assets Money Trust (the
"Trust") at June 30, 1999, 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 five 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, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AUGUST 5, 1999
35
ACTIVE ASSETS MONEY TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance for the past 5 fiscal years of the Trust. Certain
information reflects financial results for a single Trust share throughout each
year. The total returns in the table represent the rate an investor would have
earned or lost on an investment in the Trust (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Trust's financial statements, is
included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net income from investment operations 0.027 0.031 0.030 0.031 0.030
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.027) (0.031) (0.030) (0.031) (0.030)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.73% 3.11% 3.05% 3.12% 3.09%
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses 0.52% 0.54% 0.55% 0.55% 0.56%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.68% 3.05% 2.98% 3.08% 3.05%
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in millions $2,290 $1,869 $1,634 $1,542 $1,499
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (66.8%)
ALABAMA
$15,300 Birmingham Medical Clinic
Board, University of Alabama
Health Services Foundation
Ser 1991.................... 3.30 % 07/08/99 $ 15,300,000
10,900 Columbia Industrial
Development Board, Alabama
Power Co Ser D.............. 3.85 07/01/99 10,900,000
16,100 McIntosh Industrial
Development Board, Ciba
Specialty Chemicals Corp
1998 Ser E (AMT)............ 3.80 07/01/99 16,100,000
20,000 University of Alabama,
Birmingham Hospital Ser
1997B....................... 3.30 07/08/99 20,000,000
ARIZONA
12,200 Arizona Educational Loan
Marketing Corporation, 1991
Ser A (AMT)................. 3.55 07/08/99 12,200,000
4,700 Pinal County Industrial
Development Authority, Magma
Copper Co Ser 1984A......... 3.55 07/01/99 4,700,000
ARKANSAS
20,000 Crossett, Georgia Pacific Corp
Ser 1984**.................. 3.65 07/08/99 20,000,000
CALIFORNIA
8,200 Big Bear Lake, Southwest Gas
Corp 1993 Ser A (AMT)....... 3.35 07/08/99 8,200,000
1,600 California Health Facilities
Financing Authority, St
Joseph Health System Ser
1985 A...................... 2.85 07/01/99 1,600,000
8,000 California Pollution Control
Financing Authority, Shell
Oil Co Ser 1996 A (AMT)..... 2.85 07/01/99 8,000,000
11,500 Foothill/Eastern
Transportation Corridor
Agency, Toll Road Ser
1995C....................... 3.30 07/08/99 11,500,000
9,900 M-S-R Public Power Agency, San
Juan Sub Lien Ser 1998F
(MBIA)...................... 3.05 07/01/99 9,900,000
15,445 Sacramento County,
Administration Center &
Courthouse Ser 1990 COPs.... 3.35 07/08/99 15,445,000
6,600 Santa Clara County-El Camino
Hospital District Facilities
Authority, Valley Medical
Center 1985 Ser A........... 3.25 07/08/99 6,600,000
COLORADO
15,000 Colorado Student Obligation
Bond Authority, Ser 1989A
(AMT)....................... 3.55 07/08/99 15,000,000
CONNECTICUT
Connecticut Health &
Educational Facilities
Authority,
6,000 Charity Obligated Group-St
Vincent's Medical
Center/Hall-Brooke
Ser 1999B................. 3.25 07/08/99 6,000,000
7,500 Yale University Ser T-2..... 3.60 07/08/99 7,500,000
Connecticut Special
Assessment, Unemployment
Compensation
30,000 1993 Ser C (FGIC)........... 3.60 07/01/99 30,000,000
25,500 1993 Ser C (FGIC)........... 3.38 07/01/00 25,500,000
DELAWARE
Delaware Economic Development
Authority,
5,400 Ciba Specialty Chemicals
Corp 1998 Ser A (AMT)....... 3.55 07/01/99 5,400,000
10,000 Star Enterprise Ser 1997C
(AMT)....................... 3.61 07/08/99 10,000,000
8,300 University of Delaware, Ser
1998........................ 3.45 07/08/99 8,300,000
FLORIDA
24,900 Dade County, Water & Sewer Ser
1994 (FGIC)................. 3.30 07/08/99 24,900,000
10,800 Dade County Health Facilities
Authority, Miami Children's
Hospital Ser 1990........... 3.75 07/01/99 10,800,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$21,550 Dade County Industrial
Development Authority,
Dolphins Stadium Ser 1985 B
& C......................... 3.50 % 07/08/99 $ 21,550,000
8,200 Escambia County, Gulf Power Co
Ser 1997.................... 3.65 07/01/99 8,200,000
15,000 Jacksonville Health Facilities
Authority, Charity Obligated
Group Ser 1997 C (MBIA)..... 3.35 07/08/99 15,000,000
20,000 Putnam County Development
Authority, Seminole Electric
Co-op Inc Ser 1984 D
(NRU-CFC Gtd)............... 3.125 12/15/99 20,000,000
19,700 Volusia County Health
Facilities Authority, Pooled
Ser 1985 (FGIC)**........... 3.30 07/08/99 19,700,000
GEORGIA
21,000 Albany-Dougherty County
Hospital Authority,
Phoebe-Putney Memorial
Hospital Ser 1991
(AMBAC)**................... 3.55 07/08/99 21,000,000
14,000 Clayton County Hospital
Authority, Southern Regional
Medical Center Ser
1998B**..................... 3.75 07/08/99 14,000,000
ILLINOIS
20,000 Chicago, Tender Notes Ser
1999........................ 2.95 01/27/00 20,000,000
4,000 Chicago, Chicago Midway
Airport Second Lien Ser
1998B (MBIA) (AMT).......... 3.60 07/01/99 4,000,000
Illinois Health Facilities
Authority,
7,000 Central Dupage Hospital Assn
Ser 1990.................... 3.45 07/01/99 7,000,000
8,800 Gottlieb Health Resources
Ser 1990.................... 3.65 07/08/99 8,800,000
4,000 Northwestern Memorial
Hospital Ser 1995........... 3.45 07/01/99 4,000,000
5,480 Illinois Housing Development
Authority, Homeowner
Mortgage 1999 Subser A-2
(AMT)....................... 3.10 01/20/00 5,480,000
INDIANA
8,500 Indiana Development Finance
Authority, Southern Indiana
Gas & Electric Co 1988 Ser
A........................... 3.00 03/01/00 8,500,000
18,000 Indiana Hospital Equipment
Financing Authority, Ser
1985 A (MBIA)............... 3.55 07/08/99 18,000,000
15,800 Indianapolis, Ogden Martin
Systems Inc Ser 1987
(AMT)....................... 3.80 07/01/99 15,800,000
8,400 Petersburg, Indianapolis Power
& Light Co Ser 1995B
(AMBAC)..................... 3.50 07/08/99 8,400,000
KENTUCKY
7,000 Jamestown, Union Underwear Co
1983 Ser A.................. 3.75 07/08/99 7,000,000
13,000 Louisville & Jefferson County
Regional Airport Authority,
UPS Worldwide Forwarding Inc
1999 Ser B (AMT)............ 3.50 07/01/99 13,000,000
LOUISIANA
15,000 New Orleans Aviation Board,
Ser 1993 B (MBIA)........... 3.60 07/08/99 15,000,000
St Charles Parish,
3,000 Shell Oil Co Ser 1992A...... 3.35 07/01/99 3,000,000
6,400 Shell Oil Co Ser 1993
(AMT)....................... 3.50 07/01/99 6,400,000
MAINE
31,100 Maine Educational Loan
Marketing Corporation,
Senior Student Loan Ser 1999
A-1 & A-2 (AMBAC) (AMT)..... 3.40 07/08/99 31,100,000
MARYLAND
Maryland Health & Higher
Educational Facilities
Authority,
7,500 Johns Hopkins Hospital Ser
A........................... 3.30 07/08/99 7,500,000
9,900 North Arundel Hospital Ser
1997A....................... 3.75 07/08/99 9,900,000
16,800 Washington Suburban Sanitary
District, 1998 Ser BANs**... 3.45 07/08/99 16,800,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS
$15,000 Massachusetts, Refg 1998 Ser
A........................... 3.60 % 07/08/99 $ 15,000,000
28,250 Massachusetts Bay
Transportation Authority,
1984 Ser A.................. 2.95 09/01/99 28,252,395
Massachusetts Health &
Educational Facilities
Authority,
9,000 Amherst College Ser F....... 3.70 07/08/99 9,000,000
25,000 Harvard University Ser 1985
I........................... 3.70 07/08/99 25,000,000
16,605 Williams College Ser E...... 3.25 07/08/99 16,605,000
20,000 Massachusetts Water Resources
Authority, Multi-Modal Sub
1999 Ser B.................. 3.30 07/08/99 20,000,000
MICHIGAN
5,800 Delta County Economic
Development Corporation,
Mead-Escanaba Paper Co Ser
1985 E...................... 3.45 07/01/99 5,800,000
9,100 Michigan Strategic Fund,
Detroit Edison Co Ser
1995CC...................... 3.45 07/01/99 9,100,000
MINNESOTA
2,000 Beltrami County, Environmental
Northwood Panelboard Co Ser
1991........................ 3.70 07/01/99 2,000,000
5,700 Minneapolis & St Paul Housing
& Redevelopment Authority,
Children's Health Care Ser
1995B (FSA)................. 3.65 07/01/99 5,700,000
20,000 University of Minnesota
Regents, Ser 1999A.......... 3.50 07/08/99 20,000,000
MISSOURI
Missouri Health & Educational
Facilities Authority,
7,400 Cox Health Systems Ser 1997
(MBIA)...................... 3.45 07/01/99 7,400,000
6,700 Drury College Ser 1996A..... 3.65 07/01/99 6,700,000
7,700 The Washington University
Ser 1996C................... 3.45 07/01/99 7,700,000
17,000 St Louis County Industrial
Development Authority,
Charity Obligated Group -
Daughters of Charity
National Health System Ser
1997 C...................... 3.35 07/08/99 17,000,000
NEVADA
15,000 Clark County, Airport Impr
Refg 1993 Ser A (MBIA)...... 3.30 07/08/99 15,000,000
NEW HAMPSHIRE
10,000 New Hampshire Higher
Educational & Health
Facilities Authority,
St Paul's School Ser 1998... 3.60 07/08/99 10,000,000
NEW JERSEY
3,000 New Jersey Economic
Development Authority,
United Water New Jersey Inc
1996 Ser B (AMBAC).......... 3.40 07/01/99 3,000,000
32,500 New Jersey Educational
Facilities Authority,
College of New Jersey Ser
1999A (AMBAC)............... 3.50 07/08/99 32,500,000
10,000 New Jersey Turnpike Authority,
Ser 1991 D (FGIC)........... 3.10 07/08/99 10,000,000
6,000 Union County Industrial
Pollution Control Financing
Authority, Exxon Corp 1994
Ser......................... 3.15 07/01/99 6,000,000
NEW MEXICO
35,000 Albuquerque, Airport Sub Lien
Ser 1995 (AMBAC)............ 3.30 07/08/99 35,000,000
NEW YORK
10,000 Babylon Industrial Development
Agency, OFS Equity of
Babylon Ser 1989 (AMT)...... 3.80 07/01/99 10,000,000
2,000 Long Island Power Authority,
Electric Sub Ser 6.......... 3.85 07/01/99 2,000,000
1,650 Nassau County Industrial
Development Agency, 1999
Cold Spring Harbor
Laboratory.................. 3.35 07/01/99 1,650,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH CAROLINA
$10,000 Charlotte, Airport Refg Ser
1993A (MBIA)................ 3.30 % 07/08/99 $ 10,000,000
14,800 Durham, Ser 1993A COPs........ 3.30 07/08/99 14,800,000
North Carolina Educational
Facilities Finance Agency,
7,000 The Bowman Gray School of
Medicine Ser 1996........... 3.30 07/08/99 7,000,000
23,200 Duke University Ser 1987A &
1991B**..................... 3.65 07/08/99 23,200,000
27,700 North Carolina Medical Care
Commission, Duke University
Hospital Ser 1985 B & C..... 3.65 07/08/99 27,700,000
21,700 Person County Industrial
Facilities & Pollution
Control Financing Authority,
Carolina Power & Light Co
Ser 1992A**................. 3.55 07/08/99 21,700,000
OHIO
10,000 Cleveland, Airport System Ser
1997 D (AMT)................ 3.40 07/08/99 10,000,000
12,000 Columbus, Unlimited Tax Ser
1995-1...................... 3.65 07/08/99 12,000,000
15,000 Cuyahoga County, Cleveland
Clinic Health System
Obligated Group Ser 1998A... 3.50 07/08/99 15,000,000
2,400 Ohio Air Quality Development
Authority, Sohio Air-British
Petroleum Co Ser 1995....... 3.50 07/01/99 2,400,000
OKLAHOMA
8,000 Oklahoma Student Loan
Authority, Ser 1998A (MBIA)
(AMT)....................... 3.50 07/08/99 8,000,000
Oklahoma Water Resources
Board,
38,000 State Loan Program Ser 1994A
& 1999...................... 2.90 09/01/99 38,000,000
11,205 State Loan Program Ser
1995........................ 2.95 09/01/99 11,205,000
OREGON
20,000 Oregon, Veterans' Ser 73 E.... 3.50 07/08/99 20,000,000
PENNSYLVANIA
Pennsylvania Higher Education
Assistance Agency,
8,000 1999 Ser A (AMBAC) (AMT).... 3.95 07/08/99 8,000,000
16,500 Student Loan 1997 Ser A
(AMT)....................... 3.85 07/08/99 16,500,000
20,000 Pennsylvania Turnpike
Commission, Ser Q of 1998... 3.45 07/01/99 20,000,000
6,600 Philadelphia Hospitals &
Higher Education Facilities
Authority,
The Children's Hospital of
Philadelphia Ser A of
1996........................ 3.45 07/01/99 6,600,000
York General Authority,
10,400 Harrisburg School District
Subser 1996 B (AMBAC)....... 3.80 07/08/99 10,400,000
9,200 Pooled Ser 1996............. 3.80 07/08/99 9,200,000
SOUTH CAROLINA
York County,
14,835 North Carolina Electric
Membership Corp Ser 1984 N-5
(NRU-CFC Gtd)............... 3.00 09/15/99 14,835,000
27,345 Saluda River Electric Co-op
Inc Ser 1984 E-1 & E-2
(NRU-CFC Gtd)............... 2.75 08/16/99 27,345,000
TENNESSEE
2,800 Chattanooga-Hamilton County
Hospital Authority, Erlanger
Medical Center Ser 1987..... 3.50 07/01/99 2,800,000
20,000 Clarksville Public Building
Authority, Pooled Financing
Ser 1995.................... 3.80 07/08/99 20,000,000
33,050 Montgomery County Public
Building Authority, Pooled
Ser 1997.................... 3.80 07/08/99 33,050,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS
$14,000 Brazos River Authority, Texas
Utilities Electric Co Ser
1997A (MBIA) (AMT).......... 3.80 % 07/01/99 $ 14,000,000
6,800 Gulf Coast Industrial
Development Authority, CITGO
Petroleum Corp Ser 1994
(AMT)....................... 3.55 07/01/99 6,800,000
4,090 Gulf Coast Waste Disposal
Authority, Exxon Corp....... 3.40 07/01/99 4,090,000
20,050 Harris County Health
Facilities Development
Corporation, Methodist
Hospital Ser 1994........... 3.50 07/01/99 20,050,000
25,000 Harris County, Toll Road
Unlimited Tax Sub Lien Ser
1994 E...................... 3.35 07/08/99 25,000,000
10,000 Texas Municipal Gas
Corporation, Senior Lien Gas
Reserve Ser 1998............ 3.45 07/08/99 10,000,000
18,300 Waco Health Facilities
Development Corporation,
Charity Obligated Group -
Daughters of Charity
National Health System Ser
1997F**..................... 3.35 07/08/99 18,300,000
UTAH
20,000 Intermountain Power Agency,
1985 Ser E (AMBAC).......... 3.125 09/15/99 20,000,000
14,375 Utah County, Environmental
Improvement USX Corp Refg
Ser of 1995................. 3.10 11/04/99 14,375,000
WASHINGTON
19,100 Washington, Ser 1996 A........ 3.25 07/08/99 19,100,000
WISCONSIN
9,500 Brokaw, Wausau Paper Mills Co
Ser 1995 (AMT).............. 4.00 07/08/99 9,500,000
WYOMING
14,500 Lincoln County, Exxon Corp Ser
1984 C...................... 3.80 07/01/99 14,500,000
10,800 Sweetwater County, Pacificorp
Ser 1984.................... 3.45 07/01/99 10,800,000
--------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL
OBLIGATIONS
(AMORTIZED COST $1,529,632,395)................... 1,529,632,395
--------------
</TABLE>
<TABLE>
<CAPTION>
YIELD TO
MATURITY
COUPON MATURITY ON DATE OF
RATE DATE PURCHASE
------ -------- ----------
<C> <S> <C> <C> <C> <C>
TAX-EXEMPT COMMERCIAL PAPER (29.1%)
ARIZONA
7,750 Maricopa County Pollution
Control Corporation,
Southern California Edison
Co 1985 Ser B............... 3.10% 10/20/99 3.10% 7,750,000
Salt River Project
Agricultural Improvement &
Power District,
9,800 Ser 1997 A.................. 3.10 08/11/99 3.10 9,800,000
6,500 Ser 1997 A.................. 3.05 08/11/99 3.05 6,500,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, 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>
COLORADO
Platte River Power Authority,
$15,000 Electric Sub Lien S-1....... 3.10% 09/08/99 3.10% $ 15,000,000
15,000 Electric Sub Lien S-1....... 3.10 10/07/99 3.10 15,000,000
FLORIDA
Jacksonville Electric
Authority,
13,800 Ser C....................... 3.25 09/10/99 3.25 13,800,000
12,000 Ser C....................... 3.35 09/13/99 3.35 12,000,000
10,000 Ser E....................... 3.05 08/09/99 3.05 10,000,000
HAWAII
4,000 Hawaii Department of Budget &
Finance, Citizens Utilities
Co 1996 Ser B (AMT)......... 3.15 08/12/99 3.15 4,000,000
13,500 Honolulu City & County, Ser
1998 BANs................... 3.10 08/06/99 3.10 13,500,000
INDIANA
10,000 Indiana State Office Building
Commission, Hoosier Notes
Ser A....................... 3.10 09/27/99 3.10 10,000,000
Petersburg,
13,000 Indianapolis Power & Light
Co Ser 1991................. 2.85 07/29/99 2.85 13,000,000
20,000 Indianapolis Power & Light
Co Ser 1991................. 3.10 09/14/99 3.10 20,000,000
LOUISIANA
Plaquemines Port Harbor &
Terminal District,
10,000 Electric - Coal Transfer Co
Ser 1985 B.................. 3.15 08/10/99 3.15 10,000,000
13,400 Electric - Coal Transfer Co
Ser 1985 D.................. 2.90 08/11/99 2.90 13,400,000
4,200 Electric - Coal Transfer Co
Ser 1985 D.................. 3.05 08/11/99 3.05 4,200,000
MARYLAND
Baltimore County,
10,000 Ser 1995 BANs............... 3.40 08/09/99 3.40 10,000,000
10,500 Baltimore Gas & Electric Co
Ser 1985.................... 3.00 07/28/99 3.00 10,500,000
MINNESOTA
Rochester,
10,000 Mayo Foundation/Mayo Medical
Center Ser 1988 F........... 3.10 08/16/99 3.10 10,000,000
11,950 Mayo Foundation/Mayo Medical
Center Ser 1992 C........... 3.10 09/10/99 3.10 11,950,000
NEBRASKA
6,100 Lincoln, Lincoln Electric
System Ser 1995............. 3.25 09/10/99 3.25 6,100,000
10,000 Nebraska Public Power
District, Series A Notes.... 2.90 08/18/99 2.90 10,000,000
NEW HAMPSHIRE
15,000 New Hampshire State Business
Finance Authority,
New England Power Co Ser
1993 A (AMT)................ 3.05 09/09/99 3.05 15,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, 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>
NEVADA
Las Vegas Valley Water
District,
$15,000 Water Ser 1999 A............ 3.10% 08/13/99 3.10% $ 15,000,000
10,000 Water Ser 1999 A............ 3.15 09/09/99 3.15 10,000,000
NORTH CAROLINA
North Carolina Eastern
Municipal Power Agency,
10,000 Ser 1996.................... 3.05 07/21/99 3.05 10,000,000
15,300 Ser 1996.................... 3.10 10/06/99 3.10 15,300,000
OKLAHOMA
10,000 Oklahoma City Industrial &
Cultural Facilities Trust,
SSM Health Care Ser 1998 B
(MBIA)...................... 3.10 08/05/99 3.10 10,000,000
PENNSYLVANIA
8,000 Delaware County Industrial
Development Authority, PECO
Energy Ser 1988 C (FGIC).... 2.65 07/21/99 2.65 8,000,000
Montgomery County Industrial
Development Authority,
12,000 PECO Energy Co Ser 1994 A... 2.70 07/22/99 2.70 12,000,000
12,800 PECO Energy Co Ser 1994 A... 3.15 08/19/99 3.15 12,800,000
SOUTH CAROLINA
South Carolina Public Service
Authority,
10,000 Santee Cooper Ser 1998...... 2.85 07/27/99 2.85 10,000,000
8,500 Santee Cooper Ser 1998...... 3.05 07/27/99 3.05 8,500,000
12,500 Santee Cooper Ser 1998...... 3.05 08/05/99 3.05 12,500,000
15,000 Santee Cooper Ser 1998...... 2.85 08/18/99 2.85 15,000,000
20,000 Santee Cooper Ser 1998...... 3.35 10/05/99 3.35 20,000,000
12,000 Santee Cooper Ser 1998...... 3.35 10/07/99 3.35 12,000,000
10,000 Santee Cooper Ser 1998...... 3.35 11/09/99 3.35 10,000,000
TEXAS
8,000 Bexar Metropolitan Water
District, Ser 1997.......... 3.15 07/14/99 3.15 8,000,000
8,000 Dallas Area Rapid Transit,
Sales Tax Ser B............. 3.25 10/14/99 3.25 8,000,000
Houston,
18,700 1996 Ser B.................. 2.90 08/12/99 2.90 18,700,000
8,000 Water & Sewer 1994 Ser A.... 2.85 07/20/99 2.85 8,000,000
12,200 Water & Sewer 1994 Ser A.... 3.00 08/24/99 3.00 12,200,000
7,000 Water & Sewer 1994 Ser A.... 3.05 08/24/99 3.05 7,000,000
8,000 Water & Sewer 1994 Ser A.... 3.05 10/06/99 3.05 8,000,000
10,000 Water & Sewer 1999 Ser B.... 3.20 07/29/99 3.20 10,000,000
Texas A & M University,
12,800 Ser 1993 B.................. 3.00 07/20/99 3.00 12,800,000
8,000 Ser 1993 B.................. 2.85 08/19/99 2.85 8,000,000
15,000 Ser 1993 B.................. 3.00 08/26/99 3.00 15,000,000
14,750 Texas Municipal Power Agency,
Ser 1991.................... 3.45 02/17/00 3.45 14,750,000
15,000 Texas Public Finance
Authority, Ser 1993 A....... 3.15 07/22/99 3.15 15,000,000
13,096 University of Texas Regents,
Ser A....................... 3.25 08/30/99 3.25 13,096,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, 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>
VIRGINIA
Virginia,
$10,000 Ser 1998 BANs............... 3.10% 08/10/99 3.10% $ 10,000,000
11,000 Ser 1998 BANs............... 3.10 08/16/99 3.10 11,000,000
WASHINGTON
7,200 Seattle, Municipal Light &
Power Ser 1990.............. 3.40 01/27/00 3.40 7,200,000
WISCONSIN
16,207 Wisconsin, Transportation
Notes 1997 Ser A............ 3.15 09/08/99 3.15 16,207,000
Wisconsin Health & Educational
Facilities Authority,
8,000 SSM Health Care Ser 1998
B........................... 3.20 07/27/99 3.20 8,000,000
12,080 SSM Health Care Ser 1998
B........................... 3.10 08/25/99 3.10 12,080,000
WYOMING
10,000 Sweetwater County, Pacificorp
Ser 1988 A.................. 3.15 07/23/99 3.15 10,000,000
--------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $665,633,000)................................ 665,633,000
--------------
SHORT-TERM MUNICIPAL NOTES (10.0%)
CALIFORNIA
10,000 Los Angeles County, 1999-2000
Ser A TRANs, dtd 07/01/99
(WI)........................ 4.00 06/30/00 3.32 10,065,600
IDAHO
35,000 Idaho, Ser 1999 TANs, dtd
07/01/99 (WI)............... 4.25 06/30/00 3.40 35,286,650
ILLINOIS
9,000 Chicago Park District, 1998
Tax Anticipation Warrants,
dtd 08/27/98................ 4.30 09/17/99 3.55 9,013,876
INDIANA
10,000 Indianapolis Local Improvement
Bond Bank, Ser 1998 E Notes,
dtd 12/17/98................ 3.50 07/12/99 2.95 10,001,626
IOWA
Iowa School Corporations,
20,000 Warrant Certificates
1998-1999 Ser B (FSA), dtd
01/28/99.................... 3.50 01/28/00 2.97 20,059,427
35,000 Warrant Certificates
1999-2000 Ser A Notes, dtd
06/24/99.................... 4.00 06/23/00 3.23 35,255,075
KENTUCKY
50,000 Kentucky Asset/Liability
Commission, 1999 Ser A
TRANs, dtd 07/01/99 (WI).... 4.25 06/28/00 3.375 50,419,500
MASSACHUSETTS
20,000 Massachusetts Bay
Transportation Authority,
1999 Series A Notes, dtd
02/26/99.................... 3.50 02/25/00 2.90 20,076,296
MICHIGAN
7,500 Michigan Municipal Bond
Authority, Ser 1998 B-1
Notes,
dtd 07/02/98................ 4.50 07/02/99 3.60 7,500,179
NEW MEXICO
25,000 New Mexico, Ser 1999-2000 Ser
A TRANs, dtd 07/01/99 (WI).. 4.00 06/30/00 3.23 25,185,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, 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>
PENNSYLVANIA
$7,000 Temple University, Ser 1999
Notes, dtd 05/13/99......... 3.15% 05/12/00 3.15% $ 7,000,000
--------------
TOTAL SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $229,863,979)................................ 229,863,979
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $2,425,129,374) (a)....................... 105.9% 2,425,129,374
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............ (5.9) (135,319,634)
----- ---------------
NET ASSETS................................................ 100.0% $ 2,289,809,740
----- ---------------
----- ---------------
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
NRU-CFC National Rural Utilities - Cooperative Finance Corporation.
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, 1999.
* Date on which the principal amount can be recovered through demand.
** All or a portion of these securities have been segregated in connection
with the purchase of "when-issued" securities and a delayed delivery
security.
(a) Cost is the same for federal income tax purposes.
BOND INSURANCE:
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
45
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $2,425,129,374)........................................................... $2,425,129,374
Cash........................................................................................ 519,418
Receivable for:
Interest................................................................................ 11,758,719
Investments sold........................................................................ 20,237
Prepaid expenses and other assets........................................................... 65,242
--------------
TOTAL ASSETS........................................................................... 2,437,492,990
--------------
LIABILITIES:
Payable for:
Investments purchased................................................................... 146,457,500
Investment management fee............................................................... 806,049
Plan of distribution fee................................................................ 212,176
Accrued expenses and other payables......................................................... 207,525
--------------
TOTAL LIABILITIES...................................................................... 147,683,250
--------------
NET ASSETS............................................................................. $2,289,809,740
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $2,289,800,162
Accumulated undistributed net investment income............................................. 9,578
--------------
NET ASSETS............................................................................. $2,289,809,740
--------------
--------------
NET ASSET VALUE PER SHARE,
2,289,810,262 SHARES OUTSTANDING
(UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)........................................... $1.00
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................ $69,966,029
-----------
EXPENSES
Investment management fee...................................................................... 8,443,285
Plan of distribution fee....................................................................... 2,159,334
Transfer agent fees and expenses............................................................... 337,901
Registration fees.............................................................................. 222,819
Custodian fees................................................................................. 91,581
Shareholder reports and notices................................................................ 70,262
Professional fees.............................................................................. 67,283
Trustees' fees and expenses.................................................................... 18,543
Other.......................................................................................... 29,873
-----------
TOTAL EXPENSES............................................................................ 11,440,881
Less: expense offset........................................................................... (91,461)
-----------
NET EXPENSES.............................................................................. 11,349,420
-----------
NET INVESTMENT INCOME..................................................................... 58,616,609
NET REALIZED GAIN......................................................................... 23,373
-----------
NET INCREASE................................................................................... $58,639,982
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................................... $ 58,616,609 $ 56,736,920
Net realized gain........................................................... 23,373 5,223
-------------- --------------
NET INCREASE........................................................... 58,639,982 56,742,143
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................................... (58,616,865) (56,742,296)
Net realized gain........................................................... (22,054) --
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS...................................... (58,638,919) (56,742,296)
-------------- --------------
Net increase from transactions in shares of beneficial interest............. 420,417,833 235,864,187
-------------- --------------
NET INCREASE........................................................... 420,418,896 235,864,034
NET ASSETS:
Beginning of period......................................................... 1,869,390,844 1,633,526,810
-------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $9,578 AND $9,834,
RESPECTIVELY)........................................................... $2,289,809,740 $1,869,390,844
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999
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 Morgan Stanley Dean Witter
Advisors 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
49
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
$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
Morgan Stanley 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 sales representatives of the
Dean Witter Reynolds Inc., an affiliate of the Investment Manager and
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. 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, 1999, the
distribution fee was accrued at the annual rate of 0.10%.
50
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
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, 1999 aggregated $4,857,062,020 and $4,443,846,050,
respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1999, the Trust had
transfer agent fees and expenses payable of approximately $1,400.
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, 1999, included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,900. At June 30, 1999, the Trust had an accrued pension liability of $50,817
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, 1999 JUNE 30, 1998
--------------- ---------------
<S> <C> <C>
Shares sold...................................................... 7,461,949,724 6,715,086,000
Shares issued in reinvestment of dividends and distributions..... 58,638,919 56,742,296
--------------- ---------------
7,520,588,643 6,771,828,296
Shares repurchased............................................... (7,100,170,810) (6,535,964,109)
--------------- ---------------
Net increase in shares outstanding............................... 420,417,833 235,864,187
--------------- ---------------
--------------- ---------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended June 30, 1999, the Trust utilized all of its capital loss
carryover of approximately $1,300.
51
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 present fairly, in all
material respects, the financial position of Active Assets Tax-Free Trust (the
"Trust") at June 30, 1999, 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 five 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AUGUST 5, 1999
- --------------------------------------------------------------------------------
1999 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended June 30, 1999, all of the Trust's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
52
ACTIVE ASSETS TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance for the past 5 fiscal years of the Trust. Certain
information reflects financial results for a single Trust share throughout each
year. The total returns in the table represent the rate an investor would have
earned or lost on an investment in the Trust (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Trust's financial statements, is
included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net income from investment operations 0.023 0.028 0.028 0.028 0.029
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.023) (0.028) (0.028) (0.028) (0.029)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.31% 2.84% 2.83% 2.82% 2.89%
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses 0.63%(1) 0.64% 0.66%(1) 0.67% 0.67%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.28% 2.79% 2.78% 2.79% 2.86%
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $625,753 $549,779 $431,382 $384,218 $313,566
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
53
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999
<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 (63.4%)
$ 7,900 Alameda-Contra Costa Schools
Financing Authority, Capital
Improvements Ser B COPs..... 3.40% 07/08/99 $ 7,900,000
11,350 Anaheim, 1993 COPs
(AMBAC)..................... 3.25 07/08/99 11,350,000
11,970 California Alternative
Energy Source Financing
Authority, General Electric
Capital Corp-Arroyo Energy
1993 Ser B (AMT)**.......... 3.05 07/08/99 11,970,000
California Economic
Development Financing
Authority,
1,000 California Independent
System Operator Corp 1998
Ser A....................... 3.05 07/01/99 1,000,000
6,700 California Independent
System Operator Corp 1998
Ser B....................... 2.85 07/01/99 6,700,000
8,000 California Independent
System Operator Corp 1998
Ser D....................... 3.05 07/01/99 8,000,000
California Educational
Facilities Authority,
10,000 California Institute of
Technology Ser 1994......... 3.40 07/08/99 10,000,000
2,000 Pepperdine University Ser
B........................... 3.50 07/08/99 2,000,000
15,165 Stanford University Ser
L-5......................... 3.05 07/08/99 15,165,000
California Health Facilities
Financing Authority,
5,000 Adventist Health System/West
1998 Ser A (MBIA)........... 3.10 07/01/99 5,000,000
5,000 Catholic Healthcare West
1997 Ser C (MBIA)........... 3.00 07/08/99 5,000,000
14,000 Memorial Health Services
1994 Ser**.................. 3.20 07/08/99 14,000,000
9,500 St Francis Medical Center
1995 Ser E (MBIA)**......... 3.35 07/08/99 9,500,000
4,000 St Joseph Health System Ser
1985A....................... 2.85 07/01/99 4,000,000
California Pollution Control
Financing Authority,
5,040 Chevron USA Inc Ser 1983.... 3.10 11/15/99 5,043,797
10,485 Chevron USA Inc Ser 1984B... 3.15 06/15/00 10,490,365
8,000 OMS Equity of Stanislaus Inc
Ser 1987 (AMT).............. 3.75 07/01/99 8,000,000
1,500 Pacific Gas & Electric Co
1996 Ser E.................. 3.30 07/01/99 1,500,000
3,000 Shell Oil Co 1991 Ser B..... 2.85 07/01/99 3,000,000
10,500 Shell Martinez Refining Co
Ser 1996A (AMT)............. 2.85 07/01/99 10,500,000
16,500 California Public Capital
Improvements Financing
Authority, Pooled Ser 1988
C**......................... 3.15 09/15/99 16,500,000
California Statewide
Communities Development
Authority,
5,450 House Ear Institute 1993 Ser
A COPs...................... 3.10 07/01/99 5,450,000
3,230 John Muir/Mt Diablo Health
System COPs (AMBAC)......... 3.75 07/01/99 3,230,000
6,100 St Joseph Health System
COPs**...................... 3.10 07/08/99 6,100,000
9,500 Carlsbad Housing &
Redevelopment Commission,
Seascape Village
Ser A of 1994**............. 3.30 07/08/99 9,500,000
9,300 Contra Costa County,
Multi-Family The Park
Regency 1992 Ser A (AMT).... 3.15 07/08/99 9,300,000
13,000 Foothill/Eastern
Transportation Corridor
Agency, Toll Road Ser
1995C....................... 3.30 07/08/99 13,000,000
10,500 Fremont, Creekside Village
Multi-Family Issue D of
1985........................ 3.65 07/08/99 10,500,000
Los Angeles, Multi-Family
7,600 1985 Ser K.................. 3.30 07/08/99 7,600,000
4,900 1994 Ser A (AMT)............ 3.20 07/01/99 4,900,000
7,800 Los Angeles County
Metropolitan Transportation
Authority, Prop C Sales Tax
Refg Ser 1993-A (MBIA)**.... 3.35 07/08/99 7,800,000
2,500 M-S-R Public Power Agency, San
Juan Sub Lien Ser 1998F
(MBIA)...................... 3.05 07/01/99 2,500,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,500 Monterey County Financing
Authority, 1995 Ser A....... 3.45% 07/08/99 $ 8,500,000
11,100 Newport Beach, Hoag Memorial
Hospital Presbyterian Ser
1992 & 1996 Ser B........... 3.15 07/01/99 11,100,000
Oakland Joint Powers Financing
Authority,
12,000 1998 Ser A-1 (FSA)**........ 3.40 07/08/99 12,000,000
7,000 1998 Ser A-2 (FSA).......... 3.50 07/08/99 7,000,000
17,000 Rancho California Water
District Financing
Authority, Ser 1998A
(FGIC)...................... 3.00 07/08/99 17,000,000
3,800 Redlands, Orange Village Apts
1988 Ser A (AMT)............ 3.35 07/08/99 3,800,000
8,000 Riverside County, 1985 Ser A
COPs........................ 3.20 07/08/99 8,000,000
10,000 San Bernardino County, Medical
Center Financing Ser 1998
COPs (MBIA)................. 3.00 07/08/99 10,000,000
3,415 San Jacinto Unified School
District Ser 1997 COPs...... 3.45 07/08/99 3,415,000
4,000 San Jose, Almaden Lake Village
Apts Ser 1997 A (AMT)....... 3.35 07/08/99 4,000,000
7,200 San Jose Redevelopment Agency,
Merged Area Ser 1996 B...... 3.10 07/08/99 7,200,000
8,600 San Jose-Santa Clara Clean
Water Financing Authority,
Sewer Ser 1995B (FGIC)...... 3.25 07/08/99 8,600,000
10,000 Santa Clara County Financing
Authority, Valley Medical
Center 1994 Ser B........... 3.10 07/08/99 10,000,000
11,700 Southern California Public
Power Authority,
Transmission 1991 Sub Refg
Ser (AMBAC)................. 3.25 07/08/99 11,700,000
6,400 Turlock, Irrigation District
Ser 1988 A.................. 3.10 07/08/99 6,400,000
15,000 West Basin Municipal Water
District, Ser 1997 B COPs... 3.20 07/08/99 15,000,000
6,550 Western Riverside County
Regional Wastewater
Authority, Ser 1996......... 2.90 07/01/99 6,550,000
----------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE
MUNICIPAL OBLIGATIONS
(AMORTIZED COST $396,764,162)........................ 396,764,162
----------------
</TABLE>
<TABLE>
<CAPTION>
YIELD TO
MATURITY
COUPON MATURITY ON DATE OF
RATE DATE PURCHASE
------- --------- ------------
<C> <S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (29.8%)
California Pollution Control
Financing Authority,
11,600 Southern California Edison
Co Ser 1985 A............... 2.85% 07/27/99 2.85% 11,600,000
5,000 Southern California Edison
Co Ser 1985 A............... 3.00 08/10/99 3.00 5,000,000
4,500 Southern California Edison
Co Ser 1985 A............... 3.00 08/16/99 3.00 4,500,000
5,000 Thermal Energy Development
Partnership Ser A (AMT)..... 2.60 07/22/99 2.60 5,000,000
5,000 Chula Vista, San Diego Gas &
Electric Co Ser 1992 C
(AMT)....................... 3.00 10/14/99 3.00 5,000,000
5,000 Contra Costa Water District,
Ser A....................... 2.90 07/20/99 2.90 5,000,000
East Bay Municipal Utility
District,
4,000 Water....................... 3.15 08/19/99 3.15 4,000,000
5,200 Water....................... 3.00 09/23/99 3.00 5,200,000
Los Angeles,
8,000 Wastewater Ser 1997......... 2.80 08/11/99 2.80 8,000,000
9,000 Wastewater Ser 1997......... 3.20 08/18/99 3.20 9,000,000
4,000 Los Angeles County
Metropolitan Transportation
Authority, Sales Tax Ser
A........................... 3.00 08/11/99 3.00 4,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, 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>
$10,000 Metropolitan Water District of
Southern California, Ser
1996 B...................... 2.80% 08/12/99 2.80% $ 10,000,000
4,000 Sacramento Municipal Utility
District, Ser I............. 2.65 07/29/99 2.65 4,000,000
San Diego,
9,000 San Diego Gas & Electric Co
1995 Ser B.................. 2.80 08/09/99 2.80 9,000,000
7,500 San Diego Gas & Electric Co
1995 Ser B.................. 3.00 08/18/99 3.00 7,500,000
San Diego County Water
Authority,
6,500 Ser #1...................... 2.75 08/10/99 2.75 6,500,000
4,000 Ser #1...................... 3.00 08/19/99 3.00 4,000,000
10,000 Ser #1...................... 3.15 09/08/99 3.15 10,000,000
9,000 San Francisco Bay Area Transit
Financing Authority, Ser
1998 B...................... 3.15 09/20/99 3.15 9,000,000
3,225 San Francisco Airport
Commission, San Francisco
International Airport Ser
1997 A (AMT)................ 2.95 08/12/99 2.95 3,225,000
San Joaquin County
Transportation Authority,
4,500 Sales Tax Ser 1997.......... 2.90 07/14/99 2.90 4,500,000
13,000 Sales Tax Ser 1997.......... 3.20 08/23/99 3.20 13,000,000
6,000 Sales Tax Ser 1997.......... 2.70 08/25/99 2.70 6,000,000
University of California
Regents,
9,500 Ser A....................... 2.45 07/20/99 2.45 9,500,000
6,000 Ser A....................... 3.10 08/19/99 3.10 6,000,000
PUERTO RICO
Puerto Rico Government
Development Bank,
5,000 Ser 1996.................... 2.85 07/21/99 2.85 5,000,000
9,177 Ser 1996.................... 2.85 09/13/99 2.85 9,177,000
4,100 Ser 1996.................... 3.00 10/07/99 3.00 4,100,000
-------------
TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $186,802,000).................................... 186,802,000
-------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (19.1%)
Alameda County,
10,000 1998-99 TRANs, dtd
07/08/98.................... 4.50 07/07/99 3.60 10,001,427
7,000 1999-2000 TRANs, dtd
07/08/99 (WI)............... 4.00 07/07/00 3.32 7,045,920
10,000 California Community College
Financing Authority, 1999
Ser A TRANs, dtd 07/01/99
(WI)........................ 4.00 06/30/00 3.09 10,088,000
California School Cash Reserve
Program Authority,
10,000 1998 Pool Ser A, dtd
07/02/98.................... 4.50 07/02/99 3.74 10,000,201
26,000 1999 Pool Ser A (AMBAC), dtd
07/02/99 (WI)............... 4.00 07/03/00 3.10 26,227,500
10,000 Fresno County, 1998-99 TRANs,
dtd 07/02/98................ 4.00 07/01/99 3.59 10,000,000
7,000 Kern County, Ser 1999-2000
TRANs, dtd 07/01/99 (WI).... 4.00 06/30/00 3.15 7,057,470
24,700 Los Angeles County, 1999-2000
Ser A TRANs,
dtd 07/01/99 (WI)........... 4.00 06/30/00 3.32 24,862,032
6,000 San Francisco Unified School
District, 1998 TRANs, dtd
09/03/98.................... 4.50 09/22/99 3.40 6,014,603
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999, 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>
$ 8,000 Ventura County, Ser 1999
TRANs, dtd 07/01/99 (WI).... 4.00% 07/06/00 3.20% $ 8,062,800
-------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $119,359,953).................................... 119,359,953
-------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $702,926,115) (a)........................... 112.3% 702,926,115
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.............. (12.3) (77,172,833)
----- -------------
NET ASSETS.................................................. 100.0% $ 625,753,282
----- -------------
----- -------------
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
TRANs Tax and Revenue Anticipation Notes.
WI Security purchased on a "when-issued" basis.
+ Rate shown is rate in effect at June 30, 1999.
* Date on which the principal amount can be recovered through demand.
** All or a portion of these securities have been segregated in connection
with the purchase of "when-issued" securities.
(a) Cost is the same for federal income tax purposes.
BOND INSURANCE:
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
57
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $702,926,115)............................................................... $702,926,115
Cash.......................................................................................... 2,849,211
Interest receivable........................................................................... 3,744,953
Prepaid expenses.............................................................................. 11,290
------------
TOTAL ASSETS............................................................................. 709,531,569
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 83,343,722
Investment management fee................................................................. 278,988
Plan of distribution fee.................................................................. 57,667
Accrued expenses and other payables........................................................... 97,910
------------
TOTAL LIABILITIES........................................................................ 83,778,287
------------
NET ASSETS............................................................................... $625,753,282
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $625,752,922
Accumulated undistributed net investment income............................................... 360
------------
NET ASSETS............................................................................... $625,753,282
------------
------------
NET ASSET VALUE PER SHARE,
625,752,922 SHARES OUTSTANDING
(UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)............................................. $1.00
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME AND NET INCREASE:
INTEREST INCOME................................................................................ $18,799,070
-----------
EXPENSES
Investment management fee...................................................................... 3,130,854
Plan of distribution fee....................................................................... 639,971
Transfer agent fees and expenses............................................................... 85,955
Professional fees.............................................................................. 65,429
Shareholder reports and notices................................................................ 45,847
Registration fees.............................................................................. 33,707
Custodian fees................................................................................. 29,762
Trustees' fees and expenses.................................................................... 18,006
Other.......................................................................................... 13,224
-----------
TOTAL EXPENSES............................................................................ 4,062,755
Less: expense offset........................................................................... (29,703)
-----------
NET EXPENSES.............................................................................. 4,033,052
-----------
NET INVESTMENT INCOME AND NET INCREASE......................................................... $14,766,018
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................... $ 14,766,018 $ 15,064,430
Net realized gain............................................................... -- 2,410
------------ ------------
NET INCREASE............................................................... 14,766,018 15,066,840
Dividends from net investment income............................................ (14,765,860) (15,064,414)
Net increase from transactions in shares of beneficial interest................. 75,973,793 118,394,453
------------ ------------
NET INCREASE............................................................... 75,973,951 118,396,879
NET ASSETS:
Beginning of period............................................................. 549,779,331 431,382,452
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $360 AND $202,
RESPECTIVELY)............................................................... $625,753,282 $549,779,331
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999
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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors 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
61
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
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
Morgan Stanley 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 Dean
Witter Reynolds Inc., an affiliate of the Investment Manager and 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. 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, 1999, the
distribution fee was accrued at the annual rate of 0.10%.
62
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
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, 1999 aggregated $1,497,166,282 and $1,369,002,000,
respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1999, the Trust had
transfer agent fees and expenses payable of approximately $750.
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, 1999 included in
Trustees' fees and expenses in the Statement of Operations amounted to $5,388.
At June 30, 1999, the Trust had an accrued pension liability of $39,918 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, 1999 JUNE 30, 1998
-------------- --------------
<S> <C> <C>
Shares sold............................. 2,258,604,717 1,906,367,914
Shares issued in reinvestment of
dividends.............................. 14,765,860 15,064,414
-------------- --------------
2,273,370,577 1,921,432,328
Shares repurchased...................... (2,197,396,784) (1,803,037,875)
-------------- --------------
Net increase in shares outstanding...... 75,973,793 118,394,453
-------------- --------------
-------------- --------------
</TABLE>
63
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 present fairly, in all
material respects, the financial position of Active Assets California Tax-Free
Trust (the "Trust") at June 30, 1999, 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 five 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AUGUST 5, 1999
1999 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended June 30, 1999, all of the Trust's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
64
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance for the past 5 fiscal years of the Trust. Certain
information reflects financial results for a single Trust share throughout each
year. The total returns in the table represent the rate an investor would have
earned or lost on an investment in the Trust (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Trust's financial statements, is
included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net income from investment operations 0.045 0.049 0.048 0.049 0.048
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.045) (0.049) (0.048) (0.049) (0.048)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.64% 5.05% 4.92% 5.03% 4.92%
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses 0.61% 0.63% 0.64% 0.65% 0.67%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 4.50% 4.93% 4.78% 4.93% 4.84%
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in millions $995 $699 $620 $571 $542
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
65
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 1999
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATES PURCHASE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES (95.0%)
$ 84,810 Federal Farm Credit Bank 07/15/99 - 05/26/00...................... 4.74 - 5.44% $ 82,595,762
439,502 Federal Home Loan Banks 07/07/99 - 04/28/00....................... 4.72 - 5.12 436,558,191
318,212 Federal Home Loan Mortgage Corp. 07/01/99 - 10/18/99.............. 4.77 - 4.92 316,579,660
68,000 Federal National Mortgage Assoc. 08/06/99 - 09/16/99.............. 4.73 - 5.04 67,480,835
17,300 Student Loan Marketing Assoc.
07/30/99........................................................ 4.81 17,233,525
25,000 Tennessee Valley Authority
08/02/99........................................................ 5.04 24,888,444
------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $945,336,417).......................................................... 945,336,417
------------
U.S. GOVERNMENT OBLIGATION (0.7%)
7,000 U.S. Treasury Bill
09/02/99 (AMORTIZED COST $6,944,630)............................ 4.62 6,944,630
------------
REPURCHASE AGREEMENT (4.4%)
43,665 The Banc of America Securities LLC
4.95% due 07/01/99 (dated 06/30/99;
proceeds $43,671,004)(a)
(IDENTIFIED COST $43,665,000)................................... 43,665,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $995,946,047) (b)......................................................... 100.1 % 995,946,047
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.1) (498,504)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 995,447,543
------ -------------
------ -------------
</TABLE>
- ---------------------
(a) Collateralized by $49,150,000 Federal National Mortgage Assoc. 5.50% due
01/01/14 valued at $44,975,140.
(b) Cost is the same for federal income tax purposes.
SEE NOTES TO FINANCIAL STATEMENTS
66
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $995,946,047)............................................................... $995,946,047
Cash.......................................................................................... 4,015
Interest receivable........................................................................... 154,999
Prepaid expenses and other assets............................................................. 36,408
------------
TOTAL ASSETS............................................................................. 996,141,469
------------
LIABILITIES:
Payable for:
Investment management fee................................................................. 417,626
Plan of distribution fee.................................................................. 93,490
Accrued expenses and other payables........................................................... 182,810
------------
TOTAL LIABILITIES........................................................................ 693,926
------------
NET ASSETS............................................................................... $995,447,543
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $995,447,115
Accumulated undistributed net investment income............................................... 428
------------
NET ASSETS............................................................................... $995,447,543
------------
------------
NET ASSET VALUE PER SHARE,
995,447,115 SHARES OUTSTANDING
(UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)............................................. $1.00
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
67
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................ $46,466,522
-----------
EXPENSES
Investment management fee...................................................................... 4,153,807
Plan of distribution fee....................................................................... 896,569
Registration fees.............................................................................. 197,803
Transfer agent fees and expenses............................................................... 113,284
Professional fees.............................................................................. 65,401
Custodian fees................................................................................. 56,243
Shareholder reports and notices................................................................ 53,694
Trustees' fees and expenses.................................................................... 18,559
Other.......................................................................................... 13,236
-----------
TOTAL EXPENSES............................................................................ 5,568,596
-----------
NET INVESTMENT INCOME..................................................................... 40,897,926
NET REALIZED GAIN......................................................................... 36,800
-----------
NET INCREASE................................................................................... $40,934,726
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................... $ 40,897,926 $ 34,376,188
Net realized gain............................................................... 36,800 --
------------ ------------
NET INCREASE............................................................... 40,934,726 34,376,188
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................................... (40,897,560) (34,376,623)
Net realized gain............................................................... (36,800) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.......................................... (40,934,360) (34,376,623)
------------ ------------
Net increase from transactions in shares of beneficial interest................. 296,470,113 78,528,472
------------ ------------
NET INCREASE............................................................... 296,470,479 78,528,037
NET ASSETS:
Beginning of period............................................................. 698,977,064 620,449,027
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $428 AND $62,
RESPECTIVELY)............................................................... $995,447,543 $698,977,064
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999
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 Morgan Stanley Dean Witter
Advisors 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
70
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
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
Morgan Stanley 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 under the Plan: (1)
compensation to sales representatives of Dean Witter Reynolds Inc., an affiliate
of the Investment Manager and 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
71
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999, CONTINUED
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, 1999, 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, 1999 aggregated $16,947,687,458 and $16,694,551,347,
respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At June 30, 1999, the Trust had
transfer agent fees and expenses payable of approximately $700.
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, 1999 included in
Trustees' fees and expenses in the Statement of Operations amounted to $5,899.
At June 30, 1999, the Trust had an accrued pension liability of $50,816 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, 1999 JUNE 30, 1998
--------------- ---------------
<S> <C> <C>
Shares sold...................................................... 3,141,395,012 2,429,444,279
Shares issued in reinvestment of dividends and distributions..... 40,910,486 34,349,876
--------------- ---------------
3,182,305,498 2,463,794,155
Shares repurchased............................................... (2,885,835,385) (2,385,265,683)
--------------- ---------------
Net increase in shares outstanding............................... 296,470,113 78,528,472
--------------- ---------------
--------------- ---------------
</TABLE>
72
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 present fairly, in all
material respects, the financial position of Active Assets Government Securities
Trust (the "Trust") at June 30, 1999, 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 five 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, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AUGUST 5, 1999
73
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<PAGE>
PROSPECTUS - AUGUST 23, 1999
Additional information about each Fund's investments is available in the Fund's
SEMI-ANNUAL REPORT TO SHAREHOLDERS. The Funds' STATEMENT OF ADDITIONAL
INFORMATION also provides additional information about the Funds. The STATEMENT
OF ADDITIONAL INFORMATION is incorporated herein by reference (legally is part
of this PROSPECTUS). For a free copy of any of these documents, to request other
information about the Funds, or to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about each Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
www.msdw.com/individual/funds
Information about the Funds (including the STATEMENT OF ADDITIONAL INFORMATION)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800) SEC-0330. Reports and
other information about the Funds are available on the SEC's Internet site at
www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by writing the Public Reference Section of the SEC, Washington,
DC 20549-6009.
TICKER SYMBOLS:
ACTIVE ASSETS MONEY
TRUST AAMT
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ACTIVE ASSETS
TAX-FREE TRUST AATF
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ACTIVE ASSETS
CALIFORNIA TAX-FREE
TRUST AACT
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ACTIVE ASSETS
GOVERNMENT
SECURITIES TRUST AAGS
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(THE FUND'S INVESTMENT COMPANY ACT FILE NOS. ARE 811-3159
811-3162
811-6530
811-3165)
Active Assets
MONEY TRUST
TAX-FREE TRUST
CALIFORNIA TAX-FREE TRUST
GOVERNMENT SECURITIES TRUST
[BACK COVER PHOTO]
FOUR DIFFERENT MONEY MARKET FUNDS OFFERED
EXCLUSIVELY TO PARTICIPANTS IN THE ACTIVE ASSETS
ACCOUNT-Registered Trademark- FINANCIAL SERVICE
PROGRAM AND TO OTHER INVESTORS WHO HAVE
BROKERAGE ACCOUNTS WITH DEAN WITTER REYNOLDS.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION ACTIVE
AUGUST 23, 1999 ASSETS
MONEY TRUST
ACTIVE
ASSETS
TAX-FREE
TRUST
ACTIVE
ASSETS
CALIFORNIA
TAX-FREE
TRUST
ACTIVE
ASSETS
GOVERNMENT
SECURITIES
TRUST
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This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
dated August 23rd, 1999 for Active Assets Money Trust, Active Assets Tax-Free
Trust, Active Assets California Tax-Free Trust and Active Assets Government
Securities Trust (each a "Fund") may be obtained without charge from the Funds
at their address or telephone number listed below or from Dean Witter Reynolds
at any of its branch offices.
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
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TABLE OF CONTENTS
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I. History of the Funds................................................................ 4
II. Description of the Funds and Their Investments and Risks........................... 4
A. Classification.................................................................... 4
B. Investment Strategies and Risks................................................... 4
C. Investment Objective/Policies/Investment Restrictions............................. 12
III. Management of the Funds........................................................... 17
A. Board of Trustees................................................................. 17
B. Management Information............................................................ 17
C. Compensation...................................................................... 22
IV. Control Persons and Principal Holders of Securities................................ 26
V. Investment Management and Other Services............................................ 26
A. Investment Manager................................................................ 26
B. Principal Underwriter............................................................. 27
C. Services Provided by the Investment Manager and Fund Expenses Paid by Third
Parties............................................................................. 28
D. Rule 12b-1 Plan................................................................... 28
E. Other Service Providers........................................................... 31
VI. Brokerage Allocation and Other Practices........................................... 31
A. Brokerage Transactions............................................................ 31
B. Commissions....................................................................... 32
C. Brokerage Selection............................................................... 32
D. Directed Brokerage................................................................ 33
E. Regular Broker-Dealers............................................................ 33
VII. Capital Stock and Other Securities................................................ 33
VIII. Purchase, Redemption and Pricing of Shares....................................... 34
A. Purchase/Redemptions of Shares.................................................... 34
B. Offering Price.................................................................... 34
IX. Taxation of the Funds and Their Shareholders....................................... 36
X. Underwriters........................................................................ 38
XI. Calculation of Performance Data.................................................... 38
XII. Financial Statements.............................................................. 39
</TABLE>
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GLOSSARY OF SELECTED DEFINED TERMS
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The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CUSTODIAN"--The Bank of New York is the Custodian of the Funds' assets.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.
"FUND"--Any of the Active Assets Money Trust, the Active Assets Tax-Free Trust,
the Active Assets California Tax-Free Trust and the Active Assets Government
Securities Trust, each a registered no-load open-end investment company.
"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.
"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.
"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor and (ii) that hold
themselves out to investors as related companies for investment and investor
services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Funds.
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I. HISTORY OF THE FUNDS
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Each Fund is organized as a Massachusetts business trust, under a separate
Declaration of Trust. With the exception of ACTIVE ASSETS CALIFORNIA TAX-FREE
TRUST, each Fund was organized on March 30, 1981. ACTIVE ASSETS CALIFORNIA
TAX-FREE TRUST was organized on July 10, 1991.
II. DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
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A. CLASSIFICATION
Each Fund is an open-end, diversified management investment company. Each
Fund's investment objective(s) is as follows:
<TABLE>
<S> <C>
ACTIVE ASSETS MONEY TRUST-- high current income, preservation of capital
and liquidity.
ACTIVE ASSETS TAX-FREE to provide as high a level of daily income
TRUST-- exempt from federal personal income tax as is
consistent with stability of principal and
liquidity.
ACTIVE ASSETS CALIFORNIA TAX- to provide as high a level of daily income
FREE TRUST-- exempt from federal and California personal
income tax as is consistent with stability of
principal and liquidity.
ACTIVE ASSETS GOVERNMENT high current income, preservation of capital
SECURITIES TRUST-- and liquidity.
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B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Funds' investment strategies and risks
should be read with the sections of the Funds' PROSPECTUS titled "Principal
Investment Strategies" and "Principal Risks."
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Funds in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Funds. These agreements, which may be viewed
as a type of secured lending by the Funds, typically involve the acquisition by
the Funds of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides that
the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The Funds will accrue interest from the institution until the
time when the repurchase is to occur. Although this date is deemed by the Funds
to be the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Funds follow procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well capitalized and well established financial institutions, whose
financial condition will be continuously monitored. In addition, the value of
the collateral underlying the repurchase agreement will always be at least equal
to the resale price which consists of the acquisition price paid to the seller
of the securities plus the accrued resale premium which is defined as the amount
specified in the repurchase agreement or the daily amortization of the
difference between the acquisition price and the resale price specified in the
repurchase agreement. Such collateral will consist entirely of securities that
are direct obligations of, or that are fully guaranteed as to principal and
interest by, the United States or any agency thereof, and/or certificates of
deposit, or other securities that, at the time the repurchase agreement is
entered into, are rated in the highest rating category by the Requisite NRSROs
(as defined under Rule 2a-7 of the Investment Company Act of 1940).
Additionally, upon an Event of Insolvency (as defined under Rule 2a-7) with
respect to the seller, the collateral must qualify the repurchase agreement for
preferential treatment under a provision of applicable insolvency
4
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law providing an exclusion from any automatic stay of creditors' rights against
the seller. In the event of a default or bankruptcy by a selling financial
institution, the Funds will seek to liquidate such collateral. However, the
exercise of the Funds' right to liquidate such collateral could involve certain
costs or delays and, to the extent that proceeds from any sale upon a default of
the obligation to repurchase were less than the repurchase price, the Funds
could suffer a loss. It is the current policy of each Fund not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 10% of its total assets. A Fund's investments in repurchase agreements
may at times be substantial when, in the view of the Fund's Investment Manager,
liquidity or other considerations warrant.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. Each of the Funds may invest
in variable rate and floating rate obligations. ACTIVE ASSETS TAX-FREE TRUST and
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may only invest in variable rate and
floating rate municipal obligations. The interest rate payable on a variable
rate obligation is adjusted either at predesignated periodic intervals and, on a
floating rate obligation, whenever there is a change in the market rate of
interest on which the interest rate payable is based. Other features may include
the right whereby the Fund may demand prepayment of the principal amount of the
obligation prior to its stated maturity (a "demand feature") and the right of
the issuer to prepay the principal amount prior to maturity. The principal
benefit of a variable rate obligation is that the interest rate adjustment
minimizes changes in the market value of the obligation. As a result, the
purchase of variable rate and floating rate obligations should enhance the
ability of the applicable Funds to maintain a stable net asset value per share
and to sell obligations prior to maturity at a price that is approximately the
full principal amount of the obligations. The principal benefit to a Fund of
purchasing obligations with a demand feature is that liquidity, and the ability
of the Fund to obtain repayment of the full principal amount of an obligation
prior to maturity, is enhanced. The payment of principal and interest by issuers
of certain obligations purchased by a Fund may be guaranteed by letters of
credit or other credit facilities offered by banks or other financial
institutions. Such guarantees will be considered in determining whether an
obligation meets a Fund's investment quality requirements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time each of the
Funds other than ACTIVE ASSETS MONEY TRUST may purchase eligible portfolio
securities, on a when-issued or delayed delivery basis. When these transactions
are negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of commitment. While a
Fund will only purchase securities on a when-issued or delayed delivery basis
with the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date.
At the time a Fund makes the commitment to purchase or sell securities on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of such security purchased, or if a
sale, the proceeds to be received, in determining its net asset value. At the
time of delivery of the securities, their value may be more or less than the
purchase or sale price. An increase in the percentage of a Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of its net asset value. A Fund will also
establish a segregated account on its books in which it will continually
maintain cash or cash equivalents or other liquid portfolio securities equal in
value to commitments to purchase securities on a when-issued or delayed delivery
basis.
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO ACTIVE ASSETS--TAX-FREE TRUST AND
CALIFORNIA TAX-FREE TRUST ONLY
LEASE OBLIGATIONS. Included within the revenue bonds category in which
ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may
invest are participations in lease obligations or installment purchase contracts
(collectively called "lease obligations") of municipalities. State and local
governments issue lease obligations to acquire equipment and facilities.
5
<PAGE>
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer) have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
PUT OPTIONS. Each of ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS
CALIFORNIA TAX-FREE TRUST may purchase securities together with the right to
resell them to the seller at an agreed upon price or yield within a specified
period prior to the maturity date of such securities. Such a right to resell is
commonly known as a "put," and the aggregate price which a Fund pays for
securities with puts may be higher than the price which otherwise would be paid
for the securities. The primary purpose of this practice is to permit these
Funds to be fully invested in securities, the interest on which is exempt from
Federal income tax and, with respect to ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST,
California personal income tax, while preserving the necessary flexibility and
liquidity to purchase securities on a when-issued basis, to meet unusually large
redemptions and to purchase at a later date securities other than those subject
to the put. The Funds' policy is, generally, to exercise the puts on their
expiration date, when the exercise price is higher than the current market price
for the related securities. Puts may be exercised prior to the expiration date
in order to fund obligations to purchase other securities or to meet redemption
requests. These obligations may arise during periods in which proceeds from
sales of Fund shares and from recent sales of portfolio securities are
insufficient to meet such obligations or when the funds available are otherwise
allocated for investment. In addition, puts may be exercised prior to their
expiration date in the event the Investment Manager revises its evaluation of
the creditworthiness of the issuer of the underlying security. In determining
whether to exercise puts prior to their expiration date and in selecting which
puts to exercise in such circumstances, the Investment Manager considers, among
other things, the amount of cash available to the Funds, the expiration dates of
the available puts, any future commitments for securities purchases, the yield,
quality and maturity dates of the underlying securities, alternative investment
opportunities and the desirability of retaining the underlying securities in the
Funds' portfolios.
A Fund values securities which are subject to puts at its amortized cost and
values the put, apart from the security, at zero. Thus, the cost of the put will
be carried on a Fund's books as an unrealized loss from the date of acquisition
and will be reflected in realized gain or loss when the put is exercised or
expires. Since the value of the put is dependent on the ability of the put
writer to meet its obligation to repurchase, a Fund enters into put transactions
only with municipal securities dealers who are approved by the Trustees. Each
dealer will be approved on its own merits and it is the Funds' general policy to
enter into put transactions only with those dealers which are determined to
present minimal credit risks. In connection with such determination, the
Trustees will review, among other things, the ratings, if available, of equity
and debt securities of such municipal securities dealers, their reputations in
the municipal securities markets, the net worth of such dealers and their
efficiency in consummating transactions. Bank dealers normally will be members
of the Federal Reserve System, and other dealers will be members of the National
Association of Securities Dealers, Inc. or members of a national securities
exchange. The Trustees have directed the Investment Manager not to enter into
put transactions with, and to exercise outstanding puts of, any municipal
securities dealer which, in the judgment of the Investment Manager, ceases at
any time to present a minimal credit risk. In the event that a dealer should
default on its obligation to repurchase an underlying security, a Fund is unable
to predict whether all or any portion of any loss sustained could be
subsequently recovered from such dealer.
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<PAGE>
In Revenue Ruling 82-144, the Internal Revenue Service stated that, under
certain circumstances, a purchaser of tax-exempt obligations which are subject
to puts will be considered the owner of the obligations for Federal income tax
purposes.
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS. Each of ACTIVE ASSETS
TAX-FREE TRUST and ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may invest more than
25% of its total assets in industrial development and pollution control bonds
(two kinds of tax-exempt municipal bonds) whether or not the users of facilities
financed by such bonds are in the same industry. In cases where such users are
in the same industry, there may be additional risk to the Funds in the event of
an economic downturn in such industry, which may result generally in a lowered
need for such facilities and a lowered ability of such users to pay for the use
of such facilities.
TAXABLE SECURITIES. Each of ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS
CALIFORNIA TAX-FREE TRUST may invest up to 20% of its total assets in taxable
money market instruments including, with respect to CALIFORNIA TAX-FREE TRUST,
non-California tax-exempt securities. Investments in taxable money market
instruments would generally be made under any one of the following
circumstances: (a) pending investment proceeds of sale of Fund shares or of
portfolio securities; (b) pending settlement of purchases of portfolio
securities; and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. Only those non-California tax-exempt securities which satisfy the
standards established for California tax-exempt securities may be purchased by
CALIFORNIA TAX-FREE TRUST.
The types of taxable money market instruments in which TAX-FREE TRUST and
CALIFORNIA TAX-FREE TRUST may invest are limited to the following short-term
fixed-income securities (maturing in thirteen months or less from the time of
purchase): (i) obligations of the United States Government, its agencies,
instrumentalities or authorities; (ii) commercial paper rated P-1 by Moody's
Investors Services, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P"); (iii) certificates of deposit and bankers' acceptances of domestic
banks with assets of $1 billion or more; and (iv) repurchase agreements with
respect to portfolio securities.
INVESTMENT STRATEGIES AND RISKS APPLICABLE TO ACTIVE ASSETS--MONEY TRUST AND/OR
GOVERNMENT SECURITIES TRUST ONLY
LENDING PORTFOLIO SECURITIES. Each of ACTIVE ASSETS MONEY TRUST and ACTIVE
ASSETS GOVERNMENT SECURITIES TRUST may lend its portfolio securities to brokers,
dealers and other financial institutions, provided that the loans are callable
at any time by the Fund, and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of these loans is that a Fund
continues to receive the income on the loaned securities while at the same time
earning interest on the cash amounts deposited as collateral, which will be
invested in short-term obligations. A Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than 10%
of the value of its total assets.
As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by management to be creditworthy and when the
income which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, a Fund will follow the policy of calling the loaned securities, to be
delivered within one day after notice, to permit the exercise of the rights if
the matters involved would have a material effect on the Fund's investment in
the loaned securities. The Funds will pay reasonable finder's, administrative
and custodial fees in connection with a loan of their securities.
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REVERSE REPURCHASE AGREEMENTS. ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
may also use reverse repurchase agreements as part of its investment strategy.
Reverse repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase agreement is less than the cost of obtaining the
cash otherwise. Opportunities to achieve this advantage may not always be
available, and the Fund intends to use the reverse repurchase technique only
when it will be to its advantage to do so. The Fund will establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other portfolio securities equal in value to its obligations in
respect of reverse repurchase agreements. Reverse repurchase agreements are
considered borrowings by the Fund.
YEAR 2000. The investment management services provided to the Funds by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which each
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues.
Corporate and governmental data processing errors also may result in production
problems for individual companies and overall economic uncertainties. Earnings
of individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, each Fund's investments may be adversely affected.
THE STATE OF CALIFORNIA--SPECIAL INVESTMENT CONSIDERATIONS APPLICABLE TO
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST ONLY. The following describes certain
risks with respect to municipal obligations of California issuers in which
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may invest. This summarized information
is based on information drawn from official statements and prospectuses relating
to securities offerings of the State of California and other public documents
available as of the date of this Statement of Additional Information.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will be affected by any political,
economic or regulatory developments affecting the ability of California issuers
to pay interest or repay principal. Provisions of the California Constitution
and State statutes which limit the taxing and spending authority of California
governmental entities may impair the ability of California issuers to maintain
debt service on their obligations. Future California political and economic
developments, constitutional amendments, legislative measures, executive orders,
administrative regulations, litigation and voter initiatives could have an
adverse effect on the debt obligations of California issuers.
Certain debt obligations held by ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST may
be obligations of issuers which rely in whole or in substantial part on
California state revenues for the continuance of their operations and payment of
their obligations. Whether and to what extent the California Legislature will
continue to appropriate a portion of the State's General Fund to counties,
cities and their various entities, is not entirely certain. To the extent local
entities do not receive money from the State to pay for their operations and
services, their ability to pay debt service on obligations held by the Fund may
be impaired.
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In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources. Legislation adopted after Proposition 13 provided for
assistance to local governments, including the redistribution of the
then-existing surplus in the General Fund, reallocation of revenues to local
governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in future years. In NORDLINGER V. HAHN, the
United States Supreme Court upheld certain provisions of Proposition 13 against
claims that it violated the equal protection clause of the Constitution.
In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the State and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by State and local government entities.
"Appropriations limit" does not include appropriations for qualified capital
outlay projects, certain increases in transportation-related taxes, and certain
emergency appropriations.
If a government entity raises revenues beyond its "appropriations limit" in
any year, a portion of the excess which cannot be appropriated within the
following year's limit must be returned to the entity's taxpayers within two
subsequent fiscal years, generally by a tax credit, refund or temporary
suspension of tax rates or fee schedules. "Debt service" is excluded from these
limitations, and is defined as "appropriations required to pay the cost of
interest and redemption charges, including the funding of any reserve or sinking
fund required in connection therewith, on indebtedness existing or legally
authorized as of January 1, 1979 or on bonded indebtedness thereafter approved
[by the voters]." In addition, Article XIIIB requires the State Legislature to
establish a prudent State reserve, and to require the transfer of 50% of excess
revenue to the State School Fund; any amounts allocated to the State School Fund
will increase the appropriations limit.
In June 1982, the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to account for the effects of inflation. Decreases in State and local
revenues in future fiscal years as a consequence of these initiatives may result
in reductions in allocations of state revenues to California issuers or in the
ability of California issuers to pay their obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and (viii)
permits these provisions to be amended exclusively by the voters of the State of
California.
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In September 1995, the California Supreme Court upheld the constitutionality
of Proposition 62, creating uncertainty as to the legality of certain local
taxes enacted by non-charter cities in California without voter approval. It is
not possible to predict the impact of the decision.
In November 1996, California voters approved Proposition 218. The initiative
applied the provisions of Proposition 62 to all entities, including charter
cities. It requires that all taxes for general purposes obtain a simple majority
popular vote and that taxes for special purposes obtain a two-thirds majority
vote. Prior to the effectiveness of Proposition 218, charter cities could levy
certain taxes such as transient occupancy taxes and utility user's taxes without
a popular vote. Proposition 218 will also limit the authority of local
governments to impose property-related assessments, fees and charges, requiring
that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal
previously-authorized taxes, assessments, fees and charges.
In 1988, State voters approved Proposition 87, which amended Article XVI of
the State Constitution to authorize the State Legislature to prohibit
redevelopment agencies from receiving any property tax revenues raised by
increased property taxes to repay bonded indebtedness of local government which
is not approved by voters on or before January 1, 1989. It is not possible to
predict whether the State Legislature will enact such a prohibition, nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.
In November 1988, California voters approved Proposition 98. This initiative
requires that (i) revenues in excess of amounts permitted to be spent and which
would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits to be annually increased
for any such allocation made in the prior year. Proposition 98 also requires the
State of California to provide a minimum level of funding for public schools and
community colleges. The initiative permits the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.
Certain tax-exempt securities in which the Fund may invest may be
obligations payable solely from the revenues of specific institutions, or may be
secured by specific properties, which are subject to provisions of California
law which could adversely affect the holders of such obligations. For example,
the revenues of California health care institutions may be subject to state
laws, and California law limits the remedies of a creditor secured by a mortgage
or deed of trust on real property.
California is the most populous state in the nation with a total population
estimated at 32.9 million. The State now comprises 12.3% of the nation's
population and 12.5% of its total personal income. Its economy is broad and
diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After experiencing strong
growth throughout much of the 1980s, from 1990-1993 the State suffered through a
severe recession, the worst since the 1930's, heavily influenced by large
cutbacks in defense/aerospace industries and military base closures and a major
drop in real estate construction. California's economy has been recovering and
growing steadily stronger since the start of 1994, to the point where the
State's economic growth is outpacing the rest of the nation. The unemployment
rate, while still higher than the national average, fell to an average of 5.9%
in 1998, compared to over 10% at the worst of the recession. California's
economic recovery from the recession is continuing at a strong pace. Recent
economic reports indicate that, while the rate of economic growth in California
is expected to moderate over the next year, the increases in employment and
income may exceed those of the nation as a whole. The unsettled financial
situation occurring in certain Asian economies, and its spillover effect
elsewhere, may adversely affect the State's export-related industries and,
therefore, the State's rate of economic growth.
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<PAGE>
The Governor signed the 1998-99 Budget Act on August 21, 1998. The 1998-99
Budget Act is based on projected General Fund revenues and transfers of $57.0
billion (after giving effect to various tax reductions enacted in 1997 and
1998), a 4.2% increase from the revised 1997-98 figures. Special Fund revenues
were estimated at $14.3 billion. The revenue projections were based on the
Governor's May Revision to the 1998-99 Budget and may be overstated in light of
the possible effect on California's economic growth of worsening economic
problems in various international markets.
The Budget Act provides authority for expenditures of $57.3 billion from the
General Fund (a 7.3% increase from 1997-98), $14.7 billion from Special Funds,
and $3.4 billion from bond funds. The Budget Act projects a balance in the SFEU
at June 30, 1999 of $1.255 billion, a little more than 2% of General Fund
revenues. The Budget Act assumes the State will carry out its normal intra-year
cash flow borrowing in the amount of $1.7 billion of revenue anticipation notes
issued in October, 1998.
The most significant feature of the 1998-99 budget was agreement on a total
of $1.4 billion of tax cuts. The central element is a bill which provides for a
phased-in reduction of the Vehicle License Fee (VLF). Since the VLF is currently
transferred to cities and counties, the bill provides for the General Fund to
replace the lost revenues. Starting on January 1, 1999, the VLF will be reduced
by 25%, at a cost to the General Fund of approximately $500 million in the
1998-99 Fiscal Year and about $1 billion annually thereafter.
The Governor's proposed budget for fiscal year 1999-2000 proposes total
State spending of $76.2 billion (excluding the expenditure of federal funds and
selected bond funds), which is up 4.1% from the 1998-1999 budget. This total
includes $60.5 billion in General Fund spending (a 3.8% increase) and $15.7 in
special funds spending. The Governor's proposed budget anticipates a $415
million reserve by the close of the fiscal year. The proposed budget addresses
an anticipated funding shortfall of $2.3 billion (which includes funds to
rebuild the reserve) through a combination of new state and federal resources,
the rescheduling of certain expenditures, under budgeting certain expenditures,
spending cutbacks, and savings assumptions.
As of February 1, 1999, the State had over $19.1 billion aggregate amount of
its general obligation bonds outstanding. General obligation bond authorizations
in an aggregate amount of approximately $14.3 billion remained unissued as of
February 1, 1999. At the November 3, 1998 election voters approved a bond
measure totaling $9.2 billion for public school construction and renovation, and
for higher education facilities. The State also builds and acquires capital
facilities through the use of lease purchase borrowing. As of February 1, 1999,
the State had approximately $6.7 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities
had approximately $24.6 billion aggregate principal amount of revenue bonds and
notes outstanding as of September 30, 1998. Revenue bonds represent both
obligations payable from State revenue-producing enterprises and projects, which
are not payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, educational facilities (including the California
State University and University of California systems), housing, health
facilities, and pollution control facilities.
Because of the State of California's budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by S&P, and to A from AA by Fitch. Moody's, Fitch and S&P expressed
uncertainty in the State's ability to balance its budget by 1996. However, in
1996, citing California's improving economy and budget situation, both Fitch and
S&P raised their ratings from A to A+. In October, 1997, Fitch raised its rating
from A+ to AA- referring to the State's fundamental strengths, the extent of its
economic recovery and the return of financial stability. In October 1998,
Moody's raised its rating from A1 to Aa3 citing the State's continuing economic
recovery and a number of actions taken to improve the State's credit condition,
including the rebuilding of cash and budget reserves.
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<PAGE>
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations and which, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
YEAR 2000. In October 1997 the Governor issued Executive Order W-163-97
stating that Year 2000 solutions would be a State priority and requiring each
agency of the State, no later than December 31, 1998, to address Year 2000
problems in their essential systems and protect those systems from corruption by
non-compliant systems, in accordance with the Department of Information
Technology's California 2000 Program. The State reports that, although
substantial progress has been made toward the goal of Y2K compliance, the task
is still very large and will likely encounter unexpected difficulties. The State
cannot predict whether all mission critical systems will be ready and tested by
late 1999 or what impact the failure of any particular information technology
systems or of outside interfaces with technology information systems might have.
The State Treasurer's Office reports that as of December 31, 1998, its systems
for bond payments were fully Y2K compliant. There can be no assurance that steps
being taken by state or local government agencies with respect to the Year 2000
problem will be sufficient to avoid any adverse impact upon the budgets or
operations of those agencies.
ORANGE COUNTY. On December 6, 1994, Orange County, California, became the
largest municipality in the United States to file for protection under the
Federal bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the County's investment pool due to investments in high risk
"derivative" securities. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay off
the last of its creditors. On January 7, 1997, Orange County returned to the
municipal bond market with a $136 million bond issue maturing in 13 years at an
insured yield of 7.23%. In December, 1997, Moody's raised its ratings on $325
million of Orange County pension obligation bonds to Baa3 from Ba. In February
1998, Fitch assigned outstanding Orange County pension obligation bonds a BBB
rating.
LOS ANGELES COUNTY. Los Angeles County, the nation's largest county, has
also experienced financial difficulty. In August 1995 the credit rating of the
county's long-term bonds was downgraded for the third time since 1992 as a
result of, and among other things, severe operating deficits for the county's
health care system. In addition, the county was affected by an ongoing loss of
revenue caused by state property tax shift initiatives in 1993 through 1995. In
December 1998, Moody's raised the ratings on the County's general obligation
bonds to A1 from A2. The City of Los Angeles is the largest city in the county
and its general obligation bonds are rated AA by S&P and Aa by Moody's. In April
1999, the Los Angeles County Chief Administrative Officer proposed an
approximately $14.4 billion 1999-00 budget, approximately 5.1% larger than the
1998-99 budget. For a second year in a row the budget would not require cuts in
services and jobs to cover a deficit in the County's health department.
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
C. INVESTMENT OBJECTIVE/POLICIES/INVESTMENT RESTRICTIONS
Each Fund's investment objective/policies/restrictions listed below have
been adopted by the Funds as fundamental policies. Under the Investment Company
Act of 1940 (the "Investment Company Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the applicable Fund. The Investment Company Act defines a majority as the lesser
of (a) 67% or more of the shares present at a meeting of shareholders, if the
holders of 50% of the outstanding shares of the applicable Fund are present or
represented by proxy; or (b) more than 50% of the outstanding shares of the
applicable Fund. For purposes of the following restrictions: (i) all percentage
12
<PAGE>
limitations apply immediately after a purchase or initial investment; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.
In addition, for purposes of the following restrictions: (a) an "issuer" of
a security is the entity whose assets and revenues are committed to the payment
of interest and principal on that particular security, provided that the
guarantee of a security will be considered a separate security and provided
further that a guarantee of a security shall not be deemed a security issued by
the guarantor if the value of all securities guaranteed by the guarantor and
owned by a Fund does not exceed 10% of the value of the total assets of the
Fund; (b) a "taxable security" is any security the interest on which is subject
to federal income tax; and (c) all percentage limitations apply immediately
after a purchase or initial investment, and any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
ACTIVE ASSETS MONEY TRUST
ACTIVE ASSETS MONEY TRUST will:
1. Seek high current income, preservation of capital and liquidity.
ACTIVE ASSETS MONEY TRUST will not:
1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities. Borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Fund's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made;
2. Purchase securities of any issuer, except for securities issued by the
U.S. Government or its agencies or instrumentalities, having a record, together
with predecessors, of less than three years' continuous operation, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such securities;
3. Purchase any securities, other than obligations of the U.S. Government,
or its agencies or instrumentalities, if, immediately after such purchase, more
than 5% of the value of the Fund's total assets would be invested in securities
of any one issuer, or more than 10% of the outstanding securities of one issuer
would be owned by the Fund (for this purpose all indebtedness of an issuer shall
be deemed a single class of security);
4. Purchase any securities, other than obligations of banks or of the U.S.
Government, or its agencies or instrumentalities, if, immediately after such
purchase, more than 25% of the value of the Fund's total assets would be
invested in the securities of issuers in the same industry; however, there is no
limitation as to investments in bank obligations or in obligations issued or
guaranteed by the Federal Government or its agencies or instrumentalities;
5. Purchase any common stocks or other equity securities;
6. Make loans to others, except through permitted purchases of debt
obligations and repurchase agreements and loans of portfolio securities, not in
excess of 10% of the value of the Fund's total assets, made in accordance with
guidelines of the Trustees, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned;
7. Purchase or sell real estate; however, the Fund may purchase marketable
securities issued by companies which invest in real estate or interests therein;
8. Purchase securities on margin or sell short;
9. Purchase or sell commodities or commodity futures contracts, or oil, gas,
or mineral exploration or development programs;
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<PAGE>
10. Purchase securities for which there are legal or contractual
restrictions on resale (I.E. restricted securities), except for repurchase
agreements;
11. Underwrite securities of other issuers;
12. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof;
13. Participate on a joint or joint and several basis in any securities
trading account;
14. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
15. Purchase securities of any issuer for the purpose of exercising control
or management; and
16. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer, Trustee or director of the Fund or of the Investment Manager owns more
than 1/2 of 1% of the outstanding securities of such issuer and such officers,
Trustees and directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
ACTIVE ASSETS TAX-FREE TRUST
ACTIVE ASSETS TAX-FREE TRUST will:
1. Seek to provide as high a level of daily income exempt from federal
personal income tax as is consistent with stability of principal and liquidity.
ACTIVE ASSETS TAX-FREE TRUST will not:
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued, or guaranteed by, the United
States Government, its agencies or instrumentalities);
2. Purchase more than 10% of all outstanding taxable debt securities of any
one issuer;
3. Invest more than 25% of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and pollution
control bonds are grouped into industries based upon the business in which the
issuers of such obligations are engaged). This restriction does not apply to
obligations issued or guaranteed by the United States Government or its agencies
or instrumentalities or to investments in bank obligations;
4. Invest more than 5% of the value of its total assets in taxable
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or instrumentalities;
5. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities. Borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the value of the Fund's total assets (including the amount borrowed),
less liabilities (not including the amount borrowed) at the time the borrowing
is made;
6. Invest in common stock;
7. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer, Trustee of the Fund or of the Investment Manager owns more than 1/2 of
1% of the outstanding securities of such issuer, and such officers or Trustees
who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer;
8. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein;
9. Purchase or sell commodities or commodity futures contracts;
14
<PAGE>
10. Purchase oil, gas or other mineral leases, rights or royalty contracts,
or exploration or development programs;
11. Write, purchase or sell puts, calls, or combinations thereof except that
it may acquire rights to resell municipal obligations at an agreed upon price
and at or within an agreed upon time;
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets;
13. Pledge its assets or assign or otherwise encumber them except to secure
borrowings effected within the limitations set forth in Investment Restriction
5. To meet the requirements of regulations in certain states, the Fund, as a
matter of operating policy but not as a fundamental policy, will limit any
pledge of its assets to 10% of its net assets so long as shares of the Fund are
being sold in those states;
14. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by reason of:
(a) entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; or (c) borrowing money in accordance with
restrictions described above;
15. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; and (b) by investment in repurchase agreements;
16. Make short sales of securities;
17. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities;
18. Engage in the underwriting of securities, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security; and
19. Invest for the purpose of exercising control or management of any other
issuer.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will:
1. Seek to provide as high a level of daily income exempt from federal and
California personal income tax as is consistent with stability of principal and
liquidity.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will not:
1. Invest in common stock;
2. Write, purchase or sell puts, calls, or combinations thereof, except
that the Fund may acquire rights to resell municipal obligations at an agreed
upon price and at or within an agreed upon time;
3. Invest 25% or more of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and pollution
control bonds are grouped into industries based upon the business in which the
issuers of such obligations are engaged). This restriction does not apply to
obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities or by the State of California or its political
subdivisions, or to domestic bank obligations (including domestic branches of
foreign banks);
4. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or trustee of the Fund or of the Investment Manager owns more than 1/2
of 1% of the outstanding securities of the issuer, and the officers and trustees
who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of the issuer;
5. Purchase or sell real estate or interests therein, although the Fund may
purchase securities secured by real estate or interests therein;
6. Purchase or sell commodities or commodity futures contracts;
15
<PAGE>
7. Borrow money, except that the Fund may borrow from a bank for temporary
or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or
current value) of the value of its total assets (not including the amount
borrowed);
8. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. To meet the requirements of regulations in certain states,
the Fund, as a matter of operating policy but not as a fundamental policy, will
limit any pledge of its assets to 10% of its net assets so long as shares of the
Fund are being sold in those states;
9. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by reason of:
(a) purchasing any securities on a when-issued or delayed delivery basis; or (b)
borrowing money;
10. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; and (b) by investment in repurchase agreements;
11. Make short sales of securities;
12. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities;
13. Engage in the underwriting of securities, except insofar as the Fund may
be deemed an underwriter under the Securities Act in disposing of a portfolio
security;
14. Invest for the purpose of exercising control or management of any other
issuer;
15. Purchase oil, gas or other mineral leases, rights or royalty contracts,
or exploration or development programs;
16. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets;
17. With respect to 75% of its total assets, purchase securities of any
issuer if, immediately thereafter, more than 5% (10% where the security is the
guarantee of a security) of the value of its total assets are in the securities
of any one issuer (other than obligations issued, or guaranteed by, the United
States Government, its agencies or instrumentalities, or by the State of
California or its political subdivisions); and
18. With respect to 75% of its total assets, purchase more than 10% of all
outstanding taxable debt securities of any one issuer (other than debt
securities issued, or guaranteed as to principal and interest by, the United
States Government, its agencies or instrumentalities).
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST will:
1. Seek high current income, preservation of capital and liquidity.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST will not:
1. Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bond debentures, state bonds, municipal bonds or
industrial revenue bonds;
2. Borrow money, except from banks, for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities. Borrowing in the aggregate, including
reverse repurchase agreements, may not exceed 20%, and borrowing for purposes
other than meeting redemptions may not exceed 5% of the value of the Fund's
total assets (including the amount borrowed), less liabilities (not including
the amount borrowed) at the time the borrowing is made;
16
<PAGE>
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net assets but only to secure
borrowings for temporary or emergency purposes;
4. Sell securities short or purchase securities on margin;
5. Write or purchase put or call options;
6. Underwrite the securities of other issuers or purchase securities with
contractual or other restrictions on resale;
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts or oil and gas interests;
8. Make loans to others except through the purchase of qualified debt
obligations, loans of portfolio securities and entry into permitted repurchase
agreements;
9. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by reason of:
(a) entering into any repurchase or reverse repurchase agreement; (b) borrowing
money; or (c) lending portfolio securities;
10. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets; and
11. Lend its portfolio securities in excess of 10% of its total assets,
taken at value. Any loans of portfolio securities will be made according to
guidelines established by the Trustees, including maintenance of collateral of
the borrower equal at all times to the current market value of the securities
loaned.
III. MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of each of the Funds oversees the management of each
Fund but does not itself manage the Fund. The Trustees review various services
provided by or under the direction of the Investment Manager to ensure that the
Funds' general investment policies and programs are properly carried out. The
Trustees also conduct their review to ensure that administrative services are
provided to the Funds in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Funds and not the Trustee's
own interest or the interest of another person or organization. A Trustee
satisfies his or her duty of care by acting in good faith with the care of an
ordinarily prudent person and in a manner the Trustee reasonably believes to be
in the best interest of each Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of each of the Funds consists of the same
eight (8) Trustees. These same individuals also serve as directors or trustees
for all of the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total
number) have no affiliation or business connection with the Investment Manager
or any of its affiliated persons and do not own any stock or other securities
issued by the Investment Manager's parent company, MSDW. These are the
"non-interested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with the Investment Manager. All of the
Independent Trustees also serve as Trustees of "Discover Brokerage Index
Series," a mutual fund for which the Investment Manager is the investment
advisor.
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<PAGE>
The Trustees and executive officers of the Funds, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 90 Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (58) ................................... Vice Chairman of Kmart Corporation (since December, 1998);
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Kmart Corporation Funds and Discover Brokerage Index Series; formerly
3100 West Big Beaver Road Chairman and Chief Executive Officer of Levitz Furniture
Troy, Michigan Corporation (November, 1995-November, 1998) and President
and Chief Executive Officer of Hills Department Stores
(May, 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) ......................... Chairman, Director or Trustee and Chief Executive Officer
Chairman of the Board of the Morgan Stanley Dean Witter Funds and Discover
Chief Executive Officer and Trustee Brokerage Index Series; formerly Chairman, Chief Executive
Two World Trade Center Officer and Director of the Investment Manager, the
New York, New York Distributor and MSDW Services Company; Executive Vice
President and Director of Dean Witter Reynolds; Chairman
and Director of the Transfer Agent; formerly Director
and/or officer of various MSDW subsidiaries (until June,
1998).
Edwin J. Garn (67) ................................... Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds and Discover Brokerage Index Series; formerly United
c/o Huntsman Corporation States Senator (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor of Salt Lake
Salt Lake City, Utah City, Utah (1971-1974); formerly Astronaut, Space Shuttle
Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of Franklin Covey
(time management systems), BMW Bank of North America, Inc.
(industrial loan corporation), United Space Alliance
(joint venture between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific (multilevel marketing);
member of the board of various civic and charitable
organizations.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Wayne E. Hedien (65) ................................. Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds and Discover Brokerage Index Series; Director
c/o Mayer, Brown & Platt of The PMI Group, Inc. (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The Field Museum of Natural
1675 Broadway History; formerly associated with the Allstate Companies
New York, New York (1966-1994), most recently as Chairman of The Allstate
Corporation (March, 1993-December, 1994) and Chairman and
Chief Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July, 1989-December, 1994);
director of various other business and charitable
organizations.
Dr. Manuel H. Johnson (50) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Chairman of the Audit Committee and Director or Trustee of
Washington, D.C. the Morgan Stanley Dean Witter Funds and Discover
Brokerage Index Series; Director of Greenwich Capital
Markets, Inc. (broker-dealer) and NVR, Inc. (home
construction); Chairman and Trustee of the Financial
Accounting Foundation (oversight organization of the
Financial Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of the U.S.
Treasury.
Michael E. Nugent (63) ............................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Chairman of the Insurance
c/o Triumph Capital, L.P. Committee and Director or Trustee of the Morgan Stanley
237 Park Avenue Dean Witter Funds and Discover Brokerage Index Series;
New York, New York formerly Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (55) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, Dean Witter Reynolds and Novus Credit
1585 Broadway Services Inc.; Director of the Distributor; Director or
New York, New York Trustee of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series; Director and/or officer
of various MSDW subsidiaries.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
John L. Schroeder (68) ............................... Retired; Chairman of the Derivatives Committee and
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Mayer, Brown & Platt Funds and Discover Brokerage Index Series; Director of
Counsel to the Independent Trustees Citizens Utilities Company (telecommunications, gas,
1675 Broadway electric and water utility company); formerly Executive
New York, New York Vice President and Chief Investment Officer of the Home
Insurance Company (August, 1991-September, 1995).
Mitchell M. Merin (45) ............................... President and Chief Operating Officer of Asset Management
President of MSDW (since December, 1998); President and Director
Two World Trade Center (since April, 1997) and Chief Executive Officer (since
New York, New York June, 1998) of the Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and Director of
the Distributor (since June, 1998); Chairman and Chief
Executive Officer (since June, 1998) and Director (since
January, 1998) of the Transfer Agent; Director of various
MSDW subsidiaries; President of the Morgan Stanley Dean
Witter Funds and Discover Brokerage Index Series (since
May, 1999); previously Chief Strategic Officer of the
Investment Manager and MSDW Services Company and Executive
Vice President of the Distributor (April, 1997-June,
1998), Vice President of the Morgan Stanley Dean Witter
Funds and Discover Brokerage Index Series (May,
1997-April, 1999), and Executive Vice President of Dean
Witter, Discover & Co.
Barry Fink (44) ...................................... Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) and Director
Secretary and General Counsel (since July, 1998) of the Investment Manager and MSDW
Two World Trade Center Services Company; Senior Vice President (since March,
New York, New York 1997) and Assistant Secretary and Assistant General
Counsel (since February, 1997) of the Distributor;
Assistant Secretary of Dean Witter Reynolds (since August,
1996); Vice President, Secretary and General Counsel of
the Morgan Stanley Dean Witter Funds (since February,
1997); Vice President, Secretary and General Counsel of
Discover Brokerage Index Series; previously First Vice
President (June, 1993-February, 1997), Vice President and
Assistant Secretary and Assistant General Counsel of the
Investment Manager and MSDW Services Company and Assistant
Secretary of the Morgan Stanley Dean Witter Funds.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUNDS AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Jonathan R. Page (52) ................................ Senior Vice President of the Investment Manager; Vice
Vice President President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Katherine H. Stromberg (51) .......................... Vice President of the Investment Manager; Vice President
Vice President of various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (53) ................................ First Vice President and Assistant Treasurer of the
Treasurer Investment Manager, the Distributor and MSDW Services
Two World Trade Center Company; Treasurer of the Morgan Stanley Dean Witter Funds
New York, New York and Discover Brokerage Index Series.
</TABLE>
- ------------------------
*Denotes Trustees who are "interested persons" of each Fund as defined by the
Investment Company Act.
In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
PETER M. AVELAR and JAMES F. WILLISON, Senior Vice Presidents of the Investment
Manager, and JOSEPH R. ARCIERI and GERARD J. LIAN, Vice Presidents of the
Investment Manager, are Vice Presidents of each Fund.
In addition, FRANK BRUTTOMESSO, MARILYN K. CRANNEY, LOU ANNE D. MCLNNIS,
CARSTEN OTTO and RUTH ROSSI, First Vice Presidents and Assistant General
Counsels of the Investment Manager and MSDW Services Company, TODD LEBO, Vice
President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, and NATASHA KASSIAN, a Staff Attorney with the Investment
Manager, are Assistant Secretaries of each Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.
The independent directors/trustees are charged with recommending to the full
board approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent director/trustee vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter
Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Funds' independent accountants; directing
investigations into matters within the scope of the
21
<PAGE>
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 the services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of the
Funds' system of internal controls; and preparing and submitting Committee
meeting minutes to the full board.
The board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Fund.
Finally, the board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/trustees for each of the Morgan Stanley Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as independent directors/trustees for each of the Morgan
Stanley Dean Witter Funds or even of these Funds. They believe that having the
same individuals serve as independent directors/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 directors/ trustees arriving at
conflicting decisions regarding operations and management of the Morgan Stanley
Dean Witter Funds and avoids the cost and confusion that would likely ensue.
Finally, having the same independent directors/trustees serve on all Fund boards
enhances the ability of each Morgan Stanley Dean Witter Fund to obtain, at
modest cost to each separate Fund, the services of independent
directors/trustees, of the caliber, experience and business acumen of the
individuals who serve as independent directors/trustees of the Morgan Stanley
Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. Each Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
C. COMPENSATION
Each Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (each
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by each Fund. Each Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Funds who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Funds for their services as Trustee.
22
<PAGE>
The following tables illustrate the compensation that each Fund paid to its
Independent Trustees for the fiscal year ended June 30, 1999.
FUND COMPENSATION
ACTIVE ASSETS MONEY TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,450
Edwin J. Garn................................................. 1,600
Wayne E. Hedien............................................... 1,650
Dr. Manuel H. Johnson......................................... 1,913
Michael E. Nugent............................................. 1,808
John L. Schroeder............................................. 1,808
</TABLE>
ACTIVE ASSETS TAX-FREE TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,450
Edwin J. Garn................................................. 1,600
Wayne E. Hedien............................................... 1,650
Dr. Manuel H. Johnson......................................... 1,913
Michael E. Nugent............................................. 1,808
John L. Schroeder............................................. 1,808
</TABLE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,450
Edwin J. Garn................................................. 1,600
Wayne E. Hedien............................................... 1,650
Dr. Manuel H. Johnson......................................... 1,913
Michael E. Nugent............................................. 1,808
John L. Schroeder............................................. 1,808
</TABLE>
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,450
Edwin J. Garn................................................. 1,600
Wayne E. Hedien............................................... 1,650
Dr. Manuel H. Johnson......................................... 1,913
Michael E. Nugent............................................. 1,808
John L. Schroeder............................................. 1,808
</TABLE>
23
<PAGE>
The following table illustrates the compensation paid to the Funds'
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 90 Morgan Stanley Dean Witter Funds that were in operation at December
31, 1998. No compensation was paid to the Funds' Independent Trustees by
Discover Brokerage Index Series for the calendar year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES
TO
90 MORGAN
STANLEY
NAME OF DEAN WITTER
INDEPENDENT TRUSTEE FUNDS
- --------------------------- -------------
<S> <C>
Michael Bozic.............. $120,150
Edwin J. Garn.............. 132,450
Wayne E. Hedien............ 132,350
Dr. Manuel H. Johnson...... 155,681
Michael E. Nugent.......... 159,731
John L. Schroeder.......... 160,731
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including each Fund, have adopted a retirement
program under which an independent director/ 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/trustee of any Morgan Stanley Dean Witter Fund
that has adopted the retirement program (each such Fund referred to as an
"Adopting Fund" and each such director/trustee referred to as an "Eligible
Trustee") is entitled to retirement payments upon reaching the eligible
retirement age (normally, after attaining age 72). Annual payments are based
upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation plus
0.5036662% of such Eligible Compensation for each full month of service as an
independent director/ trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years of service. The foregoing percentages may be
changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses by the Adopting
Funds. Such benefits are not secured or funded by the Adopting Funds.
- ------------------------
1 An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.
24
<PAGE>
The following tables illustrate the retirement benefits accrued to the
Funds' Independent Trustees by each Fund for the fiscal year ended June 30, 1999
and by the 55 Morgan Stanley Dean Witter Funds (including each Fund) for the
calendar year ended December 31, 1998, and the estimated retirement benefits for
the Independent Trustees, to commence upon their retirement, from the Funds as
of June 30, 1999 and from the 55 Morgan Stanley Dean Witter Funds as of December
31, 1998.
RETIREMENT BENEFITS FROM THE FUNDS AND ALL MORGAN STANLEY DEAN WITTER FUNDS
ACTIVE ASSETS MONEY TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ 387 $ 22,377 $ 937 $ 52,250
Edwin J. Garn..................... 10 60.44 578 35,225 937 52,250
Wayne E. Hedien................... 9 51.37 726 41,979 796 44,413
Dr. Manuel H. Johnson............. 10 60.44 235 14,047 937 52,250
Michael E. Nugent................. 10 60.44 408 25,336 937 52,250
John L. Schroeder................. 8 50.37 788 45,117 796 44,343
</TABLE>
- ------------------------
2 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
ACTIVE ASSETS TAX-FREE TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(3)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ 387 $ 22,377 $ 937 $ 52,250
Edwin J. Garn..................... 10 60.44 578 35,225 937 52,250
Wayne E. Hedien................... 9 51.37 726 41,979 796 44,413
Dr. Manuel H. Johnson............. 10 60.44 235 14,047 937 52,250
Michael E. Nugent................. 10 60.44 408 25,336 937 52,250
John L. Schroeder................. 8 50.37 788 45,117 796 44,343
</TABLE>
- ------------------------
3 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
25
<PAGE>
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(4)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ 387 $ 22,377 $ 937 $ 52,250
Edwin J. Garn..................... 10 60.44 662 35,225 937 52,250
Wayne E. Hedien................... 9 51.37 726 41,979 796 44,413
Dr. Manuel H. Johnson............. 10 60.44 259 14,047 937 52,250
Michael E. Nugent................. 10 60.44 493 25,336 937 52,250
John L. Schroeder................. 8 50.37 788 45,117 796 44,343
</TABLE>
- ------------------------
4 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(5)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 60.44% $ 387 $ 22,377 $ 937 $ 52,250
Edwin J. Garn..................... 10 60.44 578 35,225 937 52,250
Wayne E. Hedien................... 9 51.37 726 41,979 796 44,413
Dr. Manuel H. Johnson............. 10 60.44 235 14,047 937 52,250
Michael E. Nugent................. 10 60.44 408 25,336 937 52,250
John L. Schroeder................. 8 50.37 788 45,117 796 44,343
</TABLE>
- ------------------------
5 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
As of August 3rd, 1999, the following persons were known to own 5% or more
of Active Assets Government Securities Trust: Millard S & Peggy Drexler,
Trustees, Drexler Family Revocable Trust, U/A/D, 12-15-93, 3277 Pacific Avenue,
San Francisco, CA, 94118-2026 - 6.052%, County of Summit Treasurer, Attn: Robert
Newman, 175 South Main Street, Akron, OH 44308-1306 - 5.691%.
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate
number of shares of beneficial interest of each Fund owned by the Fund's
officers and Trustees as a group was less than 1% of the Fund's shares of
beneficial interest outstanding.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to each Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New York,
New York 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a
Delaware corporation. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
26
<PAGE>
Pursuant to separate Investment Management Agreements (the "Management
Agreements") with the Investment Manager, each Fund has retained the Investment
Manager to provide administrative services and manage the investment of the
Fund's assets, including the placing of orders for the purchase and sale of
portfolio securities. Each Fund pays the Investment Manager monthly compensation
calculated daily by applying the following annual rates to the net assets of the
Fund, determined as of the close of business on every business day: 0.50% of the
portion of the daily net assets not exceeding $500 million; 0.425% of the
portion of the daily net assets exceeding $500 million but not exceeding $750
million; 0.375% of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.35% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.325% of the portion of
the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30%
of the portion of the daily net assets exceeding $2 billion but not exceeding
$2.5 billion; 0.275% of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3 billion; 0.25% of the portion of the daily net
assets exceeding $3 billion; and with respect to ACTIVE ASSETS MONEY TRUST,
0.249% of the portion of daily net assets exceeding $15 billion but not
exceeding $17.5 billion; and 0.248% of the portion of daily net assets exceeding
$17.5 billion.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS MONEY
TRUST accrued to the Investment Manager total compensation under its Management
Agreement in the amounts of $23,990,221, $29,850,539 and $39,612,403,
respectively.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS
TAX-FREE TRUST accrued to the Investment Manager total compensation under its
Management Agreement in the amounts of $6,784,852, $7,412,622 and $8,443,285,
respectively.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS
CALIFORNIA TAX-FREE TRUST accrued to the Investment Manager total compensation
under its Management Agreement in the amounts of $2,156,152, $2,663,643 and
$3,130,854, respectively.
For the fiscal years ended June 30, 1997, 1998 and 1999, ACTIVE ASSETS
GOVERNMENT SECURITIES TRUST accrued to the Investment Manager total compensation
under its Management Agreement in the amounts of $3,146,897, $3,338,933 and
$4,153,807, respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for each Fund.
B. PRINCIPAL UNDERWRITER
Each Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, each Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of each Fund. The Distributor, a Delaware corporation,
is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services under
each Distribution Agreement. The Distributor also pays certain expenses in
connection with the distribution of each Fund's shares, including the costs of
preparing, printing and distributing advertising or promotional materials, and
the costs of printing and distributing prospectuses and supplements thereto used
in connection with the offering and sale of each Fund's shares. Each Fund bears
the costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. Each Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws and
pays filing fees in accordance with state securities laws.
Each Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to each Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
27
<PAGE>
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND FUND EXPENSES PAID BY THIRD
PARTIES
The Investment Manager manages the investment of each Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Investment Manager obtains and evaluates the information and
advice relating to the economy, securities markets, and specific securities as
it considers necessary or useful to continuously manage the assets of each Fund
in a manner consistent with its investment objective.
Under the terms of each Management Agreement, in addition to managing each
Fund's investments, the Investment Manager maintains certain of each Fund's
books and records and furnishes, at its own expense, the office space,
facilities, equipment, clerical help, bookkeeping and certain legal services as
the Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, proxy statements and reports required to be filed
with federal and state securities commissions (except insofar as the
participation or assistance of independent accountants and attorneys is, in the
opinion of the Investment Manager, necessary or desirable). In addition, the
Investment Manager pays the salaries of all personnel, including officers of the
Funds, who are employees of the Investment Manager. The Investment Manager also
bears the cost of telephone service, heat, light, power and other utilities
provided to the Funds.
Expenses not expressly assumed by the Investment Manager under each
Management Agreement or by the Distributor, will be paid by the applicable Fund.
These expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs; the cost
and expense of printing, including typesetting, and distributing prospectuses;
all expenses of shareholders' and Trustees' meetings and of preparing, printing
and mailing of proxy statements and reports to shareholders; fees and travel
expenses of Trustees or members of any advisory board or committee who are not
employees of the Investment Manager or any corporate affiliate of the Investment
Manager; all expenses incident to any dividend, withdrawal or redemption
options; charges and expenses of any outside service used for pricing of the
Fund's shares; fees and expenses of legal counsel, including counsel to the
Trustees who are not interested persons of the Funds or of the Investment
Manager (not including compensation or expenses of attorneys who are employees
of the Investment Manager); fees and expenses of the Fund's independent
accountants; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other costs
of the Fund's operation.
Each Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.
Each Management Agreement will remain in effect from year to year
thereafter, provided continuance of the Management Agreement is approved at
least annually by the vote of the holders of a majority, as defined in the
Investment Company Act, of the outstanding shares of the applicable Fund, or by
the Trustees; provided that in either event such continuance is approved
annually by the vote of a majority of the Trustees.
D. RULE 12b-1 PLAN
In accordance with a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act between each Fund and the Distributor, the Distributor
provides certain services in connection with the promotion of sales of each
Fund's shares (a "Plan").
Each Plan provides that the Distributor bears the expense of all promotional
and distribution related activities on behalf of the respective Fund, except for
expenses that the Trustees determine to reimburse, as described below. The
following activities and services may be provided by the Distributor under each
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Plan: (1) compensation to and expenses of Dean Witter Reynolds' and other
selected Broker-Dealers' Financial Advisors and other employees, including
overhead and telephone expenses; (2) sales incentives and bonuses to sales
representatives and to marketing personnel in connection with promoting sales of
each Fund's shares; (3) expenses incurred in connection with promoting sales of
each Fund's shares; (4) preparing and distributing sales literature; and (5)
providing advertising and promotional activities, including direct mail
solicitation and television, radio, newspaper, magazine and other media
advertisements.
Dean Witter Reynolds Financial Advisors are paid an annual residual
commission, currently a residual of up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record. The
residual is a charge which reflects residual commissions paid by Dean Witter
Reynolds to its Financial Advisors and Dean Witter Reynolds' expenses associated
with the servicing of shareholders' accounts, including the expenses of
operating Dean Witter Reynolds' branch offices in connection with the servicing
of shareholders' accounts, which expenses include lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies and other expenses
relating to branch office serving of shareholder accounts.
Each Fund is authorized to reimburse specific expenses incurred or to be
incurred in promoting the distribution of the Fund's shares. Reimbursement is
made through payments at the end of each month. The amount of each monthly
payment may in no event exceed an amount equal to a payment at the annual rate
of 0.15 of 1% of each Fund's average daily net assets during the month. No
interest or other financing charges will be incurred for which reimbursement
payments under the Plan will be made. In addition, no interest charges, if any,
incurred on any distribution expense incurred by the Distributor or other
selected dealers pursuant to the Plan, will be reimbursable under the Plan. In
the case of all expenses other than expenses representing a residual to
Financial Advisors, such amounts shall be determined at the beginning of each
calendar quarter by the Trustees, including a majority of the Independent 12b-1
Trustees. Expenses representing a residual to Financial Advisors may be
reimbursed without prior determination. In the event that the Distributor
proposes that monies shall be reimbursed for other than such expenses, then in
making quarterly determinations of the amounts that may be expended by each
Fund, the Investment Manager provides and the Trustees review a quarterly budget
of projected incremental distribution expenses to be incurred on behalf of the
Fund, together with a report explaining the purposes and anticipated benefits of
incurring such expenses. The Trustees determine which particular expenses, and
the portions thereof, that may be borne by each Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's shares.
ACTIVE ASSETS MONEY TRUST reimbursed $14,255,340 to the Distributor pursuant
to the Plan which amounted to 0.10% of 1% of the Fund's average daily net assets
for the fiscal year ended June 30, 1999. Based upon the total amounts spent by
the Distributor during the period, it is estimated that the amount paid by
ACTIVE ASSETS MONEY TRUST to the Distributor for distribution was spent in
approximately the following ways: (i) advertising -- $0; (ii) printing and
mailing PROSPECTUSES to other than current shareholders -- $0; (iii)
compensation to underwriters -- $0; (iv) compensation to dealers -- $0; (v)
compensation to sales personnel -- $0; (vi) and other, which includes payments
to Dean Witter Reynolds for expenses substantially all of which relate to
compensation of sales personnel and associated overhead expenses -- $14,255,340.
No payments under the Plan were made for interest, carrying or other financing
charges.
ACTIVE ASSETS TAX-FREE TRUST reimbursed $2,159,334 to the Distributor
pursuant to the Plan which amounted to 0.10% of 1% of the Fund's average daily
net assets for the fiscal year ended June 30, 1999. Based upon the total amounts
spent by the Distributor during the period, it is estimated that the amount paid
by ACTIVE ASSETS TAX-FREE TRUST to the distributor for distribution was spent in
approximately the following ways: (i) advertising -- $0; (ii) printing and
mailing PROSPECTUSES to other than current shareholders -- $0; (iii)
compensation to underwriters -- $0; (iv) compensation to dealers -- $0; (v)
compensation to sales personnel -- $0; and (vi) other, which includes payments
to Dean Witter
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Reynolds for expenses substantially all of which relate to compensation of sales
personnel and associated overhead expenses -- $2,159,334. No payments under the
Plan were made for interest, carrying or other financing charges.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST reimbursed $639,971 to the
Distributor pursuant to the Plan which amounted to 0.10% of 1% of the Fund's
average daily net assets for the fiscal year ended June 30, 1999. Based upon the
total amounts spent by the Distributor during the period, it is estimated that
the amount paid by ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST to the Distributor
for distribution was spent in approximately the following ways: (i) advertising
- -- $0; (ii) printing and mailing PROSPECTUSES to other than current shareholders
- -- $0; (iii) compensation to underwriters -- $0; (iv) compensation to dealers --
$0; (v) compensation to sales personnel -- $0; and (vi) other, which includes
payments to Dean Witter Reynolds for expenses substantially all of which relate
to compensation of sales personnel and associated overhead expenses -- $639,971.
No payments under the Plan were made for interest, carrying or other financing
charges.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST reimbursed $896,569 to the
Distributor pursuant to the Plan which amounted to 0.10% of 1% of the Fund's
average daily net assets for the fiscal year ended June 30, 1999. Based upon the
total amounts spent by the Distributor during the period, it is estimated that
the amount paid by ACTIVE ASSETS GOVERNMENT SECURITIES TRUST to the Distributor
for distribution was spent in approximately the following ways: (i) advertising
- -- $0; (ii) printing and mailing PROSPECTUSES to other than current shareholders
- -- $0; (iii) compensation to underwriters -- $0; (iv) compensation to dealers --
$0; (v) compensation to sales personnel -- $0; and (vi) other, which includes
payments to Dean Witter Reynolds for expenses substantially all of which relate
to compensation of sales personnel and associated overhead expenses -- $896,569.
No payments under the Plan were made for interest, carrying or other financing
charges.
Under each Plan, the Distributor uses its best efforts in rendering services
to each Fund, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations, the Distributor is not
liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
Under each Plan, the Distributor provides each Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the incremental distribution expenses
incurred on behalf of the Fund during such calendar quarter, which report
includes (1) an itemization of the types of expenses and the purposes therefore;
(2) the amounts of such expenses; and (3) a description of the benefits derived
by the Fund. In the Trustees' quarterly review of each Plan they consider its
continued appropriateness and the level of compensation provided therein.
No interested person of each Fund nor any Independent Trustee has any direct
financial interest in the operation of each Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of each Plan or as a result of
receiving a portion of the amounts expended thereunder by the respective Fund.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether each Plan should be continued. Prior to approving the
most recent continuation of each Plan, the Trustees requested and received from
the Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
each Plan, the Trustees considered: (1) the applicable Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the applicable Fund had obtained, was obtaining
and would be likely to obtain under the Plan, including that the Plan is
essential to enable the Fund to continue to grow and avoid a pattern of net
redemptions which, in turn, is essential for effective investment management;
and without the reimbursement of distribution and account maintenance expenses
of Dean Witter Reynolds's branch offices made possible by the 12b-1 fees, Dean
Witter Reynolds could not establish and maintain an effective system for
distribution, servicing of the Funds' shareholders and maintenance of
shareholder accounts; and (3) what services had
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been provided and were continuing to be provided under the Plan to the
applicable Fund and its shareholders. Based upon their review, the Trustees,
including each of the Independent Trustees, determined that continuation of each
Plan would be in the best interest of the applicable Fund and would have a
reasonable likelihood of continuing to benefit the Fund and its shareholders. In
the Trustees' quarterly review of each Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
Each Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
respective Fund, and all material amendments to the Plan must also be approved
by the Trustees. Each Plan may be terminated at any time, without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the respective Fund (as defined
in the Investment Company Act) on not more than thirty days' written notice to
any other party to the Plan. So long as a Fund's Plan is in effect, the election
and nomination of Independent Trustees shall be committed to the discretion of
the Independent Trustees.
E. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the transfer agent for each Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans. The principal business address of the Transfer Agent is Harborside
Financial Center, Plaza Two, Jersey City, New Jersey 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian for each Fund's assets. Any of the Funds' cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.
PricewaterhouseCoopers LLP serves as the independent accountants of each
Fund. The independent accountants are responsible for auditing the annual
financial statements of each Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from each Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
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A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for each Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Each Fund expects that the primary market for
the securities in which it intends to invest will generally be the
over-the-counter market. Securities are generally traded in the over-the-counter
market on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually includes
a profit to the dealer. Each Fund also expects that securities will be purchased
at times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, each Fund may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid.
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During the fiscal years ended June 30, 1997, 1998 and 1999, the Funds paid
no such brokerage commissions or concessions.
B. COMMISSIONS
Pursuant to an order of the SEC, each Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. Each Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e. Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper (not including Tax-Exempt
Municipal Paper). The transactions will be effected with Dean Witter Reynolds
only when the price available from Dean Witter Reynolds is better than that
available from other dealers.
During the fiscal years ended June 30, 1997, 1998 and 1999, the Funds did
not effect any principal transactions with Dean Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for a Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Trustees, including the Independent
Trustees, have adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to an affiliated broker or
dealer are consistent with the foregoing standard. The Funds do not reduce the
management fee they pay to the Investment Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer.
During the fiscal years ended June 30, 1997, 1998 and 1999, the Funds paid
no brokerage commissions to an affiliated broker or dealer.
C. BROKERAGE SELECTION
The policy of each Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions.
In seeking to implement the Funds' policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes the prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Funds or the Investment Manager. The services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Funds
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the Funds do not reduce the management fee
they pay to the Investment Manager by any amount that may be attributable to the
value of such services.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or advisor to others. It is
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the practice of the Investment Manager to cause purchase and sale transactions
to be allocated among the Funds and others whose assets it manages in such
manner as it deems equitable. In making such allocations among the Funds and
other client accounts, various factors may be considered, including the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of each Fund and other client accounts.
In the case of certain initial and secondary public offerings, the Investment
Manager utilizes a pro rata allocation process based on the size of the Morgan
Stanley Dean Witter Funds involved and the number of shares available from the
public offering.
D. DIRECTED BROKERAGE
During the fiscal year ended June 30, 1999, the Funds did not pay any
brokerage commissions to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended June 30, 1999, the Funds did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers which executed transactions for or with each Fund in the largest
dollar amounts during the year. At June 30, 1999, the Funds did not own any
securities issued by any of such issuers.
VII. CAPITAL STOCK AND OTHER SECURITIES
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The shareholders of each Fund are entitled to a full vote for each full
share of beneficial interest held. The Funds are authorized to issue an
unlimited number of shares of beneficial interest. All shares of beneficial
interest of each Fund are of $0.01 par value and are equal as to earnings,
assets and voting privileges.
Each Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional Classes of shares
within any series. The Trustees have not presently authorized any such
additional series or Classes of shares.
The Funds are not required to hold annual meetings of shareholders and in
ordinary circumstances the Funds do not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or each Fund's Declaration
of Trust. Under certain circumstances the Trustees may be removed by action of
the Trustees. In addition, under certain circumstances the shareholders may call
a meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of each Fund. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the respective Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of each Fund's assets and operations, the possibility of a Fund being
unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Funds, the risk to each Fund's shareholders of
personal liability is remote.
All of the Trustees have been elected by the shareholders of each Fund, most
recently at a special meeting of each Fund's shareholders held on May 21, 1997.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees (as provided for in each Fund's Declaration of
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Trust), and they may at any time lengthen or shorten their own terms or make
their terms of unlimited duration and appoint their own successors, provided
that always at least a majority of the Trustees has been elected by the
shareholders of the respective Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
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A. PURCHASE/REDEMPTION OF SHARES
Information concerning how the Funds' shares are offered (and how they are
redeemed) is provided in the Funds' PROSPECTUS.
TRANSFER AGENT AS AGENT. With respect to the redemption of the Funds'
shares or the application of proceeds to the purchase of new shares in a Fund,
the Transfer Agent acts as agent for the Distributor and for the shareholder's
authorized broker-dealer in the performance of such functions. With respect to
redemptions, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.
B. OFFERING PRICE
The price of each Fund's shares, called "net asset value," is based on the
value of the Fund's portfolio securities.
Each Fund utilizes the amortized cost method in valuing its portfolio
securities for purposes of determining the net asset value of its shares. Each
Fund utilizes the amortized cost method in valuing its portfolio securities even
though the portfolio securities may increase or decrease in market value,
generally in connection with changes in interest rates. The amortized cost
method of valuation involves valuing a security at its cost at the time of
purchase adjusted by a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the investment.
During such periods, the yield to investors in the Fund may differ somewhat from
that obtained in a similar company which uses market-to-market values for all of
its portfolio securities. For example, if the use of amortized cost resulted in
a lower (higher) aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher (lower) yield
than would result from investment in such a similar company and existing
investors would receive less (more) investment income. The purpose of this
method of calculation is to facilitate the maintenance of a constant net asset
value per share of $1.00.
The use of the amortized cost method to value the portfolio securities of
each Fund and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the Investment Company Act (the "Rule") and
is conditioned on its compliance with various conditions contained in the Rule
including: (a) the Trustees are obligated, as a particular responsibility within
the overall duty of care owed to the Funds' shareholders, to establish
procedures reasonably designed, taking into account current market conditions
and each Fund's investment objectives, to stabilize the net asset value per
share as computed for the purpose of distribution and redemption at $1.00 per
share; (b) the procedures include (i) calculation, at such intervals as the
Trustees determine are appropriate and as are reasonable in light of current
market conditions, of the deviation, if any, between net asset value per share
using amortized cost to value portfolio securities and net asset value per share
based upon available market quotations with respect to such portfolio
securities; (ii) periodic review by the Trustees of the amount of deviation as
well as methods used to calculate it; and (iii) maintenance of written records
of the procedures, and the Trustees' considerations made pursuant to them and
any actions taken upon such consideration; (c) the Trustees should consider what
steps should be taken, if any, in the event of a difference of more than 1/2 of
1% between the two methods of valuation; and (d) the Trustees should take such
action as they deem appropriate (such as shortening the average portfolio
maturity, realizing gains or losses, withholding dividends or, as provided by
the Declaration of Trust,
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reducing the number of outstanding shares of the Fund) to eliminate or reduce to
the extent reasonably practicable material dilution or other unfair results to
investors or existing shareholders which might arise from differences between
the two method of valuation.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio security is deemed to be the period remaining
(calculated from the trade date or such other date on which a Fund's interest in
the instrument is subject to market action) until the date on which in
accordance with the terms of the security the principal amount must
unconditionally be paid, or in the case of a security called for redemption, the
date on which the redemption payment must be made.
A variable rate security that is subject to a demand feature is deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand. A floating rate security that is subject to a demand
feature is deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
An "NRSRO" is a nationally recognized statistical rating organization. The
term "Requisite NRSROs" means (i) any two NRSROs that have issued a rating with
respect to a security or class of debt obligations of an issuer, or (ii) if only
one NRSRO has issued a rating with respect to such security or issuer at the
time a fund purchases or rolls over the security, that NRSRO.
An Eligible Security is generally defined in the Rule to mean (i) a rated
security with a remaining maturity of 397 calendar days or less that has
received a rating from the Requisite NRSROs in one of the two highest short-term
rating categories (within which there may be sub-categories or gradations
indicating relative standing); or (ii) An Unrated Security that is of comparable
quality to a security meeting the requirements of (1) above, as determined by
Trustees; (iii) In addition, in the case of a security that is subject to a
Demand Feature or Guarantee: (A) The Guarantee has received a rating from an
NRSRO or the Guarantee is issued by a guarantor that has received a rating from
an NRSRO with respect to a class of debt obligations (or any debt obligation
within that class) that is comparable in priority and security to the Guarantee,
unless: (1) the Guarantee is issued by a person that directly or indirectly,
controls, is controlled by or is under a common control with the issuer of the
security subject to the Guarantee (other than a sponsor or a Special Purpose
Entity with respect to an Asset Backed Security: (2) the security subject to the
Guarantee is a repurchase agreement that is Collateralized Fully; or (3) the
Guarantee itself is a Government Security and (B) the issuer of the Demand
Feature, or another institution, has undertaken promptly to notify the holder of
the security in the event the Demand Feature or Guarantee is substituted with
another Demand Feature or Guarantee (if such substitution is permissible under
the terms of the Demand Feature or Guarantee). Each Fund will limit its
investments to securities that meet the requirements for Eligible Securities.
As permitted by the Rule, the Trustees have delegated to the Funds'
Investment Manager the authority to determine which securities present minimal
credit risks and which unrated securities are comparable in quality to rated
securities.
Also, as required by the Rule, each Fund will limit its investments in
securities, other than Government securities, so that, at the time of purchase:
(a) except as further limited in (b) below with regard to certain securities,
with respect to 75% of its total assets no more than 5% of its total assets will
be invested in the securities of any one issuer; and (b) with respect to
Eligible Securities that have received a rating in less than the highest
category by any one of the NRSROs whose ratings are used to qualify the security
as an Eligible Security, or that have been determined to be of comparable
quality: (i) no more than 5% in the aggregate of the Fund's total assets in all
such securities, and (ii) no more than the greater of 1% of total assets, or $1
million, in the securities on any one issuer.
The presence of a line of credit or other credit facility offered by a bank
or other financial institution which guarantees the payment obligation of the
issuer, in the event of a default in the payment of principal or interest of an
obligation, may be taken into account in determining whether an investment is an
Eligible Security, provided that the guarantee itself is an Eligible Security.
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The Rule further requires that each Fund limit its investments to U.S.
dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities. The Rule also requires each Fund
to maintain a dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to its objective of maintaining a stable net asset value of $1.00
per share and precludes the purchase of any instrument with a remaining maturity
of more than 397 days. Should the disposition of a portfolio security result in
a dollar-weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash in such a manner as to reduce such maturity to 90 days
or less as soon as is reasonably practicable.
If the Trustees determine that it is no longer in the best interests of a
Fund and its shareholders to maintain a stable price of $1 per share or if the
Trustees believe that maintaining such price no longer reflects a market-based
net asset value per share, the Trustees have the right to change from an
amortized cost basis of valuation to valuation based on market quotations. The
Fund will notify shareholders of the Fund of any such change.
IX. TAXATION OF THE FUNDS AND THEIR SHAREHOLDERS
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ACTIVE ASSETS MONEY TRUST and ACTIVE ASSETS GOVERNMENT SECURITIES TRUST will
generally pay ordinary dividends. ACTIVE ASSETS TAX-FREE TRUST will generally
pay tax-exempt dividends that are normally exempt from federal (but not state)
income tax. ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST will generally pay tax-
exempt dividends that are normally exempt from federal and California income
tax. Each Fund also makes distributions of any short-term gains which will be
taxed as ordinary income when distributed to shareholders. Long-term capital
gain distributions may also be made, although it is not anticipated that there
will be any significant long-term capital gains. These types of distributions
are reported differently on a shareholder's income tax return and they are also
subject to different rates of tax. The tax treatment of the investment
activities of a Fund will affect the amount and timing and character of the
distributions made by the Fund. Shareholders are urged to consult their own tax
professionals regarding specific questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. Each Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, each Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.
Each Fund generally intends to distribute sufficient income and gains so
that the Fund will not pay corporate income tax on its earnings. Each Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, a Fund may instead determine to retain all or part
of any ordinary income or capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained ordinary income or capital gains.
Gains or losses on sales of securities by a Fund will be long-term capital
gains or losses if the securities have a tax holding period of more than one
year. Gains or losses on the sale of securities with a tax holding period of one
year or less will be short-term gains or losses.
In computing net investment income, each Fund will amortize any premiums and
original issue discounts on securities owned, if applicable. Capital gains or
losses realized upon sale or maturity of such securities will be based on their
amortized cost.
All or a portion of any of a Fund's gain from tax-exempt obligations
purchased at a market discount may be treated as ordinary income rather than
capital gain.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may
36
<PAGE>
be introduced in the future. If such a proposal were enacted, the availability
of municipal securities for investment by the Tax-Free Trust and the California
Tax-Free Trust could be affected. In that event, the Funds would re-evaluate
their investment objective and policies.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. ACTIVE ASSETS TAX-FREE TRUST and
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST intend to qualify to pay
"exempt-interest dividends" to their shareholders by maintaining, as of the
close of each quarter of its taxable years, at least 50% of the value of their
assets in tax-exempt securities. An exempt-interest dividend is that part of the
dividend distributions made by a Fund which consists of interest received by the
Fund on tax-exempt securities upon which the shareholder incurs no federal
income taxes. Exempt-interest dividends are included, however, in determining
what portion, if any, of a person's Social Security benefits are subject to
federal income tax.
ACTIVE ASSETS TAX-FREE TRUST and ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
intend to invest a portion of their assets in certain "private activity bonds".
As a result, a portion of the exempt-interest dividends paid by each Fund will
be an item of tax preference to shareholders subject to the alternative minimum
tax. Certain corporations which are subject to the alternative minimum tax may
also have to include exempt-interest dividends in calculating their alternative
minimum taxable income in situations where the "adjusted current earnings" of
the corporation exceeds its alternative minimum taxable income.
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of net
short-term capital gains. Such dividends and distributions are taxable to the
shareholder as ordinary dividend income. Distributions of long-term capital
gains, if any, are taxable as long-term capital gains, regardless of how long
the shareholder has held the applicable Fund's shares. Since each Fund's income
is expected to be derived entirely from interest rather than dividends, it is
anticipated that no portion of such dividend distributions will be eligible for
the federal dividends received deduction available to corporations.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from a Fund in the year they are actually distributed. However, if
any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by a Fund of any taxable interest income and short term
capital gains.
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the percentage of any distributions which constitute
an item of tax preference for purposes of the alternative minimum tax.
PURCHASES AND REDEMPTIONS OF THE FUNDS' SHARES. Any dividend or capital
gains distribution received by a shareholder from a Fund will have the effect of
reducing the net asset value of the shareholder's beneficial interest in the
Fund by the exact amount of the dividend or capital gains distribution.
Furthermore, capital gains distributions and some portion of the dividends may
be subject to federal income taxes. If the net asset value of the shares should
be reduced below a shareholder's cost as a result of the payment of dividends or
the distribution of realized long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing a Fund's shares immediately prior to
a distribution record date.
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less will, for tax purposes, generally result in short-term gains or
losses and those held for more than one year generally result in long-term gain
or loss. Any loss realized by shareholders upon a sale or
37
<PAGE>
redemption of shares within six months of the date of their purchase will be
treated as a long-term capital loss to the extent of any distributions of net
long-term capital gains with respect to such shares during the six-month period.
Gain or loss on the sale or redemption of shares in a Fund is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.
If a shareholder realizes a loss on the redemption of a Fund's shares and
reinvests in that Fund's shares within 30 days before or after the redemption,
the transactions may be subject to the "wash sale" rules, resulting in a
postponement of the recognition of such loss for tax purposes.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Fund is not deductible. Furthermore, entities or persons who are
"substantial users" (or related persons) of facilities financed by industrial
development bonds should consult their tax advisers before purchasing shares of
a Fund. "Substantial user" is defined generally by Income Tax Regulation
1.103-11(b) as including a "non-exempt person" who regularly uses in a trade or
business a part of a facility financed from the proceeds of industrial
development bonds.
CALIFORNIA STATE TAX
To the extent that dividends paid by ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
are derived from interest on California tax-exempt securities and on certain
U.S. government securities, such dividends will also be exempt from California
personal income taxes. Under California law, a fund which qualifies as a
regulated investment company must have at least 50% of its total assets invested
in California state and local issues or in U.S. obligations which pay interest
excludable from income or in a combination of such obligations at the end of
each quarter of its taxable year in order to be eligible to pay dividends to
California residents which will be exempt from California personal income taxes.
Unlike federal law, California law provides that no portion of the
exempt-interest dividends will constitute an item of tax preference for
California personal income alternative minimum tax purposes.
For California personal income tax purposes, the shareholders of ACTIVE
ASSETS CALIFORNIA TAX-FREE TRUST will not be subject to tax, or receive a credit
for taxes paid by the Fund, on undistributed capital gains, if any. Under the
California Revenue and Taxation Code, interest on indebtedness incurred or
continued to purchase or carry shares of an investment company paying
exempt-interest dividends, such as the Fund, will not be deductible by the
investor for state personal income tax purposes.
The foregoing relates to federal income taxation and to California personal
income taxation as in effect as of the date of the PROSPECTUS. Distributions
from interest income and capital gains, including exempt-interest dividends, may
be subject to California franchise taxes if received by a corporation doing
business in California, to state taxes in states other than California and to
local taxes.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
Each Fund's shares are offered on a continuous basis. The Distributor, as
the principal underwriter of the shares, has certain obligations under the
Distribution Agreement concerning the distribution of the shares. These
obligations and the compensation the Distributor receives are described above in
the sections titled "Principal Underwriter" and "Rule 12b-1 Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
Each Fund's annualized current yield, as may be quoted from time to time in
advertisements and other communications to shareholders and potential investors,
is computed by determining, for a stated seven-day period, the net change,
exclusive of capital changes and including the value of additional shares
purchased with dividends and any dividends declared therefrom (which reflect
deductions of all
38
<PAGE>
expenses of the Fund such as management fees), in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, and dividing the difference by the value of the account at the beginning
of the base period to obtain the base period return, and then multiplying the
base period return by (365/7).
Each Fund's annualized effective yield, as may be quoted from time to time
in advertisements and other communications to shareholders and potential
investors, is computed by determining (for the same stated seven-day period as
for the current yield), the net change, exclusive of capital changes and
including the value of additional shares purchased with dividends and any
dividends declared therefrom (which reflect deductions of all expenses of the
Fund such as management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the particular Fund in the future
since the yield is not fixed. Actual yields will depend not only on the type,
quality and maturities of the investments held by the Fund and changes in
interest rates on such investments, but also on changes in the Fund's expenses
during the period.
Tax-equivalent yield is computed by dividing that portion of the current
yield (calculated as described above) which is tax-exempt by 1 minus a stated
tax rate and adding the quotient to that portion, if any, of the yield of the
Fund that is not tax-exempt.
Yield information may be useful in reviewing the performance of a Fund and
for providing a basis for comparison with other investment alternatives.
However, unlike bank deposits or other investments which typically pay a fixed
yield for a stated period of time, each Fund's yield fluctuates.
ACTIVE ASSETS MONEY TRUST'S current yield for the seven days ending June 30,
1999 was 4.49%. The effective annual yield on June 30, 1999 was 4.60%, assuming
daily compounding.
ACTIVE ASSETS TAX-FREE TRUST'S current yield for the seven days ending June
30, 1999 was 2.99%. The effective annual yield on June 30, 1999 was 3.04%,
assuming daily compounding. Based upon a Federal personal income tax bracket of
39.6%, ACTIVE ASSETS TAX-FREE TRUST'S tax-equivalent yield for the seven days
ending June 30, 1999 was 4.95%.
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST'S current yield for the seven days
ending June 30, 1999 was 2.71%. The effective annual yield on June 30, 1999 was
2.74%, assuming daily compounding. Based upon a combined Federal and California
personal income tax bracket of 45.22%, ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST'S
tax-equivalent yield for the seven days ended June 30, 1999 was 4.95%.
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST'S current yield for the seven days
ending June 30, 1999 was 4.30%. The effective annual yield on June 30, 1999 was
4.39%, assuming daily compounding.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of each Fund for its fiscal year ended
June 30, 1999 included in the PROSPECTUS and incorporated by reference in this
STATEMENT OF ADDITIONAL INFORMATION have been so included and incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
*****
This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain
all of the information set forth in the REGISTRATION STATEMENT the Funds have
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
39
<PAGE>
ACTIVE ASSETS MONEY TRUST
PART C OTHER INFORMATION
ITEM 23. EXHIBITS
1(a). Declaration of Trust of the Registrant, dated March 27, 1981, is
incorporated by reference to Exhibit 1(a) of Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A,
filed on August 29, 1995.
1(b). Amendment dated May 21, 1984 to the Declaration of Trust is
incorporated by reference to Exhibit 1(b) of Post-Effective
Amendment No. 17 to the Registration Statement on Form N1-A,
filed on August 29, 1995.
1(c). Amendment dated December 17, 1984 to the Declaration of Trust is
incorporated by reference to Exhibit 1(c) of Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A,
filed on August 29, 1995.
2. Amended and Restated By-Laws of the Registrant, dated May 1,
1999, is incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 22 to the Registration Statement on
Form N-1A, filed on June 16, 1999.
3. Not Applicable.
4. Amended and Restated Investment Management Agreement dated May
1, 1999 is incorporated by reference to Exhibit 4 of
Post-Effective Amendment No. 22 to the Registration Statement on
Form N-1A, filed on June 16, 1999.
5(a). Amended and Restated Distribution Agreement dated May 31, 1997
is incorporated by reference to Exhibit 6 of Post-Effective
Amendment No. 19 to the Registration Statement on Form N-1A,
filed on August 22, 1997.
5(b). Selected Dealer Agreement, dated January 4, 1993, between the
Registrant and Dean Witter Distributors Inc. is incorporated by
reference to Exhibit 6(b) of Post-Effective Amendment No. 15 to
the Registration Statement on Form N-1A, filed on August 20,
1993 and to Exhibit 5(b) of Post-Effective Amendment No. 22 to
the registration Statement on Form N-1A, filed on June 16, 1999.
6. Second Amended and Restated Retirement Plan for Non-Interested
Directors or Trustees is incorporated by reference to Exhibit 6
of Post-Effective Amendment No. 21 to the Registration Statement
on Form N-1A, filed on June 16, 1999.
7(a). Custody Agreement, dated September 20, 1991, between The Bank of
New York and the Registrant is incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A, Filed on August 29, 1995.
7(b). Amendment dated April 17, 1996 to the Custody Agreement is
incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 18 to the Registration Statement on Form N-1A,
filed on August 22, 1996.
8(a). Amended and Restated Transfer Agency and Service Agreement is
<PAGE>
incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 20 to the Registration Statement on Form N-1A,
filed on August 20, 1998.
8(b). Amended and Restated Services Agreement, dated June 22, 1998,
between Morgan Stanley Dean Witter Advisors Inc. and Morgan
Stanley Dean Witter Services Company Inc., filed herein.
9. Opinion of Dennis H. Greenwald, Esq. dated June 2, 1981 is
incorporated by reference to Exhibit 9 of Post-Effective
Amendment No. 21 to the Registration Statement on form N-1A,
filed on June 16, 1999.
10. Consent of Independent Accountants, filed herein.
11. Not Applicable.
12. Not Applicable.
13. Amended and Restated Plan of Distribution pursuant to Rule 12b-1
is incorporated by reference to Exhibit 15 of Post-Effective
Amendment No. 19 to the Registration Statement on Form N-1A,
filed on August 22, 1997.
Other Powers of Attorney of Trustees are incorporated by reference to
Exhibit (Other) of Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A, Filed on August 22, 1994
and of Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A, filed on August 20, 1998.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None
Item 25. INDEMNIFICATION.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding officers
of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW Advisors is
a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
<PAGE>
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities
OPEN-END INVESTMENT COMPANIES
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund,"BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Latin American Growth Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
<PAGE>
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter North American Government Income Trust
(45) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(46) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(47) Morgan Stanley Dean Witter Real Estate Fund
(48) Morgan Stanley Dean Witter S&P 500 Index Fund
(49) Morgan Stanley Dean Witter S&P 500 Select Fund
(50) Morgan Stanley Dean Witter Select Dimensions Investment Series
(51) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(52) Morgan Stanley Dean Witter Short-Term Bond Fund
(53) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(54) Morgan Stanley Dean Witter Small Cap Growth Fund
(55) Morgan Stanley Dean Witter Special Value Fund
(56) Morgan Stanley Dean Witter Strategist Fund
(57) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(58) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(59) Morgan Stanley Dean Witter Total Market Index Fund
(60) Morgan Stanley Dean Witter Total Return Trust
(61) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(62) Morgan Stanley Dean Witter U.S. Government Securities Trust
(63) Morgan Stanley Dean Witter Utilities Fund
(64) Morgan Stanley Dean Witter Value-Added Market Series
(65) Morgan Stanley Dean Witter Value Fund
(66) Morgan Stanley Dean Witter Variable Investment Series
(67) Morgan Stanley Dean Witter World Wide Income Trust
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and Director
Director of Morgan Stanley Dean Witter Distributors Inc. ("MSDW
Distributors") and Morgan Stanley Dean Witter Trust FSB
("MSDW Trust"); President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Services Company
Inc. ("MSDW Services"); President of the Morgan Stanley
Dean Witter Funds and Discover Brokerage Index Series;
Executive Vice President and Director of Dean Witter
Reynolds Inc. ("DWR"); Director of various MSDW
subsidiaries.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds
Executive Vice President and Discover Brokerage Index Series; Director of MSDW
and Chief Investment Trust.
Officer
Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds
Officer and Director and Discover Brokerage Index Series.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Edward C. Oelsner, III
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary and
Counsel and Director Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds and Discover Brokerage Index
Series.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the High
Yield Group
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds
and Discover Brokerage Index Series.
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer-
Investments
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds and Discover Brokerage Index Series.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of Sector
Rotation
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Money
Market Group
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
Group
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
James Solloway
Senior Vice President
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
and Income Group
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Tax-Exempt Fixed
Income Group
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Frank Bruttomesso First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds and Discover
Brokerage Index Series.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series.
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors, the Morgan Stanley Dean
Witter Funds and Discover Brokerage Index Series.
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds and Discover
Brokerage Index Series.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors, the
and Assistant Secretary Morgan Stanley Dean Witter Funds and Discover
Brokerage Index Series.
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds and Discover
Brokerage Index Series.
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Raymond Basile
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Dale Boettcher
Vice President
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
Aaron Clark
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
William Connerly
Vice President
David Dineen
Vice President
Sheila Finnerty Vice President of Morgan Stanley Dean Witter Prime
Vice President Income Trust
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
Michael Geringer
Vice President
Gail Gerrity
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Trey Hancock
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
David T. Hoffman
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carol Espejo-Kane
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Nancy Karole-Kennedy
Vice President
Doug Ketterer
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Todd Lebo Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of MSDW Distributors, the
Assistant Secretary Morgan Stanley Dean Witter Funds and Discover
Brokerage Index Series.
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Albert McGarity
Vice President
Teresa McRoberts Vice President of Morgan Stanley Dean Witter S&P 500
Vice President Select Fund.
Mark Mitchell
Vice President
Julie Morrone Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Mary Beth Mueller
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President
Dawn Rorke
Vice President
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Michael Strayhorn
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
The principal address of MSDW Advisors, MSDW Services, MSDW Distributors,
DWR, the Morgan Stanley Dean Witter Funds and Discover Brokerage Index Series is
Two World Trade Center, New York, New York 10048. The principal address of MSDW
is 1585 Broadway, New York, New York 10036. The principal address of MSDW Trust
is 2 Harborside Financial Center, Jersey City, New Jersey 07311.
Item 27. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund,"BEST IDEAS PORTFOLIO"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
<PAGE>
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Latin American Growth Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter North American Government Income Trust
(45) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(46) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(47) Morgan Stanley Dean Witter Prime Income Trust
(48) Morgan Stanley Dean Witter Real Estate Fund
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter S&P 500 Select Fund
(51) Morgan Stanley Dean Witter Short-Term Bond Fund
(52) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(53) Morgan Stanley Dean Witter Small Cap Growth Fund
(54) Morgan Stanley Dean Witter Special Value Fund
(55) Morgan Stanley Dean Witter Strategist Fund
(56) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(57) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(58) Morgan Stanley Dean Witter Total Market Index Fund
(59) Morgan Stanley Dean Witter Total Return Trust
(60) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(61) Morgan Stanley Dean Witter U.S. Government Securities Trust
(62) Morgan Stanley Dean Witter Utilities Fund
(63) Morgan Stanley Dean Witter Value-Added Market Series
(64) Morgan Stanley Dean Witter Value Fund
(65) Morgan Stanley Dean Witter Variable Investment Series
(66) Morgan Stanley Dean Witter World Wide Income Trust
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade
<PAGE>
Center, New York, New York 10048. Other than Mr. Purcell, who is a Trustee of
the Registrant, none of the following persons has any position or office with
the Registrant.
NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.
Philip J. Purcell Director
John Schaeffer Director
Charles Vadala Senior Vice President and Financial Principal.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
Item 30. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it 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 23rd day of August, 1999.
ACTIVE ASSETS MONEY TRUST
By: /s/Barry Fink
-----------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 22 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer Chairman, Chief Executive Officer
and Trustee
By: /s/ Charles A. Fiumefreddo 08/23/99
-----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By: /s/ Thomas F. Caloia 08/23/99
-----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By: /s/ Barry Fink 08/23/99
-----------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By: /s/ David M. Butowsky 08/23/99
-----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
ACTIVE ASSETS MONEY TRUST
EXHIBIT INDEX
8(b). Amended and Restated Services Agreement.
10. Consent of Independent Accountants.
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June 22,
1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which MSDW Advisors is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));
WHEREAS, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors to perform
such administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services shall (i) administer the Fund's business affairs and supervise the
overall day-to-day operations of the Fund (other than rendering investment
advice); (ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts and
other records required under the Investment Company Act of 1940, as amended (the
"Act"), the notification to the Fund and MSDW Advisors of available funds for
investment, the reconciliation of account information and balances among the
Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, and the calculation of the net asset value of the Fund's shares; (iii)
provide the Fund with the services of persons competent to perform such
supervisory, administrative and clerical functions as are necessary to provide
effective operation of the Fund; (iv) oversee the performance of administrative
and professional services rendered to the Fund by others, including its
custodian, transfer agent and dividend disbursing agent, as well as accounting,
auditing and other services; (v) provide the Fund with adequate general office
space and facilities; (vi) assist in the preparation and the printing of the
periodic updating of the Fund's registration statement and prospectus (and, in
the case of an open-end Fund, the statement of additional information), tax
returns, proxy statements, and reports to its shareholders and the Securities
and Exchange Commission; and (vii) monitor the compliance of the Fund's
investment policies and restrictions.
In the event that MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services to
perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent of
MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account
1
<PAGE>
(other than those maintained by the Fund's transfer agent, registrar, custodian
and other agencies). All such books and records so maintained shall be the
property of the Fund and, upon request therefor, MSDW Services shall surrender
to MSDW Advisors or to the Fund such of the books and records so requested.
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
monthly compensation calculated daily (in the case of an open-end Fund) or
weekly (in the case of a closed-end Fund) by applying the annual rate or rates
set forth on Schedule B to the net assets of each Fund. Except as hereinafter
set forth, (i) in the case of an open-end Fund, compensation under this
Agreement shall be calculated by applying 1/365th of the annual rate or rates to
the Fund's or the Series' daily net assets determined as of the close of
business on that day or the last previous business day and (ii) in the case of a
closed-end Fund, compensation under this Agreement shall be calculated by
applying the annual rate or rates to the Fund's average weekly net assets
determined as of the close of the last business day of each week. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth on Schedule B. Subject to the
provisions of paragraph 5 hereof, payment of MSDW Services' compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to MSDW Advisors pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof imposed
by state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Morgan Stanley Dean Witter Variable Investment Series or any
Series thereof, the expense limitation specified in the Fund's Investment
Management Agreement, the fee payable hereunder shall be reduced on a pro rata
basis in the same proportion as the fee payable by the Fund under the Investment
Management Agreement is reduced.
6. MSDW Services shall bear the cost of rendering the administrative
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the Fund
employed by MSDW Services, and such clerical help and bookkeeping services as
MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services will use its best efforts in the performance of
administrative activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, MSDW Services shall not be liable to the Fund or any of
its investors for any error of judgment or mistake of law or for any act or
omission by MSDW Services or for any losses sustained by the Fund or its
investors. It is understood that, subject to the terms and conditions of the
Investment Management Agreement between each Fund and MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and hold
it harmless from any liability that MSDW Advisors may incur arising out of any
act or failure to act by MSDW Services in carrying out its responsibilities
hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW
2
<PAGE>
Services may have an interest in the Fund. It is also understood that MSDW
Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services have and may have
advisory, management, administration service or other contracts with other
organizations and persons, and may have other interests and businesses, and
further may purchase, sell or trade any securities or commodities for their own
accounts or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1999, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the event that the Investment Management
Agreement between any Fund and MSDW Advisors is terminated, this Agreement will
automatically terminate with respect to such Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
11. This Agreement may be assigned by either party with the written consent
of the other party.
12. This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
MORGAN STANLEY DEAN WITTER SERVICES COMPANY
INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULE A
MORGAN STANLEY DEAN WITTER FUNDS
AS AMENDED AS OF JULY 20, 1999
OPEN-END FUNDS
<TABLE>
<C> <S>
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Morgan Stanley Dean Witter Aggressive Equity Fund
6. Morgan Stanley Dean Witter American Opportunities Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Growth Securities
12. Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13. Morgan Stanley Dean Witter Convertible Securities Trust
14. Morgan Stanley Dean Witter Developing Growth Securities Trust
15. Morgan Stanley Dean Witter Diversified Income Trust
16. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17. Morgan Stanley Dean Witter Equity Fund
18. Morgan Stanley Dean Witter European Growth Fund Inc.
19. Morgan Stanley Dean Witter Federal Securities Trust
20. Morgan Stanley Dean Witter Financial Services Trust
21. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
22. Morgan Stanley Dean Witter Global Dividend Growth Securities
23. Morgan Stanley Dean Witter Global Utilities Fund
24. Morgan Stanley Dean Witter Growth Fund
25. Morgan Stanley Dean Witter Hawaii Municipal Trust
26. Morgan Stanley Dean Witter Health Sciences Trust
27. Morgan Stanley Dean Witter High Yield Securities Inc.
28. Morgan Stanley Dean Witter Income Builder Fund
29. Morgan Stanley Dean Witter Information Fund
30. Morgan Stanley Dean Witter Intermediate Income Securities
31. Morgan Stanley Dean Witter International Fund
32. Morgan Stanley Dean Witter International SmallCap Fund
33. Morgan Stanley Dean Witter Japan Fund
34. Morgan Stanley Dean Witter Latin American Growth Fund
35. Morgan Stanley Dean Witter Limited Term Municipal Trust
36. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
37. Morgan Stanley Dean Witter Managers Focus Fund
38. Morgan Stanley Dean Witter Market Leader Trust
39. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40. Morgan Stanley Dean Witter Mid-Cap Equity Trust
41. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43. Morgan Stanley Dean Witter New York Municipal Money Market Trust
44. Morgan Stanley Dean Witter New York Tax-Free Income Fund
45. Morgan Stanley Dean Witter North American Government Income Trust
46. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
</TABLE>
A-1
<PAGE>
<TABLE>
<C> <S>
47. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
48. Morgan Stanley Dean Witter Real Estate Fund
49. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Opportunities Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
50. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter SmallCap Growth Fund
54. Morgan Stanley Dean Witter Special Value Fund
55. Morgan Stanley Dean Witter Strategist Fund
56. Morgan Stanley Dean Witter S&P 500 Index Fund
57. Morgan Stanley Dean Witter S&P 500 Select Fund
58. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
59. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
60. Morgan Stanley Dean Witter Total Market Index Fund
61. Morgan Stanley Dean Witter Total Return Trust
62. Morgan Stanley Dean Witter U.S. Government Securities Trust
63. Morgan Stanley Dean Witter U.S. Government Money Market Trust
64. Morgan Stanley Dean Witter Utilities Fund
65. Morgan Stanley Dean Witter Value Fund
66. Morgan Stanley Dean Witter Value-Added Market Series
67. Morgan Stanley Dean Witter Variable Investment Series
(i) Aggressive Equity Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Short-Term Bond Portfolio
(xv) Strategist Portfolio
(xvi) Utilities Portfolio
68. Morgan Stanley Dean Witter World Wide Income Trust
69. Morgan Stanley Dean Witter Worldwide High Income Fund
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<C> <S>
70. Morgan Stanley Dean Witter High Income Advantage Trust
71. Morgan Stanley Dean Witter High Income Advantage Trust II
72. Morgan Stanley Dean Witter High Income Advantage Trust III
73. Morgan Stanley Dean Witter Income Securities Inc.
74. Morgan Stanley Dean Witter Government Income Trust
75. Morgan Stanley Dean Witter Insured Municipal Bond Trust
76. Morgan Stanley Dean Witter Insured Municipal Trust
77. Morgan Stanley Dean Witter Insured Municipal Income Trust
78. Morgan Stanley Dean Witter California Insured Municipal Income Trust
79. Morgan Stanley Dean Witter Insured Municipal Securities
80. Morgan Stanley Dean Witter Insured California Municipal Securities
81. Morgan Stanley Dean Witter Quality Municipal Investment Trust
82. Morgan Stanley Dean Witter Quality Municipal Income Trust
83. Morgan Stanley Dean Witter Quality Municipal Securities
84. Morgan Stanley Dean Witter California Quality Municipal Securities
85. Morgan Stanley Dean Witter New York Quality Municipal Securities
</TABLE>
DISCOVER FUNDS
<TABLE>
<C> <S>
1. Discover Brokerage Index Series -- Discover Brokerage S&P 500 Fund
</TABLE>
A-3
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF JUNE 28, 1999
Monthly compensation calculated daily by applying the following annual rates
to a fund's daily net assets:
<TABLE>
<S> <C>
FIXED INCOME FUNDS
Morgan Stanley Dean Witter Balanced Income Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter California Tax-Free Income Fund 0.055% of the portion of the daily net assets not exceeding $500
million; 0.0525% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.050% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.0475% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25 billion; and
0.045% of the portion of the daily net assets exceeding $1.25
billion.
Morgan Stanley Dean Witter Convertible Securities Trust 0.060% of the portion of the daily net assets not exceeding $750
million; 0.055% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.050% of the portion
of the daily net assets of the exceeding $1 billion but not
exceeding $1.5 billion; 0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2 billion;
0.045% of the portion of the daily net assets exceeding $2
billion but not exceeding $3 billion; and 0.0425% of the portion
of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Diversified Income Trust 0.040% of the daily net assets.
Morgan Stanley Dean Witter Federal Securities Trust 0.055% of the portion of the daily net assets not exceeding $1
billion; 0.0525% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.050% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0475% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.045% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0425% of the portion of the daily net
assets exceeding $5 billion but not exceeding $7.5 billion;
0.040% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0375% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.035% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Hawaii Municipal Trust
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
High Yield Securities Inc. million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $2 billion; 0.0325%
of the portion of the daily net assets exceeding $2 billion but
not exceeding $3 billion; and 0.030% of the portion of daily net
assets exceeding $3 billion.
Morgan Stanley Dean Witter Intermediate Income Securities 0.060% of the portion of the daily net assets not exceeding $500
million; 0.050% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.040% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.030% of the portion of the daily net
assets exceeding $1 billion.
Morgan Stanley Dean Witter Limited Term Municipal Trust 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Multi-State Municipal Series Trust
(10 Series)
Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not exceeding $500
New York Tax-Free Income Fund million; and 0.0525% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.039% of the portion of the daily net assets not exceeding $3
North American Government billion; and 0.036% of the portion of the daily net assets
Income Trust exceeding $3 billion.
Morgan Stanley Dean Witter Select Dimensions Investment Series--
Diversified Income Portfolio 0.040% of the daily net assets.
North American Government Securities Portfolio 0.039% of the daily net assets.
Morgan Stanley Dean Witter Select Municipal Reinvestment Fund 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.070% of the daily net assets.
Short-Term Bond Fund
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Short-Term U.S. Treasury Trust
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
Tax-Exempt Securities Trust million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25 billion;
.0325% of the portion of the daily net assets exceeding $1.25
billion.
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $1
U.S. Government Securities Trust billion; 0.0475% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.045% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0425% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.040% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0375% of the portion of the daily net
assets exceeding $5 billion but not exceeding $7.5 billion;
0.035% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0325% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter Variable Investment Series--
High Yield Portfolio 0.050% of the portion of the daily net assets not exceeding $500
million; and 0.0425% of the daily net assets exceeding $500
million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to $500
million; and 0.045% of the portion of the daily net assets
exceeds $500 million.
Short-Term Bond Portfolio 0.045% of the daily net assets.
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets up to $250 million;
World Wide Income Trust 0.060% of the portion of the daily net assets exceeding $250
million but not exceeding $500 million; 0.050% of the portion of
the daily net assets of the exceeding $500 million but not
exceeding $750 million; 0.040% of the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; and
0.030% of the portion of the daily net assets exceeding $1
billion.
Morgan Stanley Dean Witter Worldwide High Income Fund 0.060% of the daily net assets.
EQUITY FUNDS
Morgan Stanley Dean Witter Aggressive Equity Fund 0.075% of the daily net assets.
Morgan Stanley Dean Witter American Opportunities Fund 0.0625% of the portion of the daily net assets not exceeding $250
million; 0.050% of the portion of the daily net assets exceeding
$250 million but not exceeding $2.25 billion; 0.0475% of the
portion of the daily net assets exceeding $2.25 billion but not
exceeding $3.5 billion; 0.0450% of the portion of the daily net
assets exceeding $3.5 billion but not exceeding $4.5 billion; and
0.0425% of the portion of the daily net assets exceeding $4.5
billion.
Morgan Stanley Dean Witter Balanced Growth Fund 0.060% of the portion of the daily net assets not exceeding $500
million; and 0.0575% of the portion of the daily net assets
exceeding $500 million.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Capital Growth Securities 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion exceeding $500 million but not
exceeding $1 billion; 0.050% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; and
0.0475% of the portion of the daily net assets exceeding $1.5
billion.
Morgan Stanley Dean Witter Competitive Edge Fund, 0.065% of the portion of the daily net assets not exceeding $1.5
"BEST IDEAS" Portfolio billion; and 0.0625% of the portion of the daily net assets
exceeding $1.5 billion.
Morgan Stanley Dean Witter Developing Growth Securities Trust 0.050% of the portion of the daily net assets not exceeding $500
million; and 0.0475% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Dividend Growth Securities Inc. 0.0625% of the portion of the daily net assets not exceeding $250
million; 0.050% of the portion of the daily net assets exceeding
$250 million but not exceeding $1 billion; 0.0475% of the portion
of the daily net assets exceeding $1 billion but not exceeding $2
billion; 0.045% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; 0.0425% of the portion
of the daily net assets exceeding $3 billion but not exceeding $4
billion; 0.040% of the portion of the daily net assets exceeding
$4 billion but not exceeding $5 billion; 0.0375% of the portion
of the daily net assets exceeding $5 billion but not exceeding $6
billion; 0.035% of the portion of the daily net assets exceeding
$6 billion but not exceeding $8 billion; 0.0325% of the portion
of the daily net assets exceeding $8 billion but not exceeding
$10 billion; 0.030% of the portion of the daily net assets
exceeding $10 billion but not exceeding $15 billion; and 0.0275%
of the portion of the daily net assets exceeding $15 billion.
Morgan Stanley Dean Witter 0.051% of the daily net assets.
Equity Fund
Morgan Stanley Dean Witter European Growth Fund Inc. 0.057% of the portion of the daily net assets not exceeding $500
million; 0.054% of the portion of the daily net assets exceeding
$500 million but not exceeding $2 billion; and 0.051% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter Financial Services Trust 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter
Fund of Funds--
Domestic Portfolio None
International Portfolio None
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Global Dividend Growth Securities 0.075% of the portion of the daily net assets not exceeding $1
billion; 0.0725% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.070% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2.5 billion; 0.0675% of the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3.5 billion; 0.0650% of
the portion of the daily net assets exceeding $3.5 billion but
not exceeding $4.5 billion; and 0.0625% of the portion of the
daily net assets exceeding $4.5 billion.
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding $500
Global Utilities Fund million; 0.0625% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; and 0.060% of the
portion of the daily net assets exceeding $1 billion.
Morgan Stanley Dean Witter 0.048% of the portion of daily net assets not exceeding $750
Growth Fund million; 0.045% of the portion of daily net assets exceeding $750
million but not exceeding $1.5 billion; and 0.042% of the portion
of daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter 0.10% of the portion of daily net assets not exceeding $500
Health Sciences Trust million; and 0.095% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter 0.075% of the portion of the net assets not exceeding $500
Income Builder Fund million; and 0.0725% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding $500
Information Fund million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter International Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter International SmallCap Fund 0.069% of the daily net assets.
Morgan Stanley Dean Witter 0.057% of the daily net assets.
Japan Fund
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding $500
Latin American Growth Fund million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.0625% of the daily net assets.
Managers Focus Fund
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Market Leader Trust
Morgan Stanley Dean Witter 0.075 of the daily net assets.
Mid-Cap Dividend Growth Securities
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.035% of the portion of the daily net assets not exceeding $500
Mid-Cap Equity Trust million; and 0.0325% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Natural Resource Development 0.0625% of the portion of the daily net assets not exceeding $250
Securities Inc. million and 0.050% of the portion of the daily net assets
exceeding $250 million.
Morgan Stanley Dean Witter 0.057% of the portion of the daily net assets not exceeding $1
Pacific Growth Fund Inc. billion; 0.054% of the portion of the daily net assets exceeding
$1 billion but not exceeding $2 billion; and 0.051% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter Precious Metals and 0.080% of the daily net assets.
Minerals Trust
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Real Estate Fund
Morgan Stanley Dean Witter Select Dimensions Investment Series--
American Opportunities Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; and 0.060% of the portion of the daily net assets
exceeding $500 million.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; 0.050% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; and 0.0475% of the
portion of the daily net assets exceeding $1 billion.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter SmallCap Growth Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter Special Value Fund 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of daily net assets exceeding
$500 million.
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Strategist Fund 0.060% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.050% of the portion
of the daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.0475% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.0 billion; and 0.045%
of the portion of the daily net assets exceeding $2.0 billion.
Morgan Stanley Dean Witter 0.040% of the portion of the daily net assets not exceeding $1.5
S&P 500 Index Fund billion; 0.0375% of the portion of daily net assets exceeding
$1.5 billion but not exceeding $3 billion; and 0.035% of the
portion of daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
S&P 500 Select Fund
Morgan Stanley Dean Witter 0.045% of the daily net assets.
Total Return Trust
Morgan Stanley Dean Witter Utilities Fund 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0525% of the portion
of the daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.050% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion; 0.0475% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $3.5 billion; 0.045% of the portion of the daily
net assets exceeding $3.5 but not exceeding $5 billion; and
0.0425% of the daily net assets exceeding $5 billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Value Fund
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
Value-Added Market Series million; 0.45% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0425% of the portion
of the daily net assets exceeding $1.0 billion but not exceeding
$2.0 billion; and 0.040% of the portion of the daily net assets
exceeding $2 billion.
Morgan Stanley Dean Witter Variable Investment Series--
Aggressive Equity Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge 0.065% of the daily net assets.
"Best Ideas" Portfolio
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; 0.050% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0475% of the portion
of the daily net assets exceeding $1.0 billion but not exceeding
$2.0 billion; 0.045% of the portion of the daily net assets
exceeding $2 billion but not exceeding $3 billion; and 0.0425% of
the portion of the daily net assets exceeding $3 billion.
Equity Portfolio 0.050% of the portion of the daily net assets not exceeding $1
billion; and 0.0475% of the portion of the daily net assets
exceeding $1 billion.
European Growth Portfolio 0.057% of the portion of the daily net assets not exceeding $500
million; and 0.054% of the portion of the daily net assets
exceeding $500 million.
Global Dividend Growth Portfolio 0.075% of the portion of the daily net assets not exceeding $1
billion; and 0.0725% of the portion of daily net assets exceeding
$1 billion.
Income Builder Portfolio 0.075% of the daily net assets.
Pacific Growth Portfolio 0.057% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the portion of the daily net assets not exceeding $1.5
billion; and 0.0475% of the portion of the daily net assets
exceeding $1.5 billion.
Utilities Portfolio 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; and 0.0525% of the
portion of the daily net assets exceeding $1 billion.
MONEY MARKET FUNDS
Active Assets Trusts: 0.050% of the portion of the daily net assets not exceeding $500
(1) Active Assets Tax-Free Trust million; 0.0425% of the portion of the daily net assets exceeding
(2) Active Assets California $500 million but not exceeding $750 million; 0.0375% of the
Tax-Free Trust portion of the daily net assets exceeding $750 million but not
(3) Active Assets Government Securities Trust exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C>
(4) Active Assets Money Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; 0.025% of the portion
of the daily net assets exceeding $3 billion but not exceeding
$15 billion; 0.0249% of the portion of the daily net assets
exceeding $15 billion but not exceeding $17.5 billion; and
0.0248% of the portion of the daily net assets exceeding $17.5
billion.
Morgan Stanley Dean Witter California Tax-Free Daily 0.050% of the portion of the daily net assets not exceeding $500
Income Trust million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
Liquid Asset Fund Inc. million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net assets exceeding $1.35
billion but not exceeding $1.75 billion; 0.030% of the portion of
the daily net assets exceeding $1.75 billion but not exceeding
$2.15 billion; 0.0275% of the portion of the daily net assets
exceeding $2.15 billion but not exceeding $2.5 billion; 0.025% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion of the daily
net assets exceeding $15 billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily net assets exceeding
$17.5 billion.
</TABLE>
B-9
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
New York Municipal Money million; 0.0425% of the portion of the daily net assets exceeding
Market Trust $500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Select Dimensions Investment Series-- 0.050% of the daily net assets.
Money Market Portfolio
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
Tax-Free Daily Income Trust million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter U.S. Government Money Market Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Variable Investment Series-- Money 0.050% of the portion of the daily net assets not exceeding $500
Market Portfolio million; 0.0425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; and 0.0375% of the
portion of the daily net assets exceeding $750 million.
</TABLE>
B-10
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the respective Prospectuses constituting parts
of Post-Effective Amendment No. 22 to the registration statements of Active
Assets Money Trust, Active Assets Government Securities Trust and Active Assets
Tax-Free Trust and Post-Effective Amendment No. 10 to the registration statement
of Active Assets California Tax-Free Trust (collectively referred to as the
"Funds") on Form N-1A of our reports, dated August 5, 1999, relating to the
financial statements and financial highlights of the Funds, which appear in such
Prospectuses, and to the incorporation by reference of our reports into the
Statements of Additional Information which also constitute part of these
registration statements. We also consent to the references to us under the
heading "Financial Highlights" in such Prospectuses and to the references to us
under the headings "Custodian and Independent Accountants" and "Experts" in such
Statements of Additional Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
August 19, 1999
