<PAGE>
PROSPECTUS - MAY 1, 1999
Morgan Stanley Dean Witter
SELECT MUNICIPAL REINVESTMENT FUND
[COVER PHOTO]
A MUTUAL FUND THAT SEEKS TO PROVIDE A HIGH LEVEL
OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX
CONSISTENT WITH THE PRESERVATION OF CAPITAL
Shares of the Fund are offered exclusively to the holders of certain units of
Morgan Stanley Dean Witter Select Municipal
Trust and certain other unit investment trusts, as an investment option for
reinvesting distributions received on these units.
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>
Who is Eligible to Invest in the Fund
and How are Investments Made?......................... 1
The Fund Investment Objective.................................. 2
Principal Investment Strategies....................... 2
Principal Risks....................................... 3
Past Performance...................................... 5
Fees and Expenses..................................... 6
Fund Management....................................... 7
Shareholder Information Pricing Fund Shares................................... 8
How to Sell Shares.................................... 8
Distributions......................................... 9
Tax Consequences...................................... 10
Financial Highlights ...................................................... 11
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUND.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
</TABLE>
FUND CATEGORY
---------------------------
/ / Growth
/ / Growth and Income
/X/ INCOME
/ / Money Market
<PAGE>
WHO IS ELIGIBLE TO INVEST IN THE FUND AND
HOW ARE INVESTMENTS MADE?
Morgan Stanley Dean Witter Select Municipal Reinvestment Fund is
offered exclusively to the holders of certain unit investment trusts
(UITs) as an investment option for reinvesting distributions received
on units of these trusts. Currently, only the holders of certain
units of the following UITs ("Eligible Units") are eligible to
reinvest UIT distributions in shares of the Fund: (i) Morgan Stanley
Dean Witter Select Municipal Trust ("Select Municipal Trust"); and
(ii) certain UITs held (in street name) by Dean Witter Reynolds Inc.
Shares of the Fund may in the future also be offered to holders of
other UITs.
If you are a holder of Eligible Units and wish to participate in this
reinvestment option, you should notify your broker. If you hold
Eligible Units of Select Municipal Trust in certificate form, you
also may participate in the reinvestment option by completing and
mailing the attached pre-addressed "Authorization for Reinvestment."
You may elect to reinvest all of your UIT distributions in the Fund,
or you may elect to reinvest only the interest portion or the
principal portion of the distributions. Thus, if you choose to
reinvest the interest portion only and the UIT distributes proceeds
from the sale or maturity of portfolio securities, these
distributions will not be reinvested in shares of the Fund. By
contrast, if you elect to reinvest the principal portion only and the
UIT distributes interest income, these income distributions will not
be reinvested in shares of the Fund. At any time, you may change the
type of distributions that are reinvested in the Fund (e.g., from
reinvesting interest distributions only to reinvesting all
distributions) by notifying your broker or, if you hold Eligible
Units of Select Municipal Trust, by notifying the UIT's Trustee in
writing.
Reinvestment of your UIT distributions in the Fund will be made at
net asset value and will not be subject to any sales charge. Your UIT
distributions will be invested in shares of the Fund no later than
the next business day after the distribution is made. You will
receive confirmations at least quarterly of your investment activity
in the Fund.
You may at any time terminate your participation in the reinvestment
option and elect to receive future UIT distributions in cash by
notifying your broker or if you hold units of Select Municipal Trust
in certificate form, by notifying the UIT's Trustee in writing. Any
instructions to your broker or, if applicable, the UIT's Trustee will
be processed within 10 days of receipt.
In addition to your right to terminate the reinvestment option, you
may sell all or a portion of your Fund shares at any time.
1
<PAGE>
(SIDEBAR)
INCOME
AN INVESTMENT OBJECTIVE HAVING THE GOAL OF SELECTING SECURITIES TO PAY OUT
INCOME RATHER THAN RISE IN VALUE.
(END SIDEBAR)
THE FUND
ICON INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Select Municipal Reinvestment Fund is a mutual
fund that seeks to provide a high level of current income exempt from
federal income tax consistent with the preservation of capital. There is no
guarantee that the Fund will achieve this objective.
ICON PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will invest exclusively in securities that pay interest which, in
the opinion of counsel for the securities' issuers, is exempt from federal
income tax. This policy is fundamental and may not be changed without
shareholder approval. The Fund's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., invests the Fund's assets in municipal obligations.
Municipal obligations are bonds, notes or short-term commercial paper issued
by state governments, local governments, and their respective agencies. At
least 75% of these municipal obligations will have the following ratings:
<TABLE>
<S> <C> <C>
- - municipal bonds -- within the three highest ratings issued
by Moody's Investors Service Inc.,
Standard & Poor's Corporation or Fitch
IBCA, Inc.;
- - municipal notes -- within the two highest ratings issued by
Moody's, S&P or Fitch, or if unrated, if
the issuer has an outstanding bond rated
within the three highest ratings issued
by Moody's, S&P or Fitch; and
- - municipal commercial paper -- the highest short-term rating issued by
Moody's, S&P or Fitch, or if unrated,
judged to be of comparable quality by
the Investment Manager.
</TABLE>
The Fund may invest up to 25% of its assets in other municipal bonds and
notes, including unrated obligations. However, the Fund may only invest up
to 5% of its assets in municipal bonds or notes rated below investment grade
or, if unrated, of comparable quality as determined by the Investment
Manager (commonly known as "junk bonds").
Municipal bonds, notes and commercial paper are commonly classified as
either "general obligation" or "revenue." General obligation bonds, notes
and commercial paper are secured by the issuer's faith and credit, and its
taxing power, for payment of principal and interest. Revenue bonds, notes
and commercial paper, however, are generally payable from a specific revenue
source of income. They are issued to fund a wide variety of projects in
sectors such as transportation, education and industrial
2
<PAGE>
development. Included within the revenue category are participations in
lease obligations. The Fund's municipal obligation investments may include
zero coupon securities, which are purchased at a discount and make no
interest payments until maturity.
The Fund may take temporary "defensive" positions in attempting to respond
to adverse market conditions. The Fund may invest any amount of its assets
in tax-exempt, short-term instruments or hold cash in a defensive posture
when the Investment Manager believes it is advisable to do so. Although
taking a defensive posture is designed to protect the Fund from an
anticipated market downturn, it could have the effect of reducing the Fund's
ability to provide a high level of tax-exempt income.
In pursuing the Fund's investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys, holds or sells on
a day-to-day basis -- and which investment strategies it uses. For example,
the Investment Manager in its discretion may determine to use some permitted
investment strategies while not using others.
ICON PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The Fund's share price will fluctuate with changes in the market value of
the Fund's portfolio securities. When you sell Fund shares, they may be
worth less than what you paid for them and, accordingly, you can lose money
investing in this Fund. The performance of the Fund also will depend on
whether the Investment Manager is successful in pursuing the Fund's
investment strategy.
CREDIT AND INTEREST RATE RISKS. Municipal obligations, like other debt
securities, 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.
However, unlike most fixed-income mutual funds, the Fund is subject to the
added credit risk of concentrating its investments in various
municipalities. The Fund could be affected by political, economic and
regulatory developments concerning these issuers. Should any difficulties
develop concerning these municipalities' abilities to pay principal and/or
interest on their debt obligations, the Fund's value and yield could be
adversely affected.
Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When
the general level of interest rates goes up, the prices of most fixed-income
securities goes down. When the general level of interest rates goes down,
the prices of most fixed-income securities goes up. (Zero coupon securities
are typically subject to greater price fluctuations than comparable
securities that pay current interest.) As merely illustrative of the
relationship between fixed-income securities and interest rates, the
following table shows how interest rates affect bond prices.
3
<PAGE>
HOW INTEREST RATES AFFECT BOND PRICES
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A
MUNICIPAL BOND
IF INTEREST RATES:
--------------------------
INCREASE* DECREASE**
---------- --------------
BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------
1 year 1999 3.00% $990 $981 $1,010 $1,020
- ------------------------------------------------------------------
5 years 2003 3.75% $956 $914 $1,046 $1,095
- ------------------------------------------------------------------
10 years 2008 4.10% $922 $852 $1,085 $1,180
- ------------------------------------------------------------------
20 years 2018 4.90% $883 $785 $1,138 $1,302
- ------------------------------------------------------------------
30 years 2028 4.95% $861 $749 $1,175 $1,396
- ------------------------------------------------------------------
</TABLE>
Source: MUNICIPAL MARKET DATA (a division of Thomson Financial Municipal
Group): "Aaa" yield curve as of 12/31/98.
*Assumes no effect from market discount calculation.
**Assumes bonds are non-callable.
In addition, the table is an illustration and does not represent expected
yields or share price changes of any Morgan Stanley Dean Witter mutual fund.
The Fund is not limited as to the maturities of the municipal obligations in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Fund's portfolio securities to fall substantially.
If the Fund invests in "junk bonds," these investments would pose credit and
interest rate risks to a greater extent than higher rated securities. For
example, the prices of these obligations are likely to be more sensitive to
adverse economic changes or individual municipality developments than higher
rated securities.
BOND INSURANCE RISK. Many of the municipal obligations the Fund invests in
will be covered by insurance at the time of issuance or at a later date.
Such insurance covers the remaining term of the security. Insured municipal
obligations would generally be assigned a lower rating if the rating were
based primarily on the credit quality of the issuer without regard to the
insurance feature. If the claims-paying ability of the insurer were
downgraded, the ratings on the municipal obligations it insures may also be
downgraded.
LEASE OBLIGATIONS. 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 that 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 these legislative actions do
not occur, the holders of the lease obligation may experience difficulty in
exercising their rights, including disposition of the property.
4
<PAGE>
Shares of the Fund are not bank deposits and are not guaranteed or insured
by any bank, governmental entity, or the FDIC.
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 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. Earnings of individual issuers will be affected by
remediation costs, which may be substantial. Accordingly, the Fund's
investments may be adversely affected.
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.
(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.
(END SIDEBAR)
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 9.47%
'90 5.27%
'91 12.04%
'92 8.88%
'93 11.99%
'94 -5.98%
'95 16.00%
'96 3.55%
'97 7.94%
'98 5.46%
</TABLE>
During the periods shown in the bar chart, the highest return for a calendar
quarter was 6.37% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -5.75% (quarter ended March 31, 1994). Year-to-date total
return as of March 31, 1999 was 0.42%.
5
<PAGE>
(SIDEBAR)
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME.
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
(END SIDEBAR)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
- -------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Select Municipal Reinvestment Fund 5.46% 5.15% 7.31%
- -------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) 6.48% 6.22% 8.22%
- -------------------------------------------------------------------------------
Lipper General Municipal Debt
Funds Index(2) 5.64% 5.70% 7.75%
- -------------------------------------------------------------------------------
</TABLE>
1 The Lehman Brothers Municipal Bond Index tracks the performance of
municipal bonds with maturities of 2 years or more and a minimum credit
rating of Baa or BBB, as measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp. The Index does not include any expenses, fees, or
charges. The Index is unmanaged and should not be considered an investment.
2 The Lipper General Municipal Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper General Municipal Debt 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.
ICON FEES AND EXPENSES
- --------------------------------------------------------------------------------
The Fund is a no-load fund. The table below briefly describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. The Fund
does not impose any sales charges and does not charge account fees.
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
SHAREHOLDER FEES
- ---------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
- ---------------------------------------------------------
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None
- ---------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- ---------------------------------------------------------
Management fee 0.50%
- ---------------------------------------------------------
Other expenses 0.40%
- ---------------------------------------------------------
Total annual Fund operating expenses 0.90%
- ---------------------------------------------------------
</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>
- ----------------------------------
$92 $287 $498 $1,108
- ----------------------------------
</TABLE>
6
<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 $129 BILLION IN ASSETS UNDER MANAGEMENT
OR ADMINISTRATION AS OF MARCH 31, 1999.
(END SIDEBAR)
ICON FUND MANAGEMENT
- --------------------------------------------------------------------------------
The 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,
New York 10048.
The Fund's portfolio is managed within the Investment Manager's
Municipal Fixed-Income Group. James F. Willison, a Senior Vice
President of the Investment Manager, has been a primary portfolio
manager of the Fund since its inception. Joseph R. Arcieri, a Vice
President of the Investment Manager, has been a primary portfolio
manager of the Fund since February 1997. Mr. Willison and Mr.
Arcieri have been portfolio managers with the Investment Manager for
over five years.
The 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 the Fund's average daily net assets. For the fiscal
year ended December 31, 1998, the Fund accrued total compensation to
the Investment Manager amounting to 0.50% of the Fund's average
daily net assets.
7
<PAGE>
SHAREHOLDER INFORMATION
ICON PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of Fund shares, called "net asset value," is based on the
value of the Fund's portfolio securities.
The net asset value per share of the Fund is determined once daily at
4:00 p.m. Eastern time on each day that the New York Stock Exchange
is open (or, on days when the New York Stock Exchange closes prior to
4:00 p.m., at such earlier time). Shares will not be priced on days
that the New York Stock Exchange is closed.
The value of the Fund's portfolio securities are valued by an outside
independent pricing service. The service uses a computerized grid
matrix of tax-exempt securities and its evaluations in determining
what it believes is the fair value of the portfolio securities. The
Fund's Board of Trustees believes that timely and reliable market
quotations are generally not readily available to the Fund to value
tax-exempt securities and the valuations that the pricing service
supplies are more likely to approximate the fair value of the
securities.
ICON HOW TO SELL SHARES
- --------------------------------------------------------------------------------
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 in proper form.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
- --------------------------------------------------------------------------------
Contact Your To sell your shares, simply call your Morgan Stanley Dean
Financial Advisor Witter Financial Advisor or other authorized financial
representative.
------------------------------------------------------------
[LOGO]
Payment will be sent to the address to which the account is
registered or deposited in your
brokerage account.
- --------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of
instruction" that includes:
- your account number;
[LOGO]
- 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 from an eligible guarantor acceptable to Morgan
Stanley Dean Witter Trust FSB. (You should contact Morgan
Stanley Dean Witter Trust FSB at (800) 869-NEWS for a
determination as to whether a particular institution is an
eligible guarantor.) A notary public cannot provide a
signature guarantee. Additional documentation may be
required for shares held by a corporation, partnership,
trustee or executor.
------------------------------------------------------------
Mail the letter to 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.
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
PAYMENT FOR SOLD SHARES. After we receive your instruction to sell in
proper form, 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.
Payment may be postponed or the right to sell your shares suspended
under unusual circumstances.
REINSTATEMENT PRIVILEGE. If you sell Fund shares and have not
previously exercised the reinstatement privilege, you may, within 35
days after the date of sale, invest any portion of the proceeds in
Fund shares at their net asset value.
INVOLUNTARY SALES. The Fund reserves the right, on sixty days'
notice, to sell the shares of any shareholder whose shares, due to
sales by the shareholder, have a value below $100, if the shareholder
no longer owns Eligible Units or has terminated participation in the
reinvestment option.
However, before the Fund sells your shares in this manner, we will
notify you and allow you sixty days to reelect to reinvest UIT
distributions in the Fund or to make an additional investment in an
amount that will increase the value of your account to at least the
required amount before the sale is processed.
ICON DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund passes substantially all of its earnings from income and
capital gains along to its investors as "distributions." The Fund
earns interest from fixed-income investments. These amounts are
passed along to Fund shareholders as "income dividend distributions."
The 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."
Normally, income dividends are declared on each day the New York
Stock Exchange is open for business and income dividends are
distributed to shareholders monthly. Any capital gains are
distributed in December; if a second capital gain distribution is
necessary, it is usually paid in January of the following year. The
Fund, however, may retain and reinvest any long-term capital gains.
The Fund may at times make payments from sources other than income or
capital gains that represent a return of a portion of your
investment.
Distributions are reinvested automatically in additional shares of
the Fund and automatically credited to your account, unless you
request in writing that all distributions be paid in cash. If you
elect the cash option, processing of your dividend checks begins
immediately following the monthly payment date, and the Fund will
mail a monthly dividend check to you normally during the first seven
days of the following month. No interest will accrue on uncashed
checks. If you wish to change how your distributions are paid, your
request should be received by the Fund's transfer agent, Morgan
Stanley Dean Witter Trust FSB, at least five business days prior to
the record date of the distributions.
9
<PAGE>
ICON TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your Fund investment
will be taxed. Your reinvestment of UIT distributions on shares of
the Fund is considered a purchase of Fund shares for tax purposes.
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 the Fund.
You need to be aware of the possible tax consequences when:
- The Fund makes distributions; and
- You sell Fund shares.
TAXES ON DISTRIBUTIONS. Your Fund income dividend distributions are
exempt from federal tax.
If the Fund makes any capital gain distributions, those distributions
will normally be subject to federal and state income tax when they
are paid, whether you take them in cash or reinvest them in Fund
shares. 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 the Fund.
The Fund may derive gains in part from municipal obligations the Fund
purchased below their principal or face values. All, or a portion, of
these gains may be taxable to you as ordinary income rather than
capital gains.
In addition, your UIT distributions are also considered distributions
for federal income tax purposes, regardless of their reinvestment in
shares of the 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.
TAXES ON SALES. Your sale of Fund shares normally is subject to
federal and state income tax and may result in a taxable gain or loss
to you. A sale also may be subject to local income tax.
When you open your Fund account, you should provide your social
security or tax identification number on your investment application.
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.
10
<PAGE>
<TABLE>
<S> <C>
No Postage
Necessary
If Mailed
In The
United States
</TABLE>
BUSINESS REPLY MAIL
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
FIRST CLASS PERMIT NO. 40864 NEW YORK, N.Y.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
THE CHASE MANHATTAN BANK
- -----------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
- -----------------------------------------------------------------------------
SELECT MUNICIPAL TRUST REINVESTMENT PROGRAM
BOWLING GREEN STATION
P.O. BOX 5179
NEW YORK, NY 10274-5179
<PAGE>
AUTHORIZATION FOR REINVESTMENT
I (we) hereby authorize The Chase Manhattan Bank to direct my (our) monthly
payments representing interest and principal, if any, on my (our) Units of the
Morgan Stanley Dean Witter Select Municipal Trust to Dean Witter Trust FSB, the
Agent for the Morgan Stanley Dean Witter Select Municipal Reinvestment Fund. I
(we) understand that this authorization applies to all my (our) Units of the
Series of the Trust indicated below, and that such authorization will remain in
effect until such time as I (we) notify The Chase Manhattan Bank in writing to
the contrary.
I (we) acknowledge receipt of the Prospectus for the Morgan Stanley Dean
Witter Select Municipal Reinvestment Fund. All dividends and capital gains of
the Fund will be reinvested unless the Fund's agent is notified in writing to
the contrary.
Under penalties of perjury, I certify (1) that the number shown on this form
is my correct taxpayer identification number and (2) that I am not subject to
backup withholding either because I have not been notified that I am subject to
backup withholding as a result of a failure to report all interest or dividends,
or the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
<TABLE>
<S> <C>
Please print exact registration of Units: Morgan Stanley Dean Witter Select Municipal Trust Series for
which this authorization is given:
Name ----------------------------------------------------------
----------------------------------------------------------------
(Series number and portfolio)
- ----------------------------------------------------------------
Address -------------------------------------------------------- Dealer's Name --------------------------------------------------
City, State & Zip Dealer's City & State
- ------------------------------------------------- --------------------------------------------
Soc. Sec./Tax I.D. Number --------------------------------------- Account Number at Dealer ---------------------------------------
</TABLE>
Signature(s) of Unit Holder(s) Date
-------------------------------------------------------------------
------------------------------
(All joint owners must sign)
Please contact your Financial Advisor if your Units are held by dealer.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, is included in the annual report,
which is available upon request.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.47 $12.14 $12.48 $11.34 $12.82
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.56 0.58 0.61 0.62 0.65
Net realized and unrealized gain (loss) 0.10 0.35 (0.19) 1.16 (1.40)
------ ------ ------ ------ ------
Total (loss) income from investment operations 0.66 0.93 0.42 1.78 (0.75)
- ----------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.56) (0.58) (0.61) (0.62) (0.69)
Net realized gain (0.30) (0.02) (0.15) (0.02) (0.04)
------ ------ ------ ------ ------
Total dividends and distributions (0.86) (0.60) (0.76) (0.64) (0.73)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $12.27 $12.47 $12.14 $12.48 $11.34
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN+ 5.46% 7.94% 3.55% 16.00% (5.98)%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ----------------------------------------------------------------------------------------------------
Expenses 0.91 (1) 0.95 (1) 0.94 (1) 0.97% 0.96%
- ----------------------------------------------------------------------------------------------------
Net investment income 4.51% 4.78% 5.01% 5.14% 5.34%
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $94,478 $94,255 $92,187 $95,231 $86,405
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 8% 17% 17% 18%
- ----------------------------------------------------------------------------------------------------
</TABLE>
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Does not reflect the effect of expense offset of 0.01%.
11
<PAGE>
PROSPECTUS - MAY 1, 1999
Additional information about the Fund's investments is available in the Fund's
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL REPORT, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's STATEMENT OF ADDITIONAL INFORMATION also provides additional information
about the Fund. 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 Fund, or to make other
shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
WWW.DEANWITTER.COM/FUNDS
Information about the Fund (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 Fund 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.
Morgan Stanley Dean Witter
SELECT MUNICIPAL
REINVESTMENT FUND
[BACK COVER PHOTO]
A MUTUAL FUND THAT SEEKS TO
PROVIDE A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM FEDERAL
INCOME TAX CONSISTENT WITH
THE PRESERVATION OF CAPITAL
TICKER SYMBOL: STERX
(INVESTMENT COMPANY ACT FILE NO. 811-3878)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
MORGAN STANLEY DEAN
WITTER
SELECT MUNICIPAL
REINVESTMENT FUND
- ----------------------------------------------------------------------
This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
(dated May 1, 1999) for the Morgan Stanley Dean Witter Select Municipal
Reinvestment Fund may be obtained without charge from the Fund at its address or
telephone number listed below or from Dean Witter Reynolds at any of its branch
offices.
Shares of the Fund are offered exclusively to the holders of certain units
of Morgan Stanley Dean Witter Select Municipal Trust and certain other unit
investment trusts, as an investment option for reinvesting distributions
received on these units.
Morgan Stanley Dean Witter
Select Municipal Reinvestment Fund
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
I. Fund History........................................................................ 4
II. Description of the Fund and Its Investments and Risks.............................. 4
A. Classification.................................................................... 4
B. Investment Strategies and Risks................................................... 4
C. Fund Policies/Investment Restrictions............................................. 6
III. Management of the Fund............................................................ 8
A. Board of Trustees................................................................. 8
B. Management Information............................................................ 8
C. Compensation...................................................................... 13
IV. Control Persons and Principal Holders of Securities................................ 15
V. Investment Management and Other Services............................................ 15
A. Investment Manager................................................................ 15
B. Services Provided by the Investment Manager and Fund Expenses Paid by Third
Parties............................................................................. 16
C. Other Service Providers........................................................... 16
VI. Brokerage Allocation and Other Practices........................................... 17
A. Brokerage Transactions............................................................ 17
B. Commissions....................................................................... 17
C. Brokerage Selection............................................................... 18
D. Directed Brokerage................................................................ 18
E. Regular Broker-Dealers............................................................ 18
VII. Capital Stock and Other Securities................................................ 18
VIII. Purchase, Redemption and Pricing of Shares....................................... 19
A. Purchase/Redemption of Shares..................................................... 19
B. Offering Price.................................................................... 19
IX. Taxation of the Fund and Shareholders.............................................. 20
X. Calculation of Performance Data..................................................... 22
XI. Financial Statements............................................................... 23
Appendix--Ratings of Investments....................................................... 35
</TABLE>
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CUSTODIAN"--The Bank of New York is the Custodian of the Fund's assets.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.
"FUND"--Morgan Stanley Dean Witter Select Municipal Reinvestment Fund, a
registered 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.
"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 Fund.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust, under a
Declaration of Trust, on June 1, 1983, with the name Sears Tax-Exempt
Reinvestment Fund. Effective February 19, 1993, the Fund's name was changed to
Dean Witter Select Municipal Reinvestment Fund. Effective June 22, 1998, the
Fund's name was changed to Morgan Stanley Dean Witter Select Municipal
Reinvestment Fund.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company whose
investment objective is to provide a high a level of current income exempt from
federal income tax, consistent with the preservation of capital.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's PROSPECTUS titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information," and "Additional Risk Information."
VARIABLE RATE OBLIGATIONS. The Fund may invest in Municipal Bonds and
Municipal Notes ("MUNICIPAL OBLIGATIONS") of the type called variable rate. The
interest rate payable on a variable rate obligation is adjusted either at
predesignated periodic intervals or 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. The
principal benefit to the 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 Fund may
also invest in third-party put agreements.
PUT OPTIONS. The Fund may purchase securities together with the right to
resell them to the seller at an agreed upon price or yield within a specified
period prior to the maturity date of such securities. Such a right to resell is
commonly known as a "put," and the aggregate price which the 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 the Fund
to be fully invested in securities, the interest on which is exempt from Federal
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
Fund's policy is, generally, to exercise the puts on their expiration date, when
the exercise price is higher than the current market price for the related
securities. Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of 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 Fund, 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 Fund's portfolio.
The Fund values securities which are subject to puts at their amortized cost
and values the put, apart from the security, at zero. Thus, the cost of the put
will be carried on the Fund's books as an
4
<PAGE>
unrealized loss from the date of acquisition and will be reflected in realized
gain or loss when the put is exercised or expires. Since the value of the put is
dependent on the ability of the put writer to meet its obligation to repurchase,
the Fund's policy is to enter 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 Fund's general policy to enter into put
transactions only with those dealers which are determined to present minimal
credit risks. In connection with such determination, the 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, the Fund is unable to predict
whether all or any portion of any loss sustained could be subsequently recovered
from such dealer.
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.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. From time to time the Fund may
purchase tax-exempt 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 the Fund will only purchase securities on a
when-issued, delayed delivery 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 the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery, 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 the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery may increase the
volatility of its net asset value. The Fund will also establish a segregated
5
<PAGE>
account on the Fund's 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.
CASH MANAGEMENT. For cash management purposes, the Fund may, without limit,
invest in tax-exempt, short-term obligations or hold cash.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by 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 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.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective and policies/restrictions listed below have been
adopted by the Fund 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 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 Fund are present or represented by proxy; or (b) more
than 50% of the outstanding shares of the Fund. For purposes of the following
restrictions: (i) all percentage 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 the Fund does not exceed 10% of the value of the total assets of the
Fund; and (b) all percentage limitations apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund will:
1. Pursue an investment objective of providing a high level of current
income which is exempt from federal income tax, consistent with the
preservation of capital.
2. Invest exclusively in obligations on which the interest income is,
in the opinion of counsel to the issuing authorities, exempt from federal
income tax.
The Fund may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities).
6
<PAGE>
2. Purchase more than 10% of all outstanding debt securities of any one
issuer (other than obligations issued, or guaranteed as to principal and
interest, by the United States Government, its agencies or
instrumentalities).
3. Invest more than 25% of the value of its total assets in securities
of issuers in any one industry (other than obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities.
Industrial development and pollution control bonds are grouped into
industries based upon the business in which the issuers of such obligations
are engaged).
4. Invest in common stock.
5. 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.
6. 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.
7. Purchase or sell real estate or interests therein, although the Fund
may purchase securities secured by real estate or interests therein.
8. Purchase or sell commodities or commodity futures contracts.
9. 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).
10. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings.
11. 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.
12. Make loans of money or securities, except by the purchase of debt
obligations.
13. Make short sales of securities.
14. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
15. 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.
16. Invest for the purpose of exercising control or management of any
other issuer.
17. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.
18. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
7
<PAGE>
III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of the 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 Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided to
the Fund 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 Fund 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 the Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of 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 Independent Trustees of "DISCOVER BROKERAGE INDEX SERIES," a mutual
fund for which the Investment Manager is the investment advisor. Three of the
six Independent Trustees are also Independent Trustees of certain other mutual
funds, referred to as the "TCW/DW FUNDS," for which MSDW Services Company is the
manager and TCW Funds Management, Inc. is the investment advisor.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 85 Morgan Stanley Dean Witter Funds, the 11
TCW/DW Funds and Discover Brokerage Index Series, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND 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.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* (65) ......................... Chairman, Director or Trustee and Chief Executive Officer
Chairman of the Board, of the Morgan Stanley Dean Witter Funds, the TCW/DW Funds
Chief Executive Officer and Trustee and Discover Brokerage Index Series; formerly Chairman,
Two World Trade Center Chief Executive Officer and Director of the Investment
New York, New York Manager, Morgan Stanley Dean Witter Distributors Inc.
("MSDW Distributors"), a wholly-owned broker-dealer
subsidiary of MSDW, and MSDW Services Company; Executive
Vice President and Director of Dean Witter Reynolds;
Chairman and Director of the Transfer Agent; formerly
Director and/or officer of various MSDW subsidiaries
(until June, 1998).
Edwin J. Garn (66) ................................... Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds and Discover Brokerage Index Series; formerly United
c/o Huntsman Corporation States Senator (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor of Salt Lake
Salt Lake City, Utah City, Utah (1971-1974); formerly Astronaut, Space Shuttle
Discovery (April 12-19, 1985); Vice Chairman, Huntsman
Corporation; Director of Franklin Covey (time management
systems), BMW Bank of North America, Inc. (industrial loan
corporation), United Space Alliance (joint venture be-
tween Lockheed Martin and the Boeing Company) and Nuskin
Asia Pacific (multilevel marketing); member of the board
of various civic and charitable organizations.
Wayne E. Hedien (65) ................................. Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds and Discover Brokerage Index Series; Director
c/o Gordon Altman Butowsky of The PMI Group, Inc. (private mortgage insurance);
Weitzen Shalov & Wein Trustee and Vice Chairman of The Field Museum of Natural
Counsel to the Independent Trustees History; formerly associated with the Allstate Companies
114 West 47th Street (1966-1994), most recently as Chairman of The Allstate
New York, New York Corporation (March, 1993-December, 1994) and Chairman and
Chief Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July, 1989-December, 1994);
director of various other business and charitable
organizations.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
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, the TCW/DW 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 (62) ............................... General Partner, Triumph Capital, L.P., a private in-
Trustee vestment partnership; Chairman of the Insurance Committee
c/o Triumph Capital, L.P. and Director or Trustee of the Morgan Stanley Dean Witter
237 Park Avenue Funds, the TCW/DW Funds and Discover Brokerage Index
New York, New York Series; 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 MSDW Distributors; 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.
John L. Schroeder (68) ............................... Retired; Chairman of the Derivatives Committee and
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Gordon Altman Butowsky Funds, the TCW/DW Funds and Discover Brokerage Index
Weitzen Shalov & Wein Series; Director of Citizens Utilities Company; formerly
Counsel to the Independent Trustees Executive Vice President and Chief Investment Officer of
114 West 47th Street the Home Insurance Company (August, 1991-September, 1995).
New York, New York
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
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
MSDW Distributors (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, the TCW/DW 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 MSDW Distributors
(April, 1997-June, 1998), Vice President of the Morgan
Stanley Dean Witter Funds, the TCW/DW 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 MSDW Distributors;
Assistant Secretary of Dean Witter Reynolds (since August,
1996); Vice President, Secretary and General Counsel of
the Morgan Stanley Dean Witter Funds and the TCW/DW 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 Mor-
gan Stanley Dean Witter Funds and the TCW/DW Funds.
James F. Willison (55) ............................... 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
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Joseph R. Arcieri (50) ............................... 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 (52) ................................ First Vice President and Assistant Treasurer of the
Treasurer Investment Manager and MSDW Services Company; Treasurer of
Two World Trade Center the Morgan Stanley Dean Witter Funds, the TCW/DW Funds and
New York, New York Discover Brokerage Index Series.
</TABLE>
- ------------------------------
* Denotes Trustees who are "interested persons" of the 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, MSDW Distributors 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, KEVIN HURLEY and JONATHAN R. PAGE, Senior Vice Presidents of
the Investment Manager, and GERARD J. LIAN and KATHERINE H. STROMBERG, Vice
Presidents of the Investment Manager, are Vice Presidents of the Fund.
In addition, FRANK BRUTTOMESSO, MARILYN K. CRANNEY, LOU ANNE D. MCINNIS,
CARSTEN OTTO and RUTH ROSSI, First Vice Presidents and Assistant General
Counsels of the Investment Manager and MSDW Services Company, and TODD LEBO,
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The Morgan
Stanley Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; these are people whose advice and counsel are in demand by others and
for whom there is often competition. To accept a position on the Funds' Boards,
such individuals may reject other attractive assignments because the Funds make
substantial demands on their time. All of the Independent Trustees serve as
members of the Audit Committee. In addition, three of the Trustees, including
two Independent Trustees, serve as members of the Derivatives Committee and the
Insurance Committee.
The Independent Trustees are charged with recommending to the full Board
approval of man-agement, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance
12
<PAGE>
of the services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of the
Fund's system of internal controls; and preparing and submitting Committee
meeting minutes to the full Board.
The Board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Fund.
Finally, the Board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS. The Independent Trustees and the Funds' management
believe that having the same Independent Trustees for each of the Morgan Stanley
Dean Witter Funds avoids the duplication of effort that would arise from having
different groups of individuals serving as Independent Trustees for each of the
Funds or even of sub-groups of Funds. They believe that having the same
individuals serve as Independent Trustees of all the Funds tends to increase
their knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent Trustees
serve on all Fund Boards enhances the ability of each Fund to obtain, at modest
cost to each separate Fund, the services of Independent Trustees, of the
caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The 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 the 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
The 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 (the
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 the Fund. The 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 Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended December 31, 1998.
13
<PAGE>
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDEPENDENT COMPENSATION
TRUSTEE FROM THE FUND
- ------------------------- ---------------
<S> <C>
Michael Bozic............ $1,450
Edwin J. Garn............ 1,600
Wayne E. Hedien.......... 1,600
Dr. Manuel H. Johnson.... 1,550
Michael E. Nugent........ 1,600
John L. Schroeder........ 1,600
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 85 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Johnson,
Nugent and Schroeder, the 11 TCW/DW Funds that were in operation at December 31,
1998. With respect to Messrs. Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Morgan Stanley Dean Witter Money Market Funds. No compensation was paid
to the Fund's Independent Trustees by Discover Brokerage Index Series for the
calendar year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICE FOR SERVICES
AS DIRECTOR OR TO
TRUSTEE AND 85 MORGAN
COMMITTEE MEMBER FOR SERVICE AS STANLEY DEAN
OF 85 MORGAN TRUSTEE AND WITTER FUNDS
STANLEY COMMITTEE MEMBER AND 11
DEAN WITTER OF 11 TCW/DW TCW/DW
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Michael Bozic.............. $120,150 -- $120,150
Edwin J. Garn.............. 132,450 -- 132,450
Wayne E. Hedien............ 132,350 -- 132,350
Dr. Manuel H. Johnson...... 128,400 $62,331 180,731
Michael E. Nugent.......... 132,450 62,131 194,581
John L. Schroeder.......... 132,450 64,731 197,181
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, not including the Fund, have adopted a retirement
program under which an Independent Trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "ADOPTING FUND"
and each such Trustee referred to as an "ELIGIBLE TRUSTEE") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "REGULAR BENEFIT") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 60.44% after ten years of service. The foregoing percentages may
be changed by the Board.(1) "ELIGIBLE COMPENSATION" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are 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.
14
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 55 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1998, and the estimated
retirement benefits for the Independent Trustees, to commence upon their
retirement from the 55 Morgan Stanley Dean Witter Funds as of December 31, 1998.
RETIREMENT BENEFITS FROM THE MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
--------------------------- RETIREMENT ESTIMATED
ESTIMATED BENEFITS ANNUAL
CREDITED ACCRUED BENEFITS
YEARS ESTIMATED AS UPON
OF SERVICE PERCENTAGE EXPENSES RETIREMENT
AT OF BY ALL FROM ALL
NAME OF INDEPENDENT RETIREMENT ELIGIBLE ADOPTING ADOPTING
TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ------------------------- ------------ ------------ ------- --------------
<S> <C> <C> <C> <C>
Michael Bozic............ 10 60.44% $22,377 $ 52,250
Edwin J. Garn............ 10 60.44 35,225 52,250
Wayne E. Hedien.......... 9 51.37 41,979 44,413
Dr. Manuel H. Johnson.... 10 60.44 14,047 52,250
Michael E. Nugent........ 10 60.44 25,336 52,250
John L. Schroeder........ 8 50.37 45,117 44,343
</TABLE>
- ------------------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate
number of shares of beneficial interest of the 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, and no shareholder owned as much as 5% of the outstanding
shares of the Fund.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New York,
New York 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a
Delaware corporation. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
Pursuant to an Investment Management Agreement (the "MANAGEMENT AGREEMENT")
with the Investment Manager, the 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. The Fund pays the Investment Manager monthly compensation calculated
daily by applying the annual rate of 0.50% to the net assets of the Fund
determined as of the close of each business day.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Investment
Manager accrued total compensation under the Management Agreement in the amounts
of $464,650, $456,630 and $465,126, respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
15
<PAGE>
B. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND FUND EXPENSES PAID BY THIRD
PARTIES
The Investment Manager manages the investment of the 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 the Fund
in a manner consistent with its investment objective.
Under the terms of the Management Agreement, in addition to managing the
Fund's investments, the Investment Manager maintains certain of the 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 Fund, 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 Fund.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, will be paid by the Fund. These expenses include, but are
not limited to: charges and expenses of any registrar, custodian, stock transfer
and dividend disbursing agent; brokerage commissions; taxes; engraving and
printing share certificates; registration costs of the Fund and its shares under
federal and state securities laws; the cost and expense of printing, including
typesetting, and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of Trustees or members of any advisory board or committee who are not
employees of the Investment Manager or any corporate affiliate of the Investment
Manager; all expenses incident to any dividend, withdrawal or redemption
options; charges and expenses of any outside service used for pricing of the
Fund's shares; fees and expenses of legal counsel, including counsel to the
Trustees who are not interested persons of the Fund 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.
The 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.
The Management Agreement will remain in effect from year to year 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 Fund, or by the Trustees; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees.
C. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the transfer agent for the 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.
16
<PAGE>
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian for the Fund's assets. Any of the Fund's 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, 1177 Avenue of the Americas, New York, New York
10036 serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager. 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 the Fund and is reimbursed for
its out-of-pocket expenses in connection with such services.
The Transfer Agent also acts as Agent for shareholders in reinvesting their
unit investment trust distributions in shares of the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. The 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. The 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 the Fund may also purchase certain money market instruments directly
from an issuer, in which case no commissions or discounts are paid.
During the fiscal years ended December 31, 1996, 1997 and 1998, the Fund
paid no such brokerage commissions or concessions.
B. COMMISSIONS
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 the 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 Fund does not reduce the
management fee it pays to the Investment Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer.
17
<PAGE>
During the fiscal years ended December 31, 1996, 1997 and 1998, the Fund
paid no brokerage commissions to an affiliated broker or dealer.
C. BROKERAGE SELECTION
The policy of the 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 Fund's 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 Fund 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 Trustees
review, periodically, the allocation of brokerage orders to monitor the
operation of these policies.
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 the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund 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 the 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 December 31, 1998, the Fund did not pay any
brokerage commissions to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended December 31, 1998, the Fund 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 the Fund in the largest
dollar amounts during the year. At December 31, 1998, the Fund did not own any
securities issued by any of such issuers.
VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
of beneficial interest held. The Fund is authorized to issue an unlimited number
of shares of beneficial interest. All shares of beneficial interest of the Fund
are of $0.01 par value and are equal as to earnings, assets and voting
privileges.
The 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 Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for
18
<PAGE>
action by shareholder vote as may be required by the Investment Company Act or
the Declaration of Trust. Under certain circumstances, the Trustees may be
removed by action of the Trustees or by the shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the 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 the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Fund, the risk to Fund shareholders of personal liability is remote.
All of the Trustees have been elected by the shareholders of the Fund, most
recently at a Special Meeting of 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 the Declaration of Trust), and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of the Fund.
Under certain circumstances, the Trustees may be removed by action of the
Trustees. The Shareholders also have the right under certain circumstances to
remove the Trustees. The voting rights of Shareholders are not cumulative, so
that holders of more than 50% 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.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered to the public (and how
they are redeemed) is provided in the Fund's PROSPECTUS.
B. OFFERING PRICE
The price of Fund shares, called "net asset value," is based on the value of
the Fund's portfolio securities.
Portfolio securities are valued for the Fund by an outside independent
pricing service approved by the Board of Trustees. The pricing service has
informed the Fund that in valuing the Fund's portfolio securities it uses both a
computerized grid matrix of tax-exempt securities and evaluations by its staff,
in each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The Fund's
portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. The Board of Trustees
believes that timely and reliable market quotations are generally not readily
available to the Fund for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service, using the procedures outlined above
and subject to periodic review, are more likely to approximate the fair value of
such securities. The Investment Manager will periodically review and evaluate
the procedures, methods and quality of services provided by the pricing service
then being used by the Fund and may, from time to time, recommend to the Board
of Trustees the use of other pricing services or discontinuance of the use of
any pricing service in whole or part. The Board may determine to approve such
recommendation or take other provisions for pricing of the Fund's portfolio
securities.
19
<PAGE>
IX. TAXATION OF THE FUND AND SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund generally will make three basic types of distributions: tax-exempt
dividends, ordinary dividends and long-term capital gain distributions. 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 the 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. The Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, the 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.
The Fund generally intends to distribute sufficient income and gains so that
the Fund will not pay corporate income tax on its earnings. The 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, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.
Gains or losses on sales of securities by the 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, the 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 the Fund's gain from tax-exempt obligations
purchased at a market discount will 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 be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be affected. In that event, the Fund
would re-evaluate its investment objective and policies.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. The Fund intends to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each of its taxable years, at least 50% of the value of its assets in
tax-exempt securities. An exempt-interest dividend is that part of the dividend
distributions made by the 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.
The Fund may invest a portion of its assets in certain "private activity
bonds." As a result, a portion of the exempt-interest dividends paid by the 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 distributions of net
short-term capital gains and any ordinary income on the sale of tax-exempt
obligations that were purchased at a market discount. Such distributions of
short-term capital gains and ordinary income are taxable to the shareholder as
ordinary dividend income regardless of whether the shareholder receives such
distributions in
20
<PAGE>
additional shares or in cash. Distributions of long-term capital gains, if any,
are taxable as long-term capital gains, regardless of how long the shareholder
has held the Fund shares and regardless of whether the distribution is received
in additional shares or in cash. Since the Fund's income will 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 the 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 the Fund of any ordinary 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 FUND SHARES. Any dividend or capital gains
distribution received by a shareholder from the Fund will have the effect of
reducing the net asset value of the shareholder's stock 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 Fund 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 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 the 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 the 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
the 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.
21
<PAGE>
X. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature.
Yield is calculated for any 30-day period as follows: the amount of interest
income for each security in the Fund's portfolio is determined as described
below; the total for the entire portfolio constitutes the Fund's gross income
for the period. Expenses accrued during the period are subtracted to arrive at
"net investment income." The resulting amount is divided by the product of the
maximum offering price per share on the last day of the period (reduced by any
undeclared earned income per share that is expected to be declared shortly after
the end of the period) multiplied by the average number of Fund shares
outstanding during the period that were entitled to dividends. This amount is
added to 1 and raised to the sixth power. 1 is then subtracted from the result
and the difference is multiplied by 2 to arrive at the annualized yield.
To determine interest income from debt obligations, a yield-to-maturity,
expressed as a percentage, is determined for obligations held at the beginning
of the period, based on the current market value of the security plus accrued
interest, generally as of the end of the month preceding the 30-day period, or,
for obligations purchased during the period, based on the cost of the security
(including accrued interest). The yield-to-maturity is multiplied by the market
value (plus accrued interest) for each security and the result is divided by 360
and multiplied by 30 days or the number of days the security was held during the
period, if less. Modifications are made for determining yield-to-maturity on
certain tax-exempt securities. For the 30-day period ended December 31, 1998,
the Fund's yield, calculated pursuant to the formula described above was 4.07%.
The Fund may also quote a "tax-equivalent yield" determined by dividing the
tax-exempt portion of quoted yield by 1 minus the stated income tax rate and
adding the result to the portion of the yield that is not tax-exempt. The Fund's
tax-equivalent yield, based upon a Federal personal income tax bracket of 39.60%
(the highest current individual marginal tax rate), for the 30-day period ended
December 31, 1998 was 6.74% based upon the yield calculated above.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total return of the Fund for the fiscal year ended December 31, 1998, and
for the five and ten year periods ended December 31, 1998 were 5.46%, 5.15% and
7.31%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by
means of aggregate, average, year-by-year or other types of total return
figures. The Fund may compute its aggregate total return for specified periods
by determining the aggregate percentage rate which will result in the ending
value of a hypothetical $1,000 investment made at the beginning of the period.
For the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing aggregate total return
involves a percentage obtained by dividing the ending value by the initial
$1,000 investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total return for the fiscal year ended December 31,
1998, and for the five and ten year periods ended December 31, 1998 were 5.46%,
28.56% and 102.40%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date and multiplying by $10,000, $50,000 or $100,000.
Investments of $10,000, $50,000 and $100,000 in the Fund since inception would
have grown to $34,462, $172,310, and $344,620 respectively, at December 31,
1998.
22
<PAGE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.
XI. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
December 31, 1998 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS 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 Fund has
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
23
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX- EXEMPT MUNICIPAL BONDS (95.6%)
GENERAL OBLIGATION (19.1%)
$ 4,000 North Slope Borough, Alaska, Ser 1996 B (MBIA).................................. 0.00% 06/30/07 $ 2,772,280
2,000 California, Refg Dtd 10/01/98 (MBIA)............................................ 4.50 10/01/28 1,840,080
2,000 Los Angeles Unified School District, California, 1997 Ser B (FGIC).............. 5.00 07/01/23 1,986,040
1,700 Washington Suburban Sanitation District, Maryland, Gen Constr Refg 1994......... 5.00 06/01/14 1,730,073
1,260 New York City, New York, 1990 Ser D............................................. 6.00 08/01/07 1,278,736
2,000 Little Miami Local School District, Ohio, Ser 1998 (FGIC)....................... 4.875 12/01/23 1,942,340
2,000 Pennsylvania, First Ser 1995 (FGIC)............................................. 5.50 05/01/12 2,139,320
2,000 Shelby County, Tennessee, Refg 1995 Ser A....................................... 5.625 04/01/12 2,147,460
2,000 Washington, Ser 1994 A.......................................................... 5.80 09/01/08 2,169,920
-----------
- ---------
18,006,249
18,960
-----------
- ---------
EDUCATIONAL FACILITIES REVENUE (7.8%)
2,000 District of Columbia, Georgetown University Ser 1993............................ 5.375 04/01/23 2,043,980
1,000 Massachusetts Health & Educational Facilities Authority, Boston College Ser K... 5.25 06/01/18 1,011,890
1,500 Rutgers - The State University, New Jersey, Refg Ser R.......................... 6.50 05/01/13 1,641,825
2,000 New York State Dormitory Authority, State University Ser 1989 B................. 0.00 05/15/03 1,674,800
1,000 Ohio Higher Educational Facility Commission, Oberlin College Ser 1993........... 5.375 10/01/15 1,032,860
-----------
- ---------
7,405,355
7,500
-----------
- ---------
ELECTRIC REVENUE (6.2%)
2,000 South Carolina Public Service Authority, Santee Cooper 1997 Refg Ser A (MBIA)... 5.00 01/01/29 1,963,420
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D (Secondary FSA)............... 5.00 07/01/21 1,965,540
3,000 Washington Public Power Supply System, Proj #2 Refg Ser 1994 A (FGIC)........... 0.00 07/01/09 1,882,080
-----------
- ---------
5,811,040
7,000
-----------
- ---------
HOSPITAL REVENUE (11.8%)
2,000 Birmingham - Carraway Special Care Facilities Financing Authority, Alabama,
Carraway Methodist Health Ser 1995 A (Connie Lee)............................. 6.25 08/15/09 2,297,220
2,000 Maryland Industrial Development Financing Authority, Holy Cross Health Refg Ser
1996.......................................................................... 5.50 12/01/08 2,190,680
2,500 New Jersey Health Care Facilities Financing Authority, St Barnabas Health Care
Refg Ser 1998 B (MBIA)........................................................ 5.25 07/01/18 2,553,450
2,000 North Central Texas Health Facilities Development Corporation, University
Medical Center Ser 1996 (FSA)................................................. 5.50 04/01/10 2,165,720
2,000 Washington Health Care Facilities, Swedish Health Ser 1998 (AMBAC).............. 5.125 11/15/22 1,968,740
-----------
- ---------
11,175,810
10,500
-----------
- ---------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (6.5%)
700 Connecticut Development Authority, Bridgeport Hydraulic Co Refg Ser 1990........ 7.25 06/01/20 738,577
1,000 Michigan Strategic Fund, Ford Motor Co Refg Ser 1991 A.......................... 7.10 02/01/06 1,174,510
2,000 Ohio Water Development Authority, Dayton Power & Light Co Collateralized Refg
1992 Ser A.................................................................... 6.40 08/15/27 2,146,400
1,500 Matagorda County Navigation District #1, Texas, Central Power & Light Co
Collateralized Ser 1984 A..................................................... 7.50 12/15/14 1,588,365
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 500 Russell County Industrial Development Authority, Virginia, Appalachian
Power Co Ser G................................................................ 7.70% 11/01/07 $ 535,035
-----------
- ---------
6,182,887
5,700
-----------
- ---------
MORTGAGE REVENUE - MULTI-FAMILY (1.3%)
950 Michigan Housing Development Authority, Rental 1992 Ser A....................... 6.60 04/01/12 1,025,563
155 Pennsylvania Housing Finance Agency, Moderate Rehabilitation - Section 8
Assisted Issue B.............................................................. 9.00 08/01/01 156,194
-----------
- ---------
1,181,757
1,105
-----------
- ---------
MORTGAGE REVENUE - SINGLE FAMILY (2.2%)
2,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A (MBIA).............. 5.875 12/01/24 2,108,380
-----------
- ---------
TRANSPORTATION FACILITIES REVENUE (21.6%)
2,000 Sacramento County, California, Airport PFC Sub Refg Ser 1998 B (FGIC)........... 5.00 07/01/18 2,007,820
1,500 San Francisco Bay Area Rapid Transit Authority, California, Sales Tax Ser 1998
(AMBAC)....................................................................... 4.75 07/01/23 1,439,190
2,000 Lee County, Florida, Ser 1995 (MBIA)............................................ 5.75 10/01/22 2,138,720
2,000 Kansas, Highway Refg Ser 1998................................................... 5.50 09/01/14 2,192,920
3,500 Kentucky Turnpike Authority, Resource Recovery Road 1987 Ser A BIGS............. 8.50 07/01/06 4,436,494
2,775 Massachusetts Turnpike Authority, Western 1997 Ser A (MBIA)..................... 5.55 01/01/17 2,813,156
2,000 Ohio Turnpike Commission, Ser 1998 B (FGIC)..................................... 4.50 02/15/24 1,846,980
2,500 Puerto Rico Highway & Transportation Authority, Ser A........................... 4.75 07/01/38 2,368,125
1,250 North Texas Tollway Authority, Dallas North Tollway Ser 1998 (FGIC)............. 4.75 01/01/22 1,187,913
-----------
- ---------
20,431,318
19,525
-----------
- ---------
WATER & SEWER REVENUE (14.5%)
2,000 San Francisco Public Utilities Commission, California, Water 1996 Ser A......... 5.00 11/01/21 1,981,060
2,000 Fulton County, Georgia, Water & Sewerage Ser 1998 (FGIC)........................ 4.75 01/01/28 1,909,160
1,500 Massachusetts Water Resource Authority, 1993 Ser C.............................. 5.25 12/01/08 1,611,495
2,000 Suffolk County Industrial Development Agency, New York, Southwest Sewer Ser 1994
(FGIC)........................................................................ 4.75 02/01/09 2,054,260
1,000 Columbus, Ohio, Sewerage Refg Ser 1992.......................................... 6.25 06/01/08 1,087,170
5,000 Pittsburgh Water & Sewer Authority, Pennsylvania, 1998 Ser B (FGIC)............. 0.00 09/01/28 1,093,500
Metropolitan Government of Nashville & Davidson County, Tennessee
2,000 Refg of 1986.................................................................. 5.50 01/01/16 2,000,800
2,000 Refg Ser 1998 A (FGIC)........................................................ 4.75 01/01/22 1,918,920
-----------
- ---------
13,656,365
17,500
-----------
- ---------
REFUNDED (4.6%)
2,000 Nebraska Public Power District, Power Supply 1993 Ser........................... 6.125 01/01/03+ 2,208,600
2,000 Clermont County, Ohio, Mercy Health Ser 1991 (AMBAC)............................ 6.733 09/01/01+ 2,186,140
-----------
- ---------
4,394,740
4,000
-----------
- ---------
TOTAL TAX-EXEMPT MUNICIPAL BONDS
(IDENTIFIED COST $84,135,064)......................................................................
93,790 90,353,901
- --------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.7%)
$ 1,000 Parrish Industrial Development Board, Alabama, Alabama Power Co Ser 1994 (Demand
01/04/99)..................................................................... 5.00*% 06/01/15 $ 1,000,000
1,500 Lincoln County, Wyoming, Exxon Corp Ser 1984 B (Demand 01/04/99)................ 5.05* 11/01/14 1,500,000
-----------
- ---------
TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $2,500,000).......................................................................
2,500 2,500,000
- --------- -----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
$ 96,290 TOTAL INVESTMENTS
(IDENTIFIED COST $86,635,064) (a)........................................................... 98.3 % 92,853,901
- ---------
- ---------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................................. 1.7 1,623,633
------ ------------
NET ASSETS.................................................................................. 100.0 % $ 94,477,534
------ ------------
------ ------------
</TABLE>
- ---------------------
BIGS Bond Income Growth Security
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$6,356,413 and the aggregate gross unrealized depreciation is
$137,576, resulting in net unrealized appreciation of $6,218,837.
BOND INSURANCE
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
DECEMBER 31, 1998
<TABLE>
<S> <C>
Alabama........... 3.5%
Alaska............ 5.2
California........ 9.8
Connecticut....... 0.8
District of
Columbia......... 2.2
Florida........... 2.2
Georgia........... 2.0
Kansas............ 2.3%
Kentucky.......... 4.7
Maryland.......... 4.2
Massachusetts..... 5.8
Michigan.......... 2.3
Nebraska.......... 2.3
New Jersey........ 4.4%
New York.......... 5.3
Ohio.............. 10.9
Pennsylvania...... 3.6
Puerto Rico....... 2.5
South Carolina.... 2.0
Tennessee......... 6.4%
Texas............. 5.2
Utah.............. 2.1
Virginia.......... 0.6
Washington........ 6.4
Wyoming........... 1.6
---
Total............. 98.3%
---
---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $86,635,064)................................................................ $92,853,901
Cash........................................................................................... 262,896
Receivable for:
Interest................................................................................... 1,391,254
Investments sold........................................................................... 225,000
Shares of beneficial interest sold......................................................... 22,924
Prepaid expenses and other assets.............................................................. 20,537
-----------
TOTAL ASSETS.............................................................................. 94,776,512
-----------
LIABILITIES:
Payable for:
Dividends and distributions to shareholders................................................ 157,467
Shares of beneficial interest repurchased.................................................. 48,765
Investment management fee.................................................................. 40,081
Accrued expenses and other payables............................................................ 52,665
-----------
TOTAL LIABILITIES......................................................................... 298,978
-----------
NET ASSETS................................................................................ $94,477,534
-----------
-----------
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................................................ $88,241,823
Net unrealized appreciation.................................................................... 6,218,837
Accumulated undistributed net realized gain.................................................... 16,874
-----------
NET ASSETS................................................................................ $94,477,534
-----------
-----------
NET ASSET VALUE PER SHARE,
7,700,369 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)................. $12.27
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................. $5,038,511
----------
EXPENSES
Investment management fee....................................................................... 465,126
Transfer agent fees and expenses................................................................ 208,575
Professional fees............................................................................... 47,595
Shareholder reports and notices................................................................. 45,681
Registration fees............................................................................... 42,284
Trustees' fees and expenses..................................................................... 11,997
Custodian fees.................................................................................. 4,643
Other........................................................................................... 17,664
----------
TOTAL EXPENSES............................................................................. 843,565
Less: expense offset............................................................................ (4,633)
----------
NET EXPENSES............................................................................... 838,932
----------
NET INVESTMENT INCOME...................................................................... 4,199,579
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain............................................................................... 2,233,737
Net change in unrealized appreciation........................................................... (1,505,075)
----------
NET GAIN................................................................................... 728,662
----------
NET INCREASE.................................................................................... $4,928,241
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................. $ 4,199,579 $ 4,363,935
Net realized gain..................................................... 2,233,737 40,800
Net change in unrealized appreciation................................. (1,505,075 ) 2,564,846
----------------- -----------------
NET INCREASE..................................................... 4,928,241 6,969,581
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................. (4,199,579 ) (4,363,935 )
Net realized gain..................................................... (2,257,663 ) (170,383 )
----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................................ (6,457,242 ) (4,534,318 )
----------------- -----------------
Net increase (decrease) from transactions in shares of beneficial
interest............................................................ 1,751,054 (367,052 )
----------------- -----------------
NET INCREASE..................................................... 222,053 2,068,211
NET ASSETS:
Beginning of period................................................... 94,255,481 92,187,270
----------------- -----------------
END OF PERIOD.................................................... $ 94,477,534 $ 94,255,481
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Select Municipal Reinvestment Fund (the "Fund"),
formerly Dean Witter Select Municipal Reinvestment Fund, is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to provide a
high level of current income which is exempt from federal income tax, consistent
with the preservation of capital. The Fund was organized as a Massachusetts
business trust on June 1, 1983 and commenced operations on September 22, 1983.
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 for the Fund by
an outside independent pricing service approved by the Trustees. The pricing
service has informed the Fund that in valuing the Fund's portfolio securities,
it uses both a computerized matrix of tax-exempt securities and evaluations by
its staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the bid side of the market each day. The
Fund's portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
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.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
30
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
C. FEDERAL INCOME TAX STATUS -- It is the Fund'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 Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., the Fund pays the Investment Manager a management fee, accrued daily and
payable monthly, by applying the annual rate of 0.50% to the daily net assets of
the Fund determined as of the close of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund'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 Fund 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 Fund.
31
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended December 31, 1998 aggregated
$26,925,779 and $28,736,550, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At December 31, 1998, the Fund had transfer agent
fees and expenses payable of approximately $3,000.
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 1,927,460 $ 24,117,738 2,165,786 $ 26,487,176
Reinvestment of dividends and distributions...................... 485,655 6,019,692 345,458 4,213,763
----------- -------------- ----------- ------------
2,413,115 30,137,430 2,511,244 30,700,939
Repurchased...................................................... (2,271,402) (28,386,376) (2,547,603) (31,067,991)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... 141,713 $ 1,751,054 (36,359) $ (367,052)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
32
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of
period....................... $ 12.47 $ 12.14 $ 12.48 $ 11.34 $ 12.82
---------- --------- --------- ---------- ---------
Income (loss) from investment
operations:
Net investment income...... 0.56 0.58 0.61 0.62 0.65
Net realized and unrealized
gain (loss)................ 0.10 0.35 (0.19) 1.16 (1.40)
---------- --------- --------- ---------- ---------
Total (loss) income from
investment operations........ 0.66 0.93 0.42 1.78 (0.75)
---------- --------- --------- ---------- ---------
Less dividends and
distributions from:
Net investment income...... (0.56) (0.58) (0.61) (0.62) (0.69)
Net realized gain.......... (0.30) (0.02) (0.15) (0.02) (0.04)
---------- --------- --------- ---------- ---------
Total dividends and
distributions................ (0.86) (0.60) (0.76) (0.64) (0.73)
---------- --------- --------- ---------- ---------
Net asset value, end of
period....................... $ 12.27 $ 12.47 $ 12.14 $ 12.48 $ 11.34
---------- --------- --------- ---------- ---------
---------- --------- --------- ---------- ---------
TOTAL RETURN+................. 5.46% 7.94% 3.55% 16.00% (5.98)%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 0.91%(1) 0.95%(1) 0.94%(1) 0.97% 0.96%
Net investment income......... 4.51% 4.78% 5.01% 5.14% 5.34%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $94,478 $94,255 $92,187 $95,231 $86,405
Portfolio turnover rate....... 31% 8% 17% 17% 18%
</TABLE>
- ---------------------
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER SELECT MUNICIPAL REINVESTMENT FUND
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 Morgan Stanley Dean Witter Select
Municipal Reinvestment Fund (the "Fund"), formerly Dean Witter Select Municipal
Reinvestment Fund, at December 31, 1998, 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 Fund'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
December 31, 1998 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
FEBRUARY 8, 1999
1998 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 1998, the Fund paid to
shareholders $0.56 per share from net investment income. All of
these dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax
purposes.
For the year ended December 31, 1998, the Fund paid to
shareholders $0.29 per share from long-term capital gains. This
capital gain distribution is taxable as 20% rate gain.
34
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
MUNICIPAL BOND RATINGS
<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligation; i.e., they are
neither highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative characteristics
as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate, and therefore not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in this
class.
B Bonds which are rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>
CONDITIONAL RATING: Bonds for which the security depends upon the
completion of some act of the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
35
<PAGE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). MIG 1 denotes best quality and means
there is present strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. MIG 2 denotes high quality and means that margins of protection are
ample although not as large as in MIG 1. MIG 3 denotes favorable quality and
means that all security elements are accounted for but that the undeniable
strength of the previous grades, MIG 1 and MIG 2, is lacking. MIG 4 denotes
adequate quality and means that the protection commonly regarded as required of
an investment security is present and that while the notes are not distinctly or
predominantly speculative, there is specific risk.
VARIABLE RATE DEMAND OBLIGATIONS
A short-term rating, in addition to the Bond or MIG ratings, designated VMIG
may also be assigned to an issue having a demand feature. The assignment of the
VMIG symbol reflects such characteristics as payment upon periodic demand rather
than fixed maturity dates and payment relying on external liquidity. The VMIG
rating criteria are identical to the MIG criteria discussed above.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. These ratings apply to Municipal commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
MUNICIPAL BOND RATINGS
A Standard & Poor's municipal rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
36
<PAGE>
<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and
differs from the highest-rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than for debt
in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payment.
B Debt rated "B" has a greater vulnerability to default but presently has the capacity
to meet interest payments and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness to pay interest and
repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet timely
payments of interest and repayments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to pay
interest and repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC" debt rating.
Cl The rating "Cl" is reserved for income bonds on which no interest is being paid.
D Debt rated "D" is in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be made
during such grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
NR Indicates that no rating has been requested, that there is insufficient information
on which to base a rating or that Standard & Poor's does not rate a particular type
of obligation as a matter of policy.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. "BB" indicates the least degree of speculation and "C" the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
PLUS (+) OR MINUS ( ): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major ratings
categories.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
The foregoing ratings are sometimes followed by a "p" which indicates that the rating
is provisional. A provisional rating assumes the successful completion of the project
being financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood or risk
of default upon failure of such completion.
</TABLE>
MUNICIPAL NOTE RATINGS
Commencing on July 27, 1984, Standard & Poor's instituted a new rating
category with respect to certain municipal note issues with a maturity of less
than three years. The new note ratings denote the following:
SP-1 denotes a very strong or strong capacity to pay principal and interest.
Issues determined to possess overwhelming safety characteristics are given a
plus (+) designation (SP-1+).
SP-2 denotes a satisfactory capacity to pay principal and interest.
SP-3 denotes a speculative capacity to pay principal and interest.
COMMERCIAL PAPER RATINGS
Standard and Poor's commerical paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payments is very
strong.
A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
FITCH IBCA, INC. ("FITCH")
MUNICIPAL BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
38
<PAGE>
Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
<TABLE>
<S> <C>
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in
the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory-credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) or Plus and minus signs are used with a rating symbol to indicate the relative
Minus (-) position of a credit within the rating category. Plus and minus signs,
however, are not used in the"AAA" category.
NR Indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful completion of a project
or the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the amount of information available
from the issuer to be inadequate for rating purposes.
Withdrawn A rating will be withdrawn when an issue matures or is called or refinanced
and, at Fitch's discretion, when an issuer fails to furnish proper and
timely information.
FitchAlert Ratings are placed on FitchAlert to notify investors of an occurrence that
is likely to result in a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving,"where ratings may be
raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
Ratings Outlook An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or
"Negative." The absence of a designation indicates a stable outlook.
</TABLE>
39
<PAGE>
SPECULATIVE GRADE BOND RATINGS: Fitch speculative grade bond ratings provide
a guide to investors in determining the credit risk associated with a particular
security. The ratings ("BB" to "C") represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating ("DDD" to "D") is an assessment of the ultimate recovery value through
reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
<TABLE>
<S> <C>
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or principal
seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD Bonds are in default on interest and/or principal payments. Such bonds are
DD and D extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
Plus(+) or Plus and minus signs are used with a rating symbol to indicate the relative
Minus(-) position of a credit within the rating category. Plus and minus signs, however,
are not used in the "DDD," "DD," or "D" categories.
</TABLE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch short-term ratings are as follows:
<TABLE>
<S> <C>
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as
having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated "F-1+."
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as for issues
assigned "F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate; however, near-term
adverse changes could cause these securities to be rated below in investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics suggesting a
minimal degree of assurance for timely payment and are vulnerable to near-term
adverse changes in financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter of credit issued by
a commercial bank.
</TABLE>
41
