<PAGE>
PROSPECTUS - FEBRUARY 22, 2000
Morgan Stanley Dean Witter
CALIFORNIA TAX-FREE INCOME FUND
[COVER PHOTO]
A MUTUAL FUND THAT SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM BOTH FEDERAL AND CALIFORNIA INCOME
TAX, CONSISTENT WITH THE PRESERVATION OF CAPITAL
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>
The Fund Investment Objective................ 1
Principal Investment Strategies..... 1
Principal Risks..................... 2
Past Performance.................... 4
Fees and Expenses................... 5
Additional Investment Strategy
Information......................... 6
Additional Risk Information......... 6
Fund Management..................... 7
Shareholder Information Pricing Fund Shares................. 8
How to Buy Shares................... 8
How to Exchange Shares.............. 9
How to Sell Shares.................. 11
Distributions....................... 13
Tax Consequences.................... 13
Share Class Arrangements............ 14
Financial Highlights .................................... 21
Our Family of Funds .................................... Inside Back Cover
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE
FUND.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
</TABLE>
<PAGE>
[Sidebar]
INCOME
An investment objective having the primary goal of selecting securities to pay
out income.
[End Sidebar]
THE FUND
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter California Tax-Free Income Fund
seeks to provide a high level of current income exempt from
federal and California income tax, consistent with the
preservation of capital.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will normally invest at least 80% of its assets in
securities that pay interest exempt from federal and
California state income taxes. The Fund's "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc.,
generally invests the Fund's assets in investment grade,
California municipal obligations. Municipal obligations are
bonds, notes or short-term commercial paper issued by state
governments, local governments and their respective
agencies. These municipal obligations will have the
following ratings at the time of purchase:
- municipal bonds -- within the four highest
grades by Moody's Investors
Service Inc. ("Moody's"),
Standard & Poor's
Corporation ("S&P"), or
Fitch IBCA, Inc. ("Fitch");
- municipal notes -- within the two highest
grades or, if not rated,
have outstanding bonds
within the four highest
grades by Moody's, S&P or
Fitch; and
- municipal commercial paper -- within the highest grade by
Moody's, S&P or Fitch.
The Fund may also invest in unrated securities which are
judged by the Investment Manager to have comparable quality
to the securities described above.
The Fund may invest up to 10% of its assets in inverse
floating rate municipal obligations. The interest rates on
these obligations generally move in the reverse direction of
market interest rates. If market interest rates fall, the
interest rate on the obligations will increase and if market
interest rates increase, the interest rate on the
obligations will fall.
The Fund may invest up to 20% of its assets in taxable money
market instruments, tax-exempt securities of other states
and municipalities, and securities that pay interest income
subject to the "alternative minimum tax." Since some
investors may have to pay tax on a Fund distribution of this
income, the Fund may not be a suitable investment for them.
See the "Tax Consequences" section for more details.
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, including its
taxing power, for payment of principal and interest. Revenue
bonds, notes and commercial paper, however, are generally
payable from a specific source of income. They are issued to
finance a wide variety of municipal projects which may
include: educational facilities, electric utility,
hospitals/healthcare, industrial development/pollution
control, single & multi-family housing, transportation and
water & sewer facilities. Included in the revenue bonds
category are participations in lease obligations. The
1
<PAGE>
Fund's municipal obligation investments may include zero
coupon securities, which are purchased at a discount and
accrue interest, but make no interest payments until
maturity.
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
- --------------------------------------------------------------------------------
There is no assurance that the Fund will achieve its
investment objective. The Fund's share price and yield 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.
CREDIT AND INTEREST RATE RISKS. Principal risks of investing
in the Fund are associated with its municipal investments,
particularly its concentration in municipal obligations of a
single state. Municipal obligations, like other debt
securities, are subject to two types of risks: credit risk
and interest rate risk.
Credit risk refers to the possibility that the issuer of a
security will be unable or unwilling to make interest
payments and/or repay the principal on its debt. In the case
of revenue bonds, notes or commercial paper, for example,
the credit risk is the possibility that the user fees from a
project or other specified revenue sources are insufficient
to meet interest and/or principal payment obligations.
Private activity bonds used to finance projects, such as
industrial development and pollution control, may also be
negatively impacted by the general credit of the user of the
project. Unlike most fixed-income mutual funds, the Fund is
subject to the added credit risk of concentrating its
investments in a single state. 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 go
down. When the general level of interest rates goes down,
the prices of most fixed-income securities go up. Zero
coupon securities are typically subject to greater price
fluctuations than comparable securities that pay interest.
As a general illustration of the relationship between
fixed-income securities and interest rates, the following
table shows how interest rates affect bond prices.
2
<PAGE>
HOW INTEREST RATES AFFECT BOND PRICES
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A
MUNICIPAL BOND
IF INTEREST RATES:
--------------------------------
INCREASE* DECREASE**
------------ ----------------
YEARS TO MATURITY BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C> <C>
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1 2000 3.95% $990 $981 $1,010 $1,020
--------------------------------------------------------------------------------------
5 2004 4.70% $957 $916 $1,045 $1,093
--------------------------------------------------------------------------------------
10 2009 5.05% $926 $858 $1,082 $1,171
--------------------------------------------------------------------------------------
20 2019 5.80% $892 $799 $1,128 $1,278
--------------------------------------------------------------------------------------
30 2029 5.95% $875 $773 $1,155 $1,350
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Source: MUNICIPAL MARKET DATA (a division of Thomson Financial Municipal Group):
"Aaa" yield curve as of 12/31/99. The table is not representative of price changes
for inverse floating rate municipal obligations, which typically respond to changes
in interest rates to a greater extent than comparable obligations.
* Assumes no effect from market discount calculation.
** Assumes bonds are non-callable.
</TABLE>
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. In
addition, the Fund may invest in securities with the lowest
investment grade rating. These securities may have
speculative characteristics.
INVERSE FLOATING RATE MUNICIPAL OBLIGATIONS. The inverse
floating rate municipal obligations in which the Fund may
invest are typically created through a division of a fixed
rate municipal obligation into two separate instruments, a
short-term obligation and a long-term obligation. The
interest rate on the short-term obligation is set at
periodic auctions. The interest rate on the long-term
obligation is the rate the issuer would have paid on the
fixed-income obligation: (i) PLUS the difference between
such fixed rate and the rate on the short-term obligation,
if the short-term rate is lower than the fixed rate; or
(ii) MINUS such difference if the interest rate on the
short-term obligation is higher than the fixed rate. Inverse
floating rate municipal obligations offer the potential for
higher income than is available from fixed rate obligations
of comparable maturity and credit rating. They also carry
greater risks. In particular, the prices of inverse floating
rate municipal obligations are more volatile, I.E., they
increase and decrease in response to changes in interest
rates to a greater extent than comparable fixed rate
obligations.
OTHER RISKS. The performance of the Fund also will depend on
whether the Investment Manager is successful in pursuing the
Fund's investment strategy. The Fund is also subject to
other risks from its permissible investments, including the
risks associated with its lease obligations investments. For
more information about these risks, see the "Additional Risk
Information" section.
Shares of the Fund are not bank deposits and are not
guaranteed or insured by the FDIC or any other government
agency.
3
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class B shares has varied
from year to year over the last 10 calendar years.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Fund's average annual returns with those of a broad
measure of market performance over time. The Fund's returns include the maximum
applicable sales charge for each Class and assume you sold your shares at the
end of each period.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the
risks of investing in the Fund. The Fund's past performance
does not indicate how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 5.69%
'91 10.18%
'92 7.83%
'93 10.97%
'94 -5.97%
'95 14.96%
'96 3.13%
'97 7.51%
'98 5.63%
'99 -3.99%
</TABLE>
The bar chart reflects the performance of Class B shares;
the performance of the other Classes will differ because the
Classes have different ongoing fees. The performance
information in the bar chart does not reflect the deduction
of sales charges; if these amounts were reflected, returns
would be less than shown.
During the periods shown in the bar chart, the highest
return for a calendar quarter was 6.11% (quarter ended
March 31, 1995) and the lowest return for a calendar quarter
was -5.10% (quarter ended March 31, 1994).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
------------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
Class A(1) -8.00% -- --
------------------------------------------------------------------------------------------
Class B -8.57% 4.94% 5.41%
------------------------------------------------------------------------------------------
Class C(1) -5.33% -- --
------------------------------------------------------------------------------------------
Class D(1) -3.63% -- --
------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(2) -2.06% 6.91% 6.89%
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
1 Classes A, C and D commenced operations on July 28, 1997.
2 The Lehman Brothers Municipal Bond Index tracks the
performance of municipal bonds with maturities of two years
or more and a minimum credit rating of Baa or BBB, as
measured by Moody's Investors Service 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.
</TABLE>
4
<PAGE>
[Sidebar]
SHAREHOLDER FEES
These fees are paid directly from your investment.
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, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that
you may pay if you buy and hold shares of the Fund. The Fund
offers four Classes of shares: Classes A, B, C and D. Each
Class has a different combination of fees, expenses and
other features. The Fund does not charge account or exchange
fees. See the "Share Class Arrangements" section for further
fee and expense information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
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SHAREHOLDER FEES
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Maximum sales charge (load) imposed
on purchases (as a percentage of
offering price) 4.25%(1) None None None
--------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage based on the lesser
of the offering price or net asset
value at redemption) None(2) 5.00%(3) 1.00%(4) None
--------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
--------------------------------------------------------------------------------------------
Management fee 0.54% 0.54% 0.54% 0.54%
--------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.19% 0.75% 0.75% None
--------------------------------------------------------------------------------------------
Other expenses 0.05% 0.05% 0.05% 0.05%
--------------------------------------------------------------------------------------------
Total annual Fund operating expenses 0.78% 1.34% 1.34% 0.59%
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
1 Reduced for purchases of $25,000 and over.
2 Investments that are not subject to any sales charge at the
time of purchase are subject to a contingent deferred sales
charge ("CDSC") of 1.00% that will be imposed if you sell
your shares within one year after purchase, except for
certain specific circumstances.
3 The CDSC is scaled down to 1.00% during the sixth year,
reaching zero thereafter. See "Share Class Arrangements" for
a complete discussion of the CDSC.
4 Only applicable if you sell your shares within one year
after purchase.
</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 tables below show your
costs at the end of each period based on these assumptions
depending upon whether or not you sell your shares at the
end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES:
--------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
CLASS A $501 $664 $840 $1,350
---------------------------------------------------------------------
CLASS B 636 725 934 1,613
---------------------------------------------------------------------
CLASS C 236 425 734 1,613
---------------------------------------------------------------------
CLASS D 60 189 329 738
---------------------------------------------------------------------
<CAPTION>
IF YOU HELD YOUR SHARES:
--------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
--------------------- --------------------------------------------
CLASS A $501 $664 $840 $1,350
--------------------- --------------------------------------------
CLASS B 136 425 734 1,613
--------------------- --------------------------------------------
CLASS C 136 425 734 1,613
--------------------- --------------------------------------------
CLASS D 60 189 329 738
--------------------- --------------------------------------------
</TABLE>
Long-term shareholders of Class B and Class C may pay more
in sales charges, including distribution fees, than the
economic equivalent of the maximum front-end sales charges
permitted by the NASD.
5
<PAGE>
[ICON] ADDITIONAL INVESTMENT STRATEGY INFORMATION
- --------------------------------------------------------------------------------
This section provides additional information relating to the
Fund's principal strategies.
The Fund's policy of investing at least 80% of its assets in
securities the interest on which is exempt from federal
income taxes and California state income taxes, except for
"defensive" investing discussed below, is fundamental. This
fundamental policy may not be changed without shareholder
approval. The percentage limitations relating to the
composition of the Fund's portfolio apply at the time the
Fund acquires an investment and refer to the Fund's net
assets, unless otherwise noted. Subsequent percentage
changes that result from market fluctuations will not
require the Fund to sell any portfolio security. The Fund
may change its principal investment strategies without
shareholder approval; however, you would be notified of any
changes.
LEASE OBLIGATIONS. Included within the revenue bonds
category are participations in lease obligations or
installment purchase contracts of municipalities. Generally,
state and local agencies or authorities issue lease
obligations to finance equipment and facilities for public
and private purposes.
DEFENSIVE INVESTING. 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
taxable money market securities, non-California tax-exempt
securities or in tax-exempt securities subject to the
alternative minimum tax for individual shareholders when the
Investment Manager believes it is advisable to do so. The
Fund will only purchase municipal obligations of other
states that satisfy the same standards as set forth for the
California tax-exempt securities. 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 California tax-exempt
income. When the Fund takes a defensive position, it may not
achieve its investment objective.
[ICON] ADDITIONAL RISK INFORMATION
- --------------------------------------------------------------------------------
This section provides additional information relating to the
principal risks of investing in the Fund.
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.
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, had approximately $145 billion in assets under
management as of January 31, 2000.
[End Sidebar]
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 in part, 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.
[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, NY 10048.
The Fund's portfolio is managed within the Investment
Manager's Tax-Exempt Group. James F. Willison, a Senior Vice
President of the Investment Manager and Director of the
Tax-Exempt Fixed-Income Group of the Investment Manager, has
been a primary portfolio manager of the Fund since its
inception. Joseph R. Arcieri, a Senior Vice President of the
Investment Manager, has been a primary portfolio manager of
the Fund since February 1997. Messrs. Willison and 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,
1999, the Fund accrued total compensation to the Investment
Manager amounting to 0.54% of the Fund's average daily net
assets.
7
<PAGE>
[Sidebar]
CONTACTING A
FINANCIAL ADVISOR
If you are new to the Morgan Stanley Dean Witter Family of Funds and would like
to contact a Financial Advisor, call (877) 937-MSDW (toll-free) for the
telephone number of the Morgan Stanley Dean Witter office nearest you. You may
also access our office locator on our Internet site at:
www.msdw.com/individual/funds
[End Sidebar]
SHAREHOLDER INFORMATION
[ICON] PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of Fund shares (excluding sales charges), called
"net asset value," is based on the value of the Fund's
portfolio securities. While the assets of each Class are
invested in a single portfolio of securities, the net asset
value of each Class will differ because the Classes have
different ongoing distribution fees.
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 Fund's portfolio securities (except for short-term
taxable debt securities and certain other investments) 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.
An exception to the Fund's general pricing policy concerns
its short-term debt portfolio securities. Debt securities
with remaining maturities of sixty days or less at the time
of purchase are valued at amortized cost. However, if the
cost does not reflect the securities' market value, these
securities will be valued at their fair value.
[ICON] HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may open a new account to buy Fund shares or buy
additional Fund shares for an existing account by contacting
your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative. Your Financial Advisor
will assist you, step-by-step, with the procedures to invest
in the Fund. You may also purchase shares directly by
calling the Fund's transfer agent and requesting an
application.
Because every investor has different immediate financial
needs and long-term investment goals, the Fund offers
investors four Classes of shares: Classes A, B, C and D.
Class D shares are only offered to a limited group of
investors. Each Class of shares offers a distinct structure
of sales charges, distribution and service fees, and other
features that are designed to address a variety of needs.
Your Financial Advisor or other authorized financial
representative can help you decide which Class may be most
appropriate for you. When purchasing Fund shares, you must
specify which Class of shares you wish to purchase.
When you buy Fund shares, the shares are purchased at the
next share price calculated, less any applicable front-end
sales charge, after we receive your purchase order. Your
payment is due on the third business day after you place
your purchase order. We reserve the right to reject any
order for the purchase of Fund shares.
8
<PAGE>
[Sidebar]
EASYINVEST-SM-
A purchase plan that allows you to transfer money automatically from your
checking or savings account or from a Money Market Fund on a semi-monthly,
monthly or quarterly basis. Contact your Morgan Stanley Dean Witter Financial
Advisor for further information about this service.
[End Sidebar]
<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
----------------------------------------------------------------------------------------
MINIMUM INVESTMENT
--------------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Regular Accounts $1,000 $100
----------------------------------------------------------------------------------------
EASYINVEST-SM- (Automatically from your
checking or savings account
or Money Market Fund) $100* $100*
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Provided your schedule of investments totals $1,000 in
twelve months.
</TABLE>
There is no minimum investment amount if you purchase Fund
shares through: (1) the Investment Manager's mutual fund
asset allocation plan, (2) a program, approved by the Fund's
distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services, or
(3) employer-sponsored employee benefit plan accounts.
INVESTMENT OPTIONS FOR CERTAIN INSTITUTIONAL AND OTHER
INVESTORS/CLASS D SHARES. To be eligible to purchase
Class D shares, you must qualify under one of the investor
categories specified in the "Share Class Arrangements"
section of this PROSPECTUS.
SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In
addition to buying additional Fund shares for an existing
account by contacting your Morgan Stanley Dean Witter
Financial Advisor, you may send a check directly to the
Fund. To buy additional shares in this manner:
- Write a "letter of instruction" to the Fund specifying the
name(s) on the account, the account number, the social
security or tax identification number, the Class of shares
you wish to purchase and the investment amount (which
would include any applicable front-end sales charge). The
letter must be signed by the account owner(s).
- Make out a check for the total amount payable to: Morgan
Stanley Dean Witter California Tax-Free Income Fund.
- Mail the letter and check to Morgan Stanley Dean Witter
Trust FSB at P.O. Box 1040, Jersey City, NJ 07303.
[ICON] HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
PERMISSIBLE FUND EXCHANGES. You may exchange shares of any
Class of the Fund for the same Class of any other
continuously offered Multi-Class Fund, or for shares of a
No-Load Fund, a Money Market Fund, North American Government
Income Trust or Short-Term U.S. Treasury Trust, without the
imposition of an exchange fee. See the inside back cover of
this PROSPECTUS for each Morgan Stanley Dean Witter Fund's
designation as a Multi-Class Fund, No-Load Fund or Money
Market Fund. If a Morgan Stanley Dean Witter Fund is not
listed, consult the inside back cover of that fund's
prospectus for its designation. For purposes of exchanges,
shares of FSC Funds (subject to a front-end sales charge)
are treated as Class A shares of a Multi-Class Fund.
9
<PAGE>
Exchanges may be made after shares of the Fund acquired by
purchase have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or
dividend reinvestment. The current prospectus for each fund
describes its investment objective(s) and policies and
should be read before investment. Since exchanges are
available only into continuously offered Morgan Stanley Dean
Witter Funds, exchanges are not available into any new
Morgan Stanley Dean Witter Fund during its initial offering
period, or when shares of a particular Morgan Stanley Dean
Witter Fund are not being offered for purchase.
EXCHANGE PROCEDURES. You can process an exchange by
contacting your Morgan Stanley Dean Witter Financial Advisor
or other authorized financial representative. Otherwise, you
must forward an exchange privilege authorization form to the
Fund's transfer agent - Morgan Stanley Dean Witter Trust
FSB - and then write the transfer agent or call
(800) 869-NEWS to place an exchange order. You can obtain an
exchange privilege authorization form by contacting your
Financial Advisor or other authorized financial
representative, or by calling (800) 869-NEWS. If you hold
share certificates, no exchanges may be processed until we
have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a
Money Market Fund) is made on the basis of the next
calculated net asset values of the funds involved after the
exchange instructions are accepted. When exchanging into a
Money Market Fund, the Fund's shares are sold at their next
calculated net asset value and the Money Market Fund's
shares are purchased at their net asset value on the
following business day.
The Fund may terminate or revise the exchange privilege upon
required notice. The check writing privilege is not
available for Money Market Fund shares you acquire in an
exchange.
TELEPHONE EXCHANGES. For your protection when calling Morgan
Stanley Dean Witter Trust FSB, we will employ reasonable
procedures to confirm that exchange instructions
communicated over the telephone are genuine. These
procedures may include requiring various forms of personal
identification such as name, mailing address, social
security or other tax identification number. Telephone
instructions also may be recorded.
Telephone instructions will be accepted if received by the
Fund's transfer agent between 9:00 a.m. and 4:00 p.m.
Eastern time on any day the New York Stock Exchange is open
for business. During periods of drastic economic or market
changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has
not been the case with the Fund in the past.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a
margin account, contact your Morgan Stanley Dean Witter
Financial Advisor or other authorized financial
representative regarding restrictions on the exchange of
such shares.
TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of
the Fund for shares of another Morgan Stanley Dean Witter
Fund, there are important tax considerations. For tax
purposes, the exchange out of the Fund is considered a sale
of Fund shares - and the exchange into the other fund is
considered a purchase. As a result, you may realize a
capital gain or loss.
10
<PAGE>
You should review the "Tax Consequences" section and consult
your own tax professional about the tax consequences of an
exchange.
LIMITATIONS ON EXCHANGES. Certain patterns of exchanges may
result in the Fund limiting or prohibiting, at its
discretion, additional purchases and/or exchanges.
Determinations in this regard may be made based on the
frequency or dollar amount of previous exchanges. The Fund
will notify you in advance of limiting your exchange
privileges.
CDSC CALCULATIONS ON EXCHANGES. See the "Share Class
Arrangements" section of this PROSPECTUS for a discussion of
how applicable contingent deferred sales charges (CDSCs) are
calculated for shares of one Morgan Stanley Dean Witter Fund
that are exchanged for shares of another.
FOR FURTHER INFORMATION REGARDING EXCHANGE PRIVILEGES, YOU
SHOULD CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR OR CALL (800) 869-NEWS.
[ICON] HOW TO SELL SHARES
- --------------------------------------------------------------------------------
You can sell some or all of your Fund shares at any time. If
you sell Class A, Class B or Class C shares, your net sale
proceeds are reduced by the amount of any applicable CDSC.
Your shares will be sold at the next share price calculated
after we receive your order to sell as described below.
<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.
------------------------------------------------------------
[ICON] 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:
[ICON] - your account number;
- the dollar amount or the number of shares you wish to
sell;
- the Class of shares you wish to sell; and
- the signature of each owner as it appears on the account.
------------------------------------------------------------
If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Dean Witter
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. If you hold share
certificates, you must return the certificates, along with
the letter and any required additional documentation.
------------------------------------------------------------
A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.
----------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
----------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter
Withdrawal Plan Family of Funds has a total market value of at least
[ICON] $10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a fund's balance (provided the
amount is at least $25), on a monthly, quarterly,
semi-annual or annual basis, from any fund with a balance of
at least $1,000. Each time you add a fund to the plan, you
must meet the plan requirements.
------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC
may be waived under certain circumstances. See the Class B
waiver categories listed in the "Share Class Arrangements"
section of this Prospectus.
------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your
Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS. You may terminate or suspend your plan at
any time. Please remember that withdrawals from the plan are
sales of shares, not Fund "distributions," and ultimately
may exhaust your account balance. The Fund may terminate or
revise the plan at any time.
----------------------------------------------------------------------------------
</TABLE>
PAYMENT FOR SOLD SHARES. After we receive your complete
instructions to sell as described above, a check will be
mailed to you within seven days, although we will attempt to
make payment within one business day. Payment may also be
sent to your brokerage account.
Payment may be postponed or the right to sell your shares
suspended under unusual circumstances. If you request to
sell shares that were recently purchased by check, your sale
will not effected until it has been verified that the check
has been honored.
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 the same Class of Fund shares at
their net asset value and receive a pro rata credit for any
CDSC paid in connection with the sale.
INVOLUNTARY SALES. The Fund reserves the right, on sixty
days' notice, to sell the shares of any shareholder (other
than shares held in an IRA or 403(b) Custodial Account)
whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through
EASYINVEST-SM-, if after 12 months the shareholder has
invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner,
we will notify you and allow you sixty days 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. No CDSC will be imposed on any
involuntary sale.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a
margin account, contact your Morgan Stanley Dean Witter
Financial Advisor or other authorized financial
representative regarding restrictions on the sale of such
shares.
12
<PAGE>
[Sidebar]
TARGETED DIVIDENDS-SM-
You may select to have your Fund distributions automatically invested in other
Classes of Fund shares or Classes of another Morgan Stanley Dean Witter Fund
that you own. Contact your Morgan Stanley Dean Witter Financial Advisor for
further information about this service.
[End Sidebar]
[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."
The Fund declares income dividends separately for each
Class. Distributions paid on Class A and Class D shares will
be higher than for Class B and Class C because distribution
fees that Class B and Class C pay are higher. Normally,
income dividends are declared on each day the New York Stock
Exchange is open for business, and are distributed to
shareholders monthly. Capital gains, if any, are usually
distributed in June and December. 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 same Class 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.
[ICON] TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your Fund
investment will be taxed. The tax information in this
PROSPECTUS is provided as general information. You should
consult your own tax professional about the tax consequences
of an investment in the Fund.
You need to be aware of the possible tax consequences when:
- The Fund makes distributions; and
- You sell Fund shares, including an exchange to another
Morgan Stanley Dean Witter Fund.
TAXES ON DISTRIBUTIONS. Your income dividend distributions
are normally exempt from federal and California personal
income taxes -- to the extent they are derived from
California's municipal obligations. Income derived from
other portfolio securities may be subject to federal, state
and/or local income taxes.
13
<PAGE>
Income derived from some municipal securities is subject to
the federal "alternative minimum tax." Certain tax-exempt
securities whose proceeds are used to finance private,
for-profit organizations are subject to this special tax
system that ensures that individuals pay at least some
federal taxes. Although interest on these securities is
generally exempt from federal income tax, some taxpayers who
have many tax deductions or exemptions nevertheless may have
to pay tax on the income.
If you borrow money to purchase shares of the Fund, the
interest on the borrowed money is generally not deductible
for personal income tax purposes.
If the Fund makes any capital gain distributions, those
distributions will normally be subject to federal and
California income tax when they are paid, whether you take
them in cash or reinvest them in the Fund shares. 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.
Every January, you will be sent a statement (IRS Form
1099-DIV) showing the taxable distributions paid to you in
the previous year. The statement provides 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. Your exchange of Fund shares for shares of
another Morgan Stanley Dean Witter Fund is treated for tax
purposes like a sale of your original shares and a purchase
of your new shares. Thus, the exchange may, like a sale,
result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
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 redemption proceeds. Any
withheld amount would be sent to the IRS as an advance tax
payment.
[ICON] SHARE CLASS ARRANGEMENTS
- --------------------------------------------------------------------------------
The Fund offers several Classes of shares having different
distribution arrangements designed to provide you with
different purchase options according to your investment
needs. Your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative can help you
decide which Class may be appropriate for you.
14
<PAGE>
[Sidebar]
FRONT-END SALES CHARGE OR FSC
An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges - the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
[End Sidebar]
The general public is offered three Classes: Class A shares,
Class B shares and Class C shares, which differ principally
in terms of sales charges and ongoing expenses. A fourth
Class, Class D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested
distributions will not be subject to any front-end sales
charge or CDSC - contingent deferred sales charge. Sales
personnel may receive different compensation for selling
each Class of shares. The sales charges applicable to each
Class provide for the distribution financing of shares of
that Class.
The chart below compares the sales charge and maximum annual
12b-1 fee applicable to each Class:
<TABLE>
<CAPTION>
MAXIMUM
CLASS SALES CHARGE ANNUAL 12B-1 FEE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
A Maximum 4.25% initial sales charge reduced for
purchase of $25,000 or more; shares sold without
an initial sales charge are generally subject to a
1.0% CDSC during the first year 0.25%
----------------------------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year decreasing
to 0% after six years 0.75%
----------------------------------------------------------------------------------------------------
C 1.0% CDSC during the first year 0.75%
----------------------------------------------------------------------------------------------------
D None None
----------------------------------------------------------------------------------------------------
</TABLE>
CLASS A SHARES Class A shares are sold at net asset value
plus an initial sales charge of up to 4.25%. The initial
sales charge is reduced for purchases of $25,000 or more
according to the schedule below. Investments of $1 million
or more are not subject to an initial sales charge, but are
generally subject to a contingent deferred sales charge, or
CDSC, of 1.0% on sales made within one year after the last
day of the month of purchase. The CDSC will be assessed in
the same manner and with the same CDSC waivers as with
Class B shares. Class A shares are also subject to a
distribution (12b-1) fee of up to 0.25% of the average daily
net assets of the Class.
The offering price of Class A shares includes a sales charge
(expressed as a percentage of the offering price) on a
single transaction as shown in the following table:
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
-----------------------------------------------------
AMOUNT OF SINGLE PERCENTAGE OF APPROXIMATE PERCENTAGE OF
TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
----------------------------------------------------------------------------------------
Less than $25,000 4.25% 4.44%
----------------------------------------------------------------------------------------
$25,000 but less than
$50,000 4.00% 4.17%
----------------------------------------------------------------------------------------
$50,000 but less than
$100,000 3.50% 3.63%
----------------------------------------------------------------------------------------
$100,000 but less than
$250,000 2.75% 2.83%
----------------------------------------------------------------------------------------
$250,000 but less than
$1 million 1.75% 1.78%
----------------------------------------------------------------------------------------
$1 million and over 0 0
----------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
The reduced sales charge schedule is applicable to purchases
of Class A shares in a single transaction by:
- A single account (including an individual, trust or
fiduciary account).
- Family member accounts (limited to husband, wife and
children under the age of 21).
- Pension, profit sharing or other employee benefit plans of
companies and their affiliates.
- Tax-exempt organizations.
- Groups organized for a purpose other than to buy mutual
fund shares.
COMBINED PURCHASE PRIVILEGE. You also will have the benefit
of reduced sales charges by combining purchases of Class A
shares of the Fund in a single transaction with purchases of
Class A shares of other Multi-Class Funds and shares of FSC
Funds.
RIGHT OF ACCUMULATION. You also may benefit from a reduction
of sales charges if the cumulative net asset value of
Class A shares of the Fund purchased in a single
transaction, together with shares of other Funds you
currently own which were previously purchased at a price
including a front-end sales charge (including shares
acquired through reinvestment of distributions), amounts to
$25,000 or more. Also, if you have a cumulative net asset
value of all your Class A and Class D shares equal to at
least $5 million, you are eligible to purchase Class D
shares of any Fund subject to the Fund's minimum initial
investment requirement.
You must notify your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative (or
Morgan Stanley Dean Witter Trust FSB if you purchase
directly through the Fund), at the time a purchase order is
placed, that the purchase qualifies for the reduced charge
under the Right of Accumulation. Similar notification must
be made in writing when an order is placed by mail. The
reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or
(ii) a review of the records of Dean Witter Reynolds or
other authorized dealer of Fund shares or the Fund's
transfer agent does not confirm your represented holdings.
LETTER OF INTENT. The schedule of reduced sales charges for
larger purchases also will be available to you if you enter
into a written "letter of intent." A letter of intent
provides for the purchase of shares of Class A of the Fund
or other Multi-Class Funds or shares of FSC Funds within a
thirteen-month period. The initial purchase under a letter
of intent must be at least 5% of the stated investment goal.
To determine the applicable sales charge reduction, you may
also include: (1) the cost of shares of other Morgan Stanley
Dean Witter Funds which were previously purchased at a price
including a front-end sales charge during the 90-day period
prior to the distributor receiving the letter of intent, and
(2) the cost of shares of other Funds you currently own
acquired in exchange for shares of Funds purchased during
that period at a price including a front-end sales charge.
You can obtain a letter of intent by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized
financial representative, or by calling (800) 869-NEWS. If
you do
16
<PAGE>
[Sidebar]
CONTINGENT DEFERRED SALES CHARGE OR CDSC
A fee you pay when you sell shares of certain Morgan Stanley Dean Witter Funds
purchased without an initial sales charge. This fee declines the longer you hold
your shares as set forth in the table.
[End Sidebar]
not achieve the stated investment goal within the
thirteen-month period, you are required to pay the
difference between the sales charges otherwise applicable
and sales charges actually paid, which may be deducted from
your investment.
OTHER SALES CHARGE WAIVERS. In addition to investments of $1
million or more, your purchase of Class A shares is not
subject to a front-end sales charge (or a CDSC upon sale) if
your account qualifies under one of the following
categories:
- A trust for which Morgan Stanley Dean Witter Trust FSB
provides discretionary trustee services.
- Persons participating in a fee-based investment program
(subject to all of its terms and conditions, including
termination fees, mandatory sale or transfer restrictions
on termination) approved by the Fund's distributor
pursuant to which they pay an asset-based fee for
investment advisory, administrative and/or brokerage
services.
- A client of a Morgan Stanley Dean Witter Financial Advisor
who joined us from another investment firm within six
months prior to the date of purchase of Fund shares, and
used the proceeds from the sale of shares of a proprietary
mutual fund of that Financial Advisor's previous firm that
imposed either a front-end or deferred sales charge to
purchase Class A shares, provided that: (1) you sold the
shares not more than 60 days prior to purchase, and (2)
the sale proceeds were maintained in the interim in cash
or a money market fund.
- Current or retired Directors/Trustees of the Morgan
Stanley Dean Witter Funds, such persons' spouses and
children under the age of 21, and trust accounts for which
any of such persons is a beneficiary.
- Current or retired directors, officers and employees of
Morgan Stanley Dean Witter & Co. and any of its
subsidiaries, such persons' spouses and children under the
age of 21, and trust accounts for which any of such
persons is a beneficiary.
CLASS B SHARES Class B shares are offered at net asset
value with no initial sales charge but are subject to a
contingent deferred sales charge, or CDSC, as set forth in
the table below. For the purpose of calculating the CDSC,
shares are deemed to have been purchased on the last day of
the month during which they were purchased.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE CDSC AS A PERCENTAGE OF AMOUNT REDEEMED
<S> <C>
------------------------------------------------------------------------------------
First 5.0%
------------------------------------------------------------------------------------
Second 4.0%
------------------------------------------------------------------------------------
Third 3.0%
------------------------------------------------------------------------------------
Fourth 2.0%
------------------------------------------------------------------------------------
Fifth 2.0%
------------------------------------------------------------------------------------
Sixth 1.0%
------------------------------------------------------------------------------------
Seventh and thereafter None
------------------------------------------------------------------------------------
</TABLE>
Each time you place an order to sell or exchange shares,
shares with no CDSC will be sold or exchanged first, then
shares with the lowest CDSC will be sold or exchanged next.
For any shares subject to a CDSC, the CDSC will be assessed
on an amount equal to the lesser of the current market value
or the cost of the shares being sold.
17
<PAGE>
CDSC WAIVERS. A CDSC, if otherwise applicable, will be
waived in the case of:
- Sales of shares held at the time you die or become
disabled (within the definition in Section 72(m)(7) of the
Internal Revenue Code which relates to the ability to
engage in gainful employment), if the shares are:
(i) registered either in your name (not a trust) or in the
names of you and your spouse as joint tenants with right
of survivorship; or (ii) held in a qualified corporate or
self-employed retirement plan, IRA or 403(b) Custodial
Account, provided in either case that the sale is
requested within one year of your death or initial
determination of disability.
- Sales in connection with the following retirement plan
"distributions:" (i) lump-sum or other distributions from
a qualified corporate or self-employed retirement plan
following retirement (or, in the case of a "key employee"
of a "top heavy" plan, following attainment of age
59 1/2); (ii) distributions from an IRA or 403(b)
Custodial Account following attainment of age 59 1/2; or
(iii) a tax-free return of an excess IRA contribution (a
"distribution" does not include a direct transfer of IRA,
403(b) Custodial Account or retirement plan assets to a
successor custodian or trustee).
- Sales of shares in connection with the Systematic
Withdrawal Plan of up to 12% annually of the value of each
Fund from which plan sales are made. The percentage is
determined on the date you establish the Systematic
Withdrawal Plan and based on the next calculated share
price. You may have this CDSC waiver applied in amounts up
to 1% per month, 3% per quarter, 6% semi-annually or 12%
annually. Shares with no CDSC will be sold first, followed
by those with the lowest CDSC. As such, the waiver benefit
will be reduced by the amount of your shares that are not
subject to a CDSC. If you suspend your participation in
the plan, you may later resume plan payments without
requiring a new determination of the account value for the
12% CDSC waiver.
- Sales of shares if you simultaneously invest the proceeds
in the Investment Manager's mutual fund asset allocation
program, pursuant to which investors pay an asset-based
fee. Any shares you acquire in connection with the
Investment Manager's mutual fund asset allocation program
are subject to all of the terms and conditions of that
program, including termination fees, mandatory sale or
transfer restrictions on terminations.
All waivers will be granted only following the Fund's
distributor receiving confirmation of your entitlement. If
you believe you are eligible for a CDSC waiver, please
contact your Financial Advisor or call (800) 869-NEWS.
DISTRIBUTION FEE. Class B shares are also subject to an
annual distribution (12b-1) fee of up to 0.75% of the lesser
of: (a) the average daily aggregate gross purchases by all
shareholders of the Fund's Class B shares since the
inception of the Fund (not including reinvestment of
dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares
sold by all shareholders since the Fund's inception upon
which a CDSC has been imposed or waived, or (b) the average
daily net assets of Class B.
CONVERSION FEATURE. After ten (10) years, Class B shares
will convert automatically to Class A shares of the Fund
with no initial sales charge. The ten year period runs from
the last day of the month in which the shares were
purchased, or in the case
18
<PAGE>
of Class B shares acquired through an exchange, from the
last day of the month in which the original Class B shares
were purchased; the shares will convert to Class A shares
based on their relative net asset values in the month
following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically
reinvested distributions will convert to Class A shares on
the same basis. (Class B shares held before May 1, 1997,
however, will convert to Class A shares in May 2007.)
Currently, the Class B share conversion is not a taxable
event; the conversion feature may be cancelled if it is
deemed a taxable event in the future by the Internal Revenue
Service.
If you exchange your Class B shares for shares of a Money
Market Fund, a No-Load Fund, North American Government
Income Trust or Short-Term U.S. Treasury Trust, the holding
period for conversion is frozen as of the last day of the
month of the exchange and resumes on the last day of the
month you exchange back into Class B shares.
EXCHANGING SHARES SUBJECT TO A CDSC. There are special
considerations when you exchange Fund shares that are
subject to a CDSC. When determining the length of time you
held the shares and the corresponding CDSC rate, any period
(starting at the end of the month) during which you held
shares of a fund that does NOT charge a CDSC WILL NOT BE
COUNTED. Thus, in effect the "holding period" for purposes
of calculating the CDSC is frozen upon exchanging into a
fund that does not charge a CDSC.
For example, if you held Class B shares of the Fund for one
year, exchanged to Class B of another Morgan Stanley Dean
Witter Multi-Class Fund for another year, then sold your
shares, a CDSC rate of 4% would be imposed on the shares
based on a two year holding period -- one year for each
fund. However, if you had exchanged the shares of the Fund
for a Money Market Fund (which does not charge a CDSC)
instead of the Multi-Class Fund, then sold your shares, a
CDSC rate of 5% would be imposed on the shares based on a
one year holding period. The one year in the Money Market
Fund would not be counted. Nevertheless, if shares subject
to a CDSC are exchanged for a fund that does not charge a
CDSC, you will receive a credit when you sell the shares
equal to the distribution (12b-1) fees you paid on those
shares while in that fund up to the amount of any applicable
CDSC.
In addition, shares that are exchanged into or from a Morgan
Stanley Dean Witter Fund subject to a higher CDSC rate will
be subject to the higher rate, even if the shares are
re-exchanged into a fund with a lower CDSC rate.
CLASS C SHARES Class C shares are sold at net asset value
with no initial sales charge but are subject to a CDSC of
1.0% on sales made within one year after the last day of the
month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B
shares.
DISTRIBUTION FEE. Class C shares are subject to an annual
distribution (12b-1) fee of 0.75% of the average daily net
assets of that Class. The Class C shares' distribution fee
may cause that Class to have higher expenses and pay lower
dividends than
19
<PAGE>
Class A or Class D shares. Unlike Class B shares, Class C
shares have no conversion feature and, accordingly, an
investor that purchases Class C shares may be subject to
distribution (12b-1) fees applicable to Class C shares for
an indefinite period.
CLASS D SHARES Class D shares are offered without any
sales charge on purchases or sales and without any
distribution (12b-1) fee. Class D shares are offered only to
investors meeting an initial investment minimum of
$5 million and the following investor categories:
- Investors participating in the Investment Manager's mutual
fund asset allocation program (subject to all of its terms
and conditions, including termination fees, mandatory sale
or transfer restrictions on termination) pursuant to which
they pay an asset-based fee.
- Persons participating in a fee-based investment program
(subject to all of its terms and conditions, including
termination fees, mandatory sale or transfer restrictions
on termination) approved by the Fund's distributor
pursuant to which they pay an asset-based fee for
investment advisory, administrative and/or brokerage
services.
- Certain unit investment trusts sponsored by Dean Witter
Reynolds.
- Certain other open-end investment companies whose shares
are distributed by the Fund's distributor.
- Investors who were shareholders of the Dean Witter
Retirement Series on September 11, 1998 for additional
purchases for their former Dean Witter Retirement
Series accounts.
MEETING CLASS D ELIGIBILITY MINIMUMS. To meet the
$5 million initial investment to qualify to purchase
Class D shares you may combine: (1) purchases in a single
transaction of Class D shares of the Fund and other Morgan
Stanley Dean Witter Multi-Class Funds and/or (2) previous
purchases of Class A and Class D shares of
Multi-Class Funds and shares of FSC Funds you currently own,
along with shares of Morgan Stanley Dean Witter Funds you
currently own that you acquired in exchange for those
shares.
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you
receive a cash payment representing an income dividend or
capital gain and you reinvest that amount in the applicable
Class of shares by returning the check within 30 days of the
payment date, the purchased shares would not be subject to
an initial sales charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has
adopted a Plan of Distribution in accordance with
Rule 12b-1 under the Investment Company Act of 1940 with
respect to the distribution of Class A, Class B and Class C
shares. The Plan allows the Fund to pay distribution fees
for the sale and distribution of these shares. It also
allows the Fund to pay for services to shareholders of
Class A, Class B and Class C shares. Because these fees are
paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment in
these Classes and may cost you more than paying other types
of sales charges.
20
<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,
independent accountants, 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, 1999 1998 1997* 1996 1995
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
CLASS B SHARES
--------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
--------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.81 $ 12.92 $ 12.57 $ 12.92 $ 11.87
--------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.57 0.58 0.57 0.58 0.61
Net realized and unrealized
gain
(loss) (1.06) 0.13 0.35 (0.21) 1.13
-------- -------- -------- -------- ----------
Total income (loss) from
investment
operations (0.49) 0.71 0.92 0.37 1.74
--------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income (0.57) (0.58) (0.57) (0.58) (0.61)
Net realized gain (0.02) (0.24) -- (0.14) (0.08)
Total dividends and distributions (0.59) (0.82) (0.57) (0.72) (0.69)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.73 $ 12.81 $ 12.92 $ 12.57 $ 12.92
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (3.99)% 5.63% 7.51% 3.13% 14.96%
--------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
--------------------------------------------------------------------------------------------------------------
Expenses 0.91%(1)(2)(3) 0.95%(2)(3) 1.33% 1.32%(1) 1.33%
--------------------------------------------------------------------------------------------------------------
Net investment income 4.57%(2)(3) 4.46%(2)(3) 4.51% 4.66% 4.90%
--------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------
Net assets, end of period, in
thousands $761,548 $896,685 $914,474 $975,702 $1,054,881
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 5 % 20% 15% 11% 23%
--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of the
Fund held prior to that date have been designated Class B shares.
+ Does not reflect the deduction of sales charge. 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%.
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(3) If the Distributor had not rebated a portion of its fees to the Fund, the
expense and net investment income ratios would have been 1.34% and 4.14%,
respectively, for the year ended December 31, 1999 and 1.33% and 4.08%,
respectively, for the year ended December 31, 1998.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------- FOR THE PERIOD JULY 28, 1997*
1999 1998 THROUGH DECEMBER 31, 1997
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
CLASS A SHARES
-------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
-------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.75 $12.89 $12.80
-------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.58 0.59 0.27
Net realized and unrealized gain (loss) (1.06) 0.10 0.09
------ ------ ------
Total income (loss) from investment operations (0.48) 0.69 0.36
-------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.58) (0.59) (0.27)
Net realized gain (0.02) (0.24) --
------ ------ ------
Total dividends and distributions (0.60) (0.83) (0.27)
-------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.67 $12.75 $12.89
-------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (3.91)% 5.50% 2.82%(1)
-------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
-------------------------------------------------------------------------------------------------------------
Expenses 0.78%(3)(4) 0.83%(3) 0.78%(2)
-------------------------------------------------------------------------------------------------------------
Net investment income 4.70%(3) 4.58%(3) 4.47%(2)
-------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $6,253 $3,788 $1,175
-------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 5% 20% 15%
-------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CLASS C SHARES
-----------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
-----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.81 $12.92 $12.80
-----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.51 0.53 0.23
Net realized and unrealized gain (loss) (1.06) 0.13 0.12
------- ------ ------
Total income (loss) from investment operations (0.55) 0.66 0.35
-----------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.51) (0.53) (0.23)
Net realized gain (0.02) (0.24) --
------- ------ ------
Total dividends and distributions (0.53) (0.77) (0.23)
-----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.73 $12.81 $12.92
-----------------------------------------------------------------------------------------------------
TOTAL RETURN+ (4.41)% 5.22% 2.80%(1)
-----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
-----------------------------------------------------------------------------------------------------
Expenses 1.34 %(3)(4) 1.33%(3) 1.31%(2)
-----------------------------------------------------------------------------------------------------
Net investment income 4.14 %(3) 4.08%(3) 4.24%(2)
-----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $13,099 $9,849 $3,610
-----------------------------------------------------------------------------------------------------
Portfolio turnover rate 5 % 20% 15%
-----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the net asset
value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) Does not reflect the effect of expense offset of 0.01%.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------- FOR THE PERIOD JULY 28, 1997*
1999 1998 THROUGH DECEMBER 31, 1997
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
CLASS D SHARES
---------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.78 $12.92 $12.80
---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.60 0.63 0.28
Net realized and unrealized gain (loss) (1.05) 0.10 0.12
------ ------ ------
Total income (loss) from investment operations (0.45) 0.73 0.40
---------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.60) (0.63) (0.28)
Net realized gain (0.02) (0.24) --
------ ------ ------
Total dividends and distributions (0.62) (0.87) (0.28)
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.71 $12.78 $12.92
---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (3.63)% 5.77% 3.18%(1)
---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
---------------------------------------------------------------------------------------------------------------
Expenses 0.59 %(3)(4) 0.58%(3) 0.60%(2)
---------------------------------------------------------------------------------------------------------------
Net investment income 4.89 %(3) 4.83%(3) 5.34%(2)
---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $1,021 $ 554 $ 45
---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 5 % 20% 15%
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) Does not reflect the effect of expense offset of 0.01%.
</TABLE>
23
<PAGE>
NOTES
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24
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers investors a wide
range of investment choices. Come on in and meet the family!
- --------------------------------------------------------------------------------
GROWTH FUNDS
- --------------------------------
GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Growth Fund
Market Leader Trust
Mid-Cap Equity Trust
Next Generation Trust
SmallCap Growth Fund
Special Value Fund
21st Century Trend Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas" Portfolio
European Growth Fund
Fund of Funds - International Portfolio
International Fund
International SmallCap Fund
Japan Fund
Latin American Growth Fund
Pacific Growth Fund
- --------------------------------------------------------------------------------
GROWTH & INCOME FUNDS
- --------------------------------
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Equity Fund
Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Total Market Index Fund
Total Return Trust
Value Fund
Value-Added Market Series/Equity Portfolio
THEME FUNDS
Real Estate Fund
Utilities Fund
GLOBAL FUNDS
Global Dividend Growth Securities
Global Utilities Fund
- --------------------------------------------------------------------------------
INCOME FUNDS
- --------------------------------
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust
DIVERSIFIED INCOME FUNDS
Diversified Income Trust
CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund (NL)
GLOBAL INCOME FUNDS
North American Government Income Trust
World Wide Income Trust
TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust (FSC)
Limited Term Municipal Trust (NL)
Multi-State Municipal Series Trust (FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
- --------------------------------
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund (MM)
U.S. Government Money Market Trust (MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust (MM)
New York Municipal Money Market Trust (MM)
Tax-Free Daily Income Trust (MM)
There may be funds created after this PROSPECTUS was published. Please consult
the inside back cover of a new fund's prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A mutual fund offering multiple Classes of shares. The other
types of funds are: NL - No-Load (Mutual) Fund; MM - Money Market Fund; FSC - A
mutual fund sold with a front-end sales charge and a distribution (12b-1) fee.
<PAGE>
MORGAN STANLEY DEAN WITTER
CALIFORNIA TAX-FREE INCOME FUND
[Sidebar]
TICKER SYMBOLS:
Class A: CLFAX
- -------------------
Class B: CLFBX
- -------------------
Class C: CLFCX
- -------------------
Class D: CLFDX
- -------------------
[End Sidebar]
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 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.msdw.com/individual/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
(202) 942-8090. Reports and other information about the Fund
are available on the EDGAR Database on the SEC's Internet
site (www.sec.gov), and copies of this information may be
obtained, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected],
or by writing the Public Reference Section of the SEC,
Washington, DC 20549-0102.
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-4020)
