<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
---------------------
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
---------------------
MORGAN STANLEY DEAN WITTER
NEW YORK TAX-FREE
INCOME FUND
(Exact Name of Registrant as Specified in Charter)
(formerly named Dean Witter New York Tax-Free Income Fund)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-1600
(Registrant's Telephone Number)
BARRY FINK, ESQ.
Two World Trade Center
New York, New York 10048
(Name and Address of Agent for Service)
---------------------
COPY TO:
STUART M. STRAUSS, ESQ.
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
---------------------
It is proposed that this filing will become effective on the thirtieth day
after the date of this filing, pursuant to Rule 488.
The Exhibit Index is located on page [ ]
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT RELATES TO SHARES
PREVIOUSLY REGISTERED BY THE REGISTRANT ON FORM N-1A (REGISTRATION NOS.
2-95664; 811-4222).
================================================================================
<PAGE>
FORM N-14
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ------------------------------ -------------------------------------------------------
<S> <C>
1 (a) ........................ Cross Reference Sheet
(b) ........................ Front Cover Page
(c) ........................ *
2 (a) ........................ *
(b) ........................ Table of Contents
3 (a) ........................ Fee Table
(b) ........................ Synopsis
(c) ........................ Principal Risk Factors
4 (a) ........................ The Reorganization
(b) ........................ The Reorganization -- Capitalization Table (Unaudited)
5 (a) ........................ Registrant's Prospectus
(b) ........................ *
(c) ........................ *
(d) ........................ *
(e) ........................ Available Information
(f) ........................ Available Information
6 (a) ........................ Prospectus of Morgan Stanley Dean Witter Multi-State
Municipal Series Trust
(b) ........................ Available Information
(c) ........................ *
(d) ........................ *
7 (a) ........................ Introduction -- Proxies
(b) ........................ *
(c) ........................ Introduction; The Reorganization -- Appraisal Rights
8 (a) ........................ The Reorganization
(b) ........................ *
9 .......................... *
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ------------------------------ -----------------------------------------------------------
<S> <C>
10(a) ........................ Cover Page
(b) ........................ *
11 .......................... Table of Contents
12(a) ........................ Additional Information about Morgan Stanley Dean Witter
New York Tax-Free Income Fund
(b) ........................ *
(c) ........................
13(a) ........................ Additional Information about Morgan Stanley Dean Witter
Multi-State Municipal Series Trust
(b) ........................ *
(c) ........................ *
14 ........................ Registrant's Annual Report for the fiscal year ended
December 31, 1999. Morgan Stanley Dean Witter
Multi-State Municipal Series Trust's Annual Report for the
fiscal year ended November 30, 1999.
<CAPTION>
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- ------------------------------ --------------------------
<S> <C>
15 .......................... Indemnification
16 .......................... Exhibits
17 .......................... Undertakings
</TABLE>
- ----------
* Not Applicable or negative answer
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NEW YORK SERIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 22, 2000
TO THE SHAREHOLDERS OF THE NEW YORK SERIES, A SERIES OF MORGAN STANLEY DEAN
WITTER MULTI-STATE MUNICIPAL SERIES TRUST :
Notice is hereby given of a Special Meeting of the Shareholders of the New
York Series ("New York Series"), a portfolio of Morgan Stanley Dean Witter
Multi-State Municipal Series Trust ("Multi-State"), to be held in Conference
Room A, Forty-Fourth Floor, Two World Trade Center, New York, New York 10048, at
10:00 A.M., New York time, on June 22, 2000, and any adjournments thereof (the
"Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
January 26, 2000 (the "Reorganization Agreement"), between Multi-State, on
behalf of New York Series, and Morgan Stanley Dean Witter New York Tax-Free
Income Fund ("New York Tax-Free"), pursuant to which substantially all of
the assets of New York Series would be combined with those of New York
Tax-Free and shareholders of New York Series would become shareholders of
New York Tax-Free receiving Class D shares of New York Tax-Free with a
value equal to the value of their holdings in New York Series (the
"Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on March
17, 2000 are entitled to notice of, and to vote at, the Meeting. Please read the
Proxy Statement and Prospectus carefully before telling us, through your proxy
or in person, how you wish your shares to be voted. Alternatively, if you are
eligible to vote telephonically by touchtone telephone or electronically on the
Internet (as discussed in the enclosed Proxy Statement) you may do so in lieu of
attending the Meeting in person. THE BOARD OF TRUSTEES OF MULTI-STATE RECOMMENDS
YOU VOTE IN FAVOR OF THE REORGANIZATION. WE URGE YOU TO SIGN, DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
March , 2000
- --------------------------------------------------------------------------------
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY
IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. AS
DISCUSSED IN THE ENCLOSED PROXY STATEMENT, CERTAIN SHAREHOLDERS WILL BE ABLE
TO VOTE TELEPHONICALLY BY TOUCHTONE TELEPHONE OR ELECTRONICALLY ON THE
INTERNET BY FOLLOWING INSTRUCTIONS ON THEIR PROXY CARDS OR ON THE ENCLOSED
VOTING INFORMATION CARD.
- --------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER
NEW YORK TAX-FREE INCOME FUND
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(800) 869-NEWS
ACQUISITION OF THE ASSETS OF
THE NEW YORK SERIES, A SERIES OF
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
BY AND IN EXCHANGE FOR CLASS D SHARES OF
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
the New York Series ("New York Series"), a portfolio of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust ("Multi-State"), in connection with an
Agreement and Plan of Reorganization, dated January 26, 2000 (the
"Reorganization Agreement"), pursuant to which substantially all the assets of
New York Series will be combined with those of Morgan Stanley Dean Witter New
York Tax-Free Income Fund ("New York Tax-Free") in exchange for Class D shares
of New York Tax-Free (the "Reorganization"). As a result of this transaction,
shareholders of New York Series will become shareholders of New York Tax-Free
and will receive Class D shares of New York Tax-Free with a value equal to the
value of their holdings in New York Series. The terms and conditions of this
transaction are more fully described in this Proxy Statement and Prospectus and
in the Reorganization Agreement between Multi-State, on behalf of New York
Series, and New York Tax-Free, attached hereto as Exhibit A. The address of New
York Series is that of New York Tax-Free set forth above. This Proxy Statement
also constitutes a Prospectus of New York Tax-Free, which is dated March , 2000,
filed by New York Tax-Free with the Securities and Exchange Commission (the
"Commission") as part of its Registration Statement on Form N-14 (the
"Registration Statement").
New York Tax-Free is an open-end diversified management investment company
whose investment objective is to provide a high level of current income exempt
from federal, New York State and New York City income tax or other local income
taxes, consistent with preservation of capital. The fund seeks to achieve its
objective by investing at least 80% of its assets in securities that pay
interest exempt from federal and New York State and New York City income taxes.
This Proxy Statement and Prospectus sets forth concisely information about
New York Tax-Free that shareholders of New York Series should know before voting
on the Reorganization Agreement. A copy of the Prospectus for New York Tax-Free
dated February 22, 2000, is attached as Exhibit B and incorporated herein by
reference. Also enclosed and incorporated herein by reference is New York
Tax-Free's Annual Report for the fiscal year ended December 31, 1999. A
Statement of Additional Information relating to the Reorganization, described in
this Proxy Statement and Prospectus (the "Additional Statement"), dated March ,
2000, has been filed with the Commission and is also incorporated herein by
reference. Also incorporated herein by reference are Multi-State's Prospectus,
dated February 25, 2000, and Annual Report for its fiscal year ended November
30, 1999. Such documents are available without charge by calling (800) 869-NEWS
(TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED MARCH , 2000.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ............................................................................. 1
General ................................................................................ 1
Record Date; Share Information ......................................................... 1
Proxies ................................................................................ 2
Expenses of Solicitation ............................................................... 2
Vote Required .......................................................................... 3
SYNOPSIS ................................................................................. 3
The Reorganization ..................................................................... 3
Fee Table .............................................................................. 4
Tax Consequences of the Reorganization ................................................. 6
Comparison of New York Series and New York Tax-Free .................................... 6
PRINCIPAL RISK FACTORS ................................................................... 8
THE REORGANIZATION ....................................................................... 8
The Proposal ........................................................................... 8
The Board's Consideration .............................................................. 9
The Reorganization Agreement ........................................................... 10
Tax Aspects of the Reorganization ...................................................... 12
Description of Shares .................................................................. 13
Capitalization Table (unaudited) ....................................................... 13
Appraisal Rights ....................................................................... 13
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ........................... 13
Investment Objectives and Policies ..................................................... 13
Investment Restrictions ................................................................ 14
ADDITIONAL INFORMATION ABOUT NEW YORK SERIES AND NEW YORK
TAX-FREE ................................................................................ 15
General ................................................................................ 15
Financial Information .................................................................. 15
Management ............................................................................. 15
Description of Securities and Shareholder Inquiries .................................... 15
Dividends, Distributions and Taxes ..................................................... 15
Purchases, Repurchases and Redemptions ................................................. 15
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE .............................................. 15
FINANCIAL STATEMENTS AND EXPERTS ......................................................... 16
LEGAL MATTERS ............................................................................ 16
AVAILABLE INFORMATION .................................................................... 16
OTHER BUSINESS ........................................................................... 16
Exhibit A - Agreement and Plan of Reorganization, dated January 26, 2000, by and between
Multi-State, on behalf of New York Series, and New York Tax-Free ........................ A-1
Exhibit B - Prospectus of New York Tax-Free dated February 22, 2000 ...................... B-1
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NEW YORK SERIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
--------------------
PROXY STATEMENT AND PROSPECTUS
--------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 22, 2000
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of the New York Series ("New York Series"), a portfolio of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust ("Multi-State"), an open-end
non-diversified management investment company, in connection with the
solicitation by the Board of Trustees of Multi-State (the "Board") of proxies to
be used at the Special Meeting of Shareholders of New York Series to be held in
Conference Room A, Forty-Fourth Floor, Two World Trade Center, New York, New
York 10048 at 10:00 A.M., New York time, on June 22, 2000, and any adjournments
thereof (the "Meeting"). It is expected that the mailing of this Proxy Statement
and Prospectus will be made on or about March , 2000.
At the Meeting, New York Series shareholders ("Shareholders") will consider
and vote upon an Agreement and Plan of Reorganization, dated January 26, 2000
(the "Reorganization Agreement"), between Multi-State, on behalf of New York
Series, and Morgan Stanley Dean Witter New York Tax-Free Income Fund ("New York
Tax-Free") pursuant to which substantially all of the assets of New York Series
will be combined with those of New York Tax-Free in exchange for Class D shares
of New York Tax-Free. As a result of this transaction, Shareholders will become
shareholders of New York Tax-Free and will receive Class D shares of New York
Tax-Free equal to the value of their holdings in New York Series on the date of
such transaction (the "Reorganization"). The Class D shares to be issued by New
York Tax-Free pursuant to the Reorganization (the "New York Tax-Free Shares")
will be issued at net asset value without an initial sales charge. Further
information relating to New York Tax-Free is set forth herein and in New York
Tax-Free's current Prospectus, dated February 22, 2000 ("New York Tax-Free's
Prospectus"), attached to this Proxy Statement and Prospectus and incorporated
herein by reference.
The information concerning New York Series contained herein has been
supplied by Multi-State and the information concerning New York Tax-Free
contained herein has been supplied by New York Tax-Free.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on March 17, 2000 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were [ ]
shares of New York Series issued and outstanding. Shareholders on the Record
Date are entitled to one vote per share on each matter submitted to a vote at
the Meeting. A majority of the outstanding shares entitled to vote, represented
in person or by proxy, will constitute a quorum at the Meeting.
1
<PAGE>
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of New York Series as of the Record Date: .
As of the Record Date, the trustees and officers of Multi-State, as a group,
owned less than 1% of the outstanding shares of New York Series.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of New York Tax-Free as of the Record
Date: . As of the Record Date, the trustees and officers of New York
Tax-Free, as a group, owned less than 1% of the outstanding shares of New York
Tax-Free.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special Meeting
of Shareholders, to be presented for consideration at the Meeting. However, the
proxy confers discretionary authority upon the persons named therein to vote as
they determine on other business, not currently contemplated, which may come
before the Meeting. Abstentions and, if applicable, broker "non-votes" will not
count as votes in favor of the Reorganization Agreement, and broker "non-votes"
will not be deemed to be present at the meeting for purposes of determining
whether the Reorganization Agreement has been approved. Broker "non-votes" are
shares held in street name for which the broker indicates that instructions have
not been received from the beneficial owners or other persons entitled to vote
and for which the broker does not have discretionary voting authority. If a
Shareholder executes and returns a proxy but fails to indicate how the votes
should be cast, the proxy will be voted in favor of the Reorganization
Agreement. The proxy may be revoked at any time prior to the voting thereof by:
(i) delivering written notice of revocation to the Secretary of Multi-State at
Two World Trade Center, New York, New York 10048; (ii) attending the Meeting and
voting in person; or (iii) completing and returning a new proxy (whether by mail
or, as discussed below, by touchtone telephone or the Internet) (if returned and
received in time to be voted). Attendance at the Meeting will not in and of
itself revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of New
York Series present in person or by proxy at the Meeting. The persons named as
proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the Reorganization Agreement and will vote against
any such adjournment those proxies required to be voted against the
Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by New York Series,
which expenses are expected to approximate $65,000. New York Series and New
York Tax-Free will bear all of their respective other expenses associated with
the Reorganization. In addition to the solicitation of proxies by mail, proxies
may be solicited by officers of Multi-State, and officers and regular employees
of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager") and Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), an affiliate
of MSDW Advisors, personally or by mail, telephone, telegraph or otherwise,
without compensation therefor. Brokerage houses, banks and other fiduciaries
may be requested to forward soliciting material to the beneficial owners of
shares and to obtain authorization for the execution of proxies.
Shareholders whose shares are registered with MSDW Trust will be able to
vote their shares by touchtone telephone or by Internet by following the
instructions on the proxy card or on the Voting Information Card
2
<PAGE>
accompanying this Proxy Statement and Prospectus. To vote by touchtone
telephone, Shareholders can call the toll-free number 1-800-690-6903. To vote
by Internet, Shareholders can access the websites www.msdwt.com or
www.proxyvote.com. Telephonic and Internet voting with MSDW Trust presently are
not available to Shareholders whose shares are held in street name.
In certain instances, MSDW Trust, an affiliate of MSDW Advisors, may call
Shareholders to ask if they would be willing to have their votes recorded by
telephone. The telephone voting procedure is designed to authenticate
Shareholders' identities, to allow Shareholders to authorize the voting of
their shares in accordance with their instructions and to confirm that their
instructions have been recorded properly. No recommendation will be made as to
how a Shareholder should vote on the Reorganization Agreement other than to
refer to the recommendation of the Board. Multi-State, on behalf of New York
Series, has been advised by counsel that these procedures are consistent with
the requirements of applicable law. Shareholders voting by telephone in this
manner will be asked for their social security number or other identifying
information and will be given an opportunity to authorize proxies to vote their
shares in accordance with their instructions. To ensure that the Shareholders'
instructions have been recorded correctly, they will receive a confirmation of
their instructions in the mail. A special toll-free number will be available in
case the information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and Prospectus and may vote by mail using the
enclosed proxy card or by touchtone telephone or the Internet as set forth
above. The last proxy vote received in time to be voted, whether by proxy card,
touchtone telephone or Internet, will be the vote that is counted and will
revoke all previous votes by the Shareholder.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of New York
Series represented in person or by proxy and entitled to vote at the Meeting,
provided a quorum is present at the Meeting. If the Reorganization Agreement is
not approved by Shareholders, New York Series will continue in existence and the
Board will consider alternative actions.
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and Reorganization Agreement in their
entirety and, in particular, New York Tax-Free's Prospectus, which is attached
to this Proxy Statement and incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially all
the assets of New York Series, subject to stated liabilities, to New York
Tax-Free in exchange for the New York Tax-Free Shares. The aggregate net asset
value of the New York Tax-Free Shares issued in the exchange will equal the
aggregate value of the net assets of New York Series received by New York
Tax-Free. On or after the closing date scheduled for the Reorganization (the
"Closing Date"), New York Series will distribute the New York Tax-Free Shares
received by New York Series to Shareholders as of the Valuation Date (as defined
below under "The Reorganization Agreement") in complete liquidation of New York
Series and New York Series will thereafter be dissolved as a portfolio of
Multi-State under Massachusetts law. As a result of the Reorganization, each
Shareholder will receive that number of full and fractional New York Tax-Free
Shares equal in value to such Shareholder's pro rata interest in the net assets
of New York Series transferred to New York Tax-Free. Accordingly, as a result of
the Reorganization, each Shareholder of New York Series will become a holder of
Class D shares of New York Tax-Free. Shareholders holding their shares of New
York Series in certificate form
3
<PAGE>
will be asked to surrender their certificates in connection with the
Reorganization. Shareholders who do not surrender their certificates prior to
the Closing Date will still receive their shares of New York Tax-Free; however,
such Shareholders will not be able to redeem, transfer or exchange the New York
Tax-Free Shares received until the old certificates have been surrendered. The
Board has determined that the interests of Shareholders will not be diluted as
a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF MULTI-STATE, ON BEHALF OF NEW YORK SERIES ("INDEPENDENT TRUSTEES"),
AS THAT TERM IS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE
"1940 ACT"), HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS OF
NEW YORK SERIES AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.
FEE TABLE
New York Series and New York Tax-Free each pay expenses for management of
their assets, distribution of their shares and other services, and those
expenses are reflected in the net asset value per share of each fund. Class D
shares of New York Tax-Free do not pay distribution-related fees; however, the
other three Classes offered by New York Tax-Free pay fees for the distribution
of their shares. The following table briefly describes the fees and expenses
that a shareholder of New York Series and a Class D shareholder of New York
Tax-Free may pay if they buy and hold shares of each respective fund. These
expenses are deducted from each respective fund's assets and are based on
expenses paid by New York Series for its fiscal year ended November 30, 1999,
and by Class D shares of New York Tax-Free for its fiscal year ended December
31, 1999. The table also sets forth pro forma fees for the surviving combined
fund (New York Tax-Free) reflecting what the fee schedule would have been on
December 31, 1999, if the Reorganization had been consummated twelve (12) months
prior to that date and assuming Class D fees and expenses.
Shareholder Fees
<TABLE>
<CAPTION>
NEW YORK PRO FORMA
NEW YORK TAX-FREE COMBINED
SERIES (CLASS D) (CLASS D)
-------------- ----------- ----------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE) 4.0%(1) none none
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED
DIVIDENDS none none none
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (LOAD) (AS A
PERCENTAGE OF THE LESSER OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PROCEEDS) none none none
REDEMPTION FEES none none none
EXCHANGE FEE none none none
</TABLE>
4
<PAGE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
NEW YORK PRO FORMA
NEW YORK TAX-FREE COMBINED
SERIES (CLASS D) (CLASS D)
--------------- ------------- -----------
<S> <C> <C> <C>
MANAGEMENT FEES 0.35% 0.55% 0.55%
DISTRIBUTION AND SERVICE (12B-1) FEES 0.15%(2) none none
OTHER EXPENSES 0.43% 0.18% 0.17%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.93% 0.73% 0.72%
</TABLE>
- ----------
(1) Reduced for purchases of $25,000 and over.
(2) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by New York Series is characterized as a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD")
guidelines and are payments made for personal service and/or maintenance
of shareholder accounts.
EXAMPLE
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. The Example assumes that
an investor invests $10,000 in either New York Series or Class D shares of New
York Tax-Free or the new combined fund (New York Tax-Free), that the investment
has a 5% return each year and that the operating expenses for each fund remain
the same (as set forth in the chart above). Although a shareholder's actual
costs may be higher or lower, the tables below show a shareholder's costs at
the end of each period based on these assumptions depending upon whether or not
a shareholder sold his shares at the end of each period.
If a Shareholder SOLD His Shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
New York Series ....................... $491 $685 $894 $1,497
New York Tax-Free (Class D) ........... $ 75 $233 $406 $ 906
Pro Forma Combined (Class D) .......... $ 74 $230 $401 $ 894
</TABLE>
If a Shareholder HELD His Shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
New York Series ....................... $491 $685 $894 $1,497
New York Tax-Free (Class D) ........... $ 75 $233 $406 $ 906
Pro Forma Combined (Class D) .......... $ 74 $230 $401 $ 894
</TABLE>
5
<PAGE>
The purpose of the foregoing fee table is to assist the investor or
shareholder in understanding the various costs and expenses that an investor or
shareholder in the fund will bear directly or indirectly. For a more complete
description of these costs and expenses, see "Comparison of New York Series and
New York Tax-Free -- Investment Management and Distribution Plan Fees, Other
Significant Fees, and Purchases, Exchanges and Redemptions" below.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Multi-State, on behalf of New York
Series, and New York Tax-Free, will receive an opinion of Mayer, Brown & Platt
to the effect that the Reorganization will constitute a tax-free reorganization
for federal income tax purposes, and that no gain or loss will be recognized by
New York Series or the shareholders of New York Series for federal income tax
purposes as a result of the transactions included in the Reorganization. For
further information about the tax consequences of the Reorganization, see "The
Reorganization -- Tax Aspects of the Reorganization" below.
COMPARISON OF NEW YORK SERIES AND NEW YORK TAX-FREE
INVESTMENT OBJECTIVES AND POLICIES. New York Series and New York Tax-Free
have similar investment objectives. Both New York Series and New York Tax-Free
seek to provide a high level of current income exempt from federal and New York
State income taxes consistent with the preservation of capital. New York
Tax-Free also seeks, as its investment objective, a high level of current income
exempt from New York City or other local income taxes.
Both funds seek to achieve their investment objectives by investing at
least 80% of their respective total assets in securities, the interest of which
is exempt from federal and New York state income taxes and, in the case of New
York Tax-Free, New York City income taxes.
The investment policies of both funds are essentially the same; the
principal differences between them are described under "Comparison of Investment
Objectives, Policies and Restrictions" below.
Other than each fund's policy of investing at least 80% of its assets in
New York tax-exempt securities, the investment policies of both New York Series
and New York Tax-Free are not fundamental and may be changed by their respective
Boards of Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. New York Series and New
York Tax-Free obtain management services from MSDW Advisors. With respect to New
York Series, the fund pays MSDW Advisors monthly compensation calculated daily
at an annual rate of 0.35% of the fund's average daily net assets. With respect
to New York Tax-Free, the fund pays MSDW Advisors monthly compensation
calculated daily by applying the annual rate of 0.55% to the portion of the
fund's average daily net assets not exceeding $500 million and 0.525% to the
portion of such daily net assets exceeding $500 million. Each class of shares of
New York Tax-Free is subject to the same management fee rates.
Multi-State has adopted a distribution plan ("Plan") pursuant to Rule 12b-1
under the 1940 Act whereby each series, including New York Series, reimburses
the Distributor and others for the expenses of certain activities and services
incurred by them in connection with the distribution of each respective series'
shares. Reimbursement for these expenses is made in monthly payments by, in this
case, New York Series, to the Distributor, which will in no event exceed amounts
equal to payment at the annual rate of 0.15% of the average daily net assets of
New York Series. There are no 12b-1 fees applicable to New York Tax Free's Class
D shares. For further information relating to the 12b-1 fees applicable to each
class of New York Tax-Free's shares, see the section entitled "Share Class
Arrangements" in New York Tax-Free's Prospectus, attached hereto.
6
<PAGE>
OTHER SIGNIFICANT FEES. Both New York Series and New York Tax-Free pay
additional fees in connection with their operations, including legal, auditing,
transfer agent, trustees fees and custodial fees. See "Synopsis -- Fee Table"
above for the percentage of average net assets represented by such "Other
Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Shares of New York Series are sold at
net asset value plus an initial sales charge of up to 4.0%. The initial sales
charge is reduced for certain purchases. Shares of New York Series may be
redeemed for cash without redemption or other charge at any time at the net
asset value per share next determined. Class D shares of New York Tax-Free are
currently offered at net asset value and such shares may be redeemed for cash
without redemption or other charge at the net asset value per share next
determined. Normally, Class D shares of New York Tax-Free are offered only to a
limited group of investors. Subsequent to the Reorganization, all New York
Series shares will be designated Class D shares of New York Tax-Free. However,
additional investments (except for reinvestment of distributions received on
shares acquired as a result of the Reorganization) in Class D shares of New York
Tax-Free (or in Class D shares of any other Morgan Stanley Dean Witter Fund) by
Shareholders holding such shares may only be made if those Shareholders are
otherwise eligible to purchase Class D shares. Class D shares acquired in the
Reorganization may, however, be exchanged for Class D shares of another Morgan
Stanley Dean Witter Fund pursuant to Class D's exchange privileges discussed
below.
New York Tax-Free offers four classes of shares (Class A, Class B, Class C
and Class D) which differ principally in terms of sales charges, distribution
and service fees and ongoing expenses. For further information relating to each
of the classes of New York Tax-Free's shares, see the section entitled "Share
Class Arrangements" in New York Tax-Free's Prospectus.
Shares of New York Series currently may be exchanged for shares of any
other Multi-State series, for Class A shares of any Morgan Stanley Dean Witter
Fund that offers its shares in more than one class, for shares of Morgan Stanley
Dean Witter Hawaii Municipal Trust, Morgan Stanley Dean Witter Short-Term U.S.
Treasury Trust, Morgan Stanley Dean Witter North American Government Income
Trust, Morgan Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley
Dean Witter Short-Term Bond Fund and for shares of the five Morgan Stanley Dean
Witter Funds that are money market funds. Class D shares of New York Tax-Free
may be exchanged for Class D shares of any other Morgan Stanley Dean Witter Fund
that offers its shares in more than one class, or any of Morgan Stanley Dean
Witter Short-Term U.S. Treasury Trust, Morgan Stanley Dean Witter North American
Government Income Trust, Morgan Stanley Dean Witter Limited Term Municipal
Trust, Morgan Stanley Dean Witter Short-Term Bond Fund and the five Morgan
Stanley Dean Witter Funds that are money market funds (the foregoing funds are
collectively referred to as the "Exchange Funds"), without the imposition of an
exchange fee.
Both New York Series and New York Tax-Free provide telephone exchange
privileges to their shareholders. For greater details relating to exchange
privileges applicable to New York Tax-Free, see the section entitled "How to
Exchange Shares" in New York Tax-Free's Prospectus.
Both New York Series and New York Tax-Free may redeem involuntarily, at net
asset value, most accounts valued at less than $100. However, both funds offer a
reinstatement privilege whereby a shareholder who has not previously exercised
such privilege whose shares have been redeemed or repurchased may, within
thirty-five days after the date of redemption or repurchase, reinstate any
portion or all of the proceeds thereof in shares of the same class from which
such shares were redeemed or repurchased.
DIVIDENDS. New York Series and New York Tax-Free each declare income
dividends daily and pay dividends from net investment income monthly. Both New
York Series and New York Tax-Free distribute net capital gains, if any, at least
annually in December. Each, however, may determine either to distribute or to
retain all or part of any net long-term capital gains in any year for
reinvestment. With respect to both New York Series and New York Tax-Free,
dividends and capital gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder elects to receive
cash.
7
<PAGE>
PRINCIPAL RISK FACTORS
The share price or net asset value of New York Tax-Free and New York Series
will fluctuate with changes in the market value of their respective portfolio
securities. The market value of the funds' portfolio securities will increase or
decrease due to a variety of economic, market and political factors, including
changes in prevailing interest rates, which cannot be predicted. The principal
risks of an investment in either New York Tax-Free or New York Series are the
risks associated with their respective fixed-income securities which primarily
consist of municipal obligations. Fixed income 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 certain municipal obligations known as revenue bonds, the
credit risk refers to the possibility that the user fees from a project or
specified revenue source are insufficient to meet interest and/or principal
payment obligations or the credit impairment of the user. New York Tax-Free and
New York Series are subject to the added credit risk of concentrating their
investments in a single state - New York. Because both funds concentrate their
investments in securities issued by New York state and local governments and
government authorities, both funds will be significantly affected by the
political, economic and regulatory developments concerning those issuers. Should
any difficulties develop concerning New York issuers' abilities to pay principal
and/or interest on their debt obligations, the value and yield of both funds
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.
Unlike New York Tax-Free, New York Series is classified as
"non-diversified" and, as such, its investments are not required to meet certain
diversification requirements under federal law. Compared with "diversified"
funds such as New York Tax-Free, New York Series may invest a greater percentage
of its assets in the securities of an individual issuer. Thus, New York Series'
assets may be concentrated in fewer securities than New York Tax-Free. A decline
in the value of those investments may cause New York Series' overall value to
decline to a greater degree than New York Tax-Free.
Both New York Tax-Free and New York Series may invest a portion of their
respective assets in inverse floating rate municipal obligations which are
obligations that are typically created through a division of a fixed rate
municipal obligation in two separate instruments, a short-term obligation and a
long-term obligation. The interest rates on inverse floating rate municipal
obligations generally move in the reverse direction of market interest rates.
Inverse floating rate municipal obligations offer the potential for higher
income than is available from fixed rate obligations of comparable maturity and
credit rating but 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.
Both New York Tax-Free and New York Series may invest in lease obligations
and futures which involve certain risks.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Principal Risks" and
"Additional Risk Information" in the Prospectus of Multi-State and in New York
Tax-Free's Prospectus attached hereto and incorporated herein by reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Multi-State, on behalf of New York Series,
including the Independent Trustees, having reviewed the financial position of
New York Series and the prospects for achieving economies of scale
8
<PAGE>
through the Reorganization and having determined that the Reorganization is in
the best interests of New York Series and its Shareholders and that the
interests of Shareholders will not be diluted as a result thereof, recommends
approval of the Reorganization by Shareholders of New York Series.
THE BOARD'S CONSIDERATION
At a meeting held on January 26, 2000, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders approve the Reorganization Agreement.
In reaching this decision, the Board made an extensive inquiry into a number of
factors, particularly the comparative expenses currently incurred in the
operations of New York Series and the Class D shares of New York Tax-Free. The
Board also considered other factors, including, but not limited to: the small
asset base of New York Series which may affect the long-term economic viability
of the fund because of higher costs and disadvantageous economies of scale; the
general compatibility of the investment objectives, policies, restrictions and
portfolios of New York Series and New York Tax-Free; the terms and conditions of
the Reorganization which would affect the price of shares to be issued in the
Reorganization; the tax-free nature of the Reorganization; and any direct or
indirect costs to be incurred by New York Series and New York Tax-Free in
connection with the Reorganization.
In recommending the Reorganization to Shareholders, the Board of
Multi-State, on behalf of New York Series, considered that the Reorganization
would have the following benefits to Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by Class D shareholders of the "combined fund" will be significantly lower
on a percentage basis than the expenses per share of New York Series although
the investment management fee of New York Tax-Free is higher than the investment
management fee of New York Series. The combined fund's expenses would be lower
in part because Class D shares of New York Tax-Free bear no 12b-1 fees, whereas
New York Series is subject to a 12b-1 fee of up to 0.15% of its average net
assets. Furthermore, the estimated current rate of other expenses to be paid by
Class D of the surviving New York Tax-Free (0.17% of average daily net assets)
would be lower than the rate of other expenses currently paid by New York Series
(0.43% of average daily net assets). In addition, to the extent that the
Reorganization would result in Shareholders becoming shareholders of a combined
larger fund, further economies of scale could be achieved since various fixed
expenses (e.g., auditing and legal) can be spread over a larger number of
shares. The Board noted that the expense ratio for New York Series was higher (
0.93% for its fiscal year ended November 30, 1999) than the expense ratio for
Class D shares of New York Tax-Free (0.72% for its fiscal year ended December
31, 1999).
2. Shareholders will be able to participate in an expanded diversified
portfolio of New York municipal issuers through investment in New York Tax-Free.
3. Shareholders would have the ability to exchange their Class D shares of
New York Tax-Free acquired as a result of the Reorganization into Class D shares
of any Morgan Stanley Dean Witter Multi-Class Fund. Currently, Shareholders may
only exchange into Class A shares of any Morgan Stanley Dean Witter Multi-Class
Fund. Class D shares bear lower expenses than Class A shares.
4. The Reorganization is intended to qualify as a tax-free reorganization
for Federal income tax purposes, pursuant to which no gain or loss will be
recognized by New York Series or its Shareholders for Federal income tax
purposes as a result of transactions included in the Reorganization.
5. The Board also took into consideration that absent the Reorganization,
New York Tax-Free will continue to compete for investor funds with New York
Series and that it appeared unlikely that New York
9
<PAGE>
Series would experience a material growth in assets in the future. The
Reorganization should allow for more concentrated selling efforts to the
benefit of both New York Series and New York Tax-Free shareholders and avoid
the inefficiencies associated with the operation and distribution of two
similar funds through the same sales organization.
The Board of Trustees of New York Tax-Free, including a majority of the
Independent Trustees of New York Tax-Free, also have determined that the
Reorganization is in the best interests of New York Tax-Free and its
shareholders and that the interests of existing shareholders of New York
Tax-Free will not be diluted as a result thereof. The transaction will enable
New York Tax-Free to acquire investment securities which are consistent with New
York Tax-Free's investment objective, without the costs attendant to the
purchase of such securities in the market. Also, the addition of assets to New
York Tax-Free's portfolio could, in the future, help New York Tax-Free to reach
a lower breakpoint rate reduction in the investment management fee. Furthermore,
like the Shareholders of New York Series, the shareholders of New York Tax-Free
may also realize an intangible benefit in having the Morgan Stanley Dean Witter
sales organization concentrate its selling efforts on one rather than two
similar funds, which may result in further economies of scale. Finally, the
Board considered that even if the benefits enumerated above are not realized,
the costs to the Fund are sufficiently minor to warrant taking the opportunity
to realize those benefits.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization Agreement.
This summary is qualified in its entirety by reference to the Reorganization
Agreement, a copy of which is attached as Exhibit A to this Proxy Statement and
Prospectus.
The Reorganization Agreement provides that (i) New York Series will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by New York Series as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the dissolution), cash equivalents
and receivables to New York Tax-Free on the Closing Date in exchange for the
assumption by New York Tax-Free of stated liabilities of New York Series,
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of New York Series prepared by the
Treasurer of Multi-State, on behalf of New York Series, as of the Valuation Date
(as defined below) in accordance with generally accepted accounting principles
consistently applied from the prior audited period, and the delivery of the New
York Tax-Free Shares; (ii) such New York Tax-Free Shares would be distributed to
Shareholders on the Closing Date or as soon as practicable thereafter; (iii) New
York Series would be dissolved; and (iv) the outstanding shares of New York
Series would be canceled.
The number of New York Tax-Free Shares to be delivered to New York Series
will be determined by dividing the aggregate net asset value of the shares of
New York Series acquired by New York Tax-Free by the net asset value per share
of the Class D shares of New York Tax-Free; these values will be calculated as
of the close of business of the New York Stock Exchange on the third business
day following the receipt of the requisite approval by Shareholders of the
Reorganization Agreement or at such other time as New York Series and New York
Tax-Free may agree (the "Valuation Date"). As an illustration, assume that on
the Valuation Date, the shares of New York Series had an aggregate net asset
value (not including any Cash Reserve of New York Series) of $100,000. If the
net asset value per Class D share of New York Tax-Free were $10 per share at
the close of business on the Valuation Date, the number of Class D shares of
New York Tax-Free to be issued would be 10,000 ($100,000 (divided by) $10).
These 10,000 Class D shares of of New York Tax-Free would be distributed to the
former shareholders of New York Series. This example is given for illustration
purposes only and does not bear any relationship to the dollar amounts or
shares expected to be involved in the Reorganization.
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<PAGE>
On the Closing Date or as soon as practicable thereafter, New York Series
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the New York Tax-Free Shares it receives. Each
Shareholder will receive Class D shares of New York Tax-Free that corresponds
to the shares of New York Series currently held by that Shareholder. New York
Tax-Free will cause its transfer agent to credit and confirm an appropriate
number of New York Tax-Free Shares to each Shareholder. Certificates for New
York Tax-Free Shares will be issued only upon written request of a Shareholder
and only for whole shares, with fractional shares credited to the name of the
Shareholder on the books of New York Tax-Free. Shareholders who wish to receive
certificates representing their New York Tax-Free Shares must, after receipt of
their confirmations, make a written request to New York Tax-Free's transfer
agent Morgan Stanley Dean Witter Trust FSB, Harborside Financial Center, Jersey
City, New Jersey 07311. Shareholders of New York Series holding their shares in
certificate form will be asked to surrender such certificates in connection
with the Reorganization. Shareholders who do not surrender their certificates
prior to the Closing Date will still receive their shares of New York Tax-Free;
however, such Shareholders will not be able to redeem, transfer or exchange the
New York Tax-Free Shares received until the old certificates have been
surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval of
the Reorganization by the Shareholders and the receipt of the other opinions and
certificates set forth in Sections 6, 7 and 8 of the Reorganization Agreement
and the occurrence of the events described in those Sections, certain of which
may be waived by New York Series or New York Tax-Free. The Reorganization
Agreement may be amended in any mutually agreeable manner. All expenses of this
solicitation, including the cost of preparing and mailing this Proxy Statement
and Prospectus, will be borne by New York Series, which expenses are expected to
approximate $65,000. New York Series and New York Tax-Free will bear all of
their respective other expenses associated with the Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Multi-State, on behalf of New York Series, and New York Tax-Free. In
addition, either party may terminate the Reorganization Agreement upon the
occurrence of a material breach of the Reorganization Agreement by the other
party or if, by September 30, 2000, any condition set forth in the
Reorganization Agreement has not been fulfilled or waived by the party entitled
to its benefits.
Under the Reorganization Agreement, within one year after the Closing Date,
Multi-State, on behalf of New York Series, shall: either pay or make provision
for all of its liabilities and distribute any remaining amount of the Cash
Reserve (after paying or making provision for such liabilities and the estimated
cost of making the distribution) to former Shareholders of New York Series that
received New York Tax-Free Shares. New York Series shall be dissolved as a
portfolio of Multi-State under Massachusetts law promptly following the
distributions of shares of New York Tax-Free to Shareholders of record of New
York Series.
The effect of the Reorganization is that Shareholders who vote their shares
in favor of the Reorganization Agreement are electing to sell their shares of
New York Series (at net asset value on the Valuation Date calculated after
subtracting any Cash Reserve) and reinvest the proceeds in New York Tax-Free
Shares at net asset value and without recognition of taxable gain or loss for
Federal income tax purposes. See "Tax Aspects of the Reorganization" below. As
noted in "Tax Aspects of the Reorganization" below, if New York Series
recognizes net gain from the sale of securities prior to the Closing Date, such
gain, to the extent not offset by capital loss carryforwards, will be
distributed to Shareholders prior to the Closing Date and will be taxable to
Shareholders as capital gain.
Shareholders will continue to be able to redeem their shares of New York
Series at net asset value next determined after receipt of the redemption
request until the close of business on the business day next preceding the
Closing Date. Redemption requests received by Multi-State, on behalf of New York
Series, thereafter will be treated as requests for redemption of shares of New
York Tax-Free.
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TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, New York Series will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of distributing
to Shareholders all of New York Series' investment company taxable income for
all periods since the inception of New York Series through and including the
Valuation Date (computed without regard to any dividends paid deduction), and
all of New York Series' net capital gain, if any, realized in such periods
(after reduction for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code").
As a condition to the Reorganization, Multi-State, on behalf of New York
Series, and New York Tax-Free will receive an opinion of Mayer, Brown & Platt to
the effect that, based on certain assumptions, facts, the terms of the
Reorganization Agreement and representations set forth in the Reorganization
Agreement or otherwise provided by Multi-State, on behalf of New York Series,
and New York Tax-Free (including a representation to the effect that New York
Tax-Free has no plan or intention to sell or otherwise dispose of more than
fifty percent of the assets of New York Series acquired in the Reorganization
except for dispositions made in the ordinary course of business):
1. The transfer of New York Series' assets in exchange for the New York
Tax-Free Shares and the assumption by New York Tax-Free of certain stated
liabilities of New York Series followed by the distribution by New York Series
of the New York Tax-Free Shares to Shareholders in exchange for their New York
Series shares pursuant to and in accordance with the terms of the Reorganization
Agreement will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code, and New York Series and New York Tax-Free will each be
a "party to a reorganization" within the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by New York Tax-Free upon the receipt
of the assets of New York Series solely in exchange for the New York Tax-Free
Shares and the assumption by New York Tax-Free of the stated liabilities of New
York Series;
3. No gain or loss will be recognized by New York Series upon the transfer
of the assets of New York Series to New York Tax-Free in exchange for the New
York Tax-Free Shares and the assumption by New York Tax-Free of the stated
liabilities or upon the distribution of New York Tax-Free Shares to Shareholders
in exchange for their New York Series shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of New York Series for the New York Tax-Free Shares;
5. The aggregate tax basis for the New York Tax-Free Shares received by
each of the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in New York Series held by each such
Shareholder immediately prior to the Reorganization;
6. The holding period of the New York Tax-Free Shares to be received by
each Shareholder will include the period during which the shares in New York
Series surrendered in exchange therefor were held (provided such shares in New
York Series were held as capital assets on the date of the Reorganization);
7. The tax basis of the assets of New York Series acquired by New York
Tax-Free will be the same as the tax basis of such assets of New York Series
immediately prior to the Reorganization; and
8. The holding period of the assets of New York Series in the hands of New
York Tax-Free will include the period during which those assets were held by New
York Series.
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SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT THEIR
TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE PROPOSED
TRANSACTION.
DESCRIPTION OF SHARES
Class D shares of New York Tax-Free to be issued pursuant to the
Reorganization Agreement will, when issued, be fully paid and non-assessable by
New York Tax-Free and transferable without restrictions and will have no
preemptive rights. As stated above, Class D shares of New York Tax-Free are not
subject to any sales charge on purchase or redemption or any 12b-1 fee.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of New York Tax-Free and
New York Series as of January 31, 2000 and on a pro forma combined basis as if
the Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ------------- ----------
<S> <C> <C> <C>
New York Series ........................................ $ 10,586,266 1,055,511 $ 10.03
New York Tax-Exempt:
(Class A) ............................................. $ 402,776 37,567 $ 10.72
(Class B) ............................................. $120,727,732 11,235,460 $ 10.75
(Class C) ............................................. $ 804,628 75,030 $ 10.72
(Class D) ............................................. $ 114,883 10,703 $ 10.73
Total New York Tax-Exempt (Class A -- D) ............... $122,050,019 -- --
---------- -------
Combined Fund (pro forma) ..............................
(Class A) ............................................. $ 402,776 37,567 $ 10.72
(Class B) ............................................. $120,727,732 11,235,460 $ 10.75
(Class C) ............................................. $ 804,628 75,030 $ 10.72
(Class D) ............................................. $ 10,701,149 997,307 $ 10.73
Total Combined Fund (pro forma) (Class A -- D) ......... $132,636,285 -- --
---------- -------
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
New York Series and New York Tax-Free have similar investment objectives
and policies. New York Series seeks to provide a high level of current income
exempt from both federal and New York state income taxes, consistent with
preservation of capital. New York Tax-Free seeks to provide a high level of
current income exempt from federal, New York state and New York City income tax
or other local taxes, consistent with preservation of capital.
Both New York Series and New York Tax-Free invest at least 80% of their
assets in securities that pay interest exempt from federal and New York income
tax in accordance with their respective investment
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<PAGE>
objectives set forth above. Both New York Series and New York Tax-Free invest
in investment grade municipal obligations (municipal bonds, notes or commercial
paper), however, municipal bonds must be rated within the four highest grades
by Moody's Investors Service ("Moody's") or Standard & Poor's Corporation
("S&P") or Fitch Investors Service, LP ("Fitch"), municipal notes within the
two highest grades by Moody's, S&P or Fitch and municipal commercial paper
within the highest grade by Moody's, S&P and Fitch. Unrated securities may only
be purchased if such securities are judged by the Investment Manager to be of
comparable quality to the rated securities described above.
Both New York Series and New York Tax-Free may invest up to 10% of their
respective 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.
Both New York Series and New York Tax-Free may invest up to 20% of their
respective assets in taxable money market instruments and tax-exempt securities
of other states and municipalities.
New York Series may invest any amount of its assets in securities that pay
interest subject to the "alternative minimum tax" ("AMT") with the result that
some taxpayers may have to pay tax on income distributions from the New York
Series. New York Tax-Free may only invest up to 20% of its assets in securities
subject to the AMT unless the fund has adopted a temporary defensive posture as
set forth below.
Both New York Series and New York Tax-Free may take temporary "defensive"
positions in attempting to respond to adverse market conditions in which any
amount of their respective assets may be invested in taxable money market
securities or in tax-exempt municipal obligations issued by states other than
New York where interest on such obligations would normally be exempt from
federal income tax but not from New York income tax. In addition, during such a
defensive posture, New York Tax-Free may also invest any amount of its assets in
tax-exempt securities subject to the AMT.
Both New York Series and New York Tax-Free may (i) purchase securities on a
when-issued or delayed delivery basis, (ii) purchase or sell securities on a
forward commitment basis, (iii) purchase variable and floating rate municipal
obligations, (iv) enter into repurchase agreements subject to certain procedures
designed to minimize risks associated with such agreements, (v) purchase
industrial revenue bonds, including lease obligations, and private activity
bonds, (vi) invest in zero coupon securities, (vii) lend their portfolio
securities and (viii) enter into options and futures transactions.
The investment policies of both New York Series and New York Tax-Free are
not fundamental and may be changed by their respective Boards. However, the
policy of New York Series and New York Tax-Free of investing at least 80% of
their respective assets in New York tax-exempt securities is fundamental and may
not be changed without the approval of each fund's respective shareholders. The
foregoing discussion is a summary of the principal differences and similarities
between the investment policies of the funds. For a more complete discussion of
each fund's policies, see "Principal Investment Strategies" and "Additional
Investment Strategy Information" in New York Tax-Free's Prospectus and
"Principal Investment Strategy" and "Additional Investment Strategy Information"
in Multi-State's Prospectus; and "Description of the Fund and Its Investments
and Risks" in New York Tax-Free's Statement of Additional Information and
"Description of the Fund and the Investments and Risks of the Series" in New
York Series' Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by New York Series and New York
Tax-Free as fundamental policies are substantially similar and are summarized
under the caption "Description of the Fund and Its Investments and Risks -- Fund
Policies/Investment Restrictions" in their respective Statements of Additional
Information.
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A fundamental investment restriction cannot be changed without the vote of the
majority of the outstanding voting securities of a fund, as defined in the 1940
Act. The material differences are as follows: (a) New York Tax-Free may not, as
to 75% of its total assets, invest more than 5% of the value of its total
assets in the securities of any one issuer (other than U.S. Government
securities); New York Series, because it is a non-diversified fund, has no such
investment restriction but limits its investments of 5% or more in the
securities of any one issuer as to 50% of its total assets in order to qualify
as a regulated investment company under Subchapter M of the Code; and (b) New
York Tax-Free may not purchase more than 10% of all outstanding taxable debt
securities of any one issuer (other than obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities, or by the State of
New York or its political subdivisions); New York Series has no such investment
restriction.
ADDITIONAL INFORMATION ABOUT NEW YORK SERIES
AND NEW YORK TAX-FREE
GENERAL
For a discussion of the organization and operation of New York Tax-Free and
New York Series, see " Fund Management," and "Investment Objective" in their
respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about New York Tax-Free and New York
Series, see "Financial Highlights" and "Past Performance" in their respective
Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees, Investment Manager,
and the Distributor of New York Tax-Free and New York Series, see "Fund
Management" in their respective Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of New York Series and New York Tax-Free, and information regarding shareholder
inquiries, see "Capital Stock and Other Securities" in their respective
Statements of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of New York Tax-Free's and New York Series' policies with
respect to dividends, distributions and taxes, see "Distributions" and "Tax
Consequences" in their respective Prospectuses as well as the discussion herein
under "Synopsis -- Purchases, Exchanges and Redemptions."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how New York Tax-Free's and New York Series' shares may
be purchased, repurchased and redeemed, see "How to Buy Shares," "How to
Exchange Shares" and "How to Sell Shares" in their respective Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of New York Tax-Free's performance, see management's
letter to shareholders in its Annual Report for its fiscal year ended December
31, 1999 accompanying this Proxy Statement and Prospectus. For a discussion of
the performance of New York Series, see Multi-State's Annual Report for its
fiscal year ended November 30, 1999.
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FINANCIAL STATEMENTS AND EXPERTS
The financial statements of New York Tax-Free, for the year ended December
31, 1999, and New York Series, for the year ended November 30, 1999 that are
incorporated by reference in the Statement of Additional Information relating to
the Registration Statement on Form N-14 of which this Proxy Statement and
Prospectus forms a part, have been audited by PricewaterhouseCoopers LLP,
independent accountants. The financial statements have been incorporated by
reference in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of New York
Tax-Free will be passed upon by Mayer, Brown & Platt, New York, New York. Such
firm will rely on Lane Altman & Owens as to matters of Massachusetts law.
AVAILABLE INFORMATION
Additional information about New York Series and New York Tax-Free is
available, as applicable, in the following documents which are incorporated
herein by reference: (i) New York Tax-Free's Prospectus dated February 22, 2000,
attached to this Proxy Statement and Prospectus, which Prospectus forms a part
of Post-Effective Amendment No. 18 to New York Tax-Free's Registration Statement
on Form N-1A (File Nos. 2-95664; 811-4222); (ii) New York Tax-Free's Annual
Report for its fiscal year ended December 31, 1999, accompanying this Proxy
Statement and Prospectus; (iii) Multi-State's Prospectus dated February 25,
2000, which Prospectus forms a part of Post-Effective Amendment No. 12 to
Multi-State's Registration Statement on Form N-1A (File Nos. 33-37562;
811-6208); and (iv) Multi-State's Annual Report for its fiscal year ended
November 30, 1999. The foregoing documents may be obtained without charge by
calling (800) 869-NEWS (toll-free).
New York Series and New York Tax-Free are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about New York Series and New York
Tax-Free which are of public record can be inspected and copied at public
reference facilities maintained by the Commission at Room 1204, Judiciary Plaza,
450 Fifth Street, NW, Washington, D.C. 20549 and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549.
OTHER BUSINESS
Management of New York Series knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Trustees
Barry Fink,
Secretary
March , 2000
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
26th day of January, 2000, by and between MORGAN STANLEY DEAN WITTER NEW YORK
TAX-FREE INCOME FUND, a Massachusetts business trust ("New York Tax-Free") and
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST, a Massachusetts
business trust ("Multi-State"), on behalf of its series, NEW YORK SERIES ("New
York Series"). (Where appropriate, references to New York Series mean
Multi-State, on behalf of New York Series.)
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to New York Tax-Free of substantially all of the assets of New York
Series in exchange for the assumption by New York Tax-Free of all stated
liabilities of New York Series and the issuance by New York Tax-Free of Class D
shares of beneficial interest, par value $0.01 per share (the "New York Tax-Free
Shares"), to be distributed, after the Closing Date hereinafter referred to, to
the shareholders of New York Series in liquidation of New York Series as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF NEW YORK SERIES
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, New York Series agrees
to assign, deliver and otherwise transfer the New York Series Assets (as defined
in paragraph 1.2) to New York Tax-Free and New York Tax-Free agrees in exchange
therefor to assume all of New York Series stated liabilities on the Closing Date
as set forth in paragraph 1.3(a) and to deliver to New York Series the number of
New York Tax-Free Shares, including fractional New York Tax-Free Shares,
determined in the manner set forth in paragraph 2.3. Such transactions shall
take place at the closing provided for in paragraph 3.1 ("Closing").
1.2 (a) The "New York Series Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by New York Series, and any deferred or prepaid
expenses shown as an asset on New York Series' books on the Valuation Date.
(b) On or prior to the Valuation Date, Multi-State will provide New York
Tax-Free with a list of all of New York Series assets to be assigned, delivered
and otherwise transferred to New York Tax-Free and of the stated liabilities to
be assumed by New York Tax-Free pursuant to this Agreement. New York Series
reserves the right to sell any of the securities on such list but will not,
without the prior approval of New York Tax-Free, acquire any additional
securities other than securities of the type in which New York Tax-Free is
permitted to invest and in amounts agreed to in writing by New York Tax-Free.
New York Tax-Free will, within a reasonable time prior to the Valuation Date,
furnish New York Series with a statement of New York Tax-Free's investment
objectives, policies and restrictions and a list of the securities, if any, on
the list referred to in the first sentence of this paragraph that do not conform
to New York Tax-Free's investment objective, policies and restrictions. In the
event that New York Series holds any investments that New York Tax-Free is not
permitted to hold, New York Series will dispose of such securities on or prior
to the Valuation Date. In addition, if it is determined that the portfolios of
New York Series and New York Tax-Free, when aggregated, would contain
investments
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exceeding certain percentage limitations imposed upon New York Tax-Free with
respect to such investments, New York Series if requested by New York Tax-Free
will, on or prior to the Valuation Date, dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date (as defined in paragraph 3.1).
1.3 (a) New York Series will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. New York Tax-Free will assume
all stated liabilities, which includes, without limitation, all expenses, costs,
charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of New York Series prepared by the Treasurer of Multi-State, on
behalf of New York Series, as of the Valuation Date in accordance with generally
accepted accounting principles consistently applied from the prior audited
period.
(b) On the Valuation Date, New York Series may establish a cash reserve,
which shall not exceed 5% of New York Series' net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by New York
Series and used for the payment of its liabilities not discharged prior to the
Valuation Date and for the expenses of dissolution.
1.4 In order for New York Series to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its dissolution, New York Series will on
or before the Valuation Date (a) declare a dividend in an amount large enough so
that it will have declared dividends of all of its investment company taxable
income and net capital gain, if any, for such taxable year (determined without
regard to any deduction for dividends paid) and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, New York
Series will distribute New York Tax-Free Shares received by New York Series
pursuant to paragraph 1.1 pro rata to its shareholders of record determined as
of the close of business on the Valuation Date ("New York Series Shareholders").
Each New York Series Shareholder will receive Class D shares of New York
Tax-Free. Such distribution will be accomplished by an instruction, signed by
the Secretary of Multi-State, to transfer New York Tax-Free Shares then credited
to New York Series' account on the books of New York Tax-Free to open accounts
on the books of New York Tax-Free in the names of the New York Series
Shareholders and representing the respective pro rata number of New York
Tax-Free Shares due such New York Series Shareholders. All issued and
outstanding shares of New York Series simultaneously will be canceled on New
York Series' books; however, share certificates representing interests in New
York Series will represent a number of New York Tax-Free Shares after the
Closing Date as determined in accordance with paragraph 2.3. New York Tax-Free
will issue certificates representing New York Tax-Free Shares in connection with
such exchange only upon the written request of a New York Series Shareholder.
1.6 Ownership of New York Tax-Free Shares will be shown on the books of New
York Tax-Free's transfer agent. New York Tax-Free Shares will be issued in the
manner described in New York Tax-Free's current Prospectus and Statement of
Additional Information.
1.7 Any transfer taxes payable upon issuance of New York Tax-Free Shares in
a name other than the registered holder of New York Tax-Free Shares on New York
Series' books as of the close of business on the Valuation Date shall, as a
condition of such issuance and transfer, be paid by the person to whom New York
Tax-Free Shares are to be issued and transferred.
1.8 Any reporting responsibility of Multi-State, on behalf of New York
Series, is and shall remain the responsibility of Multi-State up to and
including the date on which New York Series is dissolved pursuant to paragraph
1.9.
1.9 Within one year after the Closing Date, New York Series shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of New York Series as of the close of business
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on the Valuation Date any remaining amount of the Cash Reserve (as reduced by
the estimated cost of distributing it to shareholders). If and to the extent
that any trust, escrow account, or other similar entity continues after the
close of such one-year period in connection either with making provision for
payment of liabilities or taxes or with distributions to shareholders of New
York Series, such entity shall either (i) qualify as a liquidating trust under
Section 7701 of the Code (and applicable Treasury Regulations thereunder) or
other entity which does not constitute a continuation of New York Series for
federal income tax purposes, or (ii) be subject to a waiver under Section
368(a)(2)(G)(ii) of the complete distribution requirement of Section
368(a)(2)(G)(i) of the Code. New York Series shall be dissolved as a portfolio
of Multi-State under Massachusetts law, promptly following the making of all
distributions pursuant to paragraph 1.5 (and, in any event, within one year
after the Closing Date).
1.10 Copies of all books and records maintained on behalf of New York
Series in connection with its obligations under the Investment Company Act of
1940, as amended (the "1940 Act"), the Code, state blue sky laws or otherwise in
connection with this Agreement will promptly after the Closing be delivered to
officers of New York Tax-Free or their designee and New York Tax-Free or its
designee shall comply with applicable record retention requirements to which New
York Series is subject under the 1940 Act.
2. VALUATION
2.1 The value of the New York Series Assets shall be the value of such
assets computed as of 4:00 p.m. on the New York Stock Exchange on the third
business day following the receipt of the requisite approval by shareholders of
New York Series of this Agreement or at such time on such earlier or later date
after such approval as may be mutually agreed upon in writing (such time and
date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in New York Tax-Free's then current Prospectus and
Statement of Additional Information.
2.2 The net asset value of a New York Tax-Free Share shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in New York Tax-Free's then current Prospectus and Statement of
Additional Information.
2.3 The number of New York Tax-Free Shares (including fractional shares, if
any) to be issued hereunder shall be determined, with respect to each class, by
dividing the aggregate net asset value of each class of New York Series shares
(determined in accordance with paragraph 2.1) by the net asset value per share
of the Class D shares of New York Tax-Free (determined in accordance with
paragraph 2.2). For purposes of this paragraph, the aggregate net asset value of
the shares of New York Series shall not include the amount of the Cash Reserve.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services") in accordance with its regular practice
in pricing New York Tax-Free. New York Tax-Free shall cause MSDW Services to
deliver a copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. Eastern time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by New York Series and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian
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for New York Tax-Free, for examination no later than five business days
preceding the Valuation Date. Such portfolio securities (together with any cash
or other assets) shall be delivered by New York Series to the Custodian for the
account of New York Tax-Free on or before the Closing Date in conformity with
applicable custody provisions under the 1940 Act and duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers. The portfolio securities shall be
accompanied by all necessary Federal and state stock transfer stamps or a check
for the appropriate purchase price of such stamps. Portfolio securities and
instruments deposited with a securities depository (as defined in Rule 17f-4
under the 1940 Act) shall be delivered on or before the Closing Date by
book-entry in accordance with customary practices of such depository and the
Custodian. The cash delivered shall be in the form of a Federal Funds wire,
payable to the order of "The Bank of New York, Custodian for Morgan Stanley
Dean Witter New York Tax-Free Income Fund."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both New York Tax-Free and New York
Series, accurate appraisal of the value of the net assets of New York Tax-Free
or the New York Series Assets is impracticable, the Valuation Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption and reporting shall have
been restored.
3.4 If requested, Multi-State shall deliver to New York Tax-Free or its
designee (a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the New York Series
Shareholders and the number and percentage ownership of outstanding New York
Series shares owned by each such New York Series Shareholder, all as of the
Valuation Date, and (b) as soon as practicable after the Closing, all original
documentation (including Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the New York Series Shareholders'
taxpayer identification numbers and their liability for or exemption from
back-up withholding. New York Tax-Free shall issue and deliver to such Secretary
a confirmation evidencing delivery of New York Tax-Free Shares to be credited on
the Closing Date to New York Series or provide evidence satisfactory to New York
Series that such New York Tax-Free Shares have been credited to New York Series'
account on the books of New York Tax-Free. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.
4. COVENANTS OF NEW YORK TAX-FREE AND NEW YORK SERIES
4.1 Except as otherwise expressly provided herein with respect to New York
Series, New York Tax-Free and New York Series each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 New York Tax-Free will prepare and file with the Securities and
Exchange Commission ("Commission") a registration statement on Form N-14 under
the Securities Act of 1933, as amended ("1933 Act"), relating to New York
Tax-Free Shares ("Registration Statement"). Multi-State will provide New York
Tax-Free with the Proxy Materials as described in paragraph 4.3 below, for
inclusion in the Registration Statement. Multi-State will further provide New
York Tax-Free with such other information and documents relating to New York
Series as are reasonably necessary for the preparation of the Registration
Statement.
4.3 Multi-State will call a meeting of the New York Series shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein. Multi-State will
prepare the notice of meeting, form of proxy and proxy statement (collectively,
"Proxy Materials") to be used in connection with such meeting; provided that New
York Tax-Free will furnish
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Multi-State with its currently effective prospectus for inclusion in the Proxy
Materials and with such other information relating to New York Tax-Free as is
reasonably necessary for the preparation of the Proxy Materials.
4.4 Multi-State will assist New York Tax-Free in obtaining such information
as New York Tax-Free reasonably requests concerning the beneficial ownership of
New York Series shares.
4.5 Subject to the provisions of this Agreement, New York Tax-Free and
Multi-State will each take, or cause to be taken, all action, and do or cause to
be done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
4.6 Multi-State shall furnish or cause to be furnished to New York Tax-Free
within 30 days after the Closing Date a statement of New York Series' assets and
liabilities as of the Closing Date, which statement shall be certified by
Multi-State's Treasurer and shall be in accordance with generally accepted
accounting principles consistently applied. As promptly as practicable, but in
any case within 60 days after the Closing Date, New York Series shall furnish
New York Tax-Free, in such form as is reasonably satisfactory to New York
Tax-Free, a statement certified by Multi-State's Treasurer of earnings and
profits of New York Series for Federal income tax purposes that will be carried
over to New York Tax-Free pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable,
Multi-State (a) shall prepare and file all Federal and other tax returns and
reports of New York Series required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed and (b)
shall pay all Federal and other taxes shown as due thereon and/or all Federal
and other taxes that were unpaid as of the Closing Date, including without
limitation, all taxes for which the provision for payment was made as of the
Closing Date (as represented in paragraph 5.2(k)).
4.8 New York Tax-Free agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 New York Tax-Free represents and warrants to Multi-State, on behalf of
New York Series, as follows:
(a) New York Tax-Free is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) New York Tax-Free is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of New York Tax-Free have
been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. Shares of New York Tax-Free are registered in all jurisdictions in
which they are required to be registered under state securities laws and
other laws, and said registrations, including any periodic reports or
supplemental filings, are complete and current, all fees required to be
paid have been paid, and New York Tax-Free is not subject to any stop order
and is fully qualified to sell its shares in each state in which its shares
have been registered;
(d) The current Prospectus and Statement of Additional Information of New
York Tax-Free conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any
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material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(e) New York Tax-Free is not in, and the execution, delivery and
performance of this Agreement will not result in a, material violation of
any provision of New York Tax-Free's Declaration of Trust or By-Laws or of
any agreement, indenture, instrument, contract, lease or other undertaking
to which New York Tax-Free is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against New York Tax-Free or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and New York
Tax-Free knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended December 31, 1999, of New York Tax-Free audited by
PricewaterhouseCoopers LLP (copies of which have been furnished to New York
Series), fairly present, in all material respects, New York Tax-Free's
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its
net assets and financial highlights for such period, and as of such date
there were no known liabilities of New York Tax-Free (contingent or
otherwise) not disclosed therein that would be required in accordance with
generally accepted accounting principles to be disclosed therein;
(h) All issued and outstanding New York Tax-Free Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
New York Tax-Free's current Prospectus incorporated by reference in the
Registration Statement. New York Tax-Free does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of New York Tax-Free,
and this Agreement constitutes a valid and binding obligation of New York
Tax-Free enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary in
connection with New York Tax-Free's performance of this Agreement;
(j) New York Tax-Free Shares to be issued and delivered to New York
Series, for the account of the New York Series Shareholders, pursuant to
the terms of this Agreement will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued New York Tax-Free Shares, and will be fully paid and non-assessable
with no personal liability attaching to the ownership thereof, except as
set forth under the caption "Capital Stock and Other Securities" in New
York Tax-Free's current Statement of Additional Information incorporated by
reference in the Statement of Additional Information to this Registration
Statement;
(k) All material Federal and other tax returns and reports of New York
Tax-Free required by law to be filed on or before the Closing Date have
been filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of New
York Tax-Free's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
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(l) For each taxable year since its inception, New York Tax-Free has met
the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of New York Tax-Free to continue to
meet the requirements of Subchapter M of the Code;
(m) Since December 31, 1999 there has been no change by New York Tax-Free
in accounting methods, principles, or practices, including those required
by generally accepted accounting principles;
(n) The information furnished or to be furnished by New York Tax-Free for
use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall comply in
all material respects with Federal securities and other laws and
regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to New York Tax-Free) will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
5.2 Multi-State, on behalf of New York Series, represents and warrants to
New York Tax-Free as follows:
(a) Multi-State is a series of a validly existing Massachusetts business
trust with full power to carry on its business as presently conducted;
(b) Multi-State is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
New York Series have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of New York Series are registered in all jurisdictions in
which they are required to be registered and said registrations, including
any periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and Multi-State is not subject to
any stop order and is fully qualified to sell its shares in each state in
which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Multi-State conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the regulations thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(e) Multi-State is not, and the execution, delivery and performance of
this Agreement will not result, in a material violation of any provision of
Multi-State's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which
Multi-State is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against New York Series or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and
Multi-State knows of no facts that might form the basis for
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<PAGE>
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects, or is reasonably likely to
materially and adversely effect, its business or its ability to consummate
the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Multi-State
for the year ended November 30, 1999, audited by PricewaterhouseCoopers LLP
(copies of which have been or will be furnished to New York Tax-Free)
fairly present, in all material respects, New York Series' financial
condition as of such date, and its results of operations, changes in its
net assets and financial highlights for such period in accordance with
generally accepted accounting principles, and as of such date there were no
known liabilities of New York Series (contingent or otherwise) not
disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;
(h) Multi-State has no material contracts or other commitments (other
than this Agreement) that will be terminated with liability to it prior to
the Closing Date;
(i) All issued and outstanding shares of New York Series are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Capital Stock and Other
Securities" in Multi-State's current Statement of Additional Information
incorporated by reference in the Statement of Additional Information to
this Registration Statement. New York Series does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares, nor is there outstanding any security convertible to any of its
shares. All such shares will, at the time of Closing, be held by the
persons and in the amounts set forth in the list of shareholders submitted
to New York Tax-Free pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of Multi-State, and subject to the approval of New York Series'
shareholders, this Agreement constitutes a valid and binding obligation of
Multi-State, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary in
connection with Multi-State's performance of this Agreement;
(k) All material Federal and other tax returns and reports of New York
Series required by law to be filed on or before the Closing Date shall have
been filed and are correct and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of New
York Series' knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, New York Series, has met
all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of New York Series to continue to
meet the requirements of Subchapter M of the Code;
(m) At the Closing Date, Multi-State will have good and valid title to
the New York Series Assets, subject to no liens (other than the obligation,
if any, to pay the purchase price of portfolio securities purchased by New
York Series which have not settled prior to the Closing Date), security
interests or other
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<PAGE>
encumbrances, and full right, power and authority to assign, deliver and
otherwise transfer such assets hereunder, and upon delivery and payment for
such assets, New York Tax-Free will acquire good and marketable title
thereto, subject to no restrictions on the full transfer thereof, including
any restrictions as might arise under the 1933 Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of New York Series' shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective New York Tax-Free
Prospectus contained therein) will (i) comply in all material respects with
the provisions of the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 Act") and the 1940 Act and the regulations thereunder and
(ii) not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Any other information furnished by
Multi-State for use in the Registration Statement or in any other manner
that may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete and shall comply in all material
respects with applicable Federal securities and other laws and regulations
thereunder;
(o) New York Series will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together
with all previous dividends and other distributions to shareholders, shall
have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);
(p) Multi-State has maintained or has caused to be maintained on its
behalf all books
and accounts as required of a registered investment company in compliance
with the requirements of Section 31 of the 1940 Act and the Rules
thereunder; and
(q) New York Series is not acquiring New York Tax-Free Shares to be
issued hereunder for the purpose of making any distribution thereof other
than in accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW YORK SERIES
The obligations of Multi-State to consummate the transactions provided for
herein shall be subject, at its election, to the performance by New York
Tax-Free of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of New York Tax-Free contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2 New York Tax-Free shall have delivered to New York Series, a
certificate of its President and Treasurer, in a form reasonably satisfactory
to Multi-State and dated as of the Closing Date, to the effect that the
representations and warranties of New York Tax-Free made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as Multi-State shall reasonably request;
6.3 Multi-State, on behalf of New York Series, shall have received a
favorable opinion from Mayer, Brown & Platt, counsel to New York Tax-Free,
dated as of the Closing Date, to the effect that:
(a) New York Tax-Free is a validly existing Massachusetts business trust,
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) New York Tax-Free is a duly
registered, open-end,
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management investment company, and its registration with the Commission as
an investment company under the 1940 Act is in full force and effect; (c)
this Agreement has been duly authorized, executed and delivered by New York
Tax-Free and, assuming that the Registration Statement complies with the
1933 Act, the 1934 Act and the 1940 Act and regulations thereunder and
assuming due authorization, execution and delivery of this Agreement by New
York Series, is a valid and binding obligation of New York Tax-Free
enforceable against New York Tax-Free in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors rights and to general
equity principles; (d) New York Tax-Free Shares to be issued to New York
Series Shareholders as provided by this Agreement are duly authorized and
upon such delivery will be validly issued, fully paid and non-assessable
(except as set forth under the caption "Capital Stock and Other Securities"
in New York Tax-Free's Statement of Additional Information), and no
shareholder of New York Tax-Free has any preemptive rights to subscription
or purchase in respect thereof (Massachusetts counsel may be relied upon in
delivering such opinion); (e) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated hereby will
not, violate New York Tax-Free's Declaration of Trust or By-Laws
(Massachusetts counsel may be relied upon in delivering such opinion); and
(f) to the knowledge of such counsel, no consent, approval, authorization
or order of any court or governmental authority of the United States or any
state is required for the consummation by New York Tax-Free of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required
under state securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees from those described in New York Tax-Free's
Prospectus dated February , 2000 and Statement of Additional Information
dated February , 2000.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW YORK TAX-FREE
The obligations of New York Tax-Free to complete the transactions provided
for herein shall be subject, at its election, to the performance by
Multi-State, on behalf of New York Series, of all the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following conditions:
7.1 All representations and warranties of Multi-State contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date;
7.2 Multi-State shall have delivered to New York Tax-Free at the Closing a
certificate of its President and its Treasurer, in form and substance
satisfactory to New York Tax-Free and dated as of the Closing Date, to the
effect that the representations and warranties of Multi-State made in this
Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as New York Tax-Free shall reasonably request;
7.3 Multi-State shall have delivered to New York Tax-Free a statement of
the New York Series Assets and its liabilities, together with a list of New
York Series' portfolio securities and other assets showing the respective
adjusted bases and holding periods thereof for income tax purposes, as of the
Closing Date, certified by the Treasurer of Multi-State;
7.4 Multi-State shall have delivered to New York Tax-Free within three
business days after the Closing a letter from PricewaterhouseCoopers LLP dated
as of the Closing Date stating that (a) such firm has performed a limited
review of the Federal and state income tax returns of Multi-State for each of
the last three
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taxable years and, based on such limited review, nothing came to their
attention that caused them to believe that such returns did not properly
reflect, in all material respects, the Federal and state income tax liabilities
of New York Series for the periods covered thereby, (b) for the period from
November 30, 1999 to and including the Closing Date, such firm has performed a
limited review (based on unaudited financial data) to ascertain the amount of
applicable Federal, state and local taxes and has determined that same either
have been paid or reserves have been established for payment of such taxes,
and, based on such limited review, nothing came to their attention that caused
them to believe that the taxes paid or reserves set aside for payment of such
taxes were not adequate in all material respects for the satisfaction of all
Federal, state and local tax liabilities for the period from November 30, 1999
to and including the Closing Date and (c) based on such limited reviews,
nothing came to their attention that caused them to believe that New York
Series would not qualify as a regulated investment company for Federal income
tax purposes for any such year or period;
7.5 New York Tax-Free shall have received at the Closing a favorable
opinion from Mayer, Brown & Platt, counsel to Multi-State, dated as of the
Closing Date to the effect that:
(a) Multi-State is a validly existing Massachusetts business trust and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon
in delivering such opinion); (b) Multi-State is a duly registered,
open-end, management investment company under the 1940 Act, and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by Multi-State and, assuming that the
Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by New York Tax-Free, is a valid
and binding obligation of Multi-State enforceable against Multi-State in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate Multi-State's
Declaration of Trust or By-Laws (Massachusetts counsel may be relied upon
in delivering such opinion); and (e) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by Multi-State of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act and such as may be required under state securities laws; and
7.6 On the Closing Date, the New York Series Assets shall include no
assets that New York Tax-Free, by reason of limitations of the fund's
Declaration of Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF NEW YORK TAX-FREE
AND NEW YORK SERIES
The obligations of Multi-State, on behalf of New York Series, and New York
Tax-Free hereunder are each subject to the further conditions that on or before
the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
New York Series in accordance with the provisions of Multi-State's Declaration
of Trust, and certified copies of the resolutions evidencing such approval
shall have been delivered to New York Tax-Free;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
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<PAGE>
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by New York Tax-Free or Multi-State to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent,
order or permit would not involve risk of a material adverse effect on the
assets or properties of New York Tax-Free or New York Series;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 New York Series shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
New York Series Shareholders all of New York Series' investment company taxable
income (computed without regard to any deduction for dividends paid) and all of
its net capital gain (after reduction for any capital loss carry-forward and
computed without regard to any deduction for dividends paid) for all taxable
years ending on or before the Closing Date; and
8.6 The parties shall have received the opinion of the law firm of Mayer,
Brown & Platt (based on such representations as such law firm shall reasonably
request), addressed to New York Tax-Free and Multi-State, on behalf of New York
Series, which opinion may be relied upon by the shareholders of New York
Series, substantially to the effect that, for Federal income tax purposes:
(a) The transfer of New York Series' assets in exchange for New York
Tax-Free Shares and the assumption by New York Tax-Free of certain stated
liabilities of New York Series followed by the distribution by New York
Series of New York Tax-Free Shares to the New York Series Shareholders in
exchange for their New York Series shares pursuant to and in accordance
with the terms of the Reorganization Agreement will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code,
and New York Series and New York Tax-Free will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by New York Tax-Free upon the
receipt of the assets of New York Series solely in exchange for New York
Tax-Free Shares and the assumption by New York Tax-Free of the stated
liabilities of New York Series;
(c) No gain or loss will be recognized by New York Series upon the
transfer of the assets of New York Series to New York Tax-Free in exchange
for New York Tax-Free Shares and the assumption by New York Tax-Free of the
stated liabilities or upon the distribution of New York Tax-Free Shares to
the New York Series Shareholders in exchange for their New York Series
shares;
(d) No gain or loss will be recognized by the New York Series
Shareholders upon the exchange of the New York Series shares for New York
Tax-Free Shares;
(e) The aggregate tax basis for New York Tax-Free Shares received by each
New York Series Shareholder pursuant to the reorganization will be the same
as the aggregate tax basis of the New York Series Shares held by each such
New York Series Shareholder immediately prior to the Reorganization;
(f) The holding period of New York Tax-Free Shares to be received by each
New York Series Shareholder will include the period during which the New
York Series Shares surrendered in exchange therefor were held (provided
such New York Series Shares were held as capital assets on the date of the
Reorganization);
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<PAGE>
(g) The tax basis of the assets of New York Series acquired by New York
Tax-Free will be the same as the tax basis of such assets to New York
Series immediately prior to the Reorganization; and
(h) The holding period of the assets of New York Series in the hands of
New York Tax-Free will include the period during which those assets were
held by New York Series.
Notwithstanding anything herein to the contrary, neither New York Tax-Free
nor New York Series may waive the conditions set forth in this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) New York Tax-Free shall bear its expenses incurred in connection
with the entering into, and carrying out of, the provisions of this Agreement,
including legal, accounting, Commission registration fees and Blue Sky
expenses. New York Series shall bear its expenses incurred in connection with
the entering into and carrying out of the provisions of this Agreement,
including legal and accounting fees, printing, filing and proxy solicitation
expenses and portfolio transfer taxes (if any) incurred in connection with the
consummation of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of New York Series being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to New
York Series' obligations specified in this Agreement), New York Series' only
obligation hereunder shall be to reimburse New York Tax-Free for all reasonable
out-of-pocket fees and expenses incurred by New York Tax-Free in connection
with those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of New York Tax-Free being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to New
York Tax-Free's obligations specified in this Agreement), New York Tax-Free's
only obligation hereunder shall be to reimburse New York Series for all
reasonable out-of-pocket fees and expenses incurred by New York Series in
connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of
Multi-State hereunder shall not survive the dissolution and complete
liquidation of New York Series in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Multi-State, on behalf of New York
Series, and New York Tax-Free;
(b) by either New York Tax-Free or Multi-State, on behalf of New York
Series, by notice to the other, without liability to the terminating party
on account of such termination (providing the terminating party is not
otherwise in material default or breach of this Agreement) if the Closing
shall not have occurred on or before September 30, 2000; or
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(c) by either New York Tax-Free or Multi-State, on behalf of New York
Series, in writing without liability to the terminating party on account of
such termination (provided the terminating party is not otherwise in
material default or breach of this Agreement), if (i) the other party shall
fail to perform in any material respect its agreements contained herein
required to be performed on or prior to the Closing Date, (ii) the other
party materially breaches any of its representations, warranties or
covenants contained herein, (iii) the New York Series shareholders fail to
approve this Agreement at any meeting called for such purpose at which a
quorum was present or (iv) any other condition herein expressed to be
precedent to the obligations of the terminating party has not been met and
it reasonably appears that it will not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of New York Tax-Free or Multi-State, or
the trustees or officers of New York Tax-Free or Multi-State, to any other
party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of New York Tax-Free or Multi-State, or
the trustees or officers of New York Tax-Free or Multi-State, except that
any party in breach of this Agreement shall, upon demand, reimburse the
non-breaching party for all reasonable out-of-pocket fees and expenses
incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of New York Tax-Free hereunder are
solely those of New York Tax-Free. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of New York Tax-Free shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of New York Tax-Free and signed by authorized
officers of New York Tax-Free acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
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13.6 The obligations and liabilities of Multi-State hereunder are solely
those of Multi-State. It is expressly agreed that no shareholder, nominee,
trustee, officer, agent, or employee of New York Series shall be personally
liable hereunder. The execution and delivery of this Agreement have been
authorized by the trustees of Multi-State and signed by authorized officers of
Multi-State acting as such, and neither such authorization by such trustees nor
such execution and delivery by such officers shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
ON BEHALF OF NEW YORK SERIES
By: /s/ CHARLES A. FIUMEFREDDO
----------------------------------------------
Name: Charles A. Fiumefreddo
Title: Chairman
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
By: /s/ BARRY FINK
----------------------------------------------
Name: Barry Fink
Title: Vice President
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<PAGE>
Exhibit B
PROSPECTUS - FEBRUARY 22, 2000
Morgan Stanley Dean Witter
NEW YORK TAX-FREE INCOME FUND
[COVER PHOTO]
A MUTUAL FUND THAT SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME EXEMPT FROM FEDERAL, NEW YORK STATE
AND NEW YORK CITY INCOME TAX OR OTHER LOCAL INCOME
TAXES, 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....................... 10
How to Sell Shares........................... 11
Distributions................................ 13
Tax Consequences............................. 13
Share Class Arrangements..................... 15
Financial Highlights ............................................. 22
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 New York Tax-Free Income Fund seeks to
provide a high level of current income exempt from federal, New York
state and New York city income tax or other local income taxes,
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, New York state and
New York city income tax or other local income taxes. The Fund's
"Investment Manager" Morgan Stanley Dean Witter Advisors Inc.,
generally invests the Fund's assets in investment grade, New York
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:
o 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");
o 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
o 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.
1
<PAGE>
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
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 investment, 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
2
<PAGE>
securities that pay current interest. A general illustration of the
relationship between fixed-income securities and interest rates, the
following table shows how interest rates affect bond prices.
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>
-----------------------------------------------------------------------------------------------------------------
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>
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.
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.
[End Sidebar]
[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. 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 4.01%
'91 12.94%
'92 8.70%
'93 11.72%
'94 -7.74%
'95 16.59%
'96 2.82%
'97 8.43%
'98 5.32%
'99 -4.58%
</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 6.99% (quarter ended March 31, 1995) and the
lowest return for a calendar quarter was -6.07% (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) -8.11% -- --
----------------------------------------------------------------------------------
Class B -9.16% 5.16% 5.57%
----------------------------------------------------------------------------------
Class C(1) -5.51% -- --
----------------------------------------------------------------------------------
Class D(1) -3.87% -- --
----------------------------------------------------------------------------------
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, 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.
</TABLE>
4
<PAGE>
[Sidebar]
SHAREHOLDER FEES
THESE FEES ARE PAID DIRECTLY FROM YOUR INVESTMENT.
[End Sidebar]
[Sidebar]
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED 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>
-----------------------------------------------------------------------------------
SHAREHOLDER FEES
-----------------------------------------------------------------------------------
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 0.55% 0.55% 0.55% 0.55%
-----------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.16% 0.75% 0.75% None
-----------------------------------------------------------------------------------
Other expenses 0.18% 0.18% 0.18% 0.18%
-----------------------------------------------------------------------------------
Total annual Fund operating expenses 0.89% 1.48% 1.48% 0.73%
-----------------------------------------------------------------------------------
</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: IF YOU HELD YOUR SHARES:
----------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------- -----------------------------------------
CLASS A $512 $697 $ 897 $1,474 $512 $697 $897 $1,474
---------------------------------------------------------------------- -----------------------------------------
CLASS B $651 $768 $1,008 $1,768 $151 $468 $808 $1,768
---------------------------------------------------------------------- -----------------------------------------
CLASS C $251 $468 $ 808 $1,768 $151 $468 $808 $1,768
---------------------------------------------------------------------- -----------------------------------------
CLASS D $ 75 $233 $ 406 $ 906 $ 75 $233 $406 $ 906
---------------------------------------------------------------------- -----------------------------------------
</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 New York 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-New York 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 New York
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 New
York 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 0.55% 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.
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]
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.
<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>
* Provided your schedule of investments totals $1,000 in
twelve months.
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:
o 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).
o Make out a check for the total amount payable to: Morgan Stanley
Dean Witter New York Tax-Free Income Fund.
o Mail the letter and check to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 1040, Jersey City, NJ 07303.
9
<PAGE>
[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.
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), policies and investment minimums 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.
10
<PAGE>
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.
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 o your account number;
o the dollar amount or the number of shares you wish to
sell;
o the Class of shares you wish to sell; and
o 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
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.
------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
-------------------------------------------------------------------------------------
<S> <C>
By Letter, Mail the letter to Morgan Stanley Dean Witter Trust FSB at
continued 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.
-------------------------------------------------------------------------------------
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 be 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:
o The Fund makes distributions; and
o You sell Fund shares, including an exchange to another Morgan
Stanley Dean Witter Fund.
13
<PAGE>
TAXES ON DISTRIBUTIONS. Your income dividend distributions are
normally exempt from federal and New York personal income taxes -- to
the extent they are derived from New York's municipal obligations.
Income derived from other portfolio securities may be subject to
federal, state and/or local income taxes.
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.
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.
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 New York 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.
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.
14
<PAGE>
[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.
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.
15
<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 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
----------------------------------------------
PERCENTAGE OF APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION PUBLIC OFFERING PRICE OF 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>
The reduced sales charge schedule is applicable to purchases of Class
A shares in a single transaction by:
o A single account (including an individual, trust or fiduciary
account).
o Family member accounts (limited to husband, wife and children
under the age of 21).
o Pension, profit sharing or other employee benefit plans of
companies and their affiliates.
o Tax-exempt organizations.
o 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
16
<PAGE>
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 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:
o A trust for which Morgan Stanley Dean Witter Trust FSB provides
discretionary trustee services.
o 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.
o 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.
17
<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]
o 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.
o 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.
CDSC WAIVERS. A CDSC, if otherwise applicable, will be waived in the
case of:
o 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.
o 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).
18
<PAGE>
o 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.
o 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 termination.
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 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 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,
19
<PAGE>
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 up to 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 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.
20
<PAGE>
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:
o 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.
o 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.
o Certain unit investment trusts sponsored by Dean Witter Reynolds.
o Certain other open-end investment companies whose shares are
distributed by the Fund's distributor.
o 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.
21
<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,
------------------------------------------------------ FOR THE PERIOD JULY 28, 1997*
1999 1998 THROUGH DECEMBER 31, 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $11.90 $12.16 $12.02
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.53 0.55 0.24
Net realized and unrealized gain (1.00) 0.13 0.14
------ ------ ------
Total income from investment
operations (0.47) 0.68 0.38
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
FROM:
Net investment income (0.52) (0.55) (0.24)
Net realized gain (0.02) (0.39) --
------ ------ ------
Total dividends and
distributions (0.54) (0.94) (0.24)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.89 $11.90 $12.16
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN+ (4.03)% 5.68% 3.24%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses 0.89%(4) 0.93%(3)(4) 0.92%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.58%(4) 4.50%(4) 4.78%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in
thousands $408 $393 $94
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 24% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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) Does not reflect the effect of expense offset of 0.01%.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
22
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1999 1998 1997* 1996 1995
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.92 $12.16 $11.71 $11.96 $10.83
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 0.46 0.49 0.51 0.53 0.55
Net realized and unrealized gain (loss) (0.99) 0.15 0.45 (0.21) 1.20
-------- -------- -------- --------- ---------
Total income (loss) from investment operations (0.53) 0.64 0.96 0.32 1.75
- --------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.46) (0.49) (0.51) (0.53) (0.54)
Net realized gain (0.02) (0.39) -- (0.04) (0.08)
-------- -------- -------- --------- ---------
Total dividends and distributions (0.48) (0.88) (0.51) (0.57) (0.62)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.91 $11.92 $12.16 $11.71 $11.96
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (4.58)% 5.32% 8.43% 2.82% 16.59%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- --------------------------------------------------------------------------------------------------------------------------
Expenses 1.48%(2) 1.44%(1)(2) 1.43%(1) 1.40%(1) 1.42%(1)
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 3.99%(2) 3.99%(2) 4.33% 4.54% 4.70%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $124,774 $162,659 $169,868 $192,192 $216,618
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 24% 10% 16% 17%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 as 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.
23
<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 C SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $11.90 $12.14 $12.02
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.46 0.48 0.22
Net realized and unrealized gain (0.99) 0.15 0.12
------ ------ ------
Total income from investment
operations (0.53) 0.63 0.34
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTION
FROM:
Net investment income (0.46) (0.48) (0.22)
Net realized gain (0.02) (0.39) --
------ ------ ------
Total dividends and distributions (0.48) (0.87) (0.22)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.89 $11.90 $12.14
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN+ (4.60)% 5.30% 2.83%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses 1.48%(4) 1.44%(3)(4) 1.40%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.99%(4) 3.99%(4) 4.12%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in
thousands $840 $765 $108
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 24% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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) Does not reflect the effect of expense offset of 0.01%.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
24
<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
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $11.91 $12.15 $12.02
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.55 0.58 0.26
Net realized and unrealized gain (1.00) 0.15 0.13
------ ------ ------
Total income from investment
operations (0.45) 0.73 0.39
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTION
FROM:
Net investment income (0.54) (0.58) (0.26)
Net realized gain (0.02) (0.39) --
------ ------ ------
Total dividends and distributions (0.56) (0.97) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.90 $11.91 $12.15
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:+ (3.87)% 6.12% 3.27%(1)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses 0.73%(4) 0.69%(3)(4) 0.66%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.74%(4) 4.74%(4) 5.04%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in
thousands $116 $82 $32
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 24% 10%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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) Does not reflect the effect of expense offset of 0.01%.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
25
<PAGE>
NOTES
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26
<PAGE>
NOTES
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27
<PAGE>
NOTES
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28
<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
Small Cap 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)
N.Y. 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 Multi-Class Fund is 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>
PROSPECTUS - FEBRUARY 22, 2000
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.
TICKER SYMBOLS:
<TABLE>
<S> <C>
CLASS A: NYFAX CLASS C: NYFCX
- --------------------- ---------------------
CLASS B: NYFBX CLASS D: NYFDX
- --------------------- ---------------------
</TABLE>
Morgan Stanley Dean Witter
NEW YORK TAX-FREE
INCOME FUND
[BACK COVER PHOTO]
A MUTUAL FUND THAT SEEKS TO
PROVIDE A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM FEDERAL,
NEW YORK STATE AND NEW YORK
CITY INCOME TAX OR OTHER LOCAL
INCOME TAXES, CONSISTENT WITH
THE PRESERVATION OF CAPITAL
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-4222)
<PAGE>
`
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE TWO WORLD TRADE CENTER,
INCOME FUND NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1999
DEAR SHAREHOLDER:
Interest rates rose steadily during 1999, making it the worst year for the
fixed-income markets since 1994. The benchmark 30-year Treasury bond began the
year yielding 5.1 percent amid fears of a global recession. However, the
economic problems in Asia, Europe and Latin America abated as the year
progressed. The U.S. economy, led by consumer demand, experienced robust growth.
As a result, the fixed-income markets anticipated that the Federal Reserve Board
would change monetary policy and remove the liquidity it had provided during the
1998 international economic crises. Between June and November, the Fed raised
the federal funds rate a total of 75 basis points from 4.75 percent to 5.50
percent. At year-end, the yield on the 30-year Treasury bond was nearly 6.5
percent. Subsequently, on February 2, 2000 the fed-funds rate was raised an
additional 25 basis points.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index yield began 1999 near a record low of 5.05
percent. By the end of December, this index yield had increased almost a full
percentage point, to 5.97 percent. Because bond prices move inversely to changes
in interest rates, higher yields have caused bond prices to decline
significantly. The increase in the index yield during 1999 translated into a
13 percent price decline for a generic insured municipal bond with a 30-year
maturity.
The municipal market index outperformed U.S. Treasury bonds early last year but
later gave ground as interest rates continued to rise. The ratio of the 30-year
municipal yield to the Treasury bond yield is a measure of relative performance.
The yield ratio declined from 99 percent in January to 91 percent in May 1999
and ended the year at 92 percent. A declining ratio means municipals have
outperformed Treasuries and a rising ratio indicates underperformance by
municipals. Over the past five years, the ratio has ranged from a high of 99
percent to a low of 82 percent.
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent in 1999. Refunding activity, the most
interest-rate-sensitive component of supply, was down more than 50 percent. New
York new issue underwriting accounted for 9 percent of national market volume.
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1999, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
30-YEAR BOND YIELDS 1994-1999 INSURED U.S. INSURED MUNICIPAL YIELDS AS A
MUNICIPAL YIELDS TREASURY YIELDS PERCENTAGE OF U.S. TREASURY YIELDS
<S> <C> <C> <C>
12/31/1993 5.40% 6.34% 85.17%
1/31/1994 5.40% 6.24% 86.54%
2/28/1994 5.80% 6.66% 87.09%
3/31/1994 6.40% 7.09% 90.27%
4/29/1994 6.35% 7.32% 86.75%
5/31/1994 6.25% 7.43% 84.12%
6/30/1994 6.50% 7.61% 85.41%
7/29/1994 6.25% 7.39% 84.57%
8/31/1994 6.30% 7.45% 84.56%
9/30/1994 6.55% 7.81% 83.87%
10/31/1994 6.75% 7.96% 84.80%
11/30/1994 7.00% 8.00% 87.50%
12/30/1994 6.75% 7.88% 85.66%
1/31/1995 6.40% 7.70% 83.12%
2/28/1995 6.15% 7.44% 82.66%
3/31/1995 6.15% 7.43% 82.77%
4/28/1995 6.20% 7.34% 84.47%
5/31/1995 5.80% 6.66% 87.09%
6/30/1995 6.10% 6.62% 92.15%
7/31/1995 6.10% 6.86% 88.92%
8/31/1995 6.00% 6.66% 90.09%
9/30/1995 5.95% 6.48% 91.82%
10/31/1995 5.75% 6.33% 90.84%
11/30/1995 5.50% 6.14% 89.58%
12/29/1995 5.35% 5.94% 90.07%
1/31/1996 5.40% 6.03% 89.55%
2/29/1996 5.60% 6.46% 86.69%
3/29/1996 5.85% 6.66% 87.84%
4/30/1996 5.95% 6.89% 86.36%
5/31/1996 6.05% 6.99% 86.55%
6/28/1996 5.90% 6.89% 85.63%
7/31/1996 5.85% 6.97% 83.93%
8/30/1996 5.90% 7.11% 82.98%
9/30/1996 5.70% 6.93% 82.25%
10/31/1996 5.65% 6.64% 85.09%
11/29/1996 5.50% 6.35% 86.61%
12/31/1996 5.60% 6.63% 84.46%
1/31/1997 5.70% 6.79% 83.95%
2/28/1997 5.65% 6.80% 83.09%
3/31/1997 5.90% 7.10% 83.10%
4/30/1997 5.75% 6.94% 82.85%
5/30/1997 5.65% 6.91% 81.77%
6/30/1997 5.60% 6.78% 82.60%
7/30/1997 5.30% 6.30% 84.13%
8/31/1997 5.50% 6.61% 83.21%
9/30/1997 5.40% 6.40% 84.38%
10/31/1997 5.35% 6.15% 86.99%
11/30/1997 5.30% 6.05% 87.60%
12/31/1997 5.15% 5.92% 86.99%
1/31/1998 5.15% 5.80% 88.79%
2/28/1998 5.20% 5.92% 87.84%
3/31/1998 5.25% 5.93% 88.53%
4/30/1998 5.35% 5.95% 89.92%
5/29/1998 5.20% 5.80% 89.66%
6/30/1998 5.20% 5.65% 92.04%
7/31/1998 5.18% 5.71% 90.72%
8/31/1998 5.03% 5.27% 95.45%
9/30/1998 4.95% 5.00% 99.00%
10/31/1998 5.05% 5.16% 97.87%
11/30/1998 5.00% 5.06% 98.81%
12/31/1998 5.05% 5.10% 99.02%
1/31/1999 5.00% 5.09% 98.23%
2/28/1999 5.10% 5.58% 91.40%
3/31/1999 5.15% 5.63% 91.47%
4/30/1999 5.20% 5.66% 91.87%
5/31/1999 5.30% 5.83% 90.91%
6/30/1999 5.47% 5.96% 91.78%
7/31/1999 5.55% 6.10% 90.98%
8/31/1999 5.75% 6.06% 94.88%
9/30/1999 5.85% 6.05% 96.69%
10/31/1999 6.03% 6.16% 97.89%
11/30/1999 6.00% 6.29% 95.39%
12/31/1999 5.97% 6.48% 92.10%
Source: Municipal Market Data-A Division of Thomson
Financial Municipal Group and Bloomberg L.P.
</TABLE>
<PAGE>
PERFORMANCE
The performance of Morgan Stanley Dean Witter New York Tax-Free Income Fund was
impacted by the higher interest-rate environment. For the 12-month period ended
December 31, 1999, the Fund's Class B shares returned -4.58 percent compared to
- -2.06 percent for the Lehman Brothers Municipal Bond Index. For the same period,
the Fund's Class A, C and D shares returned -4.03 percent, -4.60 percent and
- -3.87 percent, respectively. (The performance of the Fund's four share classes
varies because of differing expenses. Total return figures assume the
reinvestment of all distributions and do not reflect the deduction of any
applicable sales charges.) The accompanying chart compares the Fund's
performance to that of the Lehman index.
2
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1999, CONTINUED
PORTFOLIO STRUCTURE
The Fund's net assets of $126 million were diversified among 12 long-term
sectors and 30 credits. As interest rates have increased, the Fund's short-term
investment position, which had ranged from 1 - 3 percent in 1998, was gradually
increased to 6 - 8 percent. At the end of December, the portfolio's average
maturity was 16 years. Average duration, a measure of sensitivity to
interest-rate changes, was 7.9 years. The accompanying charts provide current
information on the portfolio's credit quality and sector distribution. Optional
call provisions by year and their respective cost (book) yields are also
charted.
LOOKING AHEAD
The Federal Reserve Board raised the fed funds rate twice last summer and once
more in November. These actions confirmed its previously disclosed bias of
becoming less accommodative in the face of continued strong domestic economic
growth. It is anticipated that the central bank may raise short-term interest
rates further in 2000, again influencing long-term rates. However, we believe
municipal bonds continue to offer tax-conscious investors good long-term value
relative to Treasuries. We continue to stress credit quality and a conservative
portfolio management profile.
We appreciate your ongoing support of Morgan Stanley Dean Witter New York
Tax-Free Income Fund and look forward to continuing to serve your investment
needs.
Very truly yours,
/s/ Charles A Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
/s/ Mitchell M. Merin
MITCHELL M. MERIN
PRESIDENT
3
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1999, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LARGEST SECTORS AS OF DECEMBER 31, 1999
(% OF NET ASSETS)
<S> <C>
General Obligation 16%
Education 12%
IDR/PCR* 12%
Mortgage 11%
Electric 9%
Transportation 8%
Water & Sewer 8%
Hospital 6%
Nursing & Health 5%
*Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CREDIT RATINGS AS OF DECEMBER 31, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
<S> <C>
Aaa or AAA 32%
Aa or AA 13%
A or A 41%
Baa or BBB 10%
NR 4%
As measured by Moody's Investors Service, Inc. or Standard &
Poor's Corp.
Portfolio structure is subject to change.
</TABLE>
4
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1999, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERCENT CALLABLE*
WEIGHTED AVERAGE
CALL PROTECTION: 7 YEARS
<S> <C>
2000 12%
2001 2%
2002 7%
2003 2%
2004 11%
2005 4%
2006 16%
2007 0%
2008 20%
2009 7%
2010+ 19%
YEARS BONDS CALLABLE
COST (BOOK) YIELD**
WEIGHTED AVERAGE
BOOK YIELD: 6.2%
2000 7.2%
2001 8.6%
2002 6.8%
2003 7.5%
2004 5.7%
2005 6.7%
2006 6.6%
2007
2008 5.3%
2009 5.5%
2010+ 6.2%
* % BASED ON LONG-TERM PORTFOLIO.
** COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO
INVESTMENT BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE FUND OPERATING
EXPENSES. FOR EXAMPLE, THE FUND EARNED A BOOK YIELD OF 8.6% ON 2% OF
THE BONDS IN THE LONG-TERM PORTFOLIO THAT ARE CALLABLE IN 2001.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
</TABLE>
5
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FUND PERFORMANCE DECEMBER 31, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 - CLASS B
($ IN THOUSANDS)
<S> <C> <C>
Fund Lehman(4)
December 31, 1989 $10,000 $10,000
December 31, 1990 $10,401 $10,729
December 31, 1991 $11,747 $12,032
December 31, 1992 $12,769 $13,093
December 31, 1993 $14,265 $14,700
December 31, 1994 $13,161 $13,940
December 31, 1995 $15,345 $16,374
December 31, 1996 $15,777 $17,100
December 31, 1997 $17,107 $18,671
December 31, 1998 $18,018 $19,881
December 31, 1999 $17,192(3) $19,472
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------------------------------------------------------------------------
CLASS B SHARES* CLASS A SHARES+
------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year -4.58(1) -9.16(2) 1 Year -4.03%(1) -8.11%(2)
5 year 5.49(1) 5.16(2) Since Inception (7/28/97) 1.91(1) 0.10(2)
10 year 5.57(1) 5.57(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year -4.60%(1) -5.51%(2) 1 year -3.87(1)
Since Inception (7/28/97) 1.35(1) 1.35(2) Since Inception (7/28/97) 2.17(1)
</TABLE>
- ------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on December 31, 1999.
(4) 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.
* The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A is 4.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
6
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK TAX- EXEMPT MUNICIPAL BONDS (95.5%)
GENERAL OBLIGATION (15.8%)
Monroe County,
$ 1,000 Public Improvement Refg 1996........................................ 6.00 % 03/01/13 $ 1,054,000
1,000 Public Improvement Refg 1996........................................ 6.00 03/01/15 1,039,390
New York City,
2,055 Various Purpose 1973................................................ 3.50 05/01/01 2,031,737
2,500 Various Purpose 1973................................................ 3.50 05/01/03 2,415,800
605 1997 Ser D.......................................................... 6.00 08/01/06 605,793
New York State,
2,500 Ser 1996 A Refg..................................................... 6.00 07/15/08 2,641,550
3,000 Ser 1995 B Refg..................................................... 5.70 08/15/13 3,020,400
8,000 Puerto Rico, Public Improvement Refg Ser 1987 A....................... 3.00 07/01/06 7,092,639
------------
--------
19,901,309
20,660
------------
--------
EDUCATIONAL FACILITIES REVENUE (11.6%)
New York State Dormitory Authority,
965 City University Ser 1992 U.......................................... 6.375 07/01/08 1,010,326
3,000 City University Ser 1993 A.......................................... 5.75 07/01/09 3,044,940
2,000 Ithaca College Ser 1998 (AMBAC)..................................... 5.00 07/01/21 1,727,700
1,000 New York University Ser 1998 A (MBIA)............................... 5.75 07/01/15 1,012,300
3,000 State University Ser 1989 B......................................... 0.00 05/15/05 2,275,740
2,000 State University Ser 1993 C......................................... 5.375 05/15/13 1,923,320
2,000 State University Ser 1993 A......................................... 5.25 05/15/15 1,879,280
2,000 University of Rochester, Ser 1998 A (MBIA).......................... 5.00 07/01/23 1,711,680
------------
--------
14,585,286
15,965
------------
--------
ELECTRIC REVENUE (8.7%)
4,000 Long Island Power Authority, Ser 1998 A (FSA)......................... 5.125 12/01/22 3,495,040
8,000 Puerto Rico Electric Power Authority, Power Ser O..................... 5.00 07/01/12 7,552,000
------------
--------
11,047,040
12,000
------------
--------
HOSPITAL REVENUE (6.0%)
8,295 New York State Medical Care Facilities Finance Agency, Hospital &
Nursing Home - FHA Insured Mtge 1993 Ser B.......................... 5.50 02/15/22 7,554,091
------------
--------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (12.3%)
4,000 New York City Industrial Development Agency, Brooklyn Navy Yard
Cogeneration Partners LP Ser 1997 (AMT)............................. 5.75 10/01/36 3,509,520
11,000 New York State Energy Research & Development Authority, Brooklyn Union
Gas Co 1991 Ser A (AMT)............................................. 6.952 07/01/26 12,023,660
------------
--------
15,533,180
15,000
------------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE REVENUE - MULTI-FAMILY (7.5%)
New York City Housing Development Corporation,
$ 2,201 East Midtown Proj - FHA Ins Sec 223................................. 6.50 % 11/15/18 $ 2,222,592
2,226 Ruppert Proj - FHA Ins Sec 223...................................... 6.50 11/15/18 2,212,700
4,935 New York State Housing Finance Agency, Mortgage 1996 Ser A Refg
(FSA)............................................................... 6.10 11/01/15 5,002,017
------------
--------
9,437,309
9,362
------------
--------
MORTGAGE REVENUE - SINGLE FAMILY (3.8%)
4,500 New York State Mortgage Agency, Homeowner Ser 27...................... 6.90 04/01/15 4,748,040
------------
--------
NURSING & HEALTH RELATED FACILITIES REVENUE (4.7%)
New York State Medical Care Facilities Finance Agency,
2,295 Long Term Health Care 1992 Ser D (FSA).............................. 6.50 11/01/15 2,403,829
4,000 Mental Health Ser F................................................. 5.25 02/15/19 3,528,560
------------
--------
5,932,389
6,295
------------
--------
PUBLIC FACILITIES REVENUE (1.3%)
2,000 New York State Urban Development Corporation, Correctional 1998 Ser B
(AMBAC)............................................................. 4.75 01/01/28 1,610,140
------------
--------
TRANSPORTATION FACILITIES REVENUE (7.5%)
3,000 New York State Thruway Authority, Local Highway & Bridge Ser 1998 A
(MBIA).............................................................. 5.00 04/01/18 2,636,430
2,000 Triborough Bridge & Tunnel Authority, Refg Ser 1998 A (MBIA).......... 4.75 01/01/24 1,638,140
Puerto Rico Highway & Transportation Authority,
3,000 Refg Ser X.......................................................... 5.50 07/01/15 2,905,800
3,000 Ser 1998 A.......................................................... 4.75 07/01/38 2,305,290
------------
--------
9,485,660
11,000
------------
--------
WATER & SEWER REVENUE (8.0%)
New York City Municipal Water Finance Authority,
3,000 1998 Ser D.......................................................... 4.75 06/15/25 2,407,560
2,000 2000 Ser A (FGIC)................................................... 5.50 06/15/32 1,811,680
2,000 New York State Environmental Facilities Corporation, Clean Drinking
Water Ser 1998 C.................................................... 5.00 06/15/19 1,751,320
4,000 Suffolk County Industrial Development Agency, Southwest Sewer
Ser 1994 (FGIC)..................................................... 6.00 02/01/08 4,213,640
------------
--------
10,184,200
11,000
------------
--------
OTHER REVENUE (5.5%)
2,000 Municipal Assistance Corporation for the City of New York, Ser E...... 6.00 07/01/06 2,112,100
5,000 New York Local Government Assistance Corporation, Ser 1993 C.......... 5.50 04/01/17 4,837,350
------------
--------
6,949,450
7,000
------------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REFUNDED (2.8%)
$ 3,000 New York State Dormitory Authority, Suffolk County Judicial Ser 1986
(ETM)............................................................... 7.375% 07/01/16 $ 3,507,300
------------
--------
126,077 TOTAL NEW YORK TAX- EXEMPT MUNICIPAL BONDS
- ---------- (IDENTIFIED COST $118,796,777)...............................................................
120,475,394
------------
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.4%)
2,000 Nassau County Industrial Development Agency, Cold Spring Harbor
Laboratory Ser 1999 (Demand 01/03/00)............................... 4.75* 01/01/23 2,000,000
5,300 New York State Energy Research & Development Authority, New York State
Electric & Gas Corp Ser 1994 C (Demand 01/03/00).................... 4.65* 06/01/29 5,300,000
2,000 Port Authority of New York & New Jersey, Ser 2 (Demand 01/03/00)...... 4.90* 05/01/19 2,000,000
------------
--------
9,300 TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS
- ---------- (IDENTIFIED COST $9,300,000).................................................................
9,300,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
$135,377 TOTAL INVESTMENTS
(IDENTIFIED COST $128,096,777) (a).................................................. 102.9% 129,775,394
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS...................................... (2.9) (3,637,339)
----- -------------
NET ASSETS........................................................................... 100.0% $126,138,055
----- -------------
----- -------------
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$6,005,587 and the aggregate gross unealized depreciation is
$4,326,970, resulting in net unrealized appreciation of $1,678,617.
BOND INSURANCE:
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $128,096,777).............................................................. $129,775,394
Cash.......................................................................................... 170,799
Receivable for:
Interest.................................................................................. 1,978,813
Shares of beneficial interest sold........................................................ 2,871
Prepaid expenses and other assets............................................................. 19,021
------------
TOTAL ASSETS............................................................................. 131,946,898
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased................................................. 5,291,776
Dividends and distributions to shareholders............................................... 243,778
Plan of distribution fee.................................................................. 84,576
Investment management fee................................................................. 63,118
Accrued expenses.............................................................................. 125,595
------------
TOTAL LIABILITIES........................................................................ 5,808,843
------------
NET ASSETS............................................................................... $126,138,055
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $124,531,501
Net unrealized appreciation................................................................... 1,678,617
Accumulated undistributed net investment income............................................... 16,454
Accumulated net realized loss................................................................. (88,517)
------------
NET ASSETS............................................................................... $126,138,055
============
CLASS A SHARES:
Net Assets.................................................................................... $407,702
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 37,437
NET ASSET VALUE PER SHARE................................................................ $10.89
============
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)........................................ $11.37
============
CLASS B SHARES:
Net Assets.................................................................................... $124,773,900
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 11,431,995
NET ASSET VALUE PER SHARE................................................................ $10.91
============
CLASS C SHARES:
Net Assets.................................................................................... $839,970
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 77,111
NET ASSET VALUE PER SHARE................................................................ $10.89
============
CLASS D SHARES:
Net Assets.................................................................................... $116,483
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 10,684
NET ASSET VALUE PER SHARE................................................................ $10.90
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................................................... $ 8,165,755
------------
EXPENSES
Plan of distribution fee (Class A shares)..................................................... 690
Plan of distribution fee (Class B shares)..................................................... 1,107,816
Plan of distribution fee (Class C shares)..................................................... 5,893
Investment management fee..................................................................... 820,568
Professional fees............................................................................. 88,621
Shareholder reports and notices............................................................... 68,550
Transfer agent fees and expenses.............................................................. 63,128
Trustees' fees and expenses................................................................... 18,667
Registration fees............................................................................. 11,725
Custodian fees................................................................................ 7,867
Other......................................................................................... 14,112
------------
TOTAL EXPENSES........................................................................... 2,207,637
Less: expense offset.......................................................................... (7,850)
------------
NET EXPENSES............................................................................. 2,199,787
------------
NET INVESTMENT INCOME.................................................................... 5,965,968
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss............................................................................. (88,517)
Net change in unrealized appreciation......................................................... (12,708,366)
------------
NET LOSS................................................................................. (12,796,883)
------------
NET DECREASE.................................................................................. $ (6,830,915)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................. $ 5,965,968 $ 6,578,491
Net realized gain (loss).............................................. (88,517) 5,147,298
Net change in unrealized appreciation................................. (12,708,366) (3,210,250)
------------ ------------
NET INCREASE (DECREASE).......................................... (6,830,915) 8,515,539
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares.................................................... (19,141) (14,967)
Class B shares.................................................... (5,881,219) (6,537,411)
Class C shares.................................................... (31,200) (23,538)
Class D shares.................................................... (13,412) (2,575)
Net realized gain
Class A shares.................................................... (720) (12,473)
Class B shares.................................................... (247,643) (5,154,681)
Class C shares.................................................... (1,330) (23,959)
Class D shares.................................................... (146) (2,529)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................................ (6,194,811) (11,772,133)
------------ ------------
Net decrease from transactions in shares of beneficial interest....... (24,736,170) (2,946,362)
------------ ------------
NET DECREASE..................................................... (37,761,896) (6,202,956)
NET ASSETS:
Beginning of period................................................... 163,899,951 170,102,907
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $16,454 AND $0,
RESPECTIVELY)..................................................... $126,138,055 $163,899,951
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter New York Tax-Free Income Fund (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), 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, New York State and New York City income tax, consistent with the
preservation of capital. The Fund was organized as a Massachusetts business
trust on January 17, 1985 and commenced operations on April 25, 1985. On July
28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
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.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
13
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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.
E. 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"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined as of the close of each
business day: 0.55% to the portion of daily net assets not exceeding $500
million and 0.525% to the portion of daily net assets exceeding $500 million.
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.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution
14
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
(the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the
Fund will pay the Distributor a fee which is accrued daily and paid monthly at
the following annual rates: (i) Class A -- up to 0.25% of the average daily net
assets of Class A; (ii) Class B -- 0.75% of the lesser of: (a) the average daily
aggregate gross sales of the Class B shares since the inception of the Fund (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Class B shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or waived; or (b) the average daily net assets of Class B; and (iii) Class C --
up to 0.75% of the average daily net assets of Class C. In the case of Class A
shares, amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the Plan
are paid to the Distributor for (1) services provided and the expenses borne by
it and others in the distribution of the shares of these Classes, including the
payment of commissions for sales of these Classes and incentive compensation to,
and expenses of, the Morgan Stanley Dean Witter Financial Advisors and others
who engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and (3) preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $1,112,901 at December 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.75% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended December 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.16% and
0.75%, respectively.
15
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
The Distributor has informed the Fund that for year ended December 31, 1999, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $276,746 and $772, respectively and
received $2,126 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. 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, 1999 aggregated
$3,954,860 and $27,011,385, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended December 31, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,892. At December 31, 1999, the Fund had an accrued pension liability of
$52,664 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At December 31, 1999, the Fund had a net capital loss carryover of approximately
$75,000 which will be available through December 31, 2007 to offset future
capital gains to the extent provided by regulations.
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $14,000 during fiscal 1999.
6. SUBSEQUENT EVENT
On January 26, 2000, the Board of Trustees of the Fund and of Morgan Stanley
Dean Witter Multi-State Municipal Series Trust -- New York Series ("New York
Series") approved a reorganization plan ("the Plan") whereby New York Series
would be merged into the Fund. The Plan is subject to the consent of New York
Series' shareholders. If approved, the assets of New York Series would be
combined with the assets of the Fund and shareholders of New York Series would
become Class D shareholders of the Fund, receiving Class D shares of the Fund
equal to the value of their holdings in New York Series.
16
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
7. 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, 1999 DECEMBER 31, 1998
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ------ ------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 4,285 $ 50,710 24,896 $ 303,943
Reinvestment of dividends and distributions...................... 1,235 13,955 1,176 14,161
Redeemed......................................................... (1,122) (12,769) (794) (9,600)
---------- ------------- ---------- -----------
Net increase - Class A........................................... 4,398 51,896 25,278 308,504
---------- ------------- ---------- -----------
CLASS B SHARES
Sold............................................................. 627,835 7,314,347 1,006,690 12,318,855
Reinvestment of dividends and distributions...................... 306,084 3,506,005 615,659 7,414,619
Redeemed......................................................... (3,146,578) (35,869,267) (1,945,444) (23,713,938)
---------- ------------- ---------- -----------
Net decrease - Class B........................................... (2,212,659) (25,048,915) (323,095) (3,980,464)
---------- ------------- ---------- -----------
CLASS C SHARES
Sold............................................................. 23,520 265,569 54,107 658,172
Reinvestment of dividends and distributions...................... 2,279 26,032 3,588 43,105
Redeemed......................................................... (12,997) (146,628) (2,319) (28,264)
---------- ------------- ---------- -----------
Net increase - Class C........................................... 12,802 144,973 55,376 673,013
---------- ------------- ---------- -----------
CLASS D SHARES
Sold............................................................. 1,194,426 13,227,353 3,958 48,389
Reinvestment of dividends and distributions...................... 291 3,322 349 4,196
Redeemed......................................................... (1,190,946) (13,114,799) -- --
---------- ------------- ---------- -----------
Net increase - Class D........................................... 3,771 115,876 4,307 52,585
---------- ------------- ---------- -----------
Net decrease in Fund............................................. (2,191,688) $ (24,736,170) (238,134) $(2,946,362)
========== ============= ========== ===========
</TABLE>
17
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $11.90 $12.16 $12.02
------ ------ ------
Income (loss) from investment operations:
Net investment income.............................................. 0.53 0.55 0.24
Net realized and unrealized gain (loss)............................ (1.00) 0.13 0.14
------ ------ ------
Total income (loss) from investment operations........................ (0.47) 0.68 0.38
------ ------ ------
Less dividends and distributions from:
Net investment income.............................................. (0.52) (0.55) (0.24)
Net realized gain.................................................. (0.02) (0.39) --
------ ------ ------
Total dividends and distributions..................................... (0.54) (0.94) (0.24)
------ ------ ------
Net asset value, end of period........................................ $10.89 $11.90 $12.16
====== ====== ======
TOTAL RETURN+......................................................... (4.03)% 5.68% 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.89%(4) 0.93%(3)(4) 0.92%(2)
Net investment income................................................. 4.58%(4) 4.50%(4) 4.78%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $408 $393 $94
Portfolio turnover rate............................................... 3% 24% 10%
</TABLE>
- ---------------------
* 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<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.......... $11.92 $12.16 $11.71 $11.96 $10.83
---------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income...................... 0.46 0.49 0.51 0.53 0.55
Net realized and unrealized gain (loss).... (0.99) 0.15 0.45 (0.21) 1.20
---------- -------- -------- -------- --------
Total income (loss) from investment
operations................................... (0.53) 0.64 0.96 0.32 1.75
---------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income...................... (0.46) (0.49) (0.51) (0.53) (0.54)
Net realized gain.......................... (0.02) (0.39) -- (0.04) (0.08)
---------- -------- -------- -------- --------
Total dividends and distributions............. (0.48) (0.88) (0.51) (0.57) (0.62)
---------- -------- -------- -------- --------
Net asset value, end of period................ $10.91 $11.92 $12.16 $11.71 $11.96
========== ======== ======== ======== ========
TOTAL RETURN+................................. (4.58)% 5.32% 8.43% 2.82% 16.59%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................... 1.48%(2) 1.44%(1)(2) 1.43%(1) 1.40%(1) 1.42%(1)
Net investment income......................... 3.99%(2) 3.99%(2) 4.33% 4.54% 4.70%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands....... $ 124,774 $162,659 $169,868 $192,192 $216,618
Portfolio turnover rate....................... 3% 24% 10% 16% 17%
</TABLE>
- ---------------------
* 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.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $11.90 $12.14 $12.02
------ ------ ------
Income (loss) from investment operations:
Net investment income.............................................. 0.46 0.48 0.22
Net realized and unrealized gain (loss)............................ (0.99) 0.15 0.12
------ ------ ------
Total income (loss) from investment operations........................ (0.53) 0.63 0.34
------ ------ ------
Less dividends and distributions from:
Net investment income.............................................. (0.46) (0.48) (0.22)
Net realized gain.................................................. (0.02) (0.39) --
------ ------ ------
Total dividends and distributions..................................... (0.48) (0.87) (0.22)
------ ------ ------
Net asset value, end of period........................................ $10.89 $11.90 $12.14
====== ====== ======
TOTAL RETURN+......................................................... (4.60)% 5.30% 2.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.48%(4) 1.44%(3)(4) 1.40%(2)
Net investment income................................................. 3.99%(4) 3.99%(4) 4.12%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $840 $765 $108
Portfolio turnover rate............................................... 3% 24% 10%
</TABLE>
- ---------------------
* 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $11.91 $12.15 $12.02
------ ------ ------
Income (loss) from investment operations:
Net investment income.............................................. 0.55 0.58 0.26
Net realized and unrealized gain (loss)............................ (1.00) 0.15 0.13
------ ------ ------
Total income (loss) investment operations............................. (0.45) 0.73 0.39
------ ------ ------
Less dividends and distributions from:
Net investment income.............................................. (0.54) (0.58) (0.26)
Net realized gain.................................................. (0.02) (0.39) --
------ ------ ------
Total dividends and distributions..................................... (0.56) (0.97) (0.26)
------ ------ ------
Net asset value, end of period........................................ $10.90 $11.91 $12.15
====== ====== ======
TOTAL RETURN+......................................................... (3.87)% 6.12% 3.27%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.73%(4) 0.69%(3)(4) 0.66%(2)
Net investment income................................................. 4.74%(4) 4.74%(4) 5.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $116 $82 $32
Portfolio turnover rate............................................... 3% 24% 10%
</TABLE>
- ---------------------
* 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE
INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME 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 New York
Tax-Free Income Fund (the "Fund") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 7, 2000
-------------------------------------------------------------
1999 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 1999, the Fund paid the
following per share amounts from tax-exempt income: $0.52 to
Class A shareholders, $0.46 to Class B shareholders, $0.46 to
Class C shareholders and $0.54 to Class D shareholders.
For the year ended December 31, 1999, the Fund paid long-term
capital gains of $0.02 per share to Class A, B, C and D
shareholders.
-------------------------------------------------------------
22
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Joseph R. Arcieri
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
NEW YORK
TAX-FREE
INCOME FUND
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS - FEBRUARY 25, 2000
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER
----------------------------------------------------------------
MULTI-STATE MUNICIPAL SERIES TRUST
Consisting of ten separate fund portfolios:
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
EACH SERIES SEEKS TO PROVIDE A HIGH LEVEL
OF CURRENT INCOME EXEMPT FROM BOTH
FEDERAL AND DESIGNATED STATE INCOME TAXES
CONSISTENT WITH 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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Overview ............................................. 1
The Arizona Series .......................... 2
The California Series ....................... 6
The Florida Series .......................... 10
The Massachusetts Series .................... 14
The Michigan Series ......................... 18
The Minnesota Series ........................ 22
The New Jersey Series ....................... 26
The New York Series ......................... 30
The Ohio Series ............................. 34
The Pennsylvania Series ..................... 38
Additional Investment Strategy Information .. 42
Additional Risk Information ................. 43
Fund Management ............................. 45
Shareholder Information Pricing Series Shares ....................... 46
How to Buy Shares ........................... 46
How to Exchange Shares ...................... 50
How to Sell Shares .......................... 52
Distributions ............................... 53
Tax Consequences ............................ 54
Financial Highlights ............................................. 56
Our Family of Funds .............................. Inside Back Cover
</TABLE>
<PAGE>
OVERVIEW
Morgan Stanley Dean Witter Multi-State Municipal Series Trust is an open-end,
non-diversified mutual fund that consists of ten separate fund portfolios --
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
A Series-by-Series summary begins on the next page. Each summary provides a
Series' investment objective, principal investment strategies, principal risks,
past performance, and fees and expenses. Morgan Stanley Dean Witter Multi-State
Municipal Series Trust is one of Morgan Stanley Dean Witter's Income Funds. This
category of mutual fund has the goal of selecting securities to pay out income
rather than rise in value.
Shares of each Series are not bank deposits and are not guaranteed or insured by
any bank, governmental entity or the FDIC.
Plan of Reorganization. On January 26, 2000, the Board of Trustees of the Fund
approved Agreements and Plans of Reorganization by and between certain of the
Fund's Series (each, a "merging Series") and certain other Morgan Stanley Dean
Witter Funds (each, an "acquiring Fund"), pursuant to which substantially all of
the assets of each merging Series would be combined with those of the acquiring
Fund and shareholders of the merging Series would become shareholders of the
acquiring Fund receiving Class D shares of the acquiring Fund equal to the value
of their holdings in the merging Series (each, a "Reorganization"). The
California Series would be merged with Morgan Stanley Dean Witter California
Tax-Free Income Fund and the New York Series would be merged with Morgan Stanley
Dean Witter New York Tax-Free Income Fund. Each of the Massachusetts Series,
Michigan Series, Minnesota Series and Ohio Series would be merged with Morgan
Stanley Dean Witter Tax Exempt Securities Trust. If these four mergers are
consummated, shareholders of the four merging Series would become shareholders
of a national tax-exempt Fund which only seeks to invest in municipal
obligations exempt from federal income tax, and not state tax.
Each Reorganization is subject to the approval of shareholders of the applicable
merging Series at a special meeting of shareholders scheduled to be held on June
22, 2000. A proxy statement formally detailing the proposal, the reasons for the
Trustees' action and information concerning the acquiring Fund will be
distributed to shareholders of each merging Series.
1
<PAGE>
THE ARIZONA SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The Arizona Series seeks to provide a high level of current income exempt from
both federal and Arizona state income taxes consistent with preservation of
capital.
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
The Arizona Series will invest at least 80% of its total assets in securities
that pay interest normally exempt from federal and Arizona state income taxes.
The Arizona Series' "Investment Manager," Morgan Stanley Dean Witter Advisors
Inc., generally invests in investment grade, Arizona municipal obligations and
obligations of U.S. Governmental territories such as Puerto Rico. The municipal
obligations may only be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation or Fitch Investors Services, LP or, if unrated,
judged to be of comparable quality by the Investment Manager at the time of
purchase. There are no maturity limitations on the Arizona Series' portfolio
securities.
The Arizona Series 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 Arizona Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on an Arizona Series distribution of this income.
The Arizona Series therefore may not be a suitable investment for these
investors. See the "Tax Consequences" section for more details.
The Arizona Series may take temporary "defensive" positions in attempting to
respond to adverse market conditions. The Arizona Series may invest any amount
of its assets in taxable money market instruments or in the highest grade
municipal obligations issued in other states when the Investment Manager
believes it is advisable to do so because of a defensive posture. Municipal
obligations of other states pay interest that is normally exempt from federal
income tax but not from Arizona income taxes. Defensive investing could have the
effect of reducing the Arizona Series' ability to provide tax exempt income or
otherwise meet its investment objective.
In addition to the securities described above, the Arizona Series may also
invest in private activity bonds and lease obligations.
2
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Arizona Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the Arizona
Series is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal obligations,
as with all debt securities, are subject to two types of risks: credit risk and
interest rate risk. The "Additional Risk Information" section contains a general
discussion of credit and interest rate risks.
Unlike most fixed-income funds, the Arizona Series is subject to the added
credit risk of concentrating its investments in a single state -- Arizona -- and
its municipalities. Because the Arizona Series concentrates its investments in
securities issued by Arizona state and local governments and government
authorities, the Arizona Series will be significantly affected by the political,
economic and regulatory developments concerning those issuers. Should any
difficulties develop concerning Arizona issuers ability to pay principal and/or
interest on their debt obligations, the Series' value and yield could be
adversely affected.
The Arizona Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Arizona Series' portfolio securities, and the Arizona
Series' share price, to fall substantially. A table in the "Additional Risk
Information" section shows how interest rates affect bonds.
The performance of the Arizona Series will depend on whether the Arizona Series
is successful in pursuing its investment strategy. The Arizona Series is also
subject to other risk from its permissible investments including the risk
associated with inverse floating rate municipal obligations; private activity
bonds and lease obligations. For more information about the risks of the Arizona
Series' investments, see the "Additional Risk Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
3
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the Arizona Series'
performance history. The Arizona Series' past performance does not indicate how
the Arizona Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Arizona Series' shares has varied
from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
10.08% 12.24% -6.58% 17.31% 2.92% 7.56% 5.39% -3.18%
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 7.20% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.43% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Arizona Series' average annual returns with those of a
broad measure of market performance over time. The Arizona Series' returns
include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 4/30/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Series -7.05% 4.93% 5.48%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.68%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period April 30, 1991 to December 31, 1999.
4
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the Arizona Series' fees and expenses that you
may pay if you buy and hold shares of the Arizona Series. The Arizona Series
does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Arizona Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- ------------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
- ------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
- ------------------------------------------------------------------------
ANNUAL ARIZONA SERIES OPERATING EXPENSES
- ------------------------------------------------------------------------
Management fee 0.35%
- ------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.14%
- ------------------------------------------------------------------------
Other expenses 0.17%
- ------------------------------------------------------------------------
Total annual Arizona Series operating expenses 0.66%
- ------------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Arizona Series with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Arizona Series, your investment has a 5%
return each year, and the Arizona Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$465 $603 $753 $1,190
-------------------------------------------
</TABLE>
5
<PAGE>
THE CALIFORNIA SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The California Series seeks to provide a high level of current income exempt
from both federal and California state income taxes consistent with preservation
of capital.
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
The California Series will invest at least 80% of its total assets in securities
that pay interest normally exempt from federal and California state income
taxes. The California Series' "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., generally invests in investment grade, California municipal
obligations and obligations of U.S. Governmental territories such as Puerto
Rico. The municipal obligations may only be rated investment grade by Moody's
Investors Service or Standard & Poor's Corporation or Fitch Investors Services,
LP or, if unrated, judged to be of comparable quality by the Investment Manager
at the time of purchase. There are no maturity limitations on the California
Series' portfolio securities.
The California Series 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 California Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on a California Series distribution of this
income. The California Series therefore may not be a suitable investment for
these investors. See the "Tax Consequences" section for more details.
The California Series may take temporary "defensive" positions in attempting to
respond to adverse market conditions. The California Series may invest any
amount of its assets in taxable money market instruments or in the highest grade
municipal obligations issued in other states when the Investment Manager
believes it is advisable to do so because of a defensive posture. Municipal
obligations of other states pay interest that is normally exempt from federal
income tax but not from California income taxes. Defensive investing could have
the effect of reducing the California Series' ability to provide tax exempt
income or otherwise meet its investment objective.
In addition to the securities described above, the California Series may also
invest in private activity bonds and lease obligations.
6
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the California Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the California
Series is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal obligations,
as with all debt securities, are subject to two types of risks: credit risk and
interest rate risk. The "Additional Risk Information" section contains a general
discussion of credit and interest rate risks.
Unlike most fixed-income funds, the California Series is subject to the added
credit risk of concentrating its investments in a single state -- California --
and its municipalities. Because the California Series concentrates its
investments in securities issued by California state and local governments and
government authorities, the California Series will be significantly affected by
the political, economic and regulatory developments concerning those issuers.
Should any difficulties develop concerning California issuers ability to pay
principal and/or interest on their debt obligations, the Series' value and yield
could be adversely affected.
The California Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the California Series' portfolio securities, and the
California Series' share price, to fall substantially. A table in the
"Additional Risk Information" section shows how interest rates affect bonds.
The performance of the California Series will depend on whether the California
Series is successful in pursuing its investment strategy. The California Series
is also subject to other risk from its permissible investments including the
risk associated with inverse floating rate municipal obligations, private
activity bonds and lease obligations. For more information about the California
Series' investments, see the "Additional Risk Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
7
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the California Series'
performance history. The California Series' past performance does not indicate
how the California Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the California Series' shares has
varied from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
9.18% 13.77% -8.53% 19.25% 4.75% 8.43% 6.03% -3.82%
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 8.46% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -7.10% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the California Series' average annual returns with those of
a broad measure of market performance over time. The California Series' returns
include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
California Series -7.67% 5.80% 6.11%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
8
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the California Series' fees and expenses that
you may pay if you buy and hold shares of the California Series. The California
Series does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the California Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL CALIFORNIA SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.15%
--------------------------------------------------------------------
Other expenses 0.11%
--------------------------------------------------------------------
Total annual California Series operating expenses 0.61%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
California Series with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the California Series, your investment has a
5% return each year, and the California Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$460 $587 $726 $1,130
-------------------------------------------
</TABLE>
9
<PAGE>
THE FLORIDA SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The Florida Series seeks to provide a high level of current income exempt from
both federal income and Florida state taxes consistent with preservation of
capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The Florida Series will invest at least 80% of its total assets in securities
that pay interest normally exempt from federal and the Florida state intangible
tax. (Florida presently does not impose an income tax on individuals.) The
Florida Series' "Investment Manager," Morgan Stanley Dean Witter Advisors Inc.,
generally invests in investment grade, Florida municipal obligations and
obligations of U.S. Governmental territories such as Puerto Rico. The municipal
obligations may only be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation or Fitch Investors Services, LP or, if unrated,
judged to be of comparable quality by the Investment Manager at the time of
purchase. There are no maturity limitations on the Florida Series' portfolio
securities.
The Florida Series 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 Florida Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on a Florida Series distribution of this income.
The Florida Series therefore may not be a suitable investment for these
investors. See the "Tax Consequences" section for more details. The Florida
Series may take temporary "defensive" positions in attempting to respond to
adverse market conditions. The Florida Series may invest any amount of its
assets in taxable money market instruments or in the highest grade municipal
obligations issued in other states when the Investment Manager believes it is
advisable to do so because of a defensive posture. Municipal obligations of
other states pay interest that is normally exempt from federal income tax but
not from the Florida intangible tax. Defensive investing could have the effect
of reducing the Florida Series' ability to provide tax exempt income or
otherwise meet its investment objective.
In addition to the securities described above, the Florida Series may also
invest in private activity bonds and lease obligations.
10
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Florida Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the Florida
Series is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal obligations,
as with all debt securities, are subject to two types of risks: credit risk and
interest rate risk. The "Additional Risk Information" section contains a general
discussion of credit and interest rate risks.
Unlike most fixed-income funds, the Florida Series is subject to the added
credit risk of concentrating its investments in a single state -- Florida -- and
its municipalities. Because the Florida Series concentrates its investments in
securities issued by Florida state and local governments and government
authorities, the Florida Series will be significantly affected by the political,
economic and regulatory developments concerning those issuers. Should any
difficulties develop concerning Florida issuers ability to pay principal and/or
interest on their debt obligations, the Series' value and yield could be
adversely affected.
The Florida Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Florida Series' portfolio securities, and the Florida
Series' share price, to fall substantially. A table in the "Additional Risk
Information" section shows how interest rates affect bonds.
The performance of the Florida Series will depend on whether the Florida Series
is successful in pursuing its investment strategy. The Florida Series is also
subject to other risk from its permissible investments including the risk
associated with inverse floating rate municipal obligations, private activity
bonds and lease obligations. For more information about the risks of the Florida
Series' investments, see the "Additional Risk Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
11
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the Florida Series'
performance history. The Florida Series' past performance does not indicate how
the Florida Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Florida Series' shares has varied
from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
9.98% 13.05% -6.23% 17.36% 3.18% 8.35% 5.82% -3.31%
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 7.08% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.47% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Florida Series' average annual returns with those of a
broad measure of market performance over time. The Florida Series' returns
include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Series -7.18% 5.21% 5.91%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
12
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the Florida Series' fees and expenses that you
may pay if you buy and hold shares of the Florida Series. The Florida Series
does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Florida Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL FLORIDA SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.14%
--------------------------------------------------------------------
Other expenses 0.15%
--------------------------------------------------------------------
Total annual Florida Series operating expenses 0.64%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Florida Series with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Florida Series, your investment has a 5%
return each year, and the Florida Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$462 $596 $741 $1,162
-------------------------------------------
</TABLE>
13
<PAGE>
THE MASSACHUSETTS SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The Massachusetts Series seeks to provide a high level of current income exempt
from both federal and Massachusetts state income taxes consistent with
preservation of capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The Massachusetts Series will invest at least 80% of its total assets in
securities that pay interest normally exempt from federal and Massachusetts
state income taxes. The Massachusetts Series' "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc., generally invests in investment grade,
Massachusetts municipal obligations and obligations of U.S. Governmental
territories such as Puerto Rico. The municipal obligations may only be rated
investment grade by Moody's Investors Service or Standard & Poor's Corporation
or Fitch Investors Services, LP or, if unrated, judged to be of comparable
quality by the Investment Manager at the time of purchase. There are no maturity
limitations on the Massachusetts Series' portfolio securities.
The Massachusetts Series 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 Massachusetts Series may invest any amount of its assets in securities that
pay interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on a Massachusetts Series distribution of this
income. The Massachusetts Series therefore may not be a suitable investment for
these investors. See the "Tax Consequences" section for more details.
The Massachusetts Series may take temporary "defensive" positions in attempting
to respond to adverse market conditions. The Massachusetts Series may invest any
amount of its assets in taxable money market instruments or in the highest grade
municipal obligations issued in other states when the Investment Manager
believes it is advisable to do so because of a defensive posture. Municipal
obligations of other states pay interest that is normally exempt from federal
income tax but not from Massachusetts income tax. Defensive investing could have
the effect of reducing the Massachusetts Series' ability to provide tax exempt
income or otherwise meet its investment objective.
In addition to the securities described above, the Massachusetts Series may also
invest in private activity bonds and lease obligations.
14
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Massachusetts Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the
Massachusetts Series is associated with its municipal investments, particularly
its concentration in municipal obligations of a single state. Municipal
obligations, as with all debt securities, are subject to two types of risks:
credit risk and interest rate risk. The "Additional Risk Information" section
contains a general discussion of credit and interest rate risks.
Unlike most fixed-income funds, the Massachusetts Series is subject to the added
credit risk of concentrating its investments in a single state -- Massachusetts
- -- and its municipalities. Because the Massachusetts Series concentrates its
investments in securities issued by Massachusetts state and local governments
and government authorities, the Massachusetts Series will be significantly
affected by the political, economic and regulatory developments concerning those
issuers. Should any difficulties develop concerning Massachusetts issuers
ability to pay principal and/or interest on their debt obligations, the Series'
value and yield could be adversely affected.
The Massachusetts Series is not limited as to the maturities of the securities
in which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Massachusetts Series' portfolio securities, and the
Massachusetts Series' share price, to fall substantially. A table in the
"Additional Risk Information" section shows how interest rates affect bonds.
The Massachusetts Series is classified as "non-diversified" and therefore may
invest a greater percentage of its assets in the securities of individual
issuers than "diversified" mutual funds and a decline in the value of those
securities would cause the overall value of the Series to decline to a greater
degree.
The performance of the Massachusetts Series will depend on whether the
Massachusetts Series is successful in pursuing its investment strategy. The
Massachusetts Series is also subject to other risk from its permissible
investments including the risk associated with inverse floating rate municipal
obligations, private activity bonds and lease obligations. For more information
about the risks of the Series' investments, see the "Additional Risk
Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
15
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the Massachusetts
Series' performance history. The Massachusetts Series' past performance does not
indicate how the Massachusetts Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Massachusetts Series' shares has
varied from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
10.30% 13.80% -6.81% 18.31% 3.28% 8.88% 5.52% -2.87%
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 7.83% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.86% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Massachusetts Series' average annual returns with those
of a broad measure of market performance over time. The Massachusetts Series'
returns include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Series -6.76% 5.53% 6.26%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
16
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the Massachusetts Series' fees and expenses
that you may pay if you buy and hold shares of the Massachusetts Series. The
Massachusetts Series does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Massachusetts Series' assets and are based
on expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL MASSACHUSETTS SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.14%
--------------------------------------------------------------------
Other expenses 0.36%
--------------------------------------------------------------------
Total annual Massachusetts Series operating expenses 0.85%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Massachusetts Series with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Massachusetts Series, your
investment has a 5% return each year, and the Massachusetts Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$483 $660 $852 $1,407
-------------------------------------------
</TABLE>
17
<PAGE>
THE MICHIGAN SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The Michigan Series seeks to provide a high level of current income exempt from
both federal and Michigan state income taxes consistent with preservation of
capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The Michigan Series will invest at least 80% of its total assets in securities
that pay interest normally exempt from federal and Michigan state income taxes.
The Michigan Series' "Investment Manager," Morgan Stanley Dean Witter Advisors
Inc., generally invests in investment grade, Michigan municipal obligations and
obligations of U.S. Governmental territories such as Puerto Rico. The municipal
obligations may only be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation or Fitch Investors Services, LP or, if unrated,
judged to be of comparable quality by the Investment Manager at the time of
purchase. There are no maturity limitations on the Michigan Series' portfolio
securities.
The Michigan Series 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 Michigan Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on a Michigan Series distribution of this income.
The Michigan Series therefore may not be a suitable investment for these
investors. See the "Tax Consequences" section for more details.
The Michigan Series may take temporary "defensive" positions in attempting to
respond to adverse market conditions. The Michigan Series may invest any amount
of its assets in taxable money market instruments or in the highest grade
municipal obligations issued in other states when the Investment Manager
believes it is advisable to do so because of a defensive posture. Municipal
obligations of other states pay interest that is normally exempt from federal
income tax but not from Michigan income tax. Defensive investing could have the
effect of reducing the Michigan Series' ability to provide tax exempt income or
otherwise meet its investment objective.
In addition to the securities described above, the Michigan Series may also
invest in private activity bonds and lease obligations.
18
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Michigan Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the Michigan
Series is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal obligations,
as with all debt securities, are subject to two types of risks: credit risk and
interest rate risk. The "Additional Risk Information" section contains a general
discussion of credit and interest rate risks.
Unlike most fixed-income funds, the Michigan Series is subject to the added
credit risk of concentrating its investments in a single state -- Michigan --
and its municipalities. Because the Michigan Series concentrates its investments
in securities issued by Michigan state and local governments and government
authorities, the Michigan Series will be significantly affected by the
political, economic and regulatory developments concerning those issuers. Should
any difficulties develop concerning Michigan issuers ability to pay principal
and/or interest on their debt obligations, the Series' value and yield could be
adversely affected.
The Michigan Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Michigan Series' portfolio securities, and the Michigan
Series' share price, to fall substantially. A table in the "Additional Risk
Information" section shows how interest rates affect bonds.
The performance of the Michigan Series will depend on whether the Michigan
Series is successful in pursuing its investment strategy. The Michigan Series is
also subject to other risk from its permissible investments including the risk
associated with inverse floating rate municipal obligations, private activity
bonds and lease obligations. For more information about the risks of the
Michigan Series' investments, see the "Additional Risk Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
19
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the Michigan Series'
performance history. The Michigan Series' past performance does not indicate how
the Michigan Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Michigan Series' shares has varied
from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
10.05% 13.21% -6.96% 18.48% 3.50% 8.08% 5.93% -3.20%
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 7.51% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.69% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Michigan Series' average annual returns with those of a
broad measure of market performance over time. The Michigan Series' returns
include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Michigan Series -7.07% 5.46% 6.12%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
20
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the Michigan Series' fees and expenses that
you may pay if you buy and hold shares of the Michigan Series. The Michigan
Series does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Michigan Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL MICHIGAN SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.14%
--------------------------------------------------------------------
Other expenses 0.35%
--------------------------------------------------------------------
Total annual Michigan Series operating expenses 0.84%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Michigan Series with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Michigan Series, your investment has a 5%
return each year, and the Michigan Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$483 $658 $849 $1,396
-------------------------------------------
</TABLE>
21
<PAGE>
THE MINNESOTA SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The Minnesota Series seeks to provide a high level of current income exempt from
both federal and Minnesota state income taxes consistent with preservation of
capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An Investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The Minnesota Series will invest at least 80% of its total assets in securities
that pay interest normally exempt from federal and Minnesota state personal
income taxes. The Minnesota Series' "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., generally invests in investment grade, Minnesota municipal
obligations. The municipal obligations may only be rated investment grade by
Moody's Investors Service or Standard & Poor's Corporation or Fitch Investors
Services, LP or, if unrated, judged to be of comparable quality by the
Investment Manager at the time of purchase. While the Minnesota Series may only
invest some of its assets in non-Minnesota municipal obligations, the ability of
the Minnesota Series' to invest in such non-Minnesota municipal obligations is
limited by Minnesota tax law. There are no maturity limitations on the Minnesota
Series' portfolio securities.
The Minnesota Series 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 Minnesota Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax." This income,
along with other income, may also be subject to the Minnesota alternative
minimum tax. Some taxpayers may have to pay tax on a Minnesota Series
distribution of this income. The Minnesota Series therefore may not be a
suitable investment for these investors. See the "Tax Consequences" section for
more details.
The Minnesota Series may take temporary "defensive" positions in attempting to
respond to adverse market conditions. Subject to Minnesota tax law requirements,
the Minnesota Series may invest any amount of its assets in taxable money market
instruments or in the highest grade municipal obligations issued in other states
when the Investment Manager believes it is advisable to do so because of a
defensive posture. Municipal obligations of other states pay interest that is
normally exempt from federal income tax but not from Minnesota income tax.
Defensive investing could have the effect of reducing the Minnesota Series'
ability to provide tax exempt income or otherwise meet its investment objective.
In addition to the securities described above, the Minnesota Series may also
invest in private activity bonds and lease obligations.
22
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Minnesota Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the Minnesota
Series is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal obligations,
as with all debt securities, are subject to two types of risks: credit risk and
interest rate risk. The "Additional Risk Information" section contains a general
discussion of credit and interest rate risks.
Unlike most fixed-income funds, the Minnesota Series is subject to the added
credit risk of concentrating its investments in a single state -- Minnesota --
and its municipalities. Because the Minnesota Series concentrates its
investments in securities issued by Minnesota state and local governments and
government authorities, the Minnesota Series will be significantly affected by
the political, economic and regulatory developments concerning those issuers.
Should any difficulties develop concerning Minnesota issuers ability to pay
principal and/or interest on their debt obligations, the Series' value and yield
could be adversely affected.
The Minnesota Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Minnesota Series' portfolio securities, and the Minnesota
Series' share price, to fall substantially. A table in the "Additional Risk
Information" section shows how interest rates affect bonds.
Taxation Risk. In accordance with Minnesota legislation enacted in 1995, income
dividend distributions that would otherwise be exempt from Minnesota personal
income tax in the case of individuals, estates and trusts may become subject to
that tax if the exemption of that income were judicially determined to
discriminate against interstate commerce.
The Minnesota Series is classified as "non-diversified" and therefore may invest
a greater percentage of its assets in the securities of individual issuers than
"diversified" mutual funds and a decline in the value of those securities would
cause the overall value of the Series to decline to a greater degree.
The performance of the Minnesota Series will depend on whether the Minnesota
Series is successful in pursuing its investment strategy. The Minnesota Series
is also subject to other risk from its permissible investments including the
risk associated with inverse floating rate municipal obligations, private
activity bonds and lease obligations. For more information about the risks of
the Minnesota Series' investments, see the "Additional Risk Information"
section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
23
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the Minnesota Series'
performance history. The Minnesota Series' past performance does not indicate
how the Minnesota Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Minnesota Series' shares has varied
from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
9.00% 13.05% -7.12% 18.13% 3.78% 7.22% 5.07% -3.56%
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 7.38% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.64% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Minnesota Series' average annual returns with those of
a broad measure of market performance over time. The Minnesota Series' returns
include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minnesota Series -7.42% 5.04% 5.44%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
24
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the Minnesota Series' fees and expenses that
you may pay if you buy and hold shares of the Minnesota Series. The Minnesota
Series does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Minnesota Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL MINNESOTA SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.14%
--------------------------------------------------------------------
Other expenses 0.64%
--------------------------------------------------------------------
Total annual Minnesota Series operating expenses 1.13%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Minnesota Series with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Minnesota Series, your investment has a
5% return each year, and the Minnesota Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$511 $746 $997 $1,720
-------------------------------------------
</TABLE>
25
<PAGE>
THE NEW JERSEY SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The New Jersey Series seeks to provide a high level of current income exempt
from both federal and New Jersey state income taxes consistent with preservation
of capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The New Jersey Series will invest at least 80% of its total assets in securities
that pay interest normally exempt from federal and New Jersey state income
taxes. The New Jersey Series' "Investment Manager," Morgan Stanley Dean Witter
Advisors Inc., generally invests in investment grade, New Jersey municipal
obligations and obligations of U.S. Governmental territories such as Puerto
Rico. The municipal obligations may only be rated investment grade by Moody's
Investors Service or Standard & Poor's Corporation or Fitch Investors Services,
LP or, if unrated, judged to be of comparable quality by the Investment Manager
at the time of purchase. There are no maturity limitations on the New Jersey
Series' portfolio securities.
The New Jersey Series 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 New Jersey Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on a New Jersey Series distribution of this
income. The New Jersey Series therefore may not be a suitable investment for
these investors. See the "Tax Consequences" section for more details.
The New Jersey Series may take temporary "defensive" positions in attempting to
respond to adverse market conditions. The New Jersey Series may invest any
amount of its assets in taxable money market instruments or in the highest grade
municipal obligations issued in other states when the Investment Manager
believes it is advisable to do so because of a defensive posture. Municipal
obligations of other states pay interest that is normally exempt from federal
income tax but not from New Jersey income tax. Defensive investing could have
the effect of reducing the New Jersey Series' ability to provide tax exempt
income or otherwise meet its investment objective.
In addition to the securities described above, the New Jersey Series may also
invest in private activity bonds and lease obligations.
26
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the New Jersey Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the New Jersey
Series is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal obligations,
as with all debt securities, are subject to two types of risks: credit risk and
interest rate risk. The "Additional Risk Information" section contains a general
discussion of credit and interest rate risks.
Unlike most fixed-income funds, the New Jersey Series is subject to the added
credit risk of concentrating its investments in a single state -- New Jersey --
and its municipalities. Because the New Jersey Series concentrates its
investments in securities issued by New Jersey state and local governments and
government authorities, the New Jersey Series will be significantly affected by
the political, economic and regulatory developments concerning those issuers.
Should any difficulties develop concerning New Jersey issuers ability to pay
principal and/or interest on their debt obligations, the Series' value and yield
could be adversely affected.
The New Jersey Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the New Jersey Series' portfolio securities, and the New
Jersey Series' share price, to fall substantially. A table in the "Additional
Risk Information" section shows how interest rates affect bonds.
The performance of the New Jersey Series will depend on whether the New Jersey
Series is successful in pursuing its investment strategy. The New Jersey Series
is also subject to other risk from its permissible investments including the
risk associated with inverse floating rate municipal obligations, private
activity bonds and lease obligations. For more information about the risks of
the New Jersey Series' investments, see the "Additional Risk Information"
section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
27
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the New Jersey Series'
performance history. The New Jersey Series' past performance does not indicate
how the New Jersey Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the New Jersey Series' shares has
varied from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
10.08% 12.81% -7.12% 17.55% 3.34% 9.07% 5.86% -3.36%
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 7.20% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.52% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the New Jersey Series' average annual returns with those of
a broad measure of market performance over time. The New Jersey Series' returns
include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
New Jersey Series -7.23% 5.41% 6.01%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
28
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the New Jersey Series' fees and expenses that
you may pay if you buy and hold shares of the New Jersey Series. The New Jersey
Series does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the New Jersey Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL NEW JERSEY SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.14%
--------------------------------------------------------------------
Other expenses 0.20%
--------------------------------------------------------------------
Total annual New Jersey Series operating expenses 0.69%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the New
Jersey Series with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the New Jersey Series, your investment has a
5% return each year, and the New Jersey Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$468 $612 $769 $1,225
-------------------------------------------
</TABLE>
29
<PAGE>
THE NEW YORK SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The New York Series seeks to provide a high level of current income exempt from
both federal and New York state income taxes consistent with preservation of
capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The New York Series will invest at least 80% of its total assets in securities
that pay interest normally exempt from federal and New York state income taxes.
The New York Series' "Investment Manager," Morgan Stanley Dean Witter Advisors
Inc., generally invests in investment grade, New York municipal obligations and
obligations of U.S. Governmental territories such as Puerto Rico. The municipal
obligations may only be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation or Fitch Investors Services, LP or, if unrated,
judged to be of comparable quality by the Investment Manager at the time of
purchase. There are no maturity limitations on the New York Series' portfolio
securities.
The New York Series 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 New York Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on a New York Series distribution of this income.
The New York Series therefore may not be a suitable investment for these
investors. See the "Tax Consequences" section for more details.
The New York Series may take temporary "defensive" positions in attempting to
respond to adverse market conditions. The New York Series may invest any amount
of its assets in taxable money market instruments or in the highest grade
municipal obligations issued in other states when the Investment Manager
believes it is advisable to do so because of a defensive posture. Municipal
obligations of other states pay interest that is normally exempt from federal
income tax but not from New York income tax. Defensive investing could have the
effect of reducing the New York Series' ability to provide tax exempt income or
otherwise meet its investment objective.
In addition to the securities described above, the New York Series may also
invest in private activity bonds and lease obligations.
30
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the New York Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the New York
Series is associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal obligations,
as with all debt securities, are subject to two types of risks: credit risk and
interest rate risk. The "Additional Risk Information" section contains a general
discussion of credit and interest rate risks.
Unlike most fixed-income funds, the New York Series is subject to the added
credit risk of concentrating its investments in a single state -- New York --
and its municipalities. Because the New York Series concentrates its investments
in securities issued by New York state and local governments and government
authorities, the New York Series will be significantly affected by the
political, economic and regulatory developments concerning those issuers. Should
any difficulties develop concerning New York issuers ability to pay principal
and/or interest on their debt obligations, the Series' value and yield could be
adversely affected.
The New York Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the New York Series' portfolio securities, and the New York
Series' share price, to fall substantially. A table in the "Additional Risk
Information" section shows how interest rates affect bonds.
The performance of the New York Series will depend on whether the New York
Series is successful in pursuing its investment strategy. The New York Series is
also subject to other risk from its permissible investments including the risk
associated with inverse floating rate municipal obligations, private activity
bonds and lease obligations. For more information about the risks of the New
York Series' investments, see the "Additional Risk Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
31
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the New York Series'
performance history. The New York Series' past performance does not indicate how
the New York Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the New York Series' shares has varied
from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
9.28% 13.85% -8.16% 19.31% 3.68% 9.19% 6.06% -3.39%
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 7.49% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.78% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the New York Series' average annual returns with those of a
broad measure of market performance over time. The New York Series' returns
include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
New York Series -7.26% 5.85% 6.25%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
32
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the New York Series' fees and expenses that
you may pay if you buy and hold shares of the New York Series. The New York
Series does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the New York Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL NEW YORK SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.15%
--------------------------------------------------------------------
Other expenses 0.43%
--------------------------------------------------------------------
Total annual New York Series operating expenses 0.93%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the New
York Series with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the New York Series, your investment has a 5%
return each year, and the New York Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$491 $683 $891 $1,497
-------------------------------------------
</TABLE>
33
<PAGE>
THE OHIO SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The Ohio Series seeks to provide a high level of current income exempt from both
federal and Ohio state income taxes consistent with preservation of capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The Ohio Series will invest at least 80% of its total assets in securities that
pay interest normally exempt from federal and Ohio state income taxes. The Ohio
Series' "Investment Manager," Morgan Stanley Dean Witter Advisors Inc.,
generally invests in investment grade, Ohio municipal obligations and
obligations of U.S. Governmental territories such as Puerto Rico. The municipal
obligations may only be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation or Fitch Investors Services, LP or, if unrated,
judged to be of comparable quality by the Investment Manager at the time of
purchase. There are no maturity limitations on the Ohio Series' portfolio
securities.
The Ohio Series 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 Ohio Series may invest any amount of its assets in securities that pay
interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on an Ohio Series distribution of this income. The
Ohio Series therefore may not be a suitable investment for these investors. See
the "Tax Consequences" section for more details.
The Ohio Series may take temporary "defensive" positions in attempting to
respond to adverse market conditions. The Ohio Series may invest any amount of
its assets in taxable money market instruments or in the highest grade municipal
obligations issued in other states when the Investment Manager believes it is
advisable to do so because of a defensive posture. Municipal obligations of
other states pay interest that is normally exempt from federal income tax but
not from Ohio income tax. Defensive investing could have the effect of reducing
the Ohio Series' ability to provide tax exempt income or otherwise meet its
investment objective.
In addition to the securities described above, the Ohio Series may also invest
in private activity bonds and lease obligations.
34
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Ohio Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the Ohio Series
is associated with its municipal investments, particularly its concentration in
municipal obligations of a single state. Municipal obligations, as with all debt
securities, are subject to two types of risks: credit risk and interest rate
risk. The "Additional Risk Information" section contains a general discussion of
credit and interest rate risks.
Unlike most fixed-income funds, the Ohio Series is subject to the added credit
risk of concentrating its investments in a single state -- Ohio -- and its
municipalities. Because the Ohio Series concentrates its investments in
securities issued by Ohio state and local governments and government
authorities, the Ohio Series will be significantly affected by the political,
economic and regulatory developments concerning those issuers. Should any
difficulties develop concerning Ohio issuers ability to pay principal and/or
interest on their debt obligations, the Series' value and yield could be
adversely affected.
The Ohio Series is not limited as to the maturities of the securities in which
it may invest. Thus, a rise in the general level of interest rates may cause the
price of the Ohio Series' portfolio securities, and the Ohio Series' share
price, to fall substantially. A table in the "Additional Risk Information"
section shows how interest rates affect bonds.
The performance of the Ohio Series will depend on whether the Ohio Series is
successful in pursuing its investment strategy. The Ohio Series is also subject
to other risk from its permissible investments including the risk associated
with inverse floating rate municipal obligations, private activity bonds and
lease obligations. For more information about the risks of the Ohio Series'
investments, see the "Additional Risk Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
35
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the Ohio Series'
performance history. The Ohio Series' past performance does not indicate how the
Ohio Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Ohio Series' shares has varied from
year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
9.81% 14.10% -7.39% 18.43% 3.74% 8.13% 5.49% -3.07%
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 7.53% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -6.87% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Ohio Series' average annual returns with those of a
broad measure of market performance over time. The Ohio Series' returns include
the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ohio Series -6.95% 5.45% 6.00%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
36
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the Ohio Series' fees and expenses that you
may pay if you buy and hold shares of the Ohio Series. The Ohio Series does not
charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Ohio Series' assets and are based on
expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL OHIO SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.14%
--------------------------------------------------------------------
Other expenses 0.32%
--------------------------------------------------------------------
Total annual Ohio Series operating expenses 0.81%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Ohio
Series with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Ohio Series, your investment has a 5% return each
year, and the Ohio Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$479 $648 $831 $1,360
-------------------------------------------
</TABLE>
37
<PAGE>
THE PENNSYLVANIA SERIES
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
The Pennsylvania Series seeks to provide a high level of current income exempt
from both federal and Pennsylvania state income taxes consistent with
preservation of capital.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGY
- -----------------------------
(sidebar)
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.
(end sidebar)
The Pennsylvania Series will invest at least 80% of its total assets in
securities that pay interest normally exempt from federal and Pennsylvania state
income taxes. The Pennsylvania Series' "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., generally invests in investment grade, Pennsylvania
municipal obligations and obligations of U.S. Governmental territories such as
Puerto Rico. The municipal obligations may only be rated investment grade by
Moody's Investors Service or Standard & Poor's Corporation or Fitch Investors
Services, LP or, if unrated, judged to be of comparable quality by the
Investment Manager at the time of purchase. There are no maturity limitations on
the Pennsylvania Series' portfolio securities.
The Pennsylvania Series 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 Pennsylvania Series may invest any amount of its assets in securities that
pay interest income subject to the federal "alternative minimum tax," and some
taxpayers may have to pay tax on a Pennsylvania Series distribution of this
income. The Pennsylvania Series therefore may not be a suitable investment for
these investors. See the "Tax Consequences" section for more details.
The Pennsylvania Series may take temporary "defensive" positions in attempting
to respond to adverse market conditions. The Pennsylvania Series may invest any
amount of its assets in taxable money market instruments or in the highest grade
municipal obligations issued in other states when the Investment Manager
believes it is advisable to do so because of a defensive posture. Municipal
obligations of other states pay interest that is normally exempt from federal
income tax but not from Pennsylvania income tax. Defensive investing could have
the effect of reducing the Pennsylvania Series' ability to provide tax exempt
income or otherwise meet its investment objective.
In addition to the securities described above, the Pennsylvania Series may also
invest in private activity bonds and lease obligations.
38
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Pennsylvania Series will achieve its investment
objective. The Series share price and yield will fluctuate with changes in the
market value of the Series portfolio securities. When you sell shares of this
Series, they may be worth less than what you paid for them and, accordingly, you
can lose money investing in this Series.
Credit and Interest Rate Risks. A principal risk of investing in the
Pennsylvania Series is associated with its municipal investments, particularly
its concentration in municipal obligations of a single state. Municipal
obligations, as with all debt securities, are subject to two types of risks:
credit risk and interest rate risk. The "Additional Risk Information" section
contains a general discussion of credit and interest rate risks.
Unlike most fixed-income funds, the Pennsylvania Series is subject to the added
credit risk of concentrating its investments in a single state -- Pennsylvania
- -- and its municipalities. Because the Pennsylvania Series concentrates its
investments in securities issued by Pennsylvania state and local governments and
government authorities, the Pennsylvania Series will be significantly affected
by the political, economic and regulatory developments concerning those issuers.
Should any difficulties develop concerning Pennsylvania issuers ability to pay
principal and/or interest on their debt obligations, the Series' value and yield
could be adversely affected.
The Pennsylvania Series is not limited as to the maturities of the securities in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Pennsylvania Series' portfolio securities, and the
Pennsylvania Series' share price, to fall substantially. A table in the
"Additional Risk Information" section shows how interest rates affect bonds.
The performance of the Pennsylvania Series will depend on whether the
Pennsylvania Series is successful in pursuing its investment strategy. The
Pennsylvania Series is also subject to other risk from its permissible
investments including the risk associated with inverse floating rate municipal
obligations, private activity bonds and lease obligations. For more information
about the risks of the Pennsylvania Series' investments, see the "Additional
Risk Information" section.
Shares of the Series are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
39
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the Pennsylvania
Series' performance history. The Pennsylvania Series' past performance does not
indicate how the Pennsylvania Series will perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Pennsylvania Series' shares has
varied from year to year over the past 8 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1992 '93 '94 '95 '96 '97 '98 '99
---- --- --- --- --- --- --- ---
10.41% 13.16% -6.88% 17.62% 3.59% 8.51% 5.05% -4.00%
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 7.39% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -7.11% (quarter ended March 31, 1994).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Pennsylvania Series' average annual returns with those
of a broad measure of market performance over time. The Pennsylvania Series'
returns include the maximum applicable front-end sales charge.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- --------------------------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 1/15/91)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania Series -7.84% 5.06% 5.82%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(1) -2.06% 6.91% 6.75%(2)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investors Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
(2) For the period January 31, 1991 to December 31, 1999.
40
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the Pennsylvania Series' fees and expenses
that you may pay if you buy and hold shares of the Pennsylvania Series. The
Pennsylvania Series does not charge account or exchange fees.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Pennsylvania Series' assets and are based
on expenses paid for the fiscal year ended November 30, 1999.
(end sidebar)
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------
<S> <C>
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.0%
--------------------------------------------------------------------
Maximum deferred sales charge (load) (as a percentage based
on the lesser of the offering price or net asset value at
redemption) None
--------------------------------------------------------------------
ANNUAL PENNSYLVANIA SERIES OPERATING EXPENSES
--------------------------------------------------------------------
Management fee 0.35%
--------------------------------------------------------------------
Distribution and service (12b-1) fees 0.15%
--------------------------------------------------------------------
Other expenses 0.14%
--------------------------------------------------------------------
Total annual Pennsylvania Series operating expenses 0.64%
--------------------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Pennsylvania Series with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Pennsylvania Series, your
investment has a 5% return each year, and the Pennsylvania Series' 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.
<TABLE>
<CAPTION>
EXPENSES OVER TIME
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C>
$463 $597 $742 $1,166
-------------------------------------------
</TABLE>
41
<PAGE>
[GRAPHIC OMITTED]
ADDITIONAL INVESTMENT STRATEGY INFORMATION
- ------------------------------------------
This section provides additional information relating to each of the Series'
principal investments. In pursuing each Series' 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.
Each Series' policy of investing at least eighty percent of its total assets in
securities the interest on which is exempt from federal income taxes and income
taxes of the designated state is fundamental. The fundamental policies may not
be changed without shareholder approval.
The percentage limitations relating to the composition of a Series' 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 Series to sell any portfolio security.
Except as indicated above, a Series may change its principal investment
strategies without shareholder approval; however, you would be notified of any
such changes.
Municipal Obligations. Each Series may invest in municipal obligations, which
are securities issued by state and local governments. These securities typically
are "general obligation" or "revenue" bonds, notes or commercial paper. General
obligation securities are secured by the issuer's faith and credit, including
its taxing power for payment of principal and interest. Revenue bonds,
however, are generally payable from a specific revenue source. They are issued
for a wide variety of projects such as financing public utilities, housing
units, airports and highways, and schools. The Fund's municipal obligation
investments may include zero coupon securities, which are purchased at a
discount and accrue interest but make no interest payment until maturity.
Private Activity Bonds. Each Series may invest more than 25% of its assets in
municipal obligations known as private activity bonds. These securities include,
for example, housing, industrial development and pollution control revenue,
electric utility, manufacturing, and transportation facilities.
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
acquire equipment and facilities for public and private purposes.
Futures. Each Series may purchase and sell in put and call futures with respect
to financial instruments and municipal bond indexes. Futures may be used to seek
to hedge against interest rate changes.
42
<PAGE>
Fund Structure. The Fund may seek to achieve its investment objectives by
investing all of its assets in another mutual fund. The other fund would have
substantially the same investment objectives and policies as the Fund.
[GRAPHIC OMITTED]
ADDITIONAL RISK INFORMATION
- ---------------------------
This section provides additional information relating to the principal risks of
investing in the Fund.
Credit and Interest Rate Risk. A principal risk of investing in each Series is
associated with its fixed-income investments. All fixed-income securities, such
as municipal obligations, are subject to two types of risk: credit risk and
interest rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and/or repay the principal on
its debt.
Interest rate risk refers to fluctuations in the value of a 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.
<TABLE>
<CAPTION>
HOW INTEREST RATES AFFECT BOND PRICES
- ----------------------------------------------------------------------------
PRICE PER $1,000 OF A MUNICIPAL BOND IF
INTEREST RATES:
-----------------------------------------
INCREASE* DECREASE**
-----------------------------------------
YEARS TO BOND
MATURITY MATURITY COUPON 1% 2% 1% 2%
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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>
Source: Municipal Market Data (a division of Thomson Financial Municipal Group):
"Aaa" yield curve as of 12/31/99
* 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.
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
43
<PAGE>
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.
Private Activity Bonds. The issuers of private activity bonds in which a
particular Series may invest may be negatively impacted by conditions affecting
either the general credit of the user of the private activity project or the
project itself. Conditions such as regulatory and environmental restrictions and
economic downturns may lower the need for these facilities and the ability of
users of the project to pay for the facilities. This could cause a decline in
the Series' value. The Series' private activity bond holdings also may pay
interest subject to the federal or applicable state alternative minimum tax. See
the "Tax Consequences" section for more details.
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.
Bond Insurance Risk. Many of the municipal obligations that each Series 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.
44
<PAGE>
Non-Diversified Status. Each Series is classified as "non-diversified" and, as
such, its investments are not required to meet certain diversification
requirements under federal law. Compared with "diversified" funds, each Series
may invest a greater percentage of its assets in the securities of an individual
issuer. Thus, each Series' assets may be concentrated in fewer securities than
other funds. A decline in the value of those investments would cause each
Series' overall value to decline to a greater degree.
[GRAPHIC OMITTED]
FUND MANAGEMENT
- ---------------
(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)
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.
Each Series' portfolio is managed within the Investment Manager's Tax-Exempt
Fixed-Income Group. James F. Willison, a Senior Vice President and Director of
the Tax-Exempt Fixed Income Group of the Investment Manager has been the primary
portfolio manager of each Series since the Fund's inception and has been a
portfolio manager with the Investment Manager for over five years.
Each Series pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Series, and for
Series expenses assumed by the Investment Manager. The fee is based on each
Series' average daily net assets. For the fiscal year ended November 30, 1999,
each Series accrued total compensation to the Investment Manager amounting to
0.35% of the Series' average daily net assets.
45
<PAGE>
SHAREHOLDER INFORMATION
[GRAPHIC OMITTED]
PRICING SERIES SHARES
- ---------------------
The price of Series shares (excluding sales charges), called "net asset value,"
is based on the value of a Series' portfolio securities.
The net asset value per share of each Series 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 (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.
Short-term debt portfolio 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.
[GRAPHIC OMITTED]
HOW TO BUY SHARES
- -----------------
(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)
You may open a new account to buy Series shares or buy additional Series 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 Series. You
may also purchase shares directly by calling the Fund's transfer agent and
requesting an application.
When you buy Series 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 Series shares.
46
<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>
Regular accounts: $1,000 $100
- ---------------------------------------------------------
EasyInvest(SM)
(Automatically from your
checking or savings
account Money Market Fund) $ 100* $100*
- ---------------------------------------------------------
* 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.
Advisory, Administrative or Brokerage Programs. There is no minimum investment
amount if you purchase Fund shares through: (1) the Investment Manager's mutual
fund asset allocation plan, or (2) a program, approved by the Series'
distributor, in which you pay an asset-based fee for advisory, administrative
and/or brokerage services.
Subsequent Investments Sent Directly to the Fund. In addition to buying
additional Series shares for an existing account by contacting your Morgan
Stanley Dean Witter Financial Advisor, you may send a check directly to a
Series. To buy additional shares in this manner:
o Write a "letter of instruction" to the Series specifying the name(s) on the
account, the account number, the social security or tax identification
number, and the investment amount (which would include any applicable
front-end sales charge). The letter must be signed by the account owner(s).
o Make out a check for the total amount payable to: Morgan Stanley Dean Witter
Multi-State Municipal Series Trust (name of Series).
o Mail the letter and check to Morgan Stanley Dean Witter Trust FSB at P.O.
Box 1040, Jersey City, NJ 07303.
Sales Charges. Shares of each Series are sold at net asset value plus an initial
sales charge of up to 4.0%. The initial sales charge is reduced for purchases of
$25,000 or more according to the schedule below. A Series' shares are also
subject to a distribution (12b-1) fee of up to 0.15% of the average daily net
assets of the Series.
47
<PAGE>
The offering price of Series shares includes a sales charge (expressed as a
percentage of the offering price) on a single transaction as shown in the
following table:
(sidebar)
FRONT-END SALES CHARGE OR FSC
An initial sales charge you pay when purchasing a Series' shares that is based
on a percentage of the offering price. The percentage declines based upon the
dollar value of the Series' shares you purchase. We offer three ways to reduce
your sales charges -- the Combined Purchase Privilege, Right of Accumulation and
Letter of Intent.
(end sidebar)
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
----------------------------------------------
PERCENTAGE OF APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION PUBLIC OFFERING PRICE OF AMOUNT INVESTED
- ---------------------------------------------------------------------------------
<S> <C> <C>
Less than $25,000 4.00% 4.17%
- ---------------------------------------------------------------------------------
$25,000 but less than $50,000 3.50% 3.63%
- ---------------------------------------------------------------------------------
$50,000 but less than $100,000 3.25% 3.36%
- ---------------------------------------------------------------------------------
$100,000 but less than $250,000 2.75% 2.83%
- ---------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56%
- ---------------------------------------------------------------------------------
$500,000 but less than $1 million 1.75% 1.78%
- ---------------------------------------------------------------------------------
$1 million and over 0.50% 0.50%
- ---------------------------------------------------------------------------------
</TABLE>
The reduced sales charge schedule is applicable to purchases of Series shares in
a single transaction by:
o A single account (including an individual, trust or fiduciary account).
o Family member accounts (limited to husband, wife and children under the age
of 21).
o Pension, profit sharing or other employee benefit plans of companies and
their affiliates.
o Tax-Exempt Organizations.
o 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 shares of a Series in a single transaction
with purchases of another Series Class A shares of Multi-Class Funds and shares
of other FSC Funds.
Right of Accumulation. You also may benefit from a reduction of sales charges if
the cumulative net asset value of shares of a Series purchased in a single
transaction, together with shares of another Series or 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.
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
48
<PAGE>
not be granted if: (1) notification is not furnished at the time of the order;
or (2) 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 any Series or shares of
Multi-Class Funds or shares of other 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 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.
Sales Charge Waivers. Your purchase of Fund shares is not subject to a sales
charge if your account qualifies under one of the following categories:
o 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 individuals is a beneficiary.
o 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 individuals is
a beneficiary.
PLAN OF DISTRIBUTION The Fund has adopted a Plan of Distribution in accordance
with Rule 12b-1 under the Investment Company Act of 1940. The Plan allows a
Series to pay distribution fees of 0.15% for the distribution of these shares.
It also allows a Series to pay for services to shareholders. Because these fees
are paid out of a Series' assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
We reserve the right to reject any order for the purchase of Series shares.
49
<PAGE>
[GRAPHIC OMITTED]
HOW TO EXCHANGE SHARES
- ----------------------
Permissible Fund Exchanges. You may exchange shares of a Series for shares of
any other Series, for shares of another FSC Fund (subject to a front-end sales
charge), for Class A shares of any 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 are treated as Class A shares of a Multi-Class
Fund.
Exchanges may be made after shares of a Series 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 objectives, policies and investment minimums, 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 a Series' 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, a Series' 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
50
<PAGE>
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 a Series for shares
of another Series or another Morgan Stanley Dean Witter Fund there are important
tax considerations. For tax purposes, the exchange out of a Series is considered
a sale of Series shares -- and the exchange into the other Fund is considered a
purchase. As a result, you may realize a capital gain or loss.
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.
For further information regarding exchange privileges, you should contact your
Morgan Stanley Dean Witter Financial Advisor or call (800) 869-NEWS.
51
<PAGE>
[GRAPHIC OMITTED]
HOW TO SELL SHARES
- ------------------
You can sell some or all of your Series shares at any time. Your shares will be
sold at the next price calculated after we receive your order in proper form to
sell as described below.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Contact Your To sell your shares, simply call your Morgan Stanley Dean Witter Financial Advisor or
Financial Advisor other authorized financial representative.
------------------------------------------------------------------------------------------
[GRAPHIC OMITTED] Payment will be sent to the address to which the account is registered or deposited in
your brokerage account.
- ----------------------------------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter Family of Funds has a total
Withdrawal Plan market value of at least $10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a Fund's (or Series') balance (provided the amount is at
[GRAPHIC OMITTED] least $25), on a monthly, quarterly, semi-annual or annual basis, from any Fund (or
Series) with a balance of at least $1,000. Each time you add a Fund to the plan, you must
meet the plan requirements.
------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of instruction" that includes:
o your account number;
[GRAPHIC OMITTED] o the dollar amount or the number of shares you wish to sell; and
o the signature of each owner as it appears on the account.
------------------------------------------------------------------------------------------
If you are requesting payment to anyone other than the registered owner(s) or that
payment be sent to any address other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature guarantee. You can generally
obtain a signature guarantee from an eligible guarantor acceptable to Morgan Stanley
Dean Witter Trust FSB. (You should contact Morgan Stanley Dean Witter Trust FSB at
(800) 869-NEWS for a determination as to whether a particular institution is an eligible
guarantor.) A notary public cannot provide a signature guarantee. Additional
documentation may be required for shares held by a corporation, partnership, trustee
or 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>
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.
52
<PAGE>
Payment may be postponed or the right to sell your shares suspended, however,
under unusual circumstances. If you request to sell shares that were recently
purchased by check, your sale will not be effected until it has been verified
that the check has been honored.
Reinstatement Privilege. If you sell Series 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 Series shares at their net
asset value.
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 EasyInvestSM, 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.
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.
[GRAPHIC OMITTED]
DISTRIBUTIONS
- -------------
(sidebar)
TARGETED DIVIDENDS(SM)
You may select to have your Series distributions automatically invested in
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)
Each Series passes substantially all of its earnings from income and capital
gains along to its investors as "distributions." A Series earns interest from
fixed-income investments. These amounts are passed along to Series shareholders
as "income dividend distributions." A Series 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.
Each Series, however, may retain and reinvest any long-term capital gains. Each
Series 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 a Series and
automatically credited to your account, unless you request in writing that all
53
<PAGE>
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.
[GRAPHIC OMITTED]
TAX CONSEQUENCES
- ----------------
As with any investment, you should consider how your Fund's investment in any
particular Fund Series will be taxed. The tax information in this Prospectus is
provided as general information. You should consult your own tax professional
about the tax consequences of an investment in a particular Series.
You need to be aware of the possible tax consequences when:
o A Series makes distributions; and
o You sell Series shares, including an exchange to another Morgan Stanley Dean
Witter Fund or Series.
Taxes on Distributions. Your income dividend distributions are normally exempt
from federal and the designated state's personal income taxes -- to the extent
they are derived from that state's municipal obligations or obligations of
governments of Puerto Rico, the Virgin Islands or Guam. (With respect to the
Minnesota Series, however, income dividend distributions are generally exempt
from Minnesota personal income tax only if they are derived from Minnesota
sources, such as obligations of the State of Minnesota and its municipalities.)
Income derived from other portfolio securities may be subject to federal, state
and/or local income taxes. (Florida, however, does not impose income tax on
individuals but the Florida state intangibles tax may be imposed on municipal
obligations of other states and their municipalities.)
Income derived from some municipal securities is subject to the federal
"alternative minimum tax." Certain tax-exempt securities, the proceeds of which
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. Many states also impose an
alternative minimum tax that is based on the federal alternative minimum
taxable income and certain other items.
If you borrow money to purchase shares of any Series, the interest on the
borrowed money is generally not deductible for personal income tax purposes.
54
<PAGE>
Each Series may derive gains in part from municipal obligations the Series
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.
If a Series 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 Series shares. (Ohio and New Jersey
Series capital gain distributions, however, are exempt from Ohio and New Jersey
state income tax, respectively.) Any short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain distributions are
taxable to you as long-term capital gains, no matter how long you have owned
shares in a Series. (Minnesota, New York and Pennsylvania, however, do not
distinguish between short-term and long-term capital gains.)
Pennsylvania Series Only. Shares in the Pennsylvania Series may be subject to an
"intangible personal property" tax. A Pennsylvania State statute purports to
authorize most counties to impose this tax, and some counties may levy the tax
even though it is under constitutional challenge in the courts. While the
Pennsylvania Series will invest predominately in securities that would not be
subject to the tax, the remaining fraction of the Pennsylvania Series'
investments would be subject to the intangible personal property tax.
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
information on your dividends and capital gains for tax purposes.
Taxes on Sales. Your sale of Series shares normally is subject to federal and
state income tax and may result in a taxable gain or loss to you. (Gains from
the sale of New Jersey Series shares, however, are exempt from New Jersey income
tax.) A sale also may be subject to local income tax. Your exchange of Series
shares for shares of another Morgan Stanley Dean Witter Fund or Series 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 sale proceeds. Any withheld amount would be
sent to the IRS as an advance tax payment.
55
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Series'
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Series share. The total returns in the table
represent the rate an investor would have earned or lost on an investment in a
Series (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with each Series' financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
ARIZONA SERIES
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.81 $10.64 $10.59 $10.65 $9.42
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.49 0.51 0.53 0.54 0.54
Net realized and unrealized gain (loss) (0.75) 0.17 0.05 (0.06) 1.23
------- ------- ------- ------- -------
Total from investment operations (0.26) 0.68 0.58 0.48 1.77
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.49) (0.51) (0.53) (0.54) (0.54)
Distributions to shareholders (0.16) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.65) (0.51) (0.53) (0.54) (0.54)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 9.90 10.81 10.64 10.59 10.65
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.53)% 6.56% 5.64% 4.63% 19.21%
- ----------------------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $36,867 $41,655 $41,891 $46,248 $50,290
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- ----------------------------------------------------------------------------------------------------------------------------
Expenses 0.66%(1) 0.65%(1) 0.66%(1) 0.65%(1) 0.65%(1)
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.72% 4.77% 5.04% 5.12% 5.33%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- ----------------------------------------------------------------------------------------------------------------------------
Expenses 0.66%(1) 0.65%(1) 0.66%(1) 0.65%(1) 0.65%(1)
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.72% 4.77% 5.04% 5.12% 5.33%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13% 30% 2% 9% 6%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
56
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA SERIES
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.22 $10.96 $ 10.81 $10.67 1.85
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.52) (0.54) (0.55) (0.56) (0.56)
Distributions to shareholders (0.19) -- -- -- --
--------- ---------- --------- --------- ----------
Total dividends and distributions (0.71) (0.54) (0.55) (0.56) (0.56)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.18 11.22 10.96 10.81 10.67
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (3.10)% 7.58% 6.55% 6.76% 20.15%
- ----------------------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $95,515 $105,175 $104,209 $113,859 $117,769
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- ----------------------------------------------------------------------------------------------------------------------------
Expenses 0.61%(1) 0.59%(1) 0.59% 0.59% 0.60%(1)
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.82% 4.87% 5.08% 5.28% 5.50%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- ----------------------------------------------------------------------------------------------------------------------------
Expenses 0.61%(1) 0.59%(1) 0.59% 0.59% 0.60%(1)
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.82% 4.87% 5.08% 5.28% 5.50%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 27% 24% 17% 19% 5%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
57
<PAGE>
FLORIDA SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.25 $10.97 $10.86 $10.88 $9.60
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.50 0.52 0.54 0.55 0.56
Net realized and unrealized gain (loss) (0.78) 0.28 0.11 (0.02) 1.28
--------- --------- -------- --------- ----------
Total from investment operations (0.28) 0.80 0.65 0.53 1.84
- -------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.50) (0.52) (0.54) (0.55) (0.56)
Distributions to shareholders (0.37) -- -- -- --
--------- --------- -------- --------- ----------
Total dividends and distributions (0.87) (0.52) (0.54) (0.55) (0.56)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.10 11.25 10.97 10.86 10.88
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.70)% 7.58% 6.10% 5.03% 19.54%
Net assets end of period (000's) $53,555 $61,262 $65,088 $70,542 $ 74,058
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 0.64%(1) 0.62%(1) 0.62% 0.62%(1) 0.63%(1)
Net investment income 4.69% 4.69% 5.02% 5.13% 5.34%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 0.64%(1) 0.62%(1) 0.62% 0.62%(1) 0.63%(1)
Net investment income 4.69% 4.69% 5.02% 5.13% 5.34%
Portfolio turnover rate 13% 26% 7% 25% 8%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
58
<PAGE>
MASSACHUSETTS SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ---------------------- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.33 $11.10 $10.92 $10.97 $9.60
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.50 0.51 0.53 0.57 0.57
Net realized and unrealized gain (loss) (0.75) 0.25 0.18 (0.03) 1.37
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.25) 0.76 0.71 0.54 1.94
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.50) (0.51) (0.53) (0.57) (0.57)
Distributions to shareholders (0.13) (0.02) -- (0.02) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.63) (0.53) (0.53) (0.59) (0.57)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.45 11.33 11.10 10.92 10.97
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.29)% 7.03% 6.68% 5.07% 20.58%
Net assets end of period (000's) $12,029 $15,236 $14,561 $16,021 $16,954
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 0.85%(1) 0.83%(1) 0.79%(1) 0.50%(1) 0.50%(1)
Net investment income 4.61% 4.55% 4.85% 5.23% 5.39%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 0.85%(1) 0.83%(1) 0.81%(1) 0.82%(1) 0.79%(1)
Net investment income 4.61% 4.55% 4.83% 4.91% 5.11%
Portfolio turnover rate --% 31% 10% 11% 7%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
59
<PAGE>
MICHIGAN SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.19 $10.94 $10.78 $10.81 $9.46
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.48 0.51 0.53 0.56 0.57
Net realized and unrealized gain (loss) (0.73) 0.25 0.16 (0.03) 1.35
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.25) 0.76 0.69 0.53 1.92
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.48) (0.51) (0.53) (0.56) (0.57)
Distributions to shareholders (0.43) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.91) (0.51) (0.53) (0.56) (0.57)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.03 11.19 10.94 10.78 10.81
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.40)% 7.23% 6.52% 5.09% 20.69%
Net assets end of period (000's) $15,426 $17,759 $19,512 $20,863 $21,673
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 0.84%(1) 0.78%(1) 0.72%(1) 0.50%(1) 0.50%(1)
Net investment income 4.51% 4.63% 4.95% 5.27% 5.49%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 0.84%(1) 0.78%(1) 0.74%(1) 0.76%(1) 0.77%(1)
Net investment income 4.51% 4.63% 4.93% 5.01% 5.22%
Portfolio turnover rate 10% 40% 3% 5% 22%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
60
<PAGE>
MINNESOTA SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.82 $10.70 $10.60 $10.61 $9.28
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.44 0.48 0.49 0.54 0.54
Net realized and unrealized gain (loss) (0.70) 0.13 0.10 (0.01) 1.33
--------- --------- --------- --------- ----------
Total from investment operations (0.26) 0.61 0.59 0.53 1.87
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.44) (0.49) (0.49) (0.54) (0.54)
Distributions to shareholders (0.09) -- -- -- --
--------- --------- --------- --------- ----------
Total dividends and distributions (0.53) (0.49) (0.49) (0.54) (0.54)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.03 10.82 10.70 10.60 10.61
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.46)% 5.77% 5.76% 5.21% 20.60%
Net assets end of period (000's) $7,020 $8,417 $8,742 $9,923 $11,230
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 1.13%(1) 0.99%(1) 0.94%(1) 0.50%(1) 0.50%(1)
Net investment income 4.22% 4.49% 4.68% 5.21% 5.35%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 1.13%(1) 0.99%(1) 0.97%(1) 0.96%(1) 0.98%(1)
Net investment income 4.22% 4.49% 4.65% 4.75% 4.88%
Portfolio turnover rate 15% 20% --% 5% 3%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
61
<PAGE>
NEW JERSEY SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.15 $10.88 $10.70 $10.73 $9.47
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 0.51 0.53 0.53 0.55 0.56
Net realized and unrealized gain (loss) (0.77) 0.27 0.18 (0.03) 1.26
-------- --------- -------- ---------- ----------
Total from investment operations (0.26) 0.80 0.71 0.52 1.82
- ------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.51) (0.53) (0.53) (0.55) (0.56)
Distributions to shareholders (0.16) -- -- -- --
-------- --------- -------- ---------- ----------
Total dividends and distributions (0.67) (0.53) (0.53) (0.55) (0.56)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.22 11.15 10.88 10.70 10.73
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.44)% 7.49% 6.99% 4.93% 19.60%
Net assets end of period (000's) $38,566 $41,803 $41,520 $44,829 $47,889
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 0.69% 0.67%(1) 0.66% 0.66%(1) 0.67%(1)
Net investment income 4.73% 4.77% 5.02% 5.23% 5.42%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 0.69% 0.67%(1) 0.66% 0.66%(1) 0.67%(1)
Net investment income 4.73% 4.77% 5.02% 5.23% 5.42%
Portfolio turnover rate 10% 21% 14% 5% 14%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
62
<PAGE>
NEW YORK SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.41 $11.11 $10.90 $10.88 $9.46
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.49 0.52 0.53 0.56 0.56
Net realized and unrealized gain (loss) (0.80) 0.30 0.21 0.02 1.42
--------- --------- --------- ---------- ----------
Total from investment operations (0.31) 0.82 0.74 0.58 1.98
- -------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.49) (0.52) (0.53) (0.56) (0.56)
Distributions to shareholders (0.37) -- -- -- --
--------- --------- --------- ---------- ----------
Total dividends and distributions (0.86) (0.52) (0.53) (0.56) (0.56)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.24 11.41 11.11 10.90 10.88
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.90)% 7.50% 7.06% 5.46% 21.40%
Net assets end of period (000's) $10,719 $12,013 $12,586 $14,020 $14,388
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 0.93%(1) 0.84%(1) 0.82%(1) 0.50%(1) 0.50%(1)
Net investment income 4.52% 4.57% 4.84% 5.25% 5.43%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 0.93%(1) 0.84%(1) 0.84%(1) 0.84%(1) 0.85%(1)
Net investment income 4.52% 4.57% 4.82% 4.91% 5.09%
Portfolio turnover rate 4% 33% 4% 22% 24%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
63
<PAGE>
OHIO SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.15 $10.94 $10.77 $10.80 $9.42
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.50 0.52 0.53 0.55 0.56
Net realized and unrealized gain (loss) (0.75) 0.21 0.17 (0.03) 1.38
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.25) 0.73 0.70 0.52 1.94
- -------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.50) (0.52) (0.53) (0.55) (0.56)
Distributions to shareholders (0.13) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.63) (0.52) (0.53) (0.55) (0.56)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.27 11.15 10.94 10.77 10.80
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.29)% 6.84% 6.67% 5.04% 21.02%
Net assets end of period (000's) $15,659 $18,580 $18,476 $21,207 $23,104
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 0.81%(1) 0.75%(1) 0.73%(1) 0.50%(1) 0.50%(1)
Net investment income 4.69% 4.70% 4.90% 5.23% 5.42%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 0.81%(1) 0.75%(1) 0.74%(1) 0.75%(1) 0.77%(1)
Net investment income 4.69% 4.70% 4.89% 4.98% 5.16%
Portfolio turnover rate 16% 37% 5% 32% 19%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
64
<PAGE>
PENNSYLVANIA SERIES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30 1999 1998 1997 1996 1995
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.15 $10.97 $10.85 $10.85 $9.56
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.52 0.53 0.54 0.55 0.55
Net realized and unrealized gain (loss) (0.84) 0.18 0.14 -- 1.29
---------- ---------- -------- ---------- ----------
Total from investment operations (0.32) 0.71 0.68 0.55 1.84
- ---------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders (0.52) (0.53) (0.54) (0.55) (0.55)
Distributions to shareholders (0.12) -- (0.02) -- --
---------- ---------- -------- ---------- ----------
Total dividends and distributions (0.64) (0.53) (0.56) (0.55) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.19 11.15 10.97 10.85 10.85
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (3.02)% 6.60% 6.53% 5.27% 19.65%
Net assets end of period (000's) $49,059 $53,808 $44,056 $47,055 $53,935
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
Expenses 0.64%(1) 0.64%(1) 0.66% 0.65%(1) 0.66%(1)
Net investment income 4.83% 4.75% 5.01% 5.17% 5.29%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
Expenses 0.64%(1) 0.64%(1) 0.66% 0.65%(1) 0.66%(1)
Net investment income 4.83% 4.75% 5.01% 5.17% 5.29%
Portfolio turnover rate 6% 26% 8% --% 8%
</TABLE>
+ Does not reflect the deduction of sales load. 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%.
65
<PAGE>
NOTES
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66
<PAGE>
NOTES
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67
<PAGE>
NOTES
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68
<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
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Growth Fund
Market Leader Trust
Mid-Cap Equity Trust
Next Generation Trust
Small Cap 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)
- --------------------------------------------------------------------------------
NEW FUNDS
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 Multi-Class Fund is 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>
PROSPECTUS - FEBRUARY 25, 2000
Additional information about each Series' 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 a Series' performance during the Fund's last fiscal year.
The Fund's Statement of Additional Information also provides additional
information about each Series, including investment and risk information
concerning municipal obligations of each relevant state. 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 a Series are available on the EDGAR Database on the
SEC's Internet site at (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.
TICKER SYMBOLS:
Arizona DWAZX
- --------------------------
California DWCAX
- --------------------------
Florida DWFLX
- --------------------------
Massachusetts DWMAX
- --------------------------
Michigan DWMIX
- --------------------------
Minnesota DWMNX
- --------------------------
New Jersey DWNJX
- --------------------------
New York DWNYX
- --------------------------
Ohio DWOHX
- --------------------------
Pennsylvania DWPAX
- --------------------------
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-6208)
Morgan Stanley Dean Witter
--------------------------
MULTI-STATE MUNICIPAL
SERIES TRUST
Consisting of ten separate
fund portfolios:
Arizona Series
California Series
Florida Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
Ohio Series
Pennsylvania Series
EACH SERIES SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM BOTH
FEDERAL AND DESIGNATED STATE INCOME TAXES CONSISTENT WITH PRESERVATION OF
CAPITAL
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
LETTER TO THE SHAREHOLDERS November 30, 1999
Two World Trade Center,
New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, continued to experience robust growth
during the twelve-month period ended November 30, 1999. As a result, the
fixed-income markets anticipated that the Federal Reserve Board would change
monetary policy and remove the liquidity provided during last year's
international economic difficulties. Between June and November the Fed changed
monetary policy, raising the federal-funds rate 75 basis points in three moves,
to 5.50 percent. By November long-term interest rates had risen to levels last
seen more than two years ago.
MUNICIPAL MARKET OVERVIEW
Long-term insured municipal index yields began 1999 near a record low of 5.00
percent. By the end of November, this index yield had increased 100 basis
points to 6.00 percent. Because the prices of bonds move inversely to changes
in interest rates, higher yields have led to significantly lower bond prices.
The increase in the index yield translated to a 13 percent price decline for a
generic insured municipal bond with a 30-year maturity.
The municipal market outperformed U.S. Treasury bonds early in the year but
later gave ground. The ratio of municipal long-term yields to Treasury yields
declined from 99 percent at the end of 1998 to 91 percent in May 1999, then
reversed itself by rising to 95 percent by the end of November. A declining
ratio means municipals have outperformed Treasuries, and a rising ratio
indicates underperformance by municipals. Over the past five years the ratio
has ranged from a high of 99 percent to a low of 82 percent.
Higher interest rates slowed municipal underwriting in 1999. New-issue volume
declined 20 percent in the first 11 months. Refunding activity, the most
interest-rate-sensitive component of supply, dropped 50 percent.
PORTFOLIO STRUCTURE
The average duration of the 10 single-state portfolios that make up Morgan
Stanley Dean Witter Multi-State Municipal Series Trust was
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
LETTER TO THE SHAREHOLDERS November 30, 1999, continued
maintained at 7 years during the past 12 months. Average duration is a measure
of sensitivity to interest-rate changes. Weighted average bond maturities
ranged from 15 to 18 years and average call protection was 6 years. Several of
the individual state portfolios hold issues in the refunded-bond category.
These bonds have been refinanced and will be redeemed on the dates shown in the
individual state portfolios.
On the following pages we have summarized details regarding the various state
series for your convenience. Here you will find information on credit quality,
duration, maturity, call protection, net asset values, distributions and
performance. The accompanying charts compare the performance of each series to
that of the Lehman Brothers Municipal Bond Index.
LOOKING AHEAD
The Federal Reserve Board raised interest rates twice in the summer and again
in November 1999. These moves confirmed its previously disclosed bias of
becoming less accommodative in the face of continued strong domestic economic
growth. We anticipate that the central bank may raise short-term interest rates
further and influence the level of long-term rates. However, we believe
municipal bonds continue to offer tax conscious investors good long-term value
relative to Treasuries.
We appreciate your ongoing support of Morgan Stanley Dean Witter Multi-State
Municipal Series Trust and look forward to continuing to serve your investment
needs.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
Charles A. Fiumefreddo Mitchell M. Merin
Chairman of the Board President
2
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FUND PERFORMANCE November 30, 1999
ARIZONA
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.53)%(1) 6.48%(1) 6.09%(1)
(6.43)%(2) 5.61%(2) 5.59%(2)
Fund Lehman(4)
Apr 30, 1991 9.6 10
Nov 30, 1991 10.143 10.594
Nov 30, 1992 11.268 11.657
Nov 30, 1993 12.554 12.949
Nov 30, 1994 11.654 12.269
Nov 30, 1995 13.894 14.588
Nov 30, 1996 14.538 15.446
Nov 30, 1997 15.358 16.554
Nov 30, 1998 16.367 17.838
Nov 30, 1999 15.953(3) 17.647
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
CALIFORNIA
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(3.10)%(1) 7.34%(1) 6.74%(1)
(6.98)%(2) 6.46%(2) 6.25%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.588 10.833
Nov 30, 1992 11.671 11.92
Nov 30, 1993 13.162 13.241
Nov 30, 1994 12.022 12.546
Nov 30, 1995 14.445 14.917
Nov 30, 1996 15.442 15.795
Nov 30, 1997 16.433 16.927
Nov 30, 1998 17.679 18.241
Nov 30, 1999 17.130(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
FLORIDA
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.70)%(1) 6.88%(1) 6.52%(1)
(6.59)%(2) 6.01%(2) 6.03%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.449 10.833
Nov 30, 1992 11.589 11.92
Nov 30, 1993 13.002 13.241
Nov 30, 1994 12.055 12.546
Nov 30, 1995 14.411 14.917
Nov 30, 1996 15.135 15.795
Nov 30, 1997 16.059 16.927
Nov 30, 1998 17.275 18.241
Nov 30, 1999 16.810(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
3
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FUND PERFORMANCE November 30, 1999, continued
MASSACHUSETTS
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.29)%(1) 7.17%(1) 6.86%(1)
(6.20)%(2) 6.29%(2) 6.37%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.548 10.833
Nov 30, 1992 11.727 11.92
Nov 30, 1993 13.259 13.241
Nov 30, 1994 12.236 12.546
Nov 30, 1995 14.755 14.917
Nov 30, 1996 15.503 15.795
Nov 30, 1997 16.538 16.927
Nov 30, 1998 17.701 18.241
Nov 30, 1999 17.296(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
MICHIGAN
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.40)%(1) 7.17%(1) 6.76%(1)
(6.31)%(2) 6.30%(2) 6.27%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.516 10.833
Nov 30, 1992 11.754 11.92
Nov 30, 1993 13.197 13.241
Nov 30, 1994 12.132 12.546
Nov 30, 1995 14.642 14.917
Nov 30, 1996 15.387 15.795
Nov 30, 1997 16.389 16.927
Nov 30, 1998 17.574 18.241
Nov 30, 1999 17.152(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
MINNESOTA
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.46)%(1) 6.72%(1) 6.06%(1)
(6.36)%(2) 5.85%(2) 5.58%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.312 10.833
Nov 30, 1992 11.334 11.92
Nov 30, 1993 12.767 13.241
Nov 30, 1994 11.692 12.546
Nov 30, 1995 14.1 14.917
Nov 30, 1996 14.835 15.795
Nov 30, 1997 15.689 16.927
Nov 30, 1998 16.594 18.241
Nov 30, 1999 16.186(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
4
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FUND PERFORMANCE November 30, 1999, continued
NEW JERSEY
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.44)%(1) 7.08%(1) 6.66%(1)
(6.34)%(2) 6.21%(2) 6.17%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.521 10.833
Nov 30, 1992 11.714 11.92
Nov 30, 1993 13.123 13.241
Nov 30, 1994 12.079 12.546
Nov 30, 1995 14.445 14.917
Nov 30, 1996 15.158 15.795
Nov 30, 1997 16.218 16.927
Nov 30, 1998 17.432 18.241
Nov 30, 1999 17.007(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
NEW YORK
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.90)%(1) 7.42%(1) 6.83%(1)
(6.79)%(2) 6.55%(2) 6.34%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.63 10.833
Nov 30, 1992 11.73 11.92
Nov 30, 1993 13.244 13.241
Nov 30, 1994 12.058 12.546
Nov 30, 1995 14.638 14.917
Nov 30, 1996 15.437 15.795
Nov 30, 1997 16.526 16.927
Nov 30, 1998 17.766 18.241
Nov 30, 1999 17.250(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
5
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FUND PERFORMANCE November 30, 1999, continued
OHIO
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(2.29)%(1) 7.20%(1) 6.63%(1)
(6.20)%(2) 6.33%(2) 6.14%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.402 10.833
Nov 30, 1992 11.558 11.92
Nov 30, 1993 13.083 13.241
Nov 30, 1994 11.991 12.546
Nov 30, 1995 14.511 14.917
Nov 30, 1996 15.243 15.795
Nov 30, 1997 16.26 16.927
Nov 30, 1998 17.371 18.241
Nov 30, 1999 16.974(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
PENNSYLVANIA
GROWTH OF $10,000
- ---------------------------------------------------------
($ IN THOUSANDS)
- ---------------------------------------------------------
Average Annual Total Returns
- ---------------------------------------------------------
1 Year 5 Years Life of Fund
(3.02)%(1) 6.76%(1) 6.48%(1)
(6.90)%(2) 5.90%(2) 5.99%(2)
Fund Lehman(4)
Jan 15, 1991 9.6 10
Nov 30, 1991 10.442 10.833
Nov 30, 1992 11.64 11.92
Nov 30, 1993 13.112 13.241
Nov 30, 1994 12.084 12.546
Nov 30, 1995 14.458 14.917
Nov 30, 1996 15.22 15.795
Nov 30, 1997 16.212 16.927
Nov 30, 1998 17.283 18.241
Nov 30, 1999 16.762(3) 18.045
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable front-end sales charge (4%). See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value including the deduction of a 4% front-end sales charge,
assuming a complete redemption on November 30, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Service, Inc. or Standard & Poor's
Corp., respectively. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
6
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
PORTFOLIO SUMMARY November 30, 1999 (unaudited)
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS
SERIES SERIES SERIES SERIES
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit Ratings (1):
Aaa or AAA .................................. 50% 69% 74% 57%
Aa or AA .................................... 27 18 12 16
A or A ...................................... 23 7 7 9
Baa or BBB .................................. -- 6 7 18
Ba or BB .................................... -- -- -- --
Non-Rated (2) ............................... -- -- -- --
Long-Term Portfolio Distribution by Call Date
2000 ...................................... 5% -- 5% 5%
2001 ...................................... 5 10% 11 8
2002 ...................................... 31 16 29 15
2003 ...................................... 6 8 4 22
2004 ...................................... 9 -- -- 4
2005 ...................................... 3 -- 6 9
2006 ...................................... -- 12 7 7
2007 ...................................... -- -- 6 --
2008 ...................................... 15 18 6 12
2009 ...................................... 5 6 7 4
2010+ ..................................... 21 30 19 14
Average Weighted (3):
Maturity .................................. 16 Years 17 Years 17 Years 15 Years
Call Protection ........................... 6 Years 8 Years 6 Years 6 Years
Modified Duration ......................... 7 Years 8 Years 7 Years 7 Years
Per Share Net Asset Value:
November 30, 1998 ......................... $ 10.81 $ 11.22 $ 11.25 $ 11.33
November 30, 1999 ......................... $ 9.90 $ 10.18 $ 10.10 $ 10.45
Distributions (4) ........................... $ 0.65 $ 0.71 $ 0.87 $ 0.63
Total Return (5):
12 months ended 11/30/99 .................. (2.53)% (3.10)% (2.70)% (2.29)%
</TABLE>
- ---------------
(1) Represents Moody's or Standard & Poor's ratings of the credit quality of the
long-term bonds owned by each Series.
(2) Unrated at time of purchase; deemed by Investment Manager to be comparable
to investment grade securities.
(3) Includes short-term securities.
(4) Includes all income dividends and capital gains distributions, if any, paid
by each Series for 12 months ended November 30, 1999.
(5) Total return figures represent the change in each Series' total value for
each period measured, taking into account the change in NAV plus compounded,
reinvested dividends and do not reflect the deduction of sales load.
Calculated based on the net asset value as of the last business day of the
period.
8
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
SERIES SERIES SERIES SERIES SERIES SERIES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
85% 33% 60% 41% 62% 68%
10 42 21 10 23 15
5 11 8 34 7 13
-- 8 8 10 8 --
-- -- -- -- -- --
-- 6 3 5 -- 4
-- 3% 5% -- 3% --
9% 5 10 -- 14 12%
34 25 25 13% 27 28
7 30 7 11 2 13
-- -- -- 5 -- --
14 -- 13 15 15 4
3 5 6 25 -- 4
-- -- 3 6 7 4
23 18 18 11 10 21
5 8 10 5 13 6
5 6 3 9 9 8
17 Years 15 Years 16 Years 17 Years 17 Years 18 Years
5 Years 5 Years 5 Years 6 Years 6 Years 5 Years
7 Years 7 Years 7 Years 7 Years 7 Years 7 Years
$ 11.19 $ 10.82 $ 11.15 $ 11.41 $ 11.15 $ 11.15
$ 10.03 $ 10.03 $ 10.22 $ 10.24 $ 10.27 $ 10.19
$ 0.91 $ 0.53 $ 0.67 $ 0.86 $ 0.63 $ 0.64
(2.40)% (2.46)% (2.44)% (2.90)% (2.29)% (3.02)%
</TABLE>
9
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIZONA TAX-EXEMPT MUNICIPAL BONDS (90.9%)
General Obligation (13.2%)
$ 1,000 Paradise Valley Unified School District #69, Ser B 1995 (MBIA) .......... 5.25 % 07/01/15 $ 956,860
Phoenix,
1,000 Refg Ser 1992 ......................................................... 6.375 07/01/13 1,057,650
1,000 Refg Ser 1999 B ....................................................... 4.50 07/01/20 822,950
1,000 Tucson, Refg Ser 1998 ................................................... 5.50 07/01/18 977,200
1,000 Puerto Rico, Public Improvement Ser 1998 (MBIA) ......................... 6.00 07/01/16 1,048,320
--------- -----------
5,000 4,862,980
--------- -----------
Educational Facilities Revenue (5.5%)
1,000 Arizona Board of Regents, Arizona State University Ser 1992 A ........... 5.50 07/01/19 958,330
1,000 University of Arizona, Telecommunications Ser 1991 COPs ................. 6.50 07/15/12 1,058,030
--------- -----------
2,000 2,016,360
--------- -----------
Electric Revenue (4.5%)
820 Salt River Project Agricultural Improvement & Power District,
Refg 1992 Ser D ....................................................... 6.25 01/01/27 831,119
1,000 Puerto Rico Electric Power Authority, Power Ser DD (FSA) ................ 4.50 07/01/19 835,580
--------- -----------
1,820 1,666,699
--------- -----------
Hospital Revenue (10.9%)
2,000 Maricopa County Industrial Development Authority, Catholic Healthcare
West 1992 Ser A (MBIA) ................................................ 5.75 07/01/11 2,054,100
865 Mesa Industrial Development Authority, Discovery Health Ser 1999 A
(MBIA) ................................................................ 5.875 01/01/16 867,396
1,100 Pima County Industrial Development Authority, Carondelet Health
--------- Care Corp Ser 1993 (MBIA) ............................................. 5.25 07/01/13 1,086,283
-----------
3,965 4,007,779
--------- -----------
Industrial Development/Pollution Control Revenue (9.8%)
1,000 Greenlee County Industrial Development Authority, Phelps Dodge Corp
Refg 1994 ............................................................. 5.45 06/01/09 958,500
1,000 Mohave County Industrial Development Authority, Citizens Utilities Co
1993 Ser B (AMT) ...................................................... 5.80 11/15/28 935,150
1,700 Santa Cruz County Industrial Development Authority, Citizens Utilities Co
--------- Ser 1991 (AMT) ........................................................ 7.15 02/01/23 1,722,899
-----------
3,700 3,616,549
--------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Revenue - Multi-Family (2.6%)
$ 925 Pima County Industrial Development Authority, Rancho Mirage Ser 1992
------ (AMT) (AGRC) ............................................................. 7.05 % 04/01/22 $ 967,041
----------
Public Facilities Revenue (7.7%)
Arizona,
500 Refg Ser 1992 B COPs (AMBAC) ............................................. 6.25 09/01/10 525,625
500 Ser 1991 COPs (FSA) ...................................................... 6.25 09/01/11 522,325
1,000 Phoenix Civic Improvement Corporation, Phoenix Municipal
Courthouse Sr Lien Excise Tax Ser 1999 A ................................. 5.25 07/01/24 908,930
1,000 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1997 A
------ (AMBAC) .................................................................. 5.00 07/01/28 876,720
----------
3,000 2,833,600
------ ----------
Transportation Facilities Revenue (10.5%)
1,000 Phoenix, Street & Highway User Refg Ser 1993 ............................... 5.125 07/01/11 989,200
Tucson,
1,000 Street & Highway User Sr Lien Refg Ser 1993 .............................. 5.50 07/01/09 1,019,670
1,000 Street & Highway User Sr Lien Refg Ser 1996 (MBIA) ....................... 6.00 07/01/10 1,072,870
1,000 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................. 4.75 07/01/38 791,870
------ ----------
4,000 3,873,610
------ ----------
Water & Sewer Revenue (18.3%)
400 Arizona Wastewater Management Authority, Wastewater Ser 1992 A
(AMBAC) .................................................................. 5.95 07/01/12 409,624
1,000 Arizona Water Infrastructure Finance Authority, Water Quality Ser 1998 A
(MBIA) ................................................................... 5.00 07/01/17 908,380
1,000 Chandler, Water & Sewer Refg Ser 1992 (FGIC) ............................... 6.25 07/01/13 1,050,260
1,000 Gilbert, Water & Wastewater Refg Ser 1992 (FGIC) ........................... 6.50 07/01/22 1,050,271
1,000 Mesa, Utility Ser 1998 (MBIA) .............................................. 4.50 07/02/18 831,310
1,000 Phoenix Civic Improvement Corporation, Wastewater Refg Ser 1993 ............ 4.75 07/01/23 835,560
1,000 Pima County Metropolitan Domestic Water Improvement District,
Refg Ser 1999 (FGIC) ..................................................... 4.875 01/01/19 877,250
1,000 Scottsdale Water & Sewer Refg Ser 1998 E ................................... 4.50 07/01/23 807,640
------ ----------
7,400 6,770,295
------ ----------
Refunded (7.9%)
1,150 Arizona Health Facilities Authority, Phoenix Baptist Hospital & Medical
Center Inc & Medical Environments Inc Ser 1992 (MBIA) (ETM) .............. 6.25 09/01/11 1,216,654
600 Arizona Wastewater Management Authority, Wastewater Refg Ser 1992 A
(AMBAC) .................................................................. 5.95 07/01/02+ 633,498
1,000 Tucson, Water Refg Ser 1991 ................................................ 6.50 07/01/01+ 1,049,270
------ ----------
2,750 2,899,422
------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 34,560 TOTAL ARIZONA TAX-EXEMPT MUNICIPAL BONDS
--------- (Identified Cost $33,994,276)................................................................. $33,514,335
-----------
SHORT-TERM ARIZONA TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.1%)
900 Maricopa County, Arizona Public Service Co Ser 1994 C (Demand 12/01/99) 3.75*% 05/01/29 900,000
1,700 Tempe, Excise Tax Ser 1998 (Demand 12/01/99) .......................... 3.75* 07/01/23 1,700,000
--------- -----------
2,600 TOTAL SHORT-TERM ARIZONA TAX-EXEMPT MUNICIPAL OBLIGATIONS
--------- (Identified Cost $2,600,000) ................................................................. 2,600,000
-----------
$ 37,160 TOTAL INVESTMENTS (Identified Cost $36,594,276) (a) .................. 98.0% 36,114,335
=========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ...................... 2.0 752,859
-------- -----------
NET ASSETS ........................................................... 100.0% $36,867,194
======== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
* Current coupon of variable rate demand obligation.
+ Prerefunded to call date shown.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$790,898 and the aggregate gross unrealized depreciation is
$1,270,839, resulting in net unrealized depreciation of $479,941.
Bond Insurance:
- ---------------
AGRC Asset Guaranty Reinsurance Company.
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (90.8%)
General Obligation (12.4%)
California,
$ 2,000 Various Purpose 04/01/93 (FSA) .......................................... 5.50 % 04/01/19 $ 1,930,620
2,000 Refg Dtd 10/01/98 (MBIA) ................................................ 4.50 10/01/28 1,588,460
2,500 Carlsbad Unified School District, Ser 1997 (FGIC) ......................... 0.00 11/01/16 942,425
3,000 Los Angeles Unified School District, 1997 Ser B (FGIC) .................... 5.00 07/01/23 2,647,920
3,000 Mojave Water Agency, Impr Dist M Morongo Basin Pipeline Refg
Ser 1996 (FGIC) ......................................................... 5.80 09/01/22 2,973,510
2,000 Puerto Rico, Public Improvement Ser 1998 (Secondary MBIA) ................. 4.875 07/01/23 1,738,320
------- -----------
14,500 11,821,255
------- -----------
Educational Facilities Revenue (5.5%)
California Educational Facilities Authority,
1,360 Loyola Marymount University Refg Ser 1992 ............................... 6.00 10/01/14 1,387,581
1,500 University of San Diego Refg Ser 1998 (AMBAC) ........................... 4.75 10/01/15 1,362,750
2,500 University of Southern California Ser 1993 B ............................ 5.80 10/01/15 2,534,300
------- -----------
5,360 5,284,631
------- -----------
Electric Revenue (9.8%)
2,000 Burbank, Electric Ser 1998 (FSA) .......................................... 4.75 06/01/23 1,689,400
2,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary AMBAC) ....................................................... 5.375 09/01/23 1,871,400
1,000 Sacramento Municipal Utility District, Refg 1993 Ser D (MBIA) ............. 5.625 11/15/15 994,250
5,000 Southern California Public Power Authority, Mead - Phoenix (AMBAC) ........ 5.15 07/01/15 4,772,900
------- -----------
10,000 9,327,950
------- -----------
Hospital Revenue (11.2%)
California Health Facilities Financing Authority,
2,000 Catholic Health Corp Ser 1992 A (MBIA) .................................. 6.00 07/01/13 2,084,280
3,000 Scripps Memorial Hospitals Ser 1992 A (MBIA) ............................ 6.375 10/01/22 3,061,290
2,000 California Statewide Communities Development Authority, Cedars-Sinai
Medical Center Ser 1992 COPs ............................................ 6.50 08/01/12 2,157,240
4,000 Duarte, City of Hope National Medical Center Ser 1999 A COPs .............. 5.25 04/01/19 3,420,400
------- -----------
11,000 10,723,210
------- -----------
Industrial Development/Pollution Control Revenue (1.6%)
1,500 California Pollution Control Financing Authority, San Diego Gas &
------- Electric Co 1996 Ser A .................................................. 5.90 06/01/14 1,551,825
-----------
Mortgage Revenue -- Multi-Family (2.2%)
2,000 California Housing Finance Agency, Rental II 1992 Ser B ................... 6.70 08/01/15 2,092,080
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Revenue -- Single Family (5.0%)
$ 690 California Housing Finance Agency, Home 1991 Ser C (AMT) (MBIA) .............. 7.00 % 08/01/23 $ 717,331
2,880 California Rural Home Finance Authority, 1997 Ser A-2 (AMT) .................. 7.00 09/01/29 3,119,933
935 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
-------- Ser C ...................................................................... 6.85 10/15/23 976,738
4,505 ------------
-------- 4,814,002
Public Facilities Revenue (5.7%) ------------
2,000 San Diego County, Downtown Courthouse Refg 1998 COPs (AMBAC) ................. 4.50 05/01/23 1,622,980
2,000 San Francisco Redevelopment Agency, Ser 1998 (FSA) ........................... 5.00 07/01/25 1,751,800
2,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C .............. 6.375 09/01/13 2,094,400
-------- ------------
6,000 5,469,180
-------- ------------
Tax Allocation Revenue (1.1%)
1,000 Industry Urban-Development Agency, Transportation-Distribution-Industrial
-------- Redev Proj #3 1992 Refg .................................................... 6.90 11/01/16 1,056,050
Transportation Facilities Revenue (9.7%) ------------
5,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1999
(MBIA) ..................................................................... 5.125 01/15/19 4,574,950
2,000 Los Angeles County Transportation Commission, Sales Tax Ser 1991-B ........... 6.50 07/01/13 2,097,280
6,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refg
-------- Ser 1997 A (MBIA) .......................................................... 0.00 01/15/15 2,541,780
13,000 ------------
-------- 9,214,010
Water & Sewer Revenue (14.6%) -------------
1,000 Contra Costa Water Authority, 1992 Ser E (AMBAC) ............................. 6.25 10/01/12 1,101,310
East Bay Municipal Utility District,
3,000 Water Refg Ser 1992 ........................................................ 6.00 06/01/20 3,012,870
2,000 Water Refg Ser 1998 (MBIA) ................................................. 4.75 06/01/34 1,624,960
2,000 Metropolitan Water District of Southern California, Waterworks 1997 Ser A 5.00 07/01/26 1,747,760
2,000 San Francisco Public Utilities Commission, Water 1992 Refg Ser A ............. 6.00 11/01/15 2,024,920
3,000 Santa Rosa, Wastewater Refg 1996 Ser A (FGIC) ................................ 4.75 09/01/16 2,685,810
2,000 Stockton, Wastewater 1998 Ser A COPs (MBIA) .................................. 5.00 09/01/23 1,759,820
-------- ------------
15,000 13,957,450
-------- ------------
Refunded (12.0%)
2,000 Los Angeles County, 1991 Master Refg COPs .................................... 6.708 05/01/01+ 2,104,940
4,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA) ..................... 6.30 04/27/06+ 4,382,040
5,000 California Statewide Communities Development Authority, UniHealth
-------- America 1993 Ser A COPs (AMBAC) (ETM) ...................................... 5.50 10/01/14 5,014,100
11,000 ------------
-------- 11,501,080
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST --
CALIFORNIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 94,865 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $87,644,283)................................................................ $86,812,723
-----------
SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.8%)
1,800 California Economic Development Financing Authority, Independent
System Operator Corp 1998 Ser D (Demand 12/01/99) ................. 3.70*% 04/01/08 1,800,000
4,000 California Statewide Communities Development Authority, Sutter Health
Ser 1995 COPs (AMBAC) (Demand 12/01/99) ........................... 3.55* 08/15/27 4,000,000
1,600 Irvine Ranch Water District, Ser 1993 A (Demand 12/01/99) ........... 3.85* 05/01/09 1,600,000
-------- -----------
7,400 TOTAL SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $7,400,000)................................................................. 7,400,000
-----------
$102,265 TOTAL INVESTMENTS (Identified Cost $95,044,283) (a)............................. 98.6% 94,212,723
======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................................. 1.4 1,302,584
-------- -----------
NET ASSETS ..................................................................... 100.0% $95,515,307
======== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ 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
$2,269,928 and the aggregate gross unrealized depreciation is
$3,101,488, resulting in net unrealized depreciation of $831,560.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA TAX-EXEMPT MUNICIPAL BONDS (86.7%)
General Obligation (2.9%)
$ 1,500 Florida Board of Education, Capital Outlay Refg Ser 1992 A ................... 6.40 % 06/01/19 $ 1,557,075
------- -----------
Educational Facilities Revenue (2.8%)
1,500 Volusia County Educational Facilities Authority, Embry-Riddle
------- Aeronautical University Ser 1996 A ......................................... 6.125 10/15/16 1,506,495
-----------
Electric Revenue (17.5%)
2,000 Jacksonville Electric Authority, St Johns River Power Park Issue 2 Ser 7 ..... 5.50 10/01/14 2,001,200
Lakeland,
4,000 Electric & Water Refg Ser 1999 A (MBIA) .................................... 0.00 10/01/14 1,735,040
1,000 Electric & Water Refg Ser 1999 B (FSA) ..................................... 6.05 10/01/14 1,061,470
1,000 Orlando Utilities Commission, Refg Ser 1993 A ................................ 5.25 10/01/14 974,790
Puerto Rico Electric Power Authority,
2,000 Power Ser O ................................................................ 5.00 07/01/12 1,916,940
2,000 Power Ser DD (FSA) ......................................................... 4.50 07/01/19 1,671,160
------- -----------
12,000 9,360,600
------- -----------
Hospital Revenue (9.4%)
1,000 Alachua County Health Facilities Authority, Shands Teaching Hospital &
Clinics Ser 1996 A (MBIA) .................................................. 6.25 12/01/11 1,079,310
1,000 Jacksonville, University Medical Center Inc Ser 1992 (Connie Lee) ............ 6.60 02/01/21 1,055,900
1,000 Orange County Health Facilities Authority, Adventist Health/Sunbelt
Ser 1995 (AMBAC) ........................................................... 5.25 11/15/20 910,070
935 Polk County Industrial Development Authority, Winter Haven Hospital
1985 Ser 2 (MBIA) .......................................................... 6.25 09/01/15 979,917
1,000 Tampa, Catholic Health East Ser 1998 A-1 (MBIA) .............................. 5.50 11/15/14 998,960
------- -----------
4,935 5,024,157
------- -----------
Industrial Development/Pollution Control Revenue (9.5%)
Citrus County,
500 Florida Power Corp Refg Ser 1992 B ......................................... 6.35 02/01/22 506,215
2,000 Florida Power Corp Refg Ser 1992 A ......................................... 6.625 01/01/27 2,054,380
1,500 St Johns County Industrial Development Authority, Professional Golf Hall
of Fame Ser 1996 (MBIA) .................................................... 5.80 09/01/16 1,511,940
1,000 St Lucie County, Florida Power & Light Co Ser 1992 (AMT) ..................... 6.70 05/01/27 1,040,900
------- -----------
5,000 5,113,435
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Revenue -- Single Family (3.3%)
$ 245 Brevard County Housing Finance Authority, Refg Ser 1991 B (FSA) ........... 7.00 % 03/01/13 $ 251,169
225 Florida Housing Finance Agency, GNMA Collateral 1990 Ser G-1 (AMT) ........ 7.90 03/01/22 232,459
1,230 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ................................................................... 6.85 10/15/23 1,284,907
-------- -----------
1,700 1,768,535
-------- -----------
Public Facilities Revenue (1.9%)
1,000 Palm Beach County, Criminal Justice Ser 1997 (FGIC) ....................... 5.75 06/01/13 1,040,070
-------- -----------
Recreational Facilities Revenue (1.9%)
1,000 Miami Sports & Exhibition Authority, Refg Ser 1992 A (FGIC) ............... 6.15 10/01/20 1,015,320
-------- -----------
Resource Recovery Revenue (2.0%)
1,000 Lee County, Solid Waste Ser 1991 A (AMT) (MBIA) ........................... 6.50 10/01/13 1,049,810
-------- -----------
Transportation Facilities Revenue (20.0%)
1,000 Dade County, Aviation 1992 Ser B (AMT) (MBIA) ............................. 6.60 10/01/22 1,064,870
Greater Orlando Aviation Authority,
1,000 Ser 1997 (AMT) (FGIC) ................................................... 5.75 10/01/11 1,032,000
750 Ser 1992 A (AMT) (FGIC) ................................................. 6.50 10/01/12 795,105
1,000 Hillsborough County Aviation Authority, Tampa Int'l Airport
Refg Ser 1993 B (FGIC) .................................................. 5.60 10/01/19 972,160
1,500 Lee County, Refg Ser 1991 (AMBAC) ......................................... 6.00 10/01/17 1,508,640
3,000 Mid-Bay Bridge Authority, Refg Ser 1993 A (AMBAC) ......................... 5.95 10/01/22 3,013,020
1,500 Osceola County, Osceola Parkway (MBIA) .................................... 6.10 04/01/17 1,556,385
1,000 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................ 4.75 07/01/38 791,870
-------- -----------
10,750 10,734,050
-------- -----------
Water & Sewer Revenue (13.5%)
2,000 Dade County, Water & Sewer Ser 1995 (FGIC) ................................ 5.50 10/01/25 1,894,420
1,500 Florida Governmental Utility Authority, Golden Gate Ser 1999 (AMBAC) ...... 5.25 07/01/18 1,408,455
2,000 Lee County, Water & Sewer 1999 Ser A (AMBAC) .............................. 4.75 10/01/23 1,682,760
1,000 Sunrise, Utility Refg Ser 1998 (AMBAC) .................................... 5.50 10/01/18 980,390
1,500 Tampa Bay Water, Utility Ser 1998 B (FGIC) ................................ 4.75 10/01/27 1,240,650
-------- -----------
8,000 7,206,675
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Refunded (2.0%)
$ 1,000 South Broward Hospital District, Ser 1991 B & C (AMBAC) ........... 6.611% 05/01/01+ $ 1,047,620
------- -----------
49,385 TOTAL FLORIDA TAX-EXEMPT MUNICIPAL BONDS
------- (Identified Cost $46,610,954).................................................................. 46,423,842
-----------
SHORT-TERM FLORIDA TAX-EXEMPT MUNICIPAL OBLIGATIONS (9.7%)
2,500 Collier County Health Facilities Authority, Cleveland Clinic
Foundation Ser 1999 (Demand 12/01/99) ........................... 3.70* 01/01/33 2,500,000
2,700 Jacksonville Pollution Control Financing Authority, Florida Power &
Light Co Ser 1995 (Demand 12/01/99) ............................... 3.80* 05/01/29 2,700,000
------- -----------
5,200 TOTAL SHORT-TERM FLORIDA TAX-EXEMPT MUNICIPAL OBLIGATIONS
------- (Identified Cost $5,200,000)................................................................... 5,200,000
-----------
$54,585 TOTAL INVESTMENTS (Identified Cost $51,810,954) (a)............................ 96.4% 51,623,842
=======
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................................ 3.6 1,931,130
-------- -----------
NET ASSETS .................................................................... 100.0% $53,554,972
======== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
* Current coupon of variable rate demand obligation.
+ Prerefunded to call date shown.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$1,181,182 and the aggregate gross unrealized depreciation is
$1,368,294, resulting in net unrealized depreciation of $187,112.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company -- A wholly owned subsidiary of AMBAC
Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MASSACHUSETTS
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS TAX-EXEMPT MUNICIPAL BONDS (92.3%)
Educational Facilities Revenue (23.5%)
Massachusetts Health & Educational Facilities Authority,
$ 400 Boston University 1991 Ser K & L (MBIA) .............................. 6.66 % 10/01/31 $ 418,176
500 Brandeis University 1998 Ser I (MBIA) ................................ 4.75 10/01/28 408,350
400 Suffolk University Ser B (Connie Lee) ................................ 6.25 07/01/12 417,620
300 Suffolk University Ser C (Connie Lee) ................................ 5.75 07/01/26 287,010
500 University of Massachusetts Foundation Inc/Medical School Research
Ser A (Connie Lee) ................................................. 6.00 07/01/23 496,230
Massachusetts Industrial Finance Agency,
500 College of The Holy Cross 1996 Issue (MBIA) .......................... 5.50 03/01/16 488,410
300 Mount Holyoke College Refg Ser 1992 A (MBIA) ......................... 6.30 07/01/13 313,308
------ -----------
2,900 2,829,104
------ -----------
Electric Revenue (8.5%)
500 Massachusetts Municipal Wholesale Electric Company, Power Supply
1992 Ser C ........................................................... 6.625 07/01/18 511,530
500 Puerto Rico Electric Power Authority, Power Ser X ...................... 6.00 07/01/15 508,795
------ -----------
1,000 1,020,325
------ -----------
Hospital Revenue (16.8%)
500 Boston, Boston City Hospital - FHA Insured Mtge Refg Ser B ............. 5.75 02/15/13 500,320
Massachusetts Health & Educational Facilities Authority,
500 Lahey Clinic Medical Center Ser B (MBIA) ............................. 5.625 07/01/15 490,570
1,000 Massachusetts General Hospital Ser F (AMBAC) ......................... 6.00 07/01/15 1,031,460
------ -----------
2,000 2,022,350
------ -----------
Industrial Development/Pollution Control Revenue (8.1%)
1,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser 1993 5.875 08/01/08 970,540
------ -----------
Mortgage Revenue -- Multi-Family (3.9%)
460 Massachusetts Housing Finance Agency, Rental 1994 Ser A (AMT) (AMBAC) 6.60 07/01/14 478,096
------ -----------
Mortgage Revenue -- Single Family (1.9%)
220 Massachusetts Housing Finance Agency, Ser 21 (AMT) ..................... 7.125 06/01/25 227,020
------ -----------
Student Loan Revenue (4.5%)
105 Massachusetts Educational Facilities Authority, Education Loan Issue D
Ser A 1991 (AMT) (MBIA) .............................................. 7.25 01/01/09 108,902
400 New England Education Loan Marketing Corporation, 1992 Sub Issue H
(AMT) .................................................................. 6.90 11/01/09 431,060
------ -----------
505 539,962
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MASSACHUSETTS
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation Facilities Revenue (8.5%)
$ 500 Massachusetts Bay Transportation Authority, 1998 Ser A (MBIA) .......... 5.50% 03/01/15 $ 495,880
500 Massachusetts Port Authority, Refg Ser 1998 A .......................... 5.75 07/01/12 521,385
------- -----------
1,000 1,017,265
------- -----------
Water & Sewer Revenue (12.0%)
500 Boston Water & Sewer Commission, 1992 Ser A ............................ 5.75 11/01/13 515,770
500 Massachusetts Water Pollution Abatement Trust, Pool Ser 2 .............. 5.70 02/01/12 511,760
500 Massachusetts Water Resources Authority, 1998 Ser A (FSA) .............. 4.75 08/01/27 410,115
------- -----------
1,500 1,437,645
------- -----------
Refunded (4.6%)
500 Massachusetts, Refg 1992 Ser B (ETM) ................................... 6.50 08/01/08 551,825
------- -----------
11,085 TOTAL MASSACHUSETTS TAX-EXEMPT MUNICIPAL BONDS
------- (Identified Cost $10,960,050)................................................................. 11,094,132
-----------
SHORT-TERM MASSACHUSETTS TAX-EXEMPT MUNICIPAL OBLIGATIONS (5.8%)
Massachusetts Health & Educational Facilities Authority,
300 Capital Assets Ser D (MBIA) (Demand 12/01/99) ........................ 3.80* 01/01/35 300,000
400 Wellesley College Ser G (Demand 12/01/99) ............................ 3.60* 07/01/39 400,000
------- -----------
700 TOTAL SHORT-TERM MASSACHUSETTS TAX-EXEMPT MUNICIPAL OBLIGATIONS
------- (Identified Cost $700,000) ................................................................... 700,000
-----------
$11,785 TOTAL INVESTMENTS (Identified Cost $11,660,050) (a) ............................. 98.1% 11,794,132
=======
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .................................. 1.9 234,432
-------- -----------
NET ASSETS ...................................................................... 100.0% $12,028,564
======== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$358,176 and the aggregate gross unrealized depreciation is
$224,094, resulting in net unrealized appreciation of $134,082.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of AMBAC
Assurance Corporation.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MICHIGAN SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MICHIGAN TAX-EXEMPT MUNICIPAL BONDS (89.5%)
General Obligation (14.6%)
$ 300 Berkley School District, 1999 Refg (FGIC) ................................. 4.75 % 01/01/19 $ 257,100
500 Chelsea School District, Bldg & Site Refg 1998 (FGIC) ..................... 5.00 05/01/25 432,850
500 Detroit, Ser 1997-A (MBIA) ................................................ 5.00 04/01/18 446,860
445 Mona Shores Public Schools, 1995 Bldg & Site (FGIC) ....................... 5.80 05/01/17 445,294
500 Southgate Community School District, Refg Ser 1999 (FGIC) ................. 5.75 05/01/15 502,860
200 Puerto Rico, Public Impr Ser 1998 (Secondary MBIA) ........................ 4.875 07/01/23 173,832
-------- -----------
2,445 2,258,796
-------- -----------
Educational Facilities Revenue (10.3%)
800 Central Michigan University, Refg Ser 1993 (AMBAC) ........................ 5.50 10/01/10 809,400
800 Oakland University, Board of Trustees, Ser 1995 (MBIA) .................... 5.75 05/15/26 774,648
-------- -----------
1,600 1,584,048
-------- -----------
Electric Revenue (6.0%)
500 Wyandotte, Electric Refg 1992 (MBIA) ...................................... 6.25 10/01/17 509,955
500 Puerto Rico Electric Power Authority, Power Ser DD (FSA) .................. 4.50 07/01/19 417,790
-------- -----------
1,000 927,745
-------- -----------
Hospital Revenue (5.7%)
500 Grand Traverse County Hospital, Munson Healthcare Ser 1998 A (AMBAC)....... 4.75 07/01/22 410,910
500 Michigan Hospital Finance Authority, Mercy Health 1996 Ser R (AMBAC) ...... 5.375 08/15/16 471,795
-------- -----------
1,000 882,705
-------- -----------
Industrial Development/Pollution Control Revenue (3.5%)
500 Monroe County, Detroit Edison Co Collateralized Ser 1-1992 (AMT) (MBIA) ... 6.875 09/01/22 533,245
-------- -----------
Mortgage Revenue -- Multi-Family (11.3%)
Michigan Housing Development Authority,
465 Rental 1992 Ser A ....................................................... 6.60 04/01/12 487,571
795 1992 Ser A (FSA) ........................................................ 6.50 04/01/23 831,737
400 Ser 1990 A (AMT) ........................................................ 7.70 04/01/23 417,580
-------- -----------
1,660 1,736,888
-------- -----------
Public Facilities Revenue (6.1%)
500 Michigan Building Authority, Refg Ser I ................................... 6.25 10/01/20 508,965
500 Michigan House of Representatives, Capital Outlook LLC COPs (AMBAC) ....... 5.00 08/15/20 439,505
-------- -----------
1,000 948,470
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MICHIGAN SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation Facilities Revenue (8.5%)
Wayne County, Detroit Metropolitan Wayne County Airport Sub Lien
$ 250 Ser 1991 B (AMT) (MBIA) ........................................... 6.75% 12/01/21 $ 263,525
500 Ser 1998 B (MBIA) ................................................. 4.875 12/01/23 421,665
800 Puerto Rico Highway & Transportation Authority, Ser 1998 A .......... 4.75 07/01/38 633,496
-------- -----------
1,550 1,318,686
-------- -----------
Water & Sewer Revenue (5.4%)
400 Detroit, Water Supply Refg Ser 1992 (FGIC) .......................... 6.375 07/01/22 421,080
500 Grand Rapids, Water Ser 1998 A (FGIC) ............................... 4.75 01/01/28 409,495
-------- -----------
900 830,575
-------- -----------
Refunded (18.1%)
Detroit,
1,000 Sewer Refg Ser 1993 A (FGIC) ...................................... 5.70 07/01/03+ 1,045,050
1,000 Water Supply Refg Ser 1992 (FGIC) ................................. 6.375 07/01/02+ 1,059,460
655 Holly Area School District, 1995 Bldg & Site (FGIC) ................. 5.375 05/01/05+ 680,361
-------- -----------
2,655 2,784,871
-------- -----------
14,310 TOTAL MICHIGAN TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $13,973,064)............................................................... 13,806,029
-----------
SHORT-TERM MICHIGAN TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.1%)
500 Delta County Economic Development Corporation, Mead-Escanaba
Paper Co Ser 1985 C (Demand 12/01/99) ............................. 3.80* 12/01/23 500,000
600 Royal Oak Hospital Finance Authority, William Beaumont Hospital
-------- Ser 1996 J (Demand 12/01/99) ...................................... 3.75* 01/01/03 600,000
-----------
1,100 TOTAL SHORT-TERM MICHIGAN TAX-EXEMPT MUNICIPAL OBLIGATIONS
(Identified Cost $1,100,000) ............................................................... 1,100,000
-------- -----------
$ 15,410 TOTAL INVESTMENTS (Identified Cost $15,073,064) (a) .......................... 96.6% 14,906,029
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................... 3.4 520,169
------- -----------
NET ASSETS ................................................................... 100.0% $15,426,198
======== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST --
MICHIGAN SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ 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
$340,807 and the aggregate gross unrealized depreciation is
$507,842, resulting in net unrealized depreciation of $167,035.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MINNESOTA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINNESOTA TAX-EXEMPT MUNICIPAL BONDS (91.8%)
General Obligation (15.3%)
$ 300 Minneapolis, Various Purpose Refg Ser 1998 D .............................. 5.00 % 12/01/17 $ 275,601
300 Minnesota, Various Purpose Refg Ser 1998 .................................. 5.00 06/01/16 278,943
300 Park Rapids Independent School District #309, School Building Ser 1999
(MBIA) .................................................................. 4.75 02/01/21 256,638
300 Waconia Independent District #110, Ser 1999 A ............................. 4.875 02/01/22 259,851
------ ----------
1,200 1,071,033
------ ----------
Educational Facilities Revenue (17.3%)
200 Minnesota Higher Education Facilities Authority, Northfield St Olaf
College 1992 ............................................................ 6.40 10/01/21 204,894
1,000 University of Minnesota, Ser 1993 A ....................................... 4.80 08/15/03 1,010,400
------ ----------
1,200 1,215,294
------ ----------
Electric Revenue (4.3%)
300 Western Minnesota Municipal Power Agency, Refg 1996 Ser A (AMBAC) ......... 5.50 01/01/12 303,495
------ ----------
Hospital Revenue (10.0%)
300 Robbinsdale, North Memorial Medical Center Ser 1993 A (AMBAC) ............. 5.45 05/15/13 298,635
Rochester,
200 Mayo Foundation/Mayo Medical Ser 1992 I ................................. 5.75 11/15/21 197,296
200 Mayo Foundation/Mayo Medical Ser 1992 F ................................. 6.25 11/15/21 208,272
------ ----------
700 704,203
------ ----------
Industrial Development/Pollution Control Revenue (10.0%)
200 Anoka County, United Power Assoc NRU-CFC-Gtd Ser 1987 A (AMT) ............. 6.95 12/01/08 206,404
300 Bass Brook, Minnesota Power & Light Co Refg Ser 1992 ...................... 6.00 07/01/22 286,266
Minneapolis Community Development Agency,
100 Ltd Tax Supported Common Bond Fund Ser 1991-3 ........................... 8.25 12/01/11 106,315
100 Ltd Tax Supported Common Bond Fund Ser 1991-1 (AMT) ..................... 8.00 12/01/16 105,868
------ ----------
700 704,853
------ ----------
Mortgage Revenue - Multi-Family (3.0%)
200 Minnesota Housing Finance Agency, Ser 1992 A .............................. 6.95 08/01/17 208,386
------ ----------
Mortgage Revenue - Single Family (10.3%)
120 Minneapolis-Saint Paul Housing Finance Board, GNMA-Backed Phase IX
Ser 1991 (AMT) .......................................................... 7.25 08/01/21 123,313
Minnesota Housing Finance Agency,
405 Ser 1992 C-1 (AMT) ...................................................... 6.75 07/01/23 412,974
185 Ser 1992 H (AMT) ........................................................ 6.50 01/01/26 186,656
------ ----------
710 722,943
------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MINNESOTA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nursing & Health Related Facilities Revenue (7.2%)
$ 500 Minneapolis & Saint Paul Housing & Redevelopment Authority, Group
------- Health Plan Inc Ser 1992 .................................................... 6.75 % 12/01/13 $ 504,860
----------
Transportation Facilities Revenue (3.7%)
300 Minnesota Public Facilities Authority, Metropolitan Council Ser 1999 A ........ 4.75 03/01/20 258,240
------- ----------
Water & Sewer Revenue (5.0%)
400 Minnesota Public Facilities Authority, Water Pollution Control 1998 Ser A ..... 4.75 03/01/19 346,208
------- ----------
Refunded (5.7%)
400 Saint Paul Housing & Redevelopment Authority, Civic Center Ser 1993 (ETM) 5.45 11/01/13 401,960
------- ----------
6,610 TOTAL MINNESOTA TAX-EXEMPT MUNICIPAL BONDS
------- (Identified Cost $6,535,314) ........................................................................ 6,441,475
----------
SHORT-TERM MINNESOTA TAX-EXEMPT MUNICIPAL OBLIGATIONS (5.7%)
100 Beltrami County, Northwood Panelboard Co Ser 1991 (Demand 12/01/99) ........... 3.80* 12/01/21 100,000
300 Minneapolis & Saint Paul Housing & Redevelopment Authority, Children's
------- Health Care Ser 1995 B (FSA) (Demand 12/01/99) .............................. 3.75* 08/15/25 300,000
----------
400 TOTAL SHORT-TERM MINNESOTA TAX-EXEMPT MUNICIPAL OBLIGATIONS
------- (Identified Cost $400,000) .......................................................................... 400,000
----------
$ 7,010 TOTAL INVESTMENTS (Identified Cost $6,935,314)(a) ...................................... 97.5% 6,841,475
=======
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ......................................... 2.5 179,011
-------- ----------
NET ASSETS ............................................................................. 100.0% $7,020,486
======== ==========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$106,029 and the aggregate gross unrealized depreciation is
$199,868, resulting in net unrealized depreciation of $93,839.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW JERSEY TAX-EXEMPT MUNICIPAL BONDS (89.7%)
General Obligation (4.7%)
New Jersey,
$ 1,000 Refg Ser F ............................................................ 5.25 % 08/01/14 $ 976,940
1,000 Ser 1998 .............................................................. 4.50 03/01/18 843,540
-------- -----------
2,000 1,820,480
-------- -----------
Educational Facilities Revenue (16.8%)
New Jersey Economic Development Authority,
1,000 Educational Testing Service Ser 1998 A (MBIA) ......................... 4.75 05/15/25 848,250
1,000 The Lawrenceville School Ser A 1996 ................................... 5.75 07/01/16 1,001,960
500 The Seeing Eye Inc 1991 ............................................... 7.30 04/01/11 515,620
New Jersey Educational Facilities Authority,
1,000 Drew University 1998 Ser C (MBIA) ..................................... 5.00 07/01/17 917,650
1,000 Princeton University Ser 1999 A ....................................... 4.75 07/01/25 844,420
500 Rutgers, The State University Refg Ser R ................................ 6.50 05/01/13 528,795
2,000 University of Medicine & Dentistry, 1997 Ser A (MBIA) ................... 5.00 09/01/17 1,828,080
-------- -----------
7,000 6,484,775
-------- -----------
Electric Revenue (5.0%)
2,000 Puerto Rico Electric Power Authority, Power Ser O ....................... 5.00 07/01/12 1,916,940
-------- -----------
Hospital Revenue (6.7%)
New Jersey Health Care Facilities Financing Authority,
1,000 AHS Hospital Corp Ser 1997 A (AMBAC) .................................. 6.00 07/01/13 1,056,190
1,000 Atlantic City Medical Center Ser C .................................... 6.80 07/01/11 1,057,700
465 Robert Wood Johnson University Hospital Ser B (MBIA) .................. 6.625 07/01/16 486,153
-------- -----------
2,465 2,600,043
-------- -----------
Industrial Development/Pollution Control Revenue (6.5%)
500 Middlesex County Pollution Control Financing Authority, Amerada Hess Corp
Refg Ser 1992 ......................................................... 6.875 12/01/22 523,830
1,000 New Jersey Economic Development Authority, Elizabethtown Water Co
1995 Ser (AMT) (MBIA) ................................................. 5.60 12/01/25 957,800
1,000 Salem County Pollution Control Financing Authority, E I du Pont de
Nemours & Co 1992 Ser A (AMT) ......................................... 6.125 07/15/22 1,004,500
-------- -----------
2,500 2,486,130
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Revenue -- Multi-Family (9.3%)
New Jersey Housing & Mortgage Finance Agency,
$ 2,000 1995 Ser A (AMBAC) ......................................................... 6.00 % 11/01/14 $ 2,022,520
1,000 Presidential Plaza at Newport -- FHA Insured Mtges Refg 1991 Ser 1 ......... 7.00 05/01/30 1,050,730
500 Rental 1991 Ser A (AMT) .................................................... 7.25 11/01/22 516,850
-------- -----------
3,500 3,590,100
-------- -----------
Nursing & Health Related Facilities Revenue (2.4%)
895 New Jersey Health Care Facilities Financing Authority, Spectrum For Living
-------- -- FHA Insured Mortgage Refg Ser B ......................................... 6.50 02/01/22 919,478
-----------
Public Facilities Revenue (2.3%)
1,000 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1997 A
-------- (AMBAC) .................................................................... 5.00 07/01/28 876,720
-----------
Recreational Facilities Revenue (5.8%)
New Jersey Sports & Exposition Authority,
1,500 State Contract 1993 Ser A .................................................. 5.50 09/01/23 1,431,075
1,000 State Contract 1998 Ser A (MBIA) ........................................... 4.50 03/01/24 821,660
-------- -----------
2,500 2,252,735
-------- -----------
Resource Recovery Revenue (2.3%)
900 Warren County Pollution Control Financing Authority, Warren Energy
-------- Resource Co Ltd Partnership Ser 1984 (MBIA) ................................ 6.60 12/01/07 893,286
-----------
Transportation Facilities Revenue (15.2%)
1,000 Delaware River Port Authority, Ser 1995 (FGIC) ............................... 5.50 01/01/26 948,290
1,500 New Jersey Highway Authority, Sr Parkway Refg 1992 Ser ....................... 6.25 01/01/14 1,560,045
1,000 New Jersey Transportation Trust Authority, 1998 Ser A (FSA) .................. 4.50 06/15/19 829,730
1,000 New Jersey Turnpike Authority, Ser 1991 C .................................... 5.75 01/01/11 1,002,750
1,500 Port Authority of New York & New Jersey, Cons 99th Ser (AMT) (FGIC) .......... 5.75 05/01/15 1,506,210
-------- -----------
6,000 5,847,025
-------- -----------
Water & Sewer Revenue (12.7%)
1,000 Atlantic City Municipal Utilities Authority, Refg Ser 1993 ................... 5.75 05/01/17 995,590
1,000 Bergen County Utilities Authority, Water 1998 Ser A (FGIC) ................... 4.75 12/15/15 894,180
1,000 Camden County Municipal Utilities Authority, Sewer Refg Ser 1997 (FGIC)....... 5.25 07/15/17 950,300
1,000 Northwest Bergen County Utilities Authority, Refg 1992 Ser (MBIA) ............ 6.00 07/15/13 1,039,010
1,000 Passaic Valley Sewerage Commissioners, Ser 1992 D (AMBAC) .................... 5.75 12/01/13 1,016,040
-------- -----------
5,000 4,895,120
-------- -----------
35,760 TOTAL NEW JERSEY TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $34,780,691) ...................................................................... 34,582,832
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM NEW JERSEY TAX-EXEMPT MUNICIPAL OBLIGATIONS (8.8%)
New Jersey Economic Development Authority,
$ 1,500 Natural Gas Co Ser 1995 A (AMT) (AMBAC) (Demand 12/01/99) ............. 3.65*% 08/01/30 $ 1,500,000
1,700 United Water Inc Ser 1996 B (AMBAC) (Demand 12/01/99) ................. 3.85* 11/01/25 1,700,000
200 Union County Industrial Pollution Control Financing Authority, Exxon Corp
-------- Ser 1994 (Demand 12/01/99) ............................................ 3.15* 07/01/33 200,000
-----------
3,400 TOTAL SHORT-TERM NEW JERSEY TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $3,400,000) .................................................................... 3,400,000
-----------
$ 39,160 TOTAL INVESTMENTS (Identified Cost $38,180,691) (a) ................................ 98.5% 37,982,832
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ..................................... 1.5 583,550
-------- -----------
NET ASSETS ......................................................................... 100.0% $38,566,382
======== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
* 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
$908,720 and the aggregate gross unrealized depreciation is
$1,106,579, resulting in net unrealized depreciation of
$197,859.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW YORK SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK TAX-EXEMPT MUNICIPAL BONDS (88.2%)
General Obligation (12.6%)
$ 500 New York City, 1995 Ser D (MBIA) .................................... 6.20 % 02/01/07 $ 536,110
500 New York State, Refg Ser 1995 B ..................................... 5.70 08/15/13 506,855
300 Puerto Rico, Public Improvement Refg Ser 1992 A ..................... 6.00 07/01/14 304,656
-------- -----------
1,300 1,347,621
-------- -----------
Educational Facilities Revenue (20.3%)
500 Hempstead Industrial Development Agency, Hofstra University Ser 1996
(MBIA) ............................................................ 5.80 07/01/15 505,695
New York State Dormitory Authority,
300 Cooper Union Ser 1996 (AMBAC) ..................................... 5.375 07/01/16 287,442
400 Manhattan College Ser 1992 (AGRC) ................................. 6.50 07/01/19 410,948
500 State University Ser 1993 A ....................................... 5.25 05/15/15 474,610
500 University of Rochester Ser 1993 A ................................ 5.625 07/01/12 500,090
-------- -----------
2,200 2,178,785
-------- -----------
Electric Revenue (6.3%)
300 Long Island Power Authority, Ser 1998 A (FSA) ....................... 5.125 12/01/22 267,138
400 Puerto Rico Electric Power Authority, Power Ser X ................... 6.00 07/01/15 407,036
-------- -----------
700 674,174
-------- -----------
Industrial Development/Pollution Control Revenue (13.9%)
400 New York City Industrial Development Agency, Japan Airlines Co 1991
(AMT) (FSA) ....................................................... 6.00 11/01/15 416,096
1,000 New York State Energy Research & Development Authority, Brooklyn
-------- Union Gas Co 1991 Ser A & B (AMT) ................................. 6.952 07/01/26 1,074,180
-----------
1,400 1,490,276
-------- -----------
Mortgage Revenue - Single Family (4.9%)
500 New York State Mortgage Agency, Homeowner Ser 27 .................... 6.90 04/01/15 529,225
-------- -----------
Nursing & Health Related Facilities Revenue (3.7%)
500 New York City Industrial Development Agency, Lighthouse International
-------- Ser 1998 (MBIA) ................................................... 4.50 07/01/23 399,555
-----------
Public Facilities Revenue (9.1%)
500 New York City Cultural Resources Trust, The New York Botanical Garden
Ser 1996 (MBIA) ................................................... 5.75 07/01/16 501,190
500 New York State Urban Development Corporation, Correctional
1998 Ser B (AMBAC) ................................................ 5.25 01/01/16 472,460
-------- -----------
1,000 973,650
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW YORK SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Resource Recovery Revenue (4.9%)
$ 500 Oneida-Herkimer Solid Waste Management Authority, Ser 1992 ................... 6.65 % 04/01/05 $ 528,020
------- -----------
Transportation Facilities Revenue (8.7%)
550 Buffalo & Fort Erie Public Bridge Authority, Toll Bridge Ser 1995 (MBIA) ..... 5.75 01/01/25 534,331
500 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................... 4.75 07/01/38 395,935
------- -----------
1,050 930,266
------- -----------
Water & Sewer Revenue (3.8%)
500 New York City Municipal Water Finance Authority, 1999 Ser A (FGIC) ........... 4.75 06/15/31 405,545
------- -----------
9,650
-------
TOTAL NEW YORK TAX-EXEMPT MUNICIPAL BONDS
(Identified Cost $9,442,285).................................................. 9,457,117
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (9.3%) -----------
200 New York State Energy Research & Development Authority, New York
State Electric & Gas Corp Ser 1994 C (Demand 12/01/99) ..................... 3.60* 06/01/29 200,000
500 Syracuse Industrial Development Agency, Syracuse University
Eggers Hall Ser 1993 (Demand 12/01/99) ..................................... 3.75* 03/01/23 500,000
300 Port Authority of New York & New Jersey, Special Obligation Ser 2
(Demand 12/01/99) .......................................................... 3.75* 05/01/19 300,000
------- -----------
1,000 TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS
(Identified Cost $1,000,000)................................................ 1,000,000
------- -----------
$10,650 TOTAL INVESTMENTS (Identified Cost $10,442,285) (a) ........................................ 97.5% 10,457,117
======= CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................................. 2.5 262,272
------ -----------
NET ASSETS ................................................................................. 100.0% $10,719,389
====== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
* 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
$291,556 and the aggregate gross unrealized depreciation is
$276,724, resulting in net unrealized appreciation of $14,832.
Bond Insurance:
- ---------------
AGRC Asset Guaranty Reinsurance Company.
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- OHIO SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO TAX-EXEMPT MUNICIPAL BONDS (93.2%)
General Obligation (22.8%)
$ 300 Bedford School District, Ser 1993 .................................... 6.25 % 12/01/13 $ 313,452
500 Dayton, Ltd Tax Ser 1998 (FGIC) ...................................... 4.70 12/01/20 425,615
500 Delaware City School District, Constr & Impr (FGIC) .................. 5.75 12/01/20 495,190
500 Medina City School District, Ser 1999 (FGIC) ......................... 5.25 12/01/28 451,915
500 North Olmsted, Various Purpose Impr Ltd Tax Ser 1996 (AMBAC) ......... 6.20 12/01/11 536,410
500 Ohio, Infrastructure Improvement Ser 1998 B .......................... 4.75 02/01/18 437,400
500 Rocky River City School District, Impr Ser 1998 ...................... 5.375 12/01/17 481,310
500 Puerto Rico, Public Impr Ser 1998 (Secondary MBIA) ................... 4.875 07/01/23 434,580
--------- -----------
3,800 3,575,872
--------- -----------
Educational Facilities Revenue (12.9%)
500 Ohio Higher Educational Facility Commission, Case Western Reserve
University Ser 1992 ................................................ 6.00 10/01/22 504,535
500 Ohio State University, General Receipts Ser 1999 A (WI) .............. 5.80 12/01/29 488,880
500 University of Cincinnati, General Receipts Ser G ..................... 7.00 06/01/11 526,945
500 University of Toledo, Ser 1992 A (FGIC)** ............................ 5.90 06/01/20 501,115
--------- -----------
2,000 2,021,475
--------- -----------
Electric Revenue (4.9%)
500 Hamilton!, Refg 1992 Ser A (FGIC) .................................... 6.00 10/15/12 520,925
300 Puerto Rico Electric Power Authority, Power Ser DD (FSA) ............. 4.50 07/01/19 250,674
--------- -----------
800 771,599
--------- -----------
Hospital Revenue (7.6%)
700 Akron Bath & Copley Joint Township Hospital District, Summa Health
Ser 1992 A ......................................................... 6.25 11/15/07 716,709
475 Hamilton County, Bethesda Hospital Inc Ser 1986 A .................... 7.00 01/01/09 476,050
--------- -----------
1,175 1,192,759
--------- -----------
Industrial Development/Pollution Control Revenue (5.9%)
400 Ashtabula County, Ashland Oil Inc Refg 1992 Ser A .................... 6.90 05/01/10 417,108
500 Ohio Water Development Authority, Dayton Power & Light Co
Collateralized Refg 1992 Ser A ..................................... 6.40 08/15/27 506,815
--------- -----------
900 923,923
--------- -----------
Mortgage Revenue -- Single Family (9.5%)
Ohio Housing Finance Agency,
500 GNMA-Backed 1991 Ser A-1 & 2 (AMT) ................................. 6.903 03/01/31 516,070
990 Residential 1996 Ser B-2 (AMT) ..................................... 6.10 09/01/28 968,883
--------- -----------
1,490 1,484,953
--------- -----------
Public Facilities Revenue (3.0%)
500 Ohio Building Authority, Adult Correctional 1999 Ser A ............... 5.25 10/01/18 467,065
--------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- OHIO SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation Facilities Revenue (4.1%)
$ 500 Ohio Turnpike Commission, Ser 1998 B (FGIC) ........................... 4.50 % 02/15/24 $ 401,585
300 Puerto Rico Highway & Transportation Authority, Ser 1998 A ............ 4.75 07/01/38 237,561
--------- -----------
800 639,146
--------- -----------
Water & Sewer Revenue (15.7%)
800 Montgomery County, Water Ser 1992 (FGIC) .............................. 6.25 11/15/17 829,808
800 Northeast Ohio Regional Sewer District, Wastewater Impr Refg
Ser 1995 (AMBAC) ..................................................... 5.60 11/15/13 810,216
800 Ohio Water Development Authority, Water Pollution Ser 1995 (MBIA) ..... 5.60 06/01/10 822,672
--------- -----------
2,400 2,462,696
--------- -----------
Refunded (6.8%)
1,000 Clermont County, Mercy Health Ser 1991 (AMBAC) ........................ 6.733 09/25/01+ 1,057,150
--------- -----------
14,865 TOTAL OHIO TAX-EXEMPT MUNICIPAL BONDS
---------
(Identified Cost $14,681,956) .............................................................. 14,596,638
-----------
SHORT-TERM OHIO TAX-EXEMPT MUNICIPAL OBLIGATIONS (6.4%)
600 Cuyahoga County, University Hospital of Cleveland Ser 1985
(Demand 12/01/99) .................................................... 3.60* 01/01/16 600,000
400 Ohio Water Development Authority, Mead Co Ser 1986 B
--------- (Demand 12/01/99) .................................................... 3.60* 11/01/15 400,000
-----------
1,000 TOTAL SHORT-TERM OHIO TAX-EXEMPT MUNICIPAL OBLIGATIONS
--------- (Identified Cost $1,000,000) ............................................................... 1,000,000
-----------
$ 15,865 TOTAL INVESTMENTS (Identified Cost $15,681,956) (a) .......................... 99.6% 15,596,638
=========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................... 0.4 62,702
-------- -----------
NET ASSETS ................................................................... 100.0% $15,659,340
======== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
+ Prerefunded to call date shown.
WI Security purchased on a "when-issued" basis.
* Current coupon of variable rate demand obligation.
** This security is segregated in connection with the purchase of a
"when-issued" security.
(a) The aggregate cost of federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$319,941 and the aggregate gross unrealized depreciation is
$405,259, resulting in net unrealized depreciation of $85,318.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST --
PENNSYLVANIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA TAX-EXEMPT MUNICIPAL BONDS (90.1%)
General Obligation (7.2%)
$ 2,000 Berks County, Second Ser 1992 (FGIC) ...................................... 5.75 % 11/15/12 $ 2,019,380
1,000 Delaware County, Ser 1999 ................................................. 5.125 10/01/19 906,870
600 Puerto Rico, Public Improvement Refg Ser 1992 A ........................... 6.00 07/01/14 609,312
-------- -----------
3,600 3,535,562
-------- -----------
Educational Facilities Revenue (12.3%)
2,000 Delaware County Authority, Villanova University Ser 1995 (AMBAC) .......... 5.80 08/01/25 1,952,880
Pennsylvania Higher Educational Facilities Authority,
1,000 Allegheny College Refg Ser 1998 A (MBIA) ................................ 5.00 11/01/22 875,150
1,000 University of Pennsylvania Ser 1998 ..................................... 4.625 07/15/30 787,330
1,000 Pennsylvania State University, Second Refg Ser 1992 ....................... 5.50 08/15/16 970,160
790 Swarthmore Borough Authority, Swarthmore College Ser 1992 ................. 6.00 09/15/20 793,500
655 University of Pittsburgh, Cap 1992 Ser A (MBIA) ........................... 6.125 06/01/21 660,240
-------- -----------
6,445 6,039,260
-------- -----------
Electric Revenue (3.5%)
Puerto Rico Electric Power Authority,
1,000 Power Ser DD (FSA) ...................................................... 4.50 07/01/19 835,580
1,000 Ser GG (FSA) ............................................................ 4.75 07/01/21 861,690
-------- -----------
2,000 1,697,270
-------- -----------
Hospital Revenue (15.4%)
Allegheny County Hospital Development Authority,
1,000 Catholic Health East Health Ser 1998 A (AMBAC) .......................... 4.875 11/15/26 824,080
1,000 Presbyterian University Health Inc Ser 1992 B (MBIA) .................... 6.00 11/01/12 1,042,200
2,000 Delaware County Authority, Catholic Health East Health Ser 1998 A
(AMBAC) ................................................................. 4.875 11/15/26 1,648,160
Philadelphia Hospitals & Higher Education Facilities Authority,
1,750 Chestnut Hill Hospital Ser of 1992 ...................................... 6.375 11/15/11 1,751,033
1,000 Children's Hospital of Philadelphia Ser A of 1993 ....................... 5.375 02/15/14 933,010
1,250 Sayre Health Care Facilities Authority, Ser 1985 (AMBAC) .................. 7.15 12/01/10 1,328,525
-------- -----------
8,000 7,527,008
-------- -----------
Mortgage Revenue -- Multi-Family (2.0%)
1,000 Pennsylvania Housing Finance Agency, Ser 1992-35 D (AMT) .................. 6.20 04/01/25 999,890
-------- -----------
Mortgage Revenue -- Single Family (5.6%)
2,000 Pennsylvania Housing Finance Agency, Ser 1991-31 C (AMT) .................. 7.00 10/01/23 2,077,280
635 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ................................................................... 6.85 10/15/23 663,346
-------- -----------
2,635 2,740,626
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST --
PENNSYLVANIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Recreational Facilities Revenue (3.4%)
$ 2,000 Philadelphia Industrial Development Authority, The Franklin Institute
-------- Ser 1998 ................................................................ 5.20 % 06/15/26 $ 1,688,680
-----------
Resource Recovery Revenue (2.1%)
1,000 Montgomery County Industrial Development Authority, Ser 1989 .............. 7.50 01/01/12 1,042,180
-------- -----------
Student Loan Revenue (4.2%)
Pennsylvania Higher Education Assistance Agency,
1,000 1988 Ser D (AMT) (AMBAC) ................................................ 6.05 01/01/19 1,000,870
1,000 1991 Ser B (AMT) (AMBAC) ................................................ 6.854 09/01/26 1,076,100
-------- -----------
2,000 2,076,970
-------- -----------
Transportation Facilities Revenue (23.8%)
1,000 Guam, Highway 1992 Ser A (FSA) ............................................ 6.30 05/01/12 1,049,550
Allegheny County, Greater Pittsburgh Int'l Airport
1,000 Ser 1997 B (MBIA) ....................................................... 5.00 01/01/19 888,250
500 Ser 1992 (AMT) (FSA) .................................................... 6.625 01/01/22 521,020
2,000 Delaware River Port Authority, Ser 1995 (FGIC) ............................ 5.50 01/01/26 1,896,580
Pennsylvania Turnpike Commission,
2,000 Ser O 1992 (FGIC) ....................................................... 6.00 12/01/12 2,076,820
2,000 Ser A 1998 (AMBAC) ...................................................... 4.75 12/01/27 1,638,500
1,000 Philadelphia Industrial Development Authority, Philadelphia Airport
Ser 1998 A (AMT) (FGIC) ................................................. 5.00 07/01/23 855,550
1,000 Pittsburgh Public Parking Authority, Ser 1992 A (FGIC) .................... 5.875 12/01/12 1,023,220
1,000 Southeastern Pennsylvania Transportation Authority, Ser A 1999 (FGIC) ..... 5.25 03/01/18 931,020
1,000 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................ 4.75 07/01/38 791,870
-------- -----------
12,500 11,672,380
-------- -----------
Water & Sewer Revenue (6.9%)
2,000 Philadelphia, Water & Wastewater Ser 1995 (MBIA) .......................... 6.25 08/01/11 2,174,520
2,000 Pittsburgh Water & Sewer Authority, 1998 Ser B (FGIC) ..................... 0.00 09/01/28 337,320
1,000 West Mifflin Sanitary Sewer Municipal Authority, Ser 1998 (MBIA) .......... 5.00 08/01/23 872,100
-------- -----------
5,000 3,383,940
-------- -----------
Other Revenue (3.3%)
1,500 Pennsylvania Finance Authority, Cap Impr Refg Ser 1993 .................... 6.60 11/01/09 1,600,800
-------- -----------
Refunded (0.4%)
200 Lehigh County Industrial Development Authority, Strawbridge & Clothier
-------- Refg Ser of 1991 (ETM) .................................................. 7.20 12/15/01 205,972
-----------
47,880 TOTAL PENNSYLVANIA TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $45,499,777).................................................................. 44,210,538
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST --
PENNSYLVANIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM PENNSYLVANIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (8.4%)
$ 2,000 Lehigh County General Purpose Authority, Lehigh Valley Hospital 1997 A
(AMBAC) (Demand 12/01/99) ............................................... 3.65*% 07/01/28 $ 2,000,000
800 Philadelphia Hospital and Higher Education Facilities Authority, Children's
Hospital of Philadelphia Ser 1992 (Demand 12/01/99) ..................... 3.75* 03/01/27 800,000
1,300 Philadelphia Industrial Development Authority, The Fox Chase Center
-------- Ser 1997 (Demand 12/01/99) .............................................. 3.75* 07/01/25 1,300,000
-----------
4,100 TOTAL SHORT-TERM PENNSYLVANIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $4,100,000)....................................................................... 4,100,000
-----------
$ 51,980 TOTAL INVESTMENTS (Identified Cost $49,599,777) (a) .................................. 98.5% 48,310,538
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ....................................... 1.5 748,576
-------- -----------
NET ASSETS ........................................................................... 100.0% $49,059,114
======== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$931,110 and the aggregate gross unrealized depreciation is
$2,220,349, resulting in net unrealized depreciation of
$1,289,239.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value* ...................... $36,114,335 $94,212,723 $51,623,842 $11,794,132
Cash ...................................................... 40,663 93,484 1,574,593 29,189
Receivable for:
Investments sold ........................................ -- -- -- 10,275
Interest ................................................ 747,734 1,294,841 631,872 219,162
Shares of beneficial interest sold ...................... -- 97,230 54,639 509
Prepaid expenses and other assets ......................... 10,092 10,886 9,064 1,392
----------- ----------- ----------- -----------
TOTAL ASSETS ............................................ 36,912,824 95,709,164 53,894,010 12,054,659
----------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments purchased ................................... -- -- -- --
Shares of beneficial interest repurchased ............... -- 77,742 271,549 4,646
Dividends to shareholders ............................... 19,711 52,395 28,609 6,258
Investment management fee ............................... 11,375 29,414 16,578 3,749
Plan of distribution fee ................................ 3,167 12,606 7,105 1,337
Accrued expenses .......................................... 11,377 21,700 15,197 10,105
----------- ----------- ----------- -----------
TOTAL LIABILITIES ....................................... 45,630 193,857 339,038 26,095
----------- ----------- ----------- -----------
NET ASSETS .............................................. $36,867,194 $95,515,307 $53,554,972 $12,028,564
=========== =========== =========== ===========
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................................... $37,416,253 $96,639,672 $53,907,814 $12,025,193
Accumulated net realized loss ............................. (69,118) (292,805) (165,730) (130,711)
Net unrealized appreciation (depreciation) ................ (479,941) (831,560) (187,112) 134,082
----------- ----------- ----------- -----------
NET ASSETS .............................................. $36,867,194 $95,515,307 $53,554,972 $12,028,564
=========== =========== =========== ===========
*IDENTIFIED COST ........................................ $36,594,276 $95,044,283 $51,810,954 $11,660,050
=========== =========== =========== ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING ............... 3,722,888 9,378,747 5,301,588 1,151,035
=========== =========== =========== ===========
NET ASSET VALUE PER SHARE
(unlimited authorized shares of $.01 par value)........... $9.90 $10.18 $10.10 $10.45
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 4.17% of net asset value)** ........ $10.31 $10.60 $10.52 $10.89
</TABLE>
- ---------------
** On sales of $25,000 or more, the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$14,906,029 $6,841,475 $37,982,832 $10,457,117 $15,596,638 $48,310,538
372,146 61,193 113,449 103,661 326,665 19,130
-- -- -- -- -- 90,000
157,170 129,177 646,433 172,693 233,457 740,485
10,371 -- 48,625 -- 14,478 1,548
3,940 1,994 8,378 3,791 5,158 8,863
------------- ---------- ----------- ----------- ----------- ------------
15,449,656 7,033,839 38,799,717 10,737,262 16,176,396 49,170,564
------------- ---------- ----------- ----------- ----------- ------------
-- -- -- -- 493,005 --
-- -- 182,948 -- -- 46,328
8,062 3,410 21,164 5,736 8,440 27,023
4,733 2,169 11,908 3,306 4,871 15,194
2,028 929 5,103 1,417 2,088 6,197
8,635 6,845 12,212 7,414 8,652 16,708
------------- ---------- ----------- ----------- ----------- ------------
23,458 13,353 233,335 17,873 517,056 111,450
------------- ---------- ----------- ----------- ----------- ------------
$15,426,198 $7,020,486 $38,566,382 $10,719,389 $15,659,340 $49,059,114
============= ========== =========== =========== =========== ============
$15,624,705 $7,130,742 $38,833,385 $10,716,730 $15,786,140 $50,355,003
(31,472) (16,417) (69,144) (12,173) (41,482) (6,650)
(167,035) (93,839) (197,859) 14,832 (85,318) (1,289,239)
------------- ---------- ----------- ----------- ----------- ------------
$15,426,198 $7,020,486 $38,566,382 $10,719,389 $15,659,340 $49,059,114
============= ========== =========== =========== =========== ============
$15,073,064 $6,935,314 $38,180,691 $10,442,285 $15,681,956 $49,599,777
============= ========== =========== =========== =========== ============
1,537,836 700,163 3,772,932 1,047,028 1,524,259 4,813,564
============= ========== =========== =========== =========== ============
$10.03 $10.03 $10.22 $10.24 $10.27 $10.19
$10.45 $10.45 $10.65 $10.67 $10.70 $10.61
</TABLE>
37
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENTS OF OPERATIONS
For the year ended November 30, 1999
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $ 2,164,365 $ 5,524,666 $ 3,087,284 $ 777,513
------------ ------------ ------------ ------------
EXPENSES
Investment management fee ..................... 140,768 356,813 203,267 49,848
Plan of distribution fee ...................... 56,078 150,122 82,273 20,384
Transfer agent fees and expenses .............. 11,777 34,144 19,332 5,708
Professional fees ............................. 29,446 33,625 30,716 27,245
Shareholder reports and notices ............... 10,348 22,875 15,678 4,321
Trustees' fees and expenses ................... 1,895 5,050 2,661 533
Custodian fees ................................ 2,460 5,076 3,295 1,222
Registration fees ............................. 7,774 3,830 5,244 7,300
Other ......................................... 6,190 9,047 7,204 4,991
------------ ------------ ------------ ------------
TOTAL EXPENSES .............................. 266,736 620,582 369,670 121,552
Less: expense offset .......................... (2,456) (5,067) (3,289) (1,222)
------------ ------------ ------------ ------------
NET EXPENSES ................................ 264,280 615,515 366,381 120,330
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ....................... 1,900,085 4,909,151 2,720,903 657,183
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED LOSS :
Net realized loss ............................. (69,115) (292,800) (165,729) (130,711)
Net change in unrealized appreciation ......... (2,859,823) (7,760,961) (4,099,311) (872,696)
------------ ------------ ------------ ------------
NET LOSS .................................... (2,928,938) (8,053,761) (4,265,040) (1,003,407)
------------ ------------ ------------ ------------
NET DECREASE .................................. $(1,028,853) $(3,144,610) $(1,544,137) $ (346,224)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 898,388 $ 426,128 $ 2,205,912 $ 623,723 $ 963,133 $ 2,870,676
------------ ---------- ------------ ---------- ------------ ------------
58,834 27,901 142,574 40,185 61,383 183,815
24,004 11,455 57,692 16,977 24,023 78,314
9,277 3,713 19,960 4,862 9,163 16,616
32,176 35,872 27,213 26,947 30,129 28,013
7,359 2,980 16,397 3,824 6,915 13,266
801 250 1,949 548 839 2,811
1,457 830 2,308 1,052 1,539 2,761
2,720 2,960 7,041 7,310 2,656 3,343
5,195 4,459 6,326 4,490 5,188 7,381
------------ ---------- ------------ ---------- ------------ ------------
141,823 90,420 281,460 106,195 141,835 336,320
(1,457) (830) (2,305) (1,052) (1,539) (2,756)
------------ ---------- ------------ ---------- ------------ ------------
140,366 89,590 279,155 105,143 140,296 333,564
------------ ---------- ------------ ---------- ------------ ------------
758,022 336,538 1,926,757 518,580 822,837 2,537,112
------------ ---------- ------------ ---------- ------------ ------------
(31,471) (16,416) (69,142) (12,174) (39,851) (6,646)
(1,120,780) (516,662) (2,840,301) (836,551) (1,175,397) (4,132,749)
------------ ---------- ------------ ---------- ------------ ------------
(1,152,251) (533,078) (2,909,443) (848,725) (1,215,248) (4,139,395)
------------ ---------- ------------ ---------- ------------ ------------
$ (394,229) $(196,540) $ (982,686) $(330,145) $ (392,411) $(1,602,283)
============ ========== ============ ========== ============ ============
</TABLE>
39
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA
--------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS :
OPERATIONS:
Net investment income ............................ $ 1,900,085 $ 1,958,982 $ 4,909,151 $ 5,098,849
Net realized gain (loss) ......................... (69,115) 725,798 (292,800) 2,241,204
Net change in unrealized appreciation ............ (2,859,823) (57,712) (7,760,961) 248,404
------------ ------------ ------------- -------------
NET INCREASE (DECREASE) ........................ (1,028,853) 2,627,068 (3,144,610) 7,588,457
------------ ------------ ------------- -------------
DIVIDENDS AND DISTRIBUTIONS FROM :
Net investment income ............................ (1,900,085) (1,970,313) (4,909,151) (5,127,716)
Net realized gain ................................ (609,152) -- (1,789,764) --
------------ ------------ ------------- -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .............. (2,509,237) (1,970,313) (6,698,915) (5,127,716)
------------ ------------ ------------- -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales .......................... 3,943,050 3,583,708 9,677,182 7,971,183
Reinvestment of dividends and distributions ...... 1,325,710 956,419 3,315,487 2,300,541
Cost of shares repurchased ....................... (6,518,686) (5,432,230) (12,809,278) (11,766,093)
------------ ------------ ------------- -------------
NET INCREASE (DECREASE) ........................ (1,249,926) (892,103) 183,391 (1,494,369)
------------ ------------ ------------- -------------
TOTAL INCREASE (DECREASE) ...................... (4,788,016) (235,348) (9,660,134) 966,372
NET ASSETS:
Beginning of period .............................. 41,655,210 41,890,558 105,175,441 104,209,069
------------ ------------ ------------- -------------
END OF PERIOD .................................. $36,867,194 $41,655,210 $ 95,515,307 $105,175,441
============ ============ ============= =============
SHARES ISSUED AND REPURCHASED :
Sold ............................................. 375,871 333,041 896,986 718,169
Reinvestment of dividends and distributions ...... 127,464 89,180 308,057 207,368
Repurchased ...................................... (632,656) (506,438) (1,202,334) (1,061,263)
------------ ------------ ------------- -------------
NET INCREASE (DECREASE) ........................ (129,321) (84,217) 2,709 (135,726)
============ ============ ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
<TABLE>
<CAPTION>
FLORIDA MASSACHUSETTS MICHIGAN
- --------------------------------------- --------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,720,903 $ 2,983,488 $ 657,183 $ 670,436 $ 758,022 $ 876,689
(165,729) 2,077,788 (130,711) 171,067 (31,471) 708,264
(4,099,311) (437,571) (872,696) 170,653 (1,120,780) (248,253)
------------- ------------- ------------ ------------ ------------ ------------
(1,544,137) 4,623,705 (346,224) 1,012,156 (394,229) 1,336,700
------------- ------------- ------------ ------------ ------------ ------------
(2,720,903) (3,001,258) (657,183) (674,613) (758,022) (881,921)
(1,997,025) -- (171,067) (26,809) (694,270) --
------------- ------------- ------------ ------------ ------------ ------------
(4,717,928) (3,001,258) (828,250) (701,422) (1,452,292) (881,921)
------------- ------------- ------------ ------------ ------------ ------------
6,706,394 6,336,196 1,160,063 2,177,938 1,578,867 1,976,447
1,979,787 1,065,444 502,570 398,624 939,478 488,182
(10,131,177) (12,850,195) (3,695,685) (2,212,481) (3,004,836) (4,672,568)
------------- ------------- ------------ ------------ ------------ ------------
(1,444,996) (5,448,555) (2,033,052) 364,081 (486,491) (2,207,939)
------------- ------------- ------------ ------------ ------------ ------------
(7,707,061) (3,826,108) (3,207,526) 674,815 (2,333,012) (1,753,160)
61,262,033 65,088,141 15,236,090 14,561,275 17,759,210 19,512,370
------------- ------------- ------------ ------------ ------------ ------------
$ 53,554,972 $ 61,262,033 $12,028,564 $15,236,090 $15,426,198 $17,759,210
============= ============= ============ ============ ============ ============
623,037 569,452 107,144 193,348 148,075 178,504
185,150 95,684 45,969 35,479 88,569 44,120
(953,641) (1,152,957) (346,276) (196,446) (286,022) (419,448)
------------- ------------- ------------ ------------ ------------ ------------
(145,454) (487,821) (193,163) 32,381 (49,378) (196,824)
============= ============= ============ ============ ============ ============
</TABLE>
41
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS, continued
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY
--------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................ $ 336,538 $ 385,482 $ 1,926,757 $ 1,969,062
Net realized gain (loss) ......................... (16,416) 152,552 (69,142) 614,679
Net change in unrealized appreciation ............ (516,662) (55,068) (2,840,301) 394,703
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) ........................ (196,540) 482,966 (982,686) 2,978,444
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ............................ (336,538) (388,129) (1,926,757) (1,980,284)
Net realized gain ................................ (71,136) -- (609,503) --
------------ ------------ ------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .............. (407,674) (388,129) (2,536,260) (1,980,284)
------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales .......................... 613,733 450,188 3,899,668 4,281,513
Reinvestment of dividends and distributions ...... 197,150 205,051 1,486,480 1,110,422
Cost of shares repurchased ....................... (1,602,851) (1,075,759) (5,103,832) (6,107,000)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) ........................ (791,968) (420,520) 282,316 (715,065)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) ...................... (1,396,182) (325,683) (3,236,630) 283,095
NET ASSETS:
Beginning of period .............................. 8,416,668 8,742,351 41,803,012 41,519,917
------------ ------------ ------------ ------------
END OF PERIOD .................................. $ 7,020,486 $ 8,416,668 $38,566,382 $41,803,012
============ ============ ============ ============
SHARES ISSUED AND REPURCHASED:
Sold ............................................. 57,698 41,683 362,856 387,819
Reinvestment of dividends and distributions ...... 18,774 19,052 138,573 100,683
Repurchased ...................................... (154,345) (99,811) (478,651) (554,108)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) ........................ (77,873) (39,076) 22,778 (65,606)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
<TABLE>
<CAPTION>
NEW YORK OHIO PENNSYLVANIA
- --------------------------------------- --------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 518,580 $ 566,953 $ 822,837 $ 863,067 $ 2,537,112 $ 2,506,283
(12,174) 408,044 (39,851) 388,407 (6,646) 578,722
(836,551) (77,877) (1,175,397) (29,432) (4,132,749) 203,628
------------ ------------ ------------ ------------ ------------ ------------
(330,145) 897,120 (392,411) 1,222,042 (1,602,283) 3,288,633
------------ ------------ ------------ ------------ ------------ ------------
(518,580) (570,172) (822,837) (870,982) (2,537,112) (2,518,046)
(394,741) -- (219,842) -- (578,726) (8,207)
------------ ------------ ------------ ------------ ------------ ------------
(913,321) (570,172) (1,042,679) (870,982) (3,115,838) (2,526,253)
------------ ------------ ------------ ------------ ------------ ------------
637,143 656,120 2,664,054 2,170,150 3,894,419 12,831,070
549,160 301,450 628,836 479,951 2,031,604 1,539,410
(1,236,776) (1,857,636) (4,778,766) (2,897,075) (5,957,035) (5,380,740)
------------ ------------ ------------ ------------ ------------ ------------
(50,473) (900,066) (1,485,876) (246,974) (31,012) 8,989,740
------------ ------------ ------------ ------------ ------------ ------------
(1,293,939) (573,118) (2,920,966) 104,086 (4,749,133) 9,752,120
12,013,328 12,586,446 18,580,306 18,476,220 53,808,247 44,056,127
------------ ------------ ------------ ------------ ------------ ------------
$10,719,389 $12,013,328 $15,659,340 $18,580,306 $49,059,114 $53,808,247
============ ============ ============ ============ ============ ============
58,477 58,252 247,224 195,888 359,418 1,154,976
50,586 26,721 58,442 43,444 189,500 139,044
(115,169) (164,456) (447,444) (262,446) (560,476) (485,530)
------------ ------------ ------------ ------------ ------------ ------------
(6,106) (79,483) (141,778) (23,114) (11,558) 808,490
============ ============ ============ ============ ============ ============
</TABLE>
43
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Multi-State Municipal Series Trust (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a non-diversified, open-end management investment company. The investment
objective of each Series is to provide a high level of current income exempt
from both Federal and the designated state income taxes consistent with
preservation of capital.
The Fund, organized on October 29, 1990, as a Massachusetts business trust, is
comprised of ten separate Series (the "Series"): the Arizona Series, the
California Series, the Florida Series, the Massachusetts Series, the Michigan
Series, the Minnesota Series, the New Jersey Series, the New York Series, the
Ohio Series and the Pennsylvania Series. Each of the Series commenced
operations on January 15, 1991, with the exception of the Arizona Series which
commenced operations on April 30, 1991.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Fund's Trustees. The pricing
service has informed the Fund that in valuing the 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
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.
44
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply individually
for each Series 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.
E. EXPENSES -- Direct expenses are charged to the respective Series and general
corporate expenses are allocated on the basis of relative net assets or equally
among the Series.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, each Series of the Fund pays
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager") a
management fee, accrued daily and payable monthly, by applying the annual rate
of 0.35% to the daily net assets of each Series 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 office space and 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.
45
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
3. PLAN OF DISTRIBUTION
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"), an affiliate
of the Investment Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act, finances certain expenses in connection with the distribution of
shares of the Fund.
Under the Plan, the expenses of certain activities and services provided by
Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the Fund's
shares or who service shareholder accounts, including overhead and telephone
expenses incurred in connection with the distribution of the Fund's shares, are
reimbursed.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed an amount equal to a payment
at the annual rate of 0.15% of the Fund's average daily net assets during the
month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal
year will not be reimbursed by the Fund through payments accrued in any
subsequent fiscal year. For the year ended November 30, 1999, the distribution
fees were accrued at the following annual rates:
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------- ---------- ------- ------------- --------
Annual Rate ......... 0.14% 0.15% 0.14% 0.14% 0.14%
==== ==== ==== ==== ====
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
--------- ---------- -------- ---- ------------
0.14% 0.14% 0.15% 0.14% 0.15%
==== ==== ==== ==== ====
For the year ended November 30, 1999, the Distributor has informed the Fund
that commissions from the sale of the Fund's shares of beneficial interest were
as follows:
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------- ---------- ------- ------------- --------
Commissions ......... $94,093 $226,522 $170,528 $31,101 $52,759
======= ======== ======== ======= =======
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
--------- ---------- -------- ---- ------------
$21,658 $ 98,116 $ 20,379 $53,226 $72,372
======= ======== ========= ======= =======
Such commissions are not an expense of the Fund; they are deducted from the
proceeds of the sale of the shares of beneficial interest.
46
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from the sales of portfolio securities,
excluding short-term investments, for the year ended November 30, 1999 were as
follows:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------- ---------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
Purchases ......... $4,796,836 $26,282,780 $ 7,257,980 $ -- $1,548,121
========== =========== =========== ============= ==========
Sales ............. $7,297,185 $30,187,123 $12,730,596 $ 2,245,135 $3,118,997
========== =========== =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
--------- ---------- -------- ---- ------------
<S> <C> <C> <C> <C> <C>
Purchases ......... $1,079,153 $3,865,670 $ 400,000 $2,574,361 $2,982,709
========== ========== ========== ========== ==========
Sales ............. $1,716,705 $5,017,151 $1,173,408 $4,250,957 $4,861,725
========== ========== ========== ========== ==========
</TABLE>
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended November 30, 1999
included in Trustees' fees and expenses in the Statement of Operations and the
accrued pension liability included in accrued expenses in the Statement of
Assets and Liabilities for each of the respective Series were as follows:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------- ---------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
Aggregate Pension Costs ......... $582 $1,437 $835 $198 $235
==== ====== ==== ==== ====
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
--------- ---------- -------- ---- ------------
$107 $ 576 $157 $256 $710
==== ====== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------- ---------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
Accrued Pension Liability ......... $4,366 $10,788 $6,594 $1,518 $1,934
====== ======= ====== ====== ======
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
--------- ---------- -------- ---- ------------
$ 973 $ 4,253 $1,305 $2,080 $4,848
====== ======= ====== ====== ======
</TABLE>
47
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At November 30, 1999, each of
the Series had transfer agent fees and expenses payable as follows:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------- ---------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
Transfer Agent Fees and Expenses Payable ...... $ -- $646 $253 $242 $150
======= ==== ==== ==== ====
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
--------- ---------- -------- ---- ------------
$24 $194 $ 85 $ 82 $468
=== ==== ==== ==== ====
</TABLE>
5. FEDERAL INCOME TAX STATUS
At November 30, 1999, the following Series had approximate net capital loss
carryovers which will be available through November 30, 2007 to offset future
capital gains to the extent provided by regulations:
<TABLE>
<S> <C>
Arizona ............... $ 69,000
California ............ 243,000
Florida ............... 166,000
Massachusetts ......... 131,000
Michigan .............. 31,000
Minnesota ............. 16,000
New Jersey ............ 69,000
New York .............. 12,000
Ohio .................. 14,000
Pennsylvania .......... 7,000
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Funds' next
taxable year. The California and Ohio Series incurred and will elect to defer
net capital losses during fiscal 1999 of approximately $50,000 and $28,000,
respectively.
6. SUBSEQUENT EVENT -- SERIES MERGERS
On January 26, 2000, the Trustees of the Fund and of Morgan Stanley Dean Witter
Tax-Exempt Securities Trust ("Tax-Exempt") approved four reorganization plans
(the "Plans") whereby the Massachusetts Series, the Michigan Series, the
Minnesota Series and the Ohio Series would each be merged into Tax-Exempt. Each
respective Plan is subject to the consent of the Massachusetts Series', the
Michigan Series', the Minnesota Series' and the Ohio Series' shareholders,
respectively. If the Plans are approved by shareholders (each Plan is
independent of the other and therefore, the effectiveness of each Plan is not
dependent upon the approval of the other Plans) the assets of the Massachusetts
Series, the Michigan
48
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
Series, the Minnesota Series and the Ohio Series would be combined with the
assets of Tax-Exempt and shareholders of the Massachusetts Series, the Michigan
Series, the Minnesota Series and the Ohio Series would become Class D
shareholders of Tax-Exempt, receiving Class D shares of Tax-Exempt equal to the
value of their holdings in the respective Series.
On January 26, 2000, the Trustees of the Fund and of Morgan Stanley Dean Witter
California Tax-Free Income Fund ("California Tax-Free") approved a
reorganization plan (the "Plan") whereby the California Series would be merged
into California Tax-Free. The Plan is subject to the consent of the California
Series' shareholders. If the Plan is approved by shareholders, the assets of
the California Series would be combined with the assets of California Tax-Free
and shareholders of the California Series would become Class D shareholders of
California Tax-Free, receiving Class D shares of California Tax-Free equal to
the value of their holdings in the California Series.
On January 26, 2000, the Trustees of the Fund and of Morgan Stanley Dean Witter
New York Tax-Free Income Fund ("New York Tax-Free") approved a reorganization
plan (the "Plan") whereby the New York Series would be merged into New York
Tax-Free. The Plan is subject to the consent of the New York Series'
shareholders. If the Plan is approved by shareholders, the assets of the New
York Series would be combined with the assets of New York Tax-Free and
shareholders of the New York Series would become Class D shareholders of New
York Tax-Free, receiving Class D shares of New York Tax-Free equal to the value
of their holdings in the New York Series.
49
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
NOVEMBER 30 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARIZONA SERIES
1995 $ 9.42 $0.54 $ 1.23 $ 1.77 $(0.54) $ -- $(0.54)
1996 10.65 0.54 (0.06) 0.48 (0.54) -- (0.54)
1997 10.59 0.53 0.05 0.58 (0.53) -- (0.53)
1998 10.64 0.51 0.17 0.68 (0.51) -- (0.51)
1999 10.81 0.49 (0.75) (0.26) (0.49) (0.16) (0.65)
CALIFORNIA SERIES
1995 9.38 0.56 1.29 1.85 (0.56) -- (0.56)
1996 10.67 0.56 0.14 0.70 (0.56) -- (0.56)
1997 10.81 0.55 0.15 0.70 (0.55) -- (0.55)
1998 10.96 0.54 0.26 0.80 (0.54) -- (0.54)
1999 11.22 0.52 (0.85) (0.33) (0.52) (0.19) (0.71)
FLORIDA SERIES
1995 9.60 0.56 1.28 1.84 (0.56) -- (0.56)
1996 10.88 0.55 (0.02) 0.53 (0.55) -- (0.55)
1997 10.86 0.54 0.11 0.65 (0.54) -- (0.54)
1998 10.97 0.52 0.28 0.80 (0.52) -- (0.52)
1999 11.25 0.50 (0.78) (0.28) (0.50) (0.37) (0.87)
MASSACHUSETTS SERIES
1995 9.60 0.57 1.37 1.94 (0.57) -- (0.57)
1996 10.97 0.57 (0.03) 0.54 (0.57) (0.02) (0.59)
1997 10.92 0.53 0.18 0.71 (0.53) -- (0.53)
1998 11.10 0.51 0.25 0.76 (0.51) (0.02) (0.53)
1999 11.33 0.50 (0.75) (0.25) (0.50) (0.13) (0.63)
MICHIGAN SERIES
1995 9.46 0.57 1.35 1.92 (0.57) -- (0.57)
1996 10.81 0.56 (0.03) 0.53 (0.56) -- (0.56)
1997 10.78 0.53 0.16 0.69 (0.53) -- (0.53)
1998 10.94 0.51 0.25 0.76 (0.51) -- (0.51)
1999 11.19 0.48 (0.73) (0.25) (0.48) (0.43) (0.91)
</TABLE>
- ---------------
+ Does not reflect the deduction of sales load. 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
50
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
(AFTER EXPENSES WERE RATIOS TO AVERAGE NET ASSETS
ASSUMED) (BEFORE EXPENSES WERE ASSUMED)
NET ASSET NET ASSETS --------------------------- ------------------------------
VALUE END OF NET NET PORTFOLIO
END OF TOTAL PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN+ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.65 19.21% $ 50,290 0.65%(1) 5.33% 0.65%(1) 5.33% 6%
10.59 4.63 46,248 0.65 (1) 5.12 0.65 (1) 5.12 9
10.64 5.64 41,891 0.66 (1) 5.04 0.66 (1) 5.04 2
10.81 6.56 41,655 0.65 (1) 4.77 0.65 (1) 4.77 30
9.90 (2.53) 36,867 0.66 (1) 4.72 0.66 (1) 4.72 13
10.67 20.15 117,769 0.60 (1) 5.50 0.60 (1) 5.50 5
10.81 6.76 113,859 0.59 5.28 0.59 5.28 19
10.96 6.55 104,209 0.59 5.08 0.59 5.08 17
11.22 7.58 105,175 0.59 (1) 4.87 0.59 (1) 4.87 24
10.18 (3.10) 95,515 0.61 (1) 4.82 0.61 (1) 4.82 27
10.88 19.54 74,058 0.63 (1) 5.34 0.63 (1) 5.34 8
10.86 5.03 70,542 0.62 (1) 5.13 0.62 (1) 5.13 25
10.97 6.10 65,088 0.62 5.02 0.62 5.02 7
11.25 7.58 61,262 0.62 (1) 4.69 0.62 (1) 4.69 26
10.10 (2.70) 53,555 0.64 (1) 4.69 0.64 (1) 4.69 13
10.97 20.58 16,954 0.50 (1) 5.39 0.79 (1) 5.11 7
10.92 5.07 16,021 0.50 (1) 5.23 0.82 (1) 4.91 11
11.10 6.68 14,561 0.79 (1) 4.85 0.81 (1) 4.83 10
11.33 7.03 15,236 0.83 (1) 4.55 0.83 (1) 4.55 31
10.45 (2.29) 12,029 0.85 (1) 4.61 0.85 (1) 4.61 --
10.81 20.69 21,673 0.50 (1) 5.49 0.77 (1) 5.22 22
10.78 5.09 20,863 0.50 (1) 5.27 0.76 (1) 5.01 5
10.94 6.52 19,512 0.72 (1) 4.95 0.74 (1) 4.93 3
11.19 7.23 17,759 0.78 (1) 4.63 0.78 (1) 4.63 40
10.03 (2.40) 15,426 0.84 (1) 4.51 0.84 (1) 4.51 10
</TABLE>
51
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
NOVEMBER 30 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MINNESOTA SERIES
1995 $ 9.28 $0.54 $ 1.33 $ 1.87 $(0.54) $ -- $(0.54)
1996 10.61 0.54 (0.01) 0.53 (0.54) -- (0.54)
1997 10.60 0.49 0.10 0.59 (0.49) -- (0.49)
1998 10.70 0.48 0.13 0.61 (0.49) -- (0.49)
1999 10.82 0.44 (0.70) (0.26) (0.44) (0.09) (0.53)
NEW JERSEY SERIES
1995 9.47 0.56 1.26 1.82 (0.56) -- (0.56)
1996 10.73 0.55 (0.03) 0.52 (0.55) -- (0.55)
1997 10.70 0.53 0.18 0.71 (0.53) -- (0.53)
1998 10.88 0.53 0.27 0.80 (0.53) -- (0.53)
1999 11.15 0.51 (0.77) (0.26) (0.51) (0.16) (0.67)
NEW YORK SERIES
1995 9.46 0.56 1.42 1.98 (0.56) -- (0.56)
1996 10.88 0.56 0.02 0.58 (0.56) -- (0.56)
1997 10.90 0.53 0.21 0.74 (0.53) -- (0.53)
1998 11.11 0.52 0.30 0.82 (0.52) -- (0.52)
1999 11.41 0.49 (0.80) (0.31) (0.49) (0.37) (0.86)
OHIO SERIES
1995 9.42 0.56 1.38 1.94 (0.56) -- (0.56)
1996 10.80 0.55 (0.03) 0.52 (0.55) -- (0.55)
1997 10.77 0.53 0.17 0.70 (0.53) -- (0.53)
1998 10.94 0.52 0.21 0.73 (0.52) -- (0.52)
1999 11.15 0.50 (0.75) (0.25) (0.50) (0.13) (0.63)
PENNSYLVANIA SERIES
1995 9.56 0.55 1.29 1.84 (0.55) -- (0.55)
1996 10.85 0.55 -- 0.55 (0.55) -- (0.55)
1997 10.85 0.54 0.14 0.68 (0.54) (0.02) (0.56)
1998 10.97 0.53 0.18 0.71 (0.53) -- (0.53)
1999 11.15 0.52 (0.84) (0.32) (0.52) (0.12) (0.64)
</TABLE>
- ---------------
+ Does not reflect the deduction of sales load. 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
52
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE (BEFORE EXPENSES WERE
ASSUMED) ASSUMED)
NET ASSET NET ASSETS --------------------------- ----------------------------
VALUE END OF NET NET PORTFOLIO
END OF TOTAL PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN + (000'S) EXPENSES INCOME EXPENSES INCOME RATE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.61 20.60% $11,230 0.50%(1) 5.35% 0.98%(1) 4.88% 3%
10.60 5.21 9,923 0.50 (1) 5.21 0.96 (1) 4.75 5
10.70 5.76 8,742 0.94 (1) 4.68 0.97 (1) 4.65 --
10.82 5.77 8,417 0.99 (1) 4.49 0.99 (1) 4.49 20
10.03 (2.46) 7,020 1.13 (1) 4.22 1.13 (1) 4.22 15
10.73 19.60 47,889 0.67 (1) 5.42 0.67 (1) 5.42 14
10.70 4.93 44,829 0.66 (1) 5.23 0.66 (1) 5.23 5
10.88 6.99 41,520 0.66 5.02 0.66 5.02 14
11.15 7.49 41,803 0.67 (1) 4.77 0.67 (1) 4.77 21
10.22 (2.44) 38,566 0.69 4.73 0.69 4.73 10
10.88 21.40 14,388 0.50 (1) 5.43 0.85 (1) 5.09 24
10.90 5.46 14,020 0.50 (1) 5.25 0.84 (1) 4.91 22
11.11 7.06 12,586 0.82 (1) 4.84 0.84 (1) 4.82 4
11.41 7.50 12,013 0.84 (1) 4.57 0.84 (1) 4.57 33
10.24 (2.90) 10,719 0.93 (1) 4.52 0.93 (1) 4.52 4
10.80 21.02 23,104 0.50 (1) 5.42 0.77 (1) 5.16 19
10.77 5.04 21,207 0.50 (1) 5.23 0.75 (1) 4.98 32
10.94 6.67 18,476 0.73 (1) 4.90 0.74 (1) 4.89 5
11.15 6.84 18,580 0.75 (1) 4.70 0.75 (1) 4.70 37
10.27 (2.29) 15,659 0.81 (1) 4.69 0.81 (1) 4.69 16
10.85 19.65 53,935 0.66 (1) 5.29 0.66 (1) 5.29 8
10.85 5.27 47,055 0.65 (1) 5.17 0.65 (1) 5.17 --
10.97 6.53 44,056 0.66 5.01 0.66 5.01 8
11.15 6.60 53,808 0.64 (1) 4.75 0.64 (1) 4.75 26
10.19 (3.02) 49,059 0.64 (1) 4.83 0.64 (1) 4.83 6
</TABLE>
53
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios 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 the Arizona Series,
the California Series, the Florida Series, the Massachusetts Series, the
Michigan Series, the Minnesota Series, the New Jersey Series, the New York
Series, the Ohio Series, and the Pennsylvania Series (constituting the Morgan
Stanley Dean Witter Multi-State Municipal Series Trust, hereafter referred to
as the "Fund") at November 30, 1999, the results of each of their operations
for the year then ended, the changes in each of their 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 November 30, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
As described in Note 6 to the financial statements, the Fund's Trustees have
approved reorganization plans whereby the Massachusetts Series, the Michigan
Series, the Minnesota Series and the Ohio Series would each be merged into
Morgan Stanley Dean Witter Tax-Exempt Securities Trust, the California Series
would be merged into Morgan Stanley Dean Witter California Tax-Free Income Fund
and the New York Series would be merged into Morgan Stanley Dean Witter New
York Tax-Free Income Fund. Each respective Plan is subject to the consent of
the respective Series' shareholders.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 26, 2000
54
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FEDERAL INCOME TAX NOTICE (unaudited)
During the year ended November 30, 1999, each Series paid to its shareholders
the following per share amounts from tax-exempt income:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
------- ---------- ------- ------------- -------- --------- ---------- -------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.49 $0.52 $0.50 $0.50 $0.48 $0.44 $0.51 $0.49 $0.50 $0.52
</TABLE>
During the year ended November 30, 1999, each Series paid to its shareholders
the following per share amounts from long-term capital gains:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
------- ---------- ------- ------------- -------- --------- ---------- -------- ---- ------------
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$0.16 $0.19 $0.37 $0.11 $0.43 $0.09 $0.16 $0.36 $0.13 $0.12
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55
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and
General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders
of the Fund. For more detailed information about the Fund, its officers
and trustees, fees, expenses and other pertinent information, please see
the prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus. Read
the prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
MULTI-STATE
MUNICIPAL
SERIES TRUST
Annual Report
November 30, 1999
<PAGE>
MORGAN STANLEY DEAN WITTER
NEW YORK TAX-FREE INCOME FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Morgan
Stanley Dean Witter New York Tax-Free Income Fund ("New York Tax-Free") to be
issued pursuant to an Agreement and Plan of Reorganization, dated January 26,
2000, between New York Tax-Free and Morgan Stanley Dean Witter Multi-State
Municipal Series Trust ("Multi-State"), on behalf of its series, New York Series
("New York Series") in connection with the acquisition by New York Tax-Free of
substantially all of the assets, subject to stated liabilities, of New York
Series. This Statement of Additional Information does not constitute a
prospectus. This Statement of Additional Information does not include all
information that a shareholder should consider before voting on the proposals
contained in the Proxy Statement and Prospectus, and, therefore, should be read
in conjunction with the related Proxy Statement and Prospectus, dated March ,
2000. A copy of the Proxy Statement and Prospectus may be obtained without
charge by mailing a written request to New York Tax-Free at Two World Trade
Center, New York, New York 10048 or by calling (800) 869-NEWS (TOLL FREE).
Please retain this document for future reference.
The date of this Statement of Additional Information is March , 2000.
B-1
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TABLE OF CONTENTS
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INTRODUCTION ............................................ B-3
ADDITIONAL INFORMATION ABOUT NEW YORK TAX-FREE .......... B-3
FINANCIAL STATEMENTS .................................... B-4
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B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated March , 2000
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to New York Series shareholders in connection with the solicitation of
proxies by the Board of Trustees of Multi-State, on behalf of New York Series,
to be voted at the Special Meeting of shareholders of New York Series to be held
on June 22, 2000. This Statement of Additional Information incorporates by
reference the Statement of Additional Information of New York Tax-Free dated
February 22, 2000 and the Statement of Additional Information of Multi-State
dated February 25, 2000.
ADDITIONAL INFORMATION ABOUT NEW YORK TAX-FREE
INVESTMENT OBJECTIVES AND POLICIES
For additional information about New York Tax-Free's investment objectives
and policies, see "Description of the Fund and Its Investments and Risks" in New
York Tax-Free's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of New York Tax-Free, see "Management of the Fund" and
"Investment Management and Other Services" in New York Tax-Free's Statement of
Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about New York Tax-Free's investment manager,
see "Investment Management and Other Services" in New York Tax-Free's Statement
of Additional Information. For additional information about New York Tax-Free's
independent auditors, see "Investment Management and Other Services" in New York
Tax-Free's Statement of Additional Information. For additional information about
other services provided to New York Tax-Free, see "Investment Management and
Other Services" in New York Tax-Free's Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Brokerage Allocation and Other Practices" in New York Tax-Free's Statement of
Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of New York Tax-Free, see "Capital Stock and Other
Securities" in New York Tax-Free's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of New York
Tax-Free's shares and the determination of net asset value, see "Purchase,
Redemption and Pricing of Shares" in New York Tax-Free's Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about New York Tax-Free's policies regarding
dividends and distributions and tax matters affecting New York Tax-Free and its
shareholders, see "Taxation of the Fund and Shareholders" in New York Tax-Free's
Statement of Additional Information.
B-3
<PAGE>
DISTRIBUTION OF SHARES
For additional information about New York Tax-Free's distributor and the
distribution agreement between New York Tax-Free and its distributor, see
"Investment Management and Other Services" and "Underwriters" in New York
Tax-Free's Statement of Additional Information.
PERFORMANCE DATA
For additional information about New York Tax-Free's performance, see
"Calculation of Performance Data" in New York Tax-Free's Statement of
Additional Information.
FINANCIAL STATEMENTS
New York Tax-Free's most recent audited financial statements are set forth
in New York Tax-Free's Annual Report for the fiscal year ended December 31,
1999. A copy of the Annual Report accompanies, and is incorporated by reference
in, the Proxy Statement and Prospectus. New York Series' most recent audited
financial statements are set forth in Multi-State's Annual Report for the fiscal
year ended November 30, 1999, which are incorporated by reference in the Proxy
Statement and Prospectus.
B-4
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STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY
FEBRUARY 22, 2000 DEAN WITTER
NEW YORK
TAX-FREE
INCOME FUND
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This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
(dated February 22, 2000) for the Morgan Stanley Dean Witter New York Tax-Free
Income 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.
Morgan Stanley Dean Witter
New York Tax-Free Income Fund
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
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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.................. 14
III. Management of the Fund................................. 16
A. Board of Trustees...................................... 16
B. Management Information................................. 16
C. Compensation........................................... 21
IV. Control Persons and Principal Holders of Securities..... 22
V. Investment Management and Other Services................. 23
A. Investment Manager..................................... 23
B. Principal Underwriter.................................. 23
C. Services Provided by the Investment Manager............ 24
D. Dealer Reallowances.................................... 25
E. Rule 12b-1 Plan........................................ 25
F. Other Service Providers................................ 29
VI. Brokerage Allocation and Other Practices................ 29
A. Brokerage Transactions................................. 29
B. Commissions............................................ 29
C. Brokerage Selection.................................... 30
D. Directed Brokerage..................................... 30
E. Regular Broker-Dealers................................. 30
VII. Capital Stock and Other Securities..................... 31
VIII. Purchase, Redemption and Pricing of Shares............ 31
A. Purchase of Shares..................................... 31
B. Offering Price......................................... 32
IX. Taxation of the Fund and Shareholders................... 33
X. Underwriters............................................. 35
XI. Calculation of Performance Data......................... 35
XII. Financial Statements................................... 37
XIII. Appendix -- Ratings of Investments.................... 38
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2
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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.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.
"FUND"--Morgan Stanley Dean Witter New York Tax-Free Income 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.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor; and (ii) that
hold themselves out to investors as related companies for investment and
investor services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Fund.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized under the laws of the Commonwealth of Massachusetts
on January 17, 1985 as a Massachusetts business trust under the name Dean Witter
New York Tax-Free Income Fund. Effective June 22, 1998, the Fund's name was
changed to Morgan Stanley Dean Witter New York Tax-Free Income 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 level of current income exempt from
federal, New York State and New York City income tax, consistent with
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."
TAXABLE SECURITIES. The Fund may invest up to 20% of its total assets, or
more than 20% of its total assets when assuming a temporary defensive position,
in taxable money market instruments, tax-exempt securities of other states and
municipalities and futures and options. Investments in taxable money market
instruments would generally be made under any one of the following
circumstances: (a) pending investment of proceeds of the sale of the Fund's
shares or of portfolio securities, (b) pending settlement of purchases of
portfolio securities and (c) to maintain liquidity for the purpose of meeting
anticipated redemptions. Only those tax-exempt securities of other states which
satisfy the standards established for the tax-exempt securities of the state of
New York may be purchased by the Fund.
The types of taxable money market instruments in which the Fund may invest
are limited to the following short-term fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United States
Government, its agencies, instrumentalities or authorities; (ii) commercial
paper rated P-1 by Moody's Investors Services, Inc. ("Moody's") or A-1 by
Standard & Poor's Corporation ("S&P"); (iii) certificates of deposit of domestic
banks with assets of $1 billion or more; and (iv) repurchase agreements with
respect to portfolio securities.
VARIABLE RATE AND FLOATING 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 issue 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may invest in financial
futures contracts ("futures contracts") and related options thereon. These
futures contracts and related options thereon will be used only as a hedge
against anticipated interest rate changes. A futures contract sale creates an
obligation by the Fund, as seller, to deliver the specific type of instrument
called for in the contract at a specified future time for a specified price. A
futures contract purchase would create an obligation by the Fund, as purchaser,
to take delivery of the specific type of financial instrument at a specified
future time at a specified price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until on or near that
date. The determination would be in accordance with the rules of the exchange on
which the futures contract sale or purchase was effected.
4
<PAGE>
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is usually effected by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale is
effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument at the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is immediately paid the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Fund entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Fund realizes a gain, and
if the offsetting sale price is less than the purchase price, the Fund realizes
a loss.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract (a long
position in the case of a call option and a short position in the case of a put
option). If the holder decides not to enter into the contract, the premium paid
for the contract is lost. Since the value of the option is fixed as the point of
sale, there are no daily payments of cash to reflect the change in the value of
the underlying contract, as discussed below for futures contracts. The value of
the option change is reflected in the net asset value of the Fund.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. In
addition, due to current industry practice, daily variations in gains and losses
on open contracts are required to be reflected in cash in the form of variation
margin payments. The Fund may be required to make additional margin payments
during the term of the contract.
Currently, futures contracts can be purchased on debt securities such as
U.S. Treasury Bills and Bonds, U.S. Treasury Notes with maturities between 6 1/2
and 10 years, Certificates of the Government National Mortgage Association, Bank
Certificates of Deposit and on a municipal bond index. The Fund may invest in
interest rate futures contracts covering these types of financial instruments as
well as in new types of contracts that become available in the future.
Financial futures contracts are traded in an auction environment on the
floors of several Exchanges--principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each Exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the Exchange membership which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A risk in employing futures contracts may correlate imperfectly with the
behavior of the cash prices of the Fund's portfolio securities. The correlation
may be distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and a short time period. The correlation may be further
distorted since the futures contracts that are being used to hedge are not based
on municipal obligations.
Another risk is that the Fund's Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an increase
in interest rates, and the interest rates went down instead, causing bond prices
to rise, the Fund would lose money on the sale. Put and call options on
financial futures have characteristics similar to Exchange traded options.
In addition to the risks associated in investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that such a market will develop.
5
<PAGE>
The Fund may not enter into futures contracts or related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
option premiums exceeds 5% of the value of the Fund's total assets. There is no
limit, however, on the percentage of the Fund's assets that may be committed to
hedging transactions.
MUNICIPAL BOND INDEX FUTURES. The Fund may utilize municipal bond index
futures contracts for hedging purposes. The strategies in employing such
contracts will be similar to that discussed above with respect to financial
futures and options thereon. A municipal bond index is a method of reflecting in
a single number the market value of many different municipal bonds and is
designed to be representative of the municipal bond market generally. The index
fluctuates in response to changes in the market values of the bonds included
within the index. Unlike futures contracts on particular financial instruments,
transactions in futures on a municipal bond index will be settled in cash, if
held until the close of trading in the contract. However, like any other futures
contract, a position in the contract may be closed out by a purchase or sale of
an offsetting contract for the same delivery month prior to expiration of the
contract.
OPTIONS. The Fund may purchase or sell (write) options on debt securities
as a means of achieving additional return or hedging the value of the Fund's
portfolio. The Fund will only buy options listed on national securities
exchanges. The Fund will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 10% of the Fund's total assets.
Presently there are no options on New York tax-exempt securities traded on
national securities exchanges. The Fund will not invest in options on debt
securities in the coming year or until such time as they become available on
national securities exchanges.
A call option is a contract that gives the holder of the option the right to
buy from the writer of the call option, in return for a premium, the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option has the obligation, upon exercise
of the option, to deliver the underlying security upon payment of the exercise
price during the option period. A put option is a contract that gives the holder
of the option the right to sell to the writer, in return for a premium, the
underlying security at a specified price during the term of the option. The
writer of the put has the obligation to buy the underlying security upon
exercise, at the exercise price during the option period.
The Fund will only write covered call or covered put options listed on
national exchanges. The Fund may not write covered options in an amount
exceeding 20% of the value of the total assets of the Fund. A call option is
"covered" if the Fund owns the underlying security subject to the option or has
an absolute and immediate right to acquire that security or futures contract
without additional cash consideration (or for additional cash consideration in
cash, Treasury Bills or other liquid portfolio securities) held in a segregated
account on Fund's books, upon conversion or exchange of other securities held in
its portfolio. A call option is also covered if the Fund holds a call on the
same security or futures contract as the call written, where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other liquid
portfolio securities in a segregated account on the Fund's books. A put option
is "covered" if the Fund maintains cash, Treasury bills or other liquid
portfolio securities with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security or futures
contract as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option,
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same fund as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction on behalf of the Fund can be effected when the Fund so desires.
6
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The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the purchase of a call
option may also be wholly or partially offset by unrealized appreciation of the
underlying security. If a put option written by the Fund is exercised, the Fund
may incur a loss equal to the difference between the exercise price of the
option and the sum of the sale price of the underlying security plus the
premiums received from the sale of the option. Other principal factors affecting
the market value of a put or a call option include supply and demand, interest
rates, the current market price and price volatility of the underlying security
and the time remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event, it might not be
possible to effect closing transactions in particular options, so that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commission upon the exercise of call options and upon covered
call option writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involved the acquisition by
the Fund of debt securities from a selling financial institution such as a bank,
savings and loan association or broker-dealer. The agreement provides that the
Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The collateral will be marked-to-market daily to determine
that the value of the collateral, as specified in the agreement, does not
decrease below the purchase price plus accrued interest. If such decrease
occurs, additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest from
the institution until the time when the repurchase is to occur. Although this
date is deemed by the Fund to be the maturity date of a repurchase agreement,
the maturities of securities subject to repurchase agreements are not subject to
any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Trustees. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Fund will seek to liquidate such collateral. However,
the exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds form any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
brokers, dealers and other financial institutions, provided that the loans are
callable at any time by the Fund, and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of these loans is that the Fund
continues to receive the income on the loaned securities while at the same time
earning interest on the cash amounts deposited as collateral, which will
7
<PAGE>
be invested in short-term obligations. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than 25%
of the value of its total assets.
As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the Fund's management to be creditworthy and
when the income which can be earned from such loans justifies the attendant
risks. Upon termination of the loan, the borrower is required to return the
securities to the Fund. Any gain or loss in the market price during the loan
period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of the rights
if the matters involved would have a material effect on the Fund's investment in
the loaned securities. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time the Fund may purchase securities on a when-issued or delayed
delivery basis or may purchase or sell securities on a forward commitment 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 or forward commitment basis with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date, if it is deemed advisable. The securities so purchased or sold are subject
to market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The Fund will also establish a segregated 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, delayed delivery or forward commitment basis.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today were designed in such a way
that they may not be able to 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.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. Corporate and governmental data processing errors could result
in production problems for individual issuers and overall economic
uncertainties. Operations ran smoothly from the last week of December through
the first few weeks of January, but the year 2000 issue may yet have an adverse
impact on financial market participants and other entities, including the
issuers whose securities are contained in the Fund's portfolio.
THE STATE OF NEW YORK--SPECIAL INVESTMENT CONSIDERATIONS. Since the Fund
concentrates its investments in New York tax-exempt securities, the Fund is
significantly affected by any political, economic or regulatory developments
affecting the ability of New York tax-exempt issuers to pay interest or repay
principal. Investors should be aware that certain issuers of New York tax-exempt
securities have experienced serious financial difficulties in recent years. A
reoccurrence of these difficulties may impair the ability of certain New York
issuers to maintain debt service on their obligations.
8
<PAGE>
The fiscal stability of New York State is related to the fiscal stability of
the State's municipalities, its Agencies and Authorities (which generally
finance, construct and operate revenue-producing public benefit facilities).
This is due in part to the fact that Agencies, Authorities and local governments
in financial trouble often seek State financial assistance. The experience has
been that if New York City or any of the Agencies or Authorities suffers serious
financial difficulty, both the ability of the State, the City, the State's
political subdivisions, the Agencies and the Authorities to obtain financing in
the public credit markets and the market price of outstanding New York
tax-exempt securities are adversely affected.
Over the long term, the State and City face potential economic problems. The
City accounts for a large portion of the State's population and personal income,
and the City's financial health affects the State in numerous ways. The City
continues to require significant financial assistance from the State. The City
depends on State aid both to enable the City to balance its budget and to meet
its cash requirements. The State could also be affected by the ability of the
City to market its securities successfully in the public credit markets.
The economic and financial condition of the State also may be affected by
various financial, social, economic and political factors. Such factors can be
very complex, may vary from fiscal year to fiscal year and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State.
The following summary information on risk factors in concentrating in New
York municipal obligations is based on the State's Annual Information Statement,
dated August 24, 1999, as supplemented on October 20, 1999, and on publicly
available official statements relating to offerings of the City of municipal
securities on or prior to November 3, 1999, and it does not purport to be a
complete description of the considerations contained therein. No representation
is made as to the accuracy of such information.
During the mid-1970's, New York State, some of its agencies,
instrumentalities and public benefit corporations, and certain of its
municipalities faced serious financial difficulties. To address many of these
financial problems, the State developed various programs, many of which were
successful in ameliorating the financial crisis. Any further financial problems
experienced by these Authorities or municipalities could have a direct adverse
effect on the New York Municipal Obligations in which the Fund invests.
NEW YORK CITY. The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late 1989.
As a result, New York City experienced job losses in 1990 and 1991 and real
Gross City Product (GCP) fell in those two years. For the 1992 fiscal year, the
City closed a projected budget gap of $3.3 billion in order to achieve a
balanced budget as required by the laws of the State. Beginning in 1992, the
improvement in the national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased, boosted by
strong wage gains. After noticeable improvements in the City's economy during
calendar year 1994, economic growth slowed in 1995 and thereafter improved
commencing in calendar year 1996, reflecting improved securities industry
earnings and employment in other sectors. Overall, the City's economic
improvement accelerated significantly in 1997 and 1998. Much of the increase can
be traced to the performance of the securities industry, but the City's economy
also produced gains in the retail trade sector, the hotel and tourism industry,
and business services, with private sector employment higher than previously
forecasted. The City's current financial plan assumes that, after strong growth
in 1998-1999, moderate economic growth will exist through calendar year 2003,
with moderate job growth and wage increases.
For each of the 1981 through 1999 fiscal years, the City had an operating
surplus, before discretionary and other transfers, and achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP") after discretionary and other transfers.
The City has been required to close substantial gaps between forecast revenues
and forecast expenditures in order to maintain balanced operating results. There
can be no assurance that the City will
9
<PAGE>
continue to maintain balanced operating results as required by State law without
tax or other revenue increases or reductions in City services or entitlement
programs, which could adversely affect the City's economic base.
2000-2003 New York City Financial Plan. The Mayor is responsible for
preparing the City's four-year financial plan including the current financial
plan for the 2000 through 2003 fiscal years (the "2000-2003 Financial Plan," the
"Financial Plan" or "City Plan").
The Financial Plan projects revenues and expenditures for the 1999 fiscal
year balanced in accordance with GAAP and projects gaps of $1.8 billion, $1.9
billion and $1.8 billion for the 2001 through 2003 fiscal years, respectively.
The Financial Plan takes into account an increase in projected tax revenues in
fiscal years 2000 through 2003; projected resources in fiscal years 2000 through
2003, respectively, from the receipt by the City of funds from the settlement of
litigation with the leading cigarette companies; a reduction in the assumed
collection of projected rent payments for the City's airports and a delay in the
receipt of such payments from fiscal year 2000 to fiscal year 2001; net
increases in spending in fiscal years 2000 through 2003, including spending for
Medicaid, education initiatives, anti-smoking programs, employee fringe benefit
costs, and other agency programs. In addition, the Financial Plan includes a
proposed discretionary transfer in fiscal year 2000 to pay debt service due in
fiscal year 2001 totaling $429 million, and a proposed discretionary transfer in
fiscal year 2001 to pay debt service due in fiscal year 2002 totaling $345
million.
The Financial Plan is based on numerous assumptions, including the condition
of the City's and the region's economies and modest employment growth and the
concomitant receipt of economically sensitive tax revenues in the amounts
projected. The Financial Plan is subject to various other uncertainties and
contingencies relating to, among other factors, the extent, if any, to which
wage increases for City employees exceed the annual wage costs assumed for the
2000 through 2003 fiscal years; continuation of projected interest earnings
assumptions for pension fund assets and current assumptions with respect to
wages for City employees affecting the City's required pension fund
contributions; the willingness and ability of the State to provide the aid
contemplated by the Financial Plan and to take various other actions to assist
the City; the ability of the Health and Hospitals Corporation, the Board of
Education and other such agencies to maintain balanced budgets; the willingness
of the Federal government to provide the amount of Federal aid contemplated in
the Financial Plan; the impact on City revenues and expenditures of Federal and
State welfare reform and any future legislation affecting Medicare or other
entitlement programs; adoption of the City's budgets by the City Council in
substantially the forms submitted by the Mayor; the ability of the City to
implement cost reduction initiatives, and the success with which the City
controls expenditures; the impact of conditions in the real estate market on
real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
On July 14, 1999, the City Comptroller issued a report which projected a
surplus for fiscal year 2000 of between $223 million and $891 million. In
addition, the report projected budget gaps of between $1.8 billion and $3.5
billion, $1.7 billion and $3.6 billion, and $1.7 billion and $4.1 billion in
fiscal years 2001 through 2003, respectively. The report further noted that the
City Comptroller's forecast is contingent on the continued growth of the City
economy and that the fear of renewed inflationary pressures has created
uncertainty in the bond market which may dampen economic growth in the future.
The City depends on aid from the State both to enable the City to balance
its budget and to meet its cash requirements. There can be no assurance that
there will not be reductions in State aid to the City from amounts currently
projected; that, in future years State budgets will be adopted by the April 1
statutory deadline, or interim appropriations will be enacted; or that any such
reductions or delays will not have adverse effects on the City's cash flow or
expenditures. In addition, the Federal budget negotiation process could result
in a reduction or a delay in the receipt of Federal grants which could have
additional adverse effects on the City's cash flow or revenues.
10
<PAGE>
The City's projections set forth in the City Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 2000 through 2003 contemplates the issuance of $7.449 billion of
general obligation bonds and $3.35 billion of bonds to be issued by the New York
City Transitional Finance Authority (the "Finance Authority"). In addition, the
City Plan anticipates access to approximately $2.4 billion in financing capacity
of TSASC, Inc. ("TSASC"), which will issue debt secured by revenues derived from
the settlement of litigation with tobacco companies selling cigarettes in the
United States. The Finance Authority and TSASC were created to assist the City
in financing its capital program while keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. In addition, the City issues revenue and tax
anticipation notes to finance its seasonal working capital requirements. The
success of projected public sales of City, New York City Municipal Water Finance
Authority (the "Water Authority"), Finance Authority, TSASC and other bonds and
notes will be subject to prevailing market conditions. The City's planned
capital and operating expenditures are dependent upon the sale of its general
obligation debt, as well as debt of the Water Authority, Finance Authority and
TSASC. Future developments concerning the City and public discussion of such
developments, as well as prevailing market conditions, may affect the market for
outstanding City general obligation bonds and notes.
The City Comptroller and other agencies and public officials issue reports
and make public statements which, among other things, state that projected
revenues and expenditures may be different from those forecasted in the City
Plan.
RATINGS. Moody's, S&P and Fitch IBCA, Inc. ("Fitch") currently rate the
City's outstanding general obligation bonds A3, A- and A, respectively. Such
ratings reflect only the views of Moody's, S&P and Fitch from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of the
Bonds. On July 10, 1995, S&P revised its rating of City bonds downward to BBB+.
On July 16, 1998, S&P revised its rating of City Bonds upward to A-. Moody's
rating of City bonds was revised in February 1998 to A3 from Baa1. On March 8,
1999, Fitch revised its rating of City bonds upward to A.
OUTSTANDING NET INDEBTEDNESS. As of September 30, 1999, the City and the
Municipal Assistance Corporation for the City of New York had, respectively,
$26.315 billion and $2.846 billion of outstanding net long-term debt.
LITIGATION. The City is a defendant in lawsuits pertaining to material
matters, including claims asserted which are incidental to performing routine
governmental and other functions. This litigation includes, but is not limited
to, actions commenced and claims asserted against the City arising out of
alleged constitutional violations, torts, breaches of contracts, and other
violations of law and condemnation proceedings. While the ultimate outcome and
fiscal impact, if any, of the proceedings and claims brought against the City
are not currently predictable, adverse determinations in certain of them might
have a material adverse effect upon the City's ability to carry out the
Financial Plan. The Financial Plan includes provisions for judgments and claims
of $393 million, $407 million, $429 million and $448 million for the 2000
through 2003 fiscal years, respectively. The City has estimated that its
potential future liability on account of outstanding claims against it as of
June 30, 1999 amounted to approximately $3.5 billion.
NEW YORK STATE. Recent Developments. The national economy has maintained a
robust rate of growth during the past six quarters as the expansion, which is
well into its ninth year, continues. The national expansion, if it continues
through February 2000, will be the longest on record. Since early 1992,
approximately 19 million jobs have been added nationally. Output growth has
averaged 3.2 percent over this period, essentially the same as the 3.3 percent
average annual growth during the post-World War II period. The State economy has
also continued to expand, with over 600,000 jobs added
11
<PAGE>
since late 1992. Employment growth has been slower than in the nation during
this period, although the State's relative performance has improved in the last
two years. Growth in average wages in New York has generally outperformed the
nation, while growth in personal income per capita has kept pace with the
nation.
The forecast for continued growth, and any resultant impact on the 1999-2000
New York State Financial Plan (the "State Plan"), contains some uncertainties.
Stronger-than-expected gains in employment and wages could lead to unanticipated
strong growth in consumer spending. Also, improvements in foreign economies may
be weaker than expected and therefore, may have unanticipated effects on the
domestic economy. The inflation rate may differ significantly from expectations
due to the conflicting impacts of a tight labor market and improved productivity
growth as well as to the future direction and magnitude of fluctuations of oil
prices. In addition, the State economic forecast could over-or under-estimate
the level of future bonus payments, financial sector profits or inflation
growth, resulting in unexpected economic impacts. Similarly, the State forecast
could fail to correctly estimate the amount of employment change in the banking,
financial and other business service sectors as well as the direction of
employment change that is likely to accompany telecommunications and energy
deregulation.
THE 1999-2000 FISCAL YEAR. The 1999-2000 Financial Plan projects a closing
balance of $2.85 billion in the General Fund. Total receipts and transfers from
other funds are projected to reach $39.31 billion, an increase of over $2.57
billion from the prior fiscal year, and disbursements and transfers to other
funds are projected to be $37.36 billion, an increase of $8.68 billion from the
total disbursed in the prior fiscal year.
Projections of total State receipts in the State Plan are based on the State
tax structure in effect during the fiscal year and on assumptions relating to
basic economic factors and their historical relationships to State tax receipts.
In preparing projections of State receipts, economic forecasts relating to
personal income, wages, consumption, profits and employment have been
particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year collection
estimates for taxes that are based on a computation of annual liability, such as
the business and personal income taxes, are consistent with estimates of total
liability under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, potential collective bargaining agreements,
levels of disbursements for various services provided by local governments
(where the cost is partially reimbursed by the State), and the results of
various administrative and statutory mechanisms in controlling disbursements for
State operations. Factors that may affect the level of disbursements in the
fiscal year include uncertainties relating to the economy of the nation and the
State, the policies of the federal government, collective bargaining
negotiations and changes in the demand for and use of State services.
Despite recent budgetary surpluses recorded by the State, actions affecting
the level of receipts and disbursements, the relative strength of the State and
regional economy, and actions by the federal government could impact projected
budget gaps for the State. These gaps would result from a disparity between
recurring revenues and the costs of increasing the level of support for State
programs. For example, the fiscal effects of tax reductions adopted in the last
several fiscal years are projected to grow more substantially in the forecast
period, continuing to restrain receipts levels and placing pressure on future
spending levels. To address a potential imbalance in any given fiscal year, the
State would be required to take actions to increase receipts and/or reduce
disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
12
<PAGE>
New York Local Government Assistance Corporation. In 1990, as part of a
State fiscal reform program, legislation was enacted creating the New York Loan
Government Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
The legislation empowered LGAC to issue bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of those long-term obligations,
which will be amortized over no more than 30 years, is expected to result in
eliminating the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one percent of the four percent
State sales and use tax to pay debt service on these bonds. The legislation also
imposed a cap on the annual seasonal borrowing of the State at $4.7 billion,
less net proceeds of bonds issued by LGAC and bonds issued to provide for
capitalized interest, except in cases where the Governor and the legislative
leaders have certified both the need for additional borrowing and provided a
schedule for reducing it to the cap. If borrowing above the cap is thus
permitted in any fiscal year, it is required by law to be reduced to the cap by
the fourth fiscal year after the limit was first exceeded. This provision
capping the seasonal borrowing was included as a covenant with LGAC's
bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion, completing the program. The impact of LGAC's borrowings, as well
as other changes in revenue and spending patterns, is that the State has been
able to meet its cash flow needs throughout the fiscal year without relying on
short-term seasonal borrowings.
COMPOSITION OF STATE CASH GOVERNMENTAL FUNDS GROUP. Substantially all State
non-pension financial operations are accounted for in the State's governmental
funds group. Governmental funds include: (i) the General Fund, which receives
all income not required by law to be deposited in another fund; (ii) Special
Revenue Funds, which receive the preponderance of moneys received by the State
from the Federal government and other income the use of which is legally
restricted to certain purposes; (iii) Capital Projects Funds, used to finance
the acquisition and construction of major capital facilities by the State and to
aid in certain of such projects conducted by local governments or public
authorities; and (iv) Debt Service Funds, which are used for the accumulation of
moneys for the payment of principal of and interest on long-term debt and to
meet lease-purchase and other contractual-obligation commitments.
AUTHORITIES. The fiscal stability of the State is related to the fiscal
stability of its public Authorities. Authorities have various responsibilities,
including those which finance, construct and/or operate revenue-producing public
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts and restrictions set forth in their legislative
authorization. As of December 31, 1998, there were 17 Authorities that had
outstanding debt of $100 million or more and the aggregate outstanding debt,
including refunding bonds, of all Authorities was $94 billion, only a portion of
which constitutes State-supported or State-related debt.
Authorities generally paying their operating expenses and debt service costs
from revenues generated by the projects they finance or operate, such as tolls
charged for use of highways, bridges or tunnels, charges for electric power,
electric and gas utility services, rentals charged for housing units and charges
for occupancy at medical care facilities. In addition, State legislation
authorizes several financing techniques for Authorities. Also, there are
statutory arrangements providing for State local assistance payments otherwise
payable to localities to be made under certain circumstances to Authorities.
Although the State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements, if local assistance payments are diverted the affected
localities could seek additional State assistance. Some Authorities also receive
moneys from State appropriations to pay for the operating costs of certain of
their programs.
RATINGS. S&P rates the State's general obligation bonds A, and Moody's
rates the State's general obligation bonds A2. Ratings reflect only the
respective views of such organizations, and an explanation
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<PAGE>
of the significance of such ratings must be obtained from the rating agency
furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the State Municipal Obligations in which the Fund invests.
GENERAL OBLIGATION DEBT. As of March 31, 1999, the State had outstanding
approximately $4.8 billion in general obligation bonds, including $185 million
in bond anticipation notes outstanding. Principal and interest due on general
obligation bonds and interest due on bond anticipation notes were $748.2 million
for the 1998-99 fiscal year and are estimated to be $730.7 million for the
State's 1999-2000 fiscal year.
LITIGATION. The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings, miscellaneous civil rights cases and other alleged
violations of State and Federal laws. These proceedings could affect adversely
the financial condition of the State in the 1990-2000 fiscal year or thereafter.
The State believes that the State Plan includes sufficient reserves for the
payment of judgments that may be required during the 1990-2000 fiscal year.
There can be no assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount of all potential State Plan reserves
available for the payment of judgments and, therefore, could affect the ability
of the State to maintain a balanced 1999-2000 State Plan. The General Purpose
Financial Statements for the 1990-2000 fiscal year report estimated probable
awarded and anticipated unfavorable judgments of $895 million, of which $132
million is expected to be paid during the 1999-2000 fiscal year.
In addition, the State is party to other claims and litigation which its
legal counsel has advised are not probable of adverse court decisions or are not
deemed adverse and material. Although the amounts of potential losses resulting
from this litigation, if any, are not presently determinable, it is the State's
opinion that its ultimate liability in these cases is not expected to have a
material adverse effect on the State's financial position in the 1999-2000
fiscal year or thereafter.
OTHER LOCALITIES. Certain localities outside the City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional oversight and financial
assistance is not included in the projections of the State receipts and
disbursements in the State's 1999-2000 fiscal year.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective, policies and 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.
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; (b) a "taxable
security" is any security the interest on which is subject to federal income
tax; and (c) all percentage limitations apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
14
<PAGE>
The Fund will:
1. Seek to provide a high level of current income which is exempt from
federal, New York state and New York City income tax, consistent with the
preservation of capital.
The Fund MAY NOT:
1. With respect to 75% of its total assets, purchase securities of any
issuer if immediately thereafter more than 5% of the Fund's total assets are
in the securities of any one issuer (other than obligations issued, or
guaranteed by, the United States Government, its agencies or
instrumentalities, or by the State of New York or its political
subdivisions).
2. Purchase more than 10% of all outstanding taxable 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 taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities or to municipal obligations,
including those issued by the State of New York or its political
subdivisions.
4. Invest in common stock.
5. Write, purchase or sell puts, calls, or combinations thereof,
except for options on futures contracts or options on debt securities.
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 it may
purchase securities secured by real estate or interests therein.
8. Purchase or sell commodities except that the Fund may purchase
financial futures contracts and related options.
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 borrowing. However, for the purpose of this restriction,
collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial margin for futures are not
deemed to be pledges of assets and neither such arrangements nor the
purchase or sale of futures are deemed to be the issuance of a senior
security as set forth in restriction 11.
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) entering into any repurchase agreement; (b) purchasing any
securities on a when-issued or delayed delivery basis; or (c) borrowing
money.
12. Make loans of money or securities, except: (a) by the purchase of
debt obligations; (b) by investment in repurchase agreements; and (c) by
lending its portfolio securities.
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. The
deposit or payment by the Fund of initial or variation margin in connection
with futures contracts or related options thereon is not considered the
purchase of a security on margin.
15
<PAGE>
15. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act in disposing of a
portfolio security.
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.
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.
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 95 Morgan Stanley Dean Witter Funds, are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
Michael Bozic (59) .......................... Vice Chairman of Kmart Corporation (since
Trustee December 1998); Director or Trustee of the
c/o Kmart Corporation Morgan Stanley Dean Witter Funds; formerly
3100 West Big Beaver Road Chairman and Chief Executive Officer of Levitz
Troy, Michigan Furniture 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 Weirton Steel Corporation.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
Charles A. Fiumefreddo (66)* ................ Chairman, Director or Trustee and Chief
Chairman of the Board, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; formerly Chairman, Chief
Two World Trade Center Executive Officer and Director of the
New York, New York Investment Manager, the Distributor and MSDW
Services Company; Executive Vice President and
Director of Dean Witter Reynolds; Chairman and
Director of the Transfer Agent; formerly
Director and/or officer of various MSDW
subsidiaries (until June 1998).
Edwin J. Garn (67) .......................... Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor
Salt Lake City, Utah of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of
Franklin Covey (time management systems), BMW
Bank of North America, Inc. (industrial loan
corporation), United Space Alliance (joint
venture between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various
civic and charitable organizations.
Wayne E. Hedien (66) ........................ Retired; Director or Trustee of the Morgan
Trustee Stanley Dean Witter Funds; Director of The PMI
c/o Mayer, Brown & Platt Group, Inc. (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The Field Museum
1675 Broadway of Natural History; formerly associated with
New York, New York the Allstate Companies (1966-1994), most
recently as Chairman of The Allstate
Corporation (March 1993-December 1994) and
Chairman and Chief Executive Officer of its
wholly-owned subsidiary, Allstate Insurance
Company (July 1989-December 1994); director of
various other business and charitable
organizations.
Dr. Manuel H. Johnson (51) .................. Senior Partner, Johnson Smick
Trustee International, Inc., a consulting firm;
c/o Johnson Smick International, Inc. Co-Chairman and a founder of the Group of Seven
1133 Connecticut Avenue, N.W. Council (G7C), an international economic
Washington, D.C. commission; Chairman of the Audit Committee and
Director or Trustee of the Morgan Stanley Dean
Witter Funds; 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.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
Michael E. Nugent (63) ...................... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; Chairman of the
c/o Triumph Capital, L.P. Insurance Committee and Director or Trustee of
237 Park Avenue the Morgan Stanley Dean Witter Funds; formerly
New York, New York Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); director of
various business organizations.
Philip J. Purcell* (56) ..................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director of American
Airlines, Inc. and its parent company, AMR
Corporation; Director and/or officer of various
MSDW subsidiaries.
John L. Schroeder (69) ...................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Mayer, Brown & Platt Dean Witter Funds; Director of Citizens
Counsel to the Independent Trustees Utilities Company; (telecommunications, gas,
1675 Broadway electric and water utilities company); formerly
New York, New York Executive Vice President and Chief Investment
Officer of the Home Insurance Company (August
1991-September 1995).
Mitchell M. Merin (46) ...................... President and Chief Operating Officer of Asset
President Management of MSDW (since December 1998);
Two World Trade Center President and Director (since April 1997) and
New York, New York Chief Executive Officer (since June 1998) of
the Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998);
Chairman and Chief Executive Officer (since
June 1998) and Director (since January 1998) of
the Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley
Dean Witter Funds (since May 1999); Trustee of
various Van Kampen investment companies (since
December 1999); previously Chief Strategic
Officer of the Investment Manager and MSDW
Services Company and Executive Vice President
of the Distributor (April 1997-June 1998), Vice
President of the Morgan Stanley Dean Witter
Funds (May 1997-April 1999), and Executive Vice
President of Dean Witter, Discover & Co.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
Barry Fink (45) ............................. Executive Vice President (since December 1999)
Vice President, and Secretary and General Counsel (since
Secretary and General Counsel February 1997) and Director (since July 1998)
Two World Trade Center of the Investment Manager and MSDW Services
New York, New York Company; Executive Vice President (since
December 1999) and Assistant Secretary and
Assistant General Counsel (since February 1997)
of the Distributor; Assistant Secretary of Dean
Witter Reynolds (since August, 1996); Vice
President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds (since
February, 1997); previously, Senior Vice
President (March 1997-December 1999), First
Vice President (June 1993-February 1997), Vice
President and Assistant Secretary and Assistant
General Counsel of the Investment Manager and
MSDW Services Company, Senior Vice President of
the Distributor (March 1997-December 1999) and
Assistant Secretary of the Morgan Stanley Dean
Witter Funds.
James F. Willison (56) ...................... Senior Vice President of the Investment Manager
Vice President and Director of the Tax Exempt Fixed-Income
Two World Trade Center Group of the Investment Manager; Vice President
New York, New York of various Morgan Stanley Dean Witter Funds.
Joseph R. Arcieri (51) ...................... Senior Vice President of the Investment Manager
Vice President (since December 1999); formerly Vice President
Two World Trade Center of the Investment Manager; Vice President of
New York, New York various Morgan Stanley Dean Witter Funds.
Thomas F. Caloia (53) ....................... First Vice President and Assistant Treasurer of
Treasurer the Investment Manager, the Distributor and
Two World Trade Center MSDW Services Company; Treasurer of the Morgan
New York, New York Stanley Dean Witter Funds.
</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, the Distributor and the Transfer Agent and Director of
the Transfer Agent, and JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
JONATHAN R. PAGE, Senior Vice President of the Investment Manager and Director
of the Money Market Group of the Investment Manager and PETER M. AVELAR, Senior
Vice President of the Investment Manager and Director of the High Yield Group of
the Investment Manager, KATHERINE H. STROMBERG, Senior Vice President of the
Investment Manager, and GERARD J. LIAN, Vice President of the Investment
Manager, are Vice Presidents of the Fund.
In addition, MARILYN K. CRANNEY, TODD LEBO, 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 NATASHA KASSIAN, Assistant
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
19
<PAGE>
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.
The independent directors/trustees are charged with recommending to the full
board approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent director/trustee vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter
Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of 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 DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/trustees for each of the Morgan Stanley Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as independent directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that having the same individuals serve
as independent directors/trustees of all the Funds tends to increase their
knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility of
separate groups of independent directors/trustees arriving at conflicting
decisions regarding operations and management of the Funds and avoids the cost
and confusion that would likely ensue. Finally, having the same independent
directors/trustees serve on all Fund boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of independent
directors/trustees, of the caliber, experience and business acumen of the
individuals who serve as independent directors/trustees of the Morgan Stanley
Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. 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
20
<PAGE>
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 Chairman 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, 1999.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic............................................... $1,550
Edwin J. Garn............................................... 1,600
Wayne E. Hedien............................................. 1,600
Dr. Manuel H. Johnson....................................... 2,100
Michael E. Nugent........................................... 1,933
John L. Schroeder........................................... 1,933
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1999.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES
TO
93 MORGAN
NAME OF STANLEY DEAN
INDEPENDENT TRUSTEE WITTER FUNDS
- ------------------- ------------
<S> <C>
Michael Bozic............................................... $134,600
Edwin J. Garn............................................... 138,700
Wayne E. Hedien............................................. 138,700
Dr. Manuel H. Johnson....................................... 208,638
Michael E. Nugent........................................... 193,324
John L. Schroeder........................................... 193,324
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an independent director/ trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
independent director/trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "Adopting Fund"
and each such 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.
21
<PAGE>
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/ trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years of service. The foregoing percentages may be
changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses on the books of
the Adopting Funds. Such benefits are not secured or funded by the Adopting
Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the year ended December 31, 1999 and
by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for the year
ended December 31, 1999, and the estimated retirement benefits for the
Independent Trustees, to commence upon their retirement, from the Fund as of
December 31, 1999 and from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1999.
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
RETIREMENT
FOR ALL ADOPTING FUNDS BENEFITS ESTIMATED ANNUAL
------------------------------ ACCRUED AS BENEFITS
ESTIMATED EXPENSES UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED ------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------- -------------- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic................. 10 60.44% $378 $20,933 $ 907 $50,588
Edwin J. Garn................. 10 60.44 557 31,737 909 50,675
Wayne E. Hedien............... 9 51.37 711 39,566 771 43,000
Dr. Manuel H. Johnson......... 10 60.44 229 13,129 1,360 75,520
Michael E. Nugent............. 10 60.44 395 23,175 1,209 67,209
John L. Schroeder............. 8 50.37 768 41,558 955 52,994
</TABLE>
- ------------------------
(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.
(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
- --------------------------------------------------------------------------------
The following persons owned 5% or more of the outstanding shares of Class A
on February 1, 2000: Alice Lazoff, executor of estate of Mischa Lazoff, 400 East
56th St., New York, N.Y. 10022-4147--50.648%; Mr. Gerald J. Tesauro, 9 Dove
Court, Croton-on-Hudson, N.Y. 10520-1621 15.01%; Ann V. William, 6825 Yacht Club
Rd., Cicero, N.Y. 13039-9754--11.252% and Mr. Peter J. Spinelli & Mrs. Patricia
A. Spinelli, JTWROS, 11 Founders Green, Pittsford, N.Y. 14534-2164--11.225%. The
following persons owned 5% or more of the outstanding shares of Class C on
February 1, 2000: Helen S. Wepman Revocable Living Trust, Helen S. Wepman &
Barry Wepman, trustees dtd. 8/5/92, 201 West 70th St., New York, N.Y.
10023-4331--23.744%; Edward Bradfield, 3 Peter Cooper Rd., New York, N.Y.
10010-6612--20.276%; Mrs. Azadouhi Norian, 27 Wilton St. New Hyde Park, N.Y.
1104-3829--12.039%; Kathleen Ford, 1570 East Ave. Rochestor, N.Y.
14610-1656--11.878%; and Ann Moos, 630 Ft. Washington Ave., New York, N.Y.
10040-3948--8.569%. The following persons owned 5% or more of the outstanding
shares of Class D on February 1, 2000: Seymour Marcus, 892 Knota Rd., Woodmere,
N.Y. 11598-2043--41.656%; Edward J. Kruser & Jeanne S. Kruser, JTTEN, RR 1
Box 3B, Franklin, N.Y. 13775-9705
22
<PAGE>
18.717%; Cabrina J. McAllister, 250 West 89th Street, New York, N.Y.
10024-11.993%; Robert Stoll 104 Olive Lane, New Hyde Park, N.Y.
11040-2334--9.349%; Morgan Stanley Dean Witter Advisors Inc., Attn: Maurice
Bendrihem, 2 World Trade Center, New York, N.Y. 10048-0203--9.063% and Paul
Gleicher & Phyllis Marcus, JTTEN, 892 Knota Rd. Woodmere, N.Y.
11598-2043--8.075%.
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.
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,
NY 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 following annual rate of 0.55% to the Fund's net assets
not exceeding $500 million and the annual rate of 0.525% to the Fund's net
assets exceeding $500 million. The management fee is allocated among the Classes
pro rata based on the net assets of the Fund attributable to each Class. For the
fiscal years ended December 31, 1997, 1998 and 1999, the Investment Manager
accrued total compensation under the Management Agreement in the amounts of
$980,937, $907,333 and $820,568, respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors,
the cost of educational and/or business-related trips, and educational and/or
promotional and business-related expenses. The Distributor also pays certain
expenses in connection with the distribution of the Fund's shares, including the
costs of preparing, printing and distributing advertising or promotional
materials, and the costs of printing and distributing prospectuses and
supplements thereto used in connection with the offering and sale of the Fund's
shares. The Fund bears the costs of initial typesetting, printing and
distribution of prospectuses and supplements thereto to shareholders. The Fund
also bears the costs of registering the Fund and its shares under federal and
state securities laws and pays filing fees in accordance with state securities
laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross
23
<PAGE>
negligence or reckless disregard of its obligations, the Distributor is not
liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER
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 or by the Distributor, will be paid by the Fund. These
expenses will be allocated among the four Classes of shares pro rata based on
the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing prospectuses 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 12b-1 fees
relating to a particular Class will be allocated directly to that Class. In
addition, other expenses associated with a particular Class (except advisory or
custodial fees) may be allocated directly to that Class, provided that such
expenses are reasonably identified as specifically attributable to that
Class and the direct allocation to that Class is approved by the Trustees.
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
24
<PAGE>
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, including a majority of the Independent
Trustees.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is defined
in the Securities Act.
E. RULE 12b-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act (the "Plan") pursuant to which each Class, other than
Class D, pays the Distributor compensation accrued daily and payable monthly at
the following annual rates: 0.25% and 0.75% of the average daily net assets of
Class A and Class C, respectively, and, with respect to Class B, 0.75% of the
lesser of: (a) the average daily aggregate gross sales 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 redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or upon which such
charge has been waived; or (b) the average daily net assets of Class B.
The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Dean Witter
Reynolds received the proceeds of CDSCs and FSCs, for the last three fiscal
years ended December 31, in approximate amounts as provided in the table below
(the Distributor did not retain any of these amounts).
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Class A...................... FSCs:(1) $ 2,126 FSCs:(1) $ 7,710 FSCs: $ 993
CDSCs: $ 0 CDSCs: $ 0 CDSCs: $ 0
Class B...................... CDSCs: $276,746 CDSCs: $120,292 CDSCs: $281,986
Class C...................... CDSCs: $ 772 CDSCs: $ 197 CDSCs: $ 0
</TABLE>
- ------------------------
(1) FSCs apply to Class A only.
The Distributor has informed the Fund that the entire fee payable by
Class A and a portion of the fees payable by each of Class B and Class C each
year pursuant to the Plan equal to 0.20% of the average daily net assets of
Class B and 0.25% of the average daily net assets of Class C are currently each
characterized as a "service fee" under the Rules of the National Association of
Securities Dealers, Inc. (of which the Distributor is a member). The "service
fee" is a payment made for personal service and/or the maintenance of
shareholder accounts. The remaining portion of the Plan fees payable by a Class,
if any, is characterized as an "asset-based sales charge" as such is defined by
the Rules of the Association.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended
December 31, 1999, of $1,107,816. This amount is equal to 0.75% of the Fund's
average daily net assets for the fiscal year and was calculated pursuant to
clause (b) of the compensation formula under the Plan. For the fiscal year ended
December 31, 1999, Class A and Class C shares of the Fund accrued payments under
the Plan amounting to $690 and $5,893, respectively, which amounts are equal to
0.16% and 0.75% of the average daily net assets of Class A and Class C,
respectively, for the fiscal year.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.
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With respect to Class A shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid), the Investment Manager compensates Financial Advisors by paying them,
from its own funds, a gross sales credit of 1.0% of the amount sold.
With respect to Class B shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 4.0% of the amount
sold and an annual residual commission, currently a residual of up to 0.20% of
the current value (not including reinvested dividends or distributions) of the
amount sold in all cases.
With respect to Class C shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class C shares, currently a gross sales credit of up to 1.0% of the amount
sold and an annual residual commission, currently up to 0.75% of the current
value of the respective accounts for which they are the Financial Advisors of
record.
With respect to Class D shares other than shares held by participants in the
Investment Manager's mutual fund asset allocation program, the Investment
Manager compensates Dean Witter Reynolds's Financial Advisors by paying them,
from its own funds, commissions for the sale of Class D shares, currently a
gross sales credit of up to 1.0% of the amount sold. There is a chargeback of
100% of the amount paid if the Class D shares are redeemed in the first year and
a chargeback of 50% of the amount paid if the Class D shares are redeemed in the
second year after purchase. The Investment Manager also compensates Dean Witter
Reynolds's Financial Advisors by paying them, from its own funds, an annual
residual commission, currently up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record (not
including accounts of participants in the Investment Manager's mutual fund asset
allocation program).
The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds's
Fund-associated distribution-related expenses, including sales compensation, and
overhead and other branch office distribution-related expenses including
(a) the expenses of operating Dean Witter Reynolds's branch offices in
connection with the sale of Fund shares, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund sales.
The Investment Manager pays a retention fee to Financial Advisors at an
annual rate of 0.05% of the value of shares of the Fund sold after January 1,
2000 and held for at least one year. Shares purchased through the reinvestment
of dividends will be eligible for a retention fee, provided that such dividends
were earned on shares otherwise eligible for a retention fee payment. Shares
owned in variable annuities, closed-end fund shares and shares held in 401(k)
plans where the Transfer Agent or Dean Witter Reynolds's Retirement Plan
Services is either recordkeeper or trustee are not eligible for a retention fee.
For the first year only, the retention fee is paid on any shares of the Fund
sold after January 1, 2000 and held by shareholders on December 31, 2000.
The retention fees are paid by the Investment Manager from its own assets,
which may include profits from investment management fees payable under the
Management Agreement, as well as from borrowed funds.
The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on behalf
of the Fund and, in the case of Class B shares, opportunity costs, such as the
gross sales credit and an assumed interest charge thereon ("carrying charge").
These expenses may include the cost of Fund-related educational and/or
business-related trips or payment of Fund-related educational and/or promotional
expenses of Financial Advisors. In the
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Distributor's reporting of the distribution expenses to the Fund, in the case of
Class B shares, such assumed interest (computed at the "broker's call rate") has
been calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund. No other interest charge
is included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 0.75%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to Financial Advisors and other authorized financial
representatives, such amounts shall be determined at the beginning of each
calendar quarter by the Trustees, including, a majority of the Independent
Trustees. Expenses representing the service fee (for Class A) or a gross sales
credit or a residual to Financial Advisors and other authorized financial
representatives (for Class C) may be reimbursed without prior determination. In
the event that the Distributor proposes that monies shall be reimbursed for
other than such expenses, then in making quarterly determinations of the amounts
that may be reimbursed by the Fund, the Distributor will provide and the
Trustees will review a quarterly budget of projected distribution expenses to be
incurred on behalf of the Fund, together with a report explaining the purposes
and anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended December 31, 1999 to the Distributor. The
Distributor and Dean Witter Reynolds estimate that they have spent, pursuant to
the Plan, $22,576,566 on behalf of Class B since the inception of the Plan. It
is estimated that this amount was spent in approximately the following ways:
(i) 16.22% ($3,662,224)--advertising and promotional expenses; (ii) 1.22%
($275,300)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 82.56% ($18,639,042)--other expenses, including the
gross sales credit and the carrying charge, of which 9.22% ($1,719,232)
represents carrying charges, 37.58% ($7,004,801) represents commission credits
to Dean Witter Reynolds branch offices and other authorized financial
representatives for payments of commissions to Financial Advi-
isors and other authorized financial representatives, and 53.19% ($9,915,009)
represents overhead and other branch office distribution-related expenses. The
amounts accrued by Class A and a portion of the amounts accrued by Class C under
the Plan during the fiscal year ended December 31, 1999 were service fees. The
remainder of the amounts accrued by Class C were for expenses which relate to
compensation of sales personnel and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by Dean
Witter Reynolds which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $1,112,901 as of December 31, 1999 (the end of
the Fund's fiscal year), which was equal to 0.89% of the net assets of Class B
on such date. Because
27
<PAGE>
there is no requirement under the Plan that the Distributor be reimbursed for
all distribution expenses with respect to Class B shares or any requirement that
the Plan be continued from year to year, this excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of CDSCs paid by investors upon redemption of shares, if
for any reason the Plan is terminated, the Trustees will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 0.75% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to Morgan Stanley Dean Witter Financial Advisors
and other authorized financial representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed expenses representing a gross sales commission credited to
Morgan Stanley Dean Witter Financial Advisors and other authorized financial
representatives at the time of sale totaled $747 in the case of Class C at
December 31, 1999 (end of the calendar year), which amount was equal to 0.09% of
the net assets of Class C on such date, and that there were no such expenses
that may be reimbursed in the subsequent year in the case of Class A on such
date. No interest or other financing charges will be incurred on any Class A or
Class C distribution expenses incurred by the Distributor under the Plan or on
any unreimbursed expenses due to the Distributor pursuant to the Plan.
No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Fund.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated;
(2) the benefits the Fund had obtained, was obtaining and would be likely to
obtain under the Plan, including that: (a) the Plan is essential in order to
give Fund investors a choice of alternatives for payment of distribution and
service charges and to enable the Fund to continue to grow and avoid a pattern
of net redemptions which, in turn, are essential for effective investment
management; and (b) without the compensation to individual brokers and the
reimbursement of distribution and account maintenance expenses of Dean Witter
Reynolds's branch offices made possible by the 12b-1 fees, Dean Witter Reynolds
could not establish and maintain an effective system for distribution, servicing
of Fund shareholders and maintenance of shareholder accounts; and (3) what
services had been provided and were continuing to be provided under the Plan to
the Fund and its shareholders. Based upon their review, the Trustees, including
each of the Independent Trustees, determined that continuation of the Plan would
be in the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Trustees' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as
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defined in the Investment Company Act) on not more than thirty days' written
notice to any other party to the Plan. So long as the Plan is in effect, the
election and nomination of Independent Trustees shall be committed to the
discretion of the Independent Trustees.
F. 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, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, NY, 10007 is the
Custodian of 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, NY 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, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from the Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
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A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the dealer. 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. Options and futures transactions will usually be effected through a
broker and a commission will be charged. On occasion, the Fund may also purchase
certain money market instruments directly from an issuer, in which case no
commissions or discounts are paid.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Fund did
not pay any brokerage commissions.
B. COMMISSIONS
Pursuant to an order of the SEC, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. The Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will be
effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.
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During the fiscal years ended December 31, 1997, 1998 and 1999, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for 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.
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 information and services received by
the Investment Manager from brokers and dealers may be of benefit to the
Investment Manager in the management of accounts of some of its other clients
and may not in all cases benefit the Fund directly.
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, 1999, the Fund did not pay any
brokerage commissions in connection with transactions to brokers because of
research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended December 31, 1999, 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, 1999, the Fund did not purchase
securities issued by any of such issuers.
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VII. CAPITAL STOCK AND OTHER SECURITIES
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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 except that each Class will have exclusive voting privileges with
respect to matters relating to distribution expenses borne solely by such
Class or any other matter in which the interests of one Class differ from the
interests of any other Class. In addition, Class B shareholders will have the
right to vote on any proposed material increase in Class A's expenses, if such
proposal is submitted separately to Class A shareholders. Also, Class A,
Class B and Class C bear expenses related to the distribution of their
respective shares.
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 other than as set forth in the
PROSPECTUS.
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 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. In addition, under certain circumstances, the shareholders may call a
meeting to remove the Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of 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.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
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A. PURCHASE OF SHARES
Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's PROSPECTUS.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean Witter Funds and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such
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functions. With respect to exchanges, redemptions or repurchases, the Transfer
Agent shall be liable for its own negligence and not for the default or
negligence of its correspondents or for losses in transit. The Fund shall not be
liable for any default or negligence of the Transfer Agent, the Distributor or
any authorized broker-dealer.
The Distributor and any authorized broker-dealer have appointed the Transfer
Agent to act as their agent in connection with the application of proceeds of
any redemption of Fund shares to the purchase of shares of any other Morgan
Stanley Dean Witter Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange privilege.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of Fund
shares to a new registration, the shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
B. OFFERING PRICE
The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor, Dean
Witter Reynolds and other authorized dealers as described in Section "V.
Investment Management and Other Services--E. Rule 12b-1 Plan."
The price of the Fund, called "net asset value," is based on the value of
the Fund's portfolio securities.
Portfolio securities (other than short-term debt securities and futures and
options) 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 portfolio securities for the Fund 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 portfolio securities for the
Fund 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 Trustees believe
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
Trustees the use of other pricing services or discontinuance of the use of any
pricing service in whole or part. The Trustees may determine to approve such
recommendation or take other provisions for pricing of the portfolio securities
for the Fund.
Short-term taxable debt securities with remaining maturities of 60 days or
less at time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Other taxable short-term debt securities with maturities of more than
60 days will be valued on a mark to market basis until such time as they reach a
maturity of 60 days, whereupon they will be valued at amortized cost using their
value on the 61st day unless the Trustees determine such does not reflect the
securities' fair value, in which case these securities will be valued at their
fair market value as determined by the Trustees. Listed options on debt
securities are valued at the latest sale price on the exchange on which they are
listed unless no sales of such options have taken place that day, in which case,
they will be valued at the mean between their closing bid and asked prices.
Unlisted options on debt securities
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<PAGE>
are valued at the mean between their latest bid and asked price. Futures are
valued at the latest sale price on the commodities exchange on which they trade
unless the Trustees determines that such price does not reflect their fair
value, in which case they will be valued at their fair market value as
determined by the Trustees. All other securities and other assets are valued at
their fair value as determined in good faith under procedures established by and
under the supervision of the Trustees.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
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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 ordinary income or capital gains in any year for reinvestment. In
such event, the Fund will pay federal income tax (and possibly excise tax) on
such retained income or 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 gain from tax-exempt obligations purchased at a
market discount may be treated as ordinary income rather than capital gain.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may 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 quarter end of its taxable years, at least 50% of the value of its
assets in tax-exempt securities. An obligation shall be considered a tax-exempt
security only if, in the opinion of bond counsel, the interest payable thereon
is exempt from federal, New York state and New York City income tax. 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. If a
shareholder of the Fund receives exempt-interest dividends with respect to any
share and if such share is held by the shareholder for six months or less, then
any loss on the sale or exchange of such share may, to the extent of such
exempt-income dividends, be disallowed.
33
<PAGE>
The Fund intends to 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 dividends paid from
interest income derived from taxable securities and on distributions of net
short-term capital gains. Such dividends and distributions are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Distributions of
long-term capital gains, if any, are taxable as long-term capital gains,
regardless of how long the shareholder has held the Fund shares and regardless
of whether the distribution is received in additional shares or in cash. Since
the income of the Fund is expected to be derived entirely from interest rather
than dividends, it is anticipated that no portion of such dividend distributions
will be eligible for the federal dividends received deduction available to
corporations.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from 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 taxable interest income and short term
capital gains.
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the percentage of any distributions which constitute
an item of tax preference for purposes of the alternative minimum tax.
PURCHASES AND REDEMPTIONS AND EXCHANGES 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 shares of the Fund 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 shares is normally
treated as a sale for tax purposes. Shares of the Fund 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. Under current law, the maximum tax rate on long-term capital gains
realized by non-corporate shareholders is 20%. Any loss realized by shareholders
upon a sale or 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
34
<PAGE>
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.
Exchanges of shares in the Fund for shares of other Morgan Stanley Dean
Witter Funds, are also subject to similar tax treatment. Such an exchange is
treated for tax purposes as a sale of the original shares in the Fund, followed
by the purchase of shares in the Fund.
If a shareholder realizes a loss on the redemption or exchange of a shares
in the Fund and reinvests in shares of the Fund within 30 days before or after
the redemption or exchange, 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.
THE STATE OF NEW YORK -- SPECIAL TAX CONSIDERATIONS. Under New York law,
individual shareholders who are New York residents will not incur any federal,
New York State or New York City income tax on the amount of exempt-interest
dividends received by them from the Fund which represents a distribution of
income from New York tax-exempt securities whether taken in cash or reinvested
in additional shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of an investment company paying exempt-interest dividends, such as the Fund, may
not be deductible by the investor for State or City personal income tax
purposes.
Shareholders will normally be subject to federal, New York State or New York
City income tax on dividends paid from interest income derived from taxable
securities and on distributions of net capital gains. For federal and New York
State or New York City income tax purposes, distributions of net long-term
capital gains, if any, are taxable to shareholders 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.
Distributions from investment income and capital gains, including exempt-
interest dividends, may be subject to New York franchise taxes if received by a
corporation doing business in New York, to state taxes in states other then New
York and to local taxes.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain obligations
under the Distribution Agreement concerning the distribution of the shares.
These obligations and the compensation the Distributor receives are described
above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time, the Fund may quote its "yield" and/or "total return" in
advertisements and sales literature. These figures are computed separately for
Class A, Class B, Class C and Class D shares. 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 in accordance with regulatory requirements; 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" of each Class. The resulting amount is divided by the product of the
maximum offering price per share on the last day of the period multiplied by the
average number of shares of the applicable Class outstanding during the period
that were entitled to dividends.
35
<PAGE>
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. The yields for the 30-day period ended December 31, 1999,
calculated pursuant to the formula described above, were 4.40%, 4.09%, 4.10% and
4.74% for Class A, Class B, Class C and Class D, respectively.
The Fund may also quote a "tax-equivalent yield" determined by dividing the
tax-exempt portion of the 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 combined Federal and New York State personal
income tax bracket of 43.74% (the highest current individual marginal tax rate),
for the 30-day period ending December 31, 1999, were 7.82%, 7.27%, 7.29% and
8.43%, for Class A, Class B, Class C and Class D, respectively, based upon the
yields quoted above.
These figures are computed separately for Class A, Class B, Class C and
Class D shares. 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
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any contingent deferred sales charge ("CDSC") at the end of the one,
five, ten year or other period. 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
(which in the case of Class A shares is reduced by the Class A initial sales
charge), 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 returns for Class B for the one year, five year and ten year
periods ended December 31, 1999 were -9.16%, 5.16% and 5.57%, respectively. The
average annual total returns of Class A for the fiscal year ended December 31,
1999 and for the period July 28, 1997 (inception of the Class) through
December 31, 1999 were -8.11% and 0.10%, respectively. The average annual total
returns of Class C for the fiscal year ended December 31, 1999 and for the
period July 28, 1997 (inception of the Class) through December 31, 1999 were
- -5.51% and 1.35%, respectively. The average annual total returns of Class D for
the fiscal year ended December 31, 1999 and for the period July 28, 1997
(inception of the Class) through December 31, 1999 were -3.87% and 2.17%,
respectively.
In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction of
the CDSC for each of Class B and Class C which, if reflected, would reduce the
performance quoted. For example, the average annual total return of the Fund may
be calculated in the manner described above, but without deduction for any
applicable sales charge. Based on this calculation, the average annual total
returns of Class B for the one year, five year and ten year periods ended
December 31, 1999, were -4.58%, 5.49% and 5.57%, respectively. The average
annual total returns of Class A for the fiscal year ended December 31, 1999 and
for the period July 28, 1997 through December 31, 1999 were -4.03% and 1.91%,
respectively. The average annual total returns of Class C for the fiscal year
ended December 31, 1999 and for the period July 28, 1997 through December 31,
1999 were -4.60% and 1.35%, respectively. The average annual total returns of
Class D for the fiscal year ended December 31, 1999 and for the period July 28,
1997 through December 31, 1999 were -3.87% and 2.17%, respectively.
In addition, the Fund may compute its aggregate total return for each
Class 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 (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the total
returns for Class B for the one year, five year and ten year period ended
December 31, 1999, were -4.58%, 30.62% and 71.92%, respectively. The total
returns of Class A for the fiscal year ended December 31,
36
<PAGE>
1999 and for the period July 28, 1997 through December 31, 1999 were -4.03% and
4.70%, respectively. The total returns of Class C for the fiscal year ended
December 31, 1999 and for the period July 28, 1997 through December 31, 1999
were -4.60% and 3.30%, respectively. The total returns of Class D for the fiscal
year ended December 31, 1999 and for the period July 28, 1997 through
December 31, 1999 were -3.87% and 5.34%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,575, $48,250 and $97,250 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at
December 31, 1999:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION --------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Class A............................................ 7/28/97 $10,025 $ 50,518 $101,821
Class B............................................ 1/17/85 26,719 133,595 267,190
Class C............................................ 7/28/97 10,330 51,650 103,300
Class D............................................ 7/28/97 10,534 52,670 105,340
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
December 31, 1999 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS are included herein 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.
37
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK TAX- EXEMPT MUNICIPAL BONDS (95.5%)
GENERAL OBLIGATION (15.8%)
Monroe County,
$ 1,000 Public Improvement Refg 1996........................................ 6.00 % 03/01/13 $ 1,054,000
1,000 Public Improvement Refg 1996........................................ 6.00 03/01/15 1,039,390
New York City,
2,055 Various Purpose 1973................................................ 3.50 05/01/01 2,031,737
2,500 Various Purpose 1973................................................ 3.50 05/01/03 2,415,800
605 1997 Ser D.......................................................... 6.00 08/01/06 605,793
New York State,
2,500 Ser 1996 A Refg..................................................... 6.00 07/15/08 2,641,550
3,000 Ser 1995 B Refg..................................................... 5.70 08/15/13 3,020,400
8,000 Puerto Rico, Public Improvement Refg Ser 1987 A....................... 3.00 07/01/06 7,092,639
------------
--------
19,901,309
20,660
------------
--------
EDUCATIONAL FACILITIES REVENUE (11.6%)
New York State Dormitory Authority,
965 City University Ser 1992 U.......................................... 6.375 07/01/08 1,010,326
3,000 City University Ser 1993 A.......................................... 5.75 07/01/09 3,044,940
2,000 Ithaca College Ser 1998 (AMBAC)..................................... 5.00 07/01/21 1,727,700
1,000 New York University Ser 1998 A (MBIA)............................... 5.75 07/01/15 1,012,300
3,000 State University Ser 1989 B......................................... 0.00 05/15/05 2,275,740
2,000 State University Ser 1993 C......................................... 5.375 05/15/13 1,923,320
2,000 State University Ser 1993 A......................................... 5.25 05/15/15 1,879,280
2,000 University of Rochester, Ser 1998 A (MBIA).......................... 5.00 07/01/23 1,711,680
------------
--------
14,585,286
15,965
------------
--------
ELECTRIC REVENUE (8.7%)
4,000 Long Island Power Authority, Ser 1998 A (FSA)......................... 5.125 12/01/22 3,495,040
8,000 Puerto Rico Electric Power Authority, Power Ser O..................... 5.00 07/01/12 7,552,000
------------
--------
11,047,040
12,000
------------
--------
HOSPITAL REVENUE (6.0%)
8,295 New York State Medical Care Facilities Finance Agency, Hospital &
Nursing Home - FHA Insured Mtge 1993 Ser B.......................... 5.50 02/15/22 7,554,091
------------
--------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (12.3%)
4,000 New York City Industrial Development Agency, Brooklyn Navy Yard
Cogeneration Partners LP Ser 1997 (AMT)............................. 5.75 10/01/36 3,509,520
11,000 New York State Energy Research & Development Authority, Brooklyn Union
Gas Co 1991 Ser A (AMT)............................................. 6.952 07/01/26 12,023,660
------------
--------
15,533,180
15,000
------------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE REVENUE - MULTI-FAMILY (7.5%)
New York City Housing Development Corporation,
$ 2,201 East Midtown Proj - FHA Ins Sec 223................................. 6.50 % 11/15/18 $ 2,222,592
2,226 Ruppert Proj - FHA Ins Sec 223...................................... 6.50 11/15/18 2,212,700
4,935 New York State Housing Finance Agency, Mortgage 1996 Ser A Refg
(FSA)............................................................... 6.10 11/01/15 5,002,017
------------
--------
9,437,309
9,362
------------
--------
MORTGAGE REVENUE - SINGLE FAMILY (3.8%)
4,500 New York State Mortgage Agency, Homeowner Ser 27...................... 6.90 04/01/15 4,748,040
------------
--------
NURSING & HEALTH RELATED FACILITIES REVENUE (4.7%)
New York State Medical Care Facilities Finance Agency,
2,295 Long Term Health Care 1992 Ser D (FSA).............................. 6.50 11/01/15 2,403,829
4,000 Mental Health Ser F................................................. 5.25 02/15/19 3,528,560
------------
--------
5,932,389
6,295
------------
--------
PUBLIC FACILITIES REVENUE (1.3%)
2,000 New York State Urban Development Corporation, Correctional 1998 Ser B
(AMBAC)............................................................. 4.75 01/01/28 1,610,140
------------
--------
TRANSPORTATION FACILITIES REVENUE (7.5%)
3,000 New York State Thruway Authority, Local Highway & Bridge Ser 1998 A
(MBIA).............................................................. 5.00 04/01/18 2,636,430
2,000 Triborough Bridge & Tunnel Authority, Refg Ser 1998 A (MBIA).......... 4.75 01/01/24 1,638,140
Puerto Rico Highway & Transportation Authority,
3,000 Refg Ser X.......................................................... 5.50 07/01/15 2,905,800
3,000 Ser 1998 A.......................................................... 4.75 07/01/38 2,305,290
------------
--------
9,485,660
11,000
------------
--------
WATER & SEWER REVENUE (8.0%)
New York City Municipal Water Finance Authority,
3,000 1998 Ser D.......................................................... 4.75 06/15/25 2,407,560
2,000 2000 Ser A (FGIC)................................................... 5.50 06/15/32 1,811,680
2,000 New York State Environmental Facilities Corporation, Clean Drinking
Water Ser 1998 C.................................................... 5.00 06/15/19 1,751,320
4,000 Suffolk County Industrial Development Agency, Southwest Sewer
Ser 1994 (FGIC)..................................................... 6.00 02/01/08 4,213,640
------------
--------
10,184,200
11,000
------------
--------
OTHER REVENUE (5.5%)
2,000 Municipal Assistance Corporation for the City of New York, Ser E...... 6.00 07/01/06 2,112,100
5,000 New York Local Government Assistance Corporation, Ser 1993 C.......... 5.50 04/01/17 4,837,350
------------
--------
6,949,450
7,000
------------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED
<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REFUNDED (2.8%)
$ 3,000 New York State Dormitory Authority, Suffolk County Judicial Ser 1986
(ETM)............................................................... 7.375% 07/01/16 $ 3,507,300
------------
--------
126,077 TOTAL NEW YORK TAX- EXEMPT MUNICIPAL BONDS
- ---------- (IDENTIFIED COST $118,796,777)...............................................................
120,475,394
------------
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.4%)
2,000 Nassau County Industrial Development Agency, Cold Spring Harbor
Laboratory Ser 1999 (Demand 01/03/00)............................... 4.75* 01/01/23 2,000,000
5,300 New York State Energy Research & Development Authority, New York State
Electric & Gas Corp Ser 1994 C (Demand 01/03/00).................... 4.65* 06/01/29 5,300,000
2,000 Port Authority of New York & New Jersey, Ser 2 (Demand 01/03/00)...... 4.90* 05/01/19 2,000,000
------------
--------
9,300 TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS
- ---------- (IDENTIFIED COST $9,300,000).................................................................
9,300,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
$135,377 TOTAL INVESTMENTS
(IDENTIFIED COST $128,096,777) (a).................................................. 102.9% 129,775,394
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS...................................... (2.9) (3,637,339)
----- -------------
NET ASSETS.......................................................................... 100.0% $ 126,138,055
===== =============
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$6,005,587 and the aggregate gross unealized depreciation is
$4,326,970, resulting in net unrealized appreciation of $1,678,617.
BOND INSURANCE:
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $128,096,777)............................ $129,775,394
Cash........................................................ 170,799
Receivable for:
Interest................................................ 1,978,813
Shares of beneficial interest sold...................... 2,871
Prepaid expenses and other assets........................... 19,021
------------
TOTAL ASSETS........................................... 131,946,898
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 5,291,776
Dividends and distributions to shareholders............. 243,778
Plan of distribution fee................................ 84,576
Investment management fee............................... 63,118
Accrued expenses............................................ 125,595
------------
TOTAL LIABILITIES...................................... 5,808,843
------------
NET ASSETS............................................. $126,138,055
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $124,531,501
Net unrealized appreciation................................. 1,678,617
Accumulated undistributed net investment income............. 16,454
Accumulated net realized loss............................... (88,517)
------------
NET ASSETS............................................. $126,138,055
============
CLASS A SHARES:
Net Assets.................................................. $407,702
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 37,437
NET ASSET VALUE PER SHARE.............................. $10.89
============
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)...... $11.37
============
CLASS B SHARES:
Net Assets.................................................. $124,773,900
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 11,431,995
NET ASSET VALUE PER SHARE.............................. $10.91
============
CLASS C SHARES:
Net Assets.................................................. $839,970
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 77,111
NET ASSET VALUE PER SHARE.............................. $10.89
============
CLASS D SHARES:
Net Assets.................................................. $116,483
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 10,684
NET ASSET VALUE PER SHARE.............................. $10.90
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 8,165,755
------------
EXPENSES
Plan of distribution fee (Class A shares)................... 690
Plan of distribution fee (Class B shares)................... 1,107,816
Plan of distribution fee (Class C shares)................... 5,893
Investment management fee................................... 820,568
Professional fees........................................... 88,621
Shareholder reports and notices............................. 68,550
Transfer agent fees and expenses............................ 63,128
Trustees' fees and expenses................................. 18,667
Registration fees........................................... 11,725
Custodian fees.............................................. 7,867
Other....................................................... 14,112
------------
TOTAL EXPENSES......................................... 2,207,637
Less: expense offset........................................ (7,850)
------------
NET EXPENSES........................................... 2,199,787
------------
NET INVESTMENT INCOME.................................. 5,965,968
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (88,517)
Net change in unrealized appreciation....................... (12,708,366)
------------
NET LOSS............................................... (12,796,883)
------------
NET DECREASE................................................ $ (6,830,915)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................... $ 5,965,968 $ 6,578,491
Net realized gain (loss)........................ (88,517) 5,147,298
Net change in unrealized appreciation........... (12,708,366) (3,210,250)
------------ ------------
NET INCREASE (DECREASE).................... (6,830,915) 8,515,539
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income
Class A shares.............................. (19,141) (14,967)
Class B shares.............................. (5,881,219) (6,537,411)
Class C shares.............................. (31,200) (23,538)
Class D shares.............................. (13,412) (2,575)
Net realized gain
Class A shares.............................. (720) (12,473)
Class B shares.............................. (247,643) (5,154,681)
Class C shares.............................. (1,330) (23,959)
Class D shares.............................. (146) (2,529)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.......... (6,194,811) (11,772,133)
------------ ------------
Net decrease from transactions in shares of
beneficial interest........................... (24,736,170) (2,946,362)
------------ ------------
NET DECREASE............................... (37,761,896) (6,202,956)
NET ASSETS:
Beginning of period............................. 163,899,951 170,102,907
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $16,454 AND $0, RESPECTIVELY)..... $126,138,055 $163,899,951
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter New York Tax-Free Income Fund (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), 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, New York State and New York City income tax, consistent with the
preservation of capital. The Fund was organized as a Massachusetts business
trust on January 17, 1985 and commenced operations on April 25, 1985. On July
28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
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.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
44
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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.
E. 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"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined as of the close of each
business day: 0.55% to the portion of daily net assets not exceeding $500
million and 0.525% to the portion of daily net assets exceeding $500 million.
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.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution
45
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
(the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the
Fund will pay the Distributor a fee which is accrued daily and paid monthly at
the following annual rates: (i) Class A -- up to 0.25% of the average daily net
assets of Class A; (ii) Class B -- 0.75% of the lesser of: (a) the average daily
aggregate gross sales of the Class B shares since the inception of the Fund (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Class B shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or waived; or (b) the average daily net assets of Class B; and (iii) Class C --
up to 0.75% of the average daily net assets of Class C. In the case of Class A
shares, amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the Plan
are paid to the Distributor for (1) services provided and the expenses borne by
it and others in the distribution of the shares of these Classes, including the
payment of commissions for sales of these Classes and incentive compensation to,
and expenses of, the Morgan Stanley Dean Witter Financial Advisors and others
who engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and (3) preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $1,112,901 at December 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.75% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended December 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.16% and
0.75%, respectively.
46
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
The Distributor has informed the Fund that for year ended December 31, 1999, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $276,746 and $772, respectively and
received $2,126 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. 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, 1999 aggregated
$3,954,860 and $27,011,385, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended December 31, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,892. At December 31, 1999, the Fund had an accrued pension liability of
$52,664 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At December 31, 1999, the Fund had a net capital loss carryover of approximately
$75,000 which will be available through December 31, 2007 to offset future
capital gains to the extent provided by regulations.
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $14,000 during fiscal 1999.
6. SUBSEQUENT EVENT
On January 26, 2000, the Board of Trustees of the Fund and of Morgan Stanley
Dean Witter Multi-State Municipal Series Trust -- New York Series ("New York
Series") approved a reorganization plan ("the Plan") whereby New York Series
would be merged into the Fund. The Plan is subject to the consent of New York
Series' shareholders. If approved, the assets of New York Series would be
combined with the assets of the Fund and shareholders of New York Series would
become Class D shareholders of the Fund, receiving Class D shares of the Fund
equal to the value of their holdings in New York Series.
47
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED
7. 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, 1999 DECEMBER 31, 1998
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------ ------ ------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 4,285 $ 50,710 24,896 $ 303,943
Reinvestment of dividends and distributions...................... 1,235 13,955 1,176 14,161
Redeemed......................................................... (1,122) (12,769) (794) (9,600)
---------- ------------- ---------- -----------
Net increase - Class A........................................... 4,398 51,896 25,278 308,504
---------- ------------- ---------- -----------
CLASS B SHARES
Sold............................................................. 627,835 7,314,347 1,006,690 12,318,855
Reinvestment of dividends and distributions...................... 306,084 3,506,005 615,659 7,414,619
Redeemed......................................................... (3,146,578) (35,869,267) (1,945,444) (23,713,938)
---------- ------------- ---------- -----------
Net decrease - Class B........................................... (2,212,659) (25,048,915) (323,095) (3,980,464)
---------- ------------- ---------- -----------
CLASS C SHARES
Sold............................................................. 23,520 265,569 54,107 658,172
Reinvestment of dividends and distributions...................... 2,279 26,032 3,588 43,105
Redeemed......................................................... (12,997) (146,628) (2,319) (28,264)
---------- ------------- ---------- -----------
Net increase - Class C........................................... 12,802 144,973 55,376 673,013
---------- ------------- ---------- -----------
CLASS D SHARES
Sold............................................................. 1,194,426 13,227,353 3,958 48,389
Reinvestment of dividends and distributions...................... 291 3,322 349 4,196
Redeemed......................................................... (1,190,946) (13,114,799) -- --
---------- ------------- ---------- -----------
Net increase - Class D........................................... 3,771 115,876 4,307 52,585
---------- ------------- ---------- -----------
Net decrease in Fund............................................. (2,191,688) $ (24,736,170) (238,134) $(2,946,362)
========== ============= ========== ===========
</TABLE>
48
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $11.90 $12.16 $12.02
---- ---- ---
Income (loss) from investment operations:
Net investment income.................................... 0.53 0.55 0.24
Net realized and unrealized gain (loss).................. (1.00) 0.13 0.14
---- ---- ---
Total income (loss) from investment operations.............. (0.47) 0.68 0.38
---- ---- ---
Less dividends and distributions from:
Net investment income.................................... (0.52) (0.55) (0.24)
Net realized gain........................................ (0.02) (0.39) --
---- ---- ---
Total dividends and distributions........................... (0.54) (0.94) (0.24)
---- ---- ---
Net asset value, end of period.............................. $10.89 $11.90 $12.16
==== ==== ===
TOTAL RETURN+............................................... (4.03)% 5.68% 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.89%(4) 0.93%(3)(4) 0.92%(2)
Net investment income....................................... 4.58%(4) 4.50%(4) 4.78%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $408 $393 $94
Portfolio turnover rate..................................... 3% 24% 10%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and
non-class specific expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<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.......... $11.92 $12.16 $11.71 $11.96 $10.83
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income...................... 0.46 0.49 0.51 0.53 0.55
Net realized and unrealized gain (loss).... (0.99) 0.15 0.45 (0.21) 1.20
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations................................... (0.53) 0.64 0.96 0.32 1.75
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income...................... (0.46) (0.49) (0.51) (0.53) (0.54)
Net realized gain.......................... (0.02) (0.39) -- (0.04) (0.08)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions............. (0.48) (0.88) (0.51) (0.57) (0.62)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period................ $10.91 $11.92 $12.16 $11.71 $11.96
========== ========== ========== ========== ==========
TOTAL RETURN+................................. (4.58)% 5.32% 8.43% 2.82% 16.59%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................... 1.48%(2) 1.44%(1)(2) 1.43%(1) 1.40%(1) 1.42%(1)
Net investment income......................... 3.99%(2) 3.99%(2) 4.33% 4.54% 4.70%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands....... $ 124,774 $ 162,659 $ 169,868 $ 192,192 $ 216,618
Portfolio turnover rate....................... 3% 24% 10% 16% 17%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $11.90 $12.14 $12.02
---- ---- ----
Income (loss) from investment operations:
Net investment income.................................... 0.46 0.48 0.22
Net realized and unrealized gain (loss).................. (0.99) 0.15 0.12
---- ---- ----
Total income (loss) from investment operations.............. (0.53) 0.63 0.34
---- ---- ----
Less dividends and distributions from:
Net investment income.................................... (0.46) (0.48) (0.22)
Net realized gain........................................ (0.02) (0.39) --
---- ---- ----
Total dividends and distributions........................... (0.48) (0.87) (0.22)
---- ---- ----
Net asset value, end of period.............................. $10.89 $11.90 $12.14
==== ==== ====
TOTAL RETURN+............................................... (4.60)% 5.30% 2.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.48%(4) 1.44%(3)(4) 1.40%(2)
Net investment income....................................... 3.99%(4) 3.99%(4) 4.12%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $840 $765 $108
Portfolio turnover rate..................................... 3% 24% 10%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and
non-class specific expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR ]JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $11.91 $12.15 $12.02
---- ---- ----
Income (loss) from investment operations:
Net investment income.................................... 0.55 0.58 0.26
Net realized and unrealized gain (loss).................. (1.00) 0.15 0.13
---- ---- ---
Total income (loss) investment operations................... (0.45) 0.73 0.39
---- ---- ---
Less dividends and distributions from:
Net investment income.................................... (0.54) (0.58) (0.26)
Net realized gain........................................ (0.02) (0.39) --
---- ---- ---
Total dividends and distributions........................... (0.56) (0.97) (0.26)
---- ---- ---
Net asset value, end of period.............................. $10.90 $11.91 $12.15
===== ===== =====
TOTAL RETURN+............................................... (3.87)% 6.12% 3.27%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.73%(4) 0.69%(3)(4) 0.66%(2)
Net investment income....................................... 4.74%(4) 4.74%(4) 5.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $116 $82 $32
Portfolio turnover rate..................................... 3% 24% 10%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and
non-class specific expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
MUNICIPAL BOND RATINGS
<TABLE>
<S> <C>
Aaa 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.
53
<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.
54
<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>
55
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<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.
56
<PAGE>
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.
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
Minus (-) indicate the relative 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.
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
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>
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 finan-
cial 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.
DD and D Such bonds are 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
Minus(-) indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
"DDD," "DD," or "D" categories.
</TABLE>
58
<PAGE>
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+."
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>
59
<PAGE>
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER NEW YORK TAX- FREE
INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
</TABLE>
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME 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 New York
Tax-Free Income Fund (the "Fund") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 7, 2000
1999 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 1999, the Fund paid the
following per share amounts from tax-exempt income: $0.52 to
Class A shareholders, $0.46 to Class B shareholders, $0.46 to
Class C shareholders and $0.54 to Class D shareholders.
For the year ended December 31, 1999, the Fund paid long-term
capital gains of $0.02 per share to Class A, B, C and D
shareholders.
61
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MORGAN STANLEY DEAN WITTER
MULTI-STATE MUNICIPAL
SERIES TRUST
FEBRUARY 25, 2000
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. The
Prospectus (dated February 25, 2000) for the Morgan Stanley Dean Witter
Multi-State Municipal Series Trust may be obtained without charge from the
Trust at its address or telephone numbers listed below or from Dean Witter
Reynolds at any of its branch offices. The Trust consists of 10 separate fund
portfolios referred to as Series: the Arizona Series, the California Series,
the Florida Series, the Massachusetts Series, the Michigan Series, the
Minnesota Series, the New Jersey Series, the New York Series, the Ohio Series
and the Pennsylvania Series.
Morgan Stanley Dean Witter Multi-State Municipal Series Trust
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 the Investments and Risks of the Series.. 4
A. Classification .................................................. 4
B. Investment Strategies and Risks ................................. 4
C. Fund Policies/Investment Restrictions ........................... 42
III. Management of the Fund .............................................. 43
A. Board of Trustees ............................................... 43
B. Management Information .......................................... 44
C. Compensation .................................................... 48
IV. Control Persons and Principal Holders of Securities ................. 50
V. Investment Management and Other Services ............................ 50
A. Investment Manager .............................................. 50
B. Principal Underwriter ........................................... 51
C. Services Provided by the Investment Manager ..................... 51
D. Dealer Reallowances ............................................. 52
E. Rule 12b-1 Plan ................................................. 52
F. Other Service Providers ......................................... 54
VI. Brokerage Allocation and Other Practices ............................ 54
A. Brokerage Transactions .......................................... 54
B. Commissions ..................................................... 55
C. Brokerage Selection ............................................. 55
D. Directed Brokerage .............................................. 56
E. Regular Broker-Dealers .......................................... 56
VII. Capital Stock and Other Securities .................................. 56
VIII. Purchase, Redemption and Pricing of Shares .......................... 57
A. Purchase/Redemption of Shares ................................... 57
B. Offering Price .................................................. 57
IX. Taxation of the Fund and Shareholders ............................... 58
X. Underwriters ........................................................ 66
XI. Calculation of Performance Data ..................................... 66
XII. Financial Statements ................................................ 69
XIII. Appendix--Ratings of Investments .................................... 116
</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.
"Distributor" -- Morgan Stanley Dean Witter Distributors Inc., a
wholly-owned broker-dealer subsidiary of MSDW.
"Financial Advisors" -- Morgan Stanley Dean Witter authorized financial
services representatives.
"Fund" -- Morgan Stanley Dean Witter Multi-State Municipal Series Trust, 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.
"Morgan Stanley Dean Witter Funds" -- Registered investment companies (i)
for which the Investment Manager serves as the investment advisor and (ii) that
hold themselves out to investors as related companies for investment and
investor services.
"MSDW" -- Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm.
"MSDW Services Company" -- Morgan Stanley Dean Witter Services Company
Inc., a wholly-owned fund services subsidiary of the Investment Manager.
"Series" -- Each of the following ten separate portfolios of the Fund: the
Arizona Series, the California Series, the Florida Series, the Massachusetts
Series, the Michigan Series, the Minnesota Series, the New Jersey Series, the
New York Series, the Ohio Series and the Pennsylvania Series.
"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 the laws of
the Commonwealth of Massachusetts on October 29, 1990, with the name Dean
Witter Multi-State Municipal Series Trust. Effective June 22, 1998, the Fund's
name was changed to Morgan Stanley Dean Witter Multi-State Municipal Series
Trust.
II. DESCRIPTION OF THE FUND AND THE INVESTMENTS AND RISKS OF THE SERIES
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, non-diversified management investment company.
The Fund consists of 10 separate fund portfolios referred to as "Series:" the
Arizona Series, the California Series, the Florida Series, the Massachusetts
Series, the Michigan Series, the Minnesota Series, the New Jersey Series, the
New York Series, the Ohio Series and the Pennsylvania Series. The investment
objective of each Series is to provide a high a level of current income exempt
from both federal and the designated state income tax, consistent with the
preservation of capital.
The Fund is a "non-diversified" mutual fund and, as such, its investments
are not required to meet certain diversification requirements under federal
securities law. Compared with "diversified" funds, the Fund may invest a
greater percentage of its assets in the securities of an individual corporation
or governmental entity. Thus, the Fund's assets may be concentrated in fewer
securities than other funds. A decline in the value of those investments would
cause the Fund's overall value to decline to a greater degree. The Fund's
investments (with the exception of the Massachusetts Series and the Minnesota
Series), however, are currently diversified and may remain diversified in the
future.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Series' 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."
TAXABLE SECURITIES. Each Series may invest up to 20% of its total assets
in taxable money market instruments, tax-exempt securities of other states and
municipalities and futures and options. Investments in taxable money market
instruments would generally be made under any one of the following
circumstances: (a) pending investment of proceeds of the sale of each Series'
shares or of portfolio securities, (b) pending settlement of purchases of
portfolio securities and (c) to maintain liquidity for the purpose of meeting
anticipated redemptions. Only those tax-exempt securities of other states which
satisfy the standards established for the tax-exempt securities of a
Series may be purchased by that Series.
The types of taxable money market instruments in which each Series may
invest are limited to the following short-term fixed-income securities
(maturing in one year or less from the time of purchase): (i) obligations of
the United States Government, its agencies, instrumentalities or authorities;
(ii) commercial paper rated P-1 by Moody's Investors Services, Inc.
("Moody's") or A-1 by Standard & Poor's Corporation ("S&P"); (iii) certificates
of deposit of domestic banks with assets of $1 billion or more; and (iv)
repurchase agreements with respect to portfolio securities.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. Each Series 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 a Series 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
4
<PAGE>
minimizes changes in the market value of the obligation. The principal benefit
to a Series of purchasing obligations with a demand feature is that liquidity,
and the ability of the Series to obtain repayment of the full principal amount
of an obligation prior to maturity, is enhanced.
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL REVENUE BONDS. Each Series
may invest in industrial development and pollution control bonds (two kinds of
tax-exempt Municipal Bonds) whether or not the users of facilities financed by
such bonds are in the same industry. In cases where such users are in the same
industry, there may be additional risk in the event of an economic downturn in
such industry, which may result generally in a lowered need for such facilities
and a lowered ability of such users to pay for the use of such facilities.
LENDING OF PORTFOLIO SECURITIES. Each Series may lend portfolio securities
to brokers, dealers and financial institutions provided that cash equal to at
least 100% of the market value of the securities loaned is deposited by the
borrower with the Series and is maintained each business day in a segregated
account pursuant to applicable regulations. The collateral value of the loaned
securities will be marked-to-market daily. While such securities are on loan,
the borrower will pay the Series any income accruing thereon, and the Series
may invest the cash collateral in portfolio securities, thereby earning
additional income. Each Series will not lend more than 25% of the value of the
total assets of any Series. Loans will be subject to termination by a Series in
the normal settlement time, currently five business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Series and its
shareholders. A Series may pay reasonable finders, borrowers, administrative,
and custodial fees in connection with a loan. The creditworthiness of firms to
which a Series lends its portfolio securities will be monitored on an ongoing
basis.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. Each Series may invest in
financial futures contracts ("futures contracts") and related options thereon.
These futures contracts and related options thereon will be used only as a
hedge against anticipated interest rate changes. A futures contract sale
creates an obligation by a Series, as seller, to deliver the specific type of
instrument called for in the contract at a specified future time for a
specified price. A futures contract purchase would create an obligation by the
Series, as purchaser, to take delivery of the specific type of financial
instrument at a specified future time at a specified price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until on or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was effected.
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is usually effected by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale
is effected by a Series entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument at the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Series is immediately paid the difference and thus realizes a
gain. If the offsetting purchase price exceeds the sale price, the Series pays
the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by a Series entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price the Series
realizes a gain, and if the offsetting sale price is less than the purchase
price the Series realizes a loss.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract (a long
position in the case of a call option and a short position in the case of a put
option). If the holder decides not to enter into the contract, the premium paid
for the contract is lost. Since the value of the option is fixed at the point
of sale, there are no daily payments of cash to reflect the change in the value
of the underlying contract, as discussed below for futures contracts. The value
of the option changes is reflected in the net asset value of the particular
Series holding the options.
Each Series is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the
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underlying security. In addition, due to current industry practice, daily
variations in gains and losses on open contracts are required to be reflected
in cash in the form of variation margin payments. A Series may be required to
make additional margin payments during the term of the contract.
Currently, futures contracts can be purchased on debt securities such as
U.S. Treasury Bills and Bonds, U.S. Treasury Notes with maturities between 6
1/2 and 10 years, Certificates of the Government National Mortgage Association,
Bank Certificates of Deposit and on a municipal bond index. Each Series may
invest in interest rate futures contracts covering these types of financial
instruments as well as in new types of contracts that become available in the
future.
Financial futures contracts are traded in an auction environment on the
floors of several Exchanges--principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each Exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the Exchange membership which
is also responsible for handling daily accounting of deposits or withdrawals of
margin. A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject to
futures contracts may correlate imperfectly with the behavior of the cash
prices of each Series portfolio securities. The correlation may be distorted by
the fact that the futures market is dominated by short-term traders seeking to
profit from the difference between a contract or security price objective and
their cost of borrowed funds. This would reduce the value of futures contracts
for hedging purposes over a short time period. The correlation may be further
distorted since the futures contracts that are being used to hedge are not
based on municipal obligations.
Another risk is that a Series' Investment Manager could be incorrect in
its expectations as to the direction or extent of various interest rate
movements or the time span within which the movements take place. For example,
if a Series sold futures contracts for the sale of securities in anticipation
of an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, that Series would lose money on the sale. Put and
call options on financial futures have characteristics similar to Exchange
traded options.
In addition to the risks associated in investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that such a market will develop.
A Series may not enter into futures contracts or related options thereon
if, immediately thereafter, the amount committed to margin plus the amount paid
for option premiums exceeds 5% of the value of that Series' total assets. In
instances involving the purchase of futures contracts by a Series, an amount
equal to the market value of the futures contract will be deposited in a
segregated account of cash and cash equivalents or other liquid portfolio
securities to collateralize the position and thereby ensure that the use of
such futures is unleveraged. A Series may not purchase or sell futures
contracts or related options if, immediately thereafter, more than one-third of
the net assets of that Series would be hedged.
Municipal Bond Index Futures. Each Series may utilize municipal bond index
futures contracts for hedging purposes. The strategies in employing such
contracts will be similar to that discussed above with respect to financial
futures and options thereon. A municipal bond index is a method of reflecting
in a single number the market value of many different municipal bonds and is
designed to be representative of the municipal bond market generally. The index
fluctuates in response to changes in the market values of the bonds included
within the index. Unlike futures contracts on particular financial instruments,
transactions in futures on a municipal bond index will be settled in cash, if
held until the close of trading in the contract. However, like any other
futures contract, a position in the contract may be closed out by a purchase or
sale of an offsetting contract for the same delivery month prior to expiration
of the contract.
Options. Each Series may purchase or sell (write) options on debt
securities as a means of achieving additional return or hedging the value of a
Series' portfolio. A Series will only buy options listed on national securities
exchanges. A Series will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 10% of the Series total assets.
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Presently there are no options on tax-exempt securities traded on national
securities exchanges. Each Series will not invest in options on debt securities
in the coming year or until such time as they become available on national
securities exchanges.
A call option is a contract that gives the holder of the option the right
to buy from the writer of the call option, in return for a premium, the
security underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option has the obligation, upon
exercise of the option, to deliver the underlying security upon payment of the
exercise price during the option period. A put option is a contract that gives
the holder of the option the right to sell to the writer, in return for a
premium, the underlying security at a specified price during the term of the
option. The writer of the put has the obligation to buy the underlying security
upon exercise, at the exercise price during the option period.
A Series will only write covered call or covered put options listed on
national exchanges. A Series may not write covered options in an amount
exceeding 20% of the value of the total assets of that Series. A call option is
"covered" if a Series owns the underlying security covered by the call or has
an absolute and immediate right to acquire that security or futures contract
without additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered if a
Series holds a call on the same security or futures contract as the call
written, where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written or (ii) greater than the exercise price
of the call written if the difference is maintained by a Series in cash,
Treasury bills or other liquid portfolio securities in a segregated account
with its custodian. A put option is "covered" if a Series maintains cash,
Treasury bills or other liquid portfolio securities with a value equal to the
exercise price in a segregated account with its custodian, or else holds a put
on the same security or futures contract as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
If a Series has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Series has been assigned an exercise notice, the Series will be unable to
effect a closing purchase transaction. Similarly, if the Series is the holder
of an option, it may liquidate its position by effecting a closing sale
transaction. This is accomplished by selling an option of the same series as
the option previously purchased. There can be no assurance that either a
closing purchase or sale transaction on behalf of a Series can be effected when
the Series so desires.
A Series will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; a Series will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in
the price of the underlying security, any loss resulting from the purchase of a
call option may also be wholly or partially offset by unrealized appreciation
of the underlying security. If a put option written by a Series is exercised,
the Series may incur a loss equal to the difference between the exercise price
of the option and the sum of the sale price of the underlying security plus the
premiums received from the sale of the option. Other principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price and price volatility of the underlying
security and the time remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although a Series will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market
on an exchange will exist for any particular option. In such event, it might
not be possible to effect closing transactions in particular options, so that
the Series would have to exercise its options in order to realize any profit
and would incur brokerage commissions upon the exercise of call options and
upon the subsequent disposition of underlying securities for the exercise of
put options. If a Series as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the underlying
security upon exercise.
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REPURCHASE AGREEMENTS. Each Series may invest in repurchase agreements.
When cash may be available for only a few days, it may be invested by the
Series in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations. These agreements, which may be viewed as a
type of secured lending by the Series, typically involve the acquisition by a
Series of debt securities from a selling financial institution such as a bank,
savings and loan association or broker-dealer. The agreement provides that the
Series sell back to the institution, and that the institution will repurchase,
the underlying security serving as collateral at a specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The collateral will be marked-to-market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Series will accrue interest from the
institution until the time when the repurchase is to occur. Although this date
is deemed by a Series to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to
any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, each Series follows procedures designed
to minimize such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose financial condition will be continually monitored by the
Investment Manager subject to procedures established by the Trustees. In
addition, as described above, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price, including
any accrued interest earned on the repurchase agreement. In the event of a
default or bankruptcy by a selling financial institution, a Series will seek to
liquidate such collateral. However, the exercising of the Series' right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Series could suffer a loss.
It is the current policy of each Series not to invest in repurchase agreements
that do not mature within seven days if any such investment, together with any
other illiquid asset held by that Series, amount to more than 10% of the total
assets of that Series.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Series 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 a Series will only purchase securities on a when-issued,
delayed delivery with the intention of acquiring the securities, the Series may
sell the securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.
At the time a Series 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 a Series' assets
committed to the purchase of securities on a when-issued, delayed delivery may
increase the volatility of its net asset value. Each Series will also establish
a segregated account with its custodian bank 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.
YEAR 2000. The investment management services provided to the Fund and
each Series by the Investment Manager and the services provided to shareholders
by the Distributor and the Transfer Agent depend on the smooth functioning of
their computer systems. Many computer software systems in use today were
designed in such a way that they may not be able to 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.
In addition, it is possible that the markets for securities in which a
Series invests may have been detrimentally affected by computer failures
throughout the financial services industry beginning
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January 1, 2000. Improperly functioning trading systems may result in
settlement problems and liquidity issues. Corporate and governmental data
processing errors could result in production problems for individual issuers
and overall economic uncertainties. Operations ran smoothly from the last week
in December through the first few weeks of January, but the year 2000 issue may
yet have an adverse impact on financial market participants and other entities,
including the issuers whose securities are contained in each Series' portfolio.
THE ARIZONA SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. The Arizona
Series will invest principally in securities of political subdivisions and
other issuers of the State of Arizona the interest on which is exempt from
federal and Arizona income taxes. As a result, the ability of such Arizona
issuers to meet their obligations with respect to such securities generally
will be influenced by the political, economic and regulatory developments
affecting the state of Arizona and the particular revenue streams supporting
such issuers' obligations. If any of such political subdivisions are unable to
meet their financial obligations, the income derived by the Arizona Series, the
ability to preserve or realize appreciation of the Arizona Series' capital, and
the liquidity of the Arizona Series could be adversely affected. The following
summary respecting the State of Arizona is only general in nature and does not
purport to be a description of the investment considerations and factors which
may have an effect on the obligations of a particular issuer in which the
Arizona Series may invest.
Arizona's economy continues on a path of strong growth, although
economists at Arizona State University expect the growth rate to slow. There
are, however, no signs of any serious imbalances. Arizona's economy is among
the fastest growing in the country. The state's population increased by more
than 100,000 each year during the 8-year period from 1991 to 1999. During 1999,
Arizona's population was estimated at approximately 4.8 million. As a result,
homebuilding and commercial construction are extremely strong, although
construction is expected to slow somewhat in 2000. This growth in population
will require corresponding increases in revenue of Arizona issuers to meet
increased demands for infrastructure development and various services, and the
performance of Arizona's economy will be critical to providing such increased
revenue.
The state's principal economic sectors include services, construction,
manufacturing dominated by electrical, transportation and military equipment,
high technology, government, tourism and the military. State unemployment rates
have remained generally comparable to the national average in recent years,
while the Arizona economy has generally performed above the national average in
recent years. Arizona has held a steady position among the top five states in
employment growth since May 1993. In 1998, the Arizona rate of non-agricultural
job creation ranked first in the nation and is projected to be in excess of 4%
in 1999 by economists at the University of Arizona. Furthermore, in 1999,
Arizona's personal income increased by an estimated 7.5 percent.
Arizona is required by law to maintain a balanced budget. To achieve this
objective, Arizona has, in the past, utilized a combination of spending
reductions and tax increases. The condition of the national economy will
continue to be a significant factor influencing Arizona's budget during the
upcoming fiscal year.
Arizona's constitution limits the amount of debt payable from general tax
revenues that may be contracted by the State to $350,000. However, certain
other issuers have the statutory power to issue obligations payable from other
sources of revenue which affect the whole or large portions of the State. For
example, the Transportation Board of the State of Arizona Department of
Transportation may issue obligations for highways which are paid from revenues
generated from, among other sources, gasoline taxes.
Arizona's constitution also restricts debt payable from general tax
revenue of certain other issuers of the State. Most importantly, no county,
city, town, school district, or other municipal corporation of the State may
for any purpose become indebted in any manner in an amount exceeding 6% of the
taxable property in such county, city, town, school district, or other
municipal corporation without the assent of a majority of the qualified
electors thereof voting at an election provided by law to be held for that
purpose; provided, however, that (i) under no circumstances may any county or
school district of the State become indebted in an amount exceeding 15% (or 30%
in the case of a unified school district) of such taxable
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property and (ii) any incorporated city or town of the State with such assent
may be allowed to become indebted in up to a 20% additional amount for (a)
supplying such city or town with water, artificial light, or sewers when the
works for supplying such water, light, or sewers are or shall be owned and
controlled by the municipality and (b) the acquisition and development by such
city or town of land or interests therein for open space preserves, parks,
playgrounds and recreational facilities. Annual property tax levies for the
payment of such debt, which pursuant to applicable statutes may only be issued
for limited purposes, are unlimited as to rate or amount. Other obligations may
be issued by counties, cities, towns, school districts and other municipal
corporations, sometimes without an election. Such obligations are payable from,
among other revenue sources, project revenue, special assessments, annual
budget appropriations and excise, transaction privilege and use taxes.
Irrigation, power, electrical, agricultural improvement, drainage, flood
control and tax levying public improvement districts are exempt specifically
from the above-noted restrictions of the constitution and may issue obligations
for limited purposes, payable from a variety of revenue sources. For example,
Salt River Project Agricultural & Improvement District, an agricultural
improvement district that operates the Salt River Project (a federal
reclamation project and an electric system which generates, purchases, and
distributes electric power to residential, commercial, industrial, and
agricultural power users in a 2,900 square-mile service area around Phoenix),
may issue obligations payable from a number of sources.
THE CALIFORNIA SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. The following
describes certain risks with respect to municipal obligations of California
issuers in which the California Series may invest. This summarized information
is based on information drawn from official statements and prospectuses
relating to securities offerings of the State of California and other public
documents available as of the date of this Statement of Additional Information.
Although the Investment Manager has not independently verified such
information, it has no reason to believe that such information is not correct
in all material respects.
The California Series will be affected by any political, economic or
regulatory developments affecting the ability of California issuers to pay
interest or repay principal. Provisions of the California Constitution and
State statutes which limit the taxing and spending authority of California
governmental entities may impair the ability of California issuers to maintain
debt service on their obligations. Future California political and economic
developments, constitutional amendments, legislative measures, executive
orders, administrative regulations, litigation and voter initiatives could have
an adverse effect on the debt obligations of California issuers.
Certain debt obligations held by the California Series may be obligations
of issuers which rely in whole or in substantial part on California state
revenues for the continuance of their operations and payment of their
obligations. Whether and to what extent the California Legislature will
continue to appropriate a portion of the State's General Fund to counties,
cities and their various entities, is not entirely certain. To the extent local
entities do not receive money from the State to pay for their operations and
services, their ability to pay debt service on obligations held by the
California Series may be impaired.
In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources. Legislation adopted after Proposition 13 provided for
assistance to local governments, including the redistribution of the
then-existing surplus in the General Fund, reallocation of revenues to local
governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in future years. In Nordlinger v. Hahn, the
United States Supreme Court upheld certain provisions of Proposition 13 against
claims that it violated the equal protection clause of the Constitution.
In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the State and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
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adjusted annually to reflect changes in the cost of living, population and
certain services provided by State and local government entities.
"Appropriations limit" does not include appropriations for qualified capital
outlay projects, certain increases in transportation-related taxes, and certain
emergency appropriations.
If a government entity raises revenues beyond its "appropriations limit"
in any year, a portion of the excess which cannot be appropriated within the
following year's limit must be returned to the entity's taxpayers within two
subsequent fiscal years, generally by a tax credit, refund or temporary
suspension of tax rates or fee schedules. "Debt service" is excluded from these
limitations, and is defined as "appropriations required to pay the cost of
interest and redemption charges, including the funding of any reserve or
sinking fund required in connection therewith, on indebtedness existing or
legally authorized as of January 1, 1979 or on bonded indebtedness thereafter
approved [by the voters]." In addition, Article XIIIB requires the State
Legislature to establish a prudent State reserve, and to require the transfer
of 50% of excess revenue to the State School Fund; any amounts allocated to the
State School Fund will increase the appropriations limit.
In June 1982, the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to account for the effects of inflation. Decreases in State and
local revenues in future fiscal years as a consequence of these initiatives may
result in reductions in allocations of state revenues to California issuers or
in the ability of California issuers to pay their obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that,
in the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and
(viii) permits these provisions to be amended exclusively by the voters of the
State of California.
In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by non-charter cities in California without voter
approval. It is not possible to predict the impact of the decision.
In November 1996, California voters approved Proposition 218. The
initiative applied the provisions of Proposition 62 to all entities, including
charter cities. It requires that all taxes for general purposes obtain a simple
majority popular vote and that taxes for special purposes obtain a two-thirds
majority vote. Prior to the effectiveness of Proposition 218, charter cities
could levy certain taxes such as transient occupancy taxes and utility user's
taxes without a popular vote. Proposition 218 will also limit the authority of
local governments to impose property-related assessments, fees and charges,
requiring that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal
previously-authorized taxes, assessments, fees and charges.
In 1988, State voters approved Proposition 87, which amended Article XVI
of the State Constitution to authorize the State Legislature to prohibit
redevelopment agencies from receiving any property tax revenues raised by
increased property taxes to repay bonded indebtedness of local government which
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is not approved by voters on or before January 1, 1989. It is not possible to
predict whether the State Legislature will enact such a prohibition, nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.
In November 1988, California voters approved Proposition 98. This
initiative requires that (i) revenues in excess of amounts permitted to be
spent and which would otherwise be returned by revision of tax rates or fee
schedules, be transferred and allocated (up to a maximum of 40%) to the State
School Fund and be expended solely for purposes of instructional improvement
and accountability. No such transfer or allocation of funds will be required if
certain designated state officials determine that annual student expenditures
and class size meet certain criteria as set forth in Proposition 98. Any funds
allocated to the State School Fund shall cause the appropriation limits to be
annually increased for any such allocation made in the prior year. Proposition
98 also requires the State of California to provide a minimum level of funding
for public schools and community colleges. The initiative permits the enactment
of legislation, by a two-thirds vote, to suspend the minimum funding
requirement for one year.
Certain tax-exempt securities in which the California Series may invest
may be obligations payable solely from the revenues of specific institutions,
or may be secured by specific properties, which are subject to provisions of
California law which could adversely affect the holders of such obligations.
For example, the revenues of California health care institutions may be subject
to state laws, and California law limits the remedies of a creditor secured by
a mortgage or deed of trust on real property.
California is the most populous state in the nation with a total
population currently estimated at 33.4 million. The State now comprises 12.4%
of the nation's population and 12.7% of its total personal income. Its economy
is broad and diversified with major concentrations in high technology research
and manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After experiencing strong
growth throughout much of the 1980s, from 1990-1993 the State suffered through
a severe recession, the worst since the 1930's, heavily influenced by large
cutbacks in defense/aerospace industries and military base closures and a major
drop in real estate construction. California's economy has been performing
strongly since 1994, to the point where the State's economic growth is
outpacing the rest of the nation. The unemployment rate, while still higher
than the national average, fell to an average of 5.9% in 1998, and to 4.8% in
November, 1999, compared to over 10% at the worst of the recession.
A significant downturn in U.S. stock market prices could adversely affect
California's economy by reducing household spending and business investment,
particularly in the important high technology sector. Moreover, a large and
increasing share of the State's General Fund revenue in the form of income and
capital gains taxes is directly related to, and would be adversely affected by
a significant downturn in the performance of the stock market.
The recession severely affected state revenues while the State's health
and welfare costs were increasing. Consequently, the State had a lengthy period
of budget imbalance; the State's accumulated budget deficit approached $2.8
billion at its peak at June 30, 1993. The large budget deficits depleted the
State's available cash resources and it had to use a series of external
borrowings to meet its cash needs. With the end of the recession, the State's
financial condition improved in the 1995-96 through 1998-99 fiscal years, with
a combination of better than expected revenues, slowdown in growth of social
welfare programs, and continued spending restraint. The accumulated budget
deficit from the recession years was eliminated. No deficit borrowing has
occurred at the end of the last four fiscal years and the State's cash flow
borrowing was limited to $1.7 billion in 1998-99. The State issued $1.0 billion
of revenue anticipation notes for the 1999-2000 fiscal year.
On June 29, 1999, the Governor of California signed the 1999-2000 Budget
Act. The Budget Act estimated General Fund revenues and transfers of $63.0
billion, and contained expenditures totaling $63.7 billion. The Budget Act also
contained expenditures of $16.1 billion from special funds and $1.5 billion
from bond funds. The Administration estimated a budget reserve balance at June
30, 2000, of approximately $880 million. Not included in this amount was an
additional $300 million which (after the Governor's vetoes) was "set aside" to
provide funds for employee salary increases (to be negotiated in bargaining
with employee unions), and for litigation reserves. The Budget Act anticipates
normal cash
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flow borrowing during the fiscal year. Continued State economic expansion and
large revenue increases enabled the Governor and State legislature to provide
increases in spending programs in the 1999-2000 budget. These included large
increases in education and health and human services funding.
The Governor's 2000-2001 proposed budget provides for total State spending
of $85.1 billion (excluding expenditures of federal funds and selected bond
funds), an increase of 3.7% from the current year. Approximately 80% of this
total is from the General Fund and 20% from special funds. The proposed budget
assumes that General Fund revenues will total $68.2 billion in 2000-01, a 4.7%
increase from the current year. General Fund expenditures are proposed to be
$68.8 billion, an increase of 4.5%. After accounting for various set-asides,
the year-end reserve is estimated to be $1.2 billion, or about 1.8% of total
2000-01 General Fund revenues.
As of January 1, 2000, the State had over $17.5 billion aggregate amount
of its general obligation bonds outstanding. General obligation bond
authorizations in an aggregate amount of approximately $10.6 billion remained
unissued as of that date. The State also builds and acquires capital facilities
through the use of lease purchase borrowing. As of January 1, 2000, the State
had approximately $6.7 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and
authorities had approximately $26 billion aggregate principal amount of revenue
bonds and notes outstanding as of June 30, 1999. Revenue bonds represent both
obligations payable from State revenue-producing enterprises and projects,
which are not payable from the General Fund, and conduit obligations payable
only from revenues paid by private users of facilities financed by such revenue
bonds. Such enterprises and projects include transportation projects, various
public works and exposition projects, educational facilities (including the
California State University and University of California systems), housing,
health facilities, and pollution control facilities.
Because of the State of California's budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by S&P, and to A from AA by Fitch. Moody's, Fitch and S&P expressed
uncertainty in the State's ability to balance its budget by 1996. However, in
1996, citing California's improving economy and budget situation, both Fitch
and S&P raised their ratings from A to A+. In October, 1997, Fitch raised its
rating from A+ to AA- referring to the State's fundamental strengths, the
extent of its economic recovery and the return of financial stability. In
October 1998, Moody's raised its rating from A1 to Aa3 citing the State's
continuing economic recovery and a number of actions taken to improve the
State's credit condition, including the rebuilding of cash and budget reserves.
In August 1999, S&P raised its rating from A+ to AA- citing the State's strong
economic performance and its return to structural fiscal balance.
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations and which, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
Some local governments in California have experienced notable financial
difficulties. On December 6, 1994, Orange County, California, became the
largest municipality in the United States to file for protection under the
Federal bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the County's investment pool due to investments in high risk
"derivative" securities. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay
off the last of its creditors. On January 7, 1997, Orange County returned to
the municipal bond market with a $136 million bond issue maturing in 13 years
at an insured yield of 7.23%. In December, 1997, Moody's raised its ratings on
$325 million of Orange County pension obligation bonds to Baa3 from Ba. In
February 1998, Fitch assigned outstanding Orange County pension obligation
bonds a BBB rating. In September 1999, Moody's assigned the County an issuer
(implied general obligation) rating of Aa3 and, among other things, upgraded
the ratings on the County's pension obligation bonds to A1. In January 2000,
S&P upgraded its rating on the County's pension obligation bonds from BB to A-.
Los Angeles County, the nation's largest county, has also experienced
financial difficulty. Between 1992 and 1995, the County's long-term bonds were
downgraded three times. This occurred as a result
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of, and among other things, severe operating deficits for the county's health
care system. In addition, the county was affected by an ongoing loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. The
County's improving financial condition has been reflected in improved general
obligation bond ratings. In June 1999, the Los Angeles County Board of
Supervisors approved a budget of approximately $15 billion for 1999-2000, up
from the $13.6 billion approved for the previous fiscal year. The County's
financial condition will continue to be affected by the large number of County
residents who are dependent on government services and by a structural deficit
in its health department.
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
THE FLORIDA SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. The following
information is provided only for general information purposes and is not
intended to be a description or summary of the investment considerations and
factors which may have an affect on the Florida Series or the obligations of
the issuers in which the Florida Series may invest. Prospective investors must
read the entire prospectus to obtain information essential to the making of an
informed investment decision.
The Florida Series invests primarily in municipal securities and
obligations of counties, cities, school districts, special districts, and other
government authorities and issuers of the State of Florida, the interest on
which is excludable from gross income for federal income tax purposes. The
Florida Series may also invest in tax-exempt, municipal securities and
obligations that are issued by governmental entities for the benefit of certain
private obligors. The repayment of such securities and obligations ultimately
is the responsibility of the private obligor and the governmental issuer
typically is not responsible for the repayment of such securities and
obligations. The municipal securities market of Florida is very diverse and
includes many different types of obligations that are issued by a number of
different issuers and which are payable from a variety of revenue sources.
Accordingly, the ability of Florida issuers or private obligors to meet their
obligations with respect to such municipal securities is influenced by various
political, legal, economic and regulatory factors affecting such issuers, the
State of Florida and the repayment sources supporting municipal obligations. If
any of such issuers or private obligors cannot satisfy their repayment
obligations, for any reason, the income, value and liquidity of the Florida
Series may be adversely affected.
As of January 1, 2000, the State of Florida's general obligation debt
maintained ratings of "AA+" from Standard & Poor's Ratings Group, "AA" from
Fitch IBCA and "Aa2" from Moody's Investors Service. It should be noted,
however, that the Florida Series is not required to invest in State of Florida
general obligation debt and, accordingly, may or may not have any investments
in State of Florida general obligation debt from time to time. Some issuers in
which the Florida Series invests may have ratings lower than the State's
ratings noted above while others may have higher ratings.
Florida presently is the fourth largest state in the United States and
continues to be one of the most rapidly growing states. Between 1980 and 1990,
Florida's population increased by approximately 3.2 million people, the second
largest population increase for any state during the decade (California was
first). During such period of time, Florida's total percentage growth in
population was 32.7%, the fourth largest percentage increase among states.
Florida's population has continued to grow since 1990, but at a slower pace
than during the 1980s and prior decades. As of April 1, 1999, Florida's
population had grown approximately 18.4% since April 1, 1990 to a total
population of 15,322,040, making Florida the 9th fastest growing state in the
1990's.
Florida's principal economic sectors include services and tourism, retail,
light manufacturing, particularly in the electronic, chemical and
transportation areas, finance and insurance, real estate, wholesale trade,
transportation and communications, agriculture, government and the military.
During the last few calendar years Florida's unemployment figures have
approximated the national average.
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Florida's economy has strengthened over the last several years reflecting the
strong national economy. Most of Florida's economic sectors are expected to
grow in the future and in light of Florida's geographic location and diverse
population, it is anticipated that Florida will continue to benefit from the
expanding world markets, especially Latin America.
The State of Florida and its political subdivisions are each required by
law to maintain balanced budgets. In order to satisfy this requirement, Florida
government entities have utilized a combination of spending reductions and
revenue enhancements. From time to time, tax and/or spending limitation
initiatives are introduced by the Florida Legislature or are proposed by the
citizens of the State in the form of amendments to the Florida Constitution.
Two such amendments became effective during the 1990's and are generally
described below.
By voter referendum held in 1992, the Florida Constitution was amended by
adding a subsection which, in effect, limits the annual increases in assessed
just value of homestead property to the lesser of (1) three percent of the
assessment for the prior year, or (2) the percentage change in the Consumer
Price Index, as described and calculated in such amendment. The amendment
further provides that (1) no assessment shall exceed just value, (2) after any
change of ownership of homestead property or upon termination of homestead
status, such property shall be reassessed at just value as of January 1 of the
year following the year of sale or change of status, (3) new homestead property
shall be assessed at just value as of January 1 of the year following the
establishment of the homestead, and (4) changes, additions, reductions or
improvements to homestead property shall initially be assessed as provided for
by general law, and thereafter as provided in the amendment. Pursuant to a
Florida Supreme Court ruling, the amendment became effective on January 1,
1995. Studies have been conducted analyzing the effect of this amendment on
property values and tax collections in Florida since its effective date. Such
studies conclude that while the assessed values of homestead property within
the State have been lower due to the amendment, the impact on total property
tax revenues for local governments within the State has been small due to
growth in the total property tax base and the property tax revenues received
with respect to non-homestead property. It is expected that the amendment's
impact will be similar in future years.
In the 1994 general election, Florida voters approved an amendment to the
Florida Constitution which is commonly referred to as the "Limitation On State
Revenues Amendment." This amendment provides that state revenues collected for
any fiscal year shall be limited to state revenues allowed under the amendment
for the prior fiscal year plus an adjustment for growth. Growth is defined as
an amount equal to the average annual rate of growth in Florida personal income
over the most recent twenty quarters times the state revenues allowed under the
amendment for the prior fiscal year. State revenues collected for any fiscal
year in excess of this limitation are required to be transferred to a budget
stabilization fund until the fund reaches the maximum balance specified in the
amendment to the Florida Constitution, and thereafter is required to be
refunded to taxpayers as provided by general law. The limitation on state
revenues imposed by the amendment may be increased by the Legislature, by a
two-thirds vote in each house. This amendment took effect on January 1, 1995,
and was first applicable to the State's fiscal year 1995-96. This amendment has
had no impact for the state fiscal years following the effective date of the
amendment, as State revenues were substantially below the constitutionally
imposed limitation. It is projected that State revenues for the next few fiscal
years also will not exceed the applicable revenue limitations. Estimates or
projections beyond such period cannot be made with any certainty at this time.
THE MASSACHUSETTS SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. Between
1982 and 1988 The Commonwealth of Massachusetts had a strong economy which was
evidenced by low unemployment and high personal income growth as compared to
national trends. The Commonwealth experienced a significant economic slowdown
from 1988 through 1992, with particular deterioration in the construction, real
estate, insurance, financial and manufacturing sectors, including certain high
technology areas. Economic activity has since improved and led to improvements
in the housing industry and employment rates. Unemployment had risen to 8.5% in
1992, as compared to a national average of 7.4%; but decreased to 5.1% at the
end of fiscal 1995 and further decreased to 4.1% at the end of fiscal 1996. The
Massachusetts unemployment rate at the end of 1998 was 3.0% as compared to the
national rate of 4.5%. At the end of fiscal year 1999, the Massachusetts
unemployment rate was 3.1% as compared to the national average of 4.2%.
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The recent economic growth has resulted in a progressive growth of state
tax revenues since 1993. Tax revenues for fiscal year 1998 are currently
projected to be approximately 2.6% above fiscal year 1997. The Commonwealth had
a budgetary deficit for fiscal year 1989 and 1990 of $466.4 million and
$1,362.7 billion respectively. Deficits were avoided in fiscal 1991 and 1992,
and a surplus was achieved from 1993-1999. In 1992, Standard & Poor's and
Moody's raised their ratings of the Commonwealth's general obligation bonds
from BBB and Baa1, respectively, to A and A, respectively and Standard & Poor's
further raised such ratings to A+ in 1993. Currently, the Commonwealth's
general obligation bonds are rated Aa3 and AA- by Moody's and Fitch IBCA,
respectively. From time to time, the rating agencies may further change their
ratings in response to budgetary matters or other economic indicators. Growth
of tax revenues in the Commonwealth is limited by law. Effective July 1, 1990,
limitations were placed on the amount of direct bonds the Commonwealth could
have outstanding in a fiscal year, and the amount of the total appropriation in
any fiscal year that may be expended for debt service on general obligation
debt of the Commonwealth (other than certain debt incurred to pay the fiscal
1990 deficit and certain Medicaid reimbursement payments for prior fiscal
years) was limited to ten percent. Moreover, Massachusetts local governmental
entities are subject to certain limitations on their taxing power that could
affect their ability or the ability of the Commonwealth to meet their
respective financial obligations.
If either Massachusetts or any of its local governmental entities is
unable to meet its financial obligations, the income derived by the
Massachusetts Series, the Series' net asset value, the Series' ability to
preserve or realize capital appreciation or the Series' liquidity could be
adversely affected.
Between 1982 and 1988 The Commonwealth of Massachusetts had a strong
economy which was evidenced by low unemployment and high personal income growth
as compared to national trends. Economic growth in the Commonwealth slowed from
1988 to 1992, however, as the Commonwealth experienced a significant economic
slowdown, with particular deterioration in the construction, real estate,
financial, insurance and manufacturing sectors, including certain high
technology areas. Economic activity began to improve in 1993 and continued to
improve in 1994, particularly in the construction and service sectors as well
as in housing sales. Since 1995, the services and wholesale and retail trade
industries have been the two largest industries by number of employees. A
continued low rate of inflation is expected to keep wage growth low and allow
for slow-paced positive growth in the Massachusetts economy.
Growth of state tax revenues in the Commonwealth slowed considerably in
fiscal 1988, fiscal 1989 and fiscal 1990, while expenditures for state programs
and services increased. Fiscal 1989 and 1990 ended with budgetary deficits of
$466.4 million and $1.362 billion, respectively. The Commonwealth achieved
budget surpluses in each fiscal year since 1991. The Commonwealth's fiscal 1999
budgeted expenditures and other uses are estimated to be approximately $20.8
billion. On a statutory basis of accounting, the Commonwealth has achieved a
positive fund balance for each of the last five years. During this period, the
fund balance increased from $726.5 million in fiscal year 1995 to $2.1 billion
in 1999 for a cumulative improvement of $1.4 billion. In 1991, Standard &
Poor's and Moody's lowered their ratings of the Commonwealth's general
obligation bonds from AA and Aa, respectively, to BBB and Baa, respectively,
but in 1992 each raised such ratings to A and in 1993, Standard & Poor's
further increased such rating to A+. From time to time, the rating agencies may
further change their ratings. Currently, the Commonwealth's general obligation
bonds are rated A1 and AA by Moody's and Standard & Poor's, respectively.
The Commonwealth's fiscal 1991 budget achieved a small surplus principally
as a result of a one time reimbursement claim for Federal funds available under
Medicaid reimbursement programs. In fiscal 1992 and 1993, budget surpluses were
achieved through appropriation and spending reductions and a significant
increase in revenues attributable to tax increases and enhanced revenue
collections. Fiscal 1993 and 1994 tax revenues increased to account for
approximately 45% of all revenues and financing sources. Fiscal 1996 tax
revenues increased to account for approximately 47.5% of all revenues and
financing sources. Fiscal 1997 tax revenues accounted for 47.7% and fiscal year
1998 tax revenues accounted for 44.9%. Tax revenues for 2000 are estimated to
be 2.9% above fiscal 1999 actual collections of $14.3 billion.
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Growth of tax revenues in the Commonwealth is limited by law. In addition,
effective July 1, 1990, limitations were placed on the amount of direct bonds
(other than Fiscal Recovery Bonds and certain other limited exceptions) the
Commonwealth may have outstanding in a fiscal year, and the amount of the total
appropriation in any fiscal year that may be expended for payment of principal
of and interest on general obligation debt (other than Fiscal Recovery Bonds)
of the Commonwealth was limited to 10 percent of such appropriation.
Furthermore, certain of the Commonwealth's cities and towns have at times
experienced serious financial difficulties which have adversely affected their
credit standing. The recurrence of such financial difficulties, or financial
difficulties of the Commonwealth, could adversely effect the market values and
marketability of, or result in default in payment on, outstanding obligations
issued by the Commonwealth or its public authorities or municipalities. In
addition, the Massachusetts statutes which limit the taxing authority of the
Commonwealth or certain Massachusetts governmental entities may impair the
ability of issuers of some Massachusetts obligations to pay debt service on
their obligations.
In Massachusetts the tax on personal property and real estate is virtually
the only source of tax revenues available to cities and towns to meet local
costs. "Proposition 2 1/2," an initiative petition adopted by the voters of the
Commonwealth of Massachusetts on November 4, 1980, limits the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of certain debt service. Proposition 2 1/2 required many
cities and towns to reduce their property tax levels to a stated percentage of
the full and fair cash value of their taxable real estate and personal property
and limited the amount by which the total property taxes assessed by a city or
town might increase from year to year.
To offset shortfalls experienced by local governments as a result of the
implementation of Proposition 2 1/2, the state government increased direct
local aid from the 1981 level of $1.632 billion to the fiscal 1989 level of
$2.9 billion; however, direct local aid dropped in fiscal 1991 and 1992 to
approximately $2.6 billion and $2.3 billion, respectively. In the period 1993
to 1996, direct local aid has increased from $2.5 billion to $3.3 billion. In
fiscal 1997, 1998 and 1999, direct local aid increased to $3.7 billion, $3.9
billion and $4.3 billion, respectively.
THE MICHIGAN SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. The information
set forth below is derived from official statements prepared in connection with
the issuance of obligations of the State of Michigan and other sources that are
generally available to investors, including the State of Michigan Comprehensive
Annual Financial Reports for the fiscal years ended September 30, 1996, 1997
and 1998. The information is provided as general information intended to give a
recent historical description and is not intended to indicate further or
continuing trends in the financial or other positions of the State of Michigan.
Such information constitutes only a brief summary, relates primarily to the
State of Michigan, does not purport to include details relating to other
potential issuers within the State of Michigan whose securities may be
purchased by the Michigan Series and does not purport to be a complete
description.
Economy. The principal sectors of Michigan's economy are durable goods
manufacturing (including automobile and office equipment manufacturing),
tourism and agriculture. As reflected in historical employment figures,
Michigan's economy has lessened its dependence upon durable goods
manufacturing. In 1960, employment in such industry accounted for 33% of
Michigan's labor force. This figure fell to 16.1% in 1998. Durable goods
manufacturing (including auto-related manufacturing) continues, however, to be
an important part of Michigan's economy. This industry is highly cyclical.
Historically, during periods of economic decline or slow economic growth, the
cyclical nature of this industry has adversely affected the revenue streams of
Michigan and its political subdivisions because it has adversely impacted
certain tax sources, particularly sales taxes, income taxes and single business
taxes. Income per capita in Michigan in 1998 was approximately 0.9% lower than
the national average. For the sixth consecutive year, contrary to the prior
historical trend, the average annual unemployment rate for 1999 in Michigan was
slightly lower than the average rate for the United States.
Budget. The budget of Michigan is a complete financial plan and
encompasses the revenues and expenditures, both operating and capital outlay,
of the General Fund and special revenue funds. The budget is prepared on a
basis consistent with generally accepted accounting principles. Michigan's
fiscal
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year begins on October 1 and ends September 30 of the following year. Under
Michigan law, the executive budget recommendations for any fund may not exceed
the estimated revenue thereof, and an itemized statement of estimated revenues
in each operating fund must be contained in an appropriation bill as passed by
the Legislature, the total of which may not be less than the total of all
appropriations made from the fund for that fiscal year. The Michigan
Constitution provides that proposed expenditures and revenues of any fund must
be in balance and that any prior year's surplus or deficit in any fund must be
included in the succeeding year's budget for that fund.
Michigan's Constitution limits the amount of total State revenues that may
be raised from taxes and other sources. State revenues (excluding federal aid
and revenues used for payment of principal of and interest on general
obligation bonds) in any fiscal year are limited to a specified percentage of
Michigan personal income in the prior calendar year or average thereof in the
prior three calendar years, whichever is greater. The percentage is based upon
the ratio of the 1978-79 fiscal year revenues to the total 1977 Michigan
personal income (the total income received by persons in Michigan from all
sources as defined and officially reported by the United States Department of
Commerce). If revenues in any fiscal year exceed the revenue limitation by 1
percent or more, the entire amount exceeding the limitation must be rebated in
the following fiscal year's personal income tax or single business tax. Annual
excesses of less than 1 percent may be transferred into Michigan's
Counter-Cyclical Budget and Economic Stabilization Fund ("BSF"). Michigan may
raise taxes in excess of the limit in emergency situations when deemed necessary
by the Governor and two-thirds of the members of each house of the Legislature.
Michigan finances its operations through its General Fund and special
revenue funds. The General Fund receives revenues that are not specifically
required to be included in the special revenue funds. Approximately 55% of
General Fund revenues are obtained from the payment of state taxes, and
approximately 45% are obtained from federal and nontax revenue sources. The
majority of the revenues from state taxes are from the personal income tax, the
single business tax and the sales and use tax. In addition, Michigan levies
various other taxes. Over two-thirds of total General Fund expenditures are
made for education, the Family Independence Agency and the Department of
Community Health. State support of public education consists of aid to local
and intermediate school districts (which provide education to children in
grades kindergarten through 12), charter schools, State universities, community
colleges, and the Department of Education which is responsible for
administering a variety of programs that provide additional special purpose
funding for local and intermediate school districts. The Family Independence
Agency and the Department of Community Health administer economic, social and
medical assistance programs in Michigan, including Medicare, Medicaid and the
Temporary Assistance to Needy Families block grant.
Michigan ended fiscal years 1996-97 and 1997-98 with General Fund
surpluses of $63.3 million and $55.2 million respectively. In fiscal year
1995-96, the State of Michigan made deposits into the BSF totaling $150.5
million. The unreserved balance for the BSF as of the end of fiscal year
1997-98, reported on a cash basis, was $1,000.5 million.
For the fiscal year 1997-1998, General Fund revenues and other financing
sources (including restricted sources, operating transfers in, and capital
lease acquisitions) totaled approximately $19.3 billion while expenditures and
other financing uses totaled approximately $18.8 billion. The unreserved fund
balance of the General Fund was $55.2 million at that fiscal year-end.
During fiscal year 1997-98, an error was identified pertaining to the
Medicaid program administered by the Department of Community Health (DCH). Over
a ten-year period, DCH did not properly record all Medicaid expenditures and
revenues on a modified accrual basis as required by GAAP. For the fiscal year
ended September 30, 1997, the General Fund did not reflect Medicaid
expenditures of $178.7 million and federal revenue of $24.6 million. As a
result, the fiscal year 1997-98 beginning fund balances were reduced by $154.1
million, to $893.1 million, to account for the correction of the prior period
error.
On January 27, 2000, the State's governor presented to the Legislature the
proposed budget for fiscal year 2000-01 which proposes $36.2 billion of
expenditures. As of February 11, 2000, this proposed budget was under review by
the Legislature.
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DEBT. The Michigan Constitution limits Michigan general obligation debt to
(i) short-term debt for State operating purposes which must be repaid in the
same fiscal year that it is issued and which cannot exceed 15% of the
undedicated revenues received by the State during the preceding fiscal year,
(ii) short-and long-term debt unlimited in amount for the purpose of making
loans to school districts and (iii) long-term debt for voter-approved purposes.
Michigan has issued and has outstanding general obligation full faith and
credit bonds for water resources, environmental protection program, recreation
program and school loan purposes, which as of September 30, 1998 totaled
approximately $874 million. In November 1988 Michigan's voters approved the
issuance of $800 million of general obligation bonds for environmental
protection and recreational purposes of which approximately $173 million
remained to be issued as of September 30, 1998.
On April 28, 1998, the State issued $160 million in general obligation
school loan bonds for school loan purposes. On June 3, 1998, the State issued
$90 million in general obligation environmental protection program bonds. In
November 1998, the Michigan voters approved the issuance of $675 million in
general obligation indebtedness for environmental and other purposes, of which
the State issued $96,860,000 million in general obligation bonds in October
1999.
There are also various state authorities and special purpose agencies
created by Michigan which issue bonds secured by specific revenues. Such debt
is not a general obligation of Michigan.
Litigation. Michigan is a party to various legal proceedings seeking
damages or injunctive or other relief. In addition to routine litigation,
certain of these proceedings could, if unfavorably resolved from the point of
view of Michigan, substantially affect State programs or finances. Those
lawsuits involve programs generally in the areas of corrections, tax
collection, commerce and budgetary reductions to school districts, governmental
units and court funding. Relief sought includes damages in tort cases
generally, alleviation of prison overcrowding, improvement of prison medical
and mental health care, and refund claims under Michigan taxes. In an order
dated June 10, 1997 and a decision rendered July 31, 1997, the Michigan Supreme
Court decided, in the consolidated cases of Durant v. State of Michigan and
Schmidt v. State of Michigan, that the state must pay $212 million to 84 school
districts to settle litigation involving state mandates. The governor signed
legislation providing $212 million to the 84 school districts. The $212 million
was paid from the BSF on April 15, 1998. Approximately 400 other school
districts asserted similar claims; the State has settled with these districts
for payments that will, over fifteen years beginning in the fiscal year
1998-99, total $632 million. This amount is to be paid from the BSF and the
General Fund; half in annual payments over ten years, and half in annual
payments over fifteen years.
On May 14, 1998, more than 100 Michigan school districts and individuals
filed suit in the Michigan Court of Appeals, asserting that the current version
of the state school aid act violates the Michigan Constitution in much the same
manner as prior versions of the act were ruled unconstitutional by the Michigan
Supreme Court in Durant, Durant, et al v State, et al ("Durant II"). The Durant
II plaintiffs are seeking a monetary remedy of approximately $347 million for
the 1997-1998 school year for the State's alleged underfunding of special
education services, special education transportation, and school lunch
programs. The Durant II plaintiffs are also requesting a declaratory judgment
that the current version of the state school aid act will not provide proper
funding levels for future school years. They also seek attorneys' fees and
costs of the litigation. On October 30, 1998, the school districts moved to
amend their complaint to challenge the newly-enacted amendments to the State
School Aid Act, 1998 PA 339, to add claims for the 1999-2000 fiscal year and to
add a new count for mandamus against the state treasurer. On December 2, 1998,
the Court of Appeals granted the Durant II plaintiffs' motion to amend the
complaint and established a briefing schedule. On September 17, 1999, the Court
of Appeals granted plaintiffs' motion to file a second amended complaint which
added approximately 125 new school districts and 125 individuals as additional
plaintiffs. In October 1999, the Court of Appeals granted the plaintiffs'
motion for summary disposition on the count seeking declaratory relief. On all
other counts, the Court of Appeals ruled in favor of the State. On February 4,
2000, the Court of Appeals granted a stay in the proceedings pending appeal to
the Michigan Supreme Court. The ultimate disposition of the legal proceedings
described in this paragraph is not presently determinable.
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10th Judicial Circuit, et al. v. State of Michigan, et al.: On August 22,
1994, the Ingham Circuit and Probate Courts, together with the 55th District
Court, filed suits in the Court of Claims and Ingham County Circuit Court
against the State of Michigan and Ingham County for declaratory and injunctive
relief, and for damages, due to the alleged failure of the State Court
Administrative Office to properly calculate Ingham County's reimbursement under
MCL 600.9947, the court funding statute. This case was dismissed by stipulation
of the parties because the plaintiffs are members of a class action suit filed
in the Saginaw County Circuit Court with claims identical to those filed in the
Court of Claims and Ingham County Circuit Court. The plaintiffs in the
continuing case assert that the amount in controversy exceeds five million
dollars. The court granted final class certification on April 26, 1996. The
case is currently pending in Saginaw County Circuit Court.
Year 2000. On January 25, 2000, the department responsible for Michigan's
Year 2000 Project reported that the State did not experience any significant
events related to the so-called "Y2K Bug."
Property Tax Initiatives. On March 15, 1994, Michigan voters approved a
property tax and school finance reform measure known as Proposal A. Under
Proposal A, as approved, effective May 1, 1994, the State sales and use tax
increased from 4% to 6%, the State income tax decreased from 4.6% to 4.4%, the
cigarette tax was increased from $.25 to $.75 per pack and an additional tax of
16% of the wholesale price began to be imposed on certain other tobacco
products. A .75% real estate transfer tax became effective on January 1, 1995.
Beginning in 1994, a State of Michigan property tax of six mills began to be
imposed on all real and personal property currently subject to the general
property tax. All local school boards are authorized, with voter approval, to
levy up to the lesser of 18 mills or the number of mills levied in 1993 for
school operating purposes on nonhomestead property and nonqualified
agricultural property. Proposal A contains additional provisions regarding the
ability of local school districts to levy taxes, as well as a limit on annual
assessment increases for each parcel of property beginning in 1995; increases
for each parcel of property are limited to the lesser of 5% or the rate of
inflation. When property is sold, its assessed value reverts to the current
assessment level of 50% of true cash value. Under Proposal A, much of the
additional revenue generated by the new taxes will be dedicated to the State's
School Aid Fund. Proposal A shifts significant portions of the cost of local
school operations from local school districts to the State of Michigan and
raises additional State revenues to fund those additional State expenses. Those
additional revenues will be included within the State's constitutional revenue
limitations and may impact the State's ability to raise additional revenues in
the future.
Ratings. As of October 12, 1999, Michigan's general obligation bonds were
rated "Aa1" by Moody's Investors Service, "AA+" by Standard & Poor's Ratings
Services and "AA+" by Fitch Investors Service. All of these ratings represent
an upgrade of previous ratings of Aa2, AA, and AA respectively. These upgrades
occurred in early 1998, and were reaffirmed as recently as October 1999. To the
extent that the portfolio of the Michigan Series is composed of revenue
obligations of the State of Michigan or revenue or general obligations of local
governments or State or local authorities, rather than general obligations of
the State of Michigan, ratings on such components of the Michigan Series will
be different from those given to the general obligations of the State of
Michigan and their value may be independently affected by economic matters not
directly impacting the State.
TREATMENT OF DISTRIBUTIONS FOR MICHIGAN TAX PURPOSES. Under existing
Michigan law, to the extent that the distributions from the Michigan Series
qualify as "exempt-interest dividends" of a regulated investment company under
Section 852(b)(5) of the Code which are attributable to interest on tax-exempt
obligations of the State of Michigan, its political or governmental
subdivisions, or its governmental agencies or instrumentalities ("Michigan
Obligations"), or obligations of the United States or its agencies or
possessions that are exempt from state taxation, such distributions will also
not be subject to Michigan income tax or Michigan single business tax.
To the extent that distributions of the Michigan Series are derived from
other income, including long- or short-term capital gains, the distributions
will not be exempt from Michigan income tax or Michigan single business tax.
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Certain Michigan cities have adopted Michigan's uniform city income tax
ordinance, which under the Michigan city income tax act is the only income tax
ordinance that may be adopted by cities in Michigan. To the extent the
distributions on the Michigan Series are not subject to Michigan income tax,
they are not subject to any Michigan city's income tax.
THE MINNESOTA SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. The information
set forth below is derived from official statements prepared in connection with
the issuance of obligations of the State of Minnesota and other sources that
are generally available to investors. The information is provided as general
information intended to give a recent historical description and is not
intended to indicate further or continuing trends in the financial or other
positions of the State of Minnesota. Such information constitutes only a brief
summary, relates primarily to the State of Minnesota, does not purport to
include details relating to all potential issuers within the State of Minnesota
whose securities may be purchased by the Minnesota Series, and does not purport
to be a complete description.
The State of Minnesota has experienced certain budgeting and financial
problems since 1980. However, in recent years, Accounting General Fund balances
have been positive.
In February 1992 the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1993, at negative $569 million. The balance at
June 30, 1995, was projected at negative $1.75 billion.
The 1992 Legislature reduced expenditures by $262 million for the biennium
ending June 30, 1993, enacted revenue measures expected to increase revenue by
$149 million, and reduced the budget reserve by $160 million to $240 million.
After the Legislature adjourned in April 1992, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1993, at $2.4
million, and projected the balance at June 30, 1995, at negative $837 million.
A November 1992 forecast estimated the balance at June 30, 1993, at positive
$217 million and projected the balance at June 30, 1995, at negative $769
million.
A March 1993 forecast projected an Accounting General Fund balance at June
30, 1995, at negative $163 million out of a budget for the biennium of
approximately $16.7 billion, and estimated a balance at June 30, 1997, at
negative $1.6 billion out of a budget of approximately $18.7 billion.
The 1993 Legislature authorized $16.519 billion in spending for the
1993-1995 biennium, an increase of 13.0 percent from 1991-1993 expenditures.
Resources for the 1993-1995 biennium were projected to be $16.895 billion,
including $657 million carried forward from the previous biennium. The $16.238
billion in projected non-dedicated and dedicated revenues was 10.3 percent
greater than in the previous biennium and included $175 million from revenue
measures enacted by the 1993 Legislature. The Legislature increased the health
care provider tax to raise $79 million, transferred $39 million into the
Accounting General Fund and improved collection of accounts receivable to
generate $41 million.
After the Legislature adjourned in May 1993, the Commissioner of Finance
estimated that at June 30, 1995, the Accounting General Fund balance would be
$16 million and the budget reserve, as approved by the 1993 Legislature, would
be $360 million. The Accounting General Fund balance at June 30, 1993, was $463
million.
The Commissioner of Finance, in a November 1993 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $430 million, due to
projected increases in revenues and reductions in expenditures, and the balance
at June 30, 1997, at $389 million. The Commissioner recommended that the budget
reserve be increased to $500 million. He estimated that if current laws and
policies continued unchanged, revenue would grow 7.7 percent and expenditures
6.0 percent in the 1995-1997 biennium.
A March 1994 forecast projected an Accounting General Fund balance at June
30, 1995, at $623 million, principally due to a projected $235 million increase
in revenues to $16.6 billion for the biennium. The balance at June 30, 1997,
was estimated to be $247 million.
The 1994 Legislature provided for a $500 million budget reserve;
appropriated to school districts $172 million to allow the districts, for
purposes of state aid calculations, to reduce the portion of property tax
collections that the school districts must recognize in the fiscal year during
which they receive the property taxes; increased expenditures $184 million; and
increased expected revenues $4 million.
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Of the $184 million in increased expenditures, criminal justice
initiatives totaled $45 million, elementary and higher education $31 million,
environment and flood relief $18 million, property tax relief $55 million, and
transit $11 million. A six-year strategic capital budget plan was adopted with
$450 million in projects financed by bonds supported by the Accounting General
Fund. Other expenditure increases total $16.5 million.
Included in the expected revenue increase of $4 million were conformity
with federal tax changes to increase revenues $27.5 million, a sales tax
phasedown on replacement capital equipment and miscellaneous sales tax
exemptions decreasing revenues $17.3 million, and other measures decreasing
revenues $6.2 million.
After the Legislature adjourned in May 1994, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1995, at $130
million.
The Commissioner of Finance, in a November 1994 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $268 million, due to
projected increases in revenues and decreases in expenditures, and the balance
at June 30, 1997, at $190 million.
A February 1995 forecast projected an Accounting General Fund balance at
June 30, 1995, at $383 million, due to a $93.5 million increase in projected
revenues and a $21.0 million decrease in expenditures. The balance at June 30,
1997, was projected at $250 million.
The 1995 Legislature authorized $18.220 billion in spending for the
1995-1997 biennium, an increase of $1.395 billion, 8.3 percent, from 1993-1995
expenditures. Resources for the 1995-1997 biennium were projected to be $18.774
billion, including $921 million carried forward from the previous biennium.
The Legislature authorized 7.1 percent more spending for elementary and
secondary education in the 1995-1997 biennium than in 1993-1995, 0.9 percent
more in local government aids, 14.2 percent more for health and human services,
2.3 percent more for higher education, and 25.1 percent more for corrections.
The Legislature set the budget reserve at $350 million and established a
supplementary reserve of $204 million in view of predicted federal cutbacks.
After the Legislature adjourned in May 1995, the Commissioner of Finance
estimated that at June 30, 1997, the Accounting General Fund balance would be
zero. The Accounting General Fund balance at June 30, 1995, was $481 million.
The Commissioner of Finance, in a November 1995 forecast, estimated the
Accounting General Fund balance at June 30, 1997, at $824 million, due to a
$490 million increase in revenues from those projected in May 1995, a $199
million reduction in projected expenditures, and a $135 million increase in the
amount carried forward from the 1993-1995 biennium. An improved national
economic outlook increased projected net sales tax revenue $257 million and
reduced projected human services expenditures $231 million. The Commissioner
estimated the Accounting General Fund balance at June 30, 1999, at negative $28
million.
Only $15 million of the $824 million projected 1995-1997 surplus was
available for spending. The statutes require that an additional $15 million be
placed in the supplementary budget reserve, and an additional $794 million must
be appropriated to school districts to allow the districts, for purposes of
state aid calculations, to eliminate the 48 percent of property tax collections
that the school districts must recognize in the fiscal year during which they
receive the property taxes.
A February 1996 forecast projected an Accounting General Fund balance at
June 30, 1997, at $873 million, due to a $104 million increase in projected
revenues, a $19 million increase in expenditures, and a $36 million reduction
in the June 30, 1995, ending balance. The amount available for spending
increased from $15 million to $64 million.
In February 1996, the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1999, at $54 million.
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The 1996 Legislature reduced the State of Minnesota's commitment to
eliminate the so-called school recognition shift. The 1995 Legislature had
voted to allow school districts, for purposes of state aid calculations, to
eliminate the 48 percent of property tax collections that the school districts
must recognize in the fiscal year during which they receive the property taxes.
The 1996 Legislature raised the percentage for the 1995-1997 biennium from zero
to 7 percent, saving the State $116 million.
The 1996 Legislature increased expenditures $130 million, including $37
million for elementary education and youth development; $14 million for higher
education; $17 million for health systems and human services reforms; $16
million for public safety and criminal justice; and $36 million for
transportation, environment and technology. The Legislature also approved $614
million in capital projects to be funded by general obligation bonds and
appropriations and increased expected revenues $5 million.
After the Legislature adjourned in April 1996, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1997, at $1 million.
The Accounting General Fund balance at June 30, 1996, was $445 million.
The Commissioner of Finance, in a November 1996 forecast, estimated the
Accounting General Fund balance at June 30, 1997, at $793 million, due to a
$646 million increase in revenues from those projected in April 1996, a $209
million reduction in expenditures, and $63 million in other changes. The
longest period of national economic growth since World War II, through
mid-1999, was forecast. Individual income taxes were forecast to be $427
million more than projected in April 1996, and sales taxes $81 million more. Of
the $209 million reduction in forecast expenditures, $199 million were health
and human services expenditures.
Existing statutes require the first $114 million of the forecast balance
to be dedicated to a new education aid reserve for use in the 1997-1999
biennium. Another $157 million must be used to increase from 85 to 90 percent
the portion of state aid to school districts that is paid in the fiscal year
during which the districts become entitled to aid.
A February 1997 forecast projected an Accounting General Fund balance at
June 30, 1997, at $866 million (after taking into account the $114 million and
$157 million items referred to above), due to a $236 million increase in
projected revenues and a $108 million decrease in expenditures. The balance at
June 30, 1999, was projected at $1.7 billion.
The 1997 Legislature, in a regular session and June and August special
sessions, authorized $20.924 billion in spending for the 1997-1999 biennium, an
increase of $2.231 billion, or 11.8 percent, from 1995-1997 expenditures.
Resources for the 1997-1999 biennium were projected to be $21.946 billion,
including $1.630 billion carried forward from the previous biennium.
The Legislature authorized 14.8 percent more spending for elementary and
secondary education spending in the 1997-1999 biennium than in 1995-1997, 17.6
percent more for health and human services, 12.5 percent more in local
government aids, 10.7 percent more for higher education, and 0.3 percent more
for all other expenditures. The Legislature set the General Fund budget reserve
at $522 million. The cash flow account was set at $350 million, and a property
tax reform reserve account of $46 million was created for future restructuring
of the property tax system. Other reserves totaled $72 million.
After the Legislature adjourned its second special session in August 1997,
the Commissioner of Finance estimated that at June 30, 1999, the Accounting
General Fund balance would be positive $32 million. The Accounting General Fund
balance at June 30, 1997 was an estimated $861 million.
The Commissioner of Finance, in a November 1997 forecast, estimated the
Accounting General Fund balance at June 30, 1999, at $1.360 billion, $1.328
billion more than estimated after the 1997 Legislature adjourned, due to a $729
million increase in projected revenues, a $256 million reduction in projected
expenditures, $21 million increase in dedicated reserves, and a $364 million
increase in the projected amount carried forward from the 1995-1997 biennium.
Higher than anticipated individual
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income tax payments were the major source of $272 million in additional
revenues in the first half of 1997, and human services savings were the
principal source of $92 million in reduced expenditures. The Commissioner
estimated the Accounting General Fund balance at June 30, 2001, at $1.284
billion.
Only $453 million of the $1.360 billion projected 1997-1999 surplus was
available for spending. The statutes allocate the first $81 million of the
forecast balance to fund K-12 education tax credits and deductions enacted in
1997. Sixty percent of the remainder plus interest, $826 million, is added to a
property tax reform account.
A February 1998 forecast projected an Accounting General Fund balance at
June 30, 1999, at $1.045 billion, due to a $507 million increase in projected
revenues, a $90 million decrease in expenditures, and a $5 million increase in
dedicated reserves. The balance at June 30, 2001, was projected at $2.137
billion.
The 1998 Legislature increased spending $125 million for K-12 education
aids, $90 million to reduce the school property tax recognition shift
percentage to zero, $73 million for higher education, and $148 million for all
other operations. The Legislature also approved $999 million in capital
improvements, to be funded by $509 million in bonds and $502 million in
appropriations. The General Fund budget reserve was set at $622 million.
After the Legislature adjourned in April 1998, the Commissioner of Finance
estimated the Accounting General Fund balance at June 30, 1999, at $35 million.
The Commissioner of Finance, in a November 1998 forecast, estimated the
Accounting General Fund balance at June 30, 1999, at $953 million, due to an
$803 million increase in non-tobacco revenues, the receipt of $461 million in
tobacco settlement revenues, and a $262 million reduction in expenditures. A
total of $609 million of the $1.562 billion of estimated available revenues is
statutorily dedicated to reserves, tax reduction, and cash to replace bonding.
The Commissioner of Finance in November 1998 estimated the balance at June
30, 2001, at $3.324 billion.
A February 1999 forecast projected an Accounting General Fund balance at
June 30, 1999, at $1.235 billion due to a $285 million increase in projected
revenues and a $3 million increase in expenditures. The balance at June 30,
2001, was projected at $4.056 billion.
The 1999 Legislature authorized $23.384 billion in spending for the
1999-2001 biennium, an increase of $2.053 billion, or 9.6%, from 1997-1999
expenditures. Resources for the 1999-2001 biennium were projected to be $24.620
billion. Revenues, excluding the balance brought forward from the 1997-1999
biennium, are expected to be $2.248 billion, or 10.8%, greater than the
previous biennium.
The Legislature passed a $1.250 billion sales tax rebate. Individual
income tax rates were reduced in all three brackets, from 6.0% to 5.5%, from
8.0% to 7.25%, and from 8.5% to 8.0%. In addition, the "marriage penalty"
inherent in the previous rate structure was eliminated. These changes reduced
projected revenues by $1.312 billion for the 1999-2001 biennium.
The Legislature authorized 15.7% more spending for elementary and
secondary education in the 1999-2001 biennium than in 1997-1999, 21.6% more for
property tax aid programs to local governments, 12.2% more for health and human
services and 7.0% more for higher education.
The Legislature also provided that if, based on a forecast of general fund
revenues and expenditures in November of an even-numbered year or February of
an odd-numbered year, the Commissioner of Finance projects a positive
unrestricted budgetary general fund balance at the close of the biennium that
exceeds one-half of one percent of total general fund biennial revenues, the
Commissioner shall designate the entire balance as available for rebate to
taxpayers. In making the determinations of general fund balance or biennial
revenue, the Commissioner is prohibited from including any balance or revenue
attributable to certain tobacco settlement payments received after July 1, 1998
and before July 1, 2001. If the Commissioner designates an amount for rebate,
the Governor must then present a
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plan to the Minnesota Legislature for rebating that amount, with payments to
begin no later than August 15 of the odd-numbered year. The legislation
provides that the Legislature shall either enact, modify or reject the plan
presented by the Governor.
After the Legislature adjourned in May 1999, the Commissioner of Finance
estimated that at June 30, 2001, the Accounting General Fund balance would be
positive $80 million. The Accounting General Fund balance at June 30, 1999, was
an estimated $1.518 billion.
The Commissioner of Finance, in a November 1999 forecast, estimated the
Accounting General Fund balance at June 30, 2001, at $1.584 billion, $1.504
billion more than estimated after the 1999 Legislature adjourned, due to a
$1.154 billion increase in projected revenues, a $453 million gain from the
1997-1999 biennium, and a $103 million decrease caused by spending increases
and other changes.
Only $571 million of the $1.584 billion projected 1999-2001 surplus was
available for spending. The statutes allocate $43 million to provide a $50
increase in per pupil elementary and secondary school aids. Sixty percent of
the remaining balance plus interest, $1.013 billion, is deposited into the
Property Tax Reform Account.
The State of Minnesota has no obligation to pay any bonds of its political
or governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Minnesota Series
are expected to be obligations other than general obligations of the State of
Minnesota itself, there can be no assurance that the same factors that
adversely affect the economy of the State generally will not also affect
adversely the market value or marketability of such other obligations, or the
ability of the obligors to pay the principal of or interest on such
obligations.
At the local level, the property tax base has recovered after its growth
was slowed in many communities in the early 1990s by an overcapacity in certain
segments of the commercial real estate market. Local finances are also affected
by the amount of State aid that is made available. Further, various of the
issuers within the State of Minnesota, as well as the State of Minnesota
itself, whose securities may be purchased by the Minnesota Series, may now or
in the future be subject to lawsuits involving material amounts. It is
impossible to predict the outcome of these lawsuits. Any losses with respect to
these lawsuits may have an adverse impact on the ability of these issuers to
meet their obligations.
The Department of Finance acknowledged in 1995 that the State of
Minnesota's accounting system was not Year 2000 (Y2K) compliant and that the
systems vendor would deliver a compliant version upgrade in the future. In
mid-1997, State of Minnesota technical staff, along with the systems vendor,
began a $6.5 million project to install the new compliant version of the
accounting software. The State of Minnesota implemented the new software
version on November 30, 1998. Testing of the new compliant version to date has
been very positive. Even if the State of Minnesota successfully addresses its
Year 2000 compliance, there can be no assurance that any other organization or
governmental agency with which the State of Minnesota electronically interacts,
including vendors and the federal government, will be Year 2000 compliant. In
the event of any such occurrences, the State of Minnesota may face material
adverse consequences with respect to its revenues and operations. Local issuers
in the State of Minnesota may face similar problems.
Legislation enacted in 1995 provides that it is the intent of the
Minnesota Legislature that interest income on obligations of Minnesota
governmental units, and exempt-interest dividends that are derived from
interest income on such obligations, be included for Minnesota income tax
purposes in the net income of individuals, estates and trusts, if it is
judicially determined that the exemption by Minnesota of such interest or such
exempt-interest dividends unlawfully discriminates against interstate commerce
because interest income on obligations of governmental issuers located in other
states, or exempt-interest dividends derived from such obligations, is so
included. This provision provides that it applies to taxable years that begin
during or after the calendar year in which such judicial decision becomes
final,
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regardless of the date on which the obligations were issued, and that other
remedies apply for previous taxable years. The United States Supreme Court in
1995 denied certiorari in a case in which an Ohio State Court upheld an
exemption for interest income on obligations of Ohio governmental issuers, even
though interest income on obligations of non-Ohio governmental issuers was
subject to tax. In 1997, the United States Supreme Court denied certiorari in a
subsequent case from Ohio involving the same taxpayer and the same issue, in
which the Ohio Supreme Court refused to reconsider the merits of the case on
the ground that the previous final state court judgment barred any claim
arising out of the transaction that was the subject of the previous action. It
cannot be predicted whether a similar case will be brought in Minnesota or
elsewhere, or what the outcome of such case would be. Should an adverse
decision be rendered, the value of the securities purchased by the Minnesota
Series might be adversely affected, and the value of the shares of the
Minnesota Series might also be adversely affected.
The State's bond ratings in August, 1999 were Aaa by Moody's, AAA by S&P,
and AAA by Fitch's. Economic difficulties and the resultant impact on State and
local government finances may adversely affect the market value of obligations
in the portfolio of the Minnesota Series or the ability of respective obligors
to make timely payment of the principal and interest on such obligations.
THE NEW JERSEY SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. The portfolio
of the New Jersey Series contains different issues of debt obligations issued
by or on behalf of the State of New Jersey and counties, municipalities and
other political subdivisions and other public authorities thereof or by the
Government of Puerto Rico or the Government of Guam or by their respective
authorities. Investment in the New Jersey Series should be made with an
understanding that the value of the underlying Portfolio may decline with
increases in interest rates. Prospective investors should consider the recent
financial difficulties and pressures which the State of New Jersey and certain
of its public authorities have undergone.
The New Jersey State Constitution prohibits the legislature from making
appropriations in any fiscal year in excess of the total revenue on hand and
anticipated. A debt or liability that exceeds 1% of total appropriations for
the year is also prohibited, unless it is in connection with a refinancing to
produce a debt service savings or it is approved at a general election. Such
debt must be authorized by law and applied to a single specified object or
work. These Constitutional provisions do not apply to debt incurred because of
war, insurrection or emergencies caused by disaster.
Pursuant to Article VIII, Section II, par. 2 of the New Jersey
Constitution, no monies may be drawn from the State Treasury except for
appropriations made by law. In addition, the monies for the support of State
government and all State purposes, as far as can be ascertained, must be
provided for in one general appropriation law covering one and the same fiscal
year.
In addition to the Constitutional provisions, the New Jersey statutes
contain provisions concerning the budget and appropriation system. Under these
provisions, each unit of the State requests an appropriation from the Director
of the Division of Budget and Accounting, who reviews the budget requests and
forwards them with her recommendations to the Governor. The Governor then
transmits a recommended expenditures and sources of anticipated revenue to the
legislature, which reviews the Governor's Budget Message and submits an
appropriation bill to the Governor for her signature by July 1 of each year. At
the time of signing the bill, the Governor may revise appropriations or
anticipated revenues. That action can be reversed by a two-thirds vote of each
House. No supplemental appropriation may be enacted after adoption of the act,
except where there are sufficient revenues on hand or anticipated, as certified
by the Governor, to meet the appropriation. Finally, the Governor may, during
the course of the year, prevent the expenditure of various appropriations when
revenues are below those anticipated or when any such expenditure is determined
not to be in the best interest of the State.
Reflecting the economic downturn recently affecting the Northeast, the
rate of unemployment in the State rose from a low of 3.6 percent during the
first quarter of 1989 to a recessionary peak of 8.5% during 1992. Since then,
the unemployment rate fell to an average of 6.2% in 1996 and then from 5.7% in
November 1997 to 4.4% in January, 1998 and 4.2% in November 1998.
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Earnings of workers employed in New Jersey rose from $162,701,773,000 in
1996 to $171,766,782,000 in 1997, an increase of 5.6%. The largest industries
in 1997 based on earnings percentage were services (30.7% of earnings), state
and local government (11.8%) and manufacture of nondurable goods (10.0%). New
Jersey's total personal income of $259,566,754,000 in 1997 ranked 8th in the
United States, representing a 5% increase from 1996. New Jersey's 1997 per
capita income of $32,233 ranked 3rd in the United States, representing an
increase of 4.3% from 1996.
After an average annual manufacturing job loss of 33,500 from 1989 through
1992, New Jersey's factory job losses fell to 13,300 and 7,300 during 1993 and
1994 respectively. During 1995 and 1996, however, manufacturing job losses
increased to 10,100 and 13,900. However, according to information from the
Bureau of Labor Statistics, only 9,200 manufacturing jobs, or 1.89%, were lost
from November, 1997 to November, 1998. Over the same period, construction jobs
increased by 5.03%; transportation and public utilities by 1.79%; trade by
1.98%; finance, insurance and real estate by 2.37%; and services by 3.31%.
Employment in government decreased slightly over this period. Total job growth
peaked in 1997 at 87,000, up from a recent average of 50,000 a year. Total jobs
increased by 65,100 from November, 1997 to November, 1998 or 1.72%. The Rutgers
Economic Advisory Service has predicted that 76,400 new jobs will be created in
1999 with most positions in the service and retail sectors and in
communications.
According to a report issued by the Federal Reserve Board in December,
1998 (the "Beige Book"), housing permits surged in October, 1998 led by a wave
of multifamily projects in Northern New Jersey. At the same time, moreover, New
Jersey homebuilders were reporting fairly strong recent traffic and sales. Most
office building construction forecast for the next two years is expected to be
built in central New Jersey according to a survey by the New Jersey Chapter of
the National Association of Industrial and Office Properties. Eighty-five
percent of $1.62 billion is expected to be spent on new office and industrial
sites in Monmouth, Middlesex, Somerset, Morris and Mercer Counties, and
two-thirds of $1.62 billion will be spent in Morris and Mercer alone. However,
total construction spending projections for 1999 and 2000 of $14.1 billion
represent a 9.6% drop from $15.6 billion forecast a year ago for 1998 and 1999.
Based on estimates released by the United States Census Bureau, New
Jersey's estimated population grew from 8,058,384 to 8,115,011 in the 12-month
period ending July 1, 1998, an increase of 0.7%. This compares with an increase
of 0.2% for New York and a decrease of -0.1% for Pennsylvania over the same
period. The relatively small New Jersey increase, compared to a national
increase of 1%, overlays a significant population shift within the State from
northeastern industrial areas towards the coast and central New Jersey.
The State's 1999 Fiscal Year budget became law on June 30, 1998. Of the
$18,123.8 million appropriated in Fiscal Year 1999 from the General Fund, the
Property Tax Relief Fund, the Gubernatorial Elections Fund, the Casino Control
Fund and the Casino Revenue Fund, the following appropriations were made for
the following purposes: (i) $7,455.1 million (41.1%) for State Aid to Local
Governments ("State Aid"), (ii) $4,898.8 million (27.0%) for Grants-in-Aid,
(iii) $4,653.2 million (25.7%) for Direct State Services, (iv) $501.1 million
(2.8%) for Debt Service on State general obligation bonds and (v) $615.6
million (3.7%) for Capital Construction.
The largest recommended appropriation included in the State Aid category,
in the amount of $5,925.6 million, was for elementary and secondary education
programs including $2,747.6 million for core curriculum standards, $302.5
million for early childhood aid, $249.8 million for Abbott v. Burke Parity
Remedy aid (see litigation discussion below), $261.1 million for pupil
transportation aid, $647.9 million for special education, $82.7 million for
nonpublic school aid and $95.1 million for debt service on school bonds. Also,
a State Aid appropriation of $50.0 million for facilities improvements was
funded from a portion of an increase in State cigarette taxes. Additional
significant appropriations for schools included $157 million for supplemental
core curriculum standards aid, $187.3 million for demonstrably effective
program aid and $917.4 million to assist school districts with their
contributory share of the social security and teachers' pensions and benefits
programs.
Other recommended appropriations in the State Aid category included $836.6
million for the Department of Community Affairs, $756.1 million for
Consolidated Municipal Property Tax Relief,
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$16.7 million for housing programs, $33.0 million for block grant programs,
$30.0 million for discretionary aid, $252.7 million for welfare programs, $80.3
million for county mental hospitals, $50.0 million for matching funds to local
governments for open space preservation. State Aid appropriations to the
Department of Treasury of $228.7 million were used for aid to county colleges
($159.8 million); the cost of property tax deductions and exemptions for senior
citizens, disabled persons and veterans ($53.6 million); and the State
contribution to the Consolidated Police and Firemen's Pension Fund ($9.3
million).
The second largest category of appropriations, after State Aid ($4,898.8
million), was for Grants-in-Aid. This category represents amounts used for
payments to individuals or to public or private agencies for benefits or
services to which a recipient is by law entitled. The third largest category
($4,653.2 million) was for Direct State Services consisting of amounts used to
support the operation of State government departments, the Executive office,
various State commissions and the State legislature and judiciary. Finally,
smaller amounts were appropriated to pay debt service on general obligation
bonds of the State ($501.1 million) and for capital construction financed on a
pay-as-you go basis ($615.6 million).
At any given time, there are various claims and cases pending against the
State and State agencies and employees, seeking recovery of monetary damages
that are primarily paid out of the fund created pursuant to the Tort Claims
Act, N.J.S.A. 59:1-1 et seq. Such claims include but are not limited to those
that may be filed against the University of Medicine and Dentistry and its
employees seeking recoveries for alleged medical malpractice. In addition, at
any given time there are various contract and other claims against the State,
among other parties, including environmental claims arising from the alleged
disposal of hazardous wastes, seeking recovery of monetary damages. The State
is unable to estimate its exposure for these claims and cases. An independent
study estimated an aggregate potential exposure of $85,300,000 for tort and
medical malpractice claims pending, as of December 31, 1997. Moreover, New
Jersey is involved in a number of other lawsuits in which adverse decisions
could materially affect revenue or expenditures.
Such lawsuits include (1) actions challenging assessments made upon
property and casualty liability insurers doing business in New Jersey pursuant
to the Fair Automobile Insurance Reform Act; (2) a suit challenging the
constitutionality on Federal Commerce Clause grounds, of certain hazardous and
solid waste licensure renewal fees collected by the Department of Environmental
Protection; (3) litigation seeking to extend to middle income and poor rural
school districts the mandate of Abbott v. Burke, which requires poor urban
school districts to be provided amounts sufficient to permit them to spend at
the average of wealthy suburban school districts; (4) a class action
challenging the treatment of prisoners with serious mental disorders confined
within the State Department of Corrections system; (5) two separate suits
alleging violation of environmental laws resulting from alleged contamination
existing at the State-owned Liberty State Park and from certain soil shipments
made to that Park in connection with the I-287 wetlands mitigation project; (6)
an action challenging the State's application of the "spousal impoverishment
provisions" of the Medicare Catastrophic Coverage Act governing the treatment
of income and resources available to the "community" spouse when an
institutionalized spouse seeks to establish Medicare eligibility; (7) a
challenge by 18 New Jersey hospitals to the State's Medicaid reimbursement
procedures; (8) a series of challenges to the construction and issuance of
bonds to construct an Atlantic City road and tunnel project including
challenges based on alleged violations of (i) State constitutional provisions
limiting the use of certain revenues, (ii) federal securities law disclosure
requirements and (iii) certain federal and State environmental requirements;
(9) a breach of contract and civil rights action brought against the State by
Medicare part B service providers who seek reimbursement for Medicare
co-insurance and deductibles not paid by the State Medicaid program from 1988
to February 10, 1995; (10) a suit brought by a private resource recovery
facility owner and operator against the State Department of Environmental
Protection and others, including the Camden County Pollution Control Financing
Authority ("CCPCFA"), seeking a halt to the County's solid waste reprocurement
process pending clarification of bid specifications with a cross claim against
the State brought by CCPCFA; (11) a challenge on State constitutional grounds
to the "family cap" provisions of the State Work First New Jersey Act brought
on behalf of all persons who did not receive an increase in
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certain welfare benefits because of the cap; and (12) a challenge to a State
contract award made for the procurement of an enhanced motor vehicle inspection
system which, if system implementation is delayed, may expose the State to
significant federal sanctions including loss of federal transportation funds
and imposition of stricter air pollution standards.
Year 2000. Beginning in 1997, the State required all State departments to
develop three year action plans identifying all impacts expected from the "Year
2000" problem potentially affecting computer operations as that year draws
near. External parties have been requested to provide similar plans. Testing,
validation and implementation of critical centrally maintained systems was 55%
complete as of June 30, 1998. As of that date, the State had incurred expenses
of approximately $55 million of $132 million estimated to be needed to achieve
Year 2000 compliance.
As of January 1999, the State's general obligation bonds were rated AA+ by
S&P and Fitch and Aa1 by Moody's.
THE NEW YORK SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. Since the New
York Series concentrates its investments in New York tax-exempt securities, the
Fund is significantly affected by any political, economic or regulatory
developments affecting the ability of New York tax-exempt issuers to pay
interest or repay principal. Investors should be aware that certain issuers of
New York tax-exempt securities have experienced serious financial difficulties
in recent years. A reoccurrence of these difficulties may impair the ability of
certain New York issuers to maintain debt service on their obligations.
The fiscal stability of New York State is related to the fiscal stability
of the State's municipalities, its Agencies and Authorities (which generally
finance, construct and operate revenue-producing public benefit facilities).
This is due in part to the fact that Agencies, Authorities and local
governments in financial trouble often seek State financial assistance. The
experience has been that if New York City or any of the Agencies or Authorities
suffers serious financial difficulty, both the ability of the State, the City,
the State's political subdivisions, the Agencies and the Authorities to obtain
financing in the public credit markets and the market price of outstanding New
York tax-exempt securities are adversely affected.
Over the long term, the State and City face potential economic problems.
The City accounts for a large portion of the State's population and personal
income, and the City's financial health affects the State in numerous ways. The
City continues to require significant financial assistance from the State. The
City depends on State aid both to enable the City to balance its budget and to
meet its cash requirements. The State could also be affected by the ability of
the City to market its securities successfully in the public credit markets.
The economic and financial condition of the State also may be affected by
various financial, social, economic and political factors. Such factors can be
very complex, may vary from fiscal year to fiscal year and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State.
The following summary information on risk factors in concentrating in New
York municipal obligations is based on the State's Annual Information
Statement, dated August 24, 1999, as supplemented on October 20, 1999, and on
publicly available official statements relating to offerings of the City of
municipal securities on or prior to November 3, 1999, and it does not purport
to be a complete description of the considerations contained therein. No
representation is made as to the accuracy of such information.
During the mid-1970's, New York State, some of its agencies,
instrumentalities and public benefit corporations, and certain of its
municipalities faced serious financial difficulties. To address many of these
financial problems, the State developed various programs, many of which were
successful in ameliorating the financial crisis. Any further financial problems
experienced by these Authorities or municipalities could have a direct adverse
effect on the New York Municipal Obligations in which the Fund invests.
New York City. The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late 1989.
As a result, New York City experienced job
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losses in 1990 and 1991 and real Gross City Product (GCP) fell in those two
years. For the 1992 fiscal year, the City closed a projected budget gap of $3.3
billion in order to achieve a balanced budget as required by the laws of the
State. Beginning in 1992, the improvement in the national economy helped
stabilize conditions in the City. Employment losses moderated toward year-end
and real GCP increased, boosted by strong wage gains. After noticeable
improvements in the City's economy during calendar year 1994, economic growth
slowed in 1995 and thereafter improved commencing in calendar year 1996,
reflecting improved securities industry earnings and employment in other
sectors. Overall, the City's economic improvement accelerated significantly in
1997 and 1998. Much of the increase can be traced to the performance of the
securities industry, but the City's economy also produced gains in the retail
trade sector, the hotel and tourism industry, and business services, with
private sector employment higher than previously forecasted. The City's current
financial plan assumes that, after strong growth in 1998-1999, moderate
economic growth will exist through calendar year 2003, with moderate job growth
and wage increases.
For each of the 1981 through 1999 fiscal years, the City had an operating
surplus, before discretionary and other transfers, and achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP") after discretionary and other
transfers. The City has been required to close substantial gaps between
forecast revenues and forecast expenditures in order to maintain balanced
operating results. There can be no assurance that the City will continue to
maintain balanced operating results as required by State law without tax or
other revenue increases or reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
2000-2003 New York City Financial Plan. The Mayor is responsible for
preparing the City's four-year financial plan including the current financial
plan for the 2000 through 2003 fiscal years (the "2000-2003 Financial Plan,"
the "Financial Plan" or "City Plan").
The Financial Plan projects revenues and expenditures for the 2000 fiscal
year balanced in accordance with GAAP and projects gaps of $1.8 billion, $1.9
billion and $1.8 billion for the years 2001 through 2003, respectively. The
Financial Plan takes into account an increase in projected tax revenues in
fiscal years 2000 through 2003; projected resources in fiscal years 2000
through 2003, respectively, from the receipt by the City of funds from the
settlement of litigation with the leading cigarette companies; a reduction in
the assumed collection of projected rent payments for the City's airports and a
delay in the receipt of such payments from fiscal year 2000 to fiscal year
2001; net increases in spending in fiscal years 2000 through 2003, including
spending for Medicaid, education initiatives, anti-smoking programs, employee
fringe benefit costs, and other agency programs. In addition, the Financial
Plan includes a proposed discretionary transfer in fiscal year 2000 to pay debt
service due in fiscal year 2001 totaling $429 million, and a proposed
discretionary transfer in fiscal year 2001 to pay debt service due in fiscal
year 2002 totaling $345 million.
The Financial Plan is based on numerous assumptions, including the
condition of the City's and the region's economies and modest employment growth
and the concomitant receipt of economically sensitive tax revenues in the
amounts projected. The Financial Plan is subject to various other uncertainties
and contingencies relating to, among other factors, the extent, if any, to
which wage increases for City employees exceed the annual wage costs assumed
for the 2000 through 2003 fiscal years; continuation of projected interest
earnings assumptions for pension fund assets and current assumptions with
respect to wages for City employees affecting the City's required pension fund
contributions; the willingness and ability of the State to provide the aid
contemplated by the Financial Plan and to take various other actions to assist
the City; the ability of the Health and Hospitals Corporation, the Board of
Education and other such agencies to maintain balanced budgets; the willingness
of the Federal government to provide the amount of Federal aid contemplated in
the Financial Plan; the impact on City revenues and expenditures of Federal and
State welfare reform and any future legislation affecting Medicare or other
entitlement programs; adoption of the City's budgets by the City Council in
substantially the forms submitted by the Mayor; the ability of the City to
implement cost reduction initiatives, and the success with which the City
controls expenditures; the impact of conditions in the real estate market on
real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
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On July 14, 1999, the City Comptroller issued a report which projected a
surplus for fiscal year 2000 of between $223 million and $891 million. In
addition, the report projected budget gaps of between $1.8 billion and $3.5
billion, $1.7 billion and $3.6 billion, and $1.7 billion and $4.1 billion in
fiscal years 2001 through 2003, respectively. The report further noted that the
City Comptroller's forecast is contingent on the continued growth of the City
economy and that the fear of renewed inflationary pressures has created
uncertainty in the bond market which may dampen economic growth in the future.
The City depends on aid from the State both to enable the City to balance
its budget and to meet its cash requirements. There can be no assurance that
there will not be reductions in State aid to the City from amounts currently
projected; that, in future years, State budgets will be adopted by the April 1
statutory deadline, or interim appropriations will be enacted; or that any such
reductions or delays will not have adverse effects on the City's cash flow or
expenditures. In addition, the Federal budget negotiation process could result
in a reduction or a delay in the receipt of Federal grants which could have
additional adverse effects on the City's cash flow or revenues.
The City's projections set forth in the City Plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 2000 through 2003 contemplates the issuance of $7.449 billion of
general obligation bonds and $3.35 billion of bonds to be issued by the New
York City Transitional Finance Authority (the "Finance Authority"). In
addition, the City Plan anticipates access to approximately $2.4 billion in
financing capacity of TSASC, Inc. ("TSASC"), which will issue debt secured by
revenues derived from the settlement of litigation with tobacco companies
selling cigarettes in the United States. The Finance Authority and TSASC were
created to assist the City in financing its capital program while keeping the
City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur. In
addition, the City issues revenue and tax anticipation notes to finance its
seasonal working capital requirements. The success of projected public sales of
City, New York City Municipal Water Finance Authority (the "Water Authority"),
Finance Authority, TSASC and other bonds and notes will be subject to
prevailing market conditions. The City's planned capital and operating
expenditures are dependent upon the sale of its general obligation debt, as
well as debt of the Water Authority, Finance Authority and TSASC. Future
developments concerning the City and public discussion of such developments, as
well as prevailing market conditions, may affect the market for outstanding
City general obligation bonds and notes.
The City Comptroller and other agencies and public officials, from time to
time, issue reports and make public statements which, among other things, state
that projected revenues and expenditures may be different from those forecasted
in the City Plan.
Ratings. Moody's, S&P and Fitch IBCA, Inc. ("Fitch") currently rate the
City's outstanding general obligation bonds A3, A- and A, respectively. Such
ratings reflect only the views of Moody's, S&P and Fitch from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of the
bonds. On July 10, 1995, S&P revised its rating of City bonds downward to BBB+.
On July 16, 1998, S&P revised its rating of City bonds upward to A-. Moody's
rating of City bonds was revised in February 1998 to A3 from Baa1. On March 8,
1999, Fitch revised its rating of City bonds upward to A.
Outstanding Net Indebtedness. As of September 30, 1999, the City and the
Municipal Assistance Corporation for the City of New York had, respectively,
$26.315 billion and $2.846 billion of outstanding net long-term debt.
Litigation. The City is a defendant in lawsuits pertaining to material
matters, including claims asserted which are incidental to performing routine
governmental and other functions. This litigation includes, but is not limited
to, actions commenced and claims asserted against the City arising out of
alleged constitutional violations, torts, breaches of contracts, and other
violations of law and condem-
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nation proceedings. While the ultimate outcome and fiscal impact, if any, of
the proceedings and claims brought against the City are not currently
predictable, adverse determinations in certain of them might have a material
adverse effect upon the City's ability to carry out the Financial Plan. The
Financial Plan includes provisions for judgments and claims of $393 million,
$407 million, $429 million and $448 million for the 2000 through 2003 fiscal
years, respectively. The City has estimated that its potential future liability
on account of outstanding claims against it as of June 30, 1999 amounted to
approximately $3.5 billion.
New York State. Recent Developments. The national economy has maintained a
robust rate of growth during the past six quarters as the expansion, which is
well into its ninth year, continues. The national expansion, if it continues
through February 2000, will be the longest on record. Since early 1992,
approximately 19 million jobs have been added nationally. Output growth has
averaged 3.2 percent over this period, essentially the same as the 3.3 percent
average annual growth during the post-World War II period. The State economy
has also continued to expand, with over 600,000 jobs added since late 1992.
Employment growth has been slower than in the nation during this period,
although the State's relative performance has improved in the last two years.
Growth in average wages in New York has generally outperformed the nation,
while growth in personal income per capita has kept pace with the nation.
The forecast for continued growth, and any resultant impact on the
1999-2000 New York State Financial Plan (the "State Plan"), contains some
uncertainties. Stronger-than-expected gains in employment and wages could lead
to unanticipated strong growth in consumer spending. Also, improvements in
foreign economies may be weaker than expected and therefore, may have
unanticipated effects on the domestic economy. The inflation rate may differ
significantly from expectations due to the conflicting impacts of a tight labor
market and improved productivity growth as well as to the future direction and
magnitude of fluctuations of oil prices. In addition, the State economic
forecast could over- or under-estimate the level of future bonus payments,
financial sector profits or inflation growth, resulting in unexpected economic
impacts. Similarly, the State forecast could fail to correctly estimate the
amount of employment change in the banking, financial and other business
service sectors as well as the direction of employment change that is likely to
accompany telecommunications and energy deregulation.
The 1999-2000 Fiscal Year. The 1999-2000 Financial Plan projects a closing
balance of $2.85 billion in the General Fund. Total receipts and transfers from
other funds are projected to reach $39.31 billion, an increase of over $2.57
billion from the prior fiscal year, and disbursements and transfers to other
funds are projected to be $37.36 billion, an increase of $868 million from the
total disbursed in the prior fiscal year.
Projections of total State receipts in the State Plan are based on the
State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or
revenue sources is generally made by estimating the change in yield of such tax
or revenue source caused by economic and other factors, rather than by
estimating the total yield of such tax or revenue source from its estimated tax
base. The forecasting methodology, however, ensures that State fiscal year
collection estimates for taxes that are based on a computation of annual
liability, such as the business and personal income taxes, are consistent with
estimates of total liability under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, potential collective bargaining
agreements, levels of disbursements for various services provided by local
governments (where the cost is partially reimbursed by the State), and the
results of various administrative and statutory mechanisms in controlling
disbursements for State operations. Factors that may affect the level of
disbursements in the fiscal year include uncertainties relating to the economy
of the nation and the State, the policies of the federal government, collective
bargaining negotiations and changes in the demand for and use of State
services.
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Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, and actions by the federal government could impact
projected budget gaps for the State. These gaps would result from a disparity
between recurring revenues and the costs of increasing the level of support for
State programs. For example, the fiscal effects of tax reductions adopted in
the last several fiscal years are projected to grow more substantially in the
forecast period, continuing to restrain receipts levels and placing pressure on
future spending levels. To address a potential imbalance in any given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
New York Local Government Assistance Corporation. In 1990, as part of a
State fiscal reform program, legislation was enacted creating the New York Loan
Government Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
The legislation empowered LGAC to issue bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of those long-term obligations,
which will be amortized over no more than 30 years, is expected to result in
eliminating the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one percent of the four percent
State sales and use tax to pay debt service on these bonds. The legislation
also imposed a cap on the annual seasonal borrowing of the State at $4.7
billion, less net proceeds of bonds issued by LGAC and bonds issued to provide
for capitalized interest, except in cases where the Governor and the
legislative leaders have certified both the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap is
thus permitted in any fiscal year, it is required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. This
provision capping the seasonal borrowing was included as a covenant with LGAC's
bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds
of $4.7 billion, completing the program. The impact of LGAC's borrowings, as
well as other changes in revenue and spending patterns, is that the State has
been able to meet its cash flow needs throughout the fiscal year without
relying on short-term seasonal borrowings.
Composition of State Cash Governmental Funds Group. Substantially all
State non-pension financial operations are accounted for in the State's
governmental funds group. Governmental funds include: (i) the General Fund,
which receives all income not required by law to be deposited in another fund;
(ii) Special Revenue Funds, which receive the preponderance of moneys received
by the State from the Federal government and other income the use of which is
legally restricted to certain purposes; (iii) Capital Projects Funds, used to
finance the acquisition and construction of major capital facilities by the
State and to aid in certain of such projects conducted by local governments or
public authorities; and (iv) Debt Service Funds, which are used for the
accumulation of moneys for the payment of principal of and interest on
long-term debt and to meet lease-purchase and other contractual-obligation
commitments.
Authorities. The fiscal stability of the State is related to the fiscal
stability of its public Authorities. Authorities have various responsibilities,
including those which finance, construct and/or operate revenue-producing
public facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts and restrictions set forth in their
legislative authorization. As of December 31, 1998, there were 17 Authorities
that had outstanding debt of $100 million or more and the aggregate outstanding
debt, including refunding bonds, of all Authorities was $94 billion, only a
portion of which constitutes State-supported or State-related debt.
Authorities generally pay their operating expenses and debt service costs
from revenues generated by the projects they finance or operate, such as tolls
charged for use of highways, bridges or tunnels,
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charges for electric power, electric and gas utility services, rentals charged
for housing units and charges for occupancy at medical care facilities. In
addition, State legislation authorizes several financing techniques for
Authorities. Also, there are statutory arrangements providing for State local
assistance payments otherwise payable to localities to be made under certain
circumstances to Authorities. Although the State has no obligation to provide
additional assistance to localities whose local assistance payments have been
paid to Authorities under these arrangements, if local assistance payments are
diverted the affected localities could seek additional State assistance. Some
Authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.
Ratings. S&P rates the State's general obligation bonds A, and Moody's
rates the State's general obligation bonds A2. Ratings reflect only the
respective views of such organizations, and an explanation of the significance
of such ratings must be obtained from the rating agency furnishing the same.
There is no assurance that a particular rating will continue for any given
period of time or that any such rating will not be revised downward or
withdrawn entirely if, in the judgment of the agency originally establishing
the rating, circumstances so warrant. A downward revision or withdrawal of such
ratings, or either of them, may have an effect on the market price of the State
Municipal Obligations in which the New York Series invests.
General Obligation Debt. As of March 31, 1999, the State had outstanding
approximately $4.8 billion in general obligation bonds, including $185 million
in bond anticipation notes outstanding. Principal and interest due on general
obligation bonds and interest due on bond anticipation notes were $748.2
million for the 1998-99 fiscal year and are estimated to be $730.7 million for
the State's 1999-2000 fiscal year.
Litigation. The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings, miscellaneous civil rights cases and other alleged
violations of State and Federal laws. These proceedings could affect adversely
the financial condition of the State in the 1999-2000 fiscal year or
thereafter.
The State believes that the State Plan includes sufficient reserves for
the payment of judgments that may be required during the 1999-2000 fiscal year.
There can be no assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount of all potential State Plan reserves
available for the payment of judgments and, therefore, could affect the ability
of the State to maintain a balanced 1999-2000 State Plan. The General Purpose
Financial Statements for the 1998-1999 fiscal year report estimated probable
awarded and anticipated unfavorable judgments of $895 million, of which $132
million is expected to be paid during the 1999-2000 fiscal year.
In addition, the State is party to other claims and litigation which its
legal counsel has advised are not probable of adverse court decisions or are
not deemed adverse and material. Although the amounts of potential losses
resulting from this litigation, if any, are not presently determinable, it is
the State's opinion that its ultimate liability in these cases is not expected
to have a material adverse effect on the State's financial position in the
1999-2000 fiscal year or thereafter.
Other Localities. Certain localities outside the City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State
of any future requests by localities for additional oversight and financial
assistance is not included in the projections of the State receipts and
disbursements in the State's 1999-2000 fiscal year.
THE OHIO SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. Although
manufacturing (including auto-related manufacturing) in Ohio remains an
important part of the State's economy, the greatest growth in employment in
Ohio in recent years, consistent with national trends, has been in the
non-manufacturing area. Ohio ranked third in the nation in 1997 gross state
product derived from manufacturing. Manufacturing was 26% of Ohio's gross state
product compared to 18% of that total being from "services". As a result,
economic activity in Ohio, as in many other industrially developed
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states, tends to be more cyclical than in some other states and in the nation
as a whole. Agriculture also is an important segment of the economy in the
State. With 15 million acres (of a total land area of 26.4 million acres) in
farm land and an estimated 80,000 individual farms, it is by many measures
Ohio's leading industry, contributing $6.3 billion to the State's economy each
year. Agriculture represents 16% of total employment (approximately 1,055,000
jobs in 1996) and 11% of the value-added products produced in the State. Gross
farm income alone amounted in 1996 to just under $6.3 billion. In 1997, Ohio
exported over approximately $1.4 billion in farm products (primarily soybeans
and related soy products, and feed grains). The State has instituted several
programs to provide financial assistance to farmers.
Ohio continues as a major "headquarters" state. Of the top 500 individual
corporations (industrial, commercial and service) based on 1998 revenues as
reported in 1999 by Fortune magazine, 27 had headquarters in Ohio, placing Ohio
fifth as a "headquarters" state.
Payroll employment in Ohio, in the diversifying employment base, showed a
steady upward trend until 1979, then decreased until 1982. It reached a high in
the summer of 1993 after a slight decrease in 1992, then decreased slightly and
reached a new high in 1998. Growth in recent years has been concentrated among
non-manufacturing industries, with manufacturing employment tapering off since
its 1969 peak. Non-manufacturing industries now employ approximately 80% of all
non-agricultural payroll workers in Ohio.
Consistent with the Ohio constitutional provision that no appropriation
may be made for a period longer than two years, the State operates on the basis
of a fiscal biennium for its appropriations and expenditures. Under current law
that biennium for operating purposes runs from July 1 in an odd-numbered year
to June 30 in the next odd-numbered year; for example, the current fiscal
biennium began July 1, 1999 and ends June 30, 2001.
The Ohio Constitution imposes a duty on the General Assembly to "provide
for raising revenue, sufficient to defray the expenses of the state, for each
year, and also a sufficient sum to pay the principal and interest as they
become due on the state debt." The State is effectively precluded by law from
ending a Fiscal Year or a biennium in a "deficit" position. State borrowing to
meet casual deficits or failures in revenues or to meet expenses not otherwise
provided for is limited by the Ohio Constitution to $750,000.
Most State operations are financed through the general revenue fund (GRF),
with personal income and sales-use taxes being the major GRF sources, totaling
$7.1 billion and $5.8 billion in 1999, respectively. In 1981, a Budget
Stabilization Fund (BSF), sometimes referred to as a "rainy day" fund, was
created for purposes of cash and budgetary management. In 1992, the entire
balance of the BSF was transferred to the GRF. At the end of the 1997-99
biennium, the BSF had a balance of approximately $953.2 million.
The Ohio Revised Code provides that if the Governor ascertains that the
available revenue receipts and balances for the GRF or other funds for the then
current Fiscal Year will in all probability be less than the appropriations for
the year, he shall issue such orders to State agencies as will prevent their
expenditures and incurred obligations from exceeding those revenue receipts and
balances. The Governor implemented this directive in some prior years,
including Fiscal Years 1992 and 1993. There is no present constitutional limit
on the rates of State-levied taxes and excises, except for taxes on intangible
property. At present the State itself does not levy any ad valorem taxes on
real or tangible personal property. Those taxes are levied by local political
subdivisions. The Ohio Constitution limits the amount of ad valorem property
taxes that may be levied by local political subdivisions in the aggregate,
without a vote of the electors or a municipal charter provision, to 1% of the
true value, and statutes further limit the amount of the aggregate levy,
without a vote or charter provision, to 10 mills per $1 of assessed valuation.
The GRF ending (June 30) fund balance is typically reduced during less
favorable national economic periods and then increases during more favorable
economic periods. For example, following the 1974-75 nationwide recession the
1977 GRF ending fund balance was $21.6 million. The balance (without assistance
from any significant tax rate increases) was $245.7 million in 1979, and then,
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paralleling the national economic situation, was at the significantly lower
amount of $200 million in 1981. Recent biennium GRF ending fund balances were
$135.3 million in 1991, $111 million in 1993, $928 million in 1995, and $834.9
million in 1997. For the Biennium ended June 30, 1999, the GRF fund balance was
$976.7 million. Of that amount, $46.3 million was transferred to the Budget
Stabilization Fund (BSF), $325.7 million was transferred for school building
assistance, approximately $90 million was transferred for school computer
programs, and approximately $293 million was transferred to the State income
tax reduction fund.
The GRF appropriations bill for the 1998-99 biennium was passed on June
25, 1997, and promptly signed, with selective vetoes, by the Governor. The act
provides for total GRF biennial expenditures of approximately $39.8 billion, an
increase over those for the 1997-99 fiscal biennium ($36 billion).
Necessary GRF debt service and lease-rental appropriations for the entire
biennium were requested in the Governor's budget proposal and incorporated in
the related appropriations bill as introduced, and in the bill's versions as
passed by the House and the Senate and in the act as passed and signed. The
same is true for the separate Department of Transportation, Department of
Public Safety, and Bureau of Workers' Compensation appropriations acts,
containing lease-rental appropriations for certain DOT, DPS and BWC projects
financed by the Ohio Building Authority.
Although revenue obligations of the State or its political subdivisions
may be payable from a specific project or source, including lease rentals,
there can be no assurance that, as in any state, future economic difficulties
and the resulting impact on State and local government finances will not
adversely affect the market value of the Bonds in the portfolio of the Ohio
Series or the ability of the respective obligors to make timely payments of
principal and interest on such Bonds.
Litigation, similar to that in other states, has been pending since 1991
questioning the constitutionality of Ohio's system of school funding. The Ohio
Supreme Court concluded in a 1997 decision that major aspects of the system
(including basic operating assistance and certain loan programs) are
unconstitutional. It ordered the State to provide for and fund sufficiently a
system complying with the Ohio Constitution, staying its order to permit time
for responsive corrective actions by the General Assembly. The Court has
indicated that property taxes may still play a role in, but "can no longer be
the primary means" of, school funding. The Court also confirmed that
contractual repayment provisions of certain debt obligations issued for school
funding will remain valid after the stay terminates. The Court remanded the
case to the trial court to hear evidence and to render an opinion on the
constitutionality of the enacted legislation, which opinion could then be
appealed directly to the Ohio Supreme Court.
The trial court subsequently conducted a hearing considering the
constitutionality of the legislation enacted since 1991 to enhance school
funding in Ohio and, in February, 1999, issued its ruling that the State
continues not to be in compliance with the constitutional requirements outlined
by the Ohio Supreme Court. The trial court judge ordered the State "forthwith
to provide for and fund a system of funding public elementary and secondary
education in compliance with the Ohio Constitution and the [1997] directive of
the Ohio Supreme Court" and directed the State Board of Education and
Superintendent of Public Education to submit proposals for compliance to the
General Assembly.
The State appealed the trial court's decision to the Ohio Supreme Court,
which granted a stay pending the appeal and which held oral arguments in
November, 1999. At this time, it remains uncertain what the decision on appeal
might be and, should the plaintiffs prevail on appeal, the effect on the
State's school funding system.
As part of its response, the General Assembly has increased State funding
for public schools. In addition, the General Assembly placed two issues on the
May 1998 primary ballot. Neither was approved by the voters. One was a
constitutional amendment authorizing additional State debt issuing capacity and
the other an increase in the State sales tax. The sales tax proposal would have
increased the State sales and use tax from 5% to 6%, estimated to generate over
$1 billion; one-half of increased revenues would have been applied to pay costs
of school operations and facilities, and the other half to additional homestead
property tax relief. At the November, 1999 election, voters approved a
constitutional amendment authorizing the issuance of general obligation debt
for school buildings and higher education facilities.
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Litigation is also pending in federal district court challenging the
former Medicaid eligibility rules that were applied between 1990 and 1995 by
the Ohio Department of Human Services in the case of married couples where one
spouse lived in a nursing home and the other spouse resided in the community.
If the plaintiffs in that action are ultimately successful, it is estimated
that the State could be required to incur additional obligations of as much as
$240 million. At this time, the outcome of such litigation is uncertain.
The summary information furnished above is based on official statements
prepared by the State of Ohio in connection with its borrowings and contains
such information as the Fund deems relevant in considering an investment in the
Fund. It does not purport to be a complete description of the considerations
contained therein.
THE PENNSYLVANIA SERIES -- SPECIAL INVESTMENT CONSIDERATIONS. Presented
below is information concerning the Commonwealth of Pennsylvania and certain
issuers within the Commonwealth. Such information is based principally on
information drawn from recent official statements relating to securities
offerings by the Commonwealth and does not purport to be a complete description
of such issuers or factors that could adversely affect them. The Investment
Manager has not independently verified such information; however, it has no
reason to believe that such information is not correct in all material
respects. This information does not cover all municipal issuers within the
Commonwealth whose securities may be purchased by the Fund.
Investment Securities. The Pennsylvania Series will invest principally in
Commonwealth and Commonwealth-related obligations and obligations of local
government units in the Commonwealth and obligations of related authorities.
The market value and marketability of the obligations of the Commonwealth and,
though generally to a lesser extent, the Commonwealth-related obligations and
the local governmental unit and related authority obligations generally will be
affected by economic conditions affecting the Commonwealth and litigation
matters which may adversely affect the Commonwealth. The market value and
marketability of obligations of issuers other than the Commonwealth may also be
affected by more localized economic changes, changes affecting the particular
revenue stream supporting such obligations and related litigation matters.
The City of Philadelphia has experienced financial difficulties in the
past, as a result of which Moody's and S&P lowered their ratings of City of
Philadelphia general obligations below investment grade. Both Moody's and S&P
have since raised their ratings of City of Philadelphia general obligations to
Baa2 and BBB, respectively. Consequently, such obligations are currently
investment grade.
General Socio-Economic and Economic Information Regarding the
Commonwealth. The Commonwealth is the fifth most populous state (ranking behind
California, New York, Texas and Florida) with a population of approximately 12
million for the last ten years. The Commonwealth is the headquarters for many
major corporations. It has been historically identified as a heavy industry
state although that reputation has changed over the last 30 years as the
industrial composition of the Commonwealth diversified when the coal, steel and
railroad industries began to decline. The major new sources of growth in the
Commonwealth are in the service sector, including trade, medical and health
services, education and financial institutions. Manufacturing employment has
fallen from 18.8% of non-agricultural employment in 1992 to 17.2% in 1998,
while service sector employment has increased from 29.4% of non-agricultural
employment in 1991 to 32.3% in 1998. From 1983 to 1990, the Commonwealth's
annual average unemployment rate dropped from 11.8% to 5.4% (below the national
average for each of the years from 1986). In 1998 and 1999, the average annual
unemployment rates for the Commonwealth were 4.6% and 4.3%, respectively,
compared to rates of 4.5% and 4.1% for the United States for such years.
The Commonwealth utilizes the fund method of accounting. For purposes of
governmental accounting, a "fund" is defined as an independent fiscal and
accounting entity with a self-balancing set of accounts, for the purpose of
carrying on specific activities or attaining certain objectives in accordance
with the fund's special regulations, restrictions or limitations. In the
Commonwealth, funds are established by legislative enactment or in certain
cases by administrative action.
The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority
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of the Commonwealth's operating and administrative expenses are payable from
the General Fund. Debt service on all Commonwealth obligations, except those
issued for highway purposes or for the benefit of other special revenue funds,
is payable from the General Fund.
Revenues in the General Fund include all tax receipts, license and fee
payments, fines, penalties, interest and other revenues of the Commonwealth not
specified to be deposited elsewhere or not restricted to a specific program or
expenditure and federal revenues. Taxes levied by the Commonwealth are the most
significant source of revenues in the General Fund. The major tax sources for
the General Fund are the sales tax, which accounted for $6.61 billion or 35.1%
of General Fund tax revenues in fiscal 1999, the personal income tax, which
accounted for $6.68 billion or 35.5% of 1999 General Fund tax revenues, and the
corporate taxes which accounted for $2.83 billion or 15.0% of tax revenues.
Federal revenues are those federal receipts which pay or reimburse the
Commonwealth for funds disbursed for federally assisted programs.
The primary expenditures of the General Fund are for education (over $7.50
billion in fiscal 1999) and public health and welfare (over $6.0 billion).
The Constitution and laws of the Commonwealth require all payments from
the General Fund, with the exception of refunds of taxes, licenses, fees and
other charges, to be made only by duly enacted appropriations. Amounts
appropriated from the General Fund may not exceed its actual and estimated
revenues for the fiscal year plus any surplus available. Appropriations are
generally made for one fiscal year and are returned to the unappropriated
surplus of the fund (a lapse) if not spent or encumbered by the end of the
fiscal year. The Commonwealth's fiscal year begins July 1 and ends June 30.
(Fiscal 1999 refers to the fiscal year ending June 30, 1999.)
For the five year period fiscal 1995 through fiscal 1999, total revenues
and other sources rose at a 6.0% average annual rate while total expenditures
and other uses grew by 5.0% annually.
Program areas having the largest increase in costs for the fiscal 1994 to
fiscal 1999 period were for economic development and assistance protection of
persons and property, due to an expansion of state prisons. Recent efforts to
control costs of public health and welfare programs have resulted in
expenditure increases of 5.9% for the five year period.
The Constitution requires tax and fee revenues relating to motor fuels and
vehicles to be used for highway purposes, and the tax revenues relating to
aviation fuels to be used for aviation purposes. Accordingly, all such
revenues, except the revenues from one-half cent per gallon of the liquid fuels
tax which are deposited in the Liquid Fuels Tax Fund for distribution to local
municipalities, are placed in the Motor License Fund, as are most federal aid
revenues designated for transportation programs. Operating and administrative
costs for the Department of Transportation and other Commonwealth departments
conducting transportation related programs, including the highway patrol
activities of the Pennsylvania State Police, are also paid from the Motor
License Fund. Debt service on bonds issued by the Commonwealth for highway
purposes is payable from the Motor License Fund.
Other special revenue funds have been established by law to receive
specified revenues that are appropriated to specific departments, boards and/or
commissions for payment of their operating and administrative costs. Such funds
include the Game, Fish, Boating, Banking Department, Milk Marketing, State Farm
Products Show, State Racing and State Lottery Funds. Some of these special
revenue funds are required to transfer excess revenues to the General Fund and
some receive funding, in addition to their specified revenues, through
appropriations from the General Fund.
In 1986, the General Assembly created the Tax Stabilization Reserve Fund
and provided for its initial funding from General Fund appropriations. Income
for this fund comes from annual appropriations of money from other Commonwealth
funds and investment earnings. The Tax Stabilization Reserve Fund is to be used
for emergencies threatening the health, safety or welfare of citizens or to
offset unanticipated revenue shortfalls due to economic downturns. Assets of
this fund may be used upon recommendation by the Governor and an approving vote
by two-thirds of the members of each house of the General Assembly.
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The State Lottery Fund is a special revenue fund for the receipt of
lottery ticket sales and lottery licenses and fees. Its revenues, after payment
of prizes, are dedicated to paying the operational and administrative costs of
the lottery and the costs of programs benefiting the elderly in Pennsylvania.
The Commonwealth maintains trust and agency funds which are used to
administer funds received pursuant to a specific bequest or as an agent for
other governmental units or individuals.
Enterprise funds are maintained for departments or programs operated like
private enterprises. The largest of these funds is the State Stores Fund which
is used for the receipts and disbursements of the Commonwealth's liquor store
system. Sale and distribution of all liquor within Pennsylvania is a government
enterprise.
The following information, which is based principally on information drawn
from recent Official Statements relating to securities offerings by the
Commonwealth, provides information regarding certain Pennsylvania issuers of
investment securities.
State and Certain State-related Obligations. The Constitutional provisions
pertaining to Commonwealth debt permit the issuance of the following types of
debt: (i) debt to suppress insurrection or rehabilitate areas affected by
disaster, (ii) electorate approved debt, (iii) debt for capital projects,
subject to an aggregate debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years, and (iv) tax anticipation note
debt payable in the fiscal year of issuance. All debt except tax anticipation
note debt must be amortized in substantial and regular amounts.
The Commonwealth may incur debt to fund capital projects for community
colleges, highways, public improvements, transportation assistance, flood
control, redevelopment assistance, site development and the Pennsylvania
Industrial Development Authority. Before a project may be funded, it must be
itemized in a capital budget bill adopted by the General Assembly. An annual
capital budget bill states the maximum amount of debt for capital projects that
may be incurred during the current fiscal year for projects authorized in the
current or previous years' capital budget bills. Capital projects debt is
subject to a Constitutional limit on debt. Once capital projects debt has been
authorized by the necessary legislation, issuance authority rests with two of
the Issuing Officials (the Governor, the Auditor General and the State
Treasurer), one of whom must be the Governor.
The issuance of electorate approved debt is subject to the enactment of
legislation which places on the ballot the question of whether debt shall be
incurred. Such legislation must state the purposes for which the debt is to be
authorized and, as a matter of practice, includes a maximum amount of funds to
be borrowed. Upon electorate approval and enactment of legislation implementing
the proposed debt-funded program, bonds may be issued. All such authorizing
legislation to date has given issuance authority to two of the Issuing
Officials, one of whom must be the Governor.
Outstanding general obligation debt totaled $4,925 million at June 30,
1999, a decrease of $197 million from June 30, 1998. Over the 10-year period
ending June 30, 1999, total outstanding general obligation debt increased at an
annual rate of 0.5%. Within the most recent 5-year period, outstanding general
obligation debt has decreased at an annual rate of 0.6%.
Certain state-created agencies have statutory authorization to incur debt
for which state appropriations to pay debt service thereon is not required. The
debt of these agencies is supported by assets of, or revenues derived from, the
various projects financed and is not an obligation of the Commonwealth. Some of
these agencies, however, are indirectly dependent on Commonwealth
appropriations. These agencies, their purposes and their outstanding debt are
as follows:
Delaware River Joint Toll Bridge Commission ("DRJTBC"): The DRJTBC, a
public corporation of the Commonwealth and New Jersey, owns and operates
bridges across the Delaware River. Debt service on bonds is paid from tolls and
other revenues of the Commission. The DRJTBC had $51.4 million in bonds
outstanding as of June 30, 1999.
Delaware River Port Authority ("DRPA"): The DRPA, a public corporation of
the Commonwealth and New Jersey, operates several toll bridges over the
Delaware River and promotes the use of the Philadelphia-Camden port. Debt
service on bonds is paid from toll revenues and other revenues pledged by DRPA
to repayment of bonds. The DRPA had $623.2 million in revenue bond debt
outstanding on June 30, 1999.
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Pennsylvania Economic Development Financing Authority ("PEDFA"): The PEDFA
was created in 1987 to offer pooled bond issues for both taxable and tax-exempt
bonds on behalf of local industrial and commercial development authorities for
economic development projects. Bonds may be secured by loan repayments and all
other revenues of the PEDFA. The PEDFA had $1,239.7 million of debt outstanding
as of June 30, 1999.
Pennsylvania Energy Development Authority ("PEDA"): The PEDA was created
in 1982 to finance energy research projects, demonstration projects promoting
the production or conservation of energy and the promotion, utilization and
transportation of Pennsylvania energy resources. The authority's funding is
from appropriations and project revenues. Debt service on bonds is paid from
project revenues and other revenues pledged by PEDA to repayment of bonds. The
PEDA had $42.1 million in bonds outstanding as of June 30, 1999.
Pennsylvania Higher Education Assistance Agency ("PHEAA"): The PHEAA makes
or guarantees student loans to students or parents, or to lending institutions
or postsecondary institutions. Debt service on the bonds is paid by loan
interest and repayments and other agency revenues. The PHEAA had $1,783.8
million in bonds outstanding as of June 30, 1999.
Pennsylvania Higher Education Facilities Authority ("PHEFA"): The PHEFA is
a public corporation of the Commonwealth established to finance college
facilities. As of June 30, 1999, the PHEFA had $3,522.5 million in revenue
bonds and notes outstanding payable from the lease rentals or loan repayments
of the projects financed. Some of the lessees or borrowers, although private
institutions, receive grants and subsidies from the Commonwealth.
Pennsylvania Industrial Development Authority ("PIDA"): The PIDA is a
public corporation of the Commonwealth established for the purpose of financing
economic development. The PIDA had $373.8 million in revenue bond debt
outstanding on June 30, 1999, to which all of its revenues are pledged.
Pennsylvania Turnpike Commission ("PTC"): The PTC operates the
Pennsylvania Turnpike System. Its outstanding indebtedness, $1,573.1 million as
of June 30, 1999, is payable from the net revenues of the System, primarily
toll revenues and rentals from leases and concessions.
Pennsylvania Infrastructure Investment Authority ("PIIA"): The PIIA was
created in 1988 to provide low interest rate loans and grants for the purpose
of constructing new and improving existing water supply and sewage disposal
systems to protect the health and safety of the citizens of the Commonwealth
and to promote economic development within the Commonwealth. Loans and grants
are available to local governments and, in certain circumstances, to private
companies. The PIIA bonds are secured by principal repayments and interest
payments on PIIA loans. The PIIA had $186.9 million in revenue bonds
outstanding as of June 30, 1999.
Philadelphia Regional Port Authority ("PRPA"): The PRPA was created in
1989 for the purpose of acquiring and operating port facilities in Bucks and
Delaware Counties, and the City of Philadelphia. Debt service on the bonds is
paid by a pledge of the PRPA's revenues, rentals and receipts. The PRPA had
$57.9 million in bonds outstanding as of June 30, 1999.
State Public School Building Authority ("SPSBA"): The SPSBA finances
public school projects. Bonds issued by the SPSBA are supported by the lease
rental payments or loan repayments made to the SPSBA by local school districts
and the sponsors of community colleges. A portion of the funds appropriated
annually by the Commonwealth as aid to local school districts may be used by
them to pay such lease rental payments or loan repayments. The SPSBA had $347.5
million of revenue bonds outstanding on June 30, 1999.
"Moral Obligations." Pennsylvania Housing Finance Agency ("PHFA"): The
PHFA is a state-created agency which provides financing for housing for lower
and moderate income families in the Commonwealth. The bonds, but not the notes,
of the PHFA are partially secured by a capital reserve fund required to be
maintained by the PHFA in an amount equal to the maximum annual debt service on
its outstanding bonds in any succeeding calendar year. The statute creating
PHFA provides that if there is
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a potential deficiency in the capital reserve fund or if funds are necessary to
avoid default on interest, principal or sinking fund payments on bonds or notes
of PHFA, the Governor, upon notification from the PHFA, shall place in the
budget of the Commonwealth for the next succeeding year an amount sufficient to
make up any such deficiency or to avoid any such default. The budget as finally
adopted by the General Assembly may or may not include the amount so placed
therein by the Governor. PHFA is not permitted to borrow additional funds so
long as any deficiency exists in the capital reserve fund. As of June 30, 1999,
PHFA had $2,749.3 million of revenue bonds outstanding.
The Hospitals and Higher Education Facilities Authority of Philadelphia
(the "Hospitals Authority"). The Hospitals Authority is a municipal authority
organized by the City of Philadelphia to, inter alia, acquire and prepare
various sites for use as intermediate care facilities for the mentally
retarded. On August 26, 1986, the Hospitals Authority issued $20.4 million of
bonds which were refunded in 1993 by a $21.1 million bond issue of the
Hospitals Authority (the "Hospitals Authority Bonds") for such facilities for
the City. The Hospitals Authority Bonds are secured by leases with the City
payable only from project revenues and a debt service reserve fund. The
Commonwealth's Department of Public Welfare ("DPW") has agreed with the
Hospitals Authority to request in DPW's annual budget submission to the
Governor, an amount of funds sufficient to alleviate any deficiency that may
arise in the debt service reserve fund for the Hospitals Authority Bonds. The
budget as finally adopted may or may not include the amount requested. If funds
are paid to the Hospitals Authority, DPW will obtain certain rights in the
property financed with the Hospitals Authority Bonds in return for such
payment.
In response to a delay in the availability of billable beds and the
revenues from these beds to pay debt service on the Hospitals Authority Bonds,
PHFA agreed in June 1989 to provide a $2.2 million low-interest loan to the
Hospitals Authority. The loan enabled the Hospitals Authority to make all debt
service payments on the Hospitals Authority Bonds during 1990. Enough beds were
completed in 1991 to provide sufficient revenues to the Hospitals Authority to
meet its debt service payments and to begin repaying the loan from PHFA.
According to the Hospitals Authority, as of June 30, 1999, $1.0 million of the
loan principal was outstanding. DPW has agreed that the additional costs
arising from the PHFA loan will be reimbursed as necessary and reasonable costs
of the project.
Local Governmental Unit and Related Authority Obligations. Various state
statutes authorize local units of government (counties, cities, school
districts and the like) to issue general obligations and revenue obligations,
subject to compliance with the requirements of such statutes. In addition,
various statutes permit local government units to organize authorities having
the power to issue obligations which are not subject to debt limits that may be
applicable to the organizing governmental unit and which are payable from
assets of or revenues derived from projects financed by such authorities. Such
authorities include parking authorities, industrial development authorities,
redevelopment authorities, transportation authorities, water and sewer
authorities, and authorities to undertake projects for institutions of higher
education and health care. Such obligations may generally be affected by
adverse changes in the economy of the area in which such local government units
or projects financed by them or by authorities created by them are located, by
changes in applicable federal, state or local law or regulation, or by changes
in levels of federal, state or local appropriations, grants or subsidies to the
extent such appropriations, grants or subsidies directly or indirectly affect
revenues of such issuers.
Year 2000. A well-established programming standard in the computer
industry of using only two digits to identify a calendar year may prevent many
current computer systems from properly recognizing dates beyond the year 1999.
No material problems occurred in Commonwealth computer systems when the year
2000 arrived. However, there remains the potential for computers to malfunction
by producing erroneous data or failing completely through the early part of the
calendar year. The Governor made fixing the Year 2000 problem a top priority
for Pennsylvania state agencies under his jurisdiction. At the Governor's
direction, Pennsylvania undertook an aggressive program to make its computer
systems Year 2000-compatible and to identify potential problems with entities
outside state government with which the Commonwealth does business or exchanges
data.
For state agencies under the Governor's jurisdiction, all computer
programs that support essential state government services have been corrected,
tested and implemented. Remediation efforts by the
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Treasury Department under its action plan were begun in the first quarter of
1997 and are complete. Testing of remediated code is complete. The projected
cost of the Commonwealth's Year 2000 modification work is not believed to be
material and is being paid from amounts appropriated out of current revenues.
While state agencies and the Treasury Department have made every
reasonable effort to completely address potential Year 2000 impacts, there can
be no assurance that all of the Commonwealth's mission-critical and non
mission-critical computer programs or other technology will be entirely free
from Year 2000 related problems. Further, even if the Commonwealth successfully
addresses its own Year 2000-related problems, there can be no assurance that
any other entity or governmental agency providing services, information or
funds to the Commonwealth will be able to carry out their responsibilities to
the Commonwealth without disruption. A failure by the Commonwealth, other
governmental agencies, or other entities to remediate Year 2000-related
problems, including the timely receipt of tax and other revenues or the prompt
disbursement of funds, may cause a material adverse impact on Commonwealth
operations or finances. All of the potential risks and costs associated with
such a failure by the Commonwealth, other governmental agencies or other
entities cannot be accurately identified and quantified at this time. In
addition, it is not possible to quantify potential claims against the
Commonwealth resulting from Year 2000 noncompliance.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment policies/restrictions listed below have been adopted by
each Series 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 Series. 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 Series are present or represented by proxy; or (b)
more than 50% of the outstanding shares of the Series. 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 a Series does not exceed 10% of the value of the total assets of the
Series; (b) a "taxable security" is any security the interest on which is
subject to federal income tax; and (c) all percentage limitations apply
immediately after a purchase or initial investment, and any subsequent change
in any applicable percentage resulting from market fluctuations or other
changes in total or net assets does not require elimination of any security
from the portfolio.
Each Series may not:
1. Invest in common stock.
2. Write, purchase or sell puts, calls, or combinations thereof, except
for options on futures contracts or options on debt securities.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities or to municipal obligations, including
those issued by the designated State of the Series or its political
subdivisions.
4. Invest in securities of any issuer if, to the knowledge of the Series,
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.
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5. Purchase or sell real estate or interests therein (including limited
partnership interests), although it may purchase securities secured
by real estate or interests therein.
6. Purchase or sell commodities except that the Series may purchase
financial futures contracts and related options.
7. Borrow money, except that each Series 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 the total assets
of the Series (including the amount borrowed) less its liabilities
(not including any borrowings but including the fair market value at
the time of computation of any senior securities then outstanding).
8. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowing. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of
options and collateral arrangements with respect to initial margin
for futures are not deemed to be pledges of assets and neither such
arrangements nor the purchase or sale of futures are deemed to be the
issuance of a senior security as set forth in restriction 10.
9. Issue senior securities as defined in the Act, except insofar as the
Series may be deemed to have issued a senior security by reason of:
(a) entering into any repurchase agreement; (b) purchasing any
securities on a when-issued or delayed delivery basis; or (c)
borrowing money in accordance with the restrictions described above.
10. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which each Series may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; and (c) by lending its portfolio securities.
11. Make short sales of securities.
12. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
The deposit or payment by the Series of initial or variation margin
in connection with futures contracts or related options thereon is
not considered the purchase of a security on margin.
13. Engage in the underwriting of securities, except insofar as the
Series may be deemed an underwriter under the Securities Act in
disposing of a portfolio security.
14. Invest for the purpose of exercising control or management of any
other issuer.
15. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.
16. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets.
Notwithstanding any other investment policy or restriction, each Series
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 Series.
III. MANAGEMENT OF THE FUND
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A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of each Series
but does not itself manage a Series. The Trustees review various services
provided by or under the direction of the Investment Manager to ensure that
each Series' general investment policies and programs are properly carried out.
The Trustees also conduct their review to ensure that administrative services
are provided to each Series 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 each Series and not
the Trustee's own interest or the interest of another person or organization. A
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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, each Series 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.
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 Morgan Stanley Dean Witter Funds (there were
93 such Funds as of the calendar year ended December 31, 1999), are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ----------------------------------------------------
<S> <C>
Michael Bozic (59) ........................ Vice Chairman of Kmart Corporation (since
Trustee December 1998); Director or Trustee of the Morgan
c/o Kmart Corporation Stanley Dean Witter Funds; formerly Chairman
3100 West Big Beaver Road 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 Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) .............. Chairman, Director or Trustee and Chief Executive
Chairman of the Board, Officer of the Morgan Stanley Dean Witter Funds;
Chief Executive Officer and Trustee formerly Chairman, Chief Executive Officer and
Two World Trade Center Director of the Investment Manager, the Distributor
New York, New York and MSDW Services Company; Executive Vice
President and Director of Dean Witter Reynolds;
Chairman and Director of the Transfer Agent;
formerly Director and/or officer of various MSDW
subsidiaries (until June 1998).
Edwin J. Garn (67) ........................ Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator (R-
c/o Huntsman Corporation Utah) (1974-1992) and Chairman, Senate Banking
500 Huntsman Way Committee (1980-1986); formerly Mayor of Salt
Salt Lake City, Utah Lake City, Utah (1971-1974); formerly Astronaut,
Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (chemical
company); Director of Franklin Covey (time
management systems), BMW Bank of North
America, Inc. (industrial loan corporation), United
Space Alliance (joint venture between Lockheed
Martin and the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing); member of the board
of various civic and charitable organizations.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ----------------------------------------------------
<S> <C>
Wayne E. Hedien (66) ...................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Director of The PMI Group,
c/o Mayer, Brown & Platt Inc. (private mortgage insurance); Trustee and
Counsel to the Independent Trustees Vice Chairman of The Field Museum of Natural
1675 Broadway History; formerly associated with the Allstate
New York, New York Companies (1966-1994), most recently as
Chairman of The Allstate Corporation (March 1993-
December 1994) and Chairman and Chief
Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July 1989-December
1994); director of various other business and
charitable organizations.
Dr. Manuel H. Johnson (51) ................ Senior Partner, Johnson Smick International, Inc.,
Trustee a consulting firm; Co-Chairman and a founder of
c/o Johnson Smick International, Inc. the Group of Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission; Chairman of the Audit
Washington, D.C. Committee and Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director of Greenwich
Capital Markets, Inc. (broker-dealer) and NVR, Inc.
(home construction); Chairman and Trustee of the
Financial Accounting Foundation (oversight
organization of the Financial Accounting Standards
Board); formerly Vice Chairman of the Board of
Governors of the Federal Reserve System (1986-
1990) and Assistant Secretary of the U.S. Treasury.
Michael E. Nugent (63) .................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Chairman of the Insurance
c/o Triumph Capital, L.P. Committee and Director or Trustee of the Morgan
237 Park Avenue Stanley Dean Witter Funds; formerly Vice
New York, New York President, Bankers Trust Company and BT Capital
Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (56) ................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director of American
Airlines, Inc. and its parent company, AMR
Corporation; Director and/or officer of various
MSDW subsidiaries.
John L. Schroeder (69) .................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Mayer, Brown & Platt Dean Witter Funds; Director of Citizens Utilities
Counsel to the Independent Trustees Company (telecommunications, gas, electric and water
1675 Broadway utilities company); formerly Executive Vice
New York, New York President and Chief Investment Officer of the
Home Insurance Company (August 1991-
September 1995).
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ----------------------------------------------------
<S> <C>
Mitchell M. Merin (46) .................... President and Chief Operating Officer of Asset
President Management of MSDW (since December 1998);
Two World Trade Center President and Director (since April 1997) and Chief
New York, New York Executive Officer (since June 1998) of the
Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998);
Chairman and Chief Executive Officer (since June
1998) and Director (since January 1998) of the
Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley Dean
Witter Funds (since May 1999); Trustee of various
Van Kampen investment companies (since
December 1999); previously Chief Strategic Officer
of the Investment Manager and MSDW Services
Company and Executive Vice President of the
Distributor (April 1997-June 1998), Vice President
of the Morgan Stanley Dean Witter Funds (May
1997-April 1999), and Executive Vice President of
Dean Witter, Discover & Co.
Barry Fink (45) ........................... Executive Vice President (since December 1999)
Vice President, and Secretary and General Counsel (since
Secretary and General Counsel February 1997) and Director (since July 1998) of
Two World Trade Center the Investment Manager and MSDW Services
New York, New York Company; Executive Vice President (since
December 1999) and Assistant Secretary and
Assistant General Counsel (since February 1997)
of the Distributor; Assistant Secretary of Dean
Witter Reynolds (since August 1996); Vice
President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds (since February
1997); previously Senior Vice President (March
1997-December 1999), First Vice President (June
1993-February 1997), Vice President and Assistant
Secretary and Assistant General Counsel of the
Investment Manager and MSDW Services
Company, Senior Vice President of the Distributor
(March 1997-December 1999) and Assistant
Secretary of the Morgan Stanley Dean Witter
Funds.
James F. Willison (56) .................... Senior Vice President of the Investment Manager
Vice President and Director of the Tax-Exempt Fixed Income
Two World Trade Center Group; Vice President of various Morgan Stanley
New York, New York Dean Witter Funds.
Thomas F. Caloia (53) ..................... First Vice President and Assistant Treasurer of the
Treasurer Investment Manager, the Distributor and MSDW
Two World Trade Center Services Company; Treasurer of the Morgan
New York, New York Stanley Dean Witter Funds.
</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
46
<PAGE>
of the Investment Manager, MSDW Services Company, the Distributor and the
Transfer Agent and Director of the Transfer Agent, Joseph J. McAlinden,
Executive Vice President and Chief Investment Officer of the Investment Manager
and Director of the Transfer Agent, Peter M. Avelar, Senior Vice President and
Director of the High Yield Group of the Investment Manager, Jonathan R. Page,
Senior Vice President and Director of the Money Market Group of the Investment
Manager, and Joseph R. Arcieri, Gerard J. Lian and Katherine H. Stromberg, Vice
Presidents of the Investment Manager, are Vice Presidents of the Fund.
In addition, Marilyn K. Cranney, Todd Lebo, Lou Anne D. McInnis, Ruth
Rossi, and Carsten Otto, First Vice Presidents and Assistant General Counsels
of the Investment Manager and MSDW Services Company, and Natasha Kassian,
Assistant Vice President and Assistant General Counsel of the Investment
Manager and MSDW Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivative's Committee
and the Insurance Committee.
The independent directors/trustees are charged with recommending to the
full board approval of management, advisory and administration contracts, Rule
12b-1 plans and distribution and underwriting agreements; continually reviewing
Fund performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage
and allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent directors/trustees vacancy on the board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean
Witter Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of 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 DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and the
Funds' management believe that having the same independent directors/trustees
for each of the Morgan Stanley Dean Witter Funds avoids the duplication of
effort that would arise from having different groups of individuals serving as
independent directors/trustees for each of the Funds or even of sub-groups of
Funds. They believe that having the same individuals serve as independent
directors/trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
independent directors/trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
47
<PAGE>
would likely ensue. Finally, having the same independent directors/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 directors/trustees of
the caliber, experience and business acumen of the individuals who serve as
independent directors/trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. 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 November 30, 1999.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------- --------------
<S> <C>
Michael Bozic ................. $1,550
Edwin J. Garn ................. 1,600
Wayne E. Hedien ............... 1,600
Dr. Manuel H. Johnson ......... 2,100
Michael E. Nugent ............. 1,933
John L. Schroeder ............. 1,933
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds that were in operation at December
31, 1999.
48
<PAGE>
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES TO
93 MORGAN
NAME OF STANLEY DEAN
INDEPENDENT TRUSTEE WITTER FUNDS
- ------------------------------- ----------------
<S> <C>
Michael Bozic ................. $134,600
Edwin J. Garn ................. 138,700
Wayne E. Hedien ............... 138,700
Dr. Manuel H. Johnson ......... 208,638
Michael E. Nugent ............. 193,324
John L. Schroeder ............. 193,324
</TABLE>
As of the date of this Statement of Additional Information, 55 of the
Morgan Stanley Dean Witter Funds, including the Fund, have adopted a retirement
program under which an independent director/ trustee who retires after serving
for at least five years (or such lesser period as may be determined by the
Board) as an independent director/trustee of any Morgan Stanley Dean Witter
Fund that has adopted the retirement program (each such Fund referred to as an
"Adopting Fund" and each such 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 /trustee of any Adopting Fund in excess of five years
up to a maximum of 60.44% after ten years of service. The foregoing percentages
may be changed by the Board.(1) "Eligible Compensation" is one-fifth of the
total compensation earned by such Eligible Trustee for service to the Adopting
Fund in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are accrued as expenses on
the books of the Adopting Funds. Such benefits are not secured or funded by the
Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended November 30,
1999 and by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for
the year ended December 31, 1999, and the estimated retirement benefits for the
Independent Trustees, to commence upon their retirement, from the Fund as of
November 30, 1999 and from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1999.
- ----------
(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.
49
<PAGE>
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
--------------------------------
ESTIMATED ANNUAL
RETIREMENT BENEFITS BENEFITS
ESTIMATED ACCRUED AS EXPENSES UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED --------------------- ----------------------
OF SERVICE AT PERCENTAGE BY ALL FROM ALL
NAME OF RETIREMENT OF ELIGIBLE BY THE ADOPTING FROM THE ADOPTING
INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------- ---------------- ------------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic ............. 10 60.44% $380 $20,933 $ 907 $50,588
Edwin J. Garn ............. 10 60.44 644 31,737 909 50,675
Wayne E. Hedien ........... 9 51.37 714 39,566 771 43,000
Dr. Manuel H. Johnson ..... 10 60.44 255 13,129 1,360 75,520
Michael E. Nugent ......... 10 60.44 482 23,175 1,209 67,209
John L. Schroeder ......... 8 50.37 771 41,558 955 52,994
</TABLE>
- ----------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) on
page 49.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
The following persons owned 5% or more shares of each Series of the Fund
as of January 13, 2000: Massachusetts Series--Dave C. Bundy and Jan Bundy,
JTTEN, 46 Meadow Rd., Bolton, MA 01740-1120--5.812%; Minnesota Series--Odd
Kermit Rovick, TTEE for the Rovick Revocable Living Trust under agreement dated
8/26/94, 5501 Village Dr., Edina, MN 55439-1949--9.332%; Pennsylvania
Series--Commonwealth of PA/Pennvest, PA Treasury, Financial Bldg., Room 126,
Harrisburg, PA 17120--21.231%.
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.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to each Series is Morgan Stanley Dean Witter
Advisors Inc., a Delaware corporation, whose address is Two World Trade Center,
New York, NY 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 each
Series' assets, including the placing of orders for the purchase and sale of
portfolio securities for the Series. Each Series pays the Investment Manager
monthly compensation calculated daily by applying the annual rate of 0.35% to
the net assets of that Series determined as of the close of each business day.
During the fiscal year ended November 30, 1997, the Arizona Series,
California Series, Florida Series, Massachusetts Series, Michigan Series,
Minnesota Series, New Jersey Series, New York Series, Ohio Series and
Pennsylvania Series accrued to the Investment Manager under the Management
Agreement total compensation in the amounts of $152,041, $372,728, $235,241,
$52,284, $69,676, $31,997, $150,967, $45,334, $70,502, and $155,772. During the
fiscal year ended November 30, 1998, the Arizona Series, California Series,
Florida Series, Massachusetts Series, Michigan Series, Minnesota Series, New
Jersey Series, New York Series, Ohio Series and Pennsylvania Series accrued to
the Investment Manager under the Management Agreement total compensation in the
amounts of $143,707, $366,413, $222,722, $51,570, $66,318, $30,046, $144,628,
$43,428, $64,310 and $184,737, respectively.
50
<PAGE>
During the fiscal year ended November 30, 1999, the Arizona Series,
California Series, Florida Series, Massachusetts Series, Michigan Series,
Minnesota Series, New Jersey Series, New York Series, Ohio Series and
Pennsylvania Series accrued to the Investment Manager under the Management
Agreement total compensation in the amounts of $140,768, $356,813, $203,267,
$49,848, $58,834, $27,901, $142,574, $40,185, $61,383, and $183,815,
respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, each Series' shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of each Series. In addition, the Distributor may
enter into similar agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. These expenses include the payment of
commissions for sales of Series shares and incentive compensation to Financial
Advisors, the cost of educational and/or business-related trips, and
educational and/or promotional and business-related expenses. The Distributor
also pays certain expenses in connection with the distribution of the shares of
each Series, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and
distributing prospectuses and supplements thereto used in connection with the
offering and sale of Series shares. The Fund bears the costs of initial
typesetting, printing and distribution of prospectuses and supplements thereto
to shareholders. The Fund also bears the costs of registering the Fund and the
Series' shares under federal and state securities laws and pays filing fees in
accordance with state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER
The Investment Manager manages the investment of each Series' 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 a Series
in a manner consistent with its investment objective.
Under the terms of the Management Agreement, in addition to managing each
Series' investments, the Investment Manager maintains certain of each Series'
books and records and furnishes, at its own expense, the office space,
facilities, equipment, clerical help, bookkeeping and certain legal services as
each Series 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.
Each Series pays all expenses incurred in its operation and a portion of
the Fund's general administration expenses allocated on the basis of asset size
of the respective Series. Expenses not
51
<PAGE>
expressly assumed by the Investment Manager under the Management Agreement or
by the Distributor, will be paid by the Fund or each respective Series
depending upon the nature of the expense. The expenses borne directly by each
Series include, but are not limited to: expenses of the Plan of Distribution
pursuant to Rule 12b-1; charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes; engraving
and printing share certificates; registration costs of the Series 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 Series and supplements thereto to the Series'
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 Series 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
(depending upon the nature of the legal claim, liability or lawsuit, the costs
of litigation, payment of legal claims or liabilities or indemnification
relating thereto may be directly applicable to a particular Series or may be
proportionately allocated on the basis of the size of each Series. The Trustees
have determined that this is an appropriate method of allocation of such
expenses); 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 with
respect to each Series, 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 that Series, or by
the Trustees; provided that in either event such continuance is approved
annually by the vote of a majority of the Trustees, including a majority of the
Independent Trustees.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is
defined in the Securities Act.
E. RULE 12b-1 PLAN
In accordance with a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act between the Fund and the Distributor, the Distributor
provides certain services in connection with the promotion of sales of Fund
shares (the "Plan").
The Plan provides that the Distributor bears the expense of all
promotional and distribution related activities on behalf of the Fund, except
for expenses that the Trustees determine to reimburse, as described below. The
following activities and services may be provided by the Distributor under the
Plan: (1) compensation to and expenses of Dean Witter Reynolds' Financial
Advisors and other Selected Broker-Dealers' account executives and other
employees, including overhead and telephone expenses; (2) sales incentives and
bonuses to sales representatives and to marketing personnel in connection with
promoting sales of the Fund's shares; (3) expenses incurred in connection with
promoting sales of the
52
<PAGE>
Fund's shares; (4) preparing and distributing sales literature; and (5)
providing advertising and promotional activities, including direct mail
solicitation and television, radio, newspaper, magazine and other media
advertisements.
The Fund is authorized to reimburse specific expenses incurred or to be
incurred in promoting the distribution of Series shares. Reimbursement is made
through payments at the end of each month. The amount of each monthly payment
may in no event exceed an amount equal to a payment at the annual rate of 0.15
of 1% of the average daily net assets of the shares of each Series of the Fund
during the month. No interest or other financing charges will be incurred for
which reimbursement payments under the Plan will be made. In addition, no
interest charges, if any, incurred on any distribution expenses will be
reimbursable under the Plan. In the case of all expenses other than expenses
representing a residual to Financial Advisors and other authorized financial
representatives, such amounts shall be determined at the beginning of each
calendar quarter by the Trustees, including a majority of the Independent 12b-1
Trustees. Expenses representing a residual to Financial Advisors and other
authorized financial representatives may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall be
reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be expended by the Fund, the Distributor
provides and the Trustees review a quarterly budget of projected incremental
distribution expenses to be incurred on behalf of the Fund, together with a
report explaining the purposes and anticipated benefits of incurring such
expenses. The Trustees determine which particular expenses, and the portions
thereof, that may be borne by the Fund, and in making such a determination
shall consider the scope of the Distributor's commitment to promoting the
distribution of Series shares.
The Arizona Series, California Series, Florida Series, Massachusetts
Series, Michigan Series, Minnesota Series, New Jersey Series, New York Series,
Ohio Series and Pennsylvania Series, accrued a total of $56,078, $150,122,
$82,273, $20,384, $24,004, $11,455, $57,692, $16,977, $24,023 and $78,314,
respectively pursuant to the Plan of Distribution for the fiscal year ended
November 30, 1999. Such payment amounted to an annual rate of 0.14 of 1% of the
average daily net assets of the Arizona Series, Florida Series, Massachusetts
Series, Michigan Series, Minnesota Series, New Jersey Series and Ohio Series
and, 0.15% of the daily net assets of the California Series, New York Series
and Pennsylvania Series. It is estimated that the amount paid by the Fund for
distribution was for expenses which relate to compensation of sales personnel
and associated overhead expenses. The Distributor has informed the Fund that it
received sales charges on sales of the Fund's shares in the approximate amounts
of $912,113, $994,943, and $840,754 for the fiscal years ended 1997, 1998, and
1999, respectively.
The Investment Manager pays a retention fee to Financial Advisors at an
annual rate of 0.05% of the value of shares of the Fund sold after January 1,
2000 and held for at least one year. Shares purchased through the reinvestment
of dividends will be eligible for a retention fee, provided that such dividends
were earned on shares otherwise eligible for a retention fee payment. Shares
owned in variable annuities, closed-end fund shares and shares held in 401(k)
plans where the Transfer Agent or Dean Witter Reynolds's Retirement Plan
Services is either recordkeeper or trustee are not eligible for a retention
fee.
For the first year only, the retention fee is paid on any shares of the
Fund sold after January 1, 2000 and held by shareholders on December 31, 2000.
The retention fees are paid by the Investment Manager from its own assets,
which may include profits from investment management fees payable under the
Management Agreement, as well as from borrowed funds.
Under the Plan, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
Under the Plan, the Distributor provides each of the Series the Fund, for
review by the Trustees, and the Trustees review, promptly after the end of each
fiscal quarter, a written report regarding the
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incremental distribution expenses incurred on behalf of each of each Series the
Fund during such fiscal quarter, which report includes (1) an itemization of
the types of expenses and the purposes therefore; (2) the amounts of such
expenses; and (3) a description of the benefits derived by each Series of the
Fund. In the Trustees' quarterly review of the Plan they consider its continued
appropriateness and the level of compensation provided therein.
No interested person of the Fund nor any Independent Trustee has any
direct financial interest in the operation of the Plan except to the extent
that the Distributor, the Investment Manager, Dean Witter Reynolds, MSDW
Services Company or certain of their employees may be deemed to have such an
interest as a result of benefits derived from the successful operation of the
Plan or as a result of receiving a portion of the amounts expended thereunder
by the Fund.
F. 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, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, NY 10007 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, NY
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, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses
and reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these
services, the Transfer Agent receives a per shareholder account fee from the
Fund and is reimbursed for its out-of-pocket expenses in connection with such
services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
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A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for each Series, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Each Series expects that the
primary market for the securities in which it intends to invest will generally
be the over-the-counter market. Securities are generally traded in the
over-the-counter market on a "net" basis with dealers acting as principal for
their own accounts without a stated commission, although the price of the
security usually includes a profit to the dealer. Each Series also expects that
securities will be purchased at times in underwritten offerings where the price
includes a fixed amount of compensation, generally referred to as the
underwriter's concession or discount. On occasion each Series 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 November 30, 1997, 1998 and 1999, the Fund
and each Series paid no such brokerage commissions or concessions.
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B. COMMISSIONS
Pursuant to an order of the SEC, each Series may effect principal
transactions in certain money market instruments with Dean Witter Reynolds.
Each Series will limit its transactions with Dean Witter Reynolds to U.S.
Government and Government Agency Securities, Bank Money Instruments (i.e.
Certificates of Deposit and Bankers' Acceptances) and Commercial Paper (not
including Tax-Exempt Municipal Paper). The transactions will be effected with
Dean Witter Reynolds only when the price available from Dean Witter Reynolds is
better than that available from other dealers.
During the fiscal years ended November 30, 1997, 1998 and 1999, the Series
did not effect any principal transactions with Dean Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds,
Morgan Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for any Series, 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. Each Series 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.
During the fiscal years ended November 30, 1997, 1998 and 1999, the Fund
and the Series 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
each Series' 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 information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of research
or services otherwise performed by the Investment Manager and thereby reduce
its expenses, it is of indeterminable value and the Fund does not reduce the
management fee it pays to the Investment Manager by any amount that may be
attributable to the value of such services.
Subject to the principle of obtaining best price and execution, the
Investment Manager may consider a broker-dealer's sales of shares of a Series
as a factor in selecting from among those broker-dealers qualified to provide
comparable prices and execution on the Series' portfolio transactions. The Fund
does not, however, require a broker-dealer to sell shares of a Series in order
for it to be considered to execute portfolio transactions, and will not enter
into any arrangement whereby a specific amount or
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percentage of a Series' transactions will be directed to a broker which sells
shares of the Series to customers. 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
Series and others whose assets it manages in such manner as it deems equitable.
In making such allocations among the Series 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 Series 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 November 30, 1999, the Fund did not pay any
brokerage commissions to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended November 30, 1999, 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 November 30, 1999, the Fund did not own any
securities issued by any of such issuers.
VII. CAPITAL STOCK AND OTHER SECURITIES
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The shareholders of each Series 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 other than as set forth in the
Prospectus.
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 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. In addition, under certain circumstances, the shareholders may call a
meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of 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
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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.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
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A. PURCHASE/REDEMPTION OF SHARES
Information concerning how the shares of each Series are offered to the
public (and how they are redeemed and exchanged) is provided in the Fund's
Prospectus.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Series shares, the application of proceeds to the purchase of new shares in a
Series or any other Morgan Stanley Dean Witter Funds and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such functions. With respect to exchanges, redemptions or
repurchases, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.
The Distributor and any authorized broker-dealer have appointed the
Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any
other Morgan Stanley Dean Witter Fund and the general administration of the
exchange privilege. No commission or discounts will be paid to the Distributor
or any authorized broker-dealer for any transaction pursuant to the exchange
privilege.
B. OFFERING PRICE
The price of each Series, called "net asset value," is based on the value
of each Series' portfolio securities.
Portfolio securities (other than short-term debt securities and futures
and options) 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 portfolio securities for each Series 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 portfolio securities for
each Series 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 Trustees believe
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 Trustees the use of other pricing services or discontinuance
of the use of any pricing service in whole or part. The Trustees may determine
to approve such recommendation or take other provisions for pricing of the
portfolio securities for each Series.
Short-term taxable debt securities with remaining maturities of 60 days or
less at time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
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Other taxable short-term debt securities with maturities of more than 60 days
will be valued on a mark to market basis until such time as they reach a
maturity of 60 days, whereupon they will be valued at amortized cost using
their value on the 61st day unless the Trustees determine such does not reflect
the securities' fair value, in which case these securities will be valued at
their fair market value as determined by the Trustees. Listed options on debt
securities are valued at the latest sale price on the exchange on which they
are listed unless no sales of such options have taken place that day, in which
case, they will be valued at the mean between their closing bid and asked
prices. Unlisted options on debt securities are valued at the mean between
their latest bid and asked price. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determines
that such price does not reflect their fair value, in which case they will be
valued at their fair market value as determined by the Trustees. All other
securities and other assets are valued at their fair value as determined in
good faith under procedures established by and under the supervision of the
Trustees.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
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Each Series 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 each Series will affect the amount
and timing and character of the distributions made by the Series. Shareholders
are urged to consult their own tax professionals regarding specific questions
as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. Each Series intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, each Series will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.
Each Series generally intends to distribute sufficient income and gains so
that the Series will not pay corporate income tax on its earnings. Each Series
also generally intends to distribute to its shareholders in each calendar year
a sufficient amount of ordinary income and capital gains to avoid the
imposition of a 4% excise tax. However, a Series may instead determine to
retain all or part of any ordinary income or capital gains in any year for
reinvestment. In such event, such Series will pay federal income tax (and
possibly excise tax) on such retained gains.
Gains or losses on sales of securities by a Series will be long-term
capital gains or losses if the securities have a tax holding period of more
than one year. Gains or losses on the sale of securities with a tax holding
period of one year or less will be short-term gains or losses.
In computing net investment income, each Series 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 gain from tax-exempt obligations purchased at a
market discount may be treated as ordinary income rather than capital gain.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by a Series could be affected. In that event, each
Series would re-evaluate its investment objective and policies.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Each Series intends to qualify to
pay "exempt-interest dividends" to its shareholders by maintaining, as of the
close of each quarter 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 a Series which consists of interest received
by the Series 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.
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Each Series intends to invest a portion of its assets in certain "private
activity bonds". As a result, a portion of the exempt-interest dividends paid
by each Series will be an item of tax preference to shareholders subject to the
alternative minimum tax. Certain corporations which are subject to the
alternative minimum tax may also have to include exempt-interest dividends in
calculating their alternative minimum taxable income in situations where the
"adjusted current earnings" of the corporation exceeds its alternative minimum
taxable income.
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of net
short-term capital gains. Such dividends and distributions are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Distributions of
long-term capital gains, if any, are taxable as long-term capital gains,
regardless of how long the shareholder has held the Series shares and
regardless of whether the distribution is received in additional shares or in
cash. The maximum tax rate on long-term capital gains applicable to individuals
is 20%. Since the income of each Series is expected to be derived entirely from
interest rather than dividends, it is anticipated that no portion of such
dividend distributions will be eligible for the federal dividends received
deduction available to corporations.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from a Series in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by a Series of any taxable interest income and short term
capital gains.
After the end of each calendar year, shareholders will be sent 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 AND EXCHANGES OF SERIES SHARES. Any dividend or
capital gains distribution received by a shareholder from a Series will have
the effect of reducing the net asset value of the shareholder's stock in the
Series 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 shares of a Series 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 Series shares is
normally treated as a sale for tax purposes. Shares of a Series 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. Under current law, the maximum tax rate on
long-term capital gains is 20%. Any loss realized by shareholders upon a sale
or redemption of shares within six months of the date of their purchase will be
(i) treated as a long-term capital loss to the extent of any distributions of
net long-term capital gains and (ii) disallowed to the extent of exempt interest
dividends received with respect to such shares.
Gain or loss on the sale or redemption of shares in the Series 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.
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Exchanges of shares in a Series for shares of another Series or for shares
of other Morgan Stanley Dean Witter Funds, are also subject to similar tax
treatment. Such an exchange is treated for tax purposes as a sale of the
original shares in the first Series, followed by the purchase of shares in the
second Series or Fund.
If a shareholder realizes a loss on the redemption or exchange of a shares
in a Series and reinvests in shares of such Series within 30 days before or
after the redemption or exchange, 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 Series is not deductible. Furthermore, entities or persons who
are "substantial users" (or related persons) of facilities financed by
industrial development bonds should consult their tax advisers before
purchasing shares of a Series. "Substantial user" is defined generally by
Treasury Regulation Section 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.
THE ARIZONA SERIES -- SPECIAL TAX CONSIDERATIONS. Under a ruling and
published guidance issued by the Arizona Department of Revenue in 1984 and
1991, respectively, distributions from the Arizona Series that are received by
shareholders that are Arizona taxpayers will not be subject to Arizona income
tax to the extent that those distributions are attributable to interest on
tax-exempt obligations of the State of Arizona or interest on obligations of
the United States. Distributions from the Arizona Series attributable to
obligations of the governments of Puerto Rico, the Virgin Islands and Guam also
are excludible from Arizona income tax pursuant to federal law. Other
distributions from the Arizona Series, including those related to short-term
and long-term capital gains, generally will be taxable under Arizona law when
received by Arizona taxpayers. Like federal law, Arizona law allows taxpayers a
deduction for interest on indebtedness incurred to purchase property held for
investment to the extent of such taxpayer's net investment income. However,
interest on indebtedness incurred (directly or indirectly) by a shareholder to
purchase or carry shares of the Arizona Series is not deductible for Arizona
income tax purposes to the extent that the Arizona Series holds tax-exempt
obligations of the State of Arizona, obligations of the United States, and
obligations of Puerto Rico, the Virgin Islands and Guam.
The foregoing discussion assumes that in each taxable year the Arizona
Series qualifies and elects to be taxed as a regulated investment company for
federal income tax purposes. In addition, the following discussion assumes that
in each taxable year the Arizona Series qualifies to pay exempt-interest
dividends by complying with the requirement of the Code that at least 50% of
its assets at the close of each quarter of its taxable year is invested in
state, municipal or other obligations, the interest on which is excluded from
gross income for federal income tax purposes pursuant to section 103(a) of the
Code.
THE CALIFORNIA SERIES -- SPECIAL TAX CONSIDERATIONS. In any year in which
the Fund qualifies as a regulated investment company under the Internal Revenue
Code as in effect on January 1, 1998, and is exempt from federal income tax,
(i) the California Series will also be exempt from the California corporate
income and franchise taxes to the extent it distributes its income and (ii),
provided 50% or more of the value of the total assets of the California Series
at the close of each quarter of its taxable year consists of obligations the
interest on which (when held by an individual) is exempt from personal income
taxation under California law, the California Series will be qualified under
California law to pay "exempt-interest" dividends which will be exempt from the
California personal income tax.
The portion of dividends constituting exempt-interest dividends is that
portion derived from interest on obligations which pay interest excludable from
California personal income under California law. The total amount of California
exempt-interest dividends paid by the California Series to all of its
shareholders with respect to any taxable year cannot exceed the amount of
interest received by the California Series during such year on such obligations
less any expenses and expenditures (including dividends paid to corporate
shareholders) deemed to have been paid from such interest. Any dividends paid
to corporate shareholders subject to the California franchise tax will be taxed
as ordinary dividends to such shareholders.
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Individual shareholders of the California Series who reside in California
will not be subject to California personal income tax on distributions received
from the California Series to the extent such distributions are attributable to
interest received by the California Series during its taxable year on
obligations, the interest on which (when held by an individual) is exempt from
taxation under California law.
Because, unlike federal law, California law does not impose personal
income tax on an individual's Social Security benefits, the receipt of
California exempt-interest dividends will have no effect on an individual's
California personal income tax.
Individual shareholders will normally be subject to federal and California
personal income tax on dividends paid from interest income derived from taxable
securities and distributions of net capital gains. In addition, distributions
other than exempt-interest dividends to such shareholders are includable in
income subject to the California alternative minimum tax. For federal income
tax and California personal income tax purposes, distributions of long-term
capital gains, if any, are taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held shares of the California Series
and regardless of whether the distribution is received in additional shares or
in cash. The maximum federal capital gains rate for individuals is 20% with
respect to capital assets held more than 12 months. The maximum capital gains
rate for corporate shareholders is the same as the maximum tax rate for
ordinary income. In addition, unlike federal law, the shareholders of the
California Series will not be subject to tax, or receive a credit for tax paid
by the California Series, on undistributed capital gains, if any.
Interest on indebtedness incurred by shareholders or related parties to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the California Series, generally will not be deductible by
the investor for federal or state personal income tax purposes. In addition, as
a result of California's incorporation of certain provisions of the Code, a
loss realized by a shareholder upon the sale of shares held for six months or
less may be disallowed to the extent of any exempt-interest dividends received
with respect to such shares. Moreover, any loss realized upon the redemption of
shares within six months from the date of purchase of such shares and following
receipt of a long-term capital gains distribution will be treated as long-term
capital loss to the extent of such long-term capital gains distribution.
Finally, any loss realized upon the redemption of shares within 30 days before
or after the acquisition of other shares of the Fund may be disallowed under
the "wash sale" rules.
Distributions from investment income and long-term and short-term capital
gains will not be excludable from taxable income in determining the California
corporate franchise tax for corporate shareholders. Such distributions may also
be includable in income subject to the alternative minimum tax. In addition,
distributions from investment income and long-term and short-term capital gains
may be subject to state taxes in states other than California, and to local
taxes.
THE FLORIDA SERIES -- SPECIAL TAX CONSIDERATIONS. Under existing Florida
law, neither the State of Florida nor any of its political subdivisions or
other governmental authorities may impose an income tax on individuals.
Accordingly, individual shareholders of the Florida Series will not be subject
to any Florida state or local income taxes on income derived from investments
in the Florida Series. However, such income may be subject to state or local
income taxation under applicable state or local laws in jurisdictions other
than Florida. In addition, the income received from the Florida Series may be
subject to estate taxes under present Florida law and certain corporations may
be subject to the taxes imposed by Chapter 220, Florida Statutes, on interest,
income or profits on debt obligations owned by corporations as defined in said
Chapter 220.
The State of Florida also imposes an annual tax of 2 mills on each dollar
($2.00 per $1,000) of the just valuation of all intangible personal property
that has a taxable situs within the State with certain exemptions and
limitations. However, the entire value of a shareholder's interest in the
Florida Series will be exempt from Florida's intangible personal property tax
if, as is intended, all of the investments and other assets held by the Florida
Series on each annual assessment date are exempt individually from the
intangible personal property tax. It presently is the policy and intention of
the Fund and the Investment
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<PAGE>
Manager to manage the Florida Series in such a manner as to ensure that on each
annual assessment date the Florida Series will consist of only those
investments and other assets which are exempt from the Florida intangible
personal property tax. Accordingly, it is unlikely that any shareholder of the
Florida Series will ever be subject to such tax. In the event that the Florida
Series includes investments or other assets on the annual assessment date which
may subject shareholders to the Florida intangible personal property tax, the
Fund shall so notify the Shareholders.
THE MASSACHUSETTS SERIES -- SPECIAL TAX CONSIDERATIONS. Under existing
Massachusetts law, provided the Massachusetts Series qualifies as a "regulated
investment company" under the Code, the Massachusetts Series will not be
subject to Massachusetts income or excise taxation. Shareholders of the
Massachusetts Series that are individuals, estates or trusts and are subject to
the Massachusetts personal income tax will not be subject to such tax on
distributions of the Massachusetts Series that qualify as "exempt-interest
dividends" under Section 852(b)(5) of the Code and are attributable to interest
received by the Massachusetts Series on obligations issued by The Commonwealth
of agencies and instrumentalities, or by Puerto Rico, the U.S. Virgin Islands
or Guam, which pay interest excludable from gross income under the Code and
exempt from Massachusetts personal income taxation. Other distributions to such
shareholders will generally be included in income subject to the Massachusetts
personal income tax, except for (1) distributions, if any, attributable to
interest received by the Massachusetts Series on direct obligations of the
United States and (2) distributions, if any, attributable to gain realized by
the Massachusetts Series on the sale of certain Massachusetts obligations
issued pursuant to Massachusetts statutes that specifically exempt such gain
from Massachusetts taxation. Dividends from the Massachusetts Series that
qualify as capital gain dividends under Section 852(b)(3)(C) of the Code, other
than such dividends described in the second clause of the preceding sentence,
will be treated as long-term capital gains for Massachusetts personal income
tax purposes.
As a result of a change in the Massachusetts tax laws, applicable to
taxable years beginning on or after January 1, 1996, capital gain income from
the sale or exchange of shares of the Massachusetts Series will be taxed at a
stepped down rate depending on the number of years such shares have been held.
For purposes of determining the holding period, shares acquired prior to 1/1/96
shall be deemed to have been acquired on 1/1/95, or on the date of actual
acquisition, whichever is later. Further, long-term capital losses are
available to offset long-term and short-term gains. First, a loss in each
long-term period classification is available against gains in the same
classification; then they are available against other classifications beginning
with the gains at the highest rate level; then they are available against
short-term gains. Short-term capital losses may be applied against short-term
capital gains and the excess is able to offset long-term capital gains. In
addition, as a result of the changes in the Massachusetts tax laws, effective
January 1, 1999, any taxable interest and dividends (other than interest and
dividends from Massachusetts banks) is taxed at 5.95%, reduced from 12%.
In determining the Massachusetts excise tax on corporations subject to
Massachusetts taxation, distributions from the Massachusetts Series, whether
attributable to taxable or tax-exempt income or gain realized by the
Massachusetts Series, will not be excluded from a corporate shareholder's net
income and, in the case of a shareholder that is an intangible property
corporation, shares of the Massachusetts Series will not be excluded from net
worth.
THE MICHIGAN SERIES -- SPECIAL TAX CONSIDERATIONS. Under existing Michigan
law, to the extent that the distributions from the Michigan Series qualify as
"exempt-interest dividends" of a regulated investment company under Section
852(b)(5) of the Code which are attributable to interest on tax-exempt
obligations of the State of Michigan, its political or governmental
subdivisions, or its governmental agencies or instrumentalities ("Michigan
Obligations"), or obligations of the United States or its agencies or
possessions that are exempt from state taxation, such distributions will also
not be subject to Michigan income tax or Michigan single business tax.
To the extent that distributions of the Michigan Series are derived from
other income, including long-or short-term capital gains, the distributions
will not be exempt from Michigan income tax or Michigan single business tax.
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<PAGE>
Certain Michigan cities have adopted Michigan's uniform city income tax
ordinance, which under the Michigan city income tax act is the only income tax
ordinance that may be adopted by cities in Michigan. To the extent the
distributions on the Michigan Series are not subject to Michigan income tax,
they are not subject to any Michigan city's income tax.
THE MINNESOTA SERIES -- SPECIAL TAX CONSIDERATIONS. Under existing
Minnesota law, provided the Minnesota Series qualifies as a "regulated
investment company" under the Code, and subject to the discussion in the
paragraph below, shareholders of the Minnesota Series who are individuals,
estates, or trusts, and who are subject to the regular Minnesota personal
income tax will not be subject to such regular Minnesota tax on Minnesota
Series dividends to the extent that such distributions qualify as
exempt-interest dividends of a regulated investment company under Section
852(b)(5) of the Code which are derived from interest income on tax-exempt
obligations of the State of Minnesota, or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities
("Minnesota Sources"). The foregoing will apply, however, only if the portion
of the exempt-interest dividends from such Minnesota Sources that is paid to
all shareholders represents 95% or more of the exempt-interest dividends that
are paid by the Minnesota Series. If the 95% test is not met, all
exempt-interest dividends that are paid by the Minnesota Series generally will
be subject to the regular Minnesota personal income tax. Even if the 95% test
is met, to the extent that exempt-interest dividends that are paid by the
Minnesota Series are not derived from the Minnesota Sources described in the
first sentence of this paragraph, such dividends generally will be subject to
the regular Minnesota personal income tax. Other distributions of the Minnesota
Series, including distributions from net short-term and long-term capital
gains, are generally not exempt from the regular Minnesota personal income tax.
Legislation enacted in 1995 provides that it is the intent of the
Minnesota legislature that interest income on obligations of Minnesota
governmental units, including obligations of the Minnesota Sources described
above, and exempt-interest dividends that are derived from interest income on
such obligations, be included for Minnesota income tax purposes in the net
income of individuals, estates and trusts, if it is judicially determined that
the exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations of governmental issuers located in other states, or exempt-interest
dividends derived from such obligations, is so included. This provision
provides that it applies to taxable years that begin during or after the
calendar year in which such judicial decision becomes final, regardless of the
date on which the obligations were issued, and that other remedies apply for
previous taxable years. The United States Supreme Court in 1995 denied
certiorari in a case in which an Ohio state court upheld an exemption for
interest income on obligations of Ohio governmental issuers, even though
interest income on obligations of non-Ohio governmental issuers was subject to
tax. In 1997, the United States Supreme Court denied certiorari in a subsequent
case from Ohio, involving the same taxpayer and the same issue, in which the
Ohio Supreme Court refused to reconsider the merits of the case on the ground
that the previous final state court judgment barred any claim arising out of
the transaction that was the subject of the previous action. It cannot be
predicted whether a similar case will be brought in Minnesota or elsewhere, or
what the outcome of such case would be.
Minnesota presently imposes an alternative minimum tax on individuals,
estates and trusts that is based, in part, on their federal alternative minimum
taxable income, which includes federal tax preference items. The Code provides
that interest on specified private activity bonds is a federal tax preference
item, and that an exempt-interest dividend of a regulated investment company
constitutes a federal tax preference item to the extent of its proportionate
share of the interest on such private activity bonds. Accordingly,
exempt-interest dividends that are attributable to such private activity bond
interest, even though they are derived from the Minnesota Sources described
above, will be included in the base upon which such Minnesota alternative
minimum tax is computed. In addition, the entire portion of exempt-interest
dividends that is derived from sources other than the Minnesota Sources
described above generally is also subject to the Minnesota alternative minimum
tax. Further, should the 95% test that is described above fail to be met, all
of the exempt-interest dividends that are paid by the Minnesota Series,
including all of those that are derived from the Minnesota Sources described
above, generally will be subject to the Minnesota alternative minimum tax.
63
<PAGE>
Subject to certain limitations that are set forth in the Minnesota rules,
Minnesota Series dividends, if any, that are derived from interest on certain
United States obligations are not subject to the regular Minnesota personal
income tax or the Minnesota alternative minimum tax, in the case of
shareholders of the Minnesota Series who are individuals, estates, or trusts.
Minnesota Series distributions, including exempt-interest dividends, are
not excluded in determining the Minnesota franchise tax on corporations that is
measured by taxable income and alternative minimum taxable income.
Minnesota Series distributions may also be taken into account in certain
cases in determining the minimum fee that is imposed on corporations, S
corporations and partnerships.
Interest on indebtedness incurred or continued by a shareholder of the
Minnesota Series to purchase or carry shares of the Minnesota Series will
generally not be deductible for regular Minnesota personal income tax purposes
or Minnesota alternative minimum tax purposes, in the case of shareholders of
the Minnesota Series who are individuals, estates, or trusts.
Shares of the Minnesota Series will not be subject to the Minnesota
personal property tax.
THE NEW JERSEY SERIES -- SPECIAL TAX CONSIDERATIONS. Under existing New
Jersey law, as long as the New Jersey Series qualifies as a "qualified
investment fund," shareholders of the New Jersey Series may exclude certain
distributions from the New Jersey Series from gross income for purposes of
calculating the New Jersey gross income tax imposed on individuals, estates and
certain trusts. Distributions permitted to be excluded are those that are
attributable to interest or gain from obligations (1) issued by or on behalf of
New Jersey or any county, municipality, school or other district, agency,
authority, commission, instrumentality, public corporation, body corporate and
politic or political subdivision of New Jersey, or (2) statutorily free from
New Jersey or local taxation under other acts of New Jersey or under the laws
of the United States.
A "qualified investment fund", as defined by applicable New Jersey law, is
any investment company or trust registered with the Securities Exchange
Commission, or any series of such investment company or trust, which, for the
calendar year in which the distribution is paid, (a) has no investments other
than interest-bearing obligations, obligations issued at a discount, and cash
and cash items, including receivables, and financial options, futures, forward
contracts, or other similar financial instruments related to interest-bearing
obligations, obligations issued at a discount or bond indexes related thereto;
and (b) has not less than 80% of the aggregate principal amount of all its
investments, excluding financial options, futures, forward contracts, or other
similar financial instruments related to interest-bearing obligations,
obligations issued at a discount or bond indexes related thereto to the extent
such instruments are authorized by section 851(b) of the federal Internal
Revenue Code, 26 U.S.C. Section 851(b), cash and cash items (including
receivables), in obligations of the types described in the preceding paragraph.
Failure to satisfy the "80% investment test" described in clause (b) of the
preceding sentence, even if necessary to maintain a "defensive" position, would
cause all distributions from the New Jersey Series to be included in the gross
income of shareholders for purposes of calculating the New Jersey gross income
tax.
The foregoing exclusion applies only to shareholders who are individuals,
estates, and trusts, subject to the New Jersey gross income tax. That tax does
not apply to corporations, and while certain qualifying distributions are
exempt from corporation income tax, all distributions will be reflected in the
net income tax base for purposes of computing the corporation business tax.
The New Jersey Series will notify shareholders by February 15 of each
calendar year as to the portion of its distributions for the preceding calendar
year that is exempt from federal income and New Jersey income taxes.
THE NEW YORK SERIES -- SPECIAL TAX CONSIDERATIONS. Under existing New York
law, individual shareholders who are New York residents will not incur any
federal, New York State or New York City income tax on the amount of
exempt-interest dividends received by them from the Series which represents a
distribution of income from New York tax-exempt securities whether taken in
cash or reinvested in additional shares.
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<PAGE>
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.
Interest on indebtedness incurred or continued to purchase or carry shares
of an investment company paying exempt-interest dividends, such as the Fund,
may not be deductible by the investor for State or City personal income tax
purposes.
Shareholders will normally be subject to federal, New York State or New
York City income tax on dividends paid from interest income derived from
taxable securities and on distributions of net capital gains. For federal and
New York State or New York City income tax purposes, distributions of net
long-term capital gains, if any, are taxable to shareholders 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. Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to New York franchise taxes if
received by a corporation doing business in New York, to state taxes in states
other then New York and to local taxes.
THE OHIO SERIES -- SPECIAL TAX CONSIDERATIONS. Under existing Ohio law,
provided the Ohio Series qualifies as a "regulated investment company" under
the Code, the Ohio Series will not be subject to the Ohio personal income tax,
the Ohio corporation franchise tax, or to income taxes imposed by
municipalities and other political subdivisions in Ohio. Individual
shareholders of the Ohio Series who are subject to the Ohio personal income
taxes will not be subject to such taxes on distributions with respect to shares
of the Ohio Series to the extent that such distributions are directly
attributable to interest on obligations issued by the State of Ohio, its
counties and municipalities, authorities, instrumentalities or other political
subdivisions ("Ohio Obligations"). Corporate shareholders of the Ohio Series
that are subject to the Ohio corporation franchise tax computed on the net
income basis will not be subject to such tax on distributions with respect to
shares of the Ohio Series to the extent that such distributions either (a) are
attributable to interest on Ohio obligations, or (b) represent "exempt-interest
dividends" as defined in Section 852 of the Code. Shares of the Ohio Series
will, however, be included in a corporate shareholder's tax base for purposes
of computing the Ohio corporation franchise tax on the net worth basis.
Distributions with respect to the Ohio Series that are attributable to
interest on obligations of the United States or its territories or possessions
(including the Governments of Puerto Rico, the Virgin Islands, and Guam), or of
any authority, commission or instrumentality of the United States that is
exempt from state income taxes under the laws of the United States, will not be
subject to the Ohio personal income tax, the Ohio corporation franchise tax (to
the extent computed on the net income basis), or to taxes imposed by
municipalities and other political subdivisions in Ohio.
Capital gains distributed by the Ohio Series attributable to any profits
made on the sale, exchange, or other disposition by the Ohio Series of Ohio
Obligations will not be subject to the Ohio personal income tax, the Ohio
corporation franchise tax (to the extent computed on the net income basis), or
to taxes imposed by municipalities and other political subdivisions in Ohio.
Interest on indebtedness incurred or continued (directly or indirectly) by
a shareholder of the Ohio Series to purchase or carry shares of the Ohio Series
will not be deductible for Ohio personal income tax purposes.
THE PENNSYLVANIA SERIES -- SPECIAL TAX CONSIDERATIONS. Individual
shareholders of the Pennsylvania Series resident in the Commonwealth of
Pennsylvania will not be subject to Pennsylvania personal income tax on
distributions received from the Pennsylvania Series to the extent such
distributions are attributable to interest on tax-exempt obligations of the
Commonwealth, its agencies, authorities and political subdivisions or
obligations of the United States or of the Governments of Puerto Rico, the
Virgin Islands and Guam. Other distributions from the Pennsylvania Series,
including capital gains generally and interest on securities not described in
the preceding sentence, generally will not be exempt from Pennsylvania Personal
Income Tax.
Other than the School District of Philadelphia, political subdivisions of
the Commonwealth have not been authorized to impose an unearned income tax upon
resident individuals. Individual shareholders
65
<PAGE>
who reside in the Philadelphia School District will not be subject to the
School District Unearned Income Tax on (i) distributions received from the
Pennsylvania Series to the extent that such distributions are exempt from
Pennsylvania Personal Income Tax, or (ii) distributions of capital gains income
by the Pennsylvania Series.
Corporate shareholders who are subject to the Pennsylvania Corporate Net
Income Tax will not be subject to that tax on distributions by the Pennsylvania
Series that qualify as "exempt-interest dividends" under Section 852(b)(5) of
the U.S. Internal Revenue Code or are attributable to interest on obligations
of the United States or agencies or instrumentalities thereof. For Capital
Stock/Foreign Franchise Tax purposes, corporate shareholders must normally
reflect their investment in the Pennsylvania Series and the dividends received
thereon in the determination of the taxable value of their capital stock.
The Pennsylvania Series will not be subject to Corporate Net Income Tax or
other corporate taxation in Pennsylvania.
A Pennsylvania statute purports to authorize most counties to impose a tax
on intangible personal property of their residents. Although this tax is
presently under constitutional challenge in the courts, some counties may
attempt to levy the tax. Shares in the Pennsylvania Series constitute
intangible personal property. However, shares in the Pennsylvania Series will
not be subject to intangible personal property taxation to the extent that the
intangible personal property owned in the portfolio of the Pennsylvania Series
would not be subject to such taxation if owned directly by a resident of
Pennsylvania. The Pennsylvania Series will invest predominantly in obligations
of the Commonwealth, its agencies, authorities and political subdivisions, or
obligations of the United States or the Governments of Puerto Rico, the Virgin
Islands or Guam, which obligations are not subject to intangible personal
property taxation in Pennsylvania. Only the fraction, if any, of the value of
the Pennsylvania Series' portfolio not invested in securities described in the
preceding sentence would be subject to any applicable intangible personal
property tax.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
The shares of each Series are offered to the public on a continuous basis.
The Distributor, as the principal underwriter of the shares, has certain
obligations under the Distribution Agreement concerning the distribution of the
shares. These obligations and the compensation the Distributor receives are
described above in the sections titled "Principal Underwriter" and "Rule 12b-1
Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time each Series of the Fund
may quote its "yield" and/or its "total return" in advertisements and sales
literature. The yield of each Series is calculated for any 30-day period as
follows: the amount of interest income for each security in a particular
Series' portfolio is determined in accordance with regulatory requirements; the
total for the entire portfolio constitutes the Series' 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 net
asset value per share of that Series on the last day of the period multiplied
by the average number of the Series' 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. For the 30 day period ended November 30,
1999, the yields, calculated pursuant to the formula described above, for the
Arizona Series, the California Series, the Florida Series, the Massachusetts
Series, the Michigan Series, the Minnesota Series, the New Jersey Series, the
New York Series, the Ohio Series and the Pennsylvania Series were 4.49%, 4.79%,
4.47%, 4.47%, 4.29%, 3.99%, 4.62%, 4.45%, 3.86% and 4.76% respectively.
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
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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.
Each Series of the Fund may also quote a "tax-equivalent yield" determined
by dividing the tax- exempt portion of the 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 tax-equivalent yield for the Arizona Series, the California
Series, the Florida Series, the Massachusetts Series, the Michigan Series, the
Minnesota Series, the New Jersey Series, the New York Series, the Ohio Series
and the Pennsylvania Series based upon a combined Federal and respective State
personal income tax bracket of 42.64%, 45.22%, 39.60%, 43.19%, 42.26%, 44.73%,
43.45%, 43.74%, 43.70% and 41.29% respectively for the 30 day period ended
November 30, 1999, were 7.83%, 8.74%, 7.40%, 7.87%, 7.43%, 7.22%, 8.17%, 7.91%,
6.86% and 8.11% respectively, based upon the respective yields quoted above.
Each Series' "average annual total return" represents an annualization of
that Series' 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 (which is reduced by the initial sales charge), 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 returns of the Arizona Series, California Series,
the Florida Series, the Massachusetts Series, the Michigan Series, the
Minnesota Series, the New Jersey Series, the New York Series, the Ohio Series
and the Pennsylvania Series for the fiscal year ended November 30, 1999, for
the five years ended November 30, 1999 and for the period January 15, 1991
(commencement of operations) (April 30, 1991 for the Arizona Series) through
November 30, 1999 were:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
FOR PERIOD
FROM
AVERAGE ANNUAL AVERAGE ANNUAL COMMENCEMENT
TOTAL RETURN FOR TOTAL RETURN FOR OF OPERATIONS
FISCAL YEAR ENDED FIVE YEARS ENDED THROUGH
SERIES NOVEMBER 30, 1999 NOVEMBER 30, 1999 NOVEMBER 30, 1999
- ------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
Arizona Series ............... -6.43% 5.61% 5.59%
California Series ............ -6.98% 6.46% 6.25%
Florida Series ............... -6.59% 6.01% 6.03%
Massachusetts Series ......... -6.20% 6.29% 6.37%
Michigan Series .............. -6.31% 6.30% 6.27%
Minnesota Series ............. -6.36% 5.85% 5.58%
New Jersey Series ............ -6.34% 6.21% 6.17%
New York Series .............. -6.79% 6.55% 6.34%
Ohio Series .................. -6.20% 6.33% 6.14%
Pennsylvania Series .......... -6.90% 5.90% 5.99%
</TABLE>
In addition to the foregoing, each Series of 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. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge, which, if
reflected would reduce the performance quoted. For example, the average annual
total return of each Series of the Fund may be calculated in the manner
described above but without the deduction for any applicable sales charge.
Based on this calculation, the average annual total returns (without
deduction for applicable sales charge) for the Arizona Series, the California
Series, the Florida Series, the Massachusetts Series, the Michigan Series, the
Minnesota Series, the New Jersey Series, the New York Series, the Ohio Series
and the Pennsylvania Series for the fiscal year ended November 30, 1999, for
the five years ended November 30, 1999 and for the period January 15, 1991
(April 30, 1991 for the Arizona Series) through November 30, 1999 were:
67
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL
AVERAGE ANNUAL AVERAGE ANNUAL TOTAL RETURN
TOTAL RETURN TOTAL RETURN (WITHOUT DEDUCTION FOR
(WITHOUT DEDUCTION OF (WITHOUT DEDUCTION FOR SALES CHARGE)
SALES CHARGE) SALES CHARGE) FOR PERIOD OF COMMENCEMENT
FOR FISCAL YEAR ENDED FOR FIVE YEARS ENDED OF OPERATIONS THROUGH
SERIES NOVEMBER 30, 1999 NOVEMBER 30, 1999 NOVEMBER 30, 1999
- ------------------------------ ----------------------- ------------------------ ---------------------------
<S> <C> <C> <C>
Arizona Series ............... -2.53% 6.48% 6.09%
California Series ............ -3.10% 7.34% 6.74%
Florida Series ............... -2.70% 6.88% 6.52%
Massachusetts Series ......... -2.29% 7.17% 6.86%
Michigan Series .............. -2.40% 7.17% 6.76%
Minnesota Series ............. -2.46% 6.72% 6.06%
New Jersey Series ............ -2.44% 7.08% 6.66%
New York Series .............. -2.90% 7.42% 6.83%
Ohio Series .................. -2.29% 7.20% 6.63%
Pennsylvania Series .......... -3.02% 6.76% 6.48%
</TABLE>
In addition, 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 (without
reduction for any sales charge) by the initial $1,000 investment and
subtracting 1 from the result. Based on the foregoing calculation, the total
returns for the fiscal year ended November 30, 1999, for the five years ended
November 30, 1999 and for the period January 15, 1991 (April 30, 1991 for the
Arizona Series) through November 30, 1999 were:
<TABLE>
<CAPTION>
TOTAL RETURN
FOR PERIOD OF COMMENCEMENT
TOTAL RETURN TOTAL RETURN OF OPERATIONS
FOR FISCAL YEAR ENDED FOR FIVE YEARS ENDED THROUGH
SERIES NOVEMBER 30, 1999 NOVEMBER 30, 1999 NOVEMBER 30, 1999
- ------------------------------ ----------------------- ---------------------- ---------------------------
<S> <C> <C> <C>
Arizona Series ............... -2.53% 36.88% 66.18%
California Series ............ -3.10% 42.48% 78.44%
Florida Series ............... -2.70% 39.44% 75.10%
Massachusetts Series ......... -2.29% 41.35% 80.17%
Michigan Series .............. -2.40% 41.38% 78.66%
Minnesota Series ............. -2.46% 38.43% 68.60%
New Jersey Series ............ -2.44% 40.80% 77.15%
New York Series .............. -2.90% 43.06% 79.69%
Ohio Series .................. -2.29% 41.55% 76.81%
Pennsylvania Series .......... -3.02% 38.72% 74.60%
</TABLE>
The Fund may also advertise the growth of the hypothetical investments of
$10,000, $50,000 and $100,000 in shares of any Series of the Fund by adding 1
to the respective Series' aggregate total return to date and multiplying by
$9,600, $48,375 or $97,250 ($10,000, $50,000 or $100,000 adjusted for a 4.0%,
3.25% and 2.75% sales charge). Investments of $10,000 adjusted for a 4.0% sales
charge in the Arizona Series, California Series, Florida Series, Massachusetts
Series, Michigan Series, Minnesota Series, New Jersey Series, New York Series,
Ohio Series and Pennsylvania Series at inception would have grown to the
following amounts as of November 30, 1999:
68
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT AT COMMENCEMENT
OF OPERATIONS OF
-----------------------------------
SERIES $10,000 $50,000 $100,000
- ------------------------------ --------- --------- -----------
<S> <C> <C> <C>
Arizona Series ............... $15,953 $80,390 $161,610
California Series ............ $17,130 $86,320 $173,533
Florida Series ............... $16,810 $84,705 $170,285
Massachusetts Series ......... $17,296 $87,157 $175,215
Michigan Series .............. $17,152 $86,427 $173,747
Minnesota Series ............. $16,186 $81,560 $163,964
New Jersey Series ............ $17,007 $85,696 $172,278
New York Series .............. $17,250 $86,925 $174,749
Ohio Series .................. $16,974 $85,532 $171,948
Pennsylvania Series .......... $16,762 $84,463 $169,799
</TABLE>
Each Series of the Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
recognized organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
November 30, 1999 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.
69
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
ARIZONA TAX-EXEMPT MUNICIPAL BONDS (90.9%)
General Obligation (13.2%)
$ 1,000 Paradise Valley Unified School District #69, Ser B 1995 (MBIA) ............ 5.25 % 07/01/15 $ 956,860
Phoenix,
1,000 Refg Ser 1992 ........................................................... 6.375 07/01/13 1,057,650
1,000 Refg Ser 1999 B ......................................................... 4.50 07/01/20 822,950
1,000 Tucson, Refg Ser 1998 ..................................................... 5.50 07/01/18 977,200
1,000 Puerto Rico, Public Improvement Ser 1998 (MBIA) ........................... 6.00 07/01/16 1,048,320
-------- -----------
5,000 4,862,980
-------- -----------
Educational Facilities Revenue (5.5%)
1,000 Arizona Board of Regents, Arizona State University Ser 1992 A ............. 5.50 07/01/19 958,330
1,000 University of Arizona, Telecommunications Ser 1991 COPs ................... 6.50 07/15/12 1,058,030
-------- -----------
2,000 2,016,360
-------- -----------
Electric Revenue (4.5%)
820 Salt River Project Agricultural Improvement & Power District,
Refg 1992 Ser D ......................................................... 6.25 01/01/27 831,119
1,000 Puerto Rico Electric Power Authority, Power Ser DD (FSA) .................. 4.50 07/01/19 835,580
-------- -----------
1,820 1,666,699
-------- -----------
Hospital Revenue (10.9%)
2,000 Maricopa County Industrial Development Authority, Catholic Healthcare
West 1992 Ser A (MBIA) .................................................. 5.75 07/01/11 2,054,100
865 Mesa Industrial Development Authority, Discovery Health Ser 1999 A
(MBIA) .................................................................. 5.875 01/01/16 867,396
Pima County Industrial Development Authority, Carondelet Health
1,100 Care Corp Ser 1993 (MBIA) ................................................. 5.25 07/01/13 1,086,283
-------- -----------
3,965 4,007,779
-------- -----------
Industrial Development/Pollution Control Revenue (9.8%)
1,000 Greenlee County Industrial Development Authority, Phelps Dodge Corp
Refg 1994 ............................................................... 5.45 06/01/09 958,500
1,000 Mohave County Industrial Development Authority, Citizens Utilities Co
1993 Ser B (AMT) ........................................................ 5.80 11/15/28 935,150
Santa Cruz County Industrial Development Authority, Citizens Utilities Co
1,700 Ser 1991 (AMT) .......................................................... 7.15 02/01/23 1,722,899
-------- -----------
3,700 3,616,549
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Mortgage Revenue - Multi-Family (2.6%)
$ 925 Pima County Industrial Development Authority, Rancho Mirage Ser 1992
(AMT) (AGRC) .............................................................. 7.05 % 04/01/22 $ 967,041
------ ----------
Public Facilities Revenue (7.7%)
Arizona,
500 Refg Ser 1992 B COPs (AMBAC) ............................................ 6.25 09/01/10 525,625
500 Ser 1991 COPs (FSA) ..................................................... 6.25 09/01/11 522,325
1,000 Phoenix Civic Improvement Corporation, Phoenix Municipal
Courthouse Sr Lien Excise Tax Ser 1999 A ................................ 5.25 07/01/24 908,930
1,000 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1997 A
(AMBAC) ................................................................... 5.00 07/01/28 876,720
------ ----------
3,000 2,833,600
------ ----------
Transportation Facilities Revenue (10.5%)
1,000 Phoenix, Street & Highway User Refg Ser 1993 .............................. 5.125 07/01/11 989,200
Tucson,
1,000 Street & Highway User Sr Lien Refg Ser 1993 ............................. 5.50 07/01/09 1,019,670
1,000 Street & Highway User Sr Lien Refg Ser 1996 (MBIA) ...................... 6.00 07/01/10 1,072,870
1,000 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................ 4.75 07/01/38 791,870
------ ----------
4,000 3,873,610
------ ----------
Water & Sewer Revenue (18.3%)
400 Arizona Wastewater Management Authority, Wastewater Ser 1992 A
(AMBAC) ................................................................. 5.95 07/01/12 409,624
1,000 Arizona Water Infrastructure Finance Authority, Water Quality Ser 1998 A
(MBIA) .................................................................. 5.00 07/01/17 908,380
1,000 Chandler, Water & Sewer Refg Ser 1992 (FGIC) .............................. 6.25 07/01/13 1,050,260
1,000 Gilbert, Water & Wastewater Refg Ser 1992 (FGIC) .......................... 6.50 07/01/22 1,050,271
1,000 Mesa, Utility Ser 1998 (MBIA) ............................................. 4.50 07/02/18 831,310
1,000 Phoenix Civic Improvement Corporation, Wastewater Refg Ser 1993 ........... 4.75 07/01/23 835,560
1,000 Pima County Metropolitan Domestic Water Improvement District,
Refg Ser 1999 (FGIC) .................................................... 4.875 01/01/19 877,250
1,000 Scottsdale Water & Sewer Refg Ser 1998 E .................................. 4.50 07/01/23 807,640
------ ----------
7,400 6,770,295
------ ----------
Refunded (7.9%)
1,150 Arizona Health Facilities Authority, Phoenix Baptist Hospital & Medical
Center Inc & Medical Environments Inc Ser 1992 (MBIA) (ETM) ............. 6.25 09/01/11 1,216,654
600 Arizona Wastewater Management Authority, Wastewater Refg Ser 1992 A
(AMBAC) ................................................................. 5.95 07/01/02+ 633,498
1,000 Tucson, Water Refg Ser 1991 ............................................... 6.50 07/01/01+ 1,049,270
------ ----------
2,750 2,899,422
------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
$ 34,560 TOTAL ARIZONA TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $33,994,276)......................................................... $33,514,335
-----------
SHORT-TERM ARIZONA TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.1%)
900 Maricopa County, Arizona Public Service Co Ser 1994 C (Demand
12/01/99) .............................................. 3.75*% 05/01/29 900,000
1,700 Tempe, Excise Tax Ser 1998 (Demand 12/01/99) ............. 3.75* 07/01/23 1,700,000
-------- -----------
2,600 TOTAL SHORT-TERM ARIZONA TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $2,600,000) ......................................................... 2,600,000
-----------
$ 37,160 TOTAL INVESTMENTS (Identified Cost $36,594,276) (a) ................... 98.0% 36,114,335
======== CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ....................... 2.0 752,859
-------- -----------
NET ASSETS ............................................................ 100.0% $36,867,194
======== ===========
</TABLE>
- -------------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
* Current coupon of variable rate demand obligation.
+ Prerefunded to call date shown.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$790,898 and the aggregate gross unrealized depreciation is
$1,270,839, resulting in net unrealized depreciation of $479,941.
Bond Insurance:
- ---------------
AGRC Asset Guaranty Reinsurance Company.
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (90.8%)
General Obligation (12.4%)
California,
$ 2,000 Various Purpose 04/01/93 (FSA) .......................................... 5.50 % 04/01/19 $ 1,930,620
2,000 Refg Dtd 10/01/98 (MBIA) ................................................ 4.50 10/01/28 1,588,460
2,500 Carlsbad Unified School District, Ser 1997 (FGIC) ......................... 0.00 11/01/16 942,425
3,000 Los Angeles Unified School District, 1997 Ser B (FGIC) .................... 5.00 07/01/23 2,647,920
3,000 Mojave Water Agency, Impr Dist M Morongo Basin Pipeline Refg
Ser 1996 (FGIC) ......................................................... 5.80 09/01/22 2,973,510
2,000 Puerto Rico, Public Improvement Ser 1998 (Secondary MBIA) ................. 4.875 07/01/23 1,738,320
------- -----------
14,500 11,821,255
------- -----------
Educational Facilities Revenue (5.5%)
California Educational Facilities Authority,
1,360 Loyola Marymount University Refg Ser 1992 ............................... 6.00 10/01/14 1,387,581
1,500 University of San Diego Refg Ser 1998 (AMBAC) ........................... 4.75 10/01/15 1,362,750
2,500 University of Southern California Ser 1993 B ............................ 5.80 10/01/15 2,534,300
------- -----------
5,360 5,284,631
------- -----------
Electric Revenue (9.8%)
2,000 Burbank, Electric Ser 1998 (FSA) .......................................... 4.75 06/01/23 1,689,400
2,000 Los Angeles Department of Water & Power, Refg Issue of 1993
(Secondary AMBAC) ....................................................... 5.375 09/01/23 1,871,400
1,000 Sacramento Municipal Utility District, Refg 1993 Ser D (MBIA) ............. 5.625 11/15/15 994,250
5,000 Southern California Public Power Authority, Mead - Phoenix (AMBAC) ........ 5.15 07/01/15 4,772,900
------- -----------
10,000 9,327,950
------- -----------
Hospital Revenue (11.2%)
California Health Facilities Financing Authority,
2,000 Catholic Health Corp Ser 1992 A (MBIA) .................................. 6.00 07/01/13 2,084,280
3,000 Scripps Memorial Hospitals Ser 1992 A (MBIA) ............................ 6.375 10/01/22 3,061,290
2,000 California Statewide Communities Development Authority, Cedars-Sinai
Medical Center Ser 1992 COPs ............................................ 6.50 08/01/12 2,157,240
4,000 Duarte, City of Hope National Medical Center Ser 1999 A COPs .............. 5.25 04/01/19 3,420,400
------- -----------
11,000 10,723,210
------- -----------
Industrial Development/Pollution Control Revenue (1.6%)
1,500 California Pollution Control Financing Authority, San Diego Gas &
Electric Co 1996 Ser A .................................................... 5.90 06/01/14 1,551,825
------- -----------
Mortgage Revenue -- Multi-Family (2.2%)
2,000 California Housing Finance Agency, Rental II 1992 Ser B ................... 6.70 08/01/15 2,092,080
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C>
Mortgage Revenue -- Single Family (5.0%)
$ 690 California Housing Finance Agency, Home 1991 Ser C (AMT) (MBIA) ..............
2,880 California Rural Home Finance Authority, 1997 Ser A-2 (AMT) ..................
935 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ......................................................................
--------
4,505
--------
Public Facilities Revenue (5.7%)
2,000 San Diego County, Downtown Courthouse Refg 1998 COPs (AMBAC) .................
2,000 San Francisco Redevelopment Agency, Ser 1998 (FSA) ...........................
2,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C ..............
--------
6,000
--------
Tax Allocation Revenue (1.1%)
1,000 Industry Urban-Development Agency, Transportation-Distribution-Industrial
--------
Redev Proj #3 1992 Refg ....................................................
Transportation Facilities Revenue (9.7%)
5,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1999
(MBIA) .....................................................................
2,000 Los Angeles County Transportation Commission, Sales Tax Ser 1991-B ...........
6,000 San Joaquin Hills Transportation Corridor Agency, Toll Road Refg
Ser 1997 A (MBIA) ..........................................................
--------
13,000
--------
Water & Sewer Revenue (14.6%)
1,000 Contra Costa Water Authority, 1992 Ser E (AMBAC) .............................
East Bay Municipal Utility District,
3,000 Water Refg Ser 1992 ........................................................
2,000 Water Refg Ser 1998 (MBIA) .................................................
2,000 Metropolitan Water District of Southern California, Waterworks 1997 Ser A
2,000 San Francisco Public Utilities Commission, Water 1992 Refg Ser A .............
3,000 Santa Rosa, Wastewater Refg 1996 Ser A (FGIC) ................................
2,000 Stockton, Wastewater 1998 Ser A COPs (MBIA) ..................................
--------
15,000
--------
Refunded (12.0%)
2,000 Los Angeles County, 1991 Master Refg COPs ....................................
4,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA) .....................
5,000 California Statewide Communities Development Authority, UniHealth
America 1993 Ser A COPs (AMBAC) (ETM) ......................................
--------
11,000
--------
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ --------------
<S> <C> <C> <C>
$ 690 7.00 % 08/01/23 $ 717,331
2,880 7.00 09/01/29 3,119,933
935
--------
6.85 10/15/23 976,738
------------
4,505 4,814,002
-------- ------------
2,000 4.50 05/01/23 1,622,980
2,000 5.00 07/01/25 1,751,800
2,000 6.375 09/01/13 2,094,400
-------- ------------
6,000 5,469,180
-------- ------------
1,000
--------
6.90 11/01/16 1,056,050
------------
5,000
5.125 01/15/19 4,574,950
2,000 6.50 07/01/13 2,097,280
6,000
--------
0.00 01/15/15 2,541,780
------------
13,000 9,214,010
-------- ------------
1,000 6.25 10/01/12 1,101,310
3,000 6.00 06/01/20 3,012,870
2,000 4.75 06/01/34 1,624,960
2,000 5.00 07/01/26 1,747,760
2,000 6.00 11/01/15 2,024,920
3,000 4.75 09/01/16 2,685,810
2,000 5.00 09/01/23 1,759,820
-------- ------------
15,000 13,957,450
-------- ------------
2,000 6.708 05/01/01+ 2,104,940
4,000 6.30 04/27/06+ 4,382,040
5,000
--------
5.50 10/01/14 5,014,100
------------
11,000 11,501,080
-------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
$ 94,865 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $87,644,283)................................................................ $86,812,723
-----------
SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.8%)
1,800 California Economic Development Financing Authority, Independent
System Operator Corp 1998 Ser D (Demand 12/01/99) ................. 3.70*% 04/01/08 1,800,000
4,000 California Statewide Communities Development Authority, Sutter Health
Ser 1995 COPs (AMBAC) (Demand 12/01/99) ........................... 3.55* 08/15/27 4,000,000
1,600 Irvine Ranch Water District, Ser 1993 A (Demand 12/01/99) ........... 3.85* 05/01/09 1,600,000
-------- -----------
7,400 TOTAL SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $7,400,000)................................................................. 7,400,000
-----------
$102,265 TOTAL INVESTMENTS (Identified Cost $95,044,283) (a)............................. 98.6% 94,212,723
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................................. 1.4 1,302,584
-------- -----------
NET ASSETS ..................................................................... 100.0% $95,515,307
======== ===========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ 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
$2,269,928 and the aggregate gross unrealized depreciation is
$3,101,488, resulting in net unrealized depreciation of $831,560.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
75
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
FLORIDA TAX-EXEMPT MUNICIPAL BONDS (86.7%)
General Obligation (2.9%)
$ 1,500 Florida Board of Education, Capital Outlay Refg Ser 1992 A ................... 6.40 % 06/01/19 $ 1,557,075
------- -----------
Educational Facilities Revenue (2.8%)
1,500 Volusia County Educational Facilities Authority, Embry-Riddle
-------
Aeronautical University Ser 1996 A ......................................... 6.125 10/15/16 1,506,495
-----------
Electric Revenue (17.5%)
2,000 Jacksonville Electric Authority, St Johns River Power Park Issue 2 Ser 7 ..... 5.50 10/01/14 2,001,200
Lakeland,
4,000 Electric & Water Refg Ser 1999 A (MBIA) .................................... 0.00 10/01/14 1,735,040
1,000 Electric & Water Refg Ser 1999 B (FSA) ..................................... 6.05 10/01/14 1,061,470
1,000 Orlando Utilities Commission, Refg Ser 1993 A ................................ 5.25 10/01/14 974,790
Puerto Rico Electric Power Authority,
2,000 Power Ser O ................................................................ 5.00 07/01/12 1,916,940
2,000 Power Ser DD (FSA) ......................................................... 4.50 07/01/19 1,671,160
------- -----------
12,000 9,360,600
------- -----------
Hospital Revenue (9.4%)
1,000 Alachua County Health Facilities Authority, Shands Teaching Hospital &
Clinics Ser 1996 A (MBIA) .................................................. 6.25 12/01/11 1,079,310
1,000 Jacksonville, University Medical Center Inc Ser 1992 (Connie Lee) ............ 6.60 02/01/21 1,055,900
1,000 Orange County Health Facilities Authority, Adventist Health/Sunbelt
Ser 1995 (AMBAC) ........................................................... 5.25 11/15/20 910,070
935 Polk County Industrial Development Authority, Winter Haven Hospital
1985 Ser 2 (MBIA) .......................................................... 6.25 09/01/15 979,917
1,000 Tampa, Catholic Health East Ser 1998 A-1 (MBIA) .............................. 5.50 11/15/14 998,960
------- -----------
4,935 5,024,157
------- -----------
Industrial Development/Pollution Control Revenue (9.5%)
Citrus County,
500 Florida Power Corp Refg Ser 1992 B ......................................... 6.35 02/01/22 506,215
2,000 Florida Power Corp Refg Ser 1992 A ......................................... 6.625 01/01/27 2,054,380
1,500 St Johns County Industrial Development Authority, Professional Golf Hall
of Fame Ser 1996 (MBIA) .................................................... 5.80 09/01/16 1,511,940
1,000 St Lucie County, Florida Power & Light Co Ser 1992 (AMT) ..................... 6.70 05/01/27 1,040,900
------- -----------
5,000 5,113,435
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
76
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Mortgage Revenue -- Single Family (3.3%)
$ 245 Brevard County Housing Finance Authority, Refg Ser 1991 B (FSA) ........... 7.00 % 03/01/13 $ 251,169
225 Florida Housing Finance Agency, GNMA Collateral 1990 Ser G-1 (AMT) ........ 7.90 03/01/22 232,459
1,230 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ................................................................... 6.85 10/15/23 1,284,907
-------- -----------
1,700 1,768,535
-------- -----------
Public Facilities Revenue (1.9%)
1,000 Palm Beach County, Criminal Justice Ser 1997 (FGIC) ....................... 5.75 06/01/13 1,040,070
-------- -----------
Recreational Facilities Revenue (1.9%)
1,000 Miami Sports & Exhibition Authority, Refg Ser 1992 A (FGIC) ............... 6.15 10/01/20 1,015,320
-------- -----------
Resource Recovery Revenue (2.0%)
1,000 Lee County, Solid Waste Ser 1991 A (AMT) (MBIA) ........................... 6.50 10/01/13 1,049,810
-------- -----------
Transportation Facilities Revenue (20.0%)
1,000 Dade County, Aviation 1992 Ser B (AMT) (MBIA) ............................. 6.60 10/01/22 1,064,870
Greater Orlando Aviation Authority,
1,000 Ser 1997 (AMT) (FGIC) ................................................... 5.75 10/01/11 1,032,000
750 Ser 1992 A (AMT) (FGIC) ................................................. 6.50 10/01/12 795,105
1,000 Hillsborough County Aviation Authority, Tampa Int'l Airport
Refg Ser 1993 B (FGIC) .................................................. 5.60 10/01/19 972,160
1,500 Lee County, Refg Ser 1991 (AMBAC) ......................................... 6.00 10/01/17 1,508,640
3,000 Mid-Bay Bridge Authority, Refg Ser 1993 A (AMBAC) ......................... 5.95 10/01/22 3,013,020
1,500 Osceola County, Osceola Parkway (MBIA) .................................... 6.10 04/01/17 1,556,385
1,000 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................ 4.75 07/01/38 791,870
-------- -----------
10,750 10,734,050
-------- -----------
Water & Sewer Revenue (13.5%)
2,000 Dade County, Water & Sewer Ser 1995 (FGIC) ................................ 5.50 10/01/25 1,894,420
1,500 Florida Governmental Utility Authority, Golden Gate Ser 1999 (AMBAC) ...... 5.25 07/01/18 1,408,455
2,000 Lee County, Water & Sewer 1999 Ser A (AMBAC) .............................. 4.75 10/01/23 1,682,760
1,000 Sunrise, Utility Refg Ser 1998 (AMBAC) .................................... 5.50 10/01/18 980,390
1,500 Tampa Bay Water, Utility Ser 1998 B (FGIC) ................................ 4.75 10/01/27 1,240,650
-------- -----------
8,000 7,206,675
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
77
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Refunded (2.0%)
$ 1,000 South Broward Hospital District, Ser 1991 B & C (AMBAC) ........... 6.611% 05/01/01+ $ 1,047,620
------- -----------
49,385 TOTAL FLORIDA TAX-EXEMPT MUNICIPAL BONDS
-------
(Identified Cost $46,610,954).................................................................. 46,423,842
-----------
SHORT-TERM FLORIDA TAX-EXEMPT MUNICIPAL OBLIGATIONS (9.7%)
2,500 Collier County Health Facilities Authority, Cleveland Clinic
Foundation Ser 1999 (Demand 12/01/99) ........................... 3.70* 01/01/33 2,500,000
2,700 Jacksonville Pollution Control Financing Authority, Florida Power &
Light Co Ser 1995 (Demand 12/01/99) ............................. 3.80* 05/01/29 2,700,000
------- -----------
5,200 TOTAL SHORT-TERM FLORIDA TAX-EXEMPT MUNICIPAL OBLIGATIONS
------- (Identified Cost $5,200,000)................................................................... 5,200,000
-----------
$54,585 TOTAL INVESTMENTS (Identified Cost $51,810,954) (a)............................ 96.4% 51,623,842
======= CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................................ 3.6 1,931,130
-------- -----------
NET ASSETS .................................................................... 100.0% $53,554,972
===========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
* Current coupon of variable rate demand obligation.
+ Prerefunded to call date shown.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$1,181,182 and the aggregate gross unrealized depreciation is
$1,368,294, resulting in net unrealized depreciation of $187,112.
Bond Insurance:
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company -- A wholly owned subsidiary of AMBAC
Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
78
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MASSACHUSETTS
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
MASSACHUSETTS TAX-EXEMPT MUNICIPAL BONDS (92.3%)
Educational Facilities Revenue (23.5%)
Massachusetts Health & Educational Facilities Authority,
$ 400 Boston University 1991 Ser K & L (MBIA) ............................... 6.66 % 10/01/31 $ 418,176
500 Brandeis University 1998 Ser I (MBIA) ................................. 4.75 10/01/28 408,350
400 Suffolk University Ser B (Connie Lee) ................................. 6.25 07/01/12 417,620
300 Suffolk University Ser C (Connie Lee) ................................. 5.75 07/01/26 287,010
500 University of Massachusetts Foundation Inc/Medical School Research
Ser A (Connie Lee) .................................................. 6.00 07/01/23 496,230
Massachusetts Industrial Finance Agency,
500 College of The Holy Cross 1996 Issue (MBIA) ........................... 5.50 03/01/16 488,410
300 Mount Holyoke College Refg Ser 1992 A (MBIA) .......................... 6.30 07/01/13 313,308
------ -----------
2,900 2,829,104
------ -----------
Electric Revenue (8.5%)
500 Massachusetts Municipal Wholesale Electric Company, Power Supply
1992 Ser C ........................................................... 6.625 07/01/18 511,530
500 Puerto Rico Electric Power Authority, Power Ser X ...................... 6.00 07/01/15 508,795
------ -----------
1,000 1,020,325
------ -----------
Hospital Revenue (16.8%)
500 Boston, Boston City Hospital - FHA Insured Mtge Refg Ser B ............. 5.75 02/15/13 500,320
Massachusetts Health & Educational Facilities Authority,
500 Lahey Clinic Medical Center Ser B (MBIA) .............................. 5.625 07/01/15 490,570
1,000 Massachusetts General Hospital Ser F (AMBAC) .......................... 6.00 07/01/15 1,031,460
------ -----------
2,000 2,022,350
------ -----------
Industrial Development/Pollution Control Revenue (8.1%)
1,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser 1993 5.875 08/01/08 970,540
------ -----------
Mortgage Revenue -- Multi-Family (3.9%)
460 Massachusetts Housing Finance Agency, Rental 1994 Ser A (AMT) (AMBAC) 6.60 07/01/14 478,096
------ -----------
Mortgage Revenue -- Single Family (1.9%)
220 Massachusetts Housing Finance Agency, Ser 21 (AMT) ..................... 7.125 06/01/25 227,020
------ -----------
Student Loan Revenue (4.5%)
105 Massachusetts Educational Facilities Authority, Education Loan Issue D
Ser A 1991 (AMT) (MBIA) .............................................. 7.25 01/01/09 108,902
400 New England Education Loan Marketing Corporation, 1992 Sub Issue H
(AMT) ................................................................ 6.90 11/01/09 431,060
------ -----------
505 539,962
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
79
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MASSACHUSETTS
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Transportation Facilities Revenue (8.5%)
$ 500 Massachusetts Bay Transportation Authority, 1998 Ser A (MBIA) .......... 5.50 % 03/01/15 $ 495,880
500 Massachusetts Port Authority, Refg Ser 1998 A .......................... 5.75 07/01/12 521,385
------- -----------
1,000 1,017,265
------- -----------
Water & Sewer Revenue (12.0%)
500 Boston Water & Sewer Commission, 1992 Ser A ............................ 5.75 11/01/13 515,770
500 Massachusetts Water Pollution Abatement Trust, Pool Ser 2 .............. 5.70 02/01/12 511,760
500 Massachusetts Water Resources Authority, 1998 Ser A (FSA) .............. 4.75 08/01/27 410,115
------- -----------
1,500 1,437,645
------- -----------
Refunded (4.6%)
500 Massachusetts, Refg 1992 Ser B (ETM) ................................... 6.50 08/01/08 551,825
------- -----------
11,085 TOTAL MASSACHUSETTS TAX-EXEMPT MUNICIPAL BONDS
-------
(Identified Cost $10,960,050)................................................................. 11,094,132
-----------
SHORT-TERM MASSACHUSETTS TAX-EXEMPT MUNICIPAL OBLIGATIONS (5.8%)
Massachusetts Health & Educational Facilities Authority,
300 Capital Assets Ser D (MBIA) (Demand 12/01/99) ........................ 3.80* 01/01/35 300,000
400 Wellesley College Ser G (Demand 12/01/99) ............................. 3.60* 07/01/39 400,000
------- -----------
700 TOTAL SHORT-TERM MASSACHUSETTS TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------
(Identified Cost $700,000) ................................................................... 700,000
-----------
$11,785 TOTAL INVESTMENTS (Identified Cost $11,660,050) (a) ............................. 98.1% 11,794,132
=======
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .................................. 1.9 234,432
-------- -----------
NET ASSETS ...................................................................... 100.0% $12,028,564
======== ===========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$358,176 and the aggregate gross unrealized depreciation is
$224,094, resulting in net unrealized appreciation of $134,082.
Bond Insurance:
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of AMBAC
Assurance Corporation.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
80
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MICHIGAN
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
MICHIGAN TAX-EXEMPT MUNICIPAL BONDS (89.5%)
General Obligation (14.6%)
$ 300 Berkley School District, 1999 Refg (FGIC) ................................. 4.75 % 01/01/19 $ 257,100
500 Chelsea School District, Bldg & Site Refg 1998 (FGIC) ..................... 5.00 05/01/25 432,850
500 Detroit, Ser 1997-A (MBIA) ................................................ 5.00 04/01/18 446,860
445 Mona Shores Public Schools, 1995 Bldg & Site (FGIC) ....................... 5.80 05/01/17 445,294
500 Southgate Community School District, Refg Ser 1999 (FGIC) ................. 5.75 05/01/15 502,860
200 Puerto Rico, Public Impr Ser 1998 (Secondary MBIA) ........................ 4.875 07/01/23 173,832
-------- -----------
2,445 2,258,796
-------- -----------
Educational Facilities Revenue (10.3%)
800 Central Michigan University, Refg Ser 1993 (AMBAC) ........................ 5.50 10/01/10 809,400
800 Oakland University, Board of Trustees, Ser 1995 (MBIA) .................... 5.75 05/15/26 774,648
-------- -----------
1,600 1,584,048
-------- -----------
Electric Revenue (6.0%)
500 Wyandotte, Electric Refg 1992 (MBIA) ...................................... 6.25 10/01/17 509,955
500 Puerto Rico Electric Power Authority, Power Ser DD (FSA) .................. 4.50 07/01/19 417,790
-------- -----------
1,000 927,745
-------- -----------
Hospital Revenue (5.7%)
500 Grand Traverse County Hospital, Munson Healthcare Ser 1998 A (AMBAC)....... 4.75 07/01/22 410,910
500 Michigan Hospital Finance Authority, Mercy Health 1996 Ser R (AMBAC) ...... 5.375 08/15/16 471,795
-------- -----------
1,000 882,705
-------- -----------
Industrial Development/Pollution Control Revenue (3.5%)
500 Monroe County, Detroit Edison Co Collateralized Ser 1-1992 (AMT) (MBIA) ... 6.875 09/01/22 533,245
-------- -----------
Mortgage Revenue -- Multi-Family (11.3%)
Michigan Housing Development Authority,
465 Rental 1992 Ser A ........................................................ 6.60 04/01/12 487,571
795 1992 Ser A (FSA) ......................................................... 6.50 04/01/23 831,737
400 Ser 1990 A (AMT) ......................................................... 7.70 04/01/23 417,580
-------- -----------
1,660 1,736,888
-------- -----------
Public Facilities Revenue (6.1%)
500 Michigan Building Authority, Refg Ser I ................................... 6.25 10/01/20 508,965
500 Michigan House of Representatives, Capital Outlook LLC COPs (AMBAC) ....... 5.00 08/15/20 439,505
-------- -----------
1,000 948,470
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
81
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MICHIGAN
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Transportation Facilities Revenue (8.5%)
Wayne County, Detroit Metropolitan Wayne County Airport Sub Lien
$ 250 Ser 1991 B (AMT) (MBIA) ............................................ 6.75 % 12/01/21 $ 263,525
500 Ser 1998 B (MBIA) .................................................. 4.875 12/01/23 421,665
800 Puerto Rico Highway & Transportation Authority, Ser 1998 A .......... 4.75 07/01/38 633,496
-------- -----------
1,550 1,318,686
-------- -----------
Water & Sewer Revenue (5.4%)
400 Detroit, Water Supply Refg Ser 1992 (FGIC) .......................... 6.375 07/01/22 421,080
500 Grand Rapids, Water Ser 1998 A (FGIC) ............................... 4.75 01/01/28 409,495
-------- -----------
900 830,575
-------- -----------
Refunded (18.1%)
Detroit,
1,000 Sewer Refg Ser 1993 A (FGIC) ....................................... 5.70 07/01/03+ 1,045,050
1,000 Water Supply Refg Ser 1992 (FGIC) .................................. 6.375 07/01/02+ 1,059,460
655 Holly Area School District, 1995 Bldg & Site (FGIC) ................. 5.375 05/01/05+ 680,361
-------- -----------
2,655 2,784,871
-------- -----------
14,310 TOTAL MICHIGAN TAX-EXEMPT MUNICIPAL BONDS
--------
(Identified Cost $13,973,064)............................................................... 13,806,029
-----------
SHORT-TERM MICHIGAN TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.1%)
500 Delta County Economic Development Corporation, Mead-Escanaba
Paper Co Ser 1985 C (Demand 12/01/99) ............................. 3.80* 12/01/23 500,000
600 Royal Oak Hospital Finance Authority, William Beaumont Hospital
Ser 1996 J (Demand 12/01/99) ........................................ 3.75* 01/01/03 600,000
-------- -----------
1,100 TOTAL SHORT-TERM MICHIGAN TAX-EXEMPT MUNICIPAL OBLIGATIONS
--------
(Identified Cost $1,100,000) ............................................................... 1,100,000
-----------
$ 15,410 TOTAL INVESTMENTS (Identified Cost $15,073,064) (a) .......................... 96.6% 14,906,029
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................... 3.4 520,169
-------- -----------
NET ASSETS ................................................................... 100.0% $15,426,198
======== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
82
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MICHIGAN
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
- --------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
+ 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
$340,807 and the aggregate gross unrealized depreciation is
$507,842, resulting in net unrealized depreciation of $167,035.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
83
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MINNESOTA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
MINNESOTA TAX-EXEMPT MUNICIPAL BONDS (91.8%)
General Obligation (15.3%)
$ 300 Minneapolis, Various Purpose Refg Ser 1998 D .............................. 5.00 % 12/01/17 $ 275,601
300 Minnesota, Various Purpose Refg Ser 1998 .................................. 5.00 06/01/16 278,943
300 Park Rapids Independent School District #309, School Building Ser 1999
(MBIA) .................................................................. 4.75 02/01/21 256,638
300 Waconia Independent District #110, Ser 1999 A ............................. 4.875 02/01/22 259,851
------ ----------
1,200 1,071,033
------ ----------
Educational Facilities Revenue (17.3%)
200 Minnesota Higher Education Facilities Authority, Northfield St Olaf
College 1992 ............................................................ 6.40 10/01/21 204,894
1,000 University of Minnesota, Ser 1993 A ....................................... 4.80 08/15/03 1,010,400
------ ----------
1,200 1,215,294
------ ----------
Electric Revenue (4.3%)
300 Western Minnesota Municipal Power Agency, Refg 1996 Ser A (AMBAC) ......... 5.50 01/01/12 303,495
------ ----------
Hospital Revenue (10.0%)
300 Robbinsdale, North Memorial Medical Center Ser 1993 A (AMBAC) ............. 5.45 05/15/13 298,635
Rochester,
200 Mayo Foundation/Mayo Medical Ser 1992 I .................................. 5.75 11/15/21 197,296
200 Mayo Foundation/Mayo Medical Ser 1992 F .................................. 6.25 11/15/21 208,272
------ ----------
700 704,203
------ ----------
Industrial Development/Pollution Control Revenue (10.0%)
200 Anoka County, United Power Assoc NRU-CFC-Gtd Ser 1987 A (AMT) ............. 6.95 12/01/08 206,404
300 Bass Brook, Minnesota Power & Light Co Refg Ser 1992 ...................... 6.00 07/01/22 286,266
Minneapolis Community Development Agency,
100 Ltd Tax Supported Common Bond Fund Ser 1991-3 ............................ 8.25 12/01/11 106,315
100 Ltd Tax Supported Common Bond Fund Ser 1991-1 (AMT) ...................... 8.00 12/01/16 105,868
------ ----------
700 704,853
------ ----------
Mortgage Revenue - Multi-Family (3.0%)
200 Minnesota Housing Finance Agency, Ser 1992 A .............................. 6.95 08/01/17 208,386
------ ----------
Mortgage Revenue - Single Family (10.3%)
120 Minneapolis-Saint Paul Housing Finance Board, GNMA-Backed Phase IX
Ser 1991 (AMT) .......................................................... 7.25 08/01/21 123,313
Minnesota Housing Finance Agency,
405 Ser 1992 C-1 (AMT) ....................................................... 6.75 07/01/23 412,974
185 Ser 1992 H (AMT) ......................................................... 6.50 01/01/26 186,656
------ ----------
710 722,943
------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
84
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MINNESOTA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Nursing & Health Related Facilities Revenue (7.2%)
$ 500 Minneapolis & Saint Paul Housing & Redevelopment Authority, Group
Health Plan Inc Ser 1992 .................................................... 6.75 % 12/01/13 $ 504,860
------- ----------
Transportation Facilities Revenue (3.7%)
300 Minnesota Public Facilities Authority, Metropolitan Council Ser 1999 A ........ 4.75 03/01/20 258,240
------- ----------
Water & Sewer Revenue (5.0%)
400 Minnesota Public Facilities Authority, Water Pollution Control 1998 Ser A ..... 4.75 03/01/19 346,208
------- ----------
Refunded (5.7%)
400 Saint Paul Housing & Redevelopment Authority, Civic Center Ser 1993 (ETM) 5.45 11/01/13 401,960
------- ----------
6,610 TOTAL MINNESOTA TAX-EXEMPT MUNICIPAL BONDS
------- (Identified Cost $6,535,314) ........................................................................ 6,441,475
----------
SHORT-TERM MINNESOTA TAX-EXEMPT MUNICIPAL OBLIGATIONS (5.7%)
100 Beltrami County, Northwood Panelboard Co Ser 1991 (Demand 12/01/99) ........... 3.80* 12/01/21 100,000
300 Minneapolis & Saint Paul Housing & Redevelopment Authority, Children's
Health Care Ser 1995 B (FSA) (Demand 12/01/99) .............................. 3.75* 08/15/25 300,000
------- ----------
400 TOTAL SHORT-TERM MINNESOTA TAX-EXEMPT MUNICIPAL OBLIGATIONS
------- (Identified Cost $400,000) .......................................................................... 400,000
----------
$ 7,010 TOTAL INVESTMENTS (Identified Cost $6,935,314)(a) ...................................... 97.5% 6,841,475
=======
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ......................................... 2.5 179,011
-------- ----------
NET ASSETS ............................................................................. 100.0% $7,020,486
======== ==========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$106,029 and the aggregate gross unrealized depreciation is
$199,868, resulting in net unrealized depreciation of $93,839.
Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
85
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
NEW JERSEY TAX-EXEMPT MUNICIPAL BONDS (89.7%)
General Obligation (4.7%)
New Jersey,
$ 1,000 Refg Ser F ............................................................ 5.25 % 08/01/14 $ 976,940
1,000 Ser 1998 .............................................................. 4.50 03/01/18 843,540
-------- -----------
2,000 1,820,480
-------- -----------
Educational Facilities Revenue (16.8%)
New Jersey Economic Development Authority,
1,000 Educational Testing Service Ser 1998 A (MBIA) ......................... 4.75 05/15/25 848,250
1,000 The Lawrenceville School Ser A 1996 ................................... 5.75 07/01/16 1,001,960
500 The Seeing Eye Inc 1991 ............................................... 7.30 04/01/11 515,620
New Jersey Educational Facilities Authority,
1,000 Drew University 1998 Ser C (MBIA) ..................................... 5.00 07/01/17 917,650
1,000 Princeton University Ser 1999 A ....................................... 4.75 07/01/25 844,420
500 Rutgers, The State University Refg Ser R ................................ 6.50 05/01/13 528,795
2,000 University of Medicine & Dentistry, 1997 Ser A (MBIA) ................... 5.00 09/01/17 1,828,080
-------- -----------
7,000 6,484,775
-------- -----------
Electric Revenue (5.0%)
2,000 Puerto Rico Electric Power Authority, Power Ser O ....................... 5.00 07/01/12 1,916,940
-------- -----------
Hospital Revenue (6.7%)
New Jersey Health Care Facilities Financing Authority,
1,000 AHS Hospital Corp Ser 1997 A (AMBAC) .................................. 6.00 07/01/13 1,056,190
1,000 Atlantic City Medical Center Ser C .................................... 6.80 07/01/11 1,057,700
465 Robert Wood Johnson University Hospital Ser B (MBIA) .................. 6.625 07/01/16 486,153
-------- -----------
2,465 2,600,043
-------- -----------
Industrial Development/Pollution Control Revenue (6.5%)
500 Middlesex County Pollution Control Financing Authority, Amerada Hess Corp
Refg Ser 1992 ......................................................... 6.875 12/01/22 523,830
1,000 New Jersey Economic Development Authority, Elizabethtown Water Co
1995 Ser (AMT) (MBIA) ................................................. 5.60 12/01/25 957,800
1,000 Salem County Pollution Control Financing Authority, E I du Pont de
Nemours & Co 1992 Ser A (AMT) ......................................... 6.125 07/15/22 1,004,500
-------- -----------
2,500 2,486,130
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
86
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Mortgage Revenue -- Multi-Family (9.3%)
New Jersey Housing & Mortgage Finance Agency,
$ 2,000 1995 Ser A (AMBAC) ......................................................... 6.00 % 11/01/14 $ 2,022,520
1,000 Presidential Plaza at Newport -- FHA Insured Mtges Refg 1991 Ser 1 ......... 7.00 05/01/30 1,050,730
500 Rental 1991 Ser A (AMT) .................................................... 7.25 11/01/22 516,850
-------- -----------
3,500 3,590,100
-------- -----------
Nursing & Health Related Facilities Revenue (2.4%)
895 New Jersey Health Care Facilities Financing Authority, Spectrum For Living
--------
-- FHA Insured Mortgage Refg Ser B ........................................... 6.50 02/01/22 919,478
-----------
Public Facilities Revenue (2.3%)
1,000 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1997 A
-------- (AMBAC) .................................................................... 5.00 07/01/28 876,720
-----------
Recreational Facilities Revenue (5.8%)
New Jersey Sports & Exposition Authority,
1,500 State Contract 1993 Ser A .................................................. 5.50 09/01/23 1,431,075
1,000 State Contract 1998 Ser A (MBIA) ........................................... 4.50 03/01/24 821,660
-------- -----------
2,500 2,252,735
-------- -----------
Resource Recovery Revenue (2.3%)
900 Warren County Pollution Control Financing Authority, Warren Energy
--------
Resource Co Ltd Partnership Ser 1984 (MBIA) .................................. 6.60 12/01/07 893,286
-----------
Transportation Facilities Revenue (15.2%)
1,000 Delaware River Port Authority, Ser 1995 (FGIC) ............................... 5.50 01/01/26 948,290
1,500 New Jersey Highway Authority, Sr Parkway Refg 1992 Ser ....................... 6.25 01/01/14 1,560,045
1,000 New Jersey Transportation Trust Authority, 1998 Ser A (FSA) .................. 4.50 06/15/19 829,730
1,000 New Jersey Turnpike Authority, Ser 1991 C .................................... 5.75 01/01/11 1,002,750
1,500 Port Authority of New York & New Jersey, Cons 99th Ser (AMT) (FGIC) .......... 5.75 05/01/15 1,506,210
-------- -----------
6,000 5,847,025
-------- -----------
Water & Sewer Revenue (12.7%)
1,000 Atlantic City Municipal Utilities Authority, Refg Ser 1993 ................... 5.75 05/01/17 995,590
1,000 Bergen County Utilities Authority, Water 1998 Ser A (FGIC) ................... 4.75 12/15/15 894,180
1,000 Camden County Municipal Utilities Authority, Sewer Refg Ser 1997 (FGIC)....... 5.25 07/15/17 950,300
1,000 Northwest Bergen County Utilities Authority, Refg 1992 Ser (MBIA) ............ 6.00 07/15/13 1,039,010
1,000 Passaic Valley Sewerage Commissioners, Ser 1992 D (AMBAC) .................... 5.75 12/01/13 1,016,040
-------- -----------
5,000 4,895,120
-------- -----------
35,760 TOTAL NEW JERSEY TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $34,780,691) ...................................................................... 34,582,832
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
87
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
SHORT-TERM NEW JERSEY TAX-EXEMPT MUNICIPAL OBLIGATIONS (8.8%)
New Jersey Economic Development Authority,
$ 1,500 Natural Gas Co Ser 1995 A (AMT) (AMBAC) (Demand 12/01/99) ............. 3.65*% 08/01/30 $ 1,500,000
1,700 United Water Inc Ser 1996 B (AMBAC) (Demand 12/01/99) ................. 3.85* 11/01/25 1,700,000
200 Union County Industrial Pollution Control Financing Authority, Exxon Corp
Ser 1994 (Demand 12/01/99) ............................................ 3.15* 07/01/33 200,000
-------- -----------
3,400 TOTAL SHORT-TERM NEW JERSEY TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $3,400,000) .................................................................... 3,400,000
-----------
$ 39,160 TOTAL INVESTMENTS (Identified Cost $38,180,691) (a) ................................ 98.5% 37,982,832
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ..................................... 1.5 583,550
-------- -----------
NET ASSETS ......................................................................... 100.0% $38,566,382
======== ===========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
* 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
$908,720 and the aggregate gross unrealized depreciation is
$1,106,579, resulting in net unrealized depreciation of
$197,859.
Bond Insurance:
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
88
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW YORK
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
NEW YORK TAX-EXEMPT MUNICIPAL BONDS (88.2%)
General Obligation (12.6%)
$ 500 New York City, 1995 Ser D (MBIA) .................................... 6.20% 02/01/07 $ 536,110
500 New York State, Refg Ser 1995 B ..................................... 5.70 08/15/13 506,855
300 Puerto Rico, Public Improvement Refg Ser 1992 A ..................... 6.00 07/01/14 304,656
-------- -----------
1,300 1,347,621
-------- -----------
Educational Facilities Revenue (20.3%)
500 Hempstead Industrial Development Agency, Hofstra University Ser 1996
(MBIA) ............................................................ 5.80 07/01/15 505,695
New York State Dormitory Authority,
300 Cooper Union Ser 1996 (AMBAC) ...................................... 5.375 07/01/16 287,442
400 Manhattan College Ser 1992 (AGRC) .................................. 6.50 07/01/19 410,948
500 State University Ser 1993 A ........................................ 5.25 05/15/15 474,610
500 University of Rochester Ser 1993 A ................................. 5.625 07/01/12 500,090
-------- -----------
2,200 2,178,785
-------- -----------
Electric Revenue (6.3%)
300 Long Island Power Authority, Ser 1998 A (FSA) ....................... 5.125 12/01/22 267,138
400 Puerto Rico Electric Power Authority, Power Ser X ................... 6.00 07/01/15 407,036
-------- -----------
700 674,174
-------- -----------
Industrial Development/Pollution Control Revenue (13.9%)
400 New York City Industrial Development Agency, Japan Airlines Co 1991
(AMT) (FSA) ....................................................... 6.00 11/01/15 416,096
1,000 New York State Energy Research & Development Authority, Brooklyn
-------- Union Gas Co 1991 Ser A & B (AMT) ................................. 6.952 07/01/26 1,074,180
-----------
1,400 1,490,276
-------- -----------
Mortgage Revenue - Single Family (4.9%)
500 New York State Mortgage Agency, Homeowner Ser 27 .................... 6.90 04/01/15 529,225
-------- -----------
Nursing & Health Related Facilities Revenue (3.7%)
500 New York City Industrial Development Agency, Lighthouse International
-------- Ser 1998 (MBIA) .................................................... 4.50 07/01/23 399,555
-----------
Public Facilities Revenue (9.1%)
500 New York City Cultural Resources Trust, The New York Botanical Garden
Ser 1996 (MBIA) ................................................... 5.75 07/01/16 501,190
500 New York State Urban Development Corporation, Correctional
1998 Ser B (AMBAC) ................................................ 5.25 01/01/16 472,460
-------- -----------
1,000 973,650
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
89
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW YORK
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Resource Recovery Revenue (4.9%)
$ 500 Oneida-Herkimer Solid Waste Management Authority, Ser 1992 ................... 6.65 % 04/01/05 $ 528,020
-------
Transportation Facilities Revenue (8.7%)
550 Buffalo & Fort Erie Public Bridge Authority, Toll Bridge Ser 1995 (MBIA) ..... 5.75 01/01/25 534,331
500 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................... 4.75 07/01/38 395,935
------- -----------
1,050 930,266
Water & Sewer Revenue (3.8%)
500 New York City Municipal Water Finance Authority, 1999 Ser A (FGIC) ........... 4.75 06/15/31 405,545
------- -----------
9,650 TOTAL NEW YORK TAX-EXEMPT MUNICIPAL BONDS
------- (Identified Cost $9,442,285)................................................ 9,457,117
---------
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (9.3%)
200 New York State Energy Research & Development Authority, New York
State Electric & Gas Corp Ser 1994 C (Demand 12/01/99) ....................... 3.60* 06/01/29 200,000
500 Syracuse Industrial Development Agency, Syracuse University
Eggers Hall Ser 1993 (Demand 12/01/99) .......................................
300 Port Authority of New York & New Jersey, Special Obligation Ser 2 3.75* 03/01/23 500,000
(Demand 12/01/99) ............................................................
------- 3.75* 05/01/19 300,000
-----------
1,000 TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS
------- (Identified Cost $1,000,000)............................................................................. 1,000,000
$10,650 TOTAL INVESTMENTS (Identified Cost $10,442,285) (a) ........................... 97.5% 10,457,117
=======
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................. 2.5 262,272
----- -----------
NET ASSETS ................................................................. 100.0% $10,719,389
====== ===========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
* 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
$291,556 and the aggregate gross unrealized depreciation is
$276,724, resulting in net unrealized appreciation of $14,832.
Bond Insurance:
- ---------------
AGRC Asset Guaranty Reinsurance Company.
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
90
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- OHIO SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
OHIO TAX-EXEMPT MUNICIPAL BONDS (93.2%)
General Obligation (22.8%)
$ 300 Bedford School District, Ser 1993 ..................................... 6.25% 12/01/13 $ 313,452
500 Dayton, Ltd Tax Ser 1998 (FGIC) ....................................... 4.70 12/01/20 425,615
500 Delaware City School District, Constr & Impr (FGIC) ................... 5.75 12/01/20 495,190
500 Medina City School District, Ser 1999 (FGIC) .......................... 5.25 12/01/28 451,915
500 North Olmsted, Various Purpose Impr Ltd Tax Ser 1996 (AMBAC) .......... 6.20 12/01/11 536,410
500 Ohio, Infrastructure Improvement Ser 1998 B ........................... 4.75 02/01/18 437,400
500 Rocky River City School District, Impr Ser 1998 ....................... 5.375 12/01/17 481,310
500 Puerto Rico, Public Impr Ser 1998 (Secondary MBIA) .................... 4.875 07/01/23 434,580
-------- -----------
3,800 3,575,872
-------- -----------
Educational Facilities Revenue (12.9%)
500 Ohio Higher Educational Facility Commission, Case Western Reserve
University Ser 1992 ................................................. 6.00 10/01/22 504,535
500 Ohio State University, General Receipts Ser 1999 A (WI) ............... 5.80 12/01/29 488,880
500 University of Cincinnati, General Receipts Ser G ...................... 7.00 06/01/11 526,945
500 University of Toledo, Ser 1992 A (FGIC)** ............................. 5.90 06/01/20 501,115
-------- -----------
2,000 2,021,475
-------- -----------
Electric Revenue (4.9%)
500 Hamilton!, Refg 1992 Ser A (FGIC) ..................................... 6.00 10/15/12 520,925
300 Puerto Rico Electric Power Authority, Power Ser DD (FSA) .............. 4.50 07/01/19 250,674
-------- -----------
800 771,599
-------- -----------
Hospital Revenue (7.6%)
700 Akron Bath & Copley Joint Township Hospital District, Summa Health
Ser 1992 A .......................................................... 6.25 11/15/07 716,709
475 Hamilton County, Bethesda Hospital Inc Ser 1986 A ..................... 7.00 01/01/09 476,050
-------- -----------
1,175 1,192,759
-------- -----------
Industrial Development/Pollution Control Revenue (5.9%)
400 Ashtabula County, Ashland Oil Inc Refg 1992 Ser A ..................... 6.90 05/01/10 417,108
500 Ohio Water Development Authority, Dayton Power & Light Co
Collateralized Refg 1992 Ser A ...................................... 6.40 08/15/27 506,815
-------- -----------
900 923,923
-------- -----------
Mortgage Revenue -- Single Family (9.5%)
Ohio Housing Finance Agency,
500 GNMA-Backed 1991 Ser A-1 & 2 (AMT) ................................... 6.903 03/01/31 516,070
990 Residential 1996 Ser B-2 (AMT) ....................................... 6.10 09/01/28 968,883
-------- -----------
1,490 1,484,953
-------- -----------
Public Facilities Revenue (3.0%)
500 Ohio Building Authority, Adult Correctional 1999 Ser A ................ 5.25 10/01/18 467,065
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
91
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- OHIO SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Transportation Facilities Revenue (4.1%)
$ 500 Ohio Turnpike Commission, Ser 1998 B (FGIC) ............................... 4.50 % 02/15/24 $ 401,585
300 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................ 4.75 07/01/38 237,561
-------- -----------
800 639,146
-------- -----------
Water & Sewer Revenue (15.7%)
800 Montgomery County, Water Ser 1992 (FGIC) .................................. 6.25 11/15/17 829,808
800 Northeast Ohio Regional Sewer District, Wastewater Impr Refg
Ser 1995 (AMBAC) ........................................................ 5.60 11/15/13 810,216
800 Ohio Water Development Authority, Water Pollution Ser 1995 (MBIA) ......... 5.60 06/01/10 822,672
-------- -----------
2,400 2,462,696
-------- -----------
Refunded (6.8%)
1,000 Clermont County, Mercy Health Ser 1991 (AMBAC) ............................ 6.733 09/25/01+ 1,057,150
-------- -----------
14,865 TOTAL OHIO TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $14,681,956) .................................................................... 14,596,638
-----------
SHORT-TERM OHIO TAX-EXEMPT MUNICIPAL OBLIGATIONS (6.4%)
600 Cuyahoga County, University Hospital of Cleveland Ser 1985
(Demand 12/01/99) ........................................................ 3.60* 01/01/16 600,000
400 Ohio Water Development Authority, Mead Co Ser 1986 B
(Demand 12/01/99) ........................................................ 3.60* 11/01/15 400,000
-------- -----------
1,000 TOTAL SHORT-TERM OHIO TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $1,000,000) ..................................................................... 1,000,000
-----------
$ 15,865 TOTAL INVESTMENTS (Identified Cost $15,681,956) (a) ................................ 99.6% 15,596,638
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ..................................... 0.4 62,702
-------- -----------
NET ASSETS ......................................................................... 100.0% $15,659,340
======== ===========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
+ Prerefunded to call date shown.
WI Security purchased on a "when-issued" basis.
* Current coupon of variable rate demand obligation.
** This security is segregated in connection with the purchase of a
"when-issued" security.
(a) The aggregate cost of federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$319,941 and the aggregate gross unrealized depreciation is
$405,259, resulting in net unrealized depreciation of $85,318.
Bond Insurance:
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
92
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- PENNSYLVANIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
PENNSYLVANIA TAX-EXEMPT MUNICIPAL BONDS (90.1%)
General Obligation (7.2%)
$ 2,000 Berks County, Second Ser 1992 (FGIC) ...................................... 5.75 % 11/15/12 $ 2,019,380
1,000 Delaware County, Ser 1999 ................................................. 5.125 10/01/19 906,870
600 Puerto Rico, Public Improvement Refg Ser 1992 A ........................... 6.00 07/01/14 609,312
-------- -----------
3,600 3,535,562
-------- -----------
Educational Facilities Revenue (12.3%)
2,000 Delaware County Authority, Villanova University Ser 1995 (AMBAC) .......... 5.80 08/01/25 1,952,880
Pennsylvania Higher Educational Facilities Authority,
1,000 Allegheny College Refg Ser 1998 A (MBIA) ................................ 5.00 11/01/22 875,150
1,000 University of Pennsylvania Ser 1998 ..................................... 4.625 07/15/30 787,330
1,000 Pennsylvania State University, Second Refg Ser 1992 ....................... 5.50 08/15/16 970,160
790 Swarthmore Borough Authority, Swarthmore College Ser 1992 ................. 6.00 09/15/20 793,500
655 University of Pittsburgh, Cap 1992 Ser A (MBIA) ........................... 6.125 06/01/21 660,240
-------- -----------
6,445 6,039,260
-------- -----------
Electric Revenue (3.5%)
Puerto Rico Electric Power Authority,
1,000 Power Ser DD (FSA) ...................................................... 4.50 07/01/19 835,580
1,000 Ser GG (FSA) ............................................................ 4.75 07/01/21 861,690
-------- -----------
2,000 1,697,270
-------- -----------
Hospital Revenue (15.4%)
Allegheny County Hospital Development Authority,
1,000 Catholic Health East Health Ser 1998 A (AMBAC) .......................... 4.875 11/15/26 824,080
1,000 Presbyterian University Health Inc Ser 1992 B (MBIA) .................... 6.00 11/01/12 1,042,200
2,000 Delaware County Authority, Catholic Health East Health Ser 1998 A
(AMBAC) ................................................................. 4.875 11/15/26 1,648,160
Philadelphia Hospitals & Higher Education Facilities Authority,
1,750 Chestnut Hill Hospital Ser of 1992 ...................................... 6.375 11/15/11 1,751,033
1,000 Children's Hospital of Philadelphia Ser A of 1993 ....................... 5.375 02/15/14 933,010
1,250 Sayre Health Care Facilities Authority, Ser 1985 (AMBAC) .................. 7.15 12/01/10 1,328,525
-------- -----------
8,000 7,527,008
-------- -----------
Mortgage Revenue -- Multi-Family (2.0%)
1,000 Pennsylvania Housing Finance Agency, Ser 1992-35 D (AMT) .................. 6.20 04/01/25 999,890
-------- -----------
Mortgage Revenue -- Single Family (5.6%)
2,000 Pennsylvania Housing Finance Agency, Ser 1991-31 C (AMT) .................. 7.00 10/01/23 2,077,280
635 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ................................................................... 6.85 10/15/23 663,346
-------- -----------
2,635 2,740,626
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
93
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- PENNSYLVANIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Recreational Facilities Revenue (3.4%)
$ 2,000 Philadelphia Industrial Development Authority, The Franklin Institute
-------- Ser 1998 ................................................................ 5.20 % 06/15/26 $ 1,688,680
-----------
Resource Recovery Revenue (2.1%)
1,000 Montgomery County Industrial Development Authority, Ser 1989 .............. 7.50 01/01/12 1,042,180
-------- -----------
Student Loan Revenue (4.2%)
Pennsylvania Higher Education Assistance Agency,
1,000 1988 Ser D (AMT) (AMBAC) ................................................ 6.05 01/01/19 1,000,870
1,000 1991 Ser B (AMT) (AMBAC) ................................................ 6.854 09/01/26 1,076,100
-------- -----------
2,000 2,076,970
-------- -----------
Transportation Facilities Revenue (23.8%)
1,000 Guam, Highway 1992 Ser A (FSA) ............................................ 6.30 05/01/12 1,049,550
Allegheny County, Greater Pittsburgh Int'l Airport
1,000 Ser 1997 B (MBIA) ....................................................... 5.00 01/01/19 888,250
500 Ser 1992 (AMT) (FSA) .................................................... 6.625 01/01/22 521,020
2,000 Delaware River Port Authority, Ser 1995 (FGIC) ............................ 5.50 01/01/26 1,896,580
Pennsylvania Turnpike Commission,
2,000 Ser O 1992 (FGIC) ....................................................... 6.00 12/01/12 2,076,820
2,000 Ser A 1998 (AMBAC) ...................................................... 4.75 12/01/27 1,638,500
1,000 Philadelphia Industrial Development Authority, Philadelphia Airport
Ser 1998 A (AMT) (FGIC) ................................................. 5.00 07/01/23 855,550
1,000 Pittsburgh Public Parking Authority, Ser 1992 A (FGIC) .................... 5.875 12/01/12 1,023,220
1,000 Southeastern Pennsylvania Transportation Authority, Ser A 1999 (FGIC) ..... 5.25 03/01/18 931,020
1,000 Puerto Rico Highway & Transportation Authority, Ser 1998 A ................ 4.75 07/01/38 791,870
-------- -----------
12,500 11,672,380
-------- -----------
Water & Sewer Revenue (6.9%)
2,000 Philadelphia, Water & Wastewater Ser 1995 (MBIA) .......................... 6.25 08/01/11 2,174,520
2,000 Pittsburgh Water & Sewer Authority, 1998 Ser B (FGIC) ..................... 0.00 09/01/28 337,320
1,000 West Mifflin Sanitary Sewer Municipal Authority, Ser 1998 (MBIA) .......... 5.00 08/01/23 872,100
-------- -----------
5,000 3,383,940
-------- -----------
Other Revenue (3.3%)
1,500 Pennsylvania Finance Authority, Cap Impr Refg Ser 1993 .................... 6.60 11/01/09 1,600,800
-------- -----------
Refunded (0.4%)
200 Lehigh County Industrial Development Authority, Strawbridge & Clothier
--------
Refg Ser of 1991 (ETM) .................................................. 7.20 12/15/01 205,972
-----------
47,880 TOTAL PENNSYLVANIA TAX-EXEMPT MUNICIPAL BONDS
-------- (Identified Cost $45,499,777).................................................................. 44,210,538
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
94
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- PENNSYLVANIA
SERIES
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
SHORT-TERM PENNSYLVANIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (8.4%)
$ 2,000 Lehigh County General Purpose Authority, Lehigh Valley Hospital 1997 A
(AMBAC) (Demand 12/01/99) ............................................... 3.65*% 07/01/28 $ 2,000,000
800 Philadelphia Hospital and Higher Education Facilities Authority, Children's
Hospital of Philadelphia Ser 1992 (Demand 12/01/99) ..................... 3.75* 03/01/27 800,000
1,300 Philadelphia Industrial Development Authority, The Fox Chase Center
Ser 1997 (Demand 12/01/99) .............................................. 3.75* 07/01/25 1,300,000
-------- -----------
4,100 TOTAL SHORT-TERM PENNSYLVANIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
-------- (Identified Cost $4,100,000)....................................................................... 4,100,000
-----------
$ 51,980 TOTAL INVESTMENTS (Identified Cost $49,599,777) (a) .................................. 98.5% 48,310,538
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ....................................... 1.5 748,576
-------- -----------
NET ASSETS ........................................................................... 100.0% $49,059,114
======== ===========
</TABLE>
- --------------
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
* 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
$931,110 and the aggregate gross unrealized depreciation is
$2,220,349, resulting in net unrealized depreciation of
$1,289,239.
Bond Insurance:
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
95
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS :
Investments in securities, at value* ...................... $36,114,335 $94,212,723 $51,623,842 $11,794,132
Cash ...................................................... 40,663 93,484 1,574,593 29,189
Receivable for :
Investments sold ........................................ -- -- -- 10,275
Interest ................................................ 747,734 1,294,841 631,872 219,162
Shares of beneficial interest sold ...................... -- 97,230 54,639 509
Prepaid expenses and other assets ......................... 10,092 10,886 9,064 1,392
----------- ----------- ----------- -----------
TOTAL ASSETS ............................................ 36,912,824 95,709,164 53,894,010 12,054,659
----------- ----------- ----------- -----------
LIABILITIES :
Payable for:
Investments purchased ................................... -- -- -- --
Shares of beneficial interest repurchased ............... -- 77,742 271,549 4,646
Dividends to shareholders ............................... 19,711 52,395 28,609 6,258
Investment management fee ............................... 11,375 29,414 16,578 3,749
Plan of distribution fee ................................ 3,167 12,606 7,105 1,337
Accrued expenses .......................................... 11,377 21,700 15,197 10,105
----------- ----------- ----------- -----------
TOTAL LIABILITIES ....................................... 45,630 193,857 339,038 26,095
----------- ----------- ----------- -----------
NET ASSETS .............................................. $36,867,194 $95,515,307 $53,554,972 $12,028,564
=========== =========== =========== ===========
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................................... $37,416,253 $96,639,672 $53,907,814 $12,025,193
Accumulated net realized loss ............................. (69,118) (292,805) (165,730) (130,711)
Net unrealized appreciation (depreciation) ................ (479,941) (831,560) (187,112) 134,082
----------- ----------- ----------- -----------
NET ASSETS .............................................. $36,867,194 $95,515,307 $53,554,972 $12,028,564
=========== =========== =========== ===========
*IDENTIFIED COST ........................................ $36,594,276 $95,044,283 $51,810,954 $11,660,050
=========== =========== =========== ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING ............... 3,722,888 9,378,747 5,301,588 1,151,035
=========== =========== =========== ===========
NET ASSET VALUE PER SHARE
(unlimited authorized shares of $.01 par value)........... $ 9.90 $ 10.18 $ 10.10 $ 10.45
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 4.17% of net asset value)** ........ $ 10.31 $ 10.60 $ 10.52 $ 10.89
</TABLE>
- --------------
** On sales of $25,000 or more, the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS
96
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- ---------------- ------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 14,906,029 $6,841,475 $37,982,832 $10,457,117 $15,596,638 $ 48,310,538
372,146 61,193 113,449 103,661 326,665 19,130
-- -- -- -- -- 90,000
157,170 129,177 646,433 172,693 233,457 740,485
10,371 -- 48,625 -- 14,478 1,548
3,940 1,994 8,378 3,791 5,158 8,863
------------- ---------- ----------- ----------- ----------- ------------
15,449,656 7,033,839 38,799,717 10,737,262 16,176,396 49,170,564
------------- ---------- ----------- ----------- ----------- ------------
-- -- -- -- 493,005 --
-- -- 182,948 -- -- 46,328
8,062 3,410 21,164 5,736 8,440 27,023
4,733 2,169 11,908 3,306 4,871 15,194
2,028 929 5,103 1,417 2,088 6,197
8,635 6,845 12,212 7,414 8,652 16,708
------------- ---------- ----------- ----------- ----------- ------------
23,458 13,353 233,335 17,873 517,056 111,450
------------- ---------- ----------- ----------- ----------- ------------
$ 15,426,198 $7,020,486 $38,566,382 $10,719,389 $15,659,340 $ 49,059,114
============= ========== =========== =========== =========== ============
$ 15,624,705 $7,130,742 $38,833,385 $10,716,730 $15,786,140 $ 50,355,003
(31,472) (16,417) (69,144) (12,173) (41,482) (6,650)
(167,035) (93,839) (197,859) 14,832 (85,318) (1,289,239)
------------- ---------- ----------- ----------- ----------- ------------
$ 15,426,198 $7,020,486 $38,566,382 $10,719,389 $15,659,340 $ 49,059,114
============= ========== =========== =========== =========== ============
$ 15,073,064 $6,935,314 $38,180,691 $10,442,285 $15,681,956 $ 49,599,777
============= ========== =========== =========== =========== ============
1,537,836 700,163 3,772,932 1,047,028 1,524,259 4,813,564
============= ========== =========== =========== =========== ============
$ 10.03 $ 10.03 $ 10.22 $ 10.24 $ 10.27 $ 10.19
$ 10.45 $ 10.45 $ 10.65 $ 10.67 $ 10.70 $ 10.61
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
97
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENTS OF OPERATIONS
For the year ended November 30, 1999
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS
--------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME :
INTEREST INCOME ............................... $ 2,164,365 $ 5,524,666 $ 3,087,284 $ 777,513
------------ ------------ ------------ ------------
EXPENSES
Investment management fee ..................... 140,768 356,813 203,267 49,848
Plan of distribution fee ...................... 56,078 150,122 82,273 20,384
Transfer agent fees and expenses .............. 11,777 34,144 19,332 5,708
Professional fees ............................. 29,446 33,625 30,716 27,245
Shareholder reports and notices ............... 10,348 22,875 15,678 4,321
Trustees' fees and expenses ................... 1,895 5,050 2,661 533
Custodian fees ................................ 2,460 5,076 3,295 1,222
Registration fees ............................. 7,774 3,830 5,244 7,300
Other ......................................... 6,190 9,047 7,204 4,991
------------ ------------ ------------ ------------
TOTAL EXPENSES .............................. 266,736 620,582 369,670 121,552
Less: expense offset .......................... (2,456) (5,067) (3,289) (1,222)
------------ ------------ ------------ ------------
NET EXPENSES ................................ 264,280 615,515 366,381 120,330
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ....................... 1,900,085 4,909,151 2,720,903 657,183
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED LOSS :
Net realized loss ............................. (69,115) (292,800) (165,729) (130,711)
Net change in unrealized appreciation ......... (2,859,823) (7,760,961) (4,099,311) (872,696)
------------ ------------ ------------ ------------
NET LOSS .................................... (2,928,938) (8,053,761) (4,265,040) (1,003,407)
------------ ------------ ------------ ------------
NET DECREASE .................................. $ (1,028,853) $ (3,144,610) $ (1,544,137) $ (346,224)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
98
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- --------------- ------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 898,388 $ 426,128 $ 2,205,912 $ 623,723 $ 963,133 $ 2,870,676
------------ ---------- ------------ ---------- ------------ ------------
58,834 27,901 142,574 40,185 61,383 183,815
24,004 11,455 57,692 16,977 24,023 78,314
9,277 3,713 19,960 4,862 9,163 16,616
32,176 35,872 27,213 26,947 30,129 28,013
7,359 2,980 16,397 3,824 6,915 13,266
801 250 1,949 548 839 2,811
1,457 830 2,308 1,052 1,539 2,761
2,720 2,960 7,041 7,310 2,656 3,343
5,195 4,459 6,326 4,490 5,188 7,381
------------ ---------- ------------ ---------- ------------ ------------
141,823 90,420 281,460 106,195 141,835 336,320
(1,457) (830) (2,305) (1,052) (1,539) (2,756)
------------ ---------- ------------ ---------- ------------ ------------
140,366 89,590 279,155 105,143 140,296 333,564
------------ ---------- ------------ ---------- ------------ ------------
758,022 336,538 1,926,757 518,580 822,837 2,537,112
------------ ---------- ------------ ---------- ------------ ------------
(31,471) (16,416) (69,142) (12,174) (39,851) (6,646)
(1,120,780) (516,662) (2,840,301) (836,551) (1,175,397) (4,132,749)
------------ ---------- ------------ ---------- ------------ ------------
(1,152,251) (533,078) (2,909,443) (848,725) (1,215,248) (4,139,395)
------------ ---------- ------------ ---------- ------------ ------------
$ (394,229) $ (196,540) $ (982,686) $ (330,145) $ (392,411) $ (1,602,283)
============ ========== ============ ========== ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
99
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA
--------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS :
OPERATIONS:
Net investment income ............................ $ 1,900,085 $ 1,958,982 $ 4,909,151 $ 5,098,849
Net realized gain (loss) ......................... (69,115) 725,798 (292,800) 2,241,204
Net change in unrealized appreciation ............ (2,859,823) (57,712) (7,760,961) 248,404
------------ ------------ ------------- -------------
NET INCREASE (DECREASE) ........................ (1,028,853) 2,627,068 (3,144,610) 7,588,457
------------ ------------ ------------- -------------
DIVIDENDS AND DISTRIBUTIONS FROM :
Net investment income ............................ (1,900,085) (1,970,313) (4,909,151) (5,127,716)
Net realized gain ................................ (609,152) -- (1,789,764) --
------------ ------------ ------------- -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .............. (2,509,237) (1,970,313) (6,698,915) (5,127,716)
------------ ------------ ------------- -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales .......................... 3,943,050 3,583,708 9,677,182 7,971,183
Reinvestment of dividends and distributions ...... 1,325,710 956,419 3,315,487 2,300,541
Cost of shares repurchased ....................... (6,518,686) (5,432,230) (12,809,278) (11,766,093)
------------ ------------ ------------- -------------
NET INCREASE (DECREASE) ........................ (1,249,926) (892,103) 183,391 (1,494,369)
------------ ------------ ------------- -------------
TOTAL INCREASE (DECREASE) ...................... (4,788,016) (235,348) (9,660,134) 966,372
NET ASSETS:
Beginning of period .............................. 41,655,210 41,890,558 105,175,441 104,209,069
------------ ------------ ------------- -------------
END OF PERIOD .................................. $ 36,867,194 $ 41,655,210 $ 95,515,307 $ 105,175,441
============ ============ ============= =============
SHARES ISSUED AND REPURCHASED :
Sold ............................................. 375,871 333,041 896,986 718,169
Reinvestment of dividends and distributions ...... 127,464 89,180 308,057 207,368
Repurchased ...................................... (632,656) (506,438) (1,202,334) (1,061,263)
------------ ------------ ------------- -------------
NET INCREASE (DECREASE) ........................ (129,321) (84,217) 2,709 (135,726)
============ ============ ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
100
<PAGE>
<TABLE>
<CAPTION>
FLORIDA MASSACHUSETTS MICHIGAN
- --------------------------------------- --------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 2,720,903 $ 2,983,488 $ 657,183 $ 670,436 $ 758,022 $ 876,689
(165,729) 2,077,788 (130,711) 171,067 (31,471) 708,264
(4,099,311) (437,571) (872,696) 170,653 (1,120,780) (248,253)
------------- ------------- ------------ ------------ ------------ ------------
(1,544,137) 4,623,705 (346,224) 1,012,156 (394,229) 1,336,700
------------- ------------- ------------ ------------ ------------ ------------
(2,720,903) (3,001,258) (657,183) (674,613) (758,022) (881,921)
(1,997,025) -- (171,067) (26,809) (694,270) --
------------- ------------- ------------ ------------ ------------ ------------
(4,717,928) (3,001,258) (828,250) (701,422) (1,452,292) (881,921)
------------- ------------- ------------ ------------ ------------ ------------
6,706,394 6,336,196 1,160,063 2,177,938 1,578,867 1,976,447
1,979,787 1,065,444 502,570 398,624 939,478 488,182
(10,131,177) (12,850,195) (3,695,685) (2,212,481) (3,004,836) (4,672,568)
------------- ------------- ------------ ------------ ------------ ------------
(1,444,996) (5,448,555) (2,033,052) 364,081 (486,491) (2,207,939)
------------- ------------- ------------ ------------ ------------ ------------
(7,707,061) (3,826,108) (3,207,526) 674,815 (2,333,012) (1,753,160)
61,262,033 65,088,141 15,236,090 14,561,275 17,759,210 19,512,370
------------- ------------- ------------ ------------ ------------ ------------
$ 53,554,972 $ 61,262,033 $ 12,028,564 $ 15,236,090 $ 15,426,198 $ 17,759,210
============= ============= ============ ============ ============ ============
623,037 569,452 107,144 193,348 148,075 178,504
185,150 95,684 45,969 35,479 88,569 44,120
(953,641) (1,152,957) (346,276) (196,446) (286,022) (419,448)
------------- ------------- ------------ ------------ ------------ ------------
(145,454) (487,821) (193,163) 32,381 (49,378) (196,824)
============= ============= ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
101
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS, continued
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY
--------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................ $ 336,538 $ 385,482 $ 1,926,757 $ 1,969,062
Net realized gain (loss) ......................... (16,416) 152,552 (69,142) 614,679
Net change in unrealized appreciation ............ (516,662) (55,068) (2,840,301) 394,703
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) ........................ (196,540) 482,966 (982,686) 2,978,444
------------ ------------ ------------ ------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ............................ (336,538) (388,129) (1,926,757) (1,980,284)
Net realized gain ................................ (71,136) -- (609,503) --
------------ ------------ ------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS .............. (407,674) (388,129) (2,536,260) (1,980,284)
------------ ------------ ------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
Net proceeds from sales .......................... 613,733 450,188 3,899,668 4,281,513
Reinvestment of dividends and distributions ...... 197,150 205,051 1,486,480 1,110,422
Cost of shares repurchased ....................... (1,602,851) (1,075,759) (5,103,832) (6,107,000)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) ........................ (791,968) (420,520) 282,316 (715,065)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) ...................... (1,396,182) (325,683) (3,236,630) 283,095
NET ASSETS:
Beginning of period .............................. 8,416,668 8,742,351 41,803,012 41,519,917
------------ ------------ ------------ ------------
END OF PERIOD .................................. $ 7,020,486 $ 8,416,668 $ 38,566,382 $ 41,803,012
============ ============ ============ ============
SHARES ISSUED AND REPURCHASED:
Sold ............................................. 57,698 41,683 362,856 387,819
Reinvestment of dividends and distributions ...... 18,774 19,052 138,573 100,683
Repurchased ...................................... (154,345) (99,811) (478,651) (554,108)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) ........................ (77,873) (39,076) 22,778 (65,606)
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
102
<PAGE>
<TABLE>
<CAPTION>
NEW YORK OHIO PENNSYLVANIA
- --------------------------------------- --------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1998
- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 518,580 $ 566,953 $ 822,837 $ 863,067 $ 2,537,112 $ 2,506,283
(12,174) 408,044 (39,851) 388,407 (6,646) 578,722
(836,551) (77,877) (1,175,397) (29,432) (4,132,749) 203,628
------------ ------------ ------------ ------------ ------------ ------------
(330,145) 897,120 (392,411) 1,222,042 (1,602,283) 3,288,633
------------ ------------ ------------ ------------ ------------ ------------
(518,580) (570,172) (822,837) (870,982) (2,537,112) (2,518,046)
(394,741) -- (219,842) -- (578,726) (8,207)
------------ ------------ ------------ ------------ ------------ ------------
(913,321) (570,172) (1,042,679) (870,982) (3,115,838) (2,526,253)
------------ ------------ ------------ ------------ ------------ ------------
637,143 656,120 2,664,054 2,170,150 3,894,419 12,831,070
549,160 301,450 628,836 479,951 2,031,604 1,539,410
(1,236,776) (1,857,636) (4,778,766) (2,897,075) (5,957,035) (5,380,740)
------------ ------------ ------------ ------------ ------------ ------------
(50,473) (900,066) (1,485,876) (246,974) (31,012) 8,989,740
------------ ------------ ------------ ------------ ------------ ------------
(1,293,939) (573,118) (2,920,966) 104,086 (4,749,133) 9,752,120
12,013,328 12,586,446 18,580,306 18,476,220 53,808,247 44,056,127
------------ ------------ ------------ ------------ ------------ ------------
$ 10,719,389 $ 12,013,328 $ 15,659,340 $ 18,580,306 $ 49,059,114 $ 53,808,247
============ ============ ============ ============ ============ ============
58,477 58,252 247,224 195,888 359,418 1,154,976
50,586 26,721 58,442 43,444 189,500 139,044
(115,169) (164,456) (447,444) (262,446) (560,476) (485,530)
------------ ------------ ------------ ------------ ------------ ------------
(6,106) (79,483) (141,778) (23,114) (11,558) 808,490
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
103
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Multi-State Municipal Series Trust (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a non-diversified, open-end management investment company. The investment
objective of each Series is to provide a high level of current income exempt
from both Federal and the designated state income taxes consistent with
preservation of capital.
The Fund, organized on October 29, 1990, as a Massachusetts business trust, is
comprised of ten separate Series (the "Series"): the Arizona Series, the
California Series, the Florida Series, the Massachusetts Series, the Michigan
Series, the Minnesota Series, the New Jersey Series, the New York Series, the
Ohio Series and the Pennsylvania Series. Each of the Series commenced
operations on January 15, 1991, with the exception of the Arizona Series which
commenced operations on April 30, 1991.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Fund's Trustees. The pricing
service has informed the Fund that in valuing the 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
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.
104
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply individually
for each Series 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.
E. EXPENSES -- Direct expenses are charged to the respective Series and general
corporate expenses are allocated on the basis of relative net assets or equally
among the Series.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, each Series of the Fund pays
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager") a
management fee, accrued daily and payable monthly, by applying the annual rate
of 0.35% to the daily net assets of each Series 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 office space and 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.
105
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
3. PLAN OF DISTRIBUTION
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"), an affiliate
of the Investment Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act, finances certain expenses in connection with the distribution of
shares of the Fund.
Under the Plan, the expenses of certain activities and services provided by
Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the Fund's
shares or who service shareholder accounts, including overhead and telephone
expenses incurred in connection with the distribution of the Fund's shares, are
reimbursed.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed an amount equal to a payment
at the annual rate of 0.15% of the Fund's average daily net assets during the
month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal
year will not be reimbursed by the Fund through payments accrued in any
subsequent fiscal year. For the year ended November 30, 1999, the distribution
fees were accrued at the following annual rates:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Annual Rate ......... 0.14% 0.15% 0.14% 0.14% 0.14%
==== ==== ==== ==== ====
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- ----------- ------------ ---------- ---------- -------------
<C> <C> <C> <C> <C>
0.14% 0.14% 0.15% 0.14% 0.15%
==== ==== ==== ==== ====
</TABLE>
For the year ended November 30, 1999, the Distributor has informed the Fund
that commissions from the sale of the Fund's shares of beneficial interest were
as follows:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Commissions .........$94,093 $226,522 $170,528 $31,101 $52,759
======= ======== ======== ======= =======
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
$21,658 $98,116 $20,379 $53,226 $72,372
======= ======= ======= ======= =======
</TABLE>
Such commissions are not an expense of the Fund; they are deducted from the
proceeds of the sale of the shares of beneficial interest.
106
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from the sales of portfolio securities,
excluding short-term investments, for the year ended November 30, 1999 were as
follows:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------------- -------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Purchases ......... $4,796,836 $26,282,780 $ 7,257,980 $ -- $1,548,121
========== =========== =========== ============ ==========
Sales ............. $7,297,185 $30,187,123 $12,730,596 $2,245,135 $3,118,997
========== =========== =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Purchases ......... $1,079,153 $3,865,670 $ 400,000 $2,574,361 $2,982,709
========== ========== ========== ========== ==========
Sales ............. $1,716,705 $5,017,151 $1,173,408 $4,250,957 $4,861,725
========== ========== ========== ========== ==========
</TABLE>
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended November 30, 1999
included in Trustees' fees and expenses in the Statement of Operations and the
accrued pension liability included in accrued expenses in the Statement of
Assets and Liabilities for each of the respective Series were as follows:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Aggregate Pension Costs ......... $582 $1,437 $835 $198 $235
==== ====== ==== ==== ====
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- ----------- ------------ ---------- ------ -------------
<C> <C> <C> <C> <C>
$107 $576 $157 $256 $710
==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Accrued Pension Liability ......... $4,366 $10,788 $6,594 $1,518 $1,934
====== ======= ====== ====== ======
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
----------- ------------ ---------- --------- -------------
<C> <C> <C> <C> <C>
$ 973 $4,253 $1,305 $2,080 $4,848
====== ====== ====== ====== ======
</TABLE>
107
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At November 30, 1999, each of
the Series had transfer agent fees and expenses payable as follows:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Transfer Agent Fees and Expenses Payable ...... $ -- $646 $253 $242 $150
======= ==== ==== ==== ====
<CAPTION>
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
----------- ------------ ---------- ------ -------------
<C> <C> <C> <C> <C>
$24 $194 $ 85 $ 82 $468
=== ==== ==== ==== ====
</TABLE>
5. FEDERAL INCOME TAX STATUS
At November 30, 1999, the following Series had approximate net capital loss
carryovers which will be available through November 30, 2007 to offset future
capital gains to the extent provided by regulations:
<TABLE>
<S> <C>
Arizona ............... $ 69,000
California ............ 243,000
Florida ............... 166,000
Massachusetts ......... 131,000
Michigan .............. 31,000
Minnesota ............. 16,000
New Jersey ............ 69,000
New York .............. 12,000
Ohio .................. 14,000
Pennsylvania .......... 7,000
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Funds' next
taxable year. The California and Ohio Series incurred and will elect to defer
net capital losses during fiscal 1999 of approximately $50,000 and $28,000,
respectively.
6. SUBSEQUENT EVENT -- SERIES MERGERS
On January 26, 2000, the Trustees of the Fund and of Morgan Stanley Dean Witter
Tax-Exempt Securities Trust ("Tax-Exempt") approved four reorganization plans
(the "Plans") whereby the Massachusetts Series, the Michigan Series, the
Minnesota Series and the Ohio Series would each be merged into Tax-Exempt. Each
respective Plan is subject to the consent of the Massachusetts Series', the
Michigan Series', the Minnesota Series' and the Ohio Series' shareholders,
respectively. If the Plans are approved by shareholders (each Plan is
independent of the other and therefore, the effectiveness of each Plan is not
dependent upon the approval of the other Plans) the assets of the Massachusetts
Series, the Michigan
108
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
Series, the Minnesota Series and the Ohio Series would be combined with the
assets of Tax-Exempt and shareholders of the Massachusetts Series, the Michigan
Series, the Minnesota Series and the Ohio Series would become Class D
shareholders of Tax-Exempt, receiving Class D shares of Tax-Exempt equal to the
value of their holdings in the respective Series.
On January 26, 2000, the Trustees of the Fund and of Morgan Stanley Dean Witter
California Tax-Free Income Fund ("California Tax-Free") approved a
reorganization plan (the "Plan") whereby the California Series would be merged
into California Tax-Free. The Plan is subject to the consent of the California
Series' shareholders. If the Plan is approved by shareholders, the assets of
the California Series would be combined with the assets of California Tax-Free
and shareholders of the California Series would become Class D shareholders of
California Tax-Free, receiving Class D shares of California Tax-Free equal to
the value of their holdings in the California Series.
On January 26, 2000, the Trustees of the Fund and of Morgan Stanley Dean Witter
New York Tax-Free Income Fund ("New York Tax-Free") approved a reorganization
plan (the "Plan") whereby the New York Series would be merged into New York
Tax-Free. The Plan is subject to the consent of the New York Series'
shareholders. If the Plan is approved by shareholders, the assets of the New
York Series would be combined with the assets of New York Tax-Free and
shareholders of the New York Series would become Class D shareholders of New
York Tax-Free, receiving Class D shares of New York Tax-Free equal to the value
of their holdings in the New York Series.
109
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
NOVEMBER 30 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ------------- ----------- ------------ ---------------- ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARIZONA SERIES
1995 $ 9.42 $ 0.54 $ 1.23 $ 1.77 $ (0.54) $ -- $ (0.54)
1996 10.65 0.54 (0.06) 0.48 (0.54) -- (0.54)
1997 10.59 0.53 0.05 0.58 (0.53) -- (0.53)
1998 10.64 0.51 0.17 0.68 (0.51) -- (0.51)
1999 10.81 0.49 (0.75) (0.26) (0.49) (0.16) (0.65)
CALIFORNIA SERIES
1995 9.38 0.56 1.29 1.85 (0.56) -- (0.56)
1996 10.67 0.56 0.14 0.70 (0.56) -- (0.56)
1997 10.81 0.55 0.15 0.70 (0.55) -- (0.55)
1998 10.96 0.54 0.26 0.80 (0.54) -- (0.54)
1999 11.22 0.52 (0.85) (0.33) (0.52) (0.19) (0.71)
FLORIDA SERIES
1995 9.60 0.56 1.28 1.84 (0.56) -- (0.56)
1996 10.88 0.55 (0.02) 0.53 (0.55) -- (0.55)
1997 10.86 0.54 0.11 0.65 (0.54) -- (0.54)
1998 10.97 0.52 0.28 0.80 (0.52) -- (0.52)
1999 11.25 0.50 (0.78) (0.28) (0.50) (0.37) (0.87)
MASSACHUSETTS SERIES
1995 9.60 0.57 1.37 1.94 (0.57) -- (0.57)
1996 10.97 0.57 (0.03) 0.54 (0.57) (0.02) (0.59)
1997 10.92 0.53 0.18 0.71 (0.53) -- (0.53)
1998 11.10 0.51 0.25 0.76 (0.51) (0.02) (0.53)
1999 11.33 0.50 (0.75) (0.25) (0.50) (0.13) (0.63)
MICHIGAN SERIES
1995 9.46 0.57 1.35 1.92 (0.57) -- (0.57)
1996 10.81 0.56 (0.03) 0.53 (0.56) -- (0.56)
1997 10.78 0.53 0.16 0.69 (0.53) -- (0.53)
1998 10.94 0.51 0.25 0.76 (0.51) -- (0.51)
1999 11.19 0.48 (0.73) (0.25) (0.48) (0.43) (0.91)
</TABLE>
- --------------
+ Does not reflect the deduction of sales load. 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
110
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
(AFTER EXPENSES WERE RATIOS TO AVERAGE NET ASSETS
ASSUMED) (BEFORE EXPENSES WERE ASSUMED)
NET ASSET NET ASSETS --------------------------- ------------------------------
VALUE END OF NET NET PORTFOLIO
END OF TOTAL PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN+ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
- ------------- ----------- ----------- --------------- ----------- ----------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.65 19.21 % $ 50,290 0.65%(1) 5.33 % 0.65 %(1) 5.33 % 6 %
10.59 4.63 46,248 0.65 (1) 5.12 0.65 (1) 5.12 9
10.64 5.64 41,891 0.66 (1) 5.04 0.66 (1) 5.04 2
10.81 6.56 41,655 0.65 (1) 4.77 0.65 (1) 4.77 30
9.90 (2.53) 36,867 0.66 (1) 4.72 0.66 (1) 4.72 13
10.67 20.15 117,769 0.60 (1) 5.50 0.60 (1) 5.50 5
10.81 6.76 113,859 0.59 5.28 0.59 5.28 19
10.96 6.55 104,209 0.59 5.08 0.59 5.08 17
11.22 7.58 105,175 0.59 (1) 4.87 0.59 (1) 4.87 24
10.18 (3.10) 95,515 0.61 (1) 4.82 0.61 (1) 4.82 27
10.88 19.54 74,058 0.63 (1) 5.34 0.63 (1) 5.34 8
10.86 5.03 70,542 0.62 (1) 5.13 0.62 (1) 5.13 25
10.97 6.10 65,088 0.62 5.02 0.62 5.02 7
11.25 7.58 61,262 0.62 (1) 4.69 0.62 (1) 4.69 26
10.10 (2.70) 53,555 0.64 (1) 4.69 0.64 (1) 4.69 13
10.97 20.58 16,954 0.50 (1) 5.39 0.79 (1) 5.11 7
10.92 5.07 16,021 0.50 (1) 5.23 0.82 (1) 4.91 11
11.10 6.68 14,561 0.79 (1) 4.85 0.81 (1) 4.83 10
11.33 7.03 15,236 0.83 (1) 4.55 0.83 (1) 4.55 31
10.45 (2.29) 12,029 0.85 (1) 4.61 0.85 (1) 4.61 --
10.81 20.69 21,673 0.50 (1) 5.49 0.77 (1) 5.22 22
10.78 5.09 20,863 0.50 (1) 5.27 0.76 (1) 5.01 5
10.94 6.52 19,512 0.72 (1) 4.95 0.74 (1) 4.93 3
11.19 7.23 17,759 0.78 (1) 4.63 0.78 (1) 4.63 40
10.03 (2.40) 15,426 0.84 (1) 4.51 0.84 (1) 4.51 10
</TABLE>
111
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
NOVEMBER 30 OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
- ------------- ----------- ------------ ---------------- ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
MINNESOTA SERIES
1995 $ 9.28 $0.54 $ 1.33 $ 1.87 $(0.54) $ -- $(0.54)
1996 10.61 0.54 (0.01) 0.53 (0.54) -- (0.54)
1997 10.60 0.49 0.10 0.59 (0.49) -- (0.49)
1998 10.70 0.48 0.13 0.61 (0.49) -- (0.49)
1999 10.82 0.44 (0.70) (0.26) (0.44) (0.09) (0.53)
NEW JERSEY SERIES
1995 9.47 0.56 1.26 1.82 (0.56) -- (0.56)
1996 10.73 0.55 (0.03) 0.52 (0.55) -- (0.55)
1997 10.70 0.53 0.18 0.71 (0.53) -- (0.53)
1998 10.88 0.53 0.27 0.80 (0.53) -- (0.53)
1999 11.15 0.51 (0.77) (0.26) (0.51) (0.16) (0.67)
NEW YORK SERIES
1995 9.46 0.56 1.42 1.98 (0.56) -- (0.56)
1996 10.88 0.56 0.02 0.58 (0.56) -- (0.56)
1997 10.90 0.53 0.21 0.74 (0.53) -- (0.53)
1998 11.11 0.52 0.30 0.82 (0.52) -- (0.52)
1999 11.41 0.49 (0.80) (0.31) (0.49) (0.37) (0.86)
OHIO SERIES
1995 9.42 0.56 1.38 1.94 (0.56) -- (0.56)
1996 10.80 0.55 (0.03) 0.52 (0.55) -- (0.55)
1997 10.77 0.53 0.17 0.70 (0.53) -- (0.53)
1998 10.94 0.52 0.21 0.73 (0.52) -- (0.52)
1999 11.15 0.50 (0.75) (0.25) (0.50) (0.13) (0.63)
PENNSYLVANIA SERIES
1995 9.56 0.55 1.29 1.84 (0.55) -- (0.55)
1996 10.85 0.55 -- 0.55 (0.55) -- (0.55)
1997 10.85 0.54 0.14 0.68 (0.54) (0.02) (0.56)
1998 10.97 0.53 0.18 0.71 (0.53) -- (0.53)
1999 11.15 0.52 (0.84) (0.32) (0.52) (0.12) (0.64)
</TABLE>
- --------------
+ Does not reflect the deduction of sales load. 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
112
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE (BEFORE EXPENSES WERE
ASSUMED) ASSUMED)
NET ASSET NET ASSETS --------------------------- ----------------------------
VALUE END OF NET NET PORTFOLIO
END OF TOTAL PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN + (000'S) EXPENSES INCOME EXPENSES INCOME RATE
- ------------- ---------- ----------- --------------- ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.61 20.60% $11,230 0.50%(1) 5.35% 0.98%(1) 4.88% 3%
10.60 5.21 9,923 0.50 (1) 5.21 0.96 (1) 4.75 5
10.70 5.76 8,742 0.94 (1) 4.68 0.97 (1) 4.65 --
10.82 5.77 8,417 0.99 (1) 4.49 0.99 (1) 4.49 20
10.03 (2.46) 7,020 1.13 (1) 4.22 1.13 (1) 4.22 15
10.73 19.60 47,889 0.67 (1) 5.42 0.67 (1) 5.42 14
10.70 4.93 44,829 0.66 (1) 5.23 0.66 (1) 5.23 5
10.88 6.99 41,520 0.66 5.02 0.66 5.02 14
11.15 7.49 41,803 0.67 (1) 4.77 0.67 (1) 4.77 21
10.22 (2.44) 38,566 0.69 4.73 0.69 4.73 10
10.88 21.40 14,388 0.50 (1) 5.43 0.85 (1) 5.09 24
10.90 5.46 14,020 0.50 (1) 5.25 0.84 (1) 4.91 22
11.11 7.06 12,586 0.82 (1) 4.84 0.84 (1) 4.82 4
11.41 7.50 12,013 0.84 (1) 4.57 0.84 (1) 4.57 33
10.24 (2.90) 10,719 0.93 (1) 4.52 0.93 (1) 4.52 4
10.80 21.02 23,104 0.50 (1) 5.42 0.77 (1) 5.16 19
10.77 5.04 21,207 0.50 (1) 5.23 0.75 (1) 4.98 32
10.94 6.67 18,476 0.73 (1) 4.90 0.74 (1) 4.89 5
11.15 6.84 18,580 0.75 (1) 4.70 0.75 (1) 4.70 37
10.27 (2.29) 15,659 0.81 (1) 4.69 0.81 (1) 4.69 16
10.85 19.65 53,935 0.66 (1) 5.29 0.66 (1) 5.29 8
10.85 5.27 47,055 0.65 (1) 5.17 0.65 (1) 5.17 --
10.97 6.53 44,056 0.66 5.01 0.66 5.01 8
11.15 6.60 53,808 0.64 (1) 4.75 0.64 (1) 4.75 26
10.19 (3.02) 49,059 0.64 (1) 4.83 0.64 (1) 4.83 6
</TABLE>
113
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios 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 the Arizona Series,
the California Series, the Florida Series, the Massachusetts Series, the
Michigan Series, the Minnesota Series, the New Jersey Series, the New York
Series, the Ohio Series, and the Pennsylvania Series (constituting the Morgan
Stanley Dean Witter Multi-State Municipal Series Trust, hereafter referred to
as the "Fund") at November 30, 1999, the results of each of their operations
for the year then ended, the changes in each of their 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 November 30, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
As described in Note 6 to the financial statements, the Fund's Trustees have
approved reorganization plans whereby the Massachusetts Series, the Michigan
Series, the Minnesota Series and the Ohio Series would each be merged into
Morgan Stanley Dean Witter Tax-Exempt Securities Trust, the California Series
would be merged into Morgan Stanley Dean Witter California Tax-Free Income Fund
and the New York Series would be merged into Morgan Stanley Dean Witter New
York Tax-Free Income Fund. Each respective Plan is subject to the consent of
the respective Series' shareholders.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 26, 2000
114
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FEDERAL INCOME TAX NOTICE (unaudited)
During the year ended November 30, 1999, each Series paid to its shareholders
the following per share amounts from tax-exempt income:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- ----------- ------------ --------- --------------- ---------- ----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.49 $0.52 $0.50 $0.50 $0.48 $0.44 $0.51 $0.49 $0.50 $0.52
</TABLE>
During the year ended November 30, 1999, each Series paid to its shareholders
the following per share amounts from long-term capital gains:
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
- ----------- ------------ --------- --------------- ---------- ----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.16 $0.19 $0.37 $0.11 $0.43 $0.09 $0.16 $0.36 $0.13 $0.12
</TABLE>
115
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
MUNICIPAL BOND RATINGS
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.
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.
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.
116
<PAGE>
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.
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.
117
<PAGE>
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.
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.
118
<PAGE>
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.
119
<PAGE>
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Exhibits 1
and 2 under Item 16 below and by reference to Item 27 of, Post-Effective
Amendment No. 18 to Registrant's Registration Statement on Form N-1A, dated
February 22, 2000, which was filed electronically pursuant to Regulation S-T on
February 17, 2000 as an amendment to Registrant's Registration Statement on Form
N-1A (File Nos. 811-4222 and 2-95664) (the "Registration Statement").
ITEM 16. EXHIBITS
(1) Declaration of Trust dated January 17, 1985 ("Declaration") (incorporated
herein by reference to Exhibit 1 of Registrant's Post-Effective Amendment
No. 12 filed on February 23, 1996 ("Post-Effective Amendment No. 12"));
Amendment to Declaration Establishing and Designating Additional Classes of
Stock (incorporated herein by reference to Exhibit 1 to Post-Effective
Amendment No. 14 filed on July 17, 1997 ("Post Effective Amendment No. 14"))
(2) Amended and Restated By-Laws of Registrant dated as of May 1, 1999
(incorporated herein by reference to Exhibit 2 to the Registrant's
Post-Effective Amendment No. 17 filed on April 29, 1999 ("Post-Effective
Amendment No. 17"))
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A to
the Proxy Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated herein by reference to
Exhibit 4 to Post-Effective Amendment No. 16 filed on February 26, 1999
("Post-Effective Amendment No. 16"))
(7) (a) Distribution Agreement between Registrant and Morgan Stanley Dean
Witter Distributors Inc. (incorporated herein by reference to Exhibit
5(a) to Post-Effective Amendment No. 16)
(b) Multiple Class Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors, Inc. (incorporated herein by
reference to Exhibit 6 (b) of Post-Effective Amendment No. 14.
(c) Form of Selected Dealer Agreement (incorporated herein by reference to
Exhibit 5(b) to Registrant's Post-Effective Amendment No. 16)
(8) Retirement Plan for Non-Interested Trustees or Directors (incorporated
herein by reference to Exhibit 6 to Post-Effective Amendment No. 17)
(9) (a) Custody Agreement dated September 20, 1991 (incorporated herein by
reference to Exhibit 8 to Post-Effective Amendment No. 12)
(b) Amended and Restated Transfer Agency and Services Agreement between
Registrant and Morgan Stanley Dean Witter Trust FSB (incorporated herein
by reference to Exhibit 7 of Post-Effective Amendment No. 16)
C-1
<PAGE>
(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1,
dated July 28, 1997 (incorporated herein by reference to Exhibit 15 to
Post-Effective Amendment No. 14)
(b) Morgan Stanley Dean Witter Funds Multiple Class Plan pursuant to Rule
18f-3 (incorporated herein by reference to Exhibit 15 to Post-Effective
Amendment No. 16)
(11) (a) Opinion and consent of Mayer, Brown & Platt
(b) Opinion and consent of Lane Altman & Owens.
(12) Opinion and consent of Mayer, Brown & Platt regarding tax matters
(13) Form of Services Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Services Company Inc. (incorporated
herein by reference to Exhibit 8 to Post-Effective Amendment No. 16)
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended December 31,
1999 (incorporated herein by reference to Form 24f-2 filed with the
Securities and Exchange Commission on February 4, 2000)
(b) Form of Proxy
(c) Voting Information Card (incorporated herein by reference to Exhibit 17
of the Initial Registration Statement on Form N-14).
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of the prospectus which is a part of
this registration statement on Form N-14 by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering of them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 28th day of February, 2000.
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE
INCOME FUND
By: /s/ Barry Fink
................................
Barry Fink
Vice President and Secretary
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------ ------------------
<S> <C> <C>
1. Principal Executive Officer
/s/ Charles A. Fiumefreddo President, Chief Executive Officer,
............................ Trustee and Chairman February 28, 2000
2. Principal Financial Officer
/s/ Thomas F. Caloia Treasurer and Principal
............................ Accounting Officer February 28, 2000
3. Majority of Trustees
/s/ Michael Bozic Trustee February 28, 2000
............................
/s/ Edwin J. Garn Trustee February 28, 2000
............................
/s/ Wayne E. Hedien Trustee February 28, 2000
............................
/s/ Manuel H. Johnson Trustee February 28, 2000
............................
/s/ Michael E. Nugent Trustee February 28, 2000
............................
/s/ John L. Schroeder Trustee February 28, 2000
............................
/s/ Philip J. Purcell Trustee February 28, 2000
............................
</TABLE>
C-3
<PAGE>
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820
February 24, 2000
Morgan Stanley Dean Witter New York Tax-Free Income Fund
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Morgan Stanley Dean Witter New York Tax-
Free Income Fund, a Massachusetts business trust ("New York Tax-Free"), in
connection with the Registration Statement on Form N-14 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "1933 Act"), to be
filed by New York Tax-Free in connection with the acquisition by New York
Tax-Free, of substantially all the assets of New York Series, a portfolio of
Morgan Stanley Dean Witter Multi-State Municipal Series Trust, a Massachusetts
business trust ("New York Series"), in exchange for shares of beneficial
interest of New York Tax-Free ("Shares") and the assumption by New York Tax-Free
of certain stated liabilities of New York Series pursuant to an Agreement and
Plan of Reorganization dated as of January 26, 2000 (the "Reorganization
Agreement"). We have examined such statutes, regulations, corporate records and
other documents and reviewed such questions of law as we deemed necessary or
appropriate for the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion, we have
relied upon the opinion of Lane Altman & Owens LLP, dated February 24, 2000.
Based upon the foregoing, we are of the opinion that the Shares when
issued, as described in the Reorganization Agreement, will be duly authorized
and, assuming receipt of the consideration to be paid therefor, upon delivery as
provided in the Reorganization Agreement, will be legally issued, fully paid and
non-assessable (except for the potential liability of shareholders described in
New York Tax-Free's Statement of Additional Information dated May 1, 1999 under
the caption "Capital Stock And Other Securities").
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. We do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Mayer, Brown & Platt
------------------------
<PAGE>
Lane Altman & Owens LLP
Counsellors at Law
February 24, 2000
Mayer Brown & Platt
1675 Broadway
New York, NY 10019-5820
Dear Sirs:
We understand that the trustees of Morgan Stanley Dean Witter Tax-Exempt
Securities Trust, a Massachusetts business trust (the "Trust"), intend, on or
about February 24, 2000, to cause to be filed on behalf of the Trust a
Registration Statement on Form N-14 (the "Registration Statement") in connection
with the acquisition (the "Acquisition") by the Trust of substantially all the
assets of the Massachusetts Series ("Massachusetts Series") portfolio of Morgan
Stanley Dean Witter Multi-State Municipal Series Trust ("MSDW Multi-State"), in
exchange for shares of beneficial interest of the Trust (the "Shares"), and the
assumption by the Trust of certain stated liabilities of Massachusetts Series
pursuant to an Agreement and Plan of Reorganization dated as of January 26, 2000
(the "Agreement"). We further understand that the Shares will be issued pursuant
to the Agreement.
You have requested that we act as special counsel to the Trust with
respect to the laws of the Commonwealth of Massachusetts on certain specified
matters, and in such capacity we are furnishing you with this opinion. You have
not asked for, and we do not offer, an opinion on any other matter or
transaction related to the Trust, Massachusetts Series, MSDW Multi-State, the
Acquisition, the Agreement or any matter related thereto, except as specifically
set forth below.
The Trust is a business trust created under an Agreement and Declaration of
Trust finally executed, delivered and filed in Boston, Massachusetts on January
21, 1985 (as amended from time to time, the "Trust Agreement"). The Trustees of
the Trust (as defined in the Trust Agreement) (the "Trustees") have the powers
set forth in the Trust Agreement, subject to the terms, provisions and
conditions provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of, you:
(i) a copy of the Agreement in the form to be executed by the Trust; (ii) a copy
of the Trust Agreement; (iii) a copy of the Amended and Restated By-laws of the
Trust effective as of May 1, 1999; (iv) a Certificate of Legal Existence for the
Trust provided by the Secretary of State of the Commonwealth of Massachusetts
dated February 16, 2000; and (v) copies of the Registration Statement on Form
N-14 to be filed by the Trust and the Trust's current Prospectus and Statement
of Additional Information.
<PAGE>
Mayer Brown & Platt
February 24, 2000
Page 2
In rendering this opinion we have assumed, without independent
verification, (i) the due authority of all individuals signing in representative
capacities and the genuineness of signatures, (ii) the authenticity,
completeness and continued effectiveness of all documents or copies furnished to
us, (iii) that resolutions approving the Registration Statement, the Acquisition
and the Agreement have been duly adopted by the Trustees, (iv) that no
amendments, agreements, resolutions or actions have been approved, executed or
adopted which would limit, supersede or modify the items described above, and
(v) that the by-laws filed as an exhibit to the Registration Statement have been
duly adopted by the Trustees. We have also examined such questions of law as we
have concluded necessary or appropriate for purposes of the opinions expressed
below. Where documents are referred to in resolutions approved by the Trustees,
or in the Registration Statement, we assume such documents are the same as in
the most recent form provided to us, whether as an exhibit to the Registration
Statement, or otherwise. When any opinion set forth below relates to the
existence or standing of the Trust, such opinion is based entirely upon and is
limited by the items referred to above. We understand that the foregoing
assumptions, limitations and qualifications are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only
(except that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's current Statement
of Additional Information under the caption "Capital Stock and Other
Securities").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby
<PAGE>
Mayer Brown & Platt
February 24, 2000
Page 3
admit to be within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Lane Altman & Owens LLP
---------------------------
LANE ALTMAN & OWENS LLP
<PAGE>
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820
February 23, 2000
To the Persons Listed on
Schedule I Attached hereto
Re: Agreement and Plan of Reorganization for the
Exchange of Stock of Morgan Stanley Dean Witter
New York Tax-Free Income Fund for Substantially
All of the Assets of New York Series, a
portfolio of Morgan Stanley Dean Witter
Multi-State Municipal Series Trust, dated as of
January 26, 2000 (the "Reorganization
Agreement").
Ladies and Gentlemen:
We have acted as counsel to New York Series ("New York Series"), a
portfolio of Morgan Stanley Dean Witter Multi-State Municipal Series Trust
("Multi-State"), and Morgan Stanley Dean Witter New York Tax-Free Income Fund
("New York Tax-Free") in connection with the proposed transfer of substantially
all of the assets of New York Series to New York Tax-Free and certain other
transactions related thereto pursuant to and in accordance with the terms of the
Reorganization Agreement (the "Reorganization"). You have requested that we
provide an opinion regarding the treatment of the Reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"), and the accuracy of the
tax disclosures in the proxy statement/prospectus (the "Proxy Statement/
Prospectus") on Exhibit 12 to the Form N-14 Registration Statement.
In connection with rendering this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Reorganization Agreement, (ii) the Registration Statement on Form N-14 for the
Reorganization, and the Proxy Statement/Prospectus and other documents,
exhibits, attachments and schedules contained therein, (iii) written
representations of Morgan Stanley Dean Witter Advisors Inc. (the "Advisor")
concerning certain facts underlying and relating to the Reorganization set forth
in a letter dated February 23, 2000, and (iv) such other documents and materials
as we have deemed necessary or appropriate for purposes of the opinions set
forth below. In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the
<PAGE>
MAYER, BROWN & PLATT
February 23, 2000
Page 2
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such copies. We have not made
an independent investigation of the facts set forth either in the Registration
Statement, the Reorganization Agreement or such other documents that we have
examined. We have consequently assumed in rendering this opinion that the
information presented in such documents or otherwise furnished to us accurately
and completely describes in all material respects all facts relevant to the
Reorganization.
We have also assumed for purposes of rendering our opinion (i) the accuracy
of, and material compliance with, the representations of the Advisor set forth
in the letter referred to above, (ii) the accuracy of, and material compliance
with, the representations, warranties, covenants and agreements of New York
Tax-Free and Multi-State, on behalf of New York Series, made in the
Reorganization Agreement, and (iii) that there are no agreements or
understandings other than those of which we have been informed that would affect
our conclusions set forth below.
The opinion set forth below is based on the Code, the legislative history
with respect thereto, rules and regulations promulgated thereunder, and
published rulings, court decisions and administrative authorities issued with
respect to all of the foregoing, all as in effect and existing on the date
hereof, and all of which are subject to change at any time, possibly on a
retroactive basis. In addition, there can be no assurance that positions
contrary to those stated in our opinion may not be asserted by the Internal
Revenue Service.
Any change occurring after the date hereof in, or a variation from, any of
the foregoing factual or legal bases for our opinion could affect the
conclusions set forth below.
In addition, the opinion expressed herein is given as of the date hereof
and we express no obligation to advise you of any changes in the law or events
that may hereafter come to our attention that could affect our opinion set forth
below.
Based on the foregoing, we are of the opinion that, for federal income tax
purposes:
1. The summaries of United States federal income tax consequences set forth
in the Proxy Statement/Prospectus under the headings "Synopsis -- Tax
Consequences of the Reorganization", "The Reorganization -- The Board's
Consideration" and "The Reorganization -- Tax Aspects of the Reorganization" are
accurate in all material respects as to matters of law and legal conclusions.
<PAGE>
MAYER, BROWN & PLATT
February 23, 2000
Page 3
2. The transfer of New York Series' assets in exchange for New York
Tax-Free Shares(1) and the assumption by New York Tax-Free of certain stated
liabilities of New York Series followed by the distribution by New York Series
of New York Tax-Free Shares to the New York Series Shareholders in exchange for
their New York Series shares pursuant to and in accordance with the terms of the
Reorganization Agreement will constitute a "reorganization" within the meaning
of section 368(a)(1)(C) of the Code, and New York Series and New York Tax-Free
will each be a "party to a reorganization" within the meaning of section 368(b)
of the Code.
3. No gain or loss will be recognized by New York Tax-Free upon receipt of
the assets of New York Series solely in exchange for New York Tax-Free Shares
and the assumption by New York Tax-Free of the stated liabilities of New York
Series.
4. No gain or loss will be recognized by New York Series upon the transfer
of the assets of New York Series to New York Tax-Free in exchange for New York
Tax-Free Shares and the assumption by New York Tax-Free of the stated
liabilities or upon the distribution of New York Tax-Free Shares to the New York
Series Shareholders in exchange for their New York Series shares.
5. No gain or loss will be recognized by the New York Series Shareholders
upon the exchange of the New York Series shares for New York Tax-Free Shares.
6. The aggregate tax basis for the New York Tax-Free Shares received by
each New York Series Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the New York Series shares held by each such New
York Series Shareholder immediately prior to the Reorganization.
7. The holding period of the New York Tax-Free Shares to be received by
each New York Series Shareholder will include the period during which the New
York Series shares surrendered in exchange therefor were held (provided such New
York Series shares are held as capital assets on the date of the
Reorganization).
8. The tax basis of the assets of New York Series acquired by New York
Tax-Free will be the same as the tax basis of such assets to New York Series
immediately prior to the Reorganization.
- --------
(1) Capitalized terms used herein without definition have the meanings ascribed
to them in the Reorganization Agreement.
<PAGE>
MAYER, BROWN & PLATT
February 23, 2000
Page 4
9. The holding period of the assets of New York Series in the hands of New
York Tax-Free will include the period during which those assets were held by New
York Series.
This opinion is being provided to you solely in connection with the filing
of the Registration Statement for the Reorganization. This opinion may not be
relied upon by you for any other purpose or relied upon by or furnished to any
other person without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the Proxy
Statement/Prospectus and to all references to this firm under the headings
"Synopsis -- Tax Consequences of the Reorganization" and "The Reorganization --
Tax Aspects of the Reorganization" in the Proxy Statement/Prospectus.
Very truly yours,
/s/ Mayer, Brown & Platt
------------------------
MAYER, BROWN & PLATT
<PAGE>
MAYER, BROWN & PLATT
February 23, 2000
Page 5
SCHEDULE I
----------
Morgan Stanley Dean Witter
Multi-State Municipal Series Trust, on behalf of New York Series
Morgan Stanley Dean Witter
New York Tax-Free Income Fund
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "N-14 Registration Statement") of
our report dated February 7, 2000 relating to the December 31, 1999 financial
statements and financial highlights of Morgan Stanley Dean Witter New York
Tax-Free Income Fund appearing in the December 31, 1999 Annual Report to
Shareholders of Morgan Stanley Dean Witter New York Tax-Free Income Fund, which
is also incorporated by reference in the N-14 Registration Statement. We also
consent to the references to us under the heading "Financial Statements and
Experts" in such Proxy Statement and Prospectus. We also consent to the
references to us under the headings "Financial Highlights", "Custodian and
Independent Accountants" and "Experts" in that fund's N-1A Registration
Statement dated February 22, 2000, which is incorporated by reference into the
N-14 Registration Statement. We also consent to the incorporation by reference
in the Proxy Statement and Prospectus of our report dated January 26, 2000
relating to November 30, 1999 financial statements and financial highlights of
Morgan Stanley Dean Witter Multi-State New York Series Trust appearing in the
November 30, 1999 Annual Report to Shareholders of Morgan Stanley Dean Witter
Multi-State Municipal Series Trust, which is also incorporated by reference in
the N-14 Registration Statement. We also consent to the references to us under
the headings "Financial Highlights", "Custodian and Independent Accountants" and
"Experts" in that fund's N-1A Registration Statement dated February 25, 2000,
which is incorporated by reference into the N-14 Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 25, 2000
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of Morgan Stanley Dean Witter New York Tax-Free Income Fund, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- --------- ------------------
<S> <C> <C>
/s/ MICHAEL BOZIC Trustee February 28, 2000
-------------------------------
MICHAEL BOZIC
/s/ EDWIN J. GARN Trustee February 28, 2000
-------------------------------
EDWIN J. GARN
/s/ WAYNE E. HEDIEN Trustee February 28, 2000
-------------------------------
WAYNE E. HEDIEN
/s/ MANUEL H. JOHNSON Trustee February 28, 2000
-------------------------------
MANUEL H. JOHNSON
/s/ MICHAEL E. NUGENT Trustee February 28, 2000
-------------------------------
MICHAEL E. NUGENT
/s/ JOHN L. SCHROEDER Trustee February 28, 2000
-------------------------------
JOHN L. SCHROEDER
</TABLE>
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of Morgan
Stanley Dean Witter New York Tax-Free Income Fund, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- --------- ------------------
<S> <C> <C>
/s/ CHARLES A. FIUMEFREDDO Trustee February 28, 2000
-------------------------------
CHARLES A. FIUMEFREDDO
/s/ PHILIP J. PURCELL Trustee February 28, 2000
-------------------------------
PHILIP J. PURCELL
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NEW YORK SERIES
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 22, 2000
The undersigned shareholder of New York Series ("New York Series"), a
portfolio of Morgan Stanley Dean Witter Multi-State Municipal Series Trust, does
hereby appoint Barry Fink, Ronald E. Robison and Joseph J. McAlinden and each of
them, as attorneys-in-fact and proxies of the undersigned, each with the full
power of substitution, to attend the Special Meeting of Shareholders of New York
Series to be held on June 22, 2000, in Conference Room A, Forty-Fourth Floor,
Two World Trade Center, New York, New York at 10:00 A.M., New York time, and at
all adjournments thereof and to vote the shares held in the name of the
undersigned on the record date for said meeting for the Proposal specified on
the reverse side hereof. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED BY THE
BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
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PLEASE MARK VOTES AS
IN THE EXAMPLE USING
BLACK OR BLUE INK [X]
TO VOTE BY MAIL, PLEASE COMPLETE AND RETURN THIS CARD
YOU ALSO MAY VOTE A PROXY BY TOUCH-TONE PHONE OR BY INTERNET
(SEE ENCLOSED VOTING INFORMATION CARD FOR FURTHER INSTRUCTIONS)
TO VOTE A PROXY BY PHONE, call Toll-Free: 1-800-690-6903
TO VOTE A PROXY BY INTERNET, visit our Website(s): WWW/MSDWT.COM or
WWW.PROXYVOTE.COM
FOR AGAINST ABSTAIN
The Proposal: [ ] [ ] [ ]
Approval of the Agreement and Plan of Reorganization, dated as of January 26,
2000, pursuant to which substantially all of the assets of New York Series would
be combined with those of Morgan Stanley Dean Witter New York Tax-Free Income
Fund and shareholders of New York Series would become shareholders of Morgan
Stanley Dean Witter New York Tax-Free Income Fund receiving Class D shares in
Morgan Stanley Dean Witter New York Tax-Free Income Fund with a value equal to
the value of their holdings in New York Series.
Please sign personally. If the shares are registered in more than one name,
each joint owner or each fiduciary should sign personally. Only authorized
officers should sign for corporations.
Please make sure to sign and date this Proxy using black or blue ink.
Date_______________________________________________
_______________________________________________
Shareholder sign in the box above
_______________________________________________
Co-Owner (if any) sign in the box above
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^ ^ ^ ^
| | PLEASE FOLD AND DETACH AT PERFORATION ALONG DOTTED LINES | |
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NEW YORK SERIES
IMPORTANT
USE ONE OF THE THREE EASY WAYS TO VOTE YOUR PROXY
1. BY MAIL. PLEASE DATE, SIGN AND RETURN THE ABOVE PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
2. BY INTERNET. HAVE YOUR PROXY CARD AT HAND. GO TO THE "VOTE YOUR PROXY HERE"
LINK ON THE WEBSITE WWW.MSDWT.COM OR WWW.PROXYVOTE.COM. ENTER YOUR 12 DIGIT
CONTROL NUMBER LOCATED ON THE PROXY CARD AND FOLLOW THE SIMPLE
INSTRUCTIONS.
3. BY TELEPHONE. HAVE YOUR PROXY CARD AT HAND. CALL 1-800-690-6903 ON A
TOUCH-TONE PHONE. ENTER YOUR 12-DIGIT CONTROL NUMBER LOCATED ON THE PROXY
CARD AND FOLLOW THE SIMPLE RECORDED INSTRUCTIONS.
<PAGE>
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MORGAN STANLEY DEAN WITTER FUNDS
- -------------------------------------------------------------------------------
OFFERS TWO NEW WAYS TO VOTE YOUR PROXY
24 HOURS A DAY, 7 DAYS A WEEK
You can now vote your proxy in a matter of minutes with the ease and
convenience of the Internet or the telephone. You may still vote by mail.
But remember, if you are voting by Internet or telephone, do not mail the
proxy.
TO VOTE BY INTERNET:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Go to the "Proxy Voting" link on www.msdwt.com or to website
www.proxyvote.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
Your Proxy Vote is Important!
Thank You for Submitting Your Proxy.
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