<PAGE>
PROSPECTUS - , 1999
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 these securities or
passed upon the adequacy of this Prospectus. Any representation to the contrary
is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Overview ............................................. 1
The Arizona Series .......................... 2
The California Series ....................... 4
The Florida Series .......................... 6
The Massachusetts Series .................... 8
The Michigan Series ......................... 10
The Minnesota Series ........................ 12
The New Jersey Series ....................... 14
The New York Series ......................... 16
The Ohio Series ............................. 18
The Pennsylvania Series ..................... 20
Additional Investment Strategy Information .. 22
Additional Risk Information ................. 22
Fund Management ............................. 24
Shareholder Information Pricing Series Shares ....................... 25
How to Buy Shares ........................... 25
How to Exchange Shares ...................... 26
How to Sell Shares .......................... 28
Distributions ............................... 29
Tax Consequences ............................ 30
Share Arrangements Sales Charges ............................... 32
Plan of Distribution ........................ 33
Financial Highlights ................................................
Our Family of Funds .............................. Inside Back Cover
FUND CATEGORY
-------------------
[ ] | Growth
[ ] | Growth and Income
[X] | INCOME
[ ] | Money Market
<PAGE>
OVERVIEW
Morgan Stanley Dean Witter Multi-State Municipal Series Trust 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.
1
<PAGE>
THE ARIZONA SERIES
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. There is no guarantee that the Arizona Series will achieve this
objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The Arizona Series will invest at least 80% of its 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 be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation 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 any amount of its assets in securities that pay
interest income subject to the "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.
For more information about the Arizona Series' investments, see the "Additional
Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the Arizona
Series' shares has varied from
year to year during the life of the
Arizona Series.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
8.17% 10.08% 12.24% -6.58% 17.31% 2.92% 7.56% 5.39%
* For the period April 30, 1991 to December 31, 1991.
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).
2
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Arizona
Series' average annual returns
with those of a broad measure of
market performance over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Arizona Series 1.18% 4.18% 6.66%
Lehman Municipal Bond Index1 6.48% 6.22% 7.87%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the Arizona Series' fees and expenses. The
Arizona Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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 0.16%
Total annual Arizona Series operating expenses 0.65%
3
<PAGE>
THE ARIZONA SERIES, CONTINUED
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 464 $600 $748 $1,178 $464 $600 $748 $1,178
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
4
<PAGE>
THE CALIFORNIA SERIES
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. There is no guarantee that the California Series will
achieve this objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The California Series will invest at least 80% of its 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 be rated investment grade by Moody's
Investors Service or Standard & Poor's Corporation 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 any amount of its assets in securities that
pay interest income subject to the "alternative minimum tax," and some
taxpayers may have to pay tax on a 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.
For more information about the California Series' investments, see the
"Additional Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the California
Series' shares has varied from
year to year during the life of the
California Series.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
12.91% 9.18% 13.77% -8.53% 19.25% 4.75% 8.43% 6.03%
[GRAPHIC OMITTED]
* For the period January 15, 1991 to December 31, 1991.
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).
5
<PAGE>
THE CALIFORNIA SERIES, CONTINUED
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the
California Series' average annual
returns with those of a broad
measure of market performance
over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
California Series 1.79% 4.75% 7.43%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the California Series' fees and expenses. The
California Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
Maximum sales charge (load) imposed on purchases (as a percentage of
4.0%
offering price)
Maximum deferred sales charge (load) (as a percentage based on the
None
lesser of the offering price or net asset value at redemption)
ANNUAL CALIFORNIA SERIES OPERATING EXPENSES
Management fee 0.35%
Distribution and service (12b-1) fees 0.15%
Other expenses 0.09%
Total annual California Series operating expenses 0.59%
6
<PAGE>
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 458 $581 $715 $1,107 $458 $581 $715 $1,107
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
7
<PAGE>
THE FLORIDA SERIES
INVESTMENT OBJECTIVE
- ----------------------------
The Florida Series seeks to provide a high level of current income exempt from
both federal and Florida state income taxes consistent with preservation of
capital. There is no guarantee that the Florida Series will achieve this
objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The Florida Series will invest at least 80% of its assets in securities that
pay interest normally exempt from federal and the Florida State intangible tax.
(Florida 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 be rated investment grade by Moody's Investors Service or Standard & Poor's
Corporation 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 any amount of its assets in securities that pay
interest income subject to the "alternative minimum tax," and some taxpayers
may have to pay tax on a 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.
For more information about the Florida Series' investments, see the "Additional
Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Florida Series' shares has varied
from year to year during the life of the Florida Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
11.29% 9.98% 13.05% -6.23% 17.36% 3.18% 8.35% 5.82%
* For the period January 15, 1991 to December 31, 1991.
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).
8
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Florida
Series' average annual returns
with those of a broad measure of
market performance over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Florida Series 1.59% 4.56% 7.13%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the Florida Series' fees and expenses. The
Florida Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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 0.13%
Total annual Florida Series operating expenses 0.62%
9
<PAGE>
THE FLORIDA SERIES, CONTINUED
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 460 $589 $730 $1,139 $460 $589 $730 $1,139
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
10
<PAGE>
THE MASSACHUSETTS SERIES
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. There is no guarantee that the Massachusetts Series
will achieve this objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The Massachusetts Series will invest at least 80% of its 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 be rated investment grade by Moody's
Investors Service or Standard & Poor's Corporation 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 any amount of its assets in securities that
pay interest income subject to the "alternative minimum tax," and some
taxpayers may have to pay tax on a 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.
For more information about the Massachusetts Series' investments, see the
"Additional Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the
Massachusetts Series' shares has
varied from year to year during
the life of the Massachusetts
Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
12.49% 10.30% 13.80% -6.81% 18.31% 3.28% 8.88% 5.52%
* For the period January 15, 1991 to December 31, 1991.
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).
11
<PAGE>
THE MASSACHUSETTS SERIES, CONTINUED
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the
Massachusetts Series' average
annual returns with those of a
broad measure of market
performance over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Massachusetts Series 1.30% 4.66% 7.46%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the Massachusetts Series' fees and expenses.
The Massachusetts Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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 0.15%
Other expenses 0.32%
Total annual Massachusetts Series operating expenses 0.82%
12
<PAGE>
EXAMPLE
This example shows what expenses you could pay over time.
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
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>
$ 480 $651 $837 $1,373 $480 $651 $837 $1,373
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
13
<PAGE>
THE MICHIGAN SERIES
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. There is no guarantee that the Michigan Series will achieve this
objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The Michigan Series will invest at least 80% of its 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 be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation 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 any amount of its assets in securities that pay
interest income subject to the "alternative minimum tax," and some taxpayers
may have to pay tax on a 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.
For more information about the Michigan Series' investments, see the
"Additional Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the Michigan
Series' shares has varied from
year to year during the life of the
Michigan Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
12.58% 10.05% 13.21% -6.96% 18.48% 3.50% 8.08% 5.93%
* For the period January 15, 1991 to December 31, 1991.
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).
14
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Michigan
Series' average annual returns
with those of a broad measure of
market performance over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Michigan Series 0.87% 4.25% 6.63%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the Michigan Series' fees and expenses. The
Michigan Series does not charge account or exchange fees.
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, 1998.
<TABLE>
<S> <C>
SHAREHOLDER FEES
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 0.15%
Other expenses 0.28%
Total annual Michigan Series operating expenses 0.78%
</TABLE>
15
<PAGE>
THE MICHIGAN SERIES, CONTINUED
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 476 $639 $816 $1,327 $476 $639 $816 $1,327
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
16
<PAGE>
THE MINNESOTA SERIES
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. There is no guarantee that the Minnesota Series will achieve this
objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The Minnesota Series will invest at least 80% of its assets in securities that
pay interest normally exempt from federal and Minnesota state income taxes. The
Minnesota Series' "Investment Manager," Morgan Stanley Dean Witter Advisors
Inc., generally invests in investment grade, Minnesota municipal obligations.
While the Minnesota Series may invest some of its assets in non-Minnesota
municipal obligations, the Minnesota Series' non-Minnesota investments are
limited by Minnesota Tax Law. There are no maturity limitations on the
Minnesota Series' portfolio securities.
The Minnesota Series may invest any amount of its assets in securities that pay
interest income subject to the "alternative minimum tax," and some taxpayers
may have to pay tax on a 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. 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.
For more information about the Minnesota Series' investments, see the
"Additional Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the Minnesota
Series' shares has varied from
year to year during the life of the
Minnesota Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
9.82% 9.00% 13.05% -7.12% 18.13% 3.78% 7.22% 5.07%
* For the period January 15, 1991 to December 31, 1991.
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).
17
<PAGE>
THE MINNESOTA SERIES, CONTINUED
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the
Minnesota Series' average annual
returns with those of a broad
measure of market performance
over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Minnesota Series 0.87% 4.25% 6.63%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the Minnesota Series' fees and expenses. The
Minnesota Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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 0.15%
Other expenses 0.49%
Total annual Minnesota Series operating expenses 0.99%
18
<PAGE>
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 497 $702 $924 $1,562 $497 $702 $924 $1,562
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
19
<PAGE>
THE NEW JERSEY SERIES
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. There is no guarantee that the New Jersey Series will
achieve this objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The New Jersey Series will invest at least 80% of its 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 be rated investment grade by Moody's
Investors Service or Standard & Poor's Corporation 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 any amount of its assets in securities that
pay interest income subject to the "alternative minimum tax," and some
taxpayers may have to pay tax on a 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.
For more information about the New Jersey Series' investments, see the
"Additional Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the New Jersey
Series' shares has varied from
year to year during the life of the
New Jersey Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
12.41% 10.08% 12.81% -7.12% 17.55% 3.34% 9.07% 5.86%
* For the period January 15, 1991 to December 31, 1991.
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).
20
<PAGE>
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.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
New Jersey Series 1.63% 4.57% 7.25%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the New Jersey Series' fees and expenses. The
New Jersey Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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 0.18%
Total annual New Jersey Series operating expenses 0.67%
21
<PAGE>
THE NEW JERSEY SERIES, CONTINUED
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 465 $605 $757 $1,198 $465 $605 $757 $1,198
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
22
<PAGE>
THE NEW YORK SERIES
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. There is no guarantee that the New York Series will achieve this
objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The New York Series will invest at least 80% of its 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 be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation 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 any amount of its assets in securities that pay
interest income subject to the "alternative minimum tax," and some taxpayers
may have to pay tax on a 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.
For more information about the New York Series' investments, see the
"Additional Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the New York
Series' shares has varied from
year to year during the life of the
New York Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
13.37% 9.28% 13.85% -8.16% 19.31% 3.68% 9.19% 6.06%
* For the period January 15, 1991 to December 31, 1991.
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).
23
<PAGE>
THE NEW YORK SERIES, CONTINUED
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.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
New York Series 1.81% 4.78% 7.52%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the New York Series' fees and expenses. The
New York Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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 0.14%
Other expenses 0.35%
Total annual New York Series operating expenses 0.84%
24
<PAGE>
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 482 $657 $847 $1,395 $482 $657 $847 $1,395
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
25
<PAGE>
THE OHIO SERIES
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. There is no guarantee that the Ohio Series will achieve this
objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The Ohio Series will invest at least 80% of its 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 be rated investment grade by Moody's Investors Service or
Standard & Poor's Corporation 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 any amount of its assets in securities that pay
interest income subject to the "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.
For more information about the Ohio Series' investments, see the "Additional
Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the Ohio Series'
shares has varied from year to
year during the life of the Ohio
Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
11.41% 9.81% 14.10% -7.39% 18.43% 3.74% 8.13% 5.49%
* For the period January 15, 1991 to December 31, 1991.
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).
26
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the Ohio
Series' average annual returns
with those of a broad measure of
market performance over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Ohio Series 1.27% 4.50% 7.20%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the Ohio Series' fees and expenses. The Ohio
Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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 0.26%
Total annual Ohio Series operating expenses 0.75%
27
<PAGE>
THE OHIO SERIES, CONTINUED
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 474 $631 $801 $1,295 $474 $631 $801 $1,295
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
28
<PAGE>
THE PENNSYLVANIA SERIES
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. There is no guarantee that the Pennsylvania Series
will achieve this objective.
PRINCIPAL INVESTMENT STRATEGY
- --------------------------------------
The Pennsylvania Series will invest at least 80% of its 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 be rated investment grade by Moody's
Investors Service or Standard & Poor's Corporation 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 any amount of its assets in securities that
pay interest income subject to the "alternative minimum tax," and some
taxpayers may have to pay tax on a 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.
For more information about the Pennsylvania Series' investments, see the
"Additional Investment Strategy Information" section.
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.
ANNUAL TOTAL RETURNS
This chart shows how the
performance of the Pennsylvania
Series' shares has varied from
year to year during the life of the
Pennsylvania Series.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF BAR GRAPH OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------
11.45% 10.41% 13.16% -6.88% 17.62% 3.59% 8.51% 5.05%
* For the period January 15, 1991 to December 31, 1991.
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).
29
<PAGE>
THE PENNSYLVANIA SERIES, CONTINUED
AVERAGE ANNUAL
TOTAL RETURNS
This table compares the
Pennsylvania Series' average
annual returns with those of a
broad measure of market
performance over time.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIODS ENDED THE 1998 CALENDAR YEAR)
PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Pennsylvania Series 0.85% 4.42% 7.12%
Lehman Municipal Bond Index1 6.48% 6.22% 7.92%
(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.
PRINCIPAL RISKS
- -----------------------
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.
FEES AND EXPENSES
- --------------------------
The table below briefly describes the Pennsylvania Series' fees and expenses.
The Pennsylvania Series does not charge account or exchange fees.
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, 1998.
SHAREHOLDER FEES
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%
30
<PAGE>
EXAMPLE
This example shows what expenses you could pay over time.
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 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>
$ 463 $597 $742 $1,166 $463 $597 $745 $1,166
- ------ ---- ---- ------ ---- ---- ---- ------
</TABLE>
31
<PAGE>
ADDITIONAL INVESTMENT STRATEGY INFORMATION
- -----------------------------------------------
This section provides additional information concerning 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 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.
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. The general obligation securities are secured by the issuer's faith and
credit, as well as its taxing power, for payment of principal and interest.
Revenue bonds, however, are generally payable from a specific revenue source.
They are issued 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 pay
no interest to the Fund.
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 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.
FUTURES. Each Series may invest 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.
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.
ADDITIONAL RISK INFORMATION
- --------------------------------
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
32
<PAGE>
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 interest.) As merely
illustrative 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
--------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------
BOND MATURITY COUPON 1% 2% 1% 2%
- ------------------------------------------------------------------
1 Year 1999 % $ $ $ $
- ------------------------------------------------------------------
3 Years 2001 % $ $ $ $
- ------------------------------------------------------------------
5 Years 2003 % $ $ $ $
- ------------------------------------------------------------------
10 Years 2008 % $ $ $ $
- ------------------------------------------------------------------
20 Years 2018 % $ $ $ $
- ------------------------------------------------------------------
30 Years 2028 % $ $ $ $
- ------------------------------------------------------------------
</TABLE>
Coupons reflect yields on AAA-rated municipals as of May 31, 1998. 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.
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 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.
FUTURES. If a Series invests in futures, its participation in these markets
would subject the Series' portfolio to certain risks. The Investment Manager's
predictions of movements in the direction of interest rate markets may be
inaccurate, and the adverse consequences to the Series (e.g., a reduction in
the Series' net asset value or a reduction in the amount of income available
for distribution) may leave the Series in a
33
<PAGE>
worse position than if these strategies were not used. Other risks inherent in
the use of futures include, for example, the possible imperfect correlation
between the price of futures contracts and movements in the prices of the
securities being hedged, and the possible absence of a liquid secondary market
for any particular instrument. The risk of imperfect correlations may be
increased by the fact that futures contracts in which the Series may invest are
taxable securities rather than tax-exempt securities. The prices of taxable
securities may not move in a similar manner to prices of tax-exempt securities.
YEAR 2000. Each Series could be adversely affected if the computer systems
necessary for the efficient operation of the Investment Manager, the Series'
other service providers and the markets and individual and governmental issuers
in which each Series invests do not properly process and calculate date-related
information from and after January 1, 2000. While year 2000-related computer
problems could have a negative effect on a Series, the Investment Manager and
affiliates are working hard to avoid any problems and to obtain assurances from
their service providers that they are taking similar steps.
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, has more than $ billion in assets under
management or administration as of , 1999.
(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 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, 1998,
each Series accrued total compensation to the Investment Manager amounting to
0.35% of the Series' average daily net assets.
34
<PAGE>
SHAREHOLDER INFORMATION
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.
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 (800) 869-NEWS 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.deanwitter.com/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.
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
investment order in proper form. We reserve the right to reject any order for
the purchase of Series shares.
35
<PAGE>
SHAREHOLDER INFORMATION, CONTINUED
<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 $ 100* $ 100*
Money Market Fund)
- -------------------------------------------------------------------------------
</TABLE>
* Provided your schedule of investments totals $1,000 in twelve months.
(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)
THREE DAY SETTLEMENT. Series shares are sold through the Fund's distributor,
Morgan Stanley Dean Witter Distributors Inc., on a normal three business day
basis; that is, your payment for any Series shares is due on the third business
day (settlement day) after you place a purchase order.
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.
We reserve the right to reject any order for the purchase of Series shares.
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 Multi-Class Fund, or for shares of a No-Load
Fund, a Money Market Fund 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
36
<PAGE>
exchange or dividend reinvestment. The current Prospectus for each Fund
describes its investment objectives, policies and investment minimums, and
should be read before investment.
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.
Certain services normally available to shareholders of Money Market Funds,
including the check writing privilege, are not available for Money Market Fund
shares you acquire in an exchange.
TELEPHONE EXCHANGES. For your protection when calling Morgan Stanley Dean
Witter Trust FSB, we will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. These procedures may
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number. Telephone
instructions also may be recorded.
Telephone instructions will be accepted if received by the Fund's transfer
agent between 9:00 a.m. and 4:00 p.m. Eastern time, on any day the New York
Stock Exchange is open for business. During periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Fund in
the past.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative regarding restrictions on the exchange of such shares.
TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of 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.
37
<PAGE>
SHAREHOLDER INFORMATION, CONTINUED
FREQUENT EXCHANGES. A pattern of frequent exchanges may result in a Series
limiting or prohibiting, at its discretion, additional purchases and/or
exchanges. The Series 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.
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.
(SIDEBAR)
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to withdraw money automatically from your Series account
at regular intervals. The service is available to shareholders whose
investments in all Morgan Stanley Dean Witter Funds total at least $10,000.
Contact your Morgan Stanley Dean Witter Financial Advisor for more details.
(END SIDEBAR)
<TABLE>
<S> <C>
OPTIONS PROCEDURES
- --------------------------------------------------------------------------------------------------------
Contact Your To sell your shares, simply call your Morgan Stanley Dean Witter Financial
Financial Advisor Advisor or other authorized financial representative.
----------------------------------------------------------------------------------
Payment will be sent to the address to which the account is registered or
deposited in your brokerage account.
- --------------------------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter Family of Funds has
Withdrawal Plan a total 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 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;
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. 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, New Jersey 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 instruction to sell in proper
form, a check will be mailed to you within seven days, although we will attempt
to make payment within one business day. Payment may also be sent to your
brokerage account.
Payment may be postponed or the right to sell your shares suspended, however,
under unusual circumstances. If you request to sell shares that were recently
purchased by check, payment of the sale proceeds may be delayed for the minimum
time needed to verify that the check has been honored (not more than fifteen
days from the time we receive the check).
38
<PAGE>
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. Certain restrictions may apply to Series shares pledged in
margin accounts with Dean Witter Reynolds or another authorized broker-dealer
of Series shares. If you hold Series shares in this manner, please contact your
Morgan Stanley Dean Witter Financial Advisor or other authorized financial
representative for more details.
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 are
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
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.
39
<PAGE>
SHAREHOLDER INFORMATION, CONTINUED
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.)
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. (In addition, Minnesota imposes an "alternative
minimum tax" on resident individuals that is based on their 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.
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 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.
40
<PAGE>
Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
distributions paid to you in the previous year. The statement provides full
information on your dividends and capital gains for tax purposes.
TAXES ON SALES. Your sale of 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.
41
<PAGE>
SHARE ARRANGEMENTS
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.
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 not be granted if: (1)
notification is not furnished at the time of the
42
<PAGE>
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.
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 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.
43
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Series'
financial performance for the past 5 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 , whose report, along with each
Series' financial statements, is included in the annual report, which is
available upon request.
ARIZONA SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
44
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
CALIFORNIA SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
45
<PAGE>
FLORIDA SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
46
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
MASSACHUSETTS SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00 00.00 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
47
<PAGE>
MICHIGAN SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
48
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
MINNESOTA SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distribution to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
49
<PAGE>
NEW JERSEY SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distribution to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
50
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
NEW YORK SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distribution to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
51
<PAGE>
OHIO SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distribution to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
52
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
PENNSYLVANIA SERIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
Net investment income 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Dividends to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Distribution to shareholders 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Total dividends and distributions 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 00.00% 00.00% 00.00% 00.00% 00.00%
- -------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 00.00 $ 00.00 $ 00.00 $ 00.00 $ 00.00
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net investment income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED)
- -------------------------------------------------------------------------------------------------------------
Expenses 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 0.00% 0.00% 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 000% 000% 000% 000% 000%
- -------------------------------------------------------------------------------------------------------------
</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%.
53
<PAGE>
NOTES
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54
<PAGE>
NOTES
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55
<PAGE>
NOTES
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56
<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
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Equity Fund
Growth Fund
Market Leader Trust
Mid-Cap Growth Fund
Special Value Fund
Value Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Precious Metals and Minerals Trust
Utilities Fund
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas" Portfolio
European Growth Fund
Fund of Funds - International Portfolio
Global Dividend Growth Securities
Global Utilities Fund
International SmallCap Fund
Japan Fund
Pacific Growth Fund
- --------------------------------------------------------------------------------
GROWTH & INCOME FUNDS
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Selected Fund
Strategist Fund
Value-Added Market Series/Equity Portfolio
- --------------------------------------------------------------------------------
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
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)
- --------------------------------------------------------------------------------
NEW FUNDS
There may be Funds created after this Prospectus was published. Please consult
the inside front cover of a new Fund's Prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.
Each listed Morgan Stanley Dean Witter Fund, unless otherwise noted, is a
Multi-Class Fund, which 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>
MORGAN STANLEY DEAN WITTER
MULTI-STATE MUNICIPAL SERIES TRUST
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, please call:
(212) 392-2550
OR
(800) 869-NEWS (TOLL FREE)
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
WWW.DEANWITTER.COM/FUNDS
Information about the Fund (including the Statement of Additional Information)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800) SEC-0330. Reports and
other information about a Series are available on the SEC's Internet site at
(www.sec.gov), and copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, DC 20549-6009.
(SIDEBAR)
TICKER SYMBOLS:
Arizona DWAZX
California DWCAX
Florida DWFLX
Massachusetts MASER
Michigan MISER
Minnesota MNSER
New Jersey DWNJX
New York NYSER
Ohio OHSER
Pennsylvania DWPAX
(END SIDEBAR)
(Morgan Stanley Dean Witter Multi-State Municipal Series Trust; Investment
Company Act file no. 811-6208)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY DEAN WITTER
MULTI-STATE MUNICIPAL
, 1999 SERIES TRUST
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. The
Prospectus (dated , 1999) 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
(212) 392-2550 or
(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 ................................................44
A. Board of Trustees ..................................................44
B. Management Information .............................................44
C. Compensation .......................................................49
IV. Control Persons and Principal Holders of Securities ...................51
V. Investment Management and Other Services ..............................51
A. Investment Manager .................................................51
B. Principal Underwriter ..............................................51
C. Services Provided by the Investment Manager and Fund Expenses
Paid by Third Parties ............................................52
D. Dealer Reallowances ................................................53
E. Rule 12b-1 Plan ....................................................53
F. Other Service Providers ............................................54
VI. Brokerage Allocation and Other Practices ..............................55
A. Brokerage Transactions .............................................55
B. Commissions ........................................................55
C. Brokerage Selection ................................................56
D. Directed Brokerage .................................................56
E. Regular Broker-Dealers .............................................56
VII. Capital Stock and Other Securities ....................................57
VIII. Purchase, Redemption and Pricing of Shares ............................57
A. Purchase/Redemption of Shares ......................................57
B. Offering Price .....................................................58
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 ......................................70
</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 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.
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 the State
Series may be purchased by each 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 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.
4
<PAGE>
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 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.
5
<PAGE>
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.
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
6
<PAGE>
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.
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
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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 cannot
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Distributor and the Transfer Agent have
been actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted before
that date, but there can be no assurance that they will be successful, or that
interaction with other non-complying computer systems will not impair their
services at that time.
In addition, it is possible that the markets for securities in which a
Series invests may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production
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problems for individual companies and overall economic uncertainties. Earnings
of individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
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 7-year period from 1991 to 1998. During 1998,
Arizona's population was estimated at approximately 4.7 million. As a result,
homebuilding and commercial construction are extremely strong, although
construction is expected to slow somewhat in 1999. This growth in population
will require corresponding increases in revenues 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
revenues.
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. Furthermore, in 1998, Arizona's
personal income increased by an estimated 7.4 percent.
The State of Arizona has no statewide program for addressing the potential
problems posed by the inability of certain computer systems to properly
recognize and process data-sensitive information relative to the Year 2000 and
beyond. The State of Arizona and a number of the political subdivisions within
Arizona have implemented specific programs to address such problems. However,
such programs are on a subdivision-by-subdivision basis and vary widely in both
scope and coverage. There can be no assurance that such programs being
undertaken by state or local government agencies or other political
subdivisions will be sufficient to avoid adverse impact upon the functioning or
financial condition of such agencies or subdivisions. Further, there can be no
assurance that political subdivisions which have not implemented such programs
will do so or that, if implemented, their programs will be sufficient to avoid
such adverse impacts.
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.
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Arizona's constitution also restricts debt payable from general tax
revenues 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 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 revenues, 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
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local government obligations. However, more recent legislation reduced such
state assistance. There can be no assurance that any particular level of State
aid to local governments will be maintained in future years. In Nordlinger v.
Hahn, the United States Supreme Court upheld certain provisions of Proposition
13 against claims that it violated the equal protection clause of the
Constitution.
In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the State and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by State and local government entities.
"Appropriations limit" does not include appropriations for qualified capital
outlay projects, certain increases in transportation-related taxes, and certain
emergency appropriations.
If a government entity raises revenues beyond its "appropriations limit"
in any year, a portion of the excess which cannot be appropriated within the
following year's limit must be returned to the entity's taxpayers within two
subsequent fiscal years, generally by a tax credit, refund or temporary
suspension of tax rates or fee schedules. "Debt service" is excluded from these
limitations, and is defined as "appropriations required to pay the cost of
interest and redemption charges, including the funding of any reserve or
sinking fund required in connection therewith, on indebtedness existing or
legally authorized as of January 1, 1979 or on bonded indebtedness thereafter
approved [by the voters]." In addition, Article XIIIB requires the State
Legislature to establish a prudent State reserve, and to require the transfer
of 50% of excess revenue to the State School Fund; any amounts allocated to the
State School Fund will increase the appropriations limit.
In June 1982, the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to account for the effects of inflation. Decreases in State and
local revenues in future fiscal years as a consequence of these initiatives may
result in reductions in allocations of state revenues to California issuers or
in the ability of California issuers to pay their obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that,
in the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and
(viii) permits these provisions to be amended exclusively by the voters of the
State of California.
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
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authority of local governments to impose property-related assessments, fees and
charges, requiring that such assessments be limited to the special benefit
conferred and prohibiting their use for general governmental services.
Proposition 218 also allows voters to use their initiative power to reduce or
repeal previously-authorized taxes, assessments, fees and charges.
In 1988, State voters approved Proposition 87, which amended Article XVI
of the State Constitution to authorize the State Legislature to prohibit
redevelopment agencies from receiving any property tax revenues raised by
increased property taxes to repay bonded indebtedness of local government which
is not approved by voters on or before January 1, 1989. It is not possible to
predict whether the State Legislature will enact such a prohibition, nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.
In November 1988, California voters approved Proposition 98. This
initiative requires that (i) revenues in excess of amounts permitted to be
spent and which would otherwise be returned by revision of tax rates or fee
schedules, be transferred and allocated (up to a maximum of 40%) to the State
School Fund and be expended solely for purposes of instructional improvement
and accountability. No such transfer or allocation of funds will be required if
certain designated state officials determine that annual student expenditures
and class size meet certain criteria as set forth in Proposition 98. Any funds
allocated to the State School Fund shall cause the appropriation limits to be
annually increased for any such allocation made in the prior year. Proposition
98 also requires the State of California to provide a minimum level of funding
for public schools and community colleges. The initiative permits the enactment
of legislation, by a two-thirds vote, to suspend the minimum funding
requirement for one year.
Certain tax-exempt securities in which the 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 estimated at 32.9 million. The State now comprises 12.3% of the
nation's population and 12.5% of its total personal income. Its economy is
broad and diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After experiencing strong
growth throughout much of the 1980s, from 1990-1993 the State suffered through
a severe recession, the worst since the 1930's, heavily influenced by large
cutbacks in defense/aerospace industries and military base closures and a major
drop in real estate construction. California's economy has been recovering and
growing steadily stronger since the start of 1994, to the point where the
State's economic growth is outpacing the rest of the nation. The unemployment
rate, while still higher than the national average, fell to an average of 5.9%
in 1998, compared to over 10% at the worst of the recession. California's
economic recovery from the recession is continuing at a strong pace. Recent
economic reports indicate that, while the rate of economic growth in California
is expected to moderate over the next year, the increases in employment and
income may exceed those of the nation as a whole. The unsettled financial
situation occurring in certain Asian economies, and its spillover effect
elsewhere, may adversely affect the State's export-related industries and,
therefore, the State's rate of economic growth.
The Governor signed the 1998-99 Budget Act on August 21, 1998. The 1998-99
Budget Act is based on projected General Fund revenues and transfers of $57.0
billion (after giving effect to various tax reductions enacted in 1997 and
1998), a 4.2% increase from the revised 1997-98 figures. Special Fund revenues
were estimated at $14.3 billion. The revenue projections were based on the
Governor's May Revision to the 1998-99 Budget and may be overstated in light of
the possible effect on California's economic growth of worsening economic
problems in various international markets.
The Budget Act provides authority for expenditures of $57.3 billion from
the General Fund (a 7.3% increase from 1997-98), $14.7 billion from Special
Funds, and $3.4 billion from bond funds. The Budget Act projects a balance in
the SFEU at June 30, 1999 of $1.255 billion, a little more than 2% of General
Fund revenues. The Budget Act assumes the State will carry out its normal
intra-year cash flow borrowing in the amount of $1.7 billion of revenue
anticipation notes issued in October, 1998.
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The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element is a bill which provides
for a phased-in reduction of the Vehicle License Fee (VLF). Since the VLF is
currently transferred to cities and counties, the bill provides for the General
Fund to replace the lost revenues. Starting on January 1, 1999, the VLF will be
reduced by 25%, at a cost to the General Fund of approximately $500 million in
the 1998-99 Fiscal Year and about $1 billion annually thereafter.
The Governor's proposed budget for fiscal year 1999-2000 proposes total
State spending of $76.2 billion (excluding the expenditure of federal funds and
selected bond funds), which is up 4.1% from the 1998-1999 budget. This total
includes $60.5 billion in General Fund spending (a 3.8% increase) and $15.7
billion in special funds spending. The Governor's proposed budget anticipates a
$415 million reserve by the close of the fiscal year. The proposed budget
addresses an anticipated funding shortfall of $2.3 billion (which includes
funds to rebuild the reserve) through a combination of new state and federal
resources, the rescheduling of certain expenditures, under budgeting certain
expenditures, spending cutbacks, and savings assumptions.
As of November 1, 1998, the State had over $18.6 billion aggregate amount
of its general obligation bonds outstanding. General obligation bond
authorizations in an aggregate amount of approximately $5.7 billion remained
unissued as of November 1, 1998. At the November 3, 1998 election, voters
approved a bond measure totaling $9.2 billion for public school construction
and renovation, and for higher education facilities. The State also builds and
acquires capital facilities through the use of lease purchase borrowing. As of
November 1, 1998, the State had approximately $6.5 billion of outstanding
Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and
authorities had approximately $24.6 billion aggregate principal amount of
revenue bonds and notes outstanding as of September 30, 1998. Revenue bonds
represent both obligations payable from State revenue-producing enterprises and
projects, which are not payable from the General Fund, and conduit obligations
payable only from revenues paid by private users of facilities financed by such
revenue bonds. Such enterprises and projects include transportation projects,
various public works and exposition projects, educational facilities (including
the California State University and University of California systems), housing,
health facilities, and pollution control facilities.
Because of the State of California's budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by S&P, and to A from AA by Fitch. Moody's, Fitch and S&P expressed
uncertainty in the State's ability to balance its budget by 1996. However, in
1996, citing California's improving economy and budget situation, both Fitch
and S&P raised their ratings from A to A+. In October, 1997, Fitch raised its
rating from A+ to AA- referring to the State's fundamental strengths, the
extent of its economic recovery and the return of financial stability. In
October 1998, Moody's raised its rating from A1 to Aa3 citing the State's
continuing economic recovery and a number of actions taken to improve the
State's credit condition, including the rebuilding of cash and budget reserves.
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations and which, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
Year 2000. In October 1997 the Governor issued Executive Order W-163-97
stating that Year 2000 solutions would be a State priority and requiring each
agency of the State, no later than December 31, 1998, to address Year 2000
problems in their essential systems and protect those systems from corruption
by non-compliant systems, in accordance with the Department of Information
Technology's California 2000 Program. There can be no assurance that steps
being taken by state or local government agencies with respect to the Year 2000
problem will be sufficient to avoid any adverse impact upon the budgets or
operations of those agencies.
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
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$1.7 billion in losses suffered by the County's investment pool due to
investments in high risk "derivative" securities. On June 12, 1996, it emerged
from bankruptcy after the successful sale of $880 million in municipal bonds
allowed the county to pay off the last of its creditors. On January 7, 1997,
Orange County returned to the municipal bond market with a $136 million bond
issue maturing in 13 years at an insured yield of 7.23%. In December, 1997,
Moody's raised its ratings on $325 million of Orange County pension obligation
bonds to Baa3 from Ba. In February 1998, Fitch assigned outstanding Orange
County pension obligation bonds a BBB rating.
Los Angeles County, the nation's largest county, has also experienced
financial difficulty. In August 1995 the credit rating of the county's
long-term bonds was downgraded for the third time since 1992 as a result of,
and among other things, severe operating deficits for the county's health care
system. In addition, the county was affected by an ongoing loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. In April
1998, the Los Angeles County Chief Administrative Officer proposed an
approximately $13.2 billion 1998-99 budget, which would be 5.3% larger than the
1997-98 budget, and which would not require cuts in services and jobs to close
a projected deficit. In June 1998, the Los Angeles County Board of Supervisors
approved an approximately $13.6 billion 1998-99 budget, reserving the right to
make further changes to reflect revenue allocation decisions in the final State
budget. In December 1998, Moody's raised the ratings on the County's general
obligation bonds to A1 from A2. The City of Los Angeles is the largest city in
the county and its general obligation bonds are rated AA by S&P and Aa by
Moody's.
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, 1999, 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 Florida general
obligation debt and, accordingly, may or may not have any investments in
Florida general obligation debt from time to time. Some issuers in which the
Florida Series invests may have ratings lower than those noted above while
others may have higher ratings.
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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, 1998, Florida's
population had grown approximately 15.9 percent since April 1, 1990 to a total
population of 15,000,475, making Florida the 11th 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. 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 are now effective 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 initial three state fiscal
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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.
As the year 2000 approaches, computer systems worldwide will undergo a
date transition that may cause major problems and errors if corrective measures
are not taken. The problem arises in those systems in software programs which
use 2-digit date codes. These codes may recognize the year 2000 as the year
1900, causing many of the systems to malfunction or fail. Many Florida issuers
are taking steps to remedy any year 2000 problems that may exist with respect
to their own computer systems. Some of such issuers may expend substantial
funds in connection with such remediation efforts and, accordingly, their
individual financial situations may be adversely affected. Other issuers in
Florida have not yet made any attempts to solve their potential year 2000
problems. There can be no assurance that the Florida issuers in which the
Florida Series invests, their vendors, paying agents or other third parties
providing services thereto have or are effectively dealing with year 2000
issues as the year 2000 approaches. To the extent any of the foregoing do not
effectively resolve their own year 2000 computer issues, the Florida Series'
investments may be adversely affected.
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. At
the end of fiscal 1997, the Massachusetts unemployment rate was 3.7% as
compared to the national rate of 4.7%.
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 in 1993, 1994, 1995 and 1996. 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 A1 and AA by Moody's and
Standard & Poor's, 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.
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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. Unemployment (which rose to approximately
8.5% at the end of 1992) fell to 6.6% at the end of 1993 as compared to the
national averages of 7.4% at the end of 1992 and 6.4% at the end of 1993.
Unemployment fell an additional 2% to 6.4% at the end of fiscal 1994 as
compared to the national average of 5.8%. By the end of fiscal 1995,
unemployment fell even with the national average of 5.6%. The Massachusetts
employment rate at the end of fiscal 1997 was 3.7%, 1% below the national rate
of 4.7%.
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 1997
budgeted revenues and other sources are estimated to be approximately $18.4
billion. The Commonwealth's fiscal 1998 budgeted expenditures and other uses
are estimated to be approximately $18.7 billion. On a statutory basis of
accounting, budgeted funds have achieved a positive ending balance since 1993,
increasing this balance from $562.5 million in fiscal year 1993 to $1.394
million in fiscal year 1997 for a cumulative improvement of $831.5 million. 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%. Tax revenues
for 1998 are estimated to be 2.7% above fiscal 1997.
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.
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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. Fiscal 1993 and 1994
direct local aid increased to $2.5 billion and $2.7 billion, respectively. In
fiscal 1995 and 1996, direct local aid increased to $3.0 billion and $3.3
billion, respectively. In fiscal 1997, direct local aid increased to $3.7
billion.
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, 1995, 1996
and 1997. 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 all
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 14.52 in 1997. This was a decrease
from the level of 15.26% in 1995. However, manufacturing (including
auto-related manufacturing) continues to be an important part of Michigan's
economy. Those industries are highly cyclical; historically, during periods of
economic decline or slow economic growth, the cyclical nature of those
industries 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 1997 was approximately 1.2 percent lower than the
national average. For the fifth consecutive year, contrary to the prior
historical trend, the average annual unemployment rate for 1998 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 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 from 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 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
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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 56% of
General Fund revenues are obtained from the payment of state taxes, and
approximately 44% 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, the use tax and the sales 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 (the "TANF") block grant.
Michigan ended fiscal years 1994-95, 1995-96 and 1996-97 with General Fund
surpluses of $67.4 million, $91.3 million, and $53.3 million respectively. In
fiscal years 1994-95 and 1995-96, the State of Michigan made deposits into its
Counter-Cyclical Budget and Economic Stabilization Fund (BSF), those being in
the amounts of $377.8 million and $150.5 million, respectively. The unreserved
balances for the BSF as of the end of fiscal years 1994-95 and 1995-96,
reported on a cash basis, were $1,083.4 million and $1,173.4 million
respectively.
The Michigan Legislature has adopted the budget for fiscal year 1998-99.
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 in which 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 this amount 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 and on June 3, 1998, the State
issued $90 million in general obligation environmental protection program
bonds. Additionally, in November 1998, the Michigan voters approved the
issuance of $675 million in general obligation indebtedness for environmental
and other purposes.
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 and
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. The
ultimate disposition and consequences of all of those proceedings were not
determinable as of March 4, 1998. 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.
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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. The ultimate disposition of the legal proceedings described
in this paragraph is not presently determinable.
Year 2000. On October 1, 1997, the State created the Year 2000 Project
Office to provide guidance, coordinate oversight for application software,
manage Year 2000 funds, provide monitoring support, quality assurance and other
matters. The State has undertaken an inventory and assessment of all
applications and classified the software. The State's goal is to have all
critical applications operable by December 31, 1998, and all other applications
operable by September 30, 1999.
For fiscal year 1996-97, the Year 2000 Project Office was appropriated
$55.6 million. Any unexpended portion of the appropriation is to be carried
over to the next succeeding fiscal year. The Department of Management and
Budget currently believes that such appropriations will be sufficient to
complete the Year 2000 Project.
Although the State is currently on schedule to meet its objectives for
Year 2000 compliance, the State is not, as of the date of this Official
Statement, Year 2000 compliant. The State currently believes that it will
continue to meet the objectives and time frames set forth above for the Year
2000 Project. There can, however, be no assurance that such completion will be
done in a timely manner. Further, if the State successfully addresses its Year
2000 compliance there can be no assurance that any other organization or
governmental agency with which the State electronically interacts, including
State vendors and the federal government, will be Year 2000 compliant. In the
event of any such occurrences, the State may face material adverse consequences
with respect to its revenues and operations.
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 subsequently sold, its assessed value will revert
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.
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Ratings. As of January 20, 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 in May 1998. To the extent that the
portfolio of the Michigan Series is comprised 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.
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.
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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.
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.
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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.
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.
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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 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.
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 $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 structural
balance at June 30, 2001, at $821 million.
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.
Year 2000. 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
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systems vendor, began a $6.5 million project to install the new compliant
version of the accounting software. According to the most recent Official
Statement, the State of Minnesota and the systems vendor were finishing up the
remediation and testing stages of the project, and expected to implement the
new software version on November 30, 1998. There can, however, be no assurance
that such implementation will be done in a timely manner. Further, 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 resident individuals, among others, 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 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 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 October 1998 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.
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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.
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
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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, $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;
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(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 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.
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The following summary information on risk factors in concentrating in New
York municipal obligations is based on publicly available official statements
relating to offerings of New York issuers of municipal securities on or prior
to December 15, 1998 with respect to offerings of the State and December 18,
1998 with respect to offerings of the City, 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. The City's current
financial plan assumes that, after strong growth in 1997-1998, moderate
economic growth will exist through calendar year 2002, with moderate job growth
and wage increases.
For each of the 1981 through 1998 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"). 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.
1999-2002 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 1999 through 2002 fiscal years (the "1999-2002 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. The Financial Plan takes into account an
increase in projected tax revenues in 1999 and 2000 and a decrease in projected
tax revenues in 2001 and 2002; an increase in planned expenditures for health
insurance; a decrease in projected pension expenditures; and other agency
spending increases. In addition, the Financial Plan includes a proposed
discretionary transfer to the 1999 fiscal year of $465 million to pay debt
service due in fiscal year 2000. The Financial Plan also sets forth projections
for the 2000 through 2002 fiscal years and projects gaps of $2.2 billion, $2.9
billion and $2.4 billion for the 2000 through 2002 fiscal years, respectively.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999, and which is projected to provide
revenue of $183 million, $524 million and $544 million in the 2000, 2001 and
2002 fiscal years, respectively; and (ii) collection of the projected rent
payments for the City's airports, totaling $6 million, $365 million, $155
million and $185 million in the 1999 through 2002 fiscal years respectively, a
substantial portion of which may depend on the successful completion of
negotiations with The Port Authority of New York and New Jersey or on the
enforcement of the City's rights under the existing leases through pending
legal actions. The Financial Plan provides no additional
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wage increases for the City employees after their contracts expire in fiscal
years 2000 and 2001. In addition, the economic and financial condition of the
City may be affected by various financial, social, economic and political
factors which could have a material effect on the City.
On July 23, 1998, the New York State Comptroller issued a report which
noted that a significant cause for concern is the budget gaps in the 1999-2000
and 2000-2001 fiscal years, which the State Comptroller projected at $1.8
billion and $5.5 billion, respectively, after excluding the uncertain receipt
by the State of $250 million of funds from the tobacco settlement assumed for
each of such fiscal years, as well as the unspecified actions assumed in the
State's projections. The State Comptroller also stated that if the securities
industry or economy slows, the size of the gaps would increase.
The City depends on the State for State aid 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 the State budgets in future fiscal years will be
adopted by the April 1 statutory deadline, or interim appropriations enacted;
or that any such reductions or delays will not have adverse effects on the
City's cash flow or expenditures.
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 1999 through 2002 contemplates the issuance of $5.2 billion of
general obligation bonds and $5.4 billion of bonds to be issued by the New York
City Transitional Finance Authority to finance City capital projects. The
Finance Authority was 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 bonds and notes, New York City Municipal Water Finance
Authority bonds and Finance Authority bonds will be subject to prevailing
market conditions. The City's planned capital and operating expenditures are
dependent upon the sale of its general obligation bonds and notes, and the
Water Authority and Finance Authority bonds. 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. It is reasonable to expect that such reports and statements will continue
to be issued and to engender public comment.
Ratings. Moody's has rated the City's general obligation bonds A3. S&P has
rated such bonds A--. Fitch IBCA, Inc. has rated such bonds A--. Such ratings
reflect only the views of these rating agencies, 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 bonds. 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. Moody's, S&P and Fitch
currently rate the City's outstanding general obligation bonds A3, A-- and A--,
respectively.
Outstanding Net Indebtedness. As of September 30, 1998, the City and the
Municipal Assistance Corporation for the City of New York had, respectively,
$26.391 billion and $3.141 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 torts, alleged breaches of contracts, alleged violations of law and
condemnation proceedings. As of June 30, 1998 and 1997, claims in excess of
$472 billion and $530 billion, respectively, were outstanding against the City
for which the City estimates its potential future liability to be $3.5 billion
for both fiscal years 1998 and 1997.
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Year 2000 (New York City). The year 2000 presents potential operational
problems for computerized data files and computer programs which may recognize
the year 2000 as the year 1900, resulting in possible system failures or
miscalculations. In November 1996, the City's Year 2000 Project Office was
established to develop a project methodology, coordinate the efforts of City
agencies, review plans and oversee implementation of year 2000 projects. At
that time, the City also evaluated the capabilities of the City's Integrated
Financial Management System and Capital Projects Information System, which are
the City's central accounting, budgeting and payroll systems, identified the
potential impact of the year 2000 on these systems, and developed a plan to
replace these systems with a new system which is expected to be year 2000
compliant prior to December 31, 1999. The City has also performed an assessment
of its other mission-critical and high priority computer systems in connection
with making them year 2000 compliant, and the City's agencies have developed
and begun to implement both strategic and operational plans for non-compliant
application systems. In addition, the City Comptroller is conducting audits of
the progress of City agencies in achieving year 2000 compliance. The Financial
Plan includes $148 million, and the City's capital budget includes $150 million
for the 1999 through 2002 fiscal years for the year 2000 project. While these
efforts may involve additional costs beyond those assumed in the Financial
Plan, the City believes, based on currently available information, that such
additional costs will not be material.
The City's goal is to complete remediation or replacement of all
mission-critical and high priority systems before or during the 1999 calendar
year in sufficient time for testing to be completed by the end of the 1999
calendar year. Review of system requirements, and procurement of necessary
replacement or enhanced systems, have been ongoing for several years. The
Mayor's Office of Operations has stated that work has been completed, and all
or part of the necessary testing has been performed, on approximately 49% of
the mission-critical and high priority systems of Mayoral agencies. Problems
may be identified during the remediation process that could result in delays,
the City's computer systems may not all be year 2000 compliant in a timely
manner and there could be an adverse impact on City operations or revenues as a
result. The City is in the process of developing contingency plans for all
mission-critical and high priority systems of Mayoral agencies, if such systems
are not year 2000 compliant by predetermined dates. The City is also in the
process of contacting its significant third party vendors, including State and
Federal Governments, regarding the year 2000 issue and the status of their
compliance. Year 2000 compliance by third parties is not within the City's
control, and therefore the City cannot assure the timing of such efforts or
that there will not be any adverse effects on the City resulting from any
failure of these third parties to achieve year 2000 compliance.
The foregoing represents a "year 2000 readiness disclosure" for purposes
of the Year 2000 Information and Readiness Disclosure Act.
New York State. Recent Developments. The national economy has maintained a
robust rate of growth, with over 16.5 million jobs added nationally since early
1992. The State economy has continued to expand, but growth remains somewhat
slower than in the nation. Although the State has added approximately 400,000
jobs since late 1992, employment growth in the State has been hindered during
recent years by significant cutbacks in the computer and instrument
manufacturing, utility, defense and banking industries. Government downsizing
has also moderated these job gains. The forecast of the State's economy shows
continued expansion during the 1998 calendar year, with employment growth
gradually slowing as the year progresses. The financial and business service
sectors are expected to do well, while employment in the manufacturing and
government sectors will post only small, if any, declines. On an average annual
basis, employment growth in the State is expected to be higher than in 1997 and
the unemployment rate is expected to drop further to 6.1%. Personal income is
expected to record moderate gains in 1998. Wage growth in 1998 is expected to
be slower than in the previous year as the recent robust growth in bonus
payments moderates.
The forecast for continued growth, and any resultant impact on the
1997-1998 New York State Financial Plan (the "State Plan"), contains some
uncertainties. Stronger-than-expected gains in employment and wages could lead
to surprisingly strong growth in consumer spending. Investments could also
remain robust. Conversely, net exports could plunge even more sharply than
expected, with adverse impacts on the growth of both consumer spending and
investment. The inflation rate may differ
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significantly from expectations due to the upward pressure of a tight labor
market and the downward pressure of price reductions emanating from the
economic weakness in Asia. In addition, the State economic forecast could over-
or under-estimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly
from actual growth. Similarly, the State forecast could fail to correctly
account for declines in banking employment and the direction of employment
change that is likely to accompany telecommunications and energy deregulation.
The 1998-99 Fiscal Year. The State's General Fund (the major operating
fund of the State) was projected in the State Plan to be balanced on a cash
basis for the 1998-1999 fiscal year. Total receipts and transfers from other
funds are projected to reach $37.84 billion, an increase of over $3 billion
from the prior fiscal year, and disbursements and transfers to other funds are
projected to be $36.78 billion, an increase of $2.43 billion from the total
disbursed in the prior fiscal year.
Projections of total State receipts in the State Plan are based on the
State 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, 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 and changes in the demand for and use of State services.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy and
actions of the federal government have helped to create projected structural
budget gaps for the State. These gaps result from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. 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 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
continuing short-term seasonal borrowing. The legislation also dedicated
revenues equal to one-quarter of the four cent 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.
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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, 1997, 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 $84 billion, only a
portion of which constitutes State-supported or State-related debt.
Authorities are generally supported by revenues generated by the projects
financed or operated, 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 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, 1998, the State had outstanding
approximately $5.03 billion in general obligation bonds, including $294 million
in bond anticipation notes outstanding. Principal and interest due on general
obligation bonds and interest due on bond anticipation notes were $749.6
million for the 1998-99 fiscal year and are estimated to be $695 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 and other alleged violations of State and Federal
laws. These proceedings could affect adversely the financial condition of the
State in the 1998-1999 fiscal year or thereafter.
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The State believes that the State Plan includes sufficient reserves for
the payment of judgments that may be required during the 1998-99 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 1998-1999 State Plan. The General Purpose
Financial Statements for the 1997-1998 fiscal year report estimated probable
awarded and anticipated unfavorable judgments of $872 million, of which $90
million is expected to be paid during the 1998-1999 fiscal year.
In addition, the State is party to other claims and litigations 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, 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 1998-99 fiscal year or
thereafter.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's current fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1998-99 fiscal year.
Year 2000 (New York State). New York State is currently addressing "Year
2000" data processing compliance issues. The Year 2000 compliance issue ("Y2K")
arises because most computer software programs allocate two digits to the data
field for "year" on the assumption that the first two digits will be "19". Such
programs will thus interpret the year 2000 as the year 1900 absent
reprogramming. Y2K could impact both the ability to enter data into computer
programs and the ability of such programs to correctly process data.
In 1996, the State created the Office for Technology (OFT) to help address
statewide technology issues, including the Year 2000 issue. OFT has estimated
that investments of at least $140 million will be required to bring
approximately 350 State mission-critical and high-priority computer systems not
otherwise scheduled for replacement into Year 2000 compliance, and the State is
planning to spend $100 million in the 1998-99 fiscal year for this purpose.
Mission-critical computer applications are those which impact the health,
safety and welfare of the State and its citizens, and for which failure to be
in Y2K compliance could have a material and adverse impact upon State
operations. High-priority computer applications are those that are critical for
a State agency to fulfill its mission and deliver services, but for which there
are manual alternatives. Work has been completed on roughly 20 percent of these
systems. All remaining unfinished mission-critical and high-priority systems
have at least 40 percent or more of the work completed. Contingency planning is
underway for those systems which may be non-compliant prior to failure dates.
The enacted budget also continues funding for major systems scheduled for
replacement, including the State payroll, civil service, tax and finance and
welfare management systems, for which Year 2000 compliance is included as a
part of the project.
OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission
critical systems, with most compliance testing expected to be completed by
mid-1999. There can be no guarantee, however, that all of the State's
mission-critical and high-priority computer systems will be Year 2000 compliant
and that there will not be an adverse impact upon State operations or State
finances as a result.
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 1996 gross state
product derived from manufacturing. Manufacturing was 27.2% of Ohio's gross
state product compared to 17.7% of that total being from "services". As a
result, economic activity in Ohio, as in many other industrially developed
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 73,000 individual farms, it is by many measures
Ohio's leading industry, contributing nearly $5.7 billion to the State's
economy each year. This represents almost
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13% of the total output, 15.9% of the total employment (approximately 935,000
jobs) and 11% of the value-added products produced in the State. Gross farm
income alone amounted in 1996 to just under $5.7 billion. In 1996, Ohio
exported over approximately $1.6 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 1997 sales as
reported in 1998 by Fortune magazine, 30 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, 1997 and ends June 30, 1999.
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
$6.9 billion and $5.5 billion in 1998, respectively.
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,
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, and $928 million in 1995. For the
Biennium ended June 30, 1997, the GRF fund balance was $834.9 million. Of that
amount, $34.4 million was transferred to the Budget Stabilization Fund (BSF).
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 $36 billion, an
increase over those for the 1996-97 fiscal biennium ($33.5 billion).
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Subsequent legislation increased by approximately 2.73% the GRF Fiscal Year
1999 appropriation level for elementary and secondary education, to be funded
in part by mandated small (0.5-3%) reductions in State appropriations for
various State agencies and institutions; expressly exempt from those deductions
are all appropriations for debt service, including lease rental payments.
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.
The June 30, 1998 ending fund balance in the GRF was over $1.08 billion.
Of that amount, approximately $700 million was transferred to a State income
tax reduction fund, $200 million to public school assistance programs, and
additional transfers were made to the BSF.
In 1981, a Budget Stabilization Fund (BSF) was created for purposes of
cash and budgetary management. In 1992, the entire balance of the BSF was
transferred to the GRF. The BSF has a current balance of approximately $906
million.
Litigation, similar to that in other states, has been pending 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. Subsequent hearings at the trial court level
have taken place. The parties await the trial court decision on the adequacy of
steps taken to date by the State to enhance school funding consistent with the
Supreme Court decision.
As part of its response, the General Assembly has increased State funding
for public schools, as described above. 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
constitutional amendment would have authorized State general obligation debt to
pay costs of school facilities throughout the State and of facilities of state
institutions of higher education. 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.
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.
Year 2000. Major offices of the State have had under way extensive efforts
and programs to identify and assess, and remediate when necessary, "year 2000"
problems involving data processing systems and other systems and equipment
critical to continued and uninterrupted State operations. Among the areas
addressed by the State Treasurer's office, for example, are the paying agent
and trustee relationships with respect to State bonds and investments. Overall,
those involved State offices
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and agencies are satisfied that material areas for which they are responsible
and that may require remediation have been and are being identified and will
timely be addressed, and that the costs of remediation will be within moneys
available and appropriated. Obviously, however, the success of these
remediation efforts, by the State and by pertinent outside parties, will not be
fully determined until the year 2000 and thereafter.
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 17.3% in 1997,
while service sector employment has increased from 29.4% of non-agricultural
employment in 1991 to 31.6% in 1997. 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 1996 and 1997, the average annual
unemployment rates for the Commonwealth were 5.3% and 5.2%, respectively,
compared to rates of 5.4% and 4.9% 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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<PAGE>
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 $6.15 billion or 34.6%
of General Fund tax revenues in fiscal 1998, the personal income tax, which
accounted for $6.24 billion or 35.3% of 1998 General Fund tax revenues, and the
corporate taxes which accounted for $2.73 billion or 15.4% 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 ($7.53
billion in fiscal 1998) and public health and welfare ($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 1998 refers to the fiscal year ending June 30, 1998.)
For the five year period fiscal 1993 through fiscal 1997, total revenues
and other resources rose at a 4.7 percent average annual rate while total
expenditures and other uses grew by 4.9 percent annually.
Program areas having the largest increase in costs for the fiscal 1993 to
fiscal 1997 period were for protection of persons and property, due to an
expansion of state prisons. Recently, efforts to control costs of public health
and welfare programs have resulted in expenditure increases of 5.7 percent 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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<PAGE>
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 $4,725 million at June 30,
1998, a decrease of $70 million from June 30, 1997. Over the 10-year period
ending June 30, 1998, total outstanding general obligation debt increased at an
annual rate of 0.1 percent. Within the most recent 5-year period, outstanding
general obligation debt has decreased at an annual rate of 1.3 percent.
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, 1998.
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 $504.1 million in revenue bond debt
outstanding on June 30, 1998.
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<PAGE>
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 $1,106.4 million of debt outstanding
as of June 30, 1998.
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 $43.1 million in bonds outstanding as of June 30, 1998.
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 $1,633.8
million in bonds outstanding as of June 30, 1998.
Pennsylvania Higher Education Facilities Authority ("PHEFA"): The PHEFA is
a public corporation of the Commonwealth established to finance college
facilities. As of June 30, 1998, the PHEFA had $3,057.6 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 $394.5 million in revenue bond debt
outstanding on June 30, 1998, to which all of its revenues are pledged.
Pennsylvania Turnpike Commission ("PTC"): The PTC operates the
Pennsylvania Turnpike System. Its outstanding indebtedness, $1,127.9 million as
of June 30, 1998, 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 $196.4 million revenue bonds outstanding
as of June 30, 1998.
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
$59.5 million in bonds outstanding as of June 30, 1998.
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 $343.3
million of revenue bonds outstanding on June 30, 1998.
"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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<PAGE>
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, 1998,
PHFA had $2,716.4 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, 1998, $1.1 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 standard in the computer industry governing
traditional programming practices is expected to result in many current
computer systems being unable to recognize dates beyond the year 1999. As a
result, computers worldwide may begin to malfunction by producing erroneous
data or failing completely as the year 2000 draws near. The Governor has made
fixing the year 2000 problem a top priority for Pennsylvania state agencies. At
the Governor's direction, Pennsylvania has begun 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.
An initial assessment of state agencies' computer resources was completed
in June of 1996. This overview assessment was used to develop the Governor's
Year 2000 Action Plan, which tracks state agencies' computer programs through a
three-step process of correction, testing, and implementation.
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Under this action plan, 45,937 mission-critical and non mission-critical
computer programs used by state agencies are scheduled for corrective measures
to ensure they will be year 2000 compatible. Mission-critical computer programs
are those which impact the health, safety and welfare of the Commonwealth and
its citizens, and for which failure to be year 2000 compliant could have a
material and adverse impact upon operations of the Commonwealth. During a press
conference on July 22, 1998, Secretary of Administration Thomas G. Paese
announced that repairs to 98 percent of all mission-critical computer programs
have been completed; all non-mission-critical programs will be corrected by
December 31, 1998. This will allow a full-year buffer before the new century
begins. Secretary Paese also announced that 63 percent of non-mission-critical
programs have already been made Year 2000- compliant and that the Commonwealth
is 116 percent ahead of schedule to meet its December 31st deadline. The
projected cost of the Commonwealth's year 2000 modification work is $39.5
million and is being paid from appropriations from current revenues.
Pennsylvania is continuing to identify all of its data trading partners
and is taking steps to safeguard shared data from year 2000 complications. To
date, 408 data interfaces have been identified between state agencies. In
addition, 68 federal agency interfaces and 228 third-party interests have been
identified which demand year 2000 corrective actions. The Commonwealth is
working with these outside groups to coordinate modifications to shared data
interfaces so that data exchanges vital to government operations can continue
unimpaired by year 2000 concerns.
In addition, state agencies are working to identify "embedded
technologies" located throughout Commonwealth facilities. Embedded technologies
are microcomputer chips used in many of today's electronic devices, such as
security systems and building environmental systems. Because of their
ubiquitous nature, and their small size, it is challenging to identify all
embedded technologies in use. As a result, no firm estimate exists for the
financial cost of making fixes to all embedded technologies in use by agencies.
State agencies have been instructed to inventory the types of equipment under
their control that may be impacted -- such as heating, ventilation and air
conditioning systems, and elevators -- and then contact service providers or
manufacturers to determine if this equipment is year 2000 compliant.
The Office of Administration's Office for Information Technology is
responsible for monitoring the progress of state agencies in meeting the
Governor's Year 2000 Action Plan. While state agencies are making every
reasonable effort to completely address potential year 2000 impacts, there can
be no guarantee that all of the Commonwealth's mission-critical and non-mission
critical computer programs will be entirely free from year 2000-related
problems and that a material adverse impact on Commonwealth operations or
finances will be avoided as a result.
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
42
<PAGE>
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.
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.
10. 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.
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.
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<PAGE>
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
- --------------------------------------------------------------------------------
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
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 nine (9)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Seven Trustees (77% of the total number)
have no affiliation or business connection with the Investment Manager or any
of its affiliated persons and do not own any stock or other securities issued
by the Investment Manager's parent company, MSDW. These are the
"non-interested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with the Investment Manager. All of the
Independent Trustees also serve as Independent Trustees of "Discover Brokerage
Index Series," a mutual fund for which the Investment Manager is the investment
advisor. Four of the seven Independent Trustees are also Independent Trustees
of certain other mutual funds, referred to as the "TCW/DW Funds," for which
MSDW Services Company is the manager and TCW Funds Management, Inc. is the
investment advisor.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the Morgan Stanley Dean Witter Funds, the 11
TCW/DW Funds and Discover Brokerage Index Series, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
Michael Bozic (58) ........................ Vice Chairman of Kmart Corporation (since
Trustee December, 1998); Director or Trustee of the Morgan
c/o Kmart Corporation Stanley Dean Witter Funds; Trustee of Discover
3100 West Big Beaver Road Brokerage Index Series; formerly Chairman and
Troy, Michigan Chief Executive Officer of Levitz 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 Eaglemark Financial Services,
Inc. and Weirton Steel Corporation.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* (65) .............. Chairman, Director or Trustee, President and Chief
Chairman of the Board, President, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; Chairman, Chief Executive Officer
Two World Trade Center and Trustee of the TCW/DW Funds; Trustee of
New York, New York Discover Brokerage Index Series; formerly
Chairman, Chief Executive Officer and Director of
the 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 Morgan Stanley Dean
Witter subsidiaries (until June, 1998).
Edwin J. Garn (66) ........................ Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Trustee of Discover Brokerage Index
c/o Huntsman Corporation Series; formerly United States Senator
500 Huntsman Way (R-Utah)(1974-1992) and Chairman, Senate
Salt Lake City, Utah Banking Committee (1980-1986); formerly Mayor
of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery (April 12-19,
1985); Vice Chairman, Huntsman Corporation;
Director of Franklin Covey (time management
systems), John Alden Financial Corp. (health
insurance), 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.
John R. Haire (74) ........................ Chairman of the Audit Committee and Director or
Trustee Two World Trade Center Trustee of the Morgan Stanley Dean Witter Funds;
New York, New York Chairman of the Audit Committee and Trustee of
the TCW/DW Funds; Chairman of the Audit
Committee and Chairman of the Audit Committee
and Trustee of Discover Brokerage Index Series;
formerly Chairman of the Independent Directors or
Trustees of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds (until June, 1998);
formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an investment
advisor (1964-1978).
Wayne E. Hedien (65) ...................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Trustee of Discover Brokerage
c/o Gordon Altman Butowsky Index Series; Director of The PMI Group, Inc.
Weitzen Shalov & Wein (private mortgage insurance); Trustee and Vice
Counsel to the Independent Trustees Chairman of The Field Museum of Natural History;
114 West 47th Street formerly associated with the Allstate Companies
New York, New York (1966-1994), most recently as Chairman of The
Allstate Corporation (March, 1993-December,
1994) and Chairman and Chief Executive Officer of
its wholly-owned subsidiary, Allstate Insurance
Company (July, 1989-December, 1994); director of
various other business and charitable
organizations.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ----------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (50) ................ Senior Partner, Johnson Smick International, Inc.,
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; Director or Trustee of the
Washington, D.C. Morgan Stanley Dean Witter Funds; Trustee of the
TCW/DW Funds; Trustee of Discover Brokerage
Index Series; Director of NASDAQ (since June,
1995); Director of Greenwich Capital Markets, Inc.
(broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization of the Financial
Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal
Reserve System (1986-1990) and Assistant
Secretary of the U.S. Treasury.
Michael E. Nugent (62) .................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the
c/o Triumph Capital, L.P. Morgan Stanley Dean Witter Funds; Trustee of the
237 Park Avenue TCW/DW Funds; Trustee of Discover Brokerage
New York, New York Index Series; formerly Vice President, Bankers
Trust Company and BT Capital Corporation
(1984-1988); director of various business
organizations.
Philip J. Purcell* (55) ................... Chairman of the Board of Directors and Chief
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; Trustee of Discover
Brokerage Index Series; Director and/or officer of
various MSDW subsidiaries.
John L. Schroeder (68) .................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Trustee of Discover Brokerage Index Series;
Weitzen Shalov & Wein Director of Citizens Utilities Company; formerly
Counsel to the Independent Trustees Executive Vice President and Chief Investment
114 West 47th Street Officer of the Home Insurance Company (August,
New York, New York 1991-September, 1995).
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ----------------------------------------------------
<S> <C>
Barry Fink (44) ........................... Senior Vice President (since March, 1997) and
Vice President, Secretary and General Counsel (since February,
Secretary and General Counsel 1997) and Director (since July, 1998) of the
Two World Trade Center Investment Manager and MSDW Services
New York, New York Company; Senior Vice President (since March,
1997) and Assistant Secretary and Assistant
General Counsel (since February, 1997) of the
Distributor; Assistant Secretary of Dean Witter
Reynolds (since August, 1996); Vice President,
Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds and the TCW/DW
Funds (since February, 1997); Vice President,
Secretary and General Counsel of Discover
Brokerage Index Series; previously First Vice
President (June, 1993-February, 1997), Vice
President and Assistant Secretary and Assistant
General Counsel of the Investment Manager and
MSDW Services Company and Assistant Secretary
of the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
James F. Willison (56) .................... Senior Vice President of the Investment Manager;
Vice President Vice President of various Morgan Stanley Dean
Two World Trade Center Witter Funds.
New York, New York
Thomas F. Caloia (52) ..................... First Vice President and Assistant Treasurer of the
Treasurer Investment Manager and MSDW Services
Two World Trade Center Company; Treasurer of the Morgan Stanley Dean
New York, New York Witter Funds, the TCW/DW Funds and Discover
Brokerage Index Series.
</TABLE>
- ----------
* Denotes Trustees who are "interested persons" of the Fund as defined by the
Investment Company Act.
In addition, Mitchell M. Merin, President and Chief Operating Officer of
Asset Management of MSDW, President, Chief Executive Officer and Director of
the Investment Manager and MSDW Services Company, Chairman and Director of the
Distributor and the Transfer Agent, Executive Vice President and Director of
Dean Witter Reynolds, and Director of various MSDW subsidiaries, Robert M.
Scanlan, Chief Operating Officer and Director of the Investment Manager and
MSDW Services Company, Executive Vice President of the Distributor and the
Transfer Agent and Director of the Transfer Agent, Ronald E. Robison, Executive
Vice President and Chief Administrative Officer of the Investment Manager and
MSDW Services Company, Robert S. Giambrone, Senior Vice President of the
Investment Manager, MSDW Services Company, the Distributor and the Transfer
Agent and Director of the Transfer Agent, Joseph J. McAlinden, Executive Vice
President and Chief Investment Officer of the Investment Manager and Director
of the Transfer Agent, and Peter M. Avelar, Kevin Hurley and Jonathan R. Page,
Senior Vice Presidents 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 and Carsten Otto, First Vice Presidents
and Assistant General Counsels of the Investment Manager and MSDW Services
Company, Frank Bruttomesso, Lou Anne D. McInnis and Ruth Rossi, Vice Presidents
and Assistant General Counsels of the Investment Manager and MSDW Services
Company, and Todd Lebo, a staff attorney with the Investment Manager, are
Assistant Secretaries of the Fund.
INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The Morgan
Stanley Dean Witter Funds seek as
47
<PAGE>
Independent Trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their
time. Indeed, by serving on the Funds' Boards, certain Trustees who would
otherwise be qualified and in demand to serve on bank boards would be
prohibited by law from doing so. All of the Independent Trustees serve as
members of the Audit Committee. Three of them also serve as members of the
Derivatives Committee. In addition, three of the Trustees, including two
Independent Trustees, serve as members of the Insurance Committee.
The Independent 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 Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the 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 TRUSTEES FOR ALL
MORGAN STANLEY DEAN WITTER FUNDS. The Independent Trustees and the Funds'
management believe that having the same Independent Trustees for each of the
Morgan Stanley Dean Witter Funds avoids the duplication of effort that would
arise from having different groups of individuals serving as Independent
Trustees for each of the Funds or even of sub-groups of Funds. They believe
that having the same individuals serve as Independent Trustees of all the Funds
tends to increase their knowledge and expertise regarding matters which affect
the Fund complex generally and enhances their ability to negotiate on behalf of
each Fund with the Fund's service providers. This arrangement also precludes
the possibility of separate groups of Independent Trustees arriving at
conflicting decisions regarding operations and management of the Funds and
avoids the cost and confusion that would likely ensue. Finally, having the same
Independent Trustees serve on all Fund Boards enhances the ability of each Fund
to obtain, at modest cost to each separate Fund, the services of Independent
Trustees, of the caliber, experience and business acumen of the individuals who
serve as Independent Trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties.
It also provides that all third persons shall look solely to the Fund property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
48
<PAGE>
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 pays the Chairman of the Committee of the Independent Trustees an
additional fee of $1,200). 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 expenses reimbursed from the Fund for their services
as Trustee. Mr. Haire currently serves as Chairman of the Audit Committee.
Prior to June 1, 1998, Mr. Haire also served as Chairman of the Independent
Trustees for which services the Fund paid him an additional annual fee of
$1,200.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended November 30, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------- --------------
<S> <C>
Michael Bozic ................. [$
Edwin J. Garn .................
John R. Haire .................
Wayne E. Hedien ...............
Dr. Manuel H. Johnson .........
Michael E. Nugent .............
John L. Schroeder ............. ]
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 85 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 11 TCW/DW Funds that were in operation at
December 31, 1998. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1,
1998, also served as Chairman of the Independent Directors or Trustees of those
Funds. With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW
Funds are included solely because of a limited exchange privilege between those
Funds and five Morgan Stanley Dean Witter Money Market Funds. No compensation
was paid to the Fund's Independent Trustees by Discover Brokerage Index Series
for the calendar year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE FOR SERVICE AS TOTAL CASH
AS DIRECTOR OR CHAIRMAN OF FOR SERVICE AS COMPENSATION
TRUSTEE AND INDEPENDENT CHAIRMAN OF FOR SERVICES TO
COMMITTEE FOR SERVICE AS DIRECTORS/TRUSTEES INDEPENDENT 85 MORGAN
MEMBER OF TRUSTEE AND AND AUDIT TRUSTEES AND STANLEY DEAN
85 MORGAN COMMITTEE COMMITTEES OF 85 AUDIT WITTER FUNDS AND
NAME OF STANLEY DEAN MEMBER OF 11 MORGAN STANLEY COMMITTEES OF 11 TCW/DW
INDEPENDENT TRUSTEE WITTER FUNDS TCW/DW FUNDS DEAN WITTER FUNDS 11 TCW/DW FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ............. $ -- -- -- $
Edwin J. Garn ............. -- -- --
John R. Haire ............. $ $ $
Wayne E. Hedien ........... -- -- --
Dr. Manuel H. Johnson -- -- --
Michael E. Nugent ......... -- --
John L. Schroeder ......... -- -- --
</TABLE>
49
<PAGE>
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 Trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as
an Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that
has adopted the retirement program (each such Fund referred to as an "Adopting
Fund" and each such Trustee referred to as an "Eligible Trustee") is entitled
to retirement payments upon reaching the eligible retirement age (normally,
after attaining age 72). Annual payments are based upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 25.0% of his or her Eligible Compensation plus
0.4166666% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 50.0% after ten years of service. The foregoing percentages may
be changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund
in the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are not secured or funded by the Adopting
Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended November 30,
1998 and by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for
the year ended December 31, 1998, and the estimated retirement benefits for the
Independent Trustees, to commence upon their retirement, from the Fund as of
November 30, 1998 and from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1998.
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 50.0% $ $ $ $
Edwin J. Garn ............. 10 50.0
John R. Haire ............. 10 50.0 (3)
Wayne E. Hedien ........... 9 42.5
Dr. Manuel H. Johnson ..... 10 50.0
Michael E. Nugent ......... 10 50.0
John L. Schroeder ......... 8 41.7
</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 ( )
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
50
<PAGE>
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
[The following owned 5% or more . . .]
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, New York 10048. The Investment Manager is a wholly-owned subsidiary
of MSDW, a Delaware corporation. MSDW is a preeminent global financial services
firm that maintains leading market positions in each of its three primary
businesses: securities, asset management and credit services.
Pursuant to an Investment Management Agreement (the "Management
Agreement") with the Investment Manager, the Fund has retained the Investment
Manager to provide administrative services and manage the investment of 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, 1996, 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 $165,968, $401,258, $249,499,
$56,700, $72,796, $36,759, $160,350, $48,928, $76,978, and $173,524. 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, respectively.
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.
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 Trustees, including a majority of the Independent Trustees, approved
the current Distribution Agreement appointing the Distributor as exclusive
distributor of each Series' shares and providing for the Distributor to bear
distribution expenses not borne by a Series. By its terms, the Distribution
Agreement
51
<PAGE>
had an initial term ending April 30, 1998 and will remain in effect from year
to year thereafter if approved by the Trustees. At their meeting held on April
30, 1998, the Trustees of the Fund, including a majority of the Independent
Trustees, approved the continuation of the Distribution Agreement until April
30, 1999.
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 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 AND FUND EXPENSES PAID BY THIRD
PARTIES
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 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
52
<PAGE>
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 has an initial term ending April 30, 1999 and
will remain in effect from year to year thereafter 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.
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' 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 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 expense incurred by the
Distributor or other selected dealers pursuant to the Plan, will be
reimbursable under the Plan. In the case of all expenses other than expenses
representing a residual to account executives, 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 account
executives may be reimbursed without prior determination. In the event that the
Distributor proposes that monies
53
<PAGE>
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 $59,039, $152,886,
$90,485, $21,596, $27,604, $12,575, $58,389, $16,908, $25,943 and $78,423,
respectively pursuant to the Plan of Distribution for the fiscal year ended
November 30, 1998. Such payment amounted to an annual rate of 0.14 of 1% of the
average daily net assets of the Arizona Series, Florida Series, New Jersey
Series, New York Series and Ohio Series and, 0.15% of the daily net assets of
the California Series, Massachusetts Series, Michigan Series, Minnesota 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 $1,324,657, $912,113, and $994,943 for the fiscal years ended 1996, 1997,
and 1998, respectively.
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 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.
The most recent continuance of the Plan for one year, until April 30,
1999, was approved by the Trustees, including a majority of the Independent
Trustees, at a Board meeting held on April 30, 1998.
F. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
The Transfer Agent is the transfer agent for the Fund's shares and the
Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans. The principal
business address of the Transfer Agent is Harborside Financial Center, Plaza
Two, Jersey City, New Jersey 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian for the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.
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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.
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, 1996, 1997 and 1998, the Fund
and each Series paid no such brokerage commissions or concessions.
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, 1996, 1997 and 1998, the Series
did not effect any principal transactions with Dean Witter Reynolds.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through Dean Witter 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.
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During the fiscal years ended November 30, 1996, 1997 and 1998, 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 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, 1998, the Fund and the Series
did not pay any brokerage commissions to brokers because of research services
provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended November 30, 1998, the Fund did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year. At November 30, 1998, the Fund did not own any
securities issued by any of such issuers.
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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 or by the shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on May 21, 1997. The
Trustees themselves have the power to alter the number and the terms of office
of the Trustees (as provided for in the Declaration of Trust), and they may at
any time lengthen or shorten their own terms or make their terms of unlimited
duration and appoint their own successors, provided that always at least a
majority of the Trustees has been elected by the shareholders of the Fund.
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.
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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. 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.
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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 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.
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. 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 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 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.
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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. Any loss realized by shareholders upon a
redemption of shares within six months of the date of their purchase will be
treated as a long-term capital loss to the extent of any distributions of net
long-term capital gains with respect to such shares during the six-month
period.
Gain or loss on the sale or redemption of shares in the 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.
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
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 ARIZONA SERIES -- SPECIAL TAX CONSIDERATIONS. Under a ruling issued by
the Arizona Department of Revenue in 1984, 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. Interest on indebtedness
incurred (directly or indirectly) by a shareholder to purchase or carry shares
of the Arizona Series should not be 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.
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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.
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.
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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 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.
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
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<PAGE>
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.
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, individual shareholders of the Minnesota Series resident in
Minnesota 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 resident individuals, among others, 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 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 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 resident
individuals 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,
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<PAGE>
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.
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 individual
shareholders of the Minnesota Series who are resident in Minnesota.
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 individual
shareholders of the Minnesota Series who are resident in Minnesota.
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.
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<PAGE>
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.
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
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<PAGE>
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 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,
1998, the yields, calculated pursuant to the formula described above, for the
Arizona Series, the California Series, the Florida Series, the
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<PAGE>
Massachusetts Series, the Michigan Series, the Minnesota Series, the New Jersey
Series, the New York Series, the Ohio Series and the Pennsylvania Series were
3.66%, 4.04%, 3.78%, 3.81%, 3.89%, 3.75%, 3.86%, 3.87%, 4.05% and 4.05%
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 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%, 42.58%, 44.73%,
43.45%, 43.74%, 43.70% and 41.29% respectively for the 30 day period ended
November 30, 1998, were 6.38%, 7.37%, 6.26%, 6.71%, 6.74%, 6.78%, 6.83%, 6.88%,
7.20% and 6.90% 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, 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, 1998, for
the five years ended November 30, 1998 and for the period January 15, 1991
(commencement of operations) (April 30, 1991 for the Arizona Series) through
November 30, 1998 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, 1998 NOVEMBER 30, 1998 NOVEMBER 30, 1998
- ------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona Series ............... 2.30% 4.59% 6.71%
California Series ............ 3.28% 5.22% 7.50%
Florida Series ............... 3.27% 4.99% 7.19%
Massachusetts Series ......... 2.75% 5.09% 7.52%
Michigan Series .............. 2.94% 5.03% 7.42%
Minnesota Series ............. 1.54% 4.53% 6.64%
New Jersey Series ............ 3.19% 4.98% 7.31%
New York Series .............. 3.20% 5.19% 7.57%
Ohio Series .................. 2.57% 4.97% 7.27%
Pennsylvania Series .......... 2.34% 4.82% 7.20%
</TABLE>
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<PAGE>
During the period January 15, 1991 through November 30, 1997, the
Investment Manager assumed certain expenses and waived the compensation
provided for in its Management Agreement with respect to each Series of the
Fund and during specific time periods within this period with respect to only
the Massachusetts Series, Michigan Series, Minnesota Series, New York Series
and Ohio Series. Had each such Series borne these expenses and paid these fees,
the average annual total returns for the fiscal year ended November 30, 1998,
for the five years ended November 30, 1998 and for the period January 15, 1991
through November 30, 1998 would have been:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
(WITHOUT WAIVER)
AVERAGE ANNUAL AVERAGE ANNUAL FOR PERIOD OF
TOTAL RETURN TOTAL RETURN COMMENCEMENT OF
(WITHOUT WAIVER) (WITHOUT WAIVER) OPERATIONS
FOR FISCAL YEAR ENDED FOR FIVE YEARS ENDED THROUGH
SERIES NOVEMBER 30, 1998 NOVEMBER 30, 1998 NOVEMBER 30, 1998
- ------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Massachusetts Series ......... 2.75% 4.90% 7.24%
Michigan Series .............. 2.94% 4.85% 7.14%
Minnesota Series ............. 1.54% 4.16% 6.16%
New York Series .............. 3.20% 4.93% 7.21%
Ohio Series .................. 2.57% 4.79% 7.01%
</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, 1998, for
the five years ended November 30, 1998 and for the period January 15, 1991
(April 30, 1991 for the Arizona Series) through November 30, 1998 were:
<TABLE>
<CAPTION>
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, 1998 NOVEMBER 30, 1998 NOVEMBER 30, 1998
- ------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona Series ............... 6.56% 5.45% 7.29%
California Series ............ 7.58% 6.08% 8.06%
Florida Series ............... 7.58% 5.85% 7.75%
Massachusetts Series ......... 7.03% 5.95% 8.08%
Michigan Series .............. 7.23% 5.90% 7.98%
Minnesota Series ............. 5.77% 5.38% 7.20%
New Jersey Series ............ 7.49% 5.84% 7.87%
New York Series .............. 7.50% 6.05% 8.13%
Ohio Series .................. 6.84% 5.83% 7.82%
Pennsylvania Series .......... 6.60% 5.68% 7.75%
</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
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<PAGE>
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns for the fiscal year ended November 30, 1998, for
the five years ended November 30, 1998 and for the period January 15, 1991
(May 1, 1991 for the Arizona Series) through November 30, 1998 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, 1998 NOVEMBER 30, 1998 NOVEMBER 30, 1998
- ------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Arizona Series ............... 6.56% 30.37% 70.49%
California Series ............ 7.58% 34.32% 84.15%
Florida Series ............... 7.58% 32.87% 79.95%
Massachusetts Series ......... 7.03% 33.50% 84.38%
Michigan Series .............. 7.23% 33.17% 83.06%
Minnesota Series ............. 5.77% 29.98% 72.85%
New Jersey Series ............ 7.49% 32.84% 81.59%
New York Series .............. 7.50% 34.14% 85.06%
Ohio Series .................. 6.84% 32.78% 80.95%
Pennsylvania Series .......... 6.60% 31.81% 80.03%
</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:
<TABLE>
<CAPTION>
INVESTMENT AT COMMENCEMENT
OF OPERATIONS OF
-----------------------------------
SERIES $10,000 $50,000 $100,000
- ------ ------- ------- --------
<S> <C> <C> <C>
Arizona Series ............... $16,367 $82,475 $165,802
California Series ............ $17,679 $89,083 $179,086
Florida Series ............... $17,275 $87,051 $175,001
Massachusetts Series ......... $17,701 $89,194 $179,310
Michigan Series .............. $17,574 $88,555 $178,026
Minnesota Series ............. $16,594 $83,616 $168,097
New Jersey Series ............ $17,432 $87,844 $176,596
New York Series .............. $17,766 $89,523 $179,971
Ohio Series .................. $17,371 $87,535 $175,974
Pennsylvania Series .......... $17,283 $87,090 $175,079
</TABLE>
Each Series of the Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
November 30, 1998 were given in reliance on the report of ,
independent accountants, on the authority of that 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>
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.
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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.
71
<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.
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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.
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MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
PART C OTHER INFORMATION
Item 23. Exhibits
1. Form of Amendment to the Declaration of Trust of the
Registrant.
2. Amended and Restated By-Laws of the Registrant dated
January 28, 1999.
5. Form of Investment Management Agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
6. Form of Selected Dealer Agreement.
8. Form of Amended and Restated Transfer Agency and Service
Agreement between the Registrant and Dean Witter Trust
FSB.
9. Form of Amended Services Agreement between Morgan
Stanley Dean Witter Advisors Inc. and Morgan Stanley
Dean Witter Services Company Inc.
27. Financial Data Schedules - to be filed by amendment.
-------------------------------------------------------------
All other exhibits were previously filed Via EDGAR
and are hereby incorporated by reference.
Item 24. Persons Controlled by or Under Common Control with the Fund
None
Item 25. Indemnification.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for
the expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.
<PAGE>
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the case
of bad faith, willful misfeasance, gross negligence or reckless disregard of
duties to the Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of the Registrant in connection with the successful
defense of any action, suit or proceeding) is asserted against the Registrant
by such trustee, officer or controlling person in connection with the shares
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company
Act of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such
Act remains in effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for
which Registrant itself is not permitted to indemnify him.
Item 26. Business and Other Connections of Investment Advisor
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment advisor. The following information is given
regarding officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors"). MSDW Advisors is a wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. The principal address of the Morgan Stanley Dean Witter Funds is
Two World Trade Center, New York, New York 10048.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
Closed-End Investment Companies
- -------------------------------
(1) Morgan Stanley Dean Witter Government Income Trust
(2) Morgan Stanley Dean Witter High Income Advantage Trust
(3) Morgan Stanley Dean Witter High Income Advantage Trust II
(4) Morgan Stanley Dean Witter High Income Advantage Trust III
2
<PAGE>
(5) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(6) Morgan Stanley Dean Witter California Quality Municipal Securities
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter New York Quality Municipal Securities
(14) Morgan Stanley Dean Witter Quality Municipal Income Trust
(15) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(16) Morgan Stanley Dean Witter Quality Municipal Securities
(17) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(18) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(19) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(20) Morgan Stanley Dean Witter Municipal Income Trust
(21) Morgan Stanley Dean Witter Municipal Income Trust II
(22) Morgan Stanley Dean Witter Municipal Income Trust III
(23) Morgan Stanley Dean Witter Municipal Premium Income Trust
(24) Morgan Stanley Dean Witter Prime Income Trust
Open-end Investment Companies
- -----------------------------
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Value Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Appreciation Fund
(12) Morgan Stanley Dean Witter Capital Growth Securities
(13) Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas
Portfolio"
(14) Morgan Stanley Dean Witter Convertible Securities Trust
(15) Morgan Stanley Dean Witter Developing Growth Securities Trust
(16) Morgan Stanley Dean Witter Diversified Income Trust
(17) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(18) Morgan Stanley Dean Witter Equity Fund
(19) Morgan Stanley Dean Witter European Growth Fund Inc.
(20) Morgan Stanley Dean Witter Federal Securities Trust
(21) Morgan Stanley Dean Witter Financial Services Trust
(22) Morgan Stanley Dean Witter Fund of Funds
(23) Morgan Stanley Dean Witter Global Dividend Growth Securities
(24) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(25) Morgan Stanley Dean Witter Global Utilities Fund
(26) Morgan Stanley Dean Witter Growth Fund
(27) Morgan Stanley Dean Witter Hawaii Municipal Trust
3
<PAGE>
(28) Morgan Stanley Dean Witter Health Sciences Trust
(29) Morgan Stanley Dean Witter High Yield Securities Inc.
(30) Morgan Stanley Dean Witter Income Builder Fund
(31) Morgan Stanley Dean Witter Information Fund
(32) Morgan Stanley Dean Witter Intermediate Income Securities
(33) Morgan Stanley Dean Witter International SmallCap Fund
(34) Morgan Stanley Dean Witter Japan Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities
Inc.
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(45) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(46) Morgan Stanley Dean Witter S&P 500 Index Fund
(47) Morgan Stanley Dean Witter S&P 500 Select Fund
(48) Morgan Stanley Dean Witter Select Dimensions Investment Series
(49) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(50) Morgan Stanley Dean Witter Short-Term Bond Fund
(51) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(52) Morgan Stanley Dean Witter Special Value Fund
(53) Morgan Stanley Dean Witter Strategist Fund
(54) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(55) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(56) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(57) Morgan Stanley Dean Witter U.S. Government Securities Trust
(58) Morgan Stanley Dean Witter Utilities Fund
(59) Morgan Stanley Dean Witter Value-Added Market Series
(60) Morgan Stanley Dean Witter Value Fund
(61) Morgan Stanley Dean Witter Variable Investment Series
(62) Morgan Stanley Dean Witter World Wide Income Trust
The term "TCW/DW Funds" refers to the following registered investment
companies:
Open-End Investment Companies
- -----------------------------
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
4
<PAGE>
Closed-End Investment Companies
- -------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter and & Co.
Executive Officer and ("MSDW"); Chairman and Director of Morgan Stanley
Director Dean Witter Distributors Inc. ("MSDW Distributors")
and Morgan Stanley Dean Witter Trust FSB ("MSDW
Trust"); President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Services
Company Inc. ("MSDW Services"); Executive Vice
President and Director of Dean Witter Reynolds Inc.
("DWR"); Director of various MSDW subsidiaries.
Thomas C. Schneider Executive Vice President and Chief Strategic and
Executive Vice Administrative Officer of MSDW; Executive Vice
President and Chief President and Chief Financial Officer of MSDW
Financial Officer Services; Director of DWR and MSDW.
Robert M. Scanlan President, Chief Operating Officer and Director of
President, Chief MSDW Services, Executive Vice President of MSDW
Operating Officer Distributors; Executive Vice President and Director
and Director of MSDW Trust; Vice President of the Morgan Stanley
Dean Witter Funds and the TCW/DW Funds.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds
Executive Vice President and Director of MSDW Trust.
and Chief Investment
Officer
Ronald E. Robison Executive Vice President and Chief Administrative
Executive Vice President Officer of MSDW Services; Vice President of the
and Chief Administrative Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Officer
Edward C. Oelsner, III
Executive Vice President
5
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary
Counsel and Director and Assistant General Counsel of MSDW Distributors;
Vice President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW
Trust; Vice President of the Morgan Stanley Dean
Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
James Solloway
Senior Vice President
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Elizabeth A. Vetell
Senior Vice President
and Director of
Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial Officer
Treasurer of the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
Thomas Chronert
First Vice President
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
And Assistant Secretary Secretary of the Morgan Stanley Dean Witter Funds and
the TCW/DW Funds.
Salvatore DeSteno Vice President of MSDW Services.
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of the Morgan Stanley
and Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Frank Bruttomesso Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley
Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Philip Casparius
Vice President
David Dineen
Vice President
Bruce Dunn
Vice President
Michael Durbin
Vice President
Sheila Finnerty
Vice President
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Michael Geringer
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Peter W. Gurman
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
Kevin Jung
Vice President
Carol Espejo Kane
Vice President
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley
Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Teresa McRoberts Vice President of Morgan Stanley Dean Witter S&P 500
Vice President Select Fund
Sharon K. Milligan
Vice President
Mark Mitchell
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Richard Norris
Vice President
George Paoletti Vice President of Morgan Stanley Dean Witter
Vice President Information Fund.
Anne Pickrell Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Michael Roan
Vice President
John Roscoe
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
11
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Ruth Rossi Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley
Assistant Secretary Dean Witter Funds and the TCW/DW Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Michael Strayhorn
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
12
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- -----------------------------------------------------
Item 27. Principal Underwriters
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Value Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Appreciation Fund
(12) Morgan Stanley Dean Witter Capital Growth Securities
(13) Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas Portfolio"
(14) Morgan Stanley Dean Witter Convertible Securities Trust
(15) Morgan Stanley Dean Witter Developing Growth Securities Trust
(16) Morgan Stanley Dean Witter Diversified Income Trust
(17) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(18) Morgan Stanley Dean Witter Equity Fund
(19) Morgan Stanley Dean Witter European Growth Fund Inc.
(20) Morgan Stanley Dean Witter Federal Securities Trust
(21) Morgan Stanley Dean Witter Financial Services Trust
(22) Morgan Stanley Dean Witter Fund of Funds
(23) Morgan Stanley Dean Witter Global Dividend Growth Securities
(24) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(25) Morgan Stanley Dean Witter Global Utilities Fund
(26) Morgan Stanley Dean Witter Growth Fund
(27) Morgan Stanley Dean Witter Hawaii Municipal Trust
(28) Morgan Stanley Dean Witter Health Sciences Trust
(29) Morgan Stanley Dean Witter High Yield Securities Inc.
(30) Morgan Stanley Dean Witter Income Builder Fund
(31) Morgan Stanley Dean Witter Information Fund
(32) Morgan Stanley Dean Witter Intermediate Income Securities
(33) Morgan Stanley Dean Witter International SmallCap Fund
(34) Morgan Stanley Dean Witter Japan Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
13
<PAGE>
(44) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(45) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(46) Morgan Stanley Dean Witter Prime Income Trust
(47) Morgan Stanley Dean Witter S&P 500 Index Fund
(48) Morgan Stanley Dean Witter S&P 500 Select Fund
(49) Morgan Stanley Dean Witter Short-Term Bond Fund
(50) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(51) Morgan Stanley Dean Witter Special Value Fund
(52) Morgan Stanley Dean Witter Strategist Fund
(53) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(54) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(55) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(56) Morgan Stanley Dean Witter U.S. Government Securities Trust
(57) Morgan Stanley Dean Witter Utilities Fund
(58) Morgan Stanley Dean Witter Value-Added Market Series
(59) Morgan Stanley Dean Witter Value Fund
(60) Morgan Stanley Dean Witter Variable Investment Series
(61) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
(b) The following information is given regarding directors and officers of
MSDW Distributors not listed in Item 26 above. The principal address of
MSDW Distributors is Two World Trade Center, New York, New York 10048.
Other than Mr. Purcell, who is a Trustee of the Registrant, none of the
following persons has any position or office with the Registrant.
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Christine Edwards Executive Vice President, Secretary, Director and
Chief Legal Officer.
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and
Chief Compliance Officer.
Philip J. Purcell Director
John Schaeffer Director
Charles Vidala Senior Vice President and Financial Principal
14
<PAGE>
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are maintained by the Investment Manager at its offices, except records
relating to holders of shares issued by the Registrant, which are maintained by
the Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 29. Management Services
Registrant is not a party to any such management-related service
contract.
Item 30. Undertakings
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly
caused the Post-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York on 29th day of January, 1999.
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
By /s/ Barry Fink
----------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 1/29/99
------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 1/29/99
------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 1/29/99
------------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Wayne E. Hedien
By /s/ David M. Butowsky 1/29/99
------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1. -- Form of Amendment to the Declaration of Trust of the Registrant.
2. -- Amended and Restated By-Laws of the Registrant dated January
28, 1999.
5. -- Form of Amended Investment Management Agreement between the
Registrant and Morgan Stanley Dean Witter Advisors Inc.
6. -- Form of Selected Dealer Agreement.
8. -- Form of Amended and Restated Transfer Agency and Service
Agreement between the Registrant and Dean Witter Trust FSB.
9. -- Form of Amended Services Agreement between the Registrant and
Morgan Stanley Dean Witter Advisors Inc. and Morgan Stanely
Dean Witter Services Company Inc.
27. -- Financial Data Schedules - to be filed by amendment.
<PAGE>
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of Dean
Witter Multi-State Municipal Series Trust (the "Trust"), an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts,
that annexed hereto is an Amendment to the Declaration of Trust of the Trust
adopted by the Trustees of the Trust on April 30, 1998 as provided in Section
9.3 of the said Declaration, said Amendment to take effect on June 22, 1998,
and I do hereby further certify that such amendment has not been amended and is
on the date hereof in full force and effect.
Dated this 22nd day of June, 1998.
--------------------------------
Barry Fink
Secretary
<PAGE>
AMENDMENT
Dated: June 22, 1998
To be Effective: June 22, 1998
TO
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
DECLARATION OF TRUST
DATED
OCTOBER 26, 1990
<PAGE>
Amendment dated June 22, 1998 to the Declaration of Trust
(the "Declaration") of Dean Witter Multi-State Municipal Series Trust
(the "Trust") dated October 26, 1990
WHEREAS, the Trust was established by the Declaration on the date
hereinabove set forth under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to change
the name of the Trust to "Morgan Stanley Dean Witter Multi-State Municipal
Series Trust" such change to be effective on June 22, 1998;
NOW, THEREFORE:
1. Section 1.1 of Article I of the Declaration is hereby amended so
that that Section shall read in its entirety as follows:
"Section 1.1 Name. The name of the Trust created hereby is
the Morgan Stanley Dean Witter Multi-State Municipal Series
Trust and so far as may be practicable the Trustees shall
conduct the Trust's activities, execute all documents and sue
or be sued under that name, which name (and the word "Trust"
whenever herein used) shall refer to the Trustees as
Trustees, and not as individuals, or personally, and shall
not refer to the officers, agents, employees or Shareholders
of the Trust. Should the Trustees determine that the use of
such name is not advisable, they may use such other name for
the Trust as they deem proper and the Trust may hold its
property and conduct its activities under such other name."
2. Subsection (o) of Section 1.2 of Article I of the Declaration is
hereby amended so that that Subsection shall read in its entirety as follows:
"Section 1.2 Definitions...
"(o) "Trust" means the Morgan Stanley Dean Witter Multi-State
Municipal Series Trust."
3. Section 11.7 of Article XI of the Declaration is hereby amended so
that that Section shall read as follows:
"Section 11.7 Use of the name "Morgan Stanley Dean Witter."
Morgan Stanley Dean Witter & Co. ("MSDW") has consented to
the use by the Trust of the identifying name "Morgan Stanley
Dean Witter," which is a property right of MSDW. The Trust
will only use
<PAGE>
the name "Morgan Stanley Dean Witter" as a component of its
name and for no other purpose, and will not purport to grant
to any third party the right to use the name "Morgan Stanley
Dean Witter" for any purpose. MSDW, or any corporate
affiliate of MSDW, may use or grant to others the right to
use the name "Morgan Stanley Dean Witter," or any combination
or abbreviation thereof, as all or a portion of a corporate
or business name or for any commercial purpose, including a
grant of such right to any other investment company. At the
request of MSDW or any corporate affiliate of MSDW, the Trust
will take such action as may be required to provide its
consent to the use of the name "Morgan Stanley Dean Witter,"
or any combination or abbreviation thereof, by MSDW or any
corporate affiliate of MSDW, or by any person to whom MSDW or
a corporate affiliate of MSDW shall have granted the right to
such use. Upon the termination of any investment advisory
agreement into which a corporate affiliate of MSDW and the
Trust may enter, the Trust shall, upon request of MSDW or any
corporate affiliate of MSDW, cease to use the name "Morgan
Stanley Dean Witter" as a component of its name, and shall
not use the name, or any combination or abbreviation thereof,
as part of its name or for any other commercial purpose, and
shall cause its officers, Trustees and Shareholders to take
any and all actions which MSDW or any corporate affiliate of
MSDW may request to effect the foregoing and to reconvey to
MSDW any and all rights to such name."
4. The Trustees of the Trust hereby reaffirm the Declaration, as
amended, in all respects.
5. This Amendment may be executed in more than one counterpart, each
of which shall be deemed an original, but all of which together shall
constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 22nd day of June, 1998.
/s/ Michael Bozic /s/ Manuel H. Johnson
- ----------------- ---------------------
Michael Bozic, as Trustee Manuel H. Johnson, as Trustee
and not individually and not individually
c/o Levitz Furniture Corp. c/o Johnson Smick International Inc.
6111 Broken Sound Parkway, NW 1133 Connecticut Avenue, NW
Boca Raton, FL 33487 Washington, D.C. 20036
/s/ Charles A. Fiumefreddo /s/ Michael E. Nugent
- -------------------------- ---------------------
Charles A. Fiumefreddo, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
Two World Trade Center c/o Triumph Capital, L.P.
New York, NY 10048 237 Park Avenue
New York, NY 10017
/s/ Edwin J. Garn /s/ Philip J. Purcell
- ----------------- ---------------------
Edwin J. Garn, as Trustee Philip J. Purcell, as Trustee
and not individually and not individually
c/o Huntsman Corporation 1585 Broadway
500 Huntsman Way New York, NY 10036
Salt Lake City, UT 84111
/s/ John R. Haire /s/ John L. Schroeder
- ----------------- ---------------------
John R. Haire, as Trustee John L. Schroeder, as Trustee
and not individually and not individually
Two World Trade Center c/o Gordon Altman Butowsky
New York, NY 10048 Weitzen Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
/s/ Wayne E. Hedien
- -------------------
Wayne E. Hedien, as Trustee
and not individually
c/o Gordon Altman Butowsky Weitzen
Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this 22nd day of June, 1998, MICHAEL BOZIC, CHARLES A. FIUMEFREDDO,
EDWIN J. GARN, JOHN R. HAIRE, WAYNE E. HEDIEN, MANUEL H. JOHNSON, MICHAEL
E. NUGENT, PHILIP J. PURCELL and JOHN L. SCHROEDER, known to me to be the
individuals described in and who executed the foregoing instrument,
personally appeared before me and they severally acknowledged the
foregoing instrument to be their free act and deed.
/s/ Marilyn K. Cranney
----------------------
Notary Public
MARILYN K. CRANNEY
NOTARY PUBLIC, State of New York
No. 24-4795538
Qualified in Kings County
Commission Expires May 31, 1999
<PAGE>
BY-LAWS
OF
MORGAN STANLEY DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
AMENDED AND RESTATED AS OF JANUARY 28, 1999
ARTICLE I
DEFINITIONS
The terms "Commission," "Declaration," "Distributor," "Investment
Adviser," "Majority Shareholder Vote," "1940 Act," "Shareholder," "Shares,"
"Transfer Agent," "Trust," "Trust Property," and "Trustees" have the respective
meanings given them in the Declaration of Trust of Morgan Stanley Dean Witter
Multi-State Municipal Series Trust dated October 26, 1990, as amended from time
to time.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or the
business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders
of Shares entitled to vote not less than twenty-five percent (25%) of all the
votes entitled to be cast at such meeting, except to the extent otherwise
required by Section 16C of the 1940 Act, as made applicable to the Trust by the
provisions of Section 2.3 of the Declaration. Such request shall state the
purpose or purposes of such meeting and the matters proposed to be acted on
thereat. Except to the extent otherwise required by Section 16(c) of the 1940
Act, as made applicable to the Trust by the provisions of Section 2.3 of the
Declaration, the Secretary shall inform such Shareholders of the reasonable
estimated cost of preparing and mailing such notice of the meeting, and upon
payment to the Trust of such costs, the Secretary shall give notice stating the
purpose or purposes of the meeting to all entitled to vote at such meeting. No
meeting need be called upon the request of the holders of Shares entitled to
cast less than a majority of all votes entitled to be cast at such meeting, to
consider any matter which is substantially the same as a matter voted upon at
any meeting of Shareholders held during the preceding twelve months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor
C66939 MULTISTAMS
<PAGE>
more than ninety (90) days before such meeting to each Shareholder entitled to
vote at such meeting. Such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.
SECTION 3.4. Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum for the transaction of business. In
the absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have the power to adjourn the meeting from time
to time. The Shareholders present in person or represented by proxy at any
meeting and entitled to vote thereat also shall have the power to adjourn the
meeting from time to time if the vote required to approve or reject any
proposal described in the original notice of such meeting is not obtained (with
proxies being voted for or against adjournment consistent with the votes for
and against the proposal for which the required vote has not been obtained).
The affirmative vote of the holders of a majority of the Shares then present in
person or represented by proxy shall be required to adjourn any meeting. Any
adjourned meeting may be reconvened without further notice or change in record
date. At any reconvened meeting at which a quorum shall be present, any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled
to vote so registered in his or her name on the records of the Trust on the
date fixed as the record date for the determination of Shareholders entitled to
vote at such meeting. Without limiting the manner in which a Shareholder may
authorize another person or persons to act for such Shareholder as proxy
pursuant hereto, the following shall constitute a valid means by which a
Shareholder may grant such authority:
(i) A Shareholder may execute a writing authorizing another person or
persons to act for such Shareholder as proxy. Execution may be accomplished
by the Shareholder or such Shareholder's authorized officer, director,
employee, attorney-in-fact or another agent signing such writing or causing
such person's signature to be affixed to such writing by any reasonable
means including, but not limited to, by facsimile or telecopy signature. No
written evidence of authority of a Shareholder's authorized officer,
director, employee, attorney-in-fact or other agent shall be required; and
(ii) A Shareholder may authorize another person or persons to act for
such Shareholder as proxy by transmitting or authorizing the transmission
of a telegram or cablegram or by other means of telephonic, electronic or
computer transmission to the person who will be the holder of the proxy or
to a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or cablegram or
other means of telephonic, electronic or computer transmission must either
set forth or be submitted with information from which it can be determined
that the telegram, cablegram or other transmission was authorized by the
Shareholder.
No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of voters
and the validity of proxies and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. In determining whether a telegram,
cablegram or other electronic transmission is valid, the chairman or inspector,
as the case may be, shall specify the information upon which he or she relied.
Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or Officers of the Trust. Proxy
solicitations may be made in writing or by using telephonic or other electronic
solicitation procedures that include appropriate methods of verifying the
identity of the Shareholder and confirming any instructions given thereby.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
2
<PAGE>
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the person
acting as chairman. The Inspectors of Election shall determine the number of
Shares outstanding, the Shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and questions in
any way arising in connection with the right to vote, shall count and tabulate
all votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Corporations and Associations Law of the
State of Maryland.
SECTION 3.9. Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 3.10. Presence at Meetings. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any two
(2) Trustees.
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject
to the provisions of the 1940 Act, notice or waiver of notice need not specify
the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act of
the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the
3
<PAGE>
Declaration or these By-Laws. If at any meeting of the Trustees there be less
than a quorum present, the Trustees present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall have been obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all of the Trustees entitled to
vote upon the action and such written consent is filed with the minutes of
proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of said
persons shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all checks,
notes, drafts and other obligations for the payment of money by the Trust shall
be signed, and all transfer of securities standing in the name of the Trust
shall be executed, by the Chairman, the President, any Vice President or the
Treasurer or by any one or more officers or agents of the Trust as shall be
designated for that purpose by vote of the Trustees; notwithstanding the above,
nothing in this Section 4.7 shall be deemed to preclude the electronic
authorization, by designated persons, of the Trust's Custodian (as described
herein in Section 9.1) to transfer assets of the Trust, as provided for herein
in Section 9.1.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust; except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Trust,
except to the extent that the court in which the action or suit was brought, or
a court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, the person is fairly and reasonably
entitled to indemnity for those expenses which the court shall deem proper,
provided such Trustee, officer, employee or agent is not adjudged to be liable
by reason of his willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
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(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940 ("disabling
conduct"). A person shall be deemed not liable by reason of disabling
conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available facts,
that there is reason to believe that such person ultimately will be
found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
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(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to
be a Trustee, officer, employee, or agent and inure to the benefit of the
heirs, executors and administrators of such person; provided that no person may
satisfy any right of indemnity or reimbursement granted herein or to which he
may be otherwise entitled except out of the property of the Trust, and no
Shareholder shall be personally liable with respect to any claim for indemnity
or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust purchase
insurance to indemnify any officer or Trustee against liability for any act for
which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from
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among the Trustees but none of the other executive officers need be a Trustee.
Two or more offices, except those of President and any Vice President, may be
held by the same person, but no officer shall execute, acknowledge or verify
any instrument in more than one capacity. The executive officers of the Trust
shall be elected annually by the Trustees and each executive officer so elected
shall hold office until his successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the Chairman the power to appoint, such other
officers and agents as the Trustees shall at any time or from time to time deem
advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the President to the
extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, he shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.
SECTION 6.7. The President. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the Shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the President may
from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or by
the signature of an Assistant Secretary.
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SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
shall render to the Trustees and the President, whenever any of them require
it, an account of his transactions as Treasurer and of the financial condition
of the Trust; and he shall perform such other duties as the Trustees, or the
President, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the President, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Trustees, or
the President, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary from
the computation thereof on the records of the Trust, the Trustees shall have
power, in their discretion, to distribute as income dividends and as capital
gain distributions, respectively, amounts sufficient to enable the Trust to
avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer and an Assistant Treasurer of the
Trust; shall be sealed with the seal; and shall contain such recitals as may be
required by law. Where any certificate is signed by a Transfer Agent or by a
Registrar, the signature of such officers and the seal may be facsimile,
printed or engraved. The Trust may, at its option, determine not to issue a
certificate or certificates to evidence Shares owned of record by any
Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall appear therein had not ceased to be
such officer or officers of the Trust.
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No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the meeting of shareholders,
Trustees or committee, as the case may be, in person, shall be deemed
equivalent to the giving of such notice to such person.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii) receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. The record date, in
any case, shall not be more than one hundred eighty (180) days, and in the case
of a meeting of Shareholders not less than ten (10) days, prior to the date on
which such meeting is to be held or the date on which such other particular
action requiring determination of Shareholders is to be taken, as the case may
be. In the case of a meeting of Shareholders, the meeting date set forth in the
notice to Shareholders accompanying the proxy statement shall be the date used
for purposes of calculating the 180 day or 10 day period, and any adjourned
meeting may be reconvened without a change in record date. In lieu of fixing a
record date, the Trustees may provide that the transfer books shall be closed
for a stated period but not to exceed, in any case, twenty (20) days. If the
transfer books are closed for the purpose of determining Shareholders entitled
to notice of a vote at a meeting of Shareholders, such books shall be closed
for at least ten (10) days immediately preceding the meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
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ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Morgan Stanley Dean Witter
Multi-State Municipal Series Trust, dated October 26, 1990, a copy of which,
together with all amendments thereto, is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name Morgan Stanley
Dean Witter Multi-State Municipal Series Trust refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, Shareholder, officer, employee or agent of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Morgan Stanley Dean Witter Multi-State Municipal Series Trust,
but the Trust Estate only shall be liable.
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INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of April
30, 1998, by and between Dean Witter Multi-State Municipal Series Trust, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter called the "Fund"), and Dean Witter InterCapital
Inc., a Delaware corporation (hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, and engages in the business of
acting as investment adviser; and
WHEREAS, The Fund presently offers shares in several Series, such Series
together with all other Series subsequently established by the Fund with
respect to which the Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth being collectively referred to as the
"Series;" and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Series and, subject to the supervision of the Trustees, to
supervise the investment activities of the Series as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously
manage the assets of the Fund in a manner consistent with the investment
objectives and policies of the Series; shall determine the securities and
commodities to be purchased, sold or otherwise disposed of by the Series and
the timing of such purchases, sales and dispositions; and shall take such
further action, including the placing of purchase and sale orders on behalf of
the Series, as the Investment Manager shall deem necessary or appropriate. The
Investment Manager shall also furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Investment Manager in the discharge of its duties as the Fund
may, from time to time, reasonably request.
In the event the Fund establishes another Series other than the current
Series with respect to which it desires to retain the Investment Manager to
render investment advisory services hereunder, it shall notify the Investment
Manager in writing. If the Investment Manager is willing to render such
services, it shall notify the Fund in writing, whereupon such other Series
shall become a Series hereunder.
2. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the
Fund's records and books of account (other than those maintained by the Fund's
transfer agent, registrar, custodian and other agencies). All such books and
records so maintained shall be the property of the Fund and, upon request
therefor, the Investment Manager shall surrender to the Fund such of the books
and records so requested.
3. The Fund will, from time to time, furnish or otherwise make available
to the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.
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4. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund who are also directors, officers or employees of
the Investment Manager, and provide such office space, facilities and equipment
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also bear
the cost of telephone service, heat, light, power and other utilities provided
to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other expenses
of the Fund, including without limitation: fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities or commodities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with portfolio
transactions to which the Fund is a party; all taxes, including securities or
commodities issuance and transfer taxes, and fees payable by the Fund to
federal, state or other governmental agencies; the cost and expense of
engraving or printing certificates representing shares of the Fund; all costs
and expenses in connection with the registration and maintenance of
registration of the Fund and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including filing fees
and legal fees and disbursements of counsel); the cost and expense of printing,
including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing 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 the payment of
any dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel to the
Trustees of the Fund who are not interested persons (as defined in the Act) of
the Fund or the Investment Manager, and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable 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
related thereto); and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation determined by applying the following
annual rate of 0.35% to the daily net assets of the respective Series
determined as of the close of each business day. Except as hereinafter set
forth, compensation under this Agreement shall be calculated and accrued daily
and the amounts of the daily accruals shall be paid monthly. Such calculations
shall be made by applying 1/365ths of the annual rates to the Fund's net assets
each day determined as of the close of business on that day or the last
previous business day. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above.
Subject to the provisions of paragraph 7 hereof, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 7
hereof.
7. In the event the operating expenses of a Series, including amounts
payable to the Investment Manager pursuant to paragraph 6 hereof, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to such Series imposed by state securities laws
or regulations thereunder, as such limitations may be raised or lowered from
time to time, the Investment Manager shall reduce its management fee in respect
to such Series to the extent of such excess and, if required, pursuant to any
such laws or regulations, will reimburse such Series for annual operating
expenses in excess of any expense limitation that may be applicable; provided,
however, there shall be excluded from such expenses the amount of any interest,
taxes, brokerage commissions, distribution fees and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto) paid or payable by such Series. Such
reduction, if any, shall be computed and accrued daily, shall be settled on a
monthly basis, and shall
2
<PAGE>
be based upon the expense limitation applicable to such Series as at the end of
the last business day of the month. Should two or more such expense limitations
be applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Investment Manager's
fee shall be applicable.
For purposes of this provision, should any applicable expense limitation
be based upon the gross income of such Series, such gross income shall include,
but not be limited to, interest on debt securities in the Fund's portfolio of
such Series accrued to and including the last day of the Fund's fiscal year,
and dividends declared on equity securities in the portfolio of such Series,
the record dates for which fall on or prior to the last day of such fiscal
year, but shall not include gains from the sale of securities.
8. The Investment Manager will use its best efforts in the supervision and
management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund
or any of its investors for any error of judgment or mistake of law or for any
act or omission by the Investment Manager or for any losses sustained by the
Fund or its investors.
9. Nothing contained in this Agreement shall prevent the Investment
Manager or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or commodities
for their own accounts or for the account of others for whom they may be
acting. Nothing in this Agreement shall limit or restrict the right of any
Trustee, officer or employee of the Investment Manager to engage in any other
business or to devote his or her time and attention in part to the management
or other aspects of any other business whether of a similar or dissimilar
nature.
10. With respect to each Series, this Agreement shall remain in effect
until April 30, 1999 and from year to year thereafter is approved at least
annually by the vote of holders of a majority, as defined in the Investment
Company Act of 1940, as amended (the "Act"), of the outstanding voting
securities of the Series or by the Trustees of the Fund; provided that in
either event such continuance is also approved annually by the vote of a
majority of the Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote must
be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon thirty days' written
notice to the Investment Manager, either by majority vote of the Trustees of
the Fund or, with respect to a Series, by the vote of a majority of the
outstanding voting securities of such Series; (b) this Agreement shall
immediately terminate in the event of its assignment (to the extent required by
the Act and the rules thereunder) unless such automatic terminations shall be
prevented by an exemptive order of the Securities and Exchange Commission; and
(c) the Investment Manager may terminate this Agreement without payment of
penalty on thirty days' written notice to the Fund. Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed
post-paid, to the other party at the principal office of such party.
Any approval of this Agreement by the holders of a majority of the
outstanding voting securities of any Series shall be effective to continue this
Agreement with respect to such Series notwithstanding (a) that this Agreement
has not been approved by the holders of a majority of the outstanding voting
securities of any other Series or (b) that this Agreement has not been approved
by the vote of a majority of the outstanding voting securities of the Fund,
unless such approval shall be required by any other applicable law or
otherwise.
11. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund
nor the Investment Manager shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
13. The Investment Manager and the Fund each agree that the name "Dean
Witter," which comprises a component of the Fund's name, is a property right of
Dean Witter Reynolds Inc. The Fund agrees and consents
3
<PAGE>
that (i) it will only use the name "Dean Witter" as a component of its name and
for no other purpose, (ii) it will not purport to grant to any third party the
right to use the name "Dean Witter" for any purpose, (iii) the Investment
Manager or its parent, Morgan Stanley Dean Witter & Co., or any corporate
affiliate of the Investment Manager's parent, may use or grant to others the
right to use the name "Dean Witter," or any combination or abbreviation
thereof, as all or a portion of a corporate or business name or for any
commercial purpose, including a grant of such right to any other investment
company, (iv) at the request of the Investment Manager or its parent, the Fund
will take such action as may be required to provide its consent to the use of
the name "Dean Witter," or any combination or abbreviation thereof by the
Investment Manager or its parent or any corporate affiliate of the Investment
Manager's parent, or by any person to whom the Investment Manager or its parent
or any affiliate of the Investment Manager's parent shall have granted the
right to such use, and (v) upon the termination of any investment advisory
agreement into which the Investment Manager and the Fund may enter, or upon
termination of affiliation of the Investment Manager with its parent, the Fund
shall, upon request by the Investment Manager or its parent, cease to use the
name "Dean Witter" as a component of its name, and shall not use the name, or
any combination or abbreviation thereof, as a part of its name or for any other
commercial purpose, and shall cause its officers, Trustees and shareholders to
take any and all actions which the Investment Manager or its parent may request
to effect the foregoing and to reconvey to the Investment Manager or its parent
any and all rights to such name.
14. The Declaration of Trust establishing Dean Witter Multi-State
Municipal Series Trust, dated October 29, 1990, a copy of which, together with
all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Dean
Witter Multi-State Municipal Series Trust refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Dean Witter Multi-State
Municipal Series Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim or otherwise, in connection with the affairs of said Dean Witter
Multi-State Municipal Series Trust, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on April 30, 1998 in New York, New York.
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
By: /s/ Barry Fink
------------------------------------------
Attest:
/s/ Frank Bruttomesso
- ---------------------------------
DEAN WITTER INTERCAPITAL INC.
By: /s/ Charles A. Fiumefreddo
------------------------------------------
Attest:
/s/ Marilyn K. Cranney
- ---------------------------------
4
<PAGE>
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
OMNIBUS SELECTED DEALER AGREEMENT, INC.
Dear Sir or Madam:
We, Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") have
a distribution agreement (the "Distribution Agreement") with each of the
open-end investment companies listed in Schedule A attached hereto (each, a
"Fund"), pursuant to which we act as the Distributor for the sale of each
Fund's shares of common stock or beneficial interest, as the case may be, (the
"Shares"). Under the Distribution Agreement, we have the right to distribute
Shares for resale.
Each Fund is an open-end management investment company registered under
the Investment Company Act of 1940, as amended, and the Shares being offered to
the public are registered under the Securities Act of 1933, as amended (the
"Securities Act"). You have received a copy of the Distribution Agreements
between us and each Fund and reference is made herein to certain provisions of
such Distribution Agreements. The terms used herein, including "Prospectus" and
"Registration Statement" of each Fund and "Selected Dealer" shall have the same
meaning in this Agreement as in the Distribution Agreements. As principal, we
offer to sell Shares to your customers, upon the following terms and
conditions:
1. In all sales of Shares to the public you shall act on behalf of your
customers which for purposes of this Agreement are limited to customers for
which Nations Banc Investments, Inc. is the Introducing Broker, and in no
transaction shall you have any authority to act as agent for a Fund, for us or
for any Selected Dealer.
2. Orders received from you will be accepted through us or on our behalf
only at the public offering price applicable to each order, as set forth in the
applicable current Prospectus. The procedure relating to the handling of orders
shall be subject to written instructions which we or the applicable Fund shall
forward from time to time to you. All orders are subject to acceptance or
rejection by us or a Fund in the sole discretion of either. The Distributor of
the Fund will promptly notify you in writing of any such rejection.
3. You shall not place orders for any Shares unless you have already
received purchase orders for such Shares at the applicable public offering
price and subject to the terms hereof and of the applicable Distribution
Agreement and Prospectus. In connection herewith, you agree to abide by the
terms of the applicable Distribution Agreement and Prospectus to the extent
required hereunder. Furthermore, you agree that (i) you will offer or sell any
of the Shares only under circumstances that will result in compliance with all
applicable Federal and state securities laws; (ii) you will not furnish or
cause to be furnished to any person any information relating to the Shares
which is inconsistent in any respect with the information contained in the
applicable Prospectus (as then amended or supplemented) or cause any
advertisements to be published by radio or television or in any newspaper or
posted in any public place or use any sales promotional material without our
consent and the consent of the applicable Fund; and (iii) you will endeavor to
obtain proxies from purchasers of Shares. You also agree that you will be
liable to Distributor for payment of the purchase price for Shares purchased by
customers and that you shall make payment for such shares when due.
4. We will compensate you for sales of shares of the Funds and personal
services to Fund shareholders by paying you a sales charge and/or other
commission (which may be in the form of a gross sales credit and/or an annual
residual commission) and/or a service fee, each as separately agreed by you and
us with respect to each Fund.
5. If any Shares sold to your customers under the terms of this Agreement
are repurchased by us for the account of a Fund or are tendered for redemption
within seven business days after the date of the confirmation of the original
purchase by you, it is agreed that you shall forfeit your right to, and refund
to us, any commission received by you with respect to such Shares.
6. No person is authorized to make any representations concerning the
Shares or the Funds except those contained in the current applicable Prospectus
and in such printed information subsequently issued by us or a Fund as
information supplemental to such Prospectus. In selling Shares, you shall rely
solely on the representations contained in the applicable Prospectus and
supplemental information mentioned above. Any printed information which we
furnish you other than the Prospectus and the Funds' periodic reports and
<PAGE>
proxy solicitation materials are our sole responsibility and not the
responsibility of the Funds, and you agree that the Funds shall have no
liability or responsibility to you in these respects unless expressly assumed
in connection therewith.
7. You are hereby authorized (i) to place orders directly with a Fund or
its agent for shares of the Fund to be sold by us subject to the applicable
terms and conditions governing the placement of orders for the purchase of Fund
Shares, as set forth in the Distribution Agreement, and (ii) to tender Shares
directly to the Fund or its agent for redemption subject to the applicable
terms and conditions set forth in the Distribution Agreement. We will provide
you with copies of any updates to the Distribution Agreement.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Shares entirely. Each party hereto has the
right to cancel this agreement with respect to one or more Funds upon fifteen
days prior written notice to the other party.
9. I. You shall indemnify and hold us harmless from and against any and
all losses, costs, (including reasonable attorney's fees) claims, damages and
liabilities which arise as a result of action taken pursuant to instructions
from you, or on your behalf to: (a)(i) place orders for Shares of a Fund with
the Fund's transfer agent or direct the transfer agent to receive instructions
for the order of Shares, and (ii) accept monies or direct that the transfer
agent accept monies as payment for the order of such Shares, all as
contemplated by and in accordance with Section 3 of the applicable Distribution
Agreement; (b)(i) place orders for the redemption of Shares of a Fund with the
Fund's transfer agent or direct the transfer agent to receive instruction for
the redemption of such Shares and (ii) to pay redemption proceeds or to direct
that the transfer agent pay redemption proceeds in connection with orders for
the redemption of Shares, all as contemplated by and in accordance with Section
4 of the applicable Distribution Agreement; Distributor agrees to indemnify and
hold harmless you and your affiliates, officers, directors, control persons and
employees from and against any and all losses, costs (including reasonable
attorney's fees), claims, damages and liabilities which arise as a result of
Distributor's failure to fulfill its obligations hereunder and from any alleged
inaccuracy, omission or misrepresentation contained in any prospectus or any
advertising, or sales literature prepared by Distributor or the Fund provided,
however, that in no case, (i) is this indemnity in favor of you or us and any
of other party's such controlling persons to be deemed to protect us or any
such controlling persons against any liability to which we or any such
controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of our duties or
by reason of reckless disregard of our obligations and duties under this
Agreement or the applicable Distribution Agreement; or (ii) are you to be
liable under the indemnity agreement contained in this paragraph with respect
to any claim made against us or any such controlling persons, unless we or any
such controlling persons, as the case may be, shall have notified you in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon us or
such controlling persons (or after we or such controlling persons shall have
received notice of such service on any designated agent), notwithstanding the
failure to notify you of any such claim shall not relieve you from any
liability which you may have to the person against whom such action is brought
otherwise than on account of the indemnity agreement contained in this
paragraph.
II. You will be entitled to participate at your own expense in the
defense, or, if you so elect, to assume the defense, of any suit brought to
enforce any such liability, but if you elect to assume the defense, such
defense shall be conducted by counsel chosen by you and reasonably satisfactory
to us or such controlling person or persons, defendant or defendants in the
suit. In the event you elect to assume the defense of any such suit and retain
such counsel, we or such controlling person or persons, defendant or defendants
in the suit, shall bear the fees and expenses of any additional counsel
retained by them, but, in case you do not elect to assume the defense of any
such suit, you will reimburse us or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. Each party shall promptly notify the other party
to this Agreement of the commencement of any litigation or proceedings against
it or any of its officers or directors in connection with the issuance or sale
of the Shares pursuant to this Agreement.
2
<PAGE>
III. If the indemnification provided for in this Section 9 is unavailable
or insufficient to hold harmless the Distributor, as provided above in respect
of any losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to herein, then you shall contribute to the amount paid or
payable by us as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by you on the one hand and us on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then you
shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits
but also your relative fault on the one hand and our relative fault on the
other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. You and we
agree that it would not be just and equitable if contribution were determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to above. The amount paid or
payable by us as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by us in connection
with investigating or defending any such claim. Notwithstanding the provisions
of this subsection (III), you shall not be required to contribute any amount in
excess of the amount by which the total price at which the Shares distributed
by you to the public were offered to the public exceeds the amount of any
damages which you have otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
IV. Notwithstanding the provisions of subsections (I), (II) and (III), we
shall indemnify, defend and hold harmless you and your officers, directors,
employees, affiliates, agents, successors and assigns from and against any and
all claims and all related losses, expenses, damages, cost and liabilities
including reasonable attorneys' fees and expenses incurred in investigation or
defense, arising out of or related to any breach of any representation,
warranty or covenant by us contained in Section 15 of this Agreement.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the distribution and
redemption of Shares. Neither party shall be under any liability to the other
party except for lack of good faith and for obligations expressly assumed
herein. Nothing contained in this paragraph is intended to operate as, and the
provisions of this paragraph shall not in any way whatsoever constitute, a
waiver by you of compliance with any provision of the Securities Act, or of the
rules and regulations of the Securities and Exchange Commission issued
thereunder.
12. Each party represents that it is a member in good standing of the
National Association of Securities Dealers, Inc. and, with respect to any sales
in the United States, each party hereby agrees to abide by the Rules of Fair
Practice of such Association relating to the performance of the obligations
hereunder.
13. We will inform you in writing as to the states in which we believe the
Shares have been qualified for sale under, or are exempt from the requirements
of, the respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Shares in any
jurisdiction.
14. Notwithstanding any other provision of this Agreement to the contrary,
we represent and warrant that the names and addresses of your customers (or
customers of your affiliates) which have or which may come to our attention in
connection with this Agreement are confidential and are your exclusive property
and shall not be utilized by us except in connection with the functions
performed by us in connection with this Agreement. Notwithstanding the
foregoing, should a customer request, that we or an organization affiliated
with us, provide services to such customer, we or such affiliated organization
shall in no way violate this representation and warranty, nor be considered in
breach of this Agreement.
15. We represent, warrant, and covenant to you that the marketing
materials, any communications distributed to the public and training materials
designed by us or our agents relating to the product sold under this Agreement
are true and accurate and do not omit to state a fact necessary to make the
3
<PAGE>
information contained therein not misleading and comply with applicable federal
and state laws. We further represent, warrant, and covenant to you that the
performance by us of our obligations under this Agreement in no way constitutes
an infringement on or other violation of copyright, trade secret, trademark,
proprietary information or non-disclosure rights of any other party.
16. We shall maintain a contingency disaster recovery plan, and, in the
event you are so required by any regulatory or governmental agency, we shall
make such plan available to you for inspection at your office upon reasonable
advance notice by you. Each party agrees that it will at all times conduct its
activities under this Agreement in an equitable, legal and professional manner.
17. We understand that the performance of your and our obligations under
this Agreement is subject to examination during business hours by your
authorized representatives and auditors and by federal and state regulatory
agencies, and we agree that upon being given reasonable notice and proper
identification we shall submit or furnish at a reasonable time and place to any
such representative or regulatory agency reports, information, or other data
relating to this Agreement as may reasonably be required or requested by you.
We shall maintain and make available to you upon reasonable notice all
material, data, files, and records relating to this Agreement for a period of
not less than three years after the termination of this Agreement.
18. The sales, advertising and promotional materials designed by either
party or its agents relating to products sold under this Agreement shall comply
with applicable federal and state laws. Each party agrees that the sales,
advertising and promotional materials shall be made available to the other
party prior to distribution to your employees or customers.
19. Any controversy or claim between or among the parties hereto arising
out of or relating to this Agreement, including any claim based on or arising
from an alleged tort, shall be determined by binding arbitration in accordance
with the rules of the National Association of Securities Dealers, Inc. Judgment
upon any arbitration award may be entered in any court having jurisdiction. Any
party to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such action.
20. All notices or other communications under this Agreement shall be in
writing and given as follows:
If to us: Morgan Stanley Dean Witter Distributors Inc.
Attn: Barry Fink,
Two World Trade Center
New York, NY 10048
If to you: National Financial
Services Corporation
Attn: Robert Masabug
4201 Congress Street, Suite 245
Boston, MA
or such other address as the parties may hereafter specify in writing. Each
such notice to any party shall be either hand-delivered or transmitted, postage
prepaid, by registered or certified United States mail with return receipt
requested, and shall be deemed effective only upon receipt.
4
<PAGE>
21. This Agreement shall become effective as of the date of your
acceptance hereof, provided that you return to us promptly a signed and dated
copy.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
By
-----------------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
Morgan Stanley Dean Witter
Distributors Inc.
Two World Trade Center
New York, New York 10048
Accepted:
Firm Name: National Financial Service Corp.
---------------------------------
By:
--------------------------------------
Address: 200 Liberty Street
-----------------------------------
New York, New York
-----------------------------------
Date: October 17, 1998
-------------------------------------
5
<PAGE>
SCHEDULE A
Dean Witter Global Asset Allocation Fund
Morgan Stanley Dean Witter American Value Fund
Morgan Stanley Dean Witter Balanced Growth Fund
Morgan Stanley Dean Witter Balanced Income Fund
Morgan Stanley Dean Witter California Tax-Free Income Fund
Morgan Stanley Dean Witter Capital Appreciation Fund
Morgan Stanley Dean Witter Capital Growth Securities
Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas" Portfolio
Morgan Stanley Dean Witter Convertible Securities Trust
Morgan Stanley Dean Witter Developing Growth Securities Trust
Morgan Stanley Dean Witter Diversified Income Trust
Morgan Stanley Dean Witter Dividend Growth Securities Inc.
Morgan Stanley Dean Witter Equity Fund
Morgan Stanley Dean Witter European Growth Fund Inc.
Morgan Stanley Dean Witter Federal Securities Trust
Morgan Stanley Dean Witter Financial Services Trust
Morgan Stanley Dean Witter Fund of Funds
Morgan Stanley Dean Witter Global Dividend Growth Securities
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
Morgan Stanley Dean Witter Global Utilities Fund
Morgan Stanley Dean Witter Growth Fund
Morgan Stanley Dean Witter Hawaii Municipal Trust
Morgan Stanley Dean Witter Health Sciences Trust
Morgan Stanley Dean Witter High Yield Securities Inc.
Morgan Stanley Dean Witter Income Builder Fund
Morgan Stanley Dean Witter Information Fund
Morgan Stanley Dean Witter Intermediate Income Securities Inc.
Morgan Stanley Dean Witter International SmallCap Fund
Morgan Stanley Dean Witter Japan Fund
Morgan Stanley Dean Witter Limited Term Municipal Trust
Morgan Stanley Dean Witter Market Leader Trust
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
Morgan Stanley Dean Witter Mid-Cap Growth Fund
Morgan Stanley Dean Witter Multi-State Municipal Series Trust
Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
Morgan Stanley Dean Witter New York Tax-Free Income Fund
Morgan Stanley Dean Witter Pacific Growth Fund Inc.
Morgan Stanley Dean Witter Precious Metals and Minerals Trust
Morgan Stanley Dean Witter S&P 500 Index Fund
Morgan Stanley Dean Witter S&P 500 Select Fund
Morgan Stanley Dean Witter Short-Term Bond Fund
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
Morgan Stanley Dean Witter Special Value Fund
Morgan Stanley Dean Witter Strategist Fund
Morgan Stanley Dean Witter Tax-Exempt Securities Trust
Morgan Stanley Dean Witter U.S. Government Securities Trust
Morgan Stanley Dean Witter Utilities Fund
Morgan Stanley Dean Witter Value-Added Market Series
Morgan Stanley Dean Witter Value Fund
Morgan Stanley Dean Witter World Wide Income Trust
A-1
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
MORGAN STANLEY DEAN WITTER TRUST FSB
[open-end funds]
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article 1 Terms of Appointment...................................... 1
Article 2 Fees and Expenses......................................... 5
Article 3 Representations and Warranties of MSDW TRUST.............. 6
Article 4 Representations and Warranties of the Fund................ 7
Article 5 Duty of Care and Indemnification.......................... 7
Article 6 Documents and Covenants of the Fund and MSDW TRUST........ 10
Article 7 Duration and Termination of Agreement..................... 13
Article 8 Assignment................................................ 14
Article 9 Affiliations.............................................. 14
Article 10 Amendment................................................. 15
Article 11 Applicable Law............................................ 15
Article 12 Miscellaneous............................................. 15
Article 13 Merger of Agreement....................................... 17
Article 14 Personal Liability........................................ 17
-i-
<PAGE>
AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
----------------------------------------------------------
AMENDED AND RESTATED AGREEMENT made as of the 22nd day of
June, 1998 by and between each of the Funds listed on the signature pages
hereof, each of such Funds acting severally on its own behalf and not jointly
with any of such other Funds (each such Fund hereinafter referred to as the
"Fund"), each such Fund having its principal office and place of business at
Two World Trade Center, New York, New York, 10048, and MORGAN STANLEY DEAN
WITTER TRUST FSB ("MSDW TRUST"), a federally chartered savings bank, having its
principal office and place of business at Harborside Financial Center, Plaza
Two, Jersey City, New Jersey 07311.
WHEREAS, the Fund desires to appoint MSDW TRUST as its
transfer agent, dividend disbursing agent and shareholder servicing agent and
MSDW TRUST desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of MSDW TRUST
1.1 Subject to the terms and conditions set forth in
this Agreement, the Fund hereby employs and appoints MSDW TRUST to act as, and
MSDW TRUST agrees to act as, the transfer agent for each series and class of
shares of the Fund, whether now or hereafter authorized or issued ("Shares"),
dividend disbursing agent and shareholder servicing agent in
-1-
<PAGE>
connection with any accumulation, open-account or similar plans provided to the
holders of such Shares ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.2 MSDW TRUST agrees that it will perform the
following services:
(a) In accordance with procedures established from
time to time by agreement between the Fund and MSDW TRUST, MSDW TRUST shall:
(i) Receive for acceptance, orders for the purchase
of Shares, and promptly deliver payment and appropriate documentation therefor
to the custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and issue certificates therefor or hold such
Shares in book form in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as instructed by
the redeeming Shareholders;
-2-
<PAGE>
(v) Effect transfers of Shares by the registered
owners thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a
Shareholder on purchases and/or redemptions of Shares of the Fund as such
charges may be reflected in the prospectus;
(viii) Maintain records of account for and advise
the Fund and its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and
maintain pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934
("1934 Act") a record of the total number of Shares of the Fund which are
authorized, based upon data provided to it by the Fund, and issued and
outstanding. MSDW TRUST shall also provide to the Fund on a regular basis the
total number of Shares that are authorized, issued and outstanding and shall
notify the Fund in case any proposed issue of Shares by the Fund would result
in an overissue. In case any issue of Shares would result in an overissue, MSDW
TRUST shall refuse to issue such Shares and shall not countersign and issue any
certificates requested for such Shares. When recording the issuance of Shares,
MSDW TRUST shall have no obligation to take cognizance of any Blue Sky laws
relating to the issue of sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the services
set forth in the above paragraph (a), MSDW TRUST shall:
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<PAGE>
(i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with dividend reinvestment, accumulation,
open-account or similar plans (including without limitation any periodic
investment plan or periodic withdrawal program), including but not limited to,
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, receiving and tabulating proxies, mailing shareholder reports
and prospectuses to current Shareholders, withholding taxes on U.S. resident
and non-resident alien accounts, preparing and filing appropriate forms
required with respect to dividends and distributions by federal tax authorities
for all Shareholders, preparing and mailing confirmation forms and statements
of account to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders and providing Shareholder account
information;
(ii) open any and all bank accounts which may be
necessary or appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to
monitor the total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to MSDW TRUST in writing those
transactions and assets to be treated as exempt from Blue Sky reporting for
each State; and
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<PAGE>
(ii) verify the inclusion on the system prior to
activation of each State in which Fund shares may be sold and thereafter
monitor the daily purchases and sales for shareholders in each State. The
responsibility of MSDW TRUST for the Fund's status under the securities laws of
any State or other jurisdiction is limited to the inclusion on the system of
each State as to which the Fund has informed MSDW TRUST that shares may be sold
in compliance with state securities laws and the reporting of purchases and
sales in each such State to the Fund as provided above and as agreed from time
to time by the Fund and MSDW TRUST.
(d) MSDW TRUST shall provide such additional
services and functions not specifically described herein as may be mutually
agreed between MSDW TRUST and the Fund. Procedures applicable to such services
may be established from time to time by agreement between the Fund and MSDW
TRUST.
Article 2 Fees and Expenses
2.1 For performance by MSDW TRUST pursuant to this
Agreement, each Fund agrees to pay MSDW TRUST an annual maintenance fee for
each Shareholder account and certain transactional fees, if applicable, as set
out in the respective fee schedule attached hereto as Schedule A. Such fees and
out-of-pocket expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between the Fund
and MSDW TRUST.
2.2 In addition to the fees paid under Section 2.1
above, the Fund agrees to reimburse MSDW TRUST for out of pocket expenses in
connection with the services rendered
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<PAGE>
by MSDW TRUST hereunder. In addition, any other expenses incurred by MSDW TRUST
at the request or with the consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable
expenses within a reasonable period of time following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to
MSDW TRUST by the Fund upon request prior to the mailing date of such
materials.
Article 3 Representations and Warranties of MSDW TRUST
MSDW TRUST represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose
principal office is in New Jersey.
3.2 It is and will remain registered with the U.S.
Securities and Exchange Commission ("SEC") as a Transfer Agent pursuant to the
requirements of Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its
charter and By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been
taken to authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
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<PAGE>
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to MSDW TRUST that:
4.1 It is a corporation duly organized and existing
and in good standing under the laws of Delaware or Maryland or a trust duly
organized and existing and in good standing under the laws of Massachusetts, as
the case may be.
4.2 It is empowered under applicable laws and by its
Articles of Incorporation or Declaration of Trust, as the case may be, and
under its By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize
it to enter into and perform this Agreement have been taken.
4.4 It is an investment company registered with the
SEC under the Investment Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities
Act of 1933 (the "1933 Act") is currently effective and will remain effective,
and appropriate state securities law filings have been made and will continue
to be made, with respect to all Shares of the Fund being offered for sale.
Article 5 Duty of Care and Indemnification
5.1 MSDW TRUST shall not be responsible for, and the
Fund shall indemnify and hold MSDW TRUST harmless from and against, any and all
losses, damages, costs,
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<PAGE>
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of MSDW TRUST or its agents or
subcontractors required to be taken pursuant to this Agreement, provided that
such actions are taken in good faith and without negligence or willful
misconduct.
(b) The Fund's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Fund's lack of good faith,
negligence or willful misconduct or which arise out of breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by MSDW TRUST or its
agents or subcontractors of information, records and documents which (i) are
received by MSDW TRUST or its agents or subcontractors and furnished to it by
or on behalf of the Fund, and (ii) have been prepared and/or maintained by the
Fund or any other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MSDW
TRUST or its agents or subcontractors of, any instructions or requests of the
Fund.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
or Blue Sky laws of any State or other jurisdiction that notice of offering of
such Shares in such State or other jurisdiction or in violation of any stop
order or other determination or ruling by any federal agency or any State or
other jurisdiction with respect to the offer or sale of such Shares in such
State or other jurisdiction.
-8-
<PAGE>
5.2 MSDW TRUST shall indemnify and hold the Fund
harmless from or against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by MSDW TRUST as a result of the lack of
good faith, negligence or willful misconduct of MSDW TRUST, its officers,
employees or agents.
5.3 At any time, MSDW TRUST may apply to any officer
of the Fund for instructions, and may consult with legal counsel to the Fund,
with respect to any matter arising in connection with the services to be
performed by MSDW TRUST under this Agreement, and MSDW TRUST and its agents or
subcontractors shall not be liable and shall be indemnified by the Fund for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. MSDW TRUST, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction, information,
data, records or documents provided to MSDW TRUST or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the Fund. MSDW TRUST, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signature of the
officers of the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
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<PAGE>
5.4 In the event either party is unable to perform
its obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party shall not be
liable for damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
5.5 Neither party to this Agreement shall be liable
to the other party for consequential damages under any provision of this
Agreement or for any act or failure to act hereunder.
5.6 In order that the indemnification provisions
contained in this Article 5 shall apply, upon the assertion of a claim for
which either party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments concerning
such claim. The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Article 6 Documents and Covenants of the Fund and MSDW TRUST
6.1 The Fund shall promptly furnish to MSDW TRUST
the following, unless previously furnished to Dean Witter Trust Company, the
prior transfer agent of the Fund:
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<PAGE>
(a) If a corporation:
(i) A certified copy of the resolution of the Board
of Directors of the Fund authorizing the appointment of MSDW TRUST and the
execution and delivery of this Agreement;
(ii) A certified copy of the Articles of
Incorporation and By-Laws of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of
Directors designating persons authorized to give instructions on behalf of the
Fund and signature cards bearing the signature of any officer of the Fund or
any other person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the
Fund in the form approved by the Board of Directors, with a certificate of the
Secretary of the Fund as to such approval;
(b) If a business trust:
(i) A certified copy of the resolution of the Board
of Trustees of the Fund authorizing the appointment of MSDW TRUST and the
execution and delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust
and By-Laws of the Fund and all amendments thereto;
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<PAGE>
(iii) Certified copies of each vote of the Board of
Trustees designating persons authorized to give instructions on behalf of the
Fund and signature cards bearing the signature of any officer of the Fund or
any other person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the
Fund in the form approved by the Board of Trustees, with a certificate of the
Secretary of the Fund as to such approval;
(c) The current registration statements and any
amendments and supplements thereto filed with the SEC pursuant to the
requirements of the 1933 Act or the 1940 Act;
(d) All account application forms or other documents
relating to Shareholder accounts and/or relating to any plan, program or
service offered or to be offered by the Fund; and
(e) Such other certificates, documents or opinions
as MSDW TRUST deems to be appropriate or necessary for the proper performance
of its duties.
6.2 MSDW TRUST hereby agrees to establish and
maintain facilities and procedures reasonably acceptable to the Fund for
safekeeping of Share certificates, check forms and facsimile signature
imprinting devices, if any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
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<PAGE>
6.3 MSDW TRUST shall prepare and keep records
relating to the services to be performed hereunder, in the form and manner as
it may deem advisable and as required by applicable laws and regulations. To
the extent required by Section 31 of the 1940 Act, and the rules and
regulations thereunder, MSDW TRUST agrees that all such records prepared or
maintained by MSDW TRUST relating to the services performed by MSDW TRUST
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section 31 of the 1940 Act, and the
rules and regulations thereunder, and will be surrendered promptly to the Fund
on and in accordance with its request.
6.4 MSDW TRUST and the Fund agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential and shall not be voluntarily
disclosed to any other person except as may be required by law or with the
prior consent of MSDW TRUST and the Fund.
6.5 In case of any request or demands for the
inspection of the Shareholder records of the Fund, MSDW TRUST will endeavor to
notify the Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. MSDW TRUST reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder records
to such person.
Article 7 Duration and Termination of Agreement
7.1 This Agreement shall remain in full force and
effect until August 1,
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<PAGE>
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on
60 days written notice, and by MSDW TRUST on 90 days written notice, to the
other party without payment of any penalty.
7.3 Should the Fund exercise its right to terminate,
all out-of-pocket expenses associated with the movement of records and other
materials will be borne by the Fund. Additionally, MSDW TRUST reserves the
right to charge for any other reasonable fees and expenses associated with such
termination.
Article 8 Assignment
8.1 Except as provided in Section 8.3 below, neither
this Agreement nor any rights or obligations hereunder may be assigned by
either party without the written consent of the other party.
8.2 This Agreement shall inure to the benefit of and
be binding upon the parties and their respective permitted successors and
assigns.
8.3 MSDW TRUST may, in its sole discretion and
without further consent by the Fund, subcontract, in whole or in part, for the
performance of its obligations and duties hereunder with any person or entity
including but not limited to companies which are affiliated with MSDW TRUST;
provided, however, that such person or entity has and maintains the
qualifications, if any, required to perform such obligations and duties, and
that MSDW TRUST
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<PAGE>
shall be as fully responsible to the Fund for the acts and omissions of any
agent or subcontractor as it is for its own acts or omissions under this
Agreement.
Article 9 Affiliations
9.1 MSDW TRUST may now or hereafter, without the
consent of or notice to the Fund, function as transfer agent and/or shareholder
servicing agent for any other investment company registered with the SEC under
the 1940 Act and for any other issuer, including without limitation any
investment company whose adviser, administrator, sponsor or principal
underwriter is or may become affiliated with Morgan Stanley Dean Witter & Co.
or any of its direct or indirect subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors
or Trustees (as the case may be), officers, employees, agents and shareholders
of the Fund, and the directors, officers, employees, agents and shareholders of
the Fund's investment adviser and/or distributor, are or may be interested in
MSDW TRUST as directors, officers, employees, agents and shareholders or
otherwise, and that the directors, officers, employees, agents and shareholders
of MSDW TRUST may be interested in the Fund as Directors or Trustees (as the
case may be), officers, employees, agents and shareholders or otherwise, or in
the investment adviser and/or distributor as directors, officers, employees,
agents, shareholders or otherwise.
Article 10 Amendment
10.1 This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or approved by a
resolution of the Board of Directors or the Board of Trustees (as the case may
be) of the Fund.
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<PAGE>
Article 11 Applicable Law
11.1 This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the laws of the
State of New York.
Article 12 Miscellaneous
12.1 In the event that one or more additional
investment companies managed or administered by Morgan Stanley Dean Witter
Advisors Inc. or any of its affiliates ("Additional Funds") desires to retain
MSDW TRUST to act as transfer agent, dividend disbursing agent and/or
shareholder servicing agent, and MSDW TRUST desires to render such services,
such services shall be provided pursuant to a letter agreement, substantially
in the form of Exhibit A hereto, between MSDW TRUST and each Additional Fund.
12.2 In the event of an alleged loss or destruction
of any Share certificate, no new certificate shall be issued in lieu thereof,
unless there shall first be furnished to MSDW TRUST an affidavit of loss or
non-receipt by the holder of Shares with respect to which a certificate has
been lost or destroyed, supported by an appropriate bond satisfactory to MSDW
TRUST and the Fund issued by a surety company satisfactory to MSDW TRUST,
except that MSDW TRUST may accept an affidavit of loss and indemnity agreement
executed by the registered holder (or legal representative) without surety in
such form as MSDW TRUST deems appropriate indemnifying MSDW TRUST and the Fund
for the issuance of a replacement certificate, in cases where the alleged loss
is in the amount of $1,000 or less.
12.3 In the event that any check or other order for
payment of money on the
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<PAGE>
account of any Shareholder or new investor is returned unpaid for any reason,
MSDW TRUST will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of
such non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as MSDW TRUST may, in its sole
discretion, deem appropriate or as the Fund and, if applicable, the Distributor
may instruct MSDW TRUST.
12.4 Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or to MSDW TRUST
shall be sufficiently given if addressed to that party and received by it at
its office set forth below or at such other place as it may from time to time
designate in writing.
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To MSDW TRUST:
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 Merger of Agreement
13.1 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof whether oral or written.
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Article 14 Personal Liability
14.1 In the case of a Fund organized as a
Massachusetts business trust, a copy of the Declaration of Trust of the Fund is
on file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Board of
Trustees of the Fund as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund;
provided, however, that the Declaration of Trust of the Fund provides that the
assets of a particular Series of the Fund shall under no circumstances be
charged with liabilities attributable to any other Series of the Fund and that
all persons extending credit to, or contracting with or having any claim
against, a particular Series of the Fund shall look only to the assets of that
particular Series for payment of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Agreement to be executed in their names and on their
behalf by and through their duly authorized officers, as of the day and year
first above written.
MORGAN STANLEY DEAN WITTER FUNDS
--------------------------------
MONEY MARKET FUNDS
------------------
1. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Morgan Stanley Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
8. Morgan Stanley Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
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EQUITY FUNDS
------------
10. Morgan Stanley Dean Witter American Value Fund
11. Morgan Stanley Dean Witter Mid-Cap Growth Fund
12. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
13. Morgan Stanley Dean Witter Capital Growth Securities
14. Morgan Stanley Dean Witter Global Dividend Growth Securities
15. Morgan Stanley Dean Witter Income Builder Fund
16. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
17. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
18. Morgan Stanley Dean Witter Developing Growth Securities Trust
19. Morgan Stanley Dean Witter Health Sciences Trust
20. Morgan Stanley Dean Witter Capital Appreciation Fund
21. Morgan Stanley Dean Witter Information Fund
22. Morgan Stanley Dean Witter Value-Added Market Series
23. Morgan Stanley Dean Witter European Growth Fund Inc.
24. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
25. Morgan Stanley Dean Witter International SmallCap Fund
26. Morgan Stanley Dean Witter Japan Fund
27. Morgan Stanley Dean Witter Utilities Fund
28. Morgan Stanley Dean Witter Global Utilities Fund
29. Morgan Stanley Dean Witter Special Value Fund
30. Morgan Stanley Dean Witter Financial Services Trust
31. Morgan Stanley Dean Witter Market Leader Trust
32. Morgan Stanley Dean Witter Fund of Funds
33. Morgan Stanley Dean Witter S&P 500 Index Fund
34. Morgan Stanley Dean Witter Competitive Edge Fund
35. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
36. Morgan Stanley Dean Witter Equity Fund
37. Morgan Stanley Dean Witter Growth Fund
38. Morgan Stanley Dean Witter S&P 500 Select Fund
BALANCED FUNDS
--------------
39. Morgan Stanley Dean Witter Balanced Growth Fund
40. Morgan Stanley Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
----------------------
41. Morgan Stanley Dean Witter Strategist Fund
42. Dean Witter Global Asset Allocation Fund
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FIXED INCOME FUNDS
------------------
43. Morgan Stanley Dean Witter High Yield Securities Inc.
44. Morgan Stanley Dean Witter High Income Securities
45. Morgan Stanley Dean Witter Convertible Securities Trust
46. Morgan Stanley Dean Witter Intermediate Income Securities
47. Morgan Stanley Dean Witter Short-Term Bond Fund
48. Morgan Stanley Dean Witter World Wide Income Trust
49. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
50. Morgan Stanley Dean Witter Diversified Income Trust
51. Morgan Stanley Dean Witter U.S. Government Securities Trust
52. Morgan Stanley Dean Witter Federal Securities Trust
53. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
55. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56. Morgan Stanley Dean Witter Limited Term Municipal Trust
57. Morgan Stanley Dean Witter California Tax-Free Income Fund
58. Morgan Stanley Dean Witter New York Tax-Free Income Fund
59. Morgan Stanley Dean Witter Hawaii Municipal Trust
60. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
61. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
SPECIAL PURPOSE FUNDS
---------------------
62. Dean Witter Retirement Series
63. Morgan Stanley Dean Witter Variable Investment Series
64. Morgan Stanley Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
------------
65. TCW/DW North American Government Income Trust
66. TCW/DW Latin American Growth Fund
67. TCW/DW Income and Growth Fund
68. TCW/DW Small Cap Growth Fund
69. TCW/DW Total Return Trust
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70. TCW/DW Global Telecom Trust
71. TCW/DW Mid-Cap Equity Trust
72. TCW/DW Emerging Markets Opportunities Trust
By:
-----------------------------------
Barry Fink
Vice President and General Counsel
ATTEST:
- --------------------------------
Assistant Secretary
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
-----------------------------------
John Van Heuvelen
President
ATTEST:
- --------------------------------
Executive Vice President
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<PAGE>
Exhibit A
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (inset name of investment company) a
(Massachusetts business trust/Maryland corporation) (the "Fund"), desires to
employ and appoint Morgan Stanley Dean Witter Trust FSB ("MSDW TRUST") to act
as transfer agent for each series and class of shares of the Fund, whether now
or hereafter authorized or issued ("Shares"), dividend disbursing agent and
shareholder servicing agent, registrar and agent in connection with any
accumulation, open-account or similar plan provided to the holders of Shares,
including without limitation any periodic investment plan or periodic
withdrawal plan.
The Fund hereby agrees that, in consideration for the payment
by the Fund to MSDW TRUST of fees as set out in the fee schedule attached
hereto as Schedule A, MSDW TRUST shall provide such services to the Fund
pursuant to the terms and conditions set forth in the Transfer Agency and
Service Agreement annexed hereto, as if the Fund was a signatory thereto.
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<PAGE>
Please indicate MSDW TRUST's acceptance of employment and
appointment by the Fund in the capacities set forth above by so indicating in
the space provided below.
Very truly yours,
(name of fund)
--------------
By:
--------------------------------
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
MORGAN STANLEY DEAN WITTER TRUST FSB
By:_______________________
Its:______________________
Date:_____________________
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SCHEDULE A
Fund: Morgan Stanley Dean Witter Multi-State Municipal Series Trust
Fees: (1) Annual maintenance fee of $13.20 per shareholder account, payable
monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable
following the end of the calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(4) Fees for additional services not set forth in this Agreement shall
be as negotiated between the parties.
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<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June
22, 1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which MSDW Advisors is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors to perform
such administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services shall (i) administer the Fund's business affairs and supervise the
overall day-to-day operations of the Fund (other than rendering investment
advice); (ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts and
other records required under the Investment Company Act of 1940, as amended
(the "Act"), the notification to the Fund and MSDW Advisors of available funds
for investment, the reconciliation of account information and balances among
the Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, and the calculation of the net asset value of the Fund's shares;
(iii) provide the Fund with the services of persons competent to perform such
supervisory, administrative and clerical functions as are necessary to provide
effective operation of the Fund; (iv) oversee the performance of administrative
and professional services rendered to the Fund by others, including its
custodian, transfer agent and dividend disbursing agent, as well as accounting,
auditing and other services; (v) provide the Fund with adequate general office
space and facilities; (vi) assist in the preparation and the printing of the
periodic updating of the Fund's registration statement and prospectus (and, in
the case of an open-end Fund, the statement of additional information), tax
returns, proxy statements, and reports to its shareholders and the Securities
and Exchange Commission; and (vii) monitor the compliance of the Fund's
investment policies and restrictions.
In the event that MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services
to perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent
of MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account (other than
those maintained by the Fund's transfer agent, registrar, custodian and other
agencies). All such books and records so maintained shall be the property of
the Fund and, upon request therefor, MSDW Services shall surrender to MSDW
Advisors or to the Fund such of the books and records so requested.
1
<PAGE>
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation
or request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
monthly compensation calculated daily (in the case of an open-end Fund) or
weekly (in the case of a closed-end Fund) by applying the annual rate or rates
set forth on Schedule B to the net assets of each Fund. Except as hereinafter
set forth, (i) in the case of an open-end Fund, compensation under this
Agreement shall be calculated by applying 1/365th of the annual rate or rates
to the Fund's or the Series' daily net assets determined as of the close of
business on that day or the last previous business day and (ii) in the case of
a closed-end Fund, compensation under this Agreement shall be calculated by
applying the annual rate or rates to the Fund's average weekly net assets
determined as of the close of the last business day of each week. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth on Schedule B. Subject to the
provisions of paragraph 5 hereof, payment of MSDW Services' compensation for
the preceding month shall be made as promptly as possible after completion of
the computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to MSDW Advisors pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof
imposed by state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, or, in the case of InterCapital
Income Securities Inc. or Morgan Stanley Dean Witter Variable Investment Series
or any Series thereof, the expense limitation specified in the Fund's
Investment Management Agreement, the fee payable hereunder shall be reduced on
a pro rata basis in the same proportion as the fee payable by the Fund under
the Investment Management Agreement is reduced.
6. MSDW Services shall bear the cost of rendering the administrative
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the
Fund employed by MSDW Services, and such clerical help and bookkeeping services
as MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services will use its best efforts in the performance of
administrative activitives on behalf of each Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, MSDW Services shall not be liable to the Fund or any of
its investors for any error of judgment or mistake of law or for any act or
omission by MSDW Services or for any losses sustained by the Fund or its
investors. It is understood that, subject to the terms and conditions of the
Investment Management Agreement between each Fund and MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and
hold it harmless from any liability that MSDW Advisors may incur arising out of
any act or failure to act by MSDW Services in carrying out its responsibilities
hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW Services may have an interest in the Fund. It is also understood that
MSDW Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services have and may have
advisory, management, administration service or other contracts with other
organizations and persons, and may have other interests and businesses, and
further may purchase, sell or trade any securities or commodities for their own
accounts or for the account of others for whom they may be acting.
2
<PAGE>
9. This Agreement shall continue until April 30, 1999, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party on
30 days' written notice delivered to the other party. In the event that the
Investment Management Agreement between any Fund and MSDW Advisors is
terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
11. This Agreement may be assigned by either party with the written
consent of the other party.
12. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By:
-----------------------------------------
Attest:
- -----------------------------
MORGAN STANLEY DEAN WITTER SERVICES
COMPANY INC.
By:
-----------------------------------------
Attest:
- -----------------------------
3
<PAGE>
SCHEDULE A
MORGAN STANLEY DEAN WITTER FUNDS
AS AMENDED AS OF DECEMBER 2, 1998
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Morgan Stanley Dean Witter Aggressive Equity Fund
6. Morgan Stanley Dean Witter American Value Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Appreciation Fund
12. Morgan Stanley Dean Witter Capital Growth Securities
13. Morgan Stanley Dean Witter Competitive Edge Fund,
"Best Ideas" Portfolio
14. Morgan Stanley Dean Witter Convertible Securities Trust
15. Morgan Stanley Dean Witter Developing Growth Securities Trust
16. Morgan Stanley Dean Witter Diversified Income Trust
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
18. Morgan Stanley Dean Witter Equity Fund
19. Morgan Stanley Dean Witter European Growth Fund Inc.
20. Morgan Stanley Dean Witter Federal Securities Trust
21. Morgan Stanley Dean Witter Financial Services Trust
22. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
23. Morgan Stanley Dean Witter Global Dividend Growth Securities
24. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25. Morgan Stanley Dean Witter Global Utilities Fund
26. Morgan Stanley Dean Witter Growth Fund
27. Morgan Stanley Dean Witter Hawaii Municipal Trust
28. Morgan Stanley Dean Witter Health Sciences Trust
29. Morgan Stanley Dean Witter High Yield Securities Inc.
30. Morgan Stanley Dean Witter Income Builder Fund
31. Morgan Stanley Dean Witter Information Fund
32. Morgan Stanley Dean Witter Intermediate Income Securities
33. Morgan Stanley Dean Witter International Fund
34. Morgan Stanley Dean Witter International SmallCap Fund
35. Morgan Stanley Dean Witter Japan Fund
36. Morgan Stanley Dean Witter Limited Term Municipal Trust
37. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38. Morgan Stanley Dean Witter Managers Focus Fund
39. Morgan Stanley Dean Witter Market Leader Trust
40. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
41. Morgan Stanley Dean Witter Mid-Cap Growth Fund
42. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
43. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
44. Morgan Stanley Dean Witter New York Municipal Money Market Trust
45. Morgan Stanley Dean Witter New York Tax-Free Income Fund
46. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
47. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
48. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Value Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
49. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50. Morgan Stanley Dean Witter U.S. Government Money Market Trust
A-1
<PAGE>
51. Morgan Stanley Dean Witter Utilities Fund
52. Morgan Stanley Dean Witter Short-Term Bond Fund
53. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Special Value Fund
55. Morgan Stanley Dean Witter Strategist Fund
56. Morgan Stanley Dean Witter S&P 500 Index Fund
57. Morgan Stanley Dean Witter S&P 500 Select Fund
58. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
59. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
60. Morgan Stanley Dean Witter U.S. Government Securities Trust
61. Morgan Stanley Dean Witter Value Fund
62. Morgan Stanley Dean Witter Value-Added Market Series
63. Morgan Stanley Dean Witter Variable Investment Series
(i) Capital Appreciation Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Strategist Portfolio
(xv) Utilities Portfolio
64. Morgan Stanley Dean Witter World Wide Income Trust
65. Morgan Stanley Dean Witter Worldwide High Income Fund
CLOSED-END FUNDS
66. High Income Advantage Trust
67. High Income Advantage Trust II
68. High Income Advantage Trust III
69. InterCapital Income Securities Inc.
70. Dean Witter Government Income Trust
71. InterCapital Insured Municipal Bond Trust
72. InterCapital Insured Municipal Trust
73. InterCapital Insured Municipal Income Trust
74. InterCapital California Insured Municipal Income Trust
75. InterCapital Insured Municipal Securities
76. InterCapital Insured California Municipal Securities
77. InterCapital Quality Municipal Investment Trust
78. InterCapital Quality Municipal Income Trust
79. InterCapital Quality Municipal Securities
80. InterCapital California Quality Municipal Securities
81. InterCapital New York Quality Municipal Securities
A-2
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF DECEMBER 2, 1998
Monthly compensation calculated daily by applying the following annual
rates to a fund's daily net assets:
FIXED INCOME FUNDS
- ------------------
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Income Fund
Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not exceeding
California Tax-Free Income Fund $500 million; 0.0525% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.050%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.0475% of the portion of the
daily net assets exceeding $1 billion but not exceeding $1.25
billion; and 0.045% of the portion of the daily net assets
exceeding $1.25 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Convertible Securities Trust $750 million; 0.055% of the portion of the daily net assets
exceeding $750 million but not exceeding $1 billion; 0.050% of
the portion of the daily net assets of the exceeding $1 billion
but not exceeding $1.5 billion; 0.0475% of the portion of the
daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.045% of the portion of the daily net assets
exceeding $2 billion but not exceeding $3 billion; and 0.0425%
of the portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
Diversified Income Trust
Morgan Stanley Dean Witter Federal 0.055% of the portion of the daily net assets not exceeding
Securities Trust $1 billion; 0.0525% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.050% of
the portion of the daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.0475% of the portion of the daily
net assets exceeding $2 billion but not exceeding $2.5 billion;
0.045% of the portion of the daily net assets exceeding $2.5
billion but not exceeding $5 billion; 0.0425% of the portion of
the daily net assets exceeding $5 billion but not exceeding $7.5
billion; 0.040% of the portion of the daily net assets exceeding
$7.5 billion but not exceeding $10 billion; 0.0375% of the
portion of the daily net assets exceeding $10 billion but not
exceeding $12.5 billion; and 0.035% of the portion of the daily
net assets exceeding $12.5 billion.
Morgan Stanley Dean Witter Global 0.055% of the portion of the daily net assets not exceeding
Short-Term Income Fund Inc. $500 million; and 0.050% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Hawaii 0.035% of the daily net assets.
Municipal Trust
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter High 0.050% of the portion of the daily net assets not exceeding
Yield Securities Inc. $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $2 billion;
0.0325% of the portion of the daily net assets exceeding $2
billion but not exceeding $3 billion; and 0.030% of the portion
of daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Intermediate Income Securities $500 million; 0.050% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.040%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; and 0.030% of the portion of the
daily net assets exceeding $1 billion.
Morgan Stanley Dean Witter Limited 0.050% of the daily net assets.
Term Municipal Trust
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Multi-State Municipal Series Trust
(10 Series)
Morgan Stanley Dean Witter New 0.055% of the portion of the daily net assets not exceeding
York Tax-Free Income Fund $500 million; and 0.0525% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Select 0.039% of the daily net assets.
Dimensions Investment
Series--North American
Government Securities Portfolio
Morgan Stanley Dean Witter Select 0.050% of the daily net assets.
Municipal Reinvestment Fund
Morgan Stanley Dean Witter 0.070% of the daily net assets.
Short-Term Bond Fund
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Short-Term U.S. Treasury Trust
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Tax-Exempt Securities Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; and 0.035% of the portion of the
daily net assets exceeding $1 billion but not exceeding $1.25
billion; .0325% of the portion of the daily net assets exceeding
$1.25 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not exceeding $1
Government Securities Trust billion; 0.0475% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.045% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0425% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.040% of
the portion of the daily net assets exceeding $2.5 billion but
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
not exceeding $5 billion; 0.0375% of the portion of the daily
net assets exceeding $5 billion but not exceeding $7.5 billion;
0.035% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0325% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Variable Investment Series- $500 million; and 0.0425% of the daily net assets exceeding
High Yield Portfolio $500 million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to $500
million; and 0.045% of the portion of the daily net assets
exceeds $500 million.
Morgan Stanley Dean Witter World 0.075% of the portion of the daily net assets up to $250 million;
Wide Income Trust 0.060% of the portion of the daily net assets exceeding $250
million but not exceeding $500 million; 0.050% of the portion
of the daily net assets of the exceeding $500 million but not
exceeding $750 milliion; 0.040% of the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; and
0.030% of the portion of the daily net assets exceeding $1
billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Worldwide High Income Fund
EQUITY FUNDS
- ------------
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Aggressive Equity Fund
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not exceeding
American Value Fund $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $2.25 billion; 0.0475%
of the portion of the daily net assets exceeding $2.25 billion
but not exceeding $3.5 billion; 0.0450% of the portion of the
daily net assets exceeding 3.5 billion but not exceeding 4.5
billion; and 0.0425% of the portion of the daily net assets
exceeding $4.5 billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Growth Fund
Morgan Stanley Dean Witter Capital 0.075% of the portion of the daily net assets not exceeding
Appreciation Fund $500 million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Capital 0.065% of the portion of the daily net assets not exceeding
Growth Securities $500 million; 0.055% of the portion exceeding $500 million but
not exceeding $1 billion; 0.050% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; and
0.0475% of the portion of the daily net assets exceeding $1.5
billion.
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding
Competitive Edge Fund, "Best $1.5 billion; and 0.0625% of the portion of the daily net assets
Ideas" Portfolio exceeding $1.5 billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Developing Growth Securities $500 million; and 0.0475% of the portion of the daily net assets
Trust exceeding $500 million.
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not exceeding
Dividend Growth Securities Inc. $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $1 billion; 0.0475% of
the portion of the daily net assets exceeding $1 billion but not
exceeding $2 billion; 0.045% of the portion of the daily net
assets exceeding $2 billion but not exceeding $3 billion;
0.0425% of the portion of the daily net assets exceeding $3
billion but not exceeding $4 billion; 0.040% of the portion of
the daily net assets exceeding $4 billion but not exceeding $5
billion; 0.0375% of the portion of the daily net assets exceeding
$5 billion but not exceeding $6 billion; 0.035% of the portion of
the daily net assets exceeding $6 billion but not exceeding $8
billion; 0.0325% of the portion of the daily net assets exceeding
$8 billion but not exceeding $10 billion; 0.030% of the portion
of the daily net assets exceeding $10 billion but not exceeding
$15 billion; and 0.0275% of the portion of the daily net assets
exceeding $15 billion.
Morgan Stanley Dean Witter 0.051% of the daily net assets.
Equity Fund
Morgan Stanley Dean Witter 0.057% of the portion of the daily net assets not exceeding
European Growth Fund Inc. $500 million; 0.054% of the portion of the daily net assets
exceeding $500 million but not exceeding $2 billion; and
0.051% of the portion of the daily net assets exceeding $2
billion.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Financial Services Trust
Morgan Stanley Dean Witter Fund
of Funds-
Domestic Portfolio None
International Portfolio None
Morgan Stanley Dean Witter Global 0.075% of the portion of the daily net assets not exceeding
Dividend Growth Securities $1 billion; 0.0725% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.070% of
the portion of the daily net assets exceeding $1.5 billion but
not exceeding $2.5 billion; 0.0675% of the portion of the daily
net assets exceeding $2.5 billion but not exceeding $3.5 billion;
0.0650% of the portion of the daily net assets exceeding $3.5
billion but not exceeding $4.5 billion; and 0.0625% of the
portion of the daily net assets exceeding $4.5 billion.
Morgan Stanley Dean Witter Global 0.065% of the portion of the daily net assets not exceeding
Utilities Fund $500 million; and 0.0625% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.048% of the portion of daily net assets not exceeding $750
Growth Fund million; 0.045% of the portion of daily net assets exceeding
$750 million but not exceeding $1.5 billion; and 0.042% of the
portion of daily net assets exceeding $1.5 billion.
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Health 0.10% of the portion of daily net assets not exceeding $500
Sciences Trust million; and 0.095% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter Income 0.075% of the portion of the net assets not exceeding $500
Builder Fund million; and 0.0725% of the portion of daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Information Fund $500 million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
International Fund
Morgan Stanley Dean Witter 0.069% of the daily net assets.
International SmallCap Fund
Morgan Stanley Dean Witter Japan 0.057% of the daily net assets.
Fund
Morgan Stanley Dean Witter 0.0625% of the daily net assets.
Managers Focus Fund
Morgan Stanley Dean Witter Market 0.075% of the daily net assets.
Leader Trust
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Mid-Cap Dividend Growth
Securities
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Mid-Cap Growth Fund $500 million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Natural 0.0625% of the portion of the daily net assets not exceeding
Resource Development Securities $250 million and 0.050% of the portion of the daily net assets
Inc. exceeding $250 million.
Morgan Stanley Dean Witter Pacific 0.057% of the portion of the daily net assets not exceeding $1
Growth Fund Inc. billion; 0.054% of the portion of the daily net assets exceeding
$1 billion but not exceeding $2 billion; and 0.051% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter 0.080% of the daily net assets.
Precious Metals and Minerals Trust
Morgan Stanley Dean Witter Select
Dimensions Investment Series--
American Value Portfolio 0.0625% of the daily net assets.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Diversified Income Portfolio 0.040% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding
$500 million; and 0.050% of the portion of the daily net assets
exceeding $500 million.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter Special 0.075% of the daily net assets.
Value Fund
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Strategist Fund $500 million; 0.055% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.050% of
the portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2.0 billion; and
0.045% of the portion of the daily net assets exceeding $2.0
billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
S&P 500 Index Fund
Morgan Stanley Dean Witter 0.060% of the daily net assets.
S&P 500 Select Fund
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding
Utilities Fund $500 million; 0.055% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0525% of
the portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.050% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2.5 billion;
0.0475% of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3.5 billion; 0.045% of the portion of
the daily net assets exceeding $3.5 but not exceeding $5 billion;
and 0.0425% of the daily net assets exceeding $5 billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Value Fund
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Value-Added Market Series $500 million; 0.45% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0425% of
the portion of the daily net assets exceeding $1.0 billion but
not exceeding $2.0 billion; and 0.040% of the portion of the
daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter
Variable Investment Series-
Capital Appreciation Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" 0.065% of the daily net assets.
Portfolio
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding
$500 million; and 0.050% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0475% of
the portion of the daily net assets exceeding $1.0 billion but
not exceeding $2.0 billion; and 0.045% of the portion of the
daily net assets exceeding $2 billion.
Equity Portfolio 0.050% of the net assets of the portion of the daily net assets
not exceeding $1 billion; and 0.0475% of the portion of the
daily net assets exceeding $1 billion.
European Growth Portfolio 0.057% of the portion of the daily net assets not exceeding
$500 million; and 0.054% of the portion of the daily net assets
exceeding $500 million.
Income Builder Portfolio 0.075% of the daily net assets.
Pacific Growth Portfolio 0.057% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the daily net assets.
Utilities Portfolio 0.065% of the portion of the daily net assets not exceeding
$500 million and 0.055% of the portion of the daily net assets
exceeding $500 million.
MONEY MARKET FUNDS
- ------------------
Active Assets Trusts: 0.050% of the portion of the daily net assets not exceeding
(1) Active Assets Money Trust $500 million; 0.0425% of the portion of the daily net assets
(2) Active Assets Tax-Free Trust exceeding $500 million but not exceeding $750 million; 0.0375%
(3) Active Assets California of the portion of the daily net assets exceeding $750 million
Tax-Free Trust but not exceeding $1 billion; 0.035% of the portion of the daily
(4) Active Assets Government net assets exceeding $1 billion but not exceeding $1.5 billion;
Securities Trust 0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
California Tax-Free Daily $500 million; 0.0425% of the portion of the daily net assets
Income Trust exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Liquid 0.050% of the portion of the daily net assets not exceeding
Asset Fund Inc. $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net assets exceeding $1.35
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B-7
<PAGE>
<TABLE>
<S> <C>
billion but not exceeding $1.75 billion; 0.030% of the portion of
the daily net assets exceeding $1.75 billion but not exceeding
$2.15 billion; 0.0275% of the portion of the daily net assets
exceeding $2.15 billion but not exceeding $2.5 billion; 0.025%of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion of the daily
net assets exceeding $15 billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily net assets exceeding
$17.5 billion.
Morgan Stanley Dean Witter New 0.050% of the portion of the daily net assets not exceeding
York Municipal Money $500 million; 0.0425% of the portion of the daily net assets
Market Trust exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Select
Dimensions Investment Series-
Money Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Tax-Free Daily Income Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not exceeding
Government Money Market Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the daily net assets.
Variable Investment Series-
Money Market Portfolio
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B-8
<PAGE>
Monthly compensation calculated weekly by applying the following annual
rates to a fund's weekly net assets:
CLOSED-END FUNDS
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<S> <C>
Dean Witter Government 0.060% of the average weekly net assets.
IncomeTrust
High Income Advantage Trust 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of average weekly net assets exceeding
$750 million and not exceeding $1 billion; and 0.030% of the
portion of average weekly net assets exceeding $1 billion.
High Income Advantage Trust II 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of average weekly net assets exceeding
$750 million and not exceeding $1 billion; and 0.030% of the
portion of average weekly net assets exceeding $1 billion.
High Income Advantage Trust III 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of the average weekly net assets
exceeding $750 million and not exceeding $1 billion; and
0.030% of the portion of average weekly net assets exceeding
$1 billion.
InterCapital Income Securities Inc. 0.050% of the average weekly net assets.
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Bond Trust
InterCapital Insured Municipal Trust 0.035% of the average weekly net assets.
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% of the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Income Trust
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B-9
<PAGE>
<TABLE>
<S> <C>
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital California Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Insured California 0.035% of the average weekly net assets.
Municipal Securities
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B-10
