Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment 168 910K
2: EX-2 By Laws 10 53K
3: EX-8 Amendment to Custody Agreement 4 15K
4: EX-11 Consent of Independent Accoutants 1 8K
5: EX-16 Schedule for Computation 27 84K
6: EX-27.1 Article 6 FDS Arizona 2 10K
15: EX-27.10 Article 6 FDS Pennsylvania 2 10K
7: EX-27.2 Article 6 FDS California 2 10K
8: EX-27.3 Article 6 FDS Florida 2 10K
9: EX-27.4 Article 6 FDS Massachusetts 2 10K
10: EX-27.5 Article 6 FDS Michigan 2 10K
11: EX-27.6 Article 6 FDS Minnesota 2 10K
12: EX-27.7 Article 6 FDS New Jersey 2 10K
13: EX-27.8 Article 6 FDS New York 2 10K
14: EX-27.9 Article 6 FDS Ohio 2 10K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION NO.: 33-37562
811-6208
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 9 [X]
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
X immediately upon filing pursuant to paragraph (b)
---
on (date) pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)
---
on (date) pursuant to paragraph (a) of rule 485.
---
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (a)(1) OF RULE 24f-2 OF THE
INVESTMENT COMPANY ACT OF 1940. PURSUANT TO SECTION (b)(2) OF RULE 24f-2, THE
REGISTRANT FILED A RULE 24f-2 NOTICE FOR ITS FISCAL YEAR ENDED NOVEMBER 30,
1996 WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1997.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
CROSS-REFERENCE SHEET
[Enlarge/Download Table]
FORM N-1A
PART A
ITEM CAPTION PROSPECTUS
------------------------------------ -------------------------------------------------------
1. .............................. Cover Page
2. .............................. Summary of Fund Expenses; Prospectus Summary
3. .............................. Financial Highlights; Performance Information
4. .............................. Investment Objective and Policies; The Fund and its
Management; Cover Page; Investment Restrictions;
Prospectus Summary
5. .............................. The Fund and Its Management; Back Cover; Investment
Objective and Policies
6. .............................. Dividends, Distributions and Taxes; Additional
Information
7. .............................. Purchase of Fund Shares; Shareholder Services
8. .............................. Redemptions and Repurchases; Shareholder Services
9. .............................. Not Applicable
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PART B
ITEM STATEMENT OF ADDITIONAL INFORMATION
------------------------------------ -----------------------------------------------------------
10. ............................. Cover Page
11. ............................. Table of Contents
12. ............................. The Fund and Its Management
13. ............................. Investment Practices and Policies; Investment Restrictions;
Portfolio Transactions and Brokerage
14. ............................. The Fund and Its Management; Trustees and
Officers
15. ............................. Trustees and Officers
16. ............................. The Fund and Its Management; Purchase of Fund Shares;
Custodian and Transfer Agent;
Independent Accountants
17. ............................. Portfolio Transactions and Brokerage
18. ............................. Description of Shares; Validity of Shares of Beneficial
Interest
19. ............................. Repurchase of Fund Shares; Redemptions and Repurchases;
Statement of Assets and Liabilities; Shareholder Services
20. ............................. Dividends, Distributions and Taxes
21. ............................. Not applicable
22. ............................. Dividends, Distributions and Taxes
23. ............................. Performance Information; Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
PROSPECTUS -- FEBRUARY 24, 1997
-----------------------------------------------------------------------------
Dean Witter Multi-State Municipal Series Trust (the "Fund") is an open-end
non-diversified management investment company currently consisting of ten
separate 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 "State Series"). The investment objective of the
State Series is to provide a high level of current income exempt from both
federal and the designated State income taxes consistent with the
preservation of capital. Each Series ("Series") seeks to achieve its
investment objective by investing principally in investment grade tax-exempt
securities of municipal issuers in the designated state. (See "Investment
Objective and Policies.")
The Fund, on behalf of each Series, is authorized to reimburse Dean Witter
Distributors Inc. (the "Distributor") for specific expenses incurred in
promoting the distribution of the Fund's shares pursuant to a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Act"). Reimbursement may in no event exceed an amount equal to payments
at the annual rate of 0.15% of the average daily net assets of each Series.
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the
Statement of Additional Information, dated February 24, 1997, which has been
filed with the Securities and Exchange Commission, and which is available at
no charge upon request of the Fund at the address or telephone numbers listed
below. The Statement of Additional Information is incorporated herein by
reference.
DEAN WITTER MULTI-STATE MUNICIPAL
SERIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
(800) 869-NEWS
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 8
Investment Objective and Policies ..................................... 9
Investment Restrictions ............................................... 15
Purchase of Fund Shares ............................................... 15
Shareholder Services .................................................. 18
Redemptions and Repurchases ........................................... 20
Dividends, Distributions and Taxes .................................... 21
Performance Information ............................................... 29
Additional Information ................................................ 30
Appendix .............................................................. 32
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the Shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Dean Witter Distributors Inc.
Distributor
PROSPECTUS SUMMARY
[Enlarge/Download Table]
--------------- ---------------------------------------------------------------------------
The The Fund is organized as a Trust, commonly known as a Massachusetts
Fund business trust, and is an open-end, non-diversified management investment
company currently consisting of ten separate series: the Arizona Series,
the California Series, the Florida Series, the Massachusetts Series, the
Michigan Series, the Minnesota Series, the New Jersey Series, the New York
Series, the Ohio Series and the Pennsylvania Series. Each Series invests
principally in investment grade, tax-exempt securities of the designated
State.
--------------- ---------------------------------------------------------------------------
Shares Shares of beneficial interest with $0.01 par value (see page 30).
Offered
--------------- ---------------------------------------------------------------------------
Offering The price of the shares offered by this prospectus varies with the changes
Price in the value of the Fund's investments. The offering price, determined once
daily as of 4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, is equal to the net asset value plus a sales charge of
4.0% of the offering price, scaled down on purchases of $25,000 or over
(see page 15).
--------------- ---------------------------------------------------------------------------
Minimum Minimum initial investment, $1,000 ($100 if the account is opened through
Purchase EasyInvest (Service Mark) ); Minimum subsequent investment, $100 (see page
15).
--------------- ---------------------------------------------------------------------------
Investment The investment objective of each Series is to provide a high level of
Objective current income exempt from both federal and the designated state income
taxes consistent with preservation of capital.
--------------- ---------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc., ("InterCapital"), the Investment Manager of
Manager the Fund, and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 101 investment companies and other portfolios
with assets of approximately $92.5 billion at January 31, 1997 (see page
8).
--------------- ---------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.35%
Fee of daily net assets of each Series (see page 8).
--------------- ---------------------------------------------------------------------------
Dividends and Income dividends are declared daily and paid monthly; capital gains
Capital Gains distributions, if any, may be distributed annually or retained for
Distributions reinvestment by the Fund. Dividends and distributions are automatically
reinvested in additional shares at net asset value (without sales charge),
unless the shareholder elects to receive cash (see pages 18 and 20).
--------------- ---------------------------------------------------------------------------
Plan of The Fund is authorized to reimburse Dean Witter Distributors Inc. (the
Distribution "Distributor") for specific expenses incurred in promoting the distribution
of the Fund's shares pursuant to a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940. Reimbursement may in no
event exceed an amount equal to payments at the annual rate of 0.15 of 1%
of average daily net assets of each Series of the Fund (see page 17).
--------------- ---------------------------------------------------------------------------
Sales Charge 4.0% of offering price (4.17% of amount invested); reduced charges on
purchases of $25,000 or more (see pages 15-16).
--------------- ---------------------------------------------------------------------------
Redemption Shares are redeemable by the shareholder at net asset value. An account may
be involuntarily redeemed if shares owned have a net asset value of less
than $100 or, if the account was opened through EasyInvest (Service Mark),
if after twelve months the shareholder has invested less than $1,000 in the
account. (see pages 20 and 21).
--------------- ---------------------------------------------------------------------------
Risks and The value of each Series' portfolio securities, and therefore the net asset
Other value per share of each Series, may increase or decrease due to various
Considerations factors, principally changes in prevailing interest rates and the ability
of the issuers of the portfolio securities of each Series to pay interest
and principal on such obligations. Additionally, because the Fund is a
non-diversified investment company, a relatively high percentage of the
assets of each Series may be invested in a limited number of issuers within
a single state, thereby causing a greater fluctuation of the net asset
value of each Series as a result of changes in the financial condition or
in the market's assessment of the various issuers. Each Series, to the
extent permitted by applicable state law, also may invest in futures and
options which may be considered speculative in nature and involve greater
risks than those customarily assumed by certain other investment companies
which do not invest in such instruments. Since each Series concentrates its
investments in tax-exempt securities of a particular State, each Series is
affected by any political, economic or regulatory developments affecting
the ability of the issuers of that particular State to pay interest or
repay principal. During periods of significant economic slowdowns, the
securities of any particular State will be subject to a greater degree of
credit risk in which the ratings of such securities have been or may be
downgraded or placed on a credit watch, thereby affecting their market
value. Investors should refer to the Appendix for specific information
regarding the economic situation of their particular State. (See pages
10-14 and the Appendix on page 31). Certain of the tax-exempt securities in
which each Series may invest without limit may subject certain investors to
the federal, and any applicable state, alternative minimum tax. (see page
9).
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
2
SUMMARY OF FUND EXPENSES
-----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are for
the fiscal year ended November 30, 1996, except as otherwise noted.
[Download Table]
Shareholder Transaction Expenses (for each Series)
Maximum Sales Charge Imposed on Purchases ............... 4.0%
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge ................................... None
Redemption Fees ......................................... None
Exchange Fee ............................................ None
Annual Operating Expenses (as a Percentage of Average Net Assets for the
fiscal year ended November 30, 1996)*
[Enlarge/Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
SERIES SERIES SERIES SERIES SERIES
---------- ------------ ---------- --------------- ----------
Management Fees*
(after fee waiver) ... .35% .35% .35% .04% .10%
12b-1 Fees** .......... .14 .15 .14 .15 .14
Other Expenses*
(after expense
assumption) .......... .16 .09 .13 .31 .26
Total Series Operating
Expenses* ............ .65% .59% .62% .50% .50%
(RESTUBBED TABLE CONTINUED FROM ABOVE)
[Enlarge/Download Table]
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
SERIES SERIES SERIES SERIES SERIES
----------- ------------ ---------- ---------- --------------
Management Fees*
(after fee waiver) ... .00% .35% .02% .11% .35%
12b-1 Fees** .......... .14 .14 .13 .15 .15
Other Expenses*
(after expense
assumption) .......... .36 .17 .35 .24 .15
Total Series Operating
Expenses* ............ .50% .66% .50% .50% .65%
<FN>
------------
**The 12b-1 fee is characterized as a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines (see
"Purchase of Fund Shares").
Example
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
[Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
SERIES SERIES SERIES SERIES SERIES
---------- ------------ ---------- --------------- ----------
1 year .... $ 46 $ 46 $ 46 $ 45 $ 45
3 years .. 60 58 59 55 55
5 years .. 75 72 73 67 67
10 years . 118 111 114 100 100
(RESTUBBED TABLE CONTINUED FROM ABOVE)
[Download Table]
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
SERIES SERIES SERIES SERIES SERIES
----------- ------------ ---------- ---------- --------------
1 year .... $ 45 $ 46 $ 45 $ 45 $ 46
3 years .. 55 60 55 55 60
5 years .. 67 75 67 67 75
10 years . 100 119 100 100 118
*"Management Fees" and "Other Expenses" have been restated to reflect
current fees and expenses.
The annual Operating Expenses are based upon the actual expenses incurred
by the Fund during the fiscal year ended November 30, 1996. The Investment
Manager had undertaken to waive management fees and assume expenses to the
extent that they exceeded 0.50% of the daily net assets with respect to the
Massachusetts Series, Michigan Series, Minnesota Series, New York Series and
Ohio Series until January 1, 1996 and had undertaken, until December 31,
1996, to continue to assume expenses and waive management fees with respect
to each aforementioned Series to the extent that such expenses and
compensation on an annualized basis exceeded 0.50% of the average daily net
assets of each respective Series. Effective January 1, 1997, the Investment
Manager will no longer continue to assume expenses and waive management fees
with respect to any Series of the Fund.
Total operating expenses for the Massachusetts Series, Michigan Series,
Minnesota Series, New York Series and Ohio Series for the fiscal year of the
Fund ended November 30, 1996, assuming no waiver of the management fees and
no assumption of other expenses for the entire year, would have been:
[Enlarge/Download Table]
MASSACHUSETTS MICHIGAN MINNESOTA NEW YORK OHIO
SERIES SERIES SERIES SERIES SERIES
--------------- ---------- ----------- ---------- ----------
Management Fees ....... .35% .35% .35% .35% .35%
12b-1 Fees ............ .15 .14 .14 .13 .15
Other Expenses ........ .32 .27 .47 .36 .25
Total Series Operating
Expenses ............. .82% .76% .96% .84% .75%
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR LESS
THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Purchase of Fund Shares" in this
Prospectus.
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
[Enlarge/Download Table]
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
NOVEMBER 30, OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------------- ----------- ------------ -------------- ------------ -------------- ---------------- ---------------
Arizona Series
1991(b) $ 9.60 $0.36 $ 0.17 $ 0.53 $(0.36) $ -- $(0.36)
1992 9.77 0.64 0.41 1.05 (0.64) -- (0.64)
1993 10.18 0.58 0.56 1.14 (0.58) (0.02) (0.60)
1994 10.72 0.55 (1.29) (0.74) (0.55) (0.01) (0.56)
1995 9.42 0.54 1.23 1.77 (0.54) -- (0.54)
1996 10.65 0.54 (0.06) 0.48 (0.54) -- (0.54)
California Series
1991(a) 9.60 0.60 0.39 0.99 (0.60) -- (0.60)
1992 9.99 0.67 0.34 1.01 (0.67) (0.01) (0.68)
1993 10.32 0.61 0.68 1.29 (0.61) -- (0.61)
1994 11.00 0.58 (1.48) (0.90) (0.58) (0.14) (0.72)
1995 9.38 0.56 1.29 1.85 (0.56) -- (0.56)
1996 10.67 0.56 0.14 0.70 (0.56) -- (0.56)
Florida Series
1991(a) 9.60 0.55 0.28 0.83 (0.55) -- (0.55)
1992 9.88 0.64 0.41 1.05 (0.64) -- (0.64)
1993 10.29 0.59 0.64 1.23 (0.59) -- (0.59)
1994 10.93 0.56 (1.33) (0.77) (0.56) -- (0.56)
1995 9.60 0.56 1.28 1.84 (0.56) -- (0.56)
1996 10.88 0.55 (0.02) 0.53 (0.55) -- (0.55)
Massachusetts Series
1991(a) 9.60 0.54 0.38 0.92 (0.54) -- (0.54)
1992 9.98 0.66 0.42 1.08 (0.66) (0.04) (0.70)
1993 10.36 0.60 0.72 1.32 (0.60) -- (0.60)
1994 11.08 0.56 (1.38) (0.82) (0.56) (0.10) (0.66)
1995 9.60 0.57 1.37 1.94 (0.57) -- (0.57)
1996 10.97 0.57 (0.03) 0.54 (0.57) (0.02) (0.59)
Michigan Series
1991(a) 9.60 0.54 0.36 0.90 (0.54) -- (0.54)
1992 9.96 0.65 0.46 1.11 (0.65) (0.01) (0.66)
1993 10.41 0.61 0.64 1.25 (0.61) -- (0.61)
1994 11.05 0.56 (1.41) (0.85) (0.56) (0.18) (0.74)
1995 9.46 0.57 1.35 1.92 (0.57) -- (0.57)
1996 10.81 0.56 (0.03) 0.53 (0.56) -- (0.56)
(a) January 15, 1991 (commencement of operations) to November 30, 1991.
(b) April 30, 1991 (commencement of operations) to November 30, 1991.
4
[Enlarge/Download Table]
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(AFTER EXPENSES WERE (BEFORE EXPENSES WERE
ASSUMED) ASSUMED)*
-------------------------- --------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN++ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
---------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
$ 9.77 5.66%(1) $ 20,733 0.15%(2) 6.32%(2) 1.43%(2) 5.04%(2) 8%(1)
10.18 11.08 38,812 0.15 6.33 0.74 5.74 15
10.72 11.42 59,877 0.48 5.40 0.65 5.22 5
9.42 (7.16) 47,628 0.62 5.33 0.63 5.32 11
10.65 19.21 50,290 0.65 (3) 5.33 0.65 5.33 6
10.59 4.63 46,248 0.65 (3) 5.12 0.65 5.12 9
9.99 10.29 (1) 41,568 0.15 (2) 6.53 (2) 0.97 (2) 5.71 (2) 24 (1)
10.32 10.23 95,604 0.15 6.36 0.67 5.84 5
11.00 12.77 139,308 0.48 5.57 0.60 5.45 11
9.38 (8.65) 112,450 0.58 5.59 0.59 5.58 12
10.67 20.15 117,769 0.60 (3) 5.50 0.60 5.50 5
10.81 6.76 113,859 0.59 5.28 0.59 5.28 19
9.88 8.84 (1) 17,719 0.15 (2) 6.45 (2) 1.27 (2) 5.33 (2) 10 (1)
10.29 10.92 51,560 0.15 6.19 0.73 5.62 6
10.93 12.20 84,494 0.48 5.39 0.63 5.23 3
9.60 (7.29) 71,458 0.61 5.34 0.62 5.33 3
10.88 19.54 74,058 0.63 (3) 5.34 0.63 5.34 8
10.86 5.03 70,542 0.62 (3) 5.13 0.62 5.13 25
9.98 9.87 (1) 3,205 0.15 (2) 6.50 (2) 2.50 (2) 4.08 (2) 40 (1)
10.36 11.19 10,113 0.14 6.26 1.25 5.16 10
11.08 13.06 18,344 0.48 5.47 0.84 5.10 12
9.60 (7.71) 15,507 0.50 5.35 0.78 5.07 10
10.97 20.58 16,954 0.50 (3) 5.39 0.79 5.11 7
10.92 5.07 16,021 0.50 (3) 5.23 0.82 4.91 11
9.96 9.54 (1) 6,630 0.15 (2) 6.54 (2) 1.73 (2) 4.96 (2) 46 (1)
10.41 11.78 13,809 0.14 6.28 1.01 5.42 9
11.05 12.28 22,083 0.48 5.53 0.80 5.20 15
9.46 (8.07) 19,831 0.50 5.44 0.75 5.19 9
10.81 20.69 21,673 0.50 (3) 5.49 0.77 5.22 22
10.78 5.09 20,863 0.50 (3) 5.27 0.76 5.01 5
* After application of the Fund's expense limitation.
++ 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) Not annualized.
(2) Annualized.
(3) The above ratios do not reflect the effect of expense offsets of
0.01%.
5
FINANCIAL HIGHLIGHTS (continued)
-----------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
[Enlarge/Download Table]
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
NOVEMBER 30, OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
------------- ----------- ------------ -------------- ------------ -------------- ---------------- ---------------
Minnesota Series
1991(a) $ 9.60 $0.51 $ 0.19 $ 0.70 $(0.51) $ -- $(0.51)
1992 9.79 0.63 0.32 0.95 (0.63) -- (0.63)
1993 10.11 0.58 0.67 1.25 (0.58) -- (0.58)
1994 10.78 0.55 (1.42) (0.87) (0.55) (0.08) (0.63)
1995 9.28 0.54 1.33 1.87 (0.54) -- (0.54)
1996 10.61 0.54 (0.01) 0.53 (0.54) -- (0.54)
New Jersey Series
1991(a) 9.60 0.55 0.35 0.90 (0.55) -- (0.55)
1992 9.95 0.66 0.44 1.10 (0.66) (0.04) (0.70)
1993 10.35 0.60 0.62 1.22 (0.60) (0.03) (0.63)
1994 10.94 0.55 (1.39) (0.84) (0.55) (0.08) (0.63)
1995 9.47 0.56 1.26 1.82 (0.56) -- (0.56)
1996 10.73 0.55 (0.03) 0.52 (0.55) -- (0.55)
New York Series
1991(a) 9.60 0.54 0.46 1.00 (0.54) -- (0.54)
1992 10.06 0.68 0.34 1.02 (0.68) (0.06) (0.74)
1993 10.34 0.62 0.69 1.31 (0.62) -- (0.62)
1994 11.03 0.57 (1.52) (0.95) (0.57) (0.05) (0.62)
1995 9.46 0.56 1.42 1.98 (0.56) -- (0.56)
1996 10.88 0.56 0.02 0.58 (0.56) -- (0.56)
Ohio Series
1991(a) 9.60 0.53 0.25 0.78 (0.53) -- (0.53)
1992 9.85 0.66 0.41 1.07 (0.66) (0.01) (0.67)
1993 10.25 0.60 0.72 1.32 (0.60) -- (0.60)
1994 10.97 0.55 (1.43) (0.88) (0.55) (0.12) (0.67)
1995 9.42 0.56 1.38 1.94 (0.56) -- (0.56)
1996 10.80 0.55 (0.03) 0.52 (0.55) -- (0.55)
Pennsylvania Series
1991(a) 9.60 0.53 0.30 0.83 (0.53) -- (0.53)
1992 9.90 0.66 0.44 1.10 (0.66) -- (0.66)
1993 10.34 0.61 0.67 1.28 (0.61) -- (0.61)
1994 11.01 0.56 (1.39) (0.83) (0.56) (0.06) (0.62)
1995 9.56 0.55 1.29 1.84 (0.55) -- (0.55)
1996 10.85 0.55 -- 0.55 (0.55) -- (0.55)
(a) January 15, 1991 (commencement of operations) to November 30, 1991.
6
[Enlarge/Download Table]
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(AFTER EXPENSES WERE (BEFORE EXPENSES WERE
ASSUMED) ASSUMED)*
-------------------------- --------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN++ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
---------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
$ 9.79 $ 7.42(1) $ 3,131 0.15%(2) 6.04%(2) 2.50%(2) 2.87%(2) 4%(1)
10.11 9.91 6,420 0.14 6.16 1.46 4.85 23
10.78 12.64 11,538 0.48 5.39 1.04 4.83 8
9.28 (8.42) 9,793 0.50 5.41 0.91 5.00 14
10.61 20.60 11,230 0.50(4) 5.35 0.98 4.88 3
10.60 5.21 9,923 0.50(4) 5.21 0.96 4.75 5
9.95 9.59(1) 15,812 0.15(2) 6.43(2) 1.21(2) 5.36(2) 36 (1)
10.35 11.34 32,123 0.15 6.36 0.79 5.71 19
10.94 12.03 54,499 0.48 5.41 0.69 5.20 7
9.47 (7.96) 45,497 0.64 5.38 0.65 5.37 6
10.73 19.60 47,889 0.67(4) 5.42 0.67 5.42 14
10.70 4.93 44,829 0.66(4) 5.23 0.66 5.23 5
10.06 10.73(1) 3,976 0.15(2) 6.44(2) 2.22(2) 4.37(2) 51 (1)
10.34 10.35 9,604 0.15 6.45 1.23 5.37 21
11.03 12.91 15,955 0.48 5.61 0.88 5.21 11
9.46 (8.96) 14,522 0.50 5.48 0.82 5.16 14
10.88 21.40 14,388 0.50(4) 5.43 0.85 5.09 24
10.90 5.46 14,020 0.50(4) 5.25 0.84 4.91 22
9.85 8.35(1) 6,267 0.15(2) 6.38(2) 2.04(2) 4.48(2) 22 (1)
10.25 11.12 13,686 0.15 6.41 1.01 5.56 23
10.97 13.19 24,849 0.48 5.45 0.78 5.14 20
9.42 (8.34) 20,693 0.50 5.31 0.71 5.10 18
10.80 21.02 23,104 0.50(4) 5.42 0.77 5.16 19
10.77 5.04 21,207 0.50(4) 5.23 0.75 4.98 32
9.90 8.77(1) 12,147 0.15(2) 6.46(2) 1.54(2) 5.07(2) 12 (1)
10.34 11.47 31,509 0.15 6.31 0.81 5.65 3
11.01 12.64 53,378 0.48 5.54 0.68 5.33 5
9.56 (7.84) 47,557 0.64 5.37 0.66 5.35 19
10.85 19.65 53,935 0.66(4) 5.29 0.66 5.29 8
10.85 5.27 47,055 0.65(4) 5.17 0.65 5.17 --
* After application of the Fund's expense limitation.
++ 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) Not annualized.
(2) Annualized.
(4) The above ratios do not reflect the effect of expense offsets of
0.01%.
7
THE FUND AND ITS MANAGEMENT
-----------------------------------------------------------------------------
Dean Witter Multi-State Municipal Series Trust (the "Fund") is an
open-end, non-diversified management investment company consisting of ten
separate 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 Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of
Massachusetts on October 29, 1990.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 101 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$89.3 billion at January 31, 1997. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.2 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund. The
Fund's Trustees review the various services provided by the Investment
Manager to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
On February 5, 1997, DWDC and Morgan Stanley Group Inc. announced that
they had entered into an Agreement and Plan of Merger, with the combined
company to be named Morgan Stanley, Dean Witter, Discover & Co. The business
of Morgan Stanley Group Inc. and its affiliated companies is providing a wide
range of financial services for sovereign governments, corporations,
institutions and individuals throughout the world. DWDC is the direct parent
of InterCapital and Dean Witter Distributors Inc., the Fund's distributor. It
is currently anticipated that the transaction will close in mid-1997.
Thereafter, InterCapital and Dean Witter Distributors Inc. will be direct
subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, each Series
of the Fund pays the Investment Manager monthly compensation calculated daily
by applying the annual rate of 0.35% to the net assets of each Series. The
Investment Manager had undertaken, until December 31, 1996, to assume
expenses and waive management fees with respect to Massachusetts, Michigan,
Minnesota, New York and Ohio Series to the extent that such expenses and
compensation on an annualized basis exceeded 0.50% of the average daily net
assets of each respective Series. For 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 total compensation to the
Investment Manager of 0.35%, 0.35%, 0.35%, 0.04%, 0.10%, 0.00%, 0.35%, 0.02%,
0.11% and 0.35% respectively of average daily net assets and the total
expenses of each respective Series amounted to 0.65%, 0.59%, 0.62%, 0.50%,
0.50%, 0.50%, 0.66%, 0.50%, 0.50% and 0.65%, respectively, of the average
daily net assets of each Series.
The Fund's expenses include: the fee of the Investment Manager; the fee
pursuant to the Plan of
8
Distribution (see "Purchase of Fund Shares"); taxes; certain legal, transfer
agent, custodian and auditing fees; and printing and other expenses relating
to the Fund's operations which are not expressly assumed by the Investment
Manager under its Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
-----------------------------------------------------------------------------
The investment objective of the State Series is to provide a high level of
current income exempt from both federal and the designated State income taxes
consistent with preservation of capital. It is a fundamental policy that
under normal conditions each Series will invest at least 80% of its total
assets in securities, the interest on which is exempt from federal income
taxes and the income taxes of the designated State. This policy and the
investment objective may not be changed with respect to any Series without
the approval of the holders of a majority of the shares of that Series. There
is no assurance that the investment objective of any Series will be achieved.
Each Series seeks to achieve its investment objective by investing
principally in tax-exempt, investment grade securities of municipal issuers
in that designated State as well as any debt obligations (such as debt
obligations of governmental entities and territories such as Puerto Rico,
Guam and the Virgin Islands) that generate interest income which is exempt
from federal income taxes and the income taxes of the designated State.
Tax-exempt securities primarily consist of Municipal Bonds, Municipal Notes
and Municipal Commercial Paper. Each Series may only invest in (a) Municipal
Bonds which are rated at the time of purchase within the four highest grades
by either Moody's Investors Service Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"); (b) Municipal Notes which at the time of purchase are
rated in the two highest grades by either Moody's or S&P, or, if not rated,
have outstanding one or more issues of Municipal Bonds rated as set forth in
clause (a) above; (c) Municipal Commercial Paper which at the time of
purchase is rated P-1 by Moody's or A-1 by S&P; and (d) unrated securities
which at the time of purchase are judged by the Investment Manager to be of
comparable quality to the securities described in this paragraph. A
description of the ratings referred to above is contained in the Appendix to
the Statement of Additional Information. Certain of the tax-exempt securities
in which each Series may invest without limit may subject certain investors
to the federal alternative minimum tax or any applicable state alternative
minimum tax and, therefore, a substantial portion of the income produced by
each Series may be taxable to such investors under any federal or any
applicable state alternative minimum tax. The State Series, therefore, may
not be a suitable investment for investors who are subject to the alternative
minimum tax. The suitability of the State Series for these investors will
depend upon a comparison of the after-tax yield likely to be provided from
each designated Series to comparable tax-exempt investments not subject to
such tax and also to comparable fully taxable investments in light of each
investor's tax position. See "Dividends, Distributions and Taxes."
Up to 20% of the total assets of each Series may be invested in taxable
money market instruments, tax-exempt securities of other states and
municipalities and options and futures. With respect to tax-exempt securities
of other states, only investment grade securities which satisfy the standards
enumerated above for Municipal Bonds, Notes and Paper, will be purchased.
(This investment percentage is subject to applicable state laws and may be
limited further by specific requirements of certain states. It is the
intention of each Series to meet the applicable requirements of its
respective State. See "Dividends, Distributions and Taxes--State Taxation").
However, each Series may invest more than 20% of its total assets in taxable
money market instruments and the tax-exempt securities of other states and
municipalities in order to maintain a temporary "defensive" position, when,
in the opinion of the Investment Manager, prevailing market or financial
conditions (including unavailability of securities of requisite quality) so
warrant. (The types of investments in which each Series may invest when
maintaining a temporary "defensive" position may
9
be limited by applicable State requirements). With respect to the purchase of
tax-exempt securities of other states for defensive purposes, only the
highest grade Municipal Bonds, Notes and Paper, will be purchased. The types
of taxable money market instruments in which the State 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 (including zero
coupon securities); (ii) commercial paper rated P-1 by Moody's or A-1 by S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to any of the securities in
which each Series may invest.
Municipal Bonds and Municipal Notes are debt obligations of a state, and
its agencies and municipalities which generally have maturities, at the time
of their issuance, of either one year or more (Bonds) or from six months to
three years (Notes). Municipal Commercial Paper refers to short-term
obligations of municipalities which may be issued at a discount and are
sometimes referred to as Short-Term Discount Notes. Any Municipal Bond or
Municipal Note which depends directly or indirectly on the credit of the
Federal Government, its agencies or instrumentalities shall be considered to
have a Moody's rating of Aaa. An obligation shall be considered a Municipal
Bond, Municipal Note or Municipal Commercial Paper only if, in the opinion of
bond counsel to the issuer at the time of issuance, the interest payable
therefrom is exempt from both regular federal income tax and the regular
personal income tax of a designated State.
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the net
asset value of each respective Series. Any subsequent change in any rating by
a rating service or change in percentages resulting from market fluctuations
or other changes in total assets of a Series will not require elimination of
any security from the portfolio of such Series. Therefore, each Series may
hold securities which have been downgraded to ratings of Ba or BB or lower by
Moody's or S&P. However such investments may not exceed 5% of the total
assets of any Series. Any investments which exceed this limitation will be
eliminated from the portfolio within a reasonable period of time (such time
as the Investment Manager determines that it is practicable to sell the
investment without undue market or tax consequences to a Series). Municipal
Obligations rated below investment grade by Moody's or S&P are considered to
be speculative investments, some of which may not be currently paying any
interest and may have extremely poor prospects of ever attaining any real
investment standing.
Investments in Municipal Bonds rated either BBB by S&P or Baa by Moody's
(investment grade bonds--the lowest rated permissible investments by the
Fund) have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken their capacity to
make principal and interest payments than would be the case with investments
in securities with higher credit ratings.
The ratings assigned by Moody's and S&P represent their opinions as to the
quality of the securities which they undertake to rate (see the Appendix to
the Statement of Additional Information). It should be emphasized, however,
that the ratings are general and not absolute standards of quality.
There are no restrictions on the maturities of most of the tax-exempt
securities that may be purchased by each Series and therefore the average
portfolio maturity of each Series is not subject to any limit. As a general
matter, the longer the average portfolio maturity, the greater will be the
impact of fluctuations in interest rates on the values of the portfolio
securities of each Series and the respective net asset value per share of
that Series.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940 ("the Act") and as such is not limited by the
Act in the proportion of its assets that it may invest in the obligations of
a single issuer. However, each Series of the Fund intends to conduct its
operations so as to qualify as a "regulated
10
investment company" under Subchapter M of the Internal Revenue Code (the
"Code"). See "Dividends, Distributions and Taxes." In order to qualify, among
other requirements, each Series will limit its investments so that at the
close of each quarter of the taxable year, (i) not more than 25% of the
market value of the total assets of such Series will be invested in the
securities of a single issuer, within a single State, and (ii) with respect
to 50% of the market value of its total assets not more than 5% of the value
of its total assets will be invested in the securities of a single issuer
within a single State, and each Series will not own more than 10% of the
outstanding voting securities of a single issuer. (Since the types of
securities ordinarily purchased by each Series are nonvoting securities,
there is generally no limit on the percentage of an issuer's obligations that
a Series may own). To the extent that these requirements permit a relatively
high percentage of each Series' assets to be invested in the obligations of a
limited number of issuers within a single State, the value of the portfolio
securities of each Series will be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of a
diversified investment company. Additionally, each Series' net asset value
will fluctuate to a greater extent than that of a diversified investment
company as a result of changes in the financial condition or in the market's
assessment of the various issuers. The tax limitations described in this
paragraph are not fundamental policies and may be revised to the extent
applicable Federal income tax requirements are revised.
The Fund, on behalf of each Series, may invest more than 25% of the total
assets of each Series in Municipal Obligations known as private activity
bonds. Such Obligations include health facility obligations, housing
obligations, industrial revenue obligations (including pollution control
obligations), electric utility obligations and water and sewer obligations,
provided that the percentage of the total assets of any Series in private
activity bonds in any one category does not exceed 25% of the total assets of
that Series. The ability of issuers of such obligations to make timely
payments of principal and interest will be affected by events and conditions
affecting these projects such as cyclicality of revenues and earnings,
regulatory and environmental restrictions and economic downturns, 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. The Fund may purchase
Municipal Obligations which had originally been issued by the same issuer as
two separate series of the same issue with different interest rates, but
which are now linked together to form one series.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General
obligation bonds, notes or commercial paper are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Issuers of general obligation bonds, notes or commercial paper
include a state, its counties, cities, towns and other governmental units.
Revenue bonds, notes or commercial paper are payable from the revenues
derived from a particular facility or class of facilities or, in some cases,
from specific revenue sources. Revenue bonds, notes or commercial paper are
issued for a wide variety of purposes, including the financing of electric,
gas, water and sewer systems and other public utilities; industrial
development and pollution control facilities; single and multi-family housing
units; public buildings and facilities; air and marine ports, transportation
facilities such as toll roads, bridges and tunnels; and health and
educational facilities such as hospitals and dormitories. They rely primarily
on user fees to pay debt service, although the principal revenue source is
often supplemented by additional security features which are intended to
enhance the creditworthiness of the issuer's obligations.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively
called "lease obligations") of municipalities. State and local agencies or
authorities issue lease obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue
11
bonds. Leases, and installment purchase or conditional sale contracts (which
may provide for title to the leased asset to pass eventually to the issuer),
have developed as a means for governmental issuers to acquire property and
equipment without the necessity of complying with the constitutional and
statutory requirements generally applicable for the issuance of debt. Certain
lease obligations contain "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease
or contract unless money is appropriated for such purpose by the appropriate
legislative body on an annual or other periodic basis. Consequently,
continued lease payments on those lease obligations containing
"non-appropriation" clauses are dependent on future legislative actions. If
such legislative actions do not occur, the holders of the lease obligation
may experience difficulty in exercising their rights, including disposition
of the property.
In addition, certain lease obligations may not yet have developed the
depth of marketability associated with more conventional municipal
obligations, and, as a result, certain of such lease obligations may be
considered illiquid securities. To determine whether or not the Fund will
consider such securities to be illiquid (the Fund may not invest more than
ten percent of its net assets in illiquid securities), the Trustees of the
Fund have established guidelines to be utilized by the Fund in determining
the liquidity of a lease obligation. The factors to be considered in making
the determination include: 1) the frequency of trades and quoted prices for
the obligation; 2) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers; 3) the willingness of
dealers to undertake to make a market in the security; and 4) the nature of
the marketplace trades, including, the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of the transfer.
The Trust may also purchase "certificates of participation," which are
securities issued by a particular municipality or municipal authority to
evidence a proportionate interest in base rental or lease payments relating
to a specific project to be made by a municipality, agency or authority. The
risks and characteristics of investments in certificates of participation are
similar to the risks and characteristics of lease obligations discussed
above.
Since each Series concentrates its investments in Municipal Obligations of
a particular State and its authorities and municipalities, each Series is
affected by any political, economic or regulatory developments affecting the
ability of issuers in that particular State to make timely payments of
interest and principal. For a more detailed discussion of the risks
associated with investments in a particular State, see the Appendix at the
back of this Prospectus.
Variable Rate Obligations. The interest rates payable on certain Municipal
Bonds and Municipal Notes are not fixed and may fluctuate based upon changes
in market rates. Municipal obligations of this type are called "variable
rate" obligations. The interest rate payable on a variable rate obligation is
adjusted either at predesigned periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based.
When-Issued and Delayed Delivery Securities. Each Series may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., the
price is fixed at the time of commitment but delivery and payment can take
place a month or more after the date of the transaction. These securities are
subject to market fluctuation and no interest accrues to the purchaser prior
to settlement. At the time any Series makes the commitment to purchase such
securities, it will record the transaction and there-after reflect the value
each day of such security in determining its net asset value. There is no
overall limit on the percentage of the Fund's assets which may be committed
to the purchase of securities on a when-issued, delayed delivery or forward
commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be
12
zero coupon securities. Such securities are purchased at a discount from
their face amount, giving the purchaser the right to receive their full value
at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at
a constant rate eliminates the risk of receiving lower yields upon
reinvestment of interest if prevailing interest rates decline, the owner of a
zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
HEDGING ACTIVITIES
Subject to applicable state law, the Fund, on behalf of each Series except
the New Jersey Series, may enter into financial futures contracts, options on
such futures and municipal bond index futures contracts for hedging purposes.
Financial Futures Contracts and Options on Futures. With respect to each
applicable Series, the Fund may invest in financial futures contracts and
related options thereon. Each Series may sell a financial futures contract or
purchase a put option on such futures contract, if the Investment Manager
anticipates interest rates to rise, as a hedge against a decrease in the
value of a particular Series' portfolio securities. If the Investment Manager
anticipates that interest rates will decline, a Series may purchase a
financial futures contract or a call option thereon to protect against an
increase in the price of the securities that Series intends to purchase.
These futures contracts and related options thereon will be used only as a
hedge against anticipated interest rate changes.
Unlike a financial futures contract, which requires the parties to buy and
sell a security on a set date, an option on such 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 option on 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 there is by a purchaser or seller of a futures contract. The
value of the option does change and is reflected in the net asset value of
the Series for which it was purchased.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject
to such futures contracts may correlate imperfectly with the behavior of the
cash prices of each Series' portfolio securities. The risk of imperfect
correlation will be increased by the fact that the financial futures
contracts in which a Series may invest are on taxable securities rather than
tax-exempt securities, and there is no guarantee that the prices of taxable
securities will move in a similar manner to the prices of tax-exempt
securities.
Another risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Fund, on behalf of any Series, sold financial 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.
In addition to the risks that apply to all options transactions (see the
Statement of Additional Information for a description of the characteristics
of, and
13
the risks of investing in, options on debt securities), there are several
special risks relating to 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 this market will develop or be maintained.
Municipal Bond Index Futures. Each applicable 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.
No Series may 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. The
Fund, on behalf of any 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.
Options. The Fund on behalf of any applicable Series, may purchase or sell
(write) options on debt securities as a means of achieving additional return
or hedging the value of a Series of the Fund's portfolio. The Fund, on behalf
of a Series, would only buy options listed on national securities exchanges.
The Fund, will not purchase options on behalf of any Series if, as a result,
the aggregate cost of all outstanding options exceeds 10% of the Fund's total
assets.
PORTFOLIO MANAGEMENT
The portfolio of each Series is managed by the Investment Manager with a
view to achieving its investment objective. The Fund is managed within
InterCapital's Tax-Exempt Fixed Income Group, which manages 40 tax-exempt
municipal funds and fund portfolios, with approximately $10.6 billion in
assets as of December 31, 1996. James F. Willison, Senior Vice President of
InterCapital and Manager of InterCapital's Municipal Fixed Income Group, has
been the primary portfolio manager of the Fund since its inception and has
been a portfolio manager at InterCapital for over five years. Securities are
purchased and sold principally in response to the Investment Manager's
current evaluation of an issuer's ability to meet its debt obligations in the
future, and the Investment Manager's current assessment of future changes in
the levels of interest rates on tax-exempt securities of varying maturities.
There are a number of state tax restrictions which limit the ability of the
Investment Manager to trade the portfolio securities of a particular Series
and which affect the composition of the portfolio of such Series. It is the
policy of the Investment Manager to adhere to any restrictions affecting a
particular Series. See "Dividends, Distributions and Taxes--State Taxation."
Securities purchased by each Series are, generally, sold by dealers acting
as principal for their own accounts. Pursuant to an order issued by the
Securities and Exchange Commission, the Fund may effect principal
transactions in certain taxable money market instruments with Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Investment Manager.
In addition, the Fund may incur brokerage commissions on transactions
conducted through DWR. Brokerage commissions are not normally charged on
purchases and sales of municipal obligations, but such transactions may
involve transaction costs in the form of spreads between bid and asked
prices. It is anticipated that the annual portfolio turnover rate of each
Series will not exceed 100%.
14
INVESTMENT RESTRICTIONS
-----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund, on behalf of each Series, as fundamental
policies. Under the Act, a fundamental policy may not be changed without the
vote of a majority of the outstanding voting securities of each Series, as
defined in the Act.
For purposes of the investment policies and restrictions of the Fund: (a)
an "issuer" of a security is the entity whose assets and revenues are
committed to the payment of interest and principal on that particular
security, provided that the guarantee of a security will be considered a
separate security; (b) a "taxable security" is any security the interest on
which is subject to regular federal income tax; and (c) all percentage
limitations apply immediately after a purchase or initial investment, and any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total assets does not require elimination of
any security from the portfolio.
Each Series may not:
1. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which each Series may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; and
(c) by lending its portfolio securities.
2. 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 each Series or its political
subdivisions.
PURCHASE OF FUND SHARES
-----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor") an affiliate of the Investment Manager,
shares of each Series of the Fund are distributed by the Distributor and
offered by DWR and other dealers who have entered into selected dealer
agreements with the Distributor ("Selected Broker-Dealers"). The principal
executive office of the Distributor is located at Two World Trade Center, New
York, New York 10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter
Multi-State Municipal Series Trust, (name of Series), directly to Dean Witter
Trust Company (the "Transfer Agent") at P.O. Box 1040, Jersey City, NJ 07303
or by contacting an account executive of DWR or other Selected Broker-Dealer.
The minimum initial purchase in the case of investments through EasyInvest
(Service Mark), an automatic purchase plan (see "Shareholder Services") is
$100, provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months.
In the case of purchases made pursuant to Systematic Payroll Deduction
plans, the Fund, in its discretion, may accept such purchases without regard
to any minimum amounts which would otherwise be required if the Fund has
reason to believe that additional investments will increase the investment in
all accounts under such plans to at least $1,000. Certificates for shares of
each Series purchased will not be issued unless a request is made by the
shareholder in writing to the Transfer Agent. The offering price for each
Series will be the net asset value per share of that Series next determined
following receipt of an order (see "Determination of Net Asset Value" below),
plus a sales charge
15
(expressed as a percentage of the offering price) on a single transaction as
shown in the following table:
[Download Table]
SALES CHARGE
-------------------------------
PERCENTAGE APPROXIMATE
OF PERCENTAGE OF
AMOUNT OF PUBLIC AMOUNT
SINGLE TRANSACTION OFFERING PRICE INVESTED
--------------------------------- -------------- ---------------
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 $1,000,000 1.75 1.78
$1,000,000 and over .............. 0.50 0.50
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or
her spouse and their children under the age of 21 purchasing shares for his
or her own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified
under Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue
Code of a single employer or of employers who are "affiliated persons" of
each other within the meaning of Section 2(a)(3)(c) of the Act; or (g) any
other organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount. Shares of each Series of the Fund may be
sold at their net asset value per share, without the imposition of a sales
charge, to employee benefit plans established by DWR and SPS Transaction
Services, Inc. (an affiliate of DWR) for their employees as qualified under
Section 401 (k) of the Internal Revenue Code.
Sales personnel are compensated for selling shares of the Fund at the time
of their sale by the Distributor and/or Selected Broker-Dealer. In addition,
some sales personnel of the Selected Broker-Dealer will receive various types
of non-cash com pensation as special sales incentives, including trips,
educational and/or business seminars and merchandise.
Shares of each Series of the Fund are sold through the Distributor on a
normal three business day settlement basis; that is, payment is due on the
third business day (settlement date) after the order is placed with the
Distributor. Shares of each Series purchased through the Distributor are
entitled to dividends beginning on the next business day following settlement
date. Since DWR and other Selected Broker-Dealers forward investors' funds on
settlement date, they will benefit from the temporary use of the funds if
payment is made prior thereto. Shares purchased through the Transfer Agent
are entitled to dividends beginning on the next business day following
receipt of an order. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
capital gains distributions if their order is received by close of business
on the day prior to the record date for such distributions. The Fund and/or
the Distributor reserve the right to reject any purchase order.
Analogous Dean Witter Funds. The Distributor and the Investment Manager
serve in the same capacities for Dean Witter California Tax-Free Income Fund
and Dean Witter New York Tax-Free Income Fund, open-end investment companies
with investment objectives and policies similar to those of the Fund. Unlike
the Fund, however, shares of Dean Witter California Tax-Free Income Fund and
Dean Witter New York Tax-Free Income Fund are offered to the public at net
asset value, with a contingent deferred sales charge assessed upon
redemptions within six years of purchase rather than with a sales charge
imposed at the time of purchase. These three Dean Witter Funds have differing
fees and expenses, which will affect performance. Investors who would like to
receive a prospectus for Dean Witter California Tax-Free Income Fund and Dean
Witter New York Tax-Free Income Fund should call the telephone numbers listed
on the front cover of this Prospectus, or may call their account executive
for additional information.
16
REDUCED SALES CHARGES
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
shares of a Series of the Fund in single transactions with the purchase of
shares of another Series of the Fund. The sales charge payable on the
purchase of shares of a Series of the Fund and any other Series will be at
the respective rate applicable to the total amount of the combined concurrent
purchases.
Right of Accumulation. The above persons and entities may also benefit
from a reduction of the sales charges in accordance with the above schedule
if the cumulative net asset value of shares of a Series purchased in a single
transaction, together with shares previously purchased (including shares of
another Series) which are held at the time of such transaction, amounts to
$25,000 or more.
The Distributor must be notified by the shareholder 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 by the
shareholder when such an order is placed by mail. The reduced sales charge
will not be granted if: (a) such notification is not furnished at the time of
the order; or (b) a review of the records of the Distributor or the Transfer
Agent fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of any
Series of the Fund from the Distributor. The cost of shares of any Series of
the Fund which were previously purchased at a price including a front-end
sales charge during the 90-day period prior to the date of receipt by the
Distributor of the Letter of Intent, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
For further information concerning purchases of the Fund's shares, contact
the Distributor or consult the Statement of Additional Information.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1
under the Act, whereby the expenses of certain activities and services by DWR
and others who engage in or support distributions of Fund Shares or who
service shareholder accounts, including overhead and telephone expenses
incurred in connection with the distribution of the Fund's shares, are
reimbursed. Reimbursements for these expenses will be made in monthly
payments by the Fund to the Distributor, which will in no event exceed an
amount equal to a payment at the annual rate of 0.15 of 1% of the average
daily net assets of each Series of the Fund. Expenses incurred by the
Distributor pursuant to the Plan in any fiscal year will not be reimbursed by
the Fund through payments accrued in any subsequent fiscal year. No interest
or other financing charges will be incurred on any distribution expense
incurred by the Distributor under the Plan or on any unreimbursed expenses
due to the Distributor pursuant to the Plan. The fee payable pursuant to the
Plan, equal to 0.15% of the Fund's average daily net assets, is characterized
as a service fee within the meaning of NASD guidelines. The service fee is a
payment made for personal service and/or the maintenance of shareholder
accounts. 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
$67,470, $169,430, $103,255, $23,727, $30,115, $14,761, $64,078, $18,838,
$31,989 and $73,195, respectively under the Plan for the fiscal year ended
November 30, 1996. This accrual is an amount equal to 0.14% of the daily net
assets of the Arizona Series, Florida Series, Michigan Series, Minnesota
Series and New Jersey Series, 0.15% of the daily net assets of the California
Series, Massachusetts Series, Ohio Series and the Pennsylvania Series and
0.13% of the daily net assets of the New York Series.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Series of the Fund is determined
once daily at 4:00 p.m.,
17
New York time (or, on days when the New York Stock Exchange closes prior to
4:00 p.m., at such earlier time) on each day that the New York Stock Exchange
is open by taking the value of all assets of each Series of the Fund,
subtracting all of their respective liabilities, dividing by the number of
shares of the respective Series outstanding and adjusting to the nearest
cent. The net asset value per share of each Series will not be determined on
Good Friday and on such other federal and non-federal holidays as are
observed by the New York Stock Exchange.
Portfolio securities (other than short-term taxable debt securities,
futures and options) are valued for the Fund by an outside independent
pricing service approved by the Fund's Trustees. The service utilizes a
computerized grid matrix of tax-exempt securities and evaluations by its
staff in determining what it believes is the fair value of the Fund's
portfolio securities. The Board believes that timely and reliable market
quotations are generally not readily available to the Fund for purposes of
valuing tax-exempt securities and that the valuations supplied by the pricing
service are more likely to approximate the fair value of such securities.
Short-term taxable debt securities with remaining maturities of sixty days
or less at the 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.
SHAREHOLDER SERVICES
-----------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of each respective Series of the Fund, (or if specified by the
Shareholder, any other Series of the Fund or any other open-end investment
company for which InterCapital serves as Investment Manager (collectively
with the Fund, the "Dean Witter Funds")), unless the shareholder requests
they be paid in cash. Each purchase of shares of each Series of the Fund is
made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and
distributions will be paid in shares of each respective Series of the Fund at
net asset value per share (or in cash if the shareholder so requests) on the
monthly payment date, which will be no later than the last business day of
the month for which the dividend or distribution is payable. Processing of
dividend checks begins immediately following the monthly payment date.
Shareholders who have requested to receive dividends in cash will normally
receive their monthly dividend check during the first ten days of the
following month.
EasyInvest (Service Mark) . Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund (see "Purchase of Fund Shares" and
"Redemptions and Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A withdrawal plan is available for
shareholders who own or purchase shares of any Series of the Fund having a
minimum value of $10,000 based upon the then current offering price. The plan
provides for monthly or quarterly (March, June, September and December)
checks in any dollar amount, not less than $25, or in any whole percentage of
the account balance, on an annualized basis.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of a Series of the Fund for shares of any
other Series of the Fund, shares of other Dean
18
Witter Funds sold with a front-end (at time of purchase) sales charge ("FESC
Funds"), for shares of Dean Witter Funds sold with a contingent deferred
sales charge ("CDSC Funds"), and for shares of Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter
Short-Term Bond Fund, Dean Witter Balanced Income Fund, Dean Witter Balanced
Growth Fund, Dean Witter Intermediate Term U.S. Treasury Trust and five Dean
Witter Funds which are money market funds (the foregoing eleven non-FESC and
non-CDSC funds are hereinafter referred to as the "Exchange Funds").
Exchanges may be made after the shares of a Series of the Fund acquired by
purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no waiting period for exchanges of shares acquired by exchange
or dividend reinvestment. However, shares of CDSC funds, including shares
acquired in exchange for shares of FESC funds, may not be exchanged for
shares of FESC funds. Thus, shareholders who exchange their Fund shares for
shares of CDSC funds may subsequently exchange those shares for shares of
other CDSC funds or Exchange Funds but may not reacquire FESC fund shares by
exchange.
An exchange to another FESC fund or to a CDSC fund or to an Exchange Fund
is on the basis of the next calculated net asset value per share of each fund
after the exchange order is received. When exchanging into a money market
fund from a Series of the Fund, shares of the Series are redeemed out of the
Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges
between any of the Exchange Funds, FESC and CDSC funds can be effected on the
same basis (except that CDSC fund shares may not be exchanged for shares of
FESC funds). Shares of a CDSC fund acquired in exchange for shares of an FESC
fund (or in exchange for shares of other Dean Witter Funds for which shares
of an FESC fund have been exchanged) are not subject to any contingent
deferred sales charge upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of a Series' other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the
best interests of a Series and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made
by the Fund on a prospective basis only, upon notice to the shareholder not
later than ten days following such shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Dean Witter Funds for which shares of a Series of the
Fund have been exchanged, upon such notice as may be required by applicable
regulatory agencies. Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their account executive
regarding restrictions on exchange of shares of any Series of the Fund
pledged in their margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in
situations where there is an exchange of shares within ninety days after the
shares are purchased. The Exchange Privilege is only available in states
where an exchange may legally be made.
19
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of a Series of the Fund for shares of any
other Series of the Fund or for Shares of any of the Dean Witter Funds (for
which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their DWR or other Selected Broker-Dealer account
executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who are clients of DWR or another
Selected Broker-Dealer but who wish to make exchanges directly by writing or
telephoning the Transfer Agent) must complete and forward to the Transfer
Agent an Exchange Privilege Authorization Form, copies of which may be
obtained from the Transfer Agent, to initiate an exchange. If the
Authorization Form is used, exchanges may be made in writing or by contacting
the Transfer Agent at (800) 869-NEWS (toll free). The Fund will employ
reasonable procedures to confirm that exchange instructions communicated over
the telephone are genuine. Such procedures may include requiring various
forms of personal identification such as name, mailing address, social
security or other tax identification number and DWR or other Selected
Broker-Dealer account number (if any). Telephone instructions may also be
recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Telephone exchange
instructions will be accepted if received by the Transfer Agent between 9:00
a.m. and 4:00 p.m. New York time, on any day the New York Stock Exchange is
open. Any shareholder wishing to make an exchange who has previously filed an
Exchange Privilege Authorization Form and who is unable to reach the Fund by
telephone should contact his or her DWR or other Selected Broker-Dealer
account executive, if appropriate, or make a written exchange request.
Shareholders are advised that 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 Dean
Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
-----------------------------------------------------------------------------
Redemption. Shares of each Series of the Fund can be redeemed for cash at
any time at their respective current net asset value per share next
determined (without any redemption or other charge). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption is required. If certificates are held by the shareholder(s), the
shares may be redeemed by surrendering the certificate(s) with a written
request for redemption along with any additional information required by the
Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the
net asset value next determined (see "Purchase of Fund Shares--Determination
of Net Asset Value") after such repurchase order is received. Repurchase
orders received by DWR and other Selected Broker-Dealers by 4:00 p.m., New
York time, on any business day will be priced at the net asset value per
share that is based on that day's close. Selected Broker-Dealers may charge
for their services in connection with the repurchase, but the Fund, DWR and
the Distributor do not charge a fee. Payment for shares repurchased may be
made by the Fund to DWR and other Selected Broker-Dealers for the account of
the shareholder. The offer by DWR and other Selected Broker-Dealers to
repurchase shares from dealers or shareholders may be suspended by them at
any time. In that event, shareholders may redeem their shares through the
Fund's Transfer Agent as set forth above under "Redemption."
20
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended at times when normal trading is not taking place on the New York
Stock Exchange. If the shares to be redeemed have recently been purchased by
check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not
more than fifteen days from the time of receipt of the check by the Transfer
Agent). Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions
on redemption of shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund at the net asset value (without a sales
charge) next determined after a reinstatement request, together with the
proceeds, is received by the Transfer Agent.
Involuntary Redemption. The Fund reserves the right to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder whose
shares due to redemptions by the shareholder have a value of less than $100
as a result of redemptions or repurchases, or such lesser amount as may be
fixed by the Trustees or, in the case of an account opened through
EasyInvest, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the
value of the shares is less than the applicable amount and allow the
shareholder sixty days in which to make an additional investment in an amount
which will increase the value of his or her account to at least the
applicable amount or more before the redemption is processed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
-----------------------------------------------------------------------------
Dividends and Distributions. The Fund declares, on behalf of each Series,
dividends from net investment income on each day the New York Stock Exchange
is open for business (see "Purchase of Fund Shares"). Such dividends are
payable monthly. Each Series intends to distribute substantially all of its
net investment income on an annual basis.
Each Series of the Fund will distribute at least once each year all net
short-term capital gains, if there are any, after utilization of any capital
loss carryovers. Each Series may, however, determine either to distribute or
to retain all or part of any net long-term capital gains in any year for
reinvestment. All dividends and capital gains distributions will be paid in
additional Series' shares (without sales charge) and automatically credited
to the shareholder's account without issuance of a share certificate unless
the shareholder requests in writing that all dividends and distributions be
paid in cash. (See "Shareholder Services--Automatic Investment of Dividends
and Distributions.") Taxable capital gains may be generated by transactions
in options and futures contracts engaged in by any Series of the Fund. Any
dividends or distributions declared in the last quarter of any calendar year
which are paid in the following year prior to February 1, will be deemed
received by shareholders of record in the prior quarter in the prior year.
Taxes. Because each Series of the Fund intends to distribute substantially
all of its net investment income and capital gains to shareholders and
intends to otherwise remain qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code as amended (the "Code"), it is not
expected that any Series will be required to pay any federal income tax (if
any Series does retain any net long-term capital gains it will pay federal
income tax thereon, and shareholders will be re-
21
quired to include such undistributed gains in their taxable income and will
be able to claim their share of the tax paid by that Series as a credit
against their individual federal income tax).
The Code may subject interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax may be
incurred due to interest received on "private activity bonds" (in general,
bonds that benefit non-government entities) issued after August 7, 1986
which, although tax-exempt, are used for purposes other than those generally
performed by governmental units (e.g., bonds used for commercial or housing
purposes). Income received on such bonds is classified as a "tax preference
item", under the alternative minimum tax, for both individual and corporate
investors. A portion of each Series' investments may be made in such "private
activity bonds," with the result that a portion of the exempt-interest
dividends paid by each Series will be an item of tax preference to
shareholders of that Series subject to the alternative minimum tax. In
addition, certain corporations which are subject to the alternative minimum
tax may have to include a portion of 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.
Under the Revenue Reconciliation Act of 1993, all or a portion of the
Fund's gain from the sale or redemption of tax-exempt obligations purchased
at a market discount after April 30, 1993 will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary
income dividends received by shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and any capital gains distributions including
information indicating the percentage of the dividend distributions for such
fiscal year which constitutes exempt-interest dividends and the percentage,
if any, that is taxable, and the percentage, if any, of the exempt-interest
dividends which constitutes an item of tax preference.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments will not be taxable to shareholders.
Shareholders who are required to pay taxes on their income will normally
be subject to federal and state income tax on dividends paid from interest
income derived from taxable securities and on distributions of net capital
gains they receive from the Fund. For federal 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 any Series of the Fund and regardless of whether the distribution
is received in additional shares or in cash. If a shareholder receives a
distribution that is taxed as a long-term capital gain on shares held for six
months or less and sells those shares at a loss, the loss will be treated as
a long-term capital loss to the extent of the capital gains distribution. To
avoid being subject to a 31% federal backup withholding tax on taxable
dividends and capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to accuracy.
The foregoing relates primarily to federal income taxation as in effect as
of the date of this Prospectus. Distributions from investment income and
capital gains, including exempt-interest dividends, may be subject to state
taxes in states other than the state of each designated Series, and also to
local taxes. Shareholders should consult their tax advisors as to the
applicability of the above to their own tax situation and as to the tax
consequences to them of an investment in any Series of the Fund.
STATE TAXATION. The following general considerations are relevant to
investors in each Series of the Fund indicated below. Shareholders of each
designated Series should consult their tax advisers about other state and
local tax consequences of their investments in such Series.
Arizona. Under a ruling issued by the Arizona Department of Revenue in
1984, distributions from
22
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 should also be
excludible from Arizona income tax. 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.
California. In any year in which the Fund qualifies as a regulated
investment company under the Internal Revenue Code 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
or corporate income 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
23
long a shareholder has held shares of the California Series and regardless of
whether the distribution is received in additional shares or in cash. 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 Trust
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.
Florida. 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 the applicable 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.
Massachusetts. 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
24
are attributable to interest received by the Massachusetts Series on
obligations issued by The Commonwealth of Massachusetts and its
municipalities, political subdivisions and governmental 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.
Michigan. Under existing Michigan law, to the extent that the
distributions from the Michigan Series qualify as "exempt-interest dividends"
of a regulated investment company under Section 852(b)(5) of the Code which
are attributable to interest on tax-exempt obligations of the State of
Michigan, its political or governmental subdivisions, or its governmental
agencies or instrumentalities ("Michigan Obligations"), or obligations of the
United States or its agencies or possessions that are exempt from state
taxation, such distributions will also not be subject to Michigan income tax
or Michigan single business tax. Under existing Michigan law, an owner of a
share of an investment company (such as the Michigan Series) will be
considered the owner of a pro rata share of the assets of the investment
company. As such, yield from such shares, for intangibles tax purposes, will
not include the interest or dividends received from Michigan Obligations or
obligations of the United States or its agencies or possessions. In addition,
Michigan Series shares owned by certain financial institutions or by certain
other persons subject to the Michigan single business tax are exempt from the
Michigan intangibles 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.
Minnesota. 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 divi-
25
dends 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 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 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. The Ohio Supreme Court, in a subsequent case involving the same
taxpayer and the same issue, recently 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. The taxpayer has appealed to the United States Supreme Court, which
has discretion to decide if it will hear the case. Even if the Court declines
to consider the appeal, 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, 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 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, 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
26
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.
New Jersey. Under existing New Jersey law, as long as the New Jersey
Series qualifies as a "qualified investment fund," shareholders of the New
Jersey Series will not be required to include in their New Jersey gross
income distributions from the New Jersey investment fund to the extent that
such distributions 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" 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 (b) has not less than 80% of the aggregate
principal amount of all its investments, excluding cash and cash items
(including receivables), in obligations of the types described in the
preceding paragraph.
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. Gains resulting from the redemption or sale of shares of the New Jersey
Series will also be exempt from the New Jersey gross income tax.
At this time, the New Jersey Division of Taxation has taken the position
that financial futures contracts, options on futures contracts and municipal
bond index futures contracts do not constitute interest-bearing obligations,
obligations issued at a discount, or cash and cash items, including
receivables. Accordingly, the inclusion of such investments would cause all
distributions from the New Jersey Series for the taxable year to become
taxable. The Fund reserves the right to make such investments on behalf of
the New Jersey Series at such time as permitted under New Jersey law.
The regulations require that 80% of the aggregate principal amount of all
investments, excluding cash and cash items, must be in tax-exempt obligations
free from federal and New Jersey income taxes at the end of each quarter of
the taxable year. Failure to meet the New Jersey 80% aggregate principal
amount test, even if necessary to maintain a "defensive" position would cause
all distributions from the New Jersey Series for the taxable year to become
taxable.
The New Jersey Series will notify shareholders by February 15 of each
calendar year as to the
27
portion of its distributions for the preceding calendar year that is exempt
from federal income and New Jersey income taxes.
New York. 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.
Ohio. 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.
Pennsylvania. Individual shareholders of the Pennsylvania Series resident
in the Commonwealth
28
of Pennsylvania ("Commonwealth"/"Pennsylvania") will not be subject to
Pennsylvania personal income tax on distributions received from the
Pennsylvania Series to the extent such distributions are attributable to
interest on tax-exempt obligations of the Commonwealth, its agencies,
authorities and political subdivisions or obligations of the United States or
of the Governments of Puerto Rico, the Virgin Islands and Guam. Other
distributions from the Pennsylvania Series, including capital gains generally
and interest on securities not described in the preceding sentence, generally
will not be exempt from Pennsylvania Personal Income Tax.
Other than the School District of Philadelphia, political subdivisions of
the Commonwealth have not been authorized to impose an unearned income tax
upon resident individuals. Individual shareholders 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
continue 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.
PERFORMANCE INFORMATION
-----------------------------------------------------------------------------
From time to time each Series of the Fund may quote its "yield" and/or its
"total return" in advertisements and sales literature. Both the yield and the
total return of each Series of the Fund are based on historical earnings and
are not intended to indicate future performance. The yield of each Series of
the Fund is computed by dividing the net investment income of that Series
over a 30-day period by an average value (using the average number of shares
entitled to receive dividends and the net asset value per share at the end of
the period), all in accordance with applicable regulatory requirements. Such
amount is compounded for six months and then annualized for a twelve-month
period to derive the yield of that Series. Each Series may also quote its
tax-equivalent yield, which is calculated by determining the pre-tax yield
which, after being taxed at a stated rate, would be equivalent to the yield
determined as described above.
29
The "average annual total return" of each Series of the Fund refers to a
figure reflecting the average annualized percentage increase (or decrease) in
the value of an initial investment in a Series of the Fund of $1,000 over
periods of one, five and ten years or over the life of such Series of the
Fund, if less than any of the foregoing. Average annual total return reflects
all income earned by such Series, any appreciation or depreciation of the
assets of such Series, all expenses incurred by such Series and all sales
charges incurred by shareholders redeeming shares, for the stated periods. It
also assumes reinvestment of all dividends and distributions paid by such
Series.
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 front-end sales charge which, if
reflected, would reduce the performance quoted. Each Series may also
advertise the growth of hypothetical investments of $10,000, $50,000 and
$100,000 in shares of that Series by adding 1 to that Series' aggregate total
return to date and multiplying by $9,600, $48,375 and $97,250 ($10,000,
$50,000 and $100,000 adjusted for 4.00%, 3.25% and 2.75% sales charges,
respectively). 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 (such as Lipper Analytical Services Inc.).
ADDITIONAL INFORMATION
-----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of a Series of the Fund
are of $0.01 par value and are equal as to earnings, assets and voting
privileges with respect to such Series.
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 Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees.
Presently, there are ten Series of the Fund. The Declaration of Trust
permits the Trustees to authorize the creation of additional series shares
(the proceeds of which would be invested in separate, independently managed
portfolios) and additional classes of shares within any series (which would
be used to distinguish among the rights of different categories of
shareholders, as might be required by future regulations or other unforeseen
circumstances).
Under Massachusetts law, shareholders of a business trust may, under
certain 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 and requires that notice of such disclaimer be given in each instrument
entered into or executed by the Fund 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, in the opinion of Massachusetts counsel to the
Fund, the risk to Fund shareholders of personal liability is remote.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed
30
ahead of any personal interest, that no undue personal benefit is obtained
from a person's employment activities and that actual and potential conflicts
of interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within 60 days of a sale or a sale
within 60 days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within 30 days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute
Advisory Group on Personal Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
31
APPENDIX
SPECIAL INVESTMENT CONSIDERATIONS OF EACH STATE SERIES
-----------------------------------------------------------------------------
ARIZONA SERIES
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 population increased by approximately 35% during the 10-year
period from 1980 to 1990, ranking Arizona as the third fastest growing state
in the country for the period. Arizona's rate of population growth slowed in
the late eighties and early nineties relative to its rate of growth in the
mid eighties. Since 1993, Arizona's rate of population growth has returned to
its earlier rates of growth in the mid eighties. Current estimates of the
growth in Arizona's population from July 1995 to July 1996 project growth of
approximately 2.9% ranking Arizona as the second fastest growing state in the
nation during that period. 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 the State'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. During the mid-1990s, Arizona's economy recovered from the
difficulties caused in the late eighties by the severe drop in real estate
values and the lack of stability of Arizona-based financial institutions
which caused many of such institutions to be placed under control of the
Resolution Trust Corporation. Although the border counties and especially the
city of Tucson have been adversely affected by the devaluation of the peso
and the subsequent instability in the Mexican economy, the Arizona economy
has generally performed above the national average in recent years. Arizona
had the third fastest job growth rate in the nation in 1995 with a 4.2
percent increase. Furthermore, Arizona's personal income increased by 9.4
percent in 1995 tying Arizona with Nevada for the highest rate in growth of
personal income in the nation. Although Arizona's economy is continuing to
expand, restrictive government spending, a decline in the construction
sector, resizing of the defense industry and layoffs in the private sector
are expected to restrain the pace of further expansion.
Arizona is required by law to maintain a balanced budget. To achieve this
objective, the State 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.
For additional information relating to State imposed restrictions on
indebtedness of certain Arizona issuers, see the Statement of Additional
Information.
32
CALIFORNIA SERIES
Because the California Series will concentrate its investments in
California tax-exempt securities, it will be affected by any political,
economic or regulatory developments affecting the ability of California
issuers to pay interest or repay principal. Various developments regarding
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. The
following information constitutes only a brief summary and is not intended as
a complete description. See the Statement of Additional Information for a
more detailed discussion.
California is the most populous state in the nation with a total
population at the 1990 census of 29,976,000. Growth has been incessant since
World War II, with population gains in each decade since 1950 of between 18%
and 49%. During the last decade, the population rose 20%. The State now
comprises 12% of the nation's population and 12.9% 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, real estate, and financial services. After experiencing
strong growth throughout much of the 1980s, the State was adversely affected
by both the national recession and the cutbacks in aerospace and defense
spending which had a severe impact on the economy in Southern California.
Although California is still experiencing some of the effects of the
recession and its unemployment is above the national average, the gap is
narrowing and is projected to close to within 1% of the national average in
1997, although there can be no assurance that this will occur. 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 three years, the increases
in employment and income may exceed those of the nation as a whole by a
significant margin.
These economic difficulties have exacerbated the structural budget
imbalance which has been evident since fiscal year 1985-1986. Since that
time, budget shortfalls have become increasingly more difficult to solve and
the State has recorded General Fund operating deficits in several fiscal
years. Many of these problems have been attributable to the fact that the
great population influx has produced increased demand for education and
social services at a far greater pace than the growth in the State's tax
revenues. Despite substantial tax increases, expenditure reductions and the
shift of some expenditure responsibilities to local government, the budget
condition remains problematic.
In July 1996, the Governor signed into law a new $62.8 billion budget
which, among other things, significantly increases education spending from
the previous fiscal year, reduces taxes for corporations and banks and
provides for a balanced budget at the close of the fiscal year. At the same
time, the budget continues several funding reductions made in past years,
mostly to health and welfare programs. Although the state's budget provides
for a reserve of $305 million, revenue and expenditure developments have
occurred which may have the effect of reducing the reserve. The Governor's
proposed budget for fiscal year 1997-1998 indicates total spending of $66.6
billion and anticipates a $553 million reserve for economic uncertainties. As
in past years, the state's budget assumes savings which depend on future
federal actions, both to fund programs relating to MediCal and incarceration
costs associated with undocumented immigrants and to relieve the state from
federally mandated spending, which may not occur. Accordingly, the
anticipated reserves may be reduced unless the economy outperforms
expectations or spending falls below planned levels.
Because of the State of California's continuing budget problems, the
State's General Obligation bonds were downgraded in July 1994 from A1 to Aa
by Moody's, from A+ to A by Standard & Poor's, and from AA to A by Fitch
Investors Service, Inc. All three rating agencies 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 Standard
& Poor's raised their ratings from A to A+.
33
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.
For a more detailed discussion of the State of California economic
factors, see the Statement of Additional Information.
FLORIDA SERIES
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 municipal securities market of Florida is very diverse and
includes 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 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 cannot
satisfy their repayment obligations, for any reason, the income, value and
liquidity of the Florida Series may be adversely affected.
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,
1996, Florida's population had grown approximately 11.4 percent since April
1, 1990 to a total population of 14,411,563.
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, transportation and
communications, agriculture, government and the military. During the last two
calendar years Florida's unemployment figures have been slightly lower than
the national average. As the national economy continues to strengthen, so
should Florida's 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 benefit greatly 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 on November 2, 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
34
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 on
January 12, 1994, the amendment became effective on January 1, 1995. During
the two calendar years since the effective date of this amendment, it is
estimated that the taxable value for homestead property on a statewide basis
has been slightly less than it would have been had the amendment not been
approved. It is anticipated that this value differential will continue in the
future. Certain local governments in the State of Florida may find it
necessary to increase ad valorem millage rates in order to offset such lower
taxable values.
At the November 8, 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 the 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 had no impact
for such fiscal year 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.
MASSACHUSETTS SERIES
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 6.4% at the end of fiscal 1994
and further decreased to 5.6% at the end of fiscal 1995. At the end of fiscal
1996, the Massachusetts unemployment rate was 4.5% as compared to the
national rate of 5.4%.
The recent economic growth has resulted in the growth of state tax
revenues in 1993, 1994, 1995 and 1996. Tax revenues for fiscal year 1997 are
currently projected to be approximately 4.3% above fiscal year 1995. 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
35
raised such ratings to A+ in 1993. Currently, the Commonwealth's general
obligation bonds are rated AAA and A+ 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.
For a more detailed discussion of the Commonwealth of Massachusetts
economic factors, see the Statement of Additional Information.
MICHIGAN SERIES
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. 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.
The principal sectors of Michigan's economy are durable goods
manufacturing (including automobile and office equipment manufacturing),
tourism and agriculture. Employment of Michigan's labor force in durable
goods manufacturing has dropped from 33% in 1960 to 15.4% in 1995.
Nevertheless, this was an increase from the level of 14.9% in 1994. Moreover,
manufacturing (including auto-related manufacturing) continues to be an
important part of Michigan's economy. Those industries are highly cyclical
and are expected to operate at somewhat less than full capacity in 1997.
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.
The State reports its financial condition using generally accepted
accounting principles. Michigan's fiscal year begins on October 1 and ends on
September 30 of the following year.
Michigan ended fiscal year 1990-91 with a negative General Fund balance of
$169.4 million. As required by the Michigan Constitution, that deficit was
included in the succeeding year's General Fund budget. Michigan ended fiscal
years 1991-92, 1992-93, 1993-94 and 1994-95 with General Fund surpluses of
$24 million, $280.1 million, $602.9 million and $377.3 million, respectively.
During fiscal years 1990-91 and 1991-92, Michigan utilized $230 million and
$170.1 million, respectively, from its Counter-Cyclical Budget and Economic
Stabilization Fund (BSF) to add to the General Fund balances in those years.
In fiscal year 1992-93, the State of Michigan made a deposit of $282.6
million into the BSF, the first since 1986. In fiscal years 1993-94 and
1994-95, the State of Michigan made more deposits into the BSF, those being
in the amounts of
36
$460.2 million and $349.6 million, respectively. The unreserved balances for
the BSF as of the end of fiscal years 1990-91, 1991-92, 1992-93 and 1994-95
were $182.2 million, $20.1 million, $303.4 million and $1,083.4 million,
respectively.
As of January 22, 1997, the State of Michigan projected a fiscal year
1995-96 General Fund surplus of approximately $70 million. The final amount
of the General Fund surplus, however, will not be known until the State
closes its books for fiscal year 1995-96 in late January 1997. The Michigan
Legislature has adopted the budget for fiscal year 1996-97.
As of January 22, 1997, general obligation bonds of the State of Michigan
were rated "AA" by Standard and Poor's Ratings Services, "Aa" by Moody's
Investors Service and "AA" by Fitch Investors Service. 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 factors not directly
impacting the State.
For a more detailed discussion of the State of Michigan economic factors,
see the Statement of Additional Information.
MINNESOTA SERIES
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.
The State Accounting General Fund balance at June 30, 1987, was positive
$168.5 million. The Commissioner of Finance, in his November 1986 forecast,
estimated an Accounting General Fund balance at June 30, 1989, of negative
$800 million. The Legislature in May 1987 enacted measures expected to yield
approximately $700 million in additional revenues for the 1987-1989 biennium
by broadening the bases of corporate income and sales taxes and raising the
rate of the cigarette excise tax to 38 cents a pack from 23 cents. The
corporate tax rate was lowered to 9.5% from 12%, and a minimum tax was
imposed.
Accounting General Fund appropriations for the 1987-1989 biennium were
$11.35 billion, an increase of 9.4%. A $250 million budget reserve also was
approved.
The 1988 Legislature increased 1987-1989 expenditures a total of $223.8
million and increased revenues a total of $125.5 million.
The Accounting General Fund balance, at June 30, 1989, was positive $360
million.
The 1989 Legislature authorized $13.35 billion in spending for the
1989-1991 biennium, a 16.2% increase over the previous biennium, after
excluding intergovernmental fund transfers. In addition, the Legislature
approved a $550 million budget reserve.
37
The 1989 Legislature passed an omnibus tax bill that included $272 million
in property tax relief and a $72 million increase in tax revenues. The
Governor vetoed the omnibus tax bill, demanding that a larger share of
property tax relief go to business and that the state-subsidized property tax
system be reformed. At a special session in the fall of 1989, a bill was
enacted that included $267 million in property tax relief and a $79 million
increase in tax revenues.
The Commissioner of Finance, in his November 1989 forecast, estimated the
Accounting General Fund balance at June 30, 1991, at negative $161 million.
The Commissioner forecast an $89 million decline in revenues, a $60 million
increase in human services expenditures and a net $29 million decrease due to
other fiscal changes.
The 1990 Legislature enacted budget changes that resulted in a $127
million net savings for the 1989-1991 biennium. A total of $178 million in
spending reductions were enacted, and increased fees and other revenue
changes accounted for a $12 million gain. New spending totaling $63 million
was approved.
A November 1990 forecast estimated a $197 million shortfall for the
biennium ending June 30, 1991, and a $1.2 billion shortfall for the biennium
ending June 30, 1993 due to spending pressures and reduced revenues. A March
1991 forecast reduced the estimated shortfall for the biennium ending June
30, 1993, to $1.1 billion.
In January 1991 the Legislature made $197 million in spending reductions
for the biennium ended June 30, 1991. The State Accounting General Fund
balance at June 30, 1991, was $31 million.
The 1991 Legislature authorized $13.886 billion in spending for the
1991-1993 biennium. Giving effect to inclusion in the Accounting General Fund
of $70 million in dedicated revenues previously budgeted in other funds and
dedication of 1.5 percent of existing sales tax as well as a new .5 percent
local option sales tax to a Local Government Trust Fund, the total increase
in authorized spending was 9.2 percent.
Tax law changes enacted by the 1991 Legislature were expected to yield
$590 million in additional revenues for the 1991-1993 biennium. Federal
conformity on individual and corporate income taxes was expected to raise $82
million; changes in top individual income tax rates and elimination of some
deductions and exemptions were expected to yield an additional $89 million;
extension of the sales tax to kennel services, telephone paging services and
some business-to-business phone services $38 million; a 5 cents a pack
cigarette tax increase to 43 cents $37.2 million; and the .5 percent sales
tax increase $370 million.
After the Legislature adjourned in May 1991, the Commissioner of Finance
estimated that at June 30, 1993, the State would have a $400 million budget
reserve, the amount approved by the 1991 Legislature, and a $103.2 million
Accounting General Fund balance.
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.
38
A March 1993 forecast projected an Accounting General Fund balance at June
30, 1995, at negative $163 million out of a budget for the biennium of
approximately $16.7 billion, and estimated a balance at June 30, 1997, at
negative $1.6 billion out of a budget of approximately $18.7 billion.
The 1993 Legislature authorized $16.519 billion in spending for the
1993-1995 biennium, an increase of 13.0 percent from 1991-1993 expenditures.
Resources for the 1993-1995 biennium were projected to be $16.895 billion,
including $657 million carried forward from the previous biennium. The
$16.238 billion in projected non-dedicated and dedicated revenues was 10.3
percent greater than in the previous biennium and included $175 million from
revenue measures enacted by the 1993 Legislature. The Legislature increased
the health care provider tax to raise $79 million, transferred $39 million
into the Accounting General Fund and improved collection of accounts
receivable to generate $41 million.
After the Legislature adjourned in May 1993, the Commissioner of Finance
estimated that at June 30, 1995, the Accounting General Fund balance would be
$16 million and the budget reserve, as approved by the 1993 Legislature,
would be $360 million. The Accounting General Fund balance at June 30, 1993,
was $463 million.
The Commissioner of Finance, in a November 1993 forecast, estimated the
Accounting General Fund balance at June 30, 1995, at $430 million, due to
projected increases in revenues and reductions in expenditures, and the
balance at June 30, 1997, at $389 million. The Commissioner recommended that
the budget reserve be increased to $500 million. He estimated that if current
laws and policies continued unchanged, revenue would grow 7.7 percent and
expenditures 6.0 percent in the 1995-1997 biennium.
A March 1994 forecast projected an Accounting General Fund balance at June
30, 1995, at $623 million, principally due to a projected $235 million
increase in revenues to $16.6 billion for the biennium. The balance at June
30, 1997, was estimated to be $247 million.
The 1994 Legislature provided for a $500 million budget reserve;
appropriated to school districts $172 million to allow the districts, for
purposes of state aid calculations, to reduce the portion of property tax
collections that the school districts must recognize in the fiscal year
during which they receive the property taxes; increased expenditures $184
million; and increased expected revenues $4 million.
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 comformity
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.
39
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 statute requires that an additional $15 million
be placed in the supplementary budget reserve, and an additional $794 million
must be appropriated to school districts to allow the districts, for purposes
of state aid calculations, to eliminate the 48 percent of property tax
collections that the school districts must recognize in the fiscal year
during which they receive the property taxes.
A February 1996 forecast projected an Accounting General Fund balance at
June 30, 1997, at $873 million, due to a $104 million increase in projected
revenues, a $19 million increase in expenditures, and a $36 million reduction
in the June 30, 1995, ending balance. The amount available for spending
increased from $15 million to $64 million.
In February 1996, the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1999, at $54 million.
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.
40
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 the aid.
In November 1996, the Commissioner of Finance estimated the Accounting
General Fund balance at June 30, 1999, at $1.4 billion.
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.
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. The Ohio Supreme Court, in a
subsequent case involving the same taxpayer and the same issue, recently
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. The taxpayer has appealed to the
United States Supreme Court, which has discretion to decide if it will hear
the
41
case. Even if the Court declines to consider the appeal, 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 1996 were Aaa by Moody's, AA+ 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.
NEW JERSEY SERIES
The portfolio of the New Jersey Series contains different issues of debt
obligations issued by or on behalf of the State of New Jersey (the "State")
and counties, municipalities and other political subdivisions and other
public authorities thereof or by the Government of Puerto Rico or the
Government of Guam or by their respective authorities. Investment in the New
Jersey Series should be made with an understanding that the value of the
underlying Portfolio may decline with increases in interest rates.
Prospective investors should consider the recent financial difficulties and
pressures which the State of New Jersey and certain of its public authorities
have undergone.
The New Jersey State Constitution prohibits the legislature from making
appropriations in any fiscal year in excess of the total revenue on hand and
anticipated. A debt or liability that exceeds 1% of total appropriations for
the year is also prohibited, unless it is in connection with a refinancing to
produce a debt service savings or it is approved at a general election. Such
debt must be authorized by law and applied to a single specified object or
work. These Constitutional provisions do not apply to debt incurred because
of war, insurrection or emergencies caused by disaster.
Pursuant to Article VIII, Section II, par. 2 of the New Jersey
Constitution, no monies may be drawn from the State Treasury except for
appropriations made by law. In addition, the monies for the support of State
government and all State purposes, as far as can be ascertained, must be
provided for in one general appropriation law covering one and the same
fiscal year.
In addition to the Constitutional provisions, the New Jersey statutes
contain provisions concerning the budget and appropriation system. Under
these provisions, each unit of the State requests an appropriation from the
Director of the Division of Budget and Accounting, who reviews the budget
requests and forwards them with her recommendations to the Governor. The
Governor then transmits a recommended expenditures and sources of anticipated
revenue to the legislature, which reviews the Governor's Budget Message and
submits an appropriation bill to the Governor for his 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 6.4% in 1995 and 6.1% for the
four month period from May, 1996 through August, 1996.
42
For a recovery period extending from May, 1992 to August, 1996, service
employment in the State has expanded by 228,500 jobs with growth increasing
particularly in business services and its personnel supply component. In the
manufacturing sector, layoffs of white collar workers and corporate
downsizing appear to have abated through August, 1996 after increased job
losses suffered in 1995 as part of the national downsizing trend.
Improvement, though slow, has also occurred in the construction industry
with an increase of 15,600 jobs from lows reached in 1992. Homebuilding and
nonresidential projects primarily drove the construction job rebound in the
period from 1992 through 1995 while public works projects and homebuilding
became the growth segments of the industry in 1996. Nonresidential
construction fell in the first eight months of 1996 from levels attributable
in 1995 to an abundance of large one-time contract awards.
These improvements in overall employment opportunities and the general
economy have led to increased Consumer Spending within the State throughout
the recovery period. The increase in the State's consumer spending rate
exceeded the national average rate of growth in 1994 and continued to rise,
though moderately, throughout the first six months of 1996 (not continuing
the blizzard-related decline in January, 1996).
The State's 1997 Fiscal Year budget became law on June 30, 1996. For
Fiscal Year 1997, the Governor has recommended appropriations of $446.7
million for principal and interest payments for general obligation bonds. Of
the $15,977.8 million appropriated in Fiscal Year 1996 from the General Fund,
the Property Tax Relief Fund, the Gubernatorial Elections Fund, the Casino
Control Fund and the Casino Revenue Fund, $6,384.4 million (39.9%) is
appropriated for State Aid to Local Governments, $3,749.3 million (23.5%) is
appropriated for Grants-in-Aid, $5,044.6 million (31.6%) for Direct State
Services, $446.9 million (2.8%) for Debt Service on State general obligation
bonds and $352.6 million (2.2%) for Capital Construction.
State Aid to Local Governments was the largest portion of Fiscal Year 1997
appropriations. In Fiscal Year 1997, $6,384.4 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $4,827.5 million, is provided for local elementary and secondary
education programs. Of this amount, $2,728.4 million is provided as
foundation aid to school districts by formula based upon the number of
students and the ability of a school district to raise taxes from its own
base. In addition, the State provides $601.1 million for special education
programs for children with disabilities. A $292.9 million program is also
funded for pupils at risk of educational failure, including basic skills
improvement. The State appropriated is $247.2 million to pay for the cost of
pupil transportation, $19.1 million for transition aid, which guaranteed
school districts a 6.5% increase over the aid received in Fiscal Year 1991
and is being phased out over six years, $69.9 million for debt on school
district obligations and $69.6 million for aid to non-public schools. In
addition, $667.4 million is appropriated on behalf of school districts as the
employer shares of the teachers' pensions and benefits programs.
Appropriations to the State Department of Community Affairs (DCA) total
$839.9 million in State Aid monies for Fiscal Year 1997. Many of the DCA
State Aid programs and many Treasury State Aid programs are consolidated into
a single appropriation made pursuant to the Consolidated Municipal Property
Tax Relief Act in the amount of $858.0 million. In addition, $16.7 million is
appropriated for housing programs, $33.0 million for a block grant program,
$30 million for discretionary aid and $4.2 million for other aid. These
amounts are offset by $103.0 million in pension fund savings, resulting in an
appropriation of DCA State Aid of $839.9.
Appropriations to the State Department of the Treasury total $60.1 million
in State Aid monies for Fiscal Year 1997. The principal programs funded by
these appropriations include the cost of for senior citizens, disabled and
veterans property tax deductions and exemptions ($38.6 million), aid to
densely populated municipalities (9.6 million) and the State contribution to
the Consolidated Police and Firemen Pension Fund ($9.7 million).
43
Other appropriations of State Aid in Fiscal Year 1997 include welfare
programs ($365.4 million); aid to county colleges ($128.8 million); and aid
to county mental hospitals ($76.0 million).
The second largest portion of appropriations in Fiscal Year 1995 is
applied to Direct State Services: support for the operation of State
government's 16 departments, the Executive Office, several commissions, the
State Legislature and the Judiciary. In Fiscal Year 1997, appropriations for
Direct State Services are in the aggregate amount of $5,044.6 million.
At any given time, there are various numbers of claims and cases pending
against the State. 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. In addition, at any given time there are
various contract claims against the State and State agencies 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 $86,795,000 for tort claims pending, as of June 30, 1996.
Moreover, New Jersey is involved in a number of other lawsuits in which
adverse decisions could materially affect revenue or expenditures. Such cases
include challenges to the pensions law amendments enacted June 30, 1994 (P.L.
1994, Chapter 62) concerning the funding of certain pension funds for
teachers and other State employees.
Other lawsuits, that could materially affect revenue or expenditures
include a suit filed on behalf of fifteen counties seeking a share of moneys
paid to the State by the Federal government to reimburse certain State
payments to psychiatric hospitals from July 1, 1988 through July 1, 1991, a
suit challenging both the imposition of premium tax surcharges on insurers
doing business in New Jersey and assessments made upon property and casualty
liability insurers pursuant to the Fair Automobile Insurance Reform Act, a
suit filed by eleven hospitals within the State challenging statutory
assessments collected and used to fund various health care programs; a suit
alleging violation of the Federal Commerce and Contract Claims resulting from
certain waste flow redirection orders issued by the New Jersey Department of
Environmental Protection; a suit challenging the constitutionality, again on
Federal Commerce Clause grants, of certain hazardous and solid waste
licensure renewal fees collected by the Department of Environmental
Protection; litigation related to compliance with prior State court orders
related to the closure of spending gaps among school districts within the
State; a class action challenging the treatment of prisoners with serious
mental disorders confined within the State Department of Corrections system;
and 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.
As of February, 1996, the State's bond ratings were AA+ by S&P and Fitch
and Aa1 by Moody's.
NEW YORK SERIES
Since the New York Series concentrates its investments in New York
tax-exempt securities, the Fund is 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 (the "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 (the
"City") or any of the Agencies or Authorities suffers serious financial
difficulty, both the ability of the State, the
44
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.
On January 13, 1992, Standard & Poor's reduced its ratings on the State's
general obligation bonds from A to A- and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. Standard & Poor's also continued its negative rating outlook
assessment on State general obligation debt. On April 26, 1993, Standard &
Poor's revised the rating outlook assessment to stable. On February 14, 1994,
Standard & Poor's raised its outlook to positive and, on August 5, 1996,
confirmed its A-rating. On January 6, 1992, Moody's reduced its ratings on
outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On July 26, 1996, Moody's reconfirmed its A
rating on the State's general obligation long-term indebtedness.
For a more detailed discussion of New York economic factors, see the
Statement of Additional Information.
The summary information furnished above and in the Statement of Additional
Information is based on official statements prepared by the State of New York
and the City of New York and their authorities in connection with their
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.
OHIO SERIES
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 fourth in the nation in 1991 gross
state product derived from manufacturing. Manufacturing was 26.3% of Ohio's
gross state product compared to 17.1% 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 14.2 million acres (of a total land area of 26.4 million acres)
in farm land and an estimated 75,000 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 13.5% 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 1994 to
just over $5.4 billion. In 1994, Ohio exported over approximately $1 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.
45
Ohio continues as a major "headquarters" state. Of the top 500 individual
corporations (industrial, commercial and service) based on 1995 sales as
reported in 1996 by Fortune magazine, 30 had headquarters in Ohio, placing
Ohio sixth 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 1996. 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 78.9% 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, 1995 and ends June 30, 1997.
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,
totalling $5.8 billion and $4.9 billion in 1996, 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. Aided by tax increases
and other actions, the 1983 GRF ending fund balance was $43.6 million. Recent
biennium GRF ending fund balances were $475.1 million in 1989, $135.3 million
in 1991, and $111 million in 1993. For the Biennium ended June 30, 1995, the
GRF fund balance was $928 million. Of that amount, $70 million was retained
in the GRF and $850 million was transferred to various other State funds,
including $535.2 million to the Budget Stabilization Fund (BSF).
The GRF appropriations bill for the 1996-97 biennium was passed on June
28, 1995, and promptly signed, with selective vetoes, by the Governor. The
act provides for total GRF biennial expenditures of
46
approximately $33.5 billion, an increase over those for the 1994-95 fiscal
biennium. The following are examples of higher authorized GRF biennial
expenditures in major programs: mental health and mental retardation 4.8%;
primary and secondary education 15.4%; human service 9.5%; justice and
corrections 28%; and higher education 13.1%.
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, 1996 ending fund balance in the GRF was $781 million, which
was higher than forecast. Of that amount, $100 million was transferred to a
fund for a school computer network and $30 million was transferred to a new
transportation infrastructure fund.
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. In 1993, $21 million was deposited to the BSF, and an
additional $260.3 million was deposited in 1994, and $535.2 in 1995, giving
the BSF a current balance of approximately $828.3 million.
As of the date of this discussion, the General Assembly was in the process
of considering a budget for the 1998-99 fiscal biennium beginning July 1,
1997, the details of which were uncertain.
Litigation contesting the Ohio system of school funding for violation of
various provisions of the Ohio Constitution is pending. In these proceedings,
the trial court has adopted findings of fact and conclusions of law,
including conclusions that certain provisions of current Ohio law violate the
Ohio Constitution. In August, 1995, a court of appeals reversed these
findings and the case is now pending on appeal to the Ohio Supreme Court.
Litigation is also pending in federal district court challenging the former
Medicaid eligibility rules that were applied between 1990 and 1995 by the
Ohio Department of Human Services in the case of married couples where one
spouse lived in a nursing home and the other spouse resided in the community.
If the plaintiffs in that action are ultimately successful, it is estimated
that the State could be required to incur additional obligations of as much
as $240 million. At this time, the outcome of such litigation is uncertain.
The summary information furnished above is based on official statements
prepared by the State of Ohio in connection with its borrowings and contains
such information as the Fund deems relevant in considering an investment in
the Fund. It does not purport to be a complete description of the
considerations contained therein.
PENNSYLVANIA SERIES
Presented below and in the Statement of Additional Information is
information concerning the Commonwealth of Pennsylvania (the "Commonwealth")
and certain issuers within the Commonwealth. Such information is based
principally on information drawn from recent official statements relating to
securities
47
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. Some additional
information regarding such issuers is set forth in the Statement of
Additional Information. 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 been experiencing financial difficulties in
recent years, as a result of which Moody's and S&P lowered their ratings of
City of Philadelphia general obligations below investment grade. City of
Philadelphia general obligations will not be purchased as an investment
security for the Pennsylvania Series until the ratings of such obligations
meet the criteria for the Pennsylvania Series.
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
58 major corporations. It has been historically identified as a heavy
industry state although that reputation has changed recently 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 19.1% of non-agricultural employment in 1991 to
17.9% in 1995, while service sector employment has increased from 28.6% of
non-agricultural employment in 1991 to 30.4% in 1995. 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 1994 and
1995, the average annual unemployment rates for the Commonwealth were 6.2%
and 5.9%, respectively, compared to rates of 6.1% and 5.6% 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 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.
48
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 $5.68
billion or 35.6% of General Fund tax revenues in fiscal 1996, the personal
income tax, which accounted for $5.37 billion or 33.6% of General Fund tax
revenues, and the 1996 corporate taxes which accounted for $2.5 billion or
15.7% 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 ($6.99
billion in fiscal 1996) and public health and welfare ($5.5 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 1996 refers to the fiscal year ending June 30, 1996.)
For the five year period fiscal 1991 through fiscal 1995, total revenues
and other resources rose at a 9.1 percent average annual rate while total
expenditures and other uses grew by 7.4 percent annually. Over two-thirds of
the increase in total revenues and other sources during this period occurred
during fiscal 1992 when a $2.7 billion tax increase was enacted to address a
fiscal 1991 budget deficit and to fund increased expenditures for fiscal
1992. For the four year period fiscal 1992 through fiscal 1995, total
revenues and other sources increased at an annual average of 3.3 percent,
less than one-half the rate of increase for the five year period beginning
with fiscal 1991. This slower rate of growth was due, in part, to tax rate
reductions and other tax law revisions that restrained the growth of tax
receipts for fiscal years 1993, 1994 and 1995.
Expenditures and other uses followed a pattern similar to that for
revenues, although with smaller growth rates, during the fiscal 1991 through
1995 period. Program areas having the largest increase in costs for the
fiscal 1991 to fiscal 1995 period were for protection of persons and
property, due to an expansion of state prisons, and for public health and
welfare, due to rising caseloads, program utilization and increased prices.
Recently, efforts to restrain the rapid expansion of public health and
welfare program costs have resulted in expenditure increases at or below the
total rate of increase for total expenditures in each fiscal year. For the
period fiscal 1992 through fiscal 1995, public health and welfare costs
increased by an average annual rate of 3.5 percent, well below the 5.2
percent average for total expenditures and other uses during the same 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.
49
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. The Fish Fund
annually pays debt service on Commonwealth bonds issued for projects
constructed for the benefit of that 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.
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.
Information regarding certain Pennsylvania issuers of investment
securities may be found in the Statement of Additional Information.
50
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter Tax-Free Daily Income Trust
Dean Witter U.S. Government Money Market Trust
Dean Witter California Tax-Free Daily Income Trust
Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development Securities Inc.
Dean Witter Dividend Growth Securities Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Value-Added Market Series
Dean Witter Utilities Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Pacific Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
Dean Witter International Small Cap Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter Balanced Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Information Fund
Dean Witter Japan Fund
Dean Witter Income Builder Fund
Dean Witter Special Value Fund
Dean Witter Financial Services Trust
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
Dean Witter National Municipal Trust
Dean Witter High Income Securities
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
Dean Witter Intermediate Term
U.S. Treasury Trust
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Valued-Added Market Series
Global Equity Series
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
Dean Witter
Multi-State Municipal Series Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
MULTI-STATE
MUNICIPAL
SERIES TRUST
Prospectus
February 28, 1997
DEAN WITTER
MULTI-STATE
MUNICIPAL SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1997
-----------------------------------------------------------------------------
Dean Witter Multi-State Municipal Series Trust (the "Fund") is an
open-end, non-diversified management investment company currently consisting
of ten separate 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 "State Series"). The investment objective of each
Series is to provide a high level of current income exempt from both federal
and the designated State income taxes consistent with the preservation of
capital. Each Series seeks to achieve its investment objective by investing
principally in investment grade tax-exempt securities of municipal issuers in
the designated State. See "Investment Practices and Policies."
A Prospectus for the Fund dated February 28, 1997, which provides the
basic information you should know before investing in the Fund, may be
obtained without charge from the Fund at the address or telephone numbers
listed below or from the Fund's Distributor, Dean Witter Distributors Inc.,
or from Dean Witter Reynolds Inc. at any of its branch offices. This
Statement of Additional Information is not a Prospectus. It contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide additional information regarding the
activities and operations of the Fund, and should be read in conjunction with
the Prospectus.
Dean Witter
Multi-State Municipal Series Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS
TABLE OF CONTENTS
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[Download Table]
The Fund and its Management .............. 3
Trustees and Officers .................... 6
Investment Practices and Policies ....... 12
Investment Restrictions .................. 34
Portfolio Transactions and Brokerage .... 35
Purchase of Fund Shares .................. 37
Shareholder Services ..................... 41
Redemptions and Repurchases .............. 43
Dividends, Distributions and Taxes ...... 44
Performance Information .................. 46
Shares of the Fund ....................... 50
Custodian and Transfer Agent ............. 50
Independent Accountants .................. 51
Reports to Shareholders .................. 51
Validity of Shares of Beneficial Interest 51
Legal Counsel ............................ 51
Experts .................................. 51
Registration Statement ................... 51
Appendix ................................. 52
Financial Statements--November 30, 1996 . 56
2
THE FUND AND ITS MANAGEMENT
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THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on October 29, 1990.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), whose address is Two World Trade Center, New York, New York
10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWDC"), a Delaware corporation.
In an internal reorganization which took place in January, 1993, InterCapital
assumed the investment advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds
Inc. ("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used
in this Statement of Additional Information, the terms "InterCapital" and
"Investment Manager" refer to DWR's InterCapital Division prior to the
internal reorganization and to Dean Witter InterCapital Inc. thereafter. The
daily management of the Fund is conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review by the
Fund's Trustees. Information as to these Trustees and Officers is contained
under the caption "Trustees and Officers".
The Investment Manager is also the investment manager of the following
management investment companies: Active Assets Money Trust, Active Assets
Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., Dean Witter High Yield Securities Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter Developing Growth Securities Trust,
Dean Witter Tax-Exempt Securities Trust, Dean Witter Natural Resource
Development Securities Inc., Dean Witter Dividend Growth Securities Inc.,
Dean Witter American Value Fund, Dean Witter U.S. Government Money Market
Trust, Dean Witter Variable Investment Series, Dean Witter World Wide
Investment Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter
U.S. Government Securities Trust, Dean Witter California Tax-Free Income
Fund, Dean Witter New York Tax-Free Income Fund, Dean Witter Convertible
Securities Trust, Dean Witter Federal Securities Trust, Dean Witter
Value-Added Market Series, High Income Advantage Trust, High Income Advantage
Trust II, High Income Advantage Trust III, Dean Witter Government Income
Trust, InterCapital Insured Municipal Bond Trust, InterCapital Quality
Municipal Investment Trust, Dean Witter Utilities Fund, Dean Witter
Strategist Fund, Dean Witter California Tax-Free Daily Income Trust, Dean
Witter World Wide Income Trust, Dean Witter Intermediate Income Securities,
Dean Witter Capital Growth Securities, Dean Witter European Growth Fund Inc.,
Dean Witter Precious Metals and Minerals Trust, Dean Witter New York
Municipal Money Market Trust, Dean Witter Global Short-Term Income Fund Inc.,
Dean Witter Pacific Growth Fund Inc., Dean Witter Premier Income Trust, Dean
Witter Short-Term U.S. Treasury Trust, InterCapital Insured Municipal Trust,
InterCapital Quality Municipal Income Trust, InterCapital Insured Municipal
Income Trust, InterCapital California Insured Municipal Income Trust,
InterCapital Insured Municipal Securities, InterCapital Insured California
Municipal Securities, Dean Witter Diversified Income Trust, Dean Witter
Health Sciences Trust, Dean Witter Retirement Series, InterCapital Quality
Municipal Securities, InterCapital California Quality Municipal Securities,
InterCapital New York Quality Municipal Securities, Dean Witter Global
Dividend Growth Securities, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Global Utilities Fund, Dean Witter
National Municipal Trust, Dean Witter High Income Securities, Dean Witter
International Small Cap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter
Select Dimensions Investment Series, Dean Witter Global Asset Allocation
Fund, Dean Witter Balanced Income Fund, Dean Witter Balanced Growth Fund,
Dean Witter Hawaii Municipal Trust, Dean Witter Capital Appreciation Fund,
Dean Witter Information Fund, Dean Witter Intermediate Term U.S. Treasury
Trust, Dean Witter Japan Fund, Dean Witter Income Builder Fund, Dean Witter
Special Value Fund, Dean Witter Financial Services Trust, Municipal Income
Trust, Municipal Income Trust II, Municipal Income Trust III, Municipal
Income Opportunities Trust, Municipal Income Opportunities Trust II,
Municipal Income Opportunities Trust III, Prime Income Trust and Municipal
Premium Income Trust. The foregoing investment companies, together with the
Fund, are collectively referred to as the Dean Witter Funds. In addition,
3
Dean Witter Services Company Inc. ("DWSC"), a wholly-owned subsidiary of
InterCapital, serves as manager for the following companies for which TCW
Funds Management, Inc. is the investment adviser: TCW/DW Core Equity Trust,
TCW/DW North American Government Income Trust, TCW/DW Latin American Growth
Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW
Balance Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW
Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW Emerging Markets
Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and
TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as: (i)
sub-adviser to Templeton Global Opportunities Trust, an open-end investment
company; (ii) administrator of The BlackRock Strategic Term Trust Inc., a
closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the
Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, statements of additional information, 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 Agreement or by the distributor of the Fund's
shares, Dean Witter Distributors Inc. ("Distributors" or the "Distributor")
(see "Purchase of Fund Shares"), 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 (see "Purchase of Fund Shares"); charges
and expenses of any registrar; custodian, stock transfer and dividend
disbursing agent; brokerage commissions; taxes; engraving and printing of
share certificates; registration costs of the Series and its shares under
federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing Prospectuses and Statements of
Additional Information of the Series and supplements thereto to the Series'
shareholders; all expenses of shareholders' and trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to any
dividend, withdrawal or redemption options; charges and expenses of any
outside service used for pricing of the Fund's shares; fees and expenses of
legal counsel, including counsel to the trustees who are not interested
persons of the Fund or of the Investment Manager (not including compensation
or expenses of attorneys who are employees of the Investment Manager) and
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
4
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 operations properly payable
by the Fund and allocable on the basis of size of the respective Series.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, each Series of
the Fund pays the Investment Manager monthly compensation calculated daily by
applying the annual rate of 0.35% to the daily net assets of that Series.
During the fiscal years ended November 30, 1991 and 1992, the Investment
Manager had undertaken to assume all expenses (except the 12b-1 fee and
brokerage fees) with respect to each Series of the Fund. During the fiscal
year ended November 30, 1993, and during a portion of the fiscal year ended
November 30, 1994 (December 1, 1993 to January 1, 1994) the Investment
Manager continued to waive management fees and assume expenses, with respect
to each Series of the Fund, to the extent they exceeded 0.50% of the daily
net assets of each respective Series. Additionally, during a portion of the
fiscal year ended November 30, 1994 and during the fiscal years ended 1995
and 1996, the Investment Manager continued to waive management fees and
assume expenses with respect to the Massachusetts Series, Michigan Series,
Minnesota Series, New York Series and Ohio Series to the extent they exceeded
0.50% of the daily net assets of each respective Series. The aforementioned
waiver of fees and assumption of expenses continued until December 31, 1996.
During the fiscal year ended November 30, 1994, 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 Agreement
total compensation in the amounts of $198,139, $457,543, $287,107, $62,634,
$75,569, $40,379, $181,438, $54,392, $87,759 and $184,131, respectively.
During the fiscal year ended November 30, 1995, 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 Agreement
total compensation in the amounts of $173,132, $405,705, $253,653, $57,633,
$73,104, $37,712, $165,599, $52,047, $76,895 and $178,837, respectively.
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 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.
The Investment Manager has paid the organizational expenses of the Fund
incurred prior to the offering of the Fund's shares. The Fund agreed to bear
and reimburse the Investment Manager for such expenses, in an amount of up to
a maximum of $150,000. The Fund has deferred and is amortizing the reimbursed
expenses on the straight line method over a period not to exceed five years
from the date of commencement of the Fund's operations.
The 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 Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on October
30, 1992 and by the shareholders of each Series of the Fund at a Special
Meeting of Shareholders on January 12, 1993. The Agreement is substantially
identical to a prior investment management agreement which was initially
approved by the Trustees on December 11, 1990 (April 16, 1991 for the Arizona
Series), by DWR as the then sole shareholder on December 26, 1990 (April 17,
1991 for the Arizona Series) and by the Shareholders of each Series of the
Fund at a Special Meeting of Shareholders held on June 24, 1992. The
Agreement took effect on June 30, 1993 upon the spin-off by Sears, Roebuck &
Co. of its remaining shares of DWDC.
The Agreement may be terminated with respect to any Series, at any time,
without penalty, on thirty days' notice by the Trustees of the Fund, by the
holders of a majority of the outstanding shares of that Series, as defined in
the Investment Company Act of 1940, as amended (the "Act"), or by the
Investment Manager. The Agreement will automatically terminate in the event
of its assignment (as defined in the Act).
5
Under its terms, the Agreement had an initial term ending April 30, 1994,
and will remain in effect from year to year thereafter with respect to each
Series, provided continuance of the Agreement is approved at least annually
by the vote of the holders of a majority of the outstanding shares of that
Series, as defined in the Act, or by the Trustees of the Fund; provided that
in either event such continuance is approved annually by the vote of a
majority of the Trustees of the Fund who are not parties to the Agreement or
"interested persons" (as defined in the Act) of any such party (the
"Independent Trustees"), which vote must be cast in person at a meeting
called for the purpose of voting on such approval. At their meeting held on
April 17, 1996 the Fund's Trustees, including all of the Independent
Trustees, approved the most recent continuation of the Agreement until April
30, 1997.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to
the Fund which were previously performed directly by InterCapital. On April
17, 1995, DWSC was reorganized in the State of Delaware, necessitating the
entry into a new Services Agreement by InterCapital and DWSC on that date.
The foregoing internal reorganizations did not result in any change in the
nature or scope of the administrative services being provided to the Fund or
any of the fees being paid by the Fund for the overall services being
performed under the terms of the existing Management Agreement.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use, or at any
time permit others to use, the name "Dean Witter". The Fund has also agreed
that in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent is terminated, the Fund will eliminate the name
"Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
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The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 83 Dean Witter Funds and the 14 TCW/DW Funds are
shown below.
[Enlarge/Download Table]
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
----------------------------------------- -------------------------------------------------------------------
Michael Bozic (56) Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of the Dean
c/o Levitz Furniture Corporation Witter Funds; formerly President and Chief Executive Officer of
6111 Broken Sound Parkway, N.W. Hills Department Stores (May, 1991-July, 1995); formerly variously
Boca Raton, Florida 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.,
the United Negro College Fund and Weirton Steel Corporation.
Charles A. Fiumefreddo* (63) Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, President, Dean Witter Distributors Inc. ("Distributors") and DWSC; Executive
Chief Executive Officer and Trustee Vice President and Director of DWR; Chairman, Director or Trustee,
Two World Trade Center President and Chief Executive Officer of the Dean Witter Funds;
New York, New York Chairman, Chief Executive Officers and Trustee of the TCW/DW Funds;
Chairman and Director of Dean Witter Trust Company ("DWTC");
Director and/or officer of various DWDC subsidiaries; formerly
Executive Vice President and Director of DWDC (until February
1993).
6
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
----------------------------------------- -------------------------------------------------------------------
Edwin J. Garn (64) Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking
c/o Huntsman Chemical Corporation Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
500 Huntsman Way (1971-1974); formerly Astronaut, Space Shuttle Discovery (April
Salt Lake City, Utah 12-19, 1985); Vice Chairman, Huntsman Chemical Corporation (since
January, 1993); Director of Franklin Quest (time management
systems) and John Alden Financial Corp.; Member of the board of
various civic and charitable organizations.
John R. Haire (72) Chairman of the Audit Committee and Chairman of the Committee of
Trustee the Independent Directors or Trustees and Director or Trustee of
Two World Trade Center the Dean Witter Funds; Chairman of the Audit Committee and Chairman
New York, New York of the Committee of the Independent Trustees and Trustee of the
TCW/DW Funds; formerly President, Council for Aid to Education
(1978-1989), Chairman and Chief Executive Officer of Anchor
Corporation, an Investment Adviser (1964-1978); Director of
Washington National Corporation (insurance).
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Koch Professor of International Economics and Director of the
c/o Johnson Smick International, Inc. Center for Global Market Studies at George Mason University (since
1133 Connecticut Avenue, N.W. September, 1990); Co-Chairman and a founder of the Group of Seven
Washington, D.C. Council (G7C), an international economic commission (since
September, 1990); Director or Trustee of the Dean Witter Funds;
Trustee of the TCW/DW Funds; Director of NASDAQ (since June, 1995);
Director of Greenwich Capital Markets Inc. (broker-dealer);
formerly Vice Chairman of the Board of Governors of the Federal
Reserve System (February, 1986-August, 1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (60) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since April, 1988); Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice President,
237 Park Avenue Bankers Trust Company and BT Capital Corporation (1984-1988);
New York, New York Director of various business organizations.
Philip J. Purcell* (53) Chairman of the Board of Directors and Chief Executive Officer of
Trustee DWDC, DWR and Novus Credit Services Inc.; Director of InterCapital,
Two World Trade Center DWSC and Distributors; Director or Trustee of the Dean Witter
New York, New York Funds; Director and/or officer of various DWDC subsidiaries.
John L. Schroeder (66) Retired; Director or Trustee of the Dean Witter Funds; Trustee of
Trustee the TCW/DW Funds; Director of Citizens Utilities Company; formerly
c/o Gordon Altman Butowsky Executive Vice President and Chief Investment Officer of the Home
Weitzen Shalov & Wein Insurance Company (August, 1991-September, 1995); formerly Chairman
Counsel to the Independent Trustees and Chief Investment Officer of Axe-Houghton Management and the
114 West 47th Street Axe-Houghton Funds (1983-1991).
New York, New York
7
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
----------------------------------------- -------------------------------------------------------------------
Barry Fink (42) First Vice President (since June, 1993) and Secretary and General
Vice President, Secretary Counsel (since February, 1997) of InterCapital and DWSC; First Vice
and General Counsel President, Assistant Secretary and Assistant General Counsel of
Two World Trade Center Dean Witter Distributors Inc. (since February, 1997); Assistant
New York, New York Secretary of DWR (since August, 1996); Vice President, Secretary
and General Counsel of the Dean Witter Funds and the TCW/DW Funds
(since February, 1997); previously Vice President, Assistant
Secretary and Assistant General Counsel of InterCapital and DWSC
and Assistant Secretary of the Dean Witter Funds and the TCW/DW
Funds.
James F. Willison (53) Senior Vice President of InterCapital; Vice President of various
Vice President Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (50) First Vice President and Assistant Treasurer (since January, 1993)
Treasurer of InterCapital and DWSC and Treasurer of the Dean Witter Funds and
Two World Trade Center the TCW/DW Funds.
New York, New York
------------
* Denotes Trustees who are "interested persons" of the Fund, as defined
in the Act.
In addition, Robert M. Scanlan, President of InterCapital and Chief
Operating Officer of InterCapital and DWSC, Executive Vice President of
Distributors and DWTC and Director of DWTC, Joseph J. McAlinden, Executive
Vice President and Chief Investment Officer of InterCapital, DWSC,
Distributors and DWTC and Director of DWTC and Robert S. Giambrone, Senior
Vice President of InterCapital, DWSC, Distributors and DWTC and a Director of
DWTC and Jonathan R. Page, Senior Vice President of InterCapital, are Vice
Presidents of the Fund. In addition, Marilyn K. Cranney, First Vice President
and Assistant General Counsel of InterCapital and DWSC, and Lou Anne D.
McInnis and Ruth Rossi, Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, and Carsten Otto and Frank Bruttomesso, Staff
Attorneys with InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 83 Dean Witter
Funds, comprised of 126 portfolios. As of December 31, 1996, the Dean Witter
Funds had total net assets of approximately $81.2 billion and more than five
million shareholders.
Six Trustees (75% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, DWDC.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "management Trustees") are affiliated with InterCapital. Four
of the six independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
in demand by others and for whom there is often competition. To accept a
position on the Funds' Boards, such individuals may reject other attractive
assignments because the Funds make substantial demands on their time. 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
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the
8
calendar year ended December 31, 1996, the three Committees held a combined
total of sixteen meetings. The Committees hold some meetings at
InterCapital's offices and some outside InterCapital. Management Trustees or
officers do not attend these meetings unless they are invited for purposes of
furnishing information or making a report.
The Committee of the Independent Trustees is 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 Dean Witter Funds
have such a 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 such
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.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and
the Funds' operations and management. He screens and/or prepares written
materials and identifies critical issues for the Independent Trustees to
consider, develops agendas for Committee meetings, determines the type and
amount of information that the Committees will need to form a judgment on
various issues, and arranges to have that information furnished to Committee
members. He also arranges for the services of independent experts and
consults with them in advance of meetings to help refine reports and to focus
on critical issues. Members of the Committees believe that the person who
serves as Chairman of both Committees and guides their efforts is pivotal to
the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since
July 1, 1996, as Chairman of the Committee of the Independent Trustees and
the Audit Committee of the TCW/DW Funds. The current Committee Chairman has
had more than 35 years experience as a senior executive in the investment
company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the 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
9
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, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $1,200). The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Investment Manager
or an affiliated company receive no compensation or expense reimbursement
from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended November 30, 1996.
FUND COMPENSATION
[Download Table]
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
--------------------------- ---------------
Michael Bozic .............. $1,800
Edwin J. Garn .............. 1,800
John R. Haire .............. 3,900
Dr. Manuel H. Johnson ..... 1,750
Michael E. Nugent .......... 1,800
John L. Schroeder .......... 1,750
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for
services to the 82 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1996. 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 Dean Witter Money Market Funds.
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
[Enlarge/Download Table]
FOR SERVICE AS
CHAIRMAN OF
COMMITTEES OF FOR SERVICE AS
INDEPENDENT CHAIRMAN OF TOTAL
FOR SERVICE DIRECTORS/ COMMITTEES OF COMPENSATION
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT PAID
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 82 AND AUDIT 82 DEAN WITTER
NAME OF OF 82 DEAN WITTER OF 14 TCW/DW DEAN WITTER COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
---------------------- ----------------- ---------------- ---------------- ---------------- ---------------
Michael Bozic ......... $138,850 -- -- -- $138,850
Edwin J. Garn ......... 140,900 -- -- -- 140,900
John R. Haire ......... 106,400 $64,283 $195,450 $12,187 378,320
Dr. Manuel H. Johnson 137,100 66,483 -- -- 203,583
Michael E. Nugent .... 138,850 64,283 -- -- 203,133
John L. Schroeder .... 137,150 69,083 -- -- 206,233
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under
which an Independent Trustee who retires after serving
10
for at least five years (or such lesser period as may be determined by the
Board) as an Independent Director or Trustee of any 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, 1996 and by the 57 Dean Witter Funds (including the Fund) for the year
ended December 31, 1996, and the estimated retirement benefits for the Fund's
Independent Trustees, to commence upon their retirement, from the Fund as of
November 30, 1996 and from the 57 Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
[Enlarge/Download Table]
FOR ALL ADOPTING FUNDS
--------------------------------
ESTIMATED ANNUAL
RETIREMENT BENEFITS BENEFITS
ACCRUED AS EXPENSES UPON RETIREMENT(2)
-------------------- -------------------
ESTIMATED
CREDITED
YEARS ESTIMATED
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
--------------------------- --------------- --------------- -------- ---------- ------- ----------
Michael Bozic .............. 10 50.0% $ 348 $20,147 $ 850 $ 51,325
Edwin J. Garn .............. 10 50.0 576 27,772 850 51,325
John R. Haire .............. 10 50.0 2,891 46,952 1,849 129,550
Dr. Manuel H. Johnson ..... 10 50.0 234 10,926 850 51,325
Michael E. Nugent .......... 10 50.0 436 19,217 850 51,325
John L. Schroeder .......... 8 41.7 665 38,700 708 42,771
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such
Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to either
50% or 100% of the previous periodic amount, an election that,
respectively, increases or decreases the previous periodic amount so
that the resulting payments will be the actuarial equivalent of the
Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
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 percent of the Fund's shares
of beneficial interest outstanding.
11
INVESTMENT PRACTICES AND POLICIES
-----------------------------------------------------------------------------
PORTFOLIO SECURITIES
Taxable Securities. As discussed in the Prospectus, each Series of the
Fund 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. (This investment percentage is subject to applicable
state laws and may be limited further by specific requirements of certain
states. It is the intention of each Series to meet the applicable
requirements of the respective States. See "Dividends, Distributions and
Taxes--State Taxation" in the Prospectus.) 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.
In addition, each Series may temporarily invest more than 20% of its total
assets in tax-exempt securities of other states and municipalities and
taxable money market instruments, in order to maintain a temporary
"defensive" posture when, in the opinion of the Investment Manager, it is
advisable to do so because of market conditions (the types of investments in
which each Series may invest when maintaining a temporary "defensive"
position may be limited by applicable State requirements). 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 Service, 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.
Tax-Exempt Securities. As discussed in the Prospectus, under normal
conditions, at least 80% of the total assets of each Series will be invested
in securities, the interest on which is exempt from federal income taxes and
the income taxes of the designated State. The tax-exempt securities in which
each Series will invest include Municipal Bonds, Municipal Notes and
Municipal Commercial Paper. In regard to the Moody's and S&P ratings
discussed in the Prospectus, it should be noted that the ratings represent
the organizations' opinions as to the quality of the securities which they
undertake to rate and that the ratings are general and not absolute standards
of quality. For a description of Municipal Bond, Municipal Note and Municipal
Commercial Paper ratings by Moody's and S&P, see the Appendix to this
Statement of Additional Information.
The percentage and rating policies in the Prospectus apply at the time of
acquisition of a security based upon the last previous determination of the
Fund's net asset value; any subsequent change in any ratings by a rating
service or change in percentages resulting from market fluctuations or other
changes in the amount of total assets will not require elimination of any
security from the Fund's portfolio until such time as the Investment Manager
determines that it is practicable to sell the security without undue market
or tax consequences to the Fund. Therefore, the Fund may hold securities
which have been downgraded to ratings of Ba or BB or lower by Moody's or S&P.
Such securities are considered to be speculative investments.
Although certain quality standards are applicable at the time of purchase,
the Fund does not have any minimum quality rating standard for its downgraded
investments. As such, the Fund may continue to hold securities rated as low
as Caa, Ca or C by Moody's or CCC, CC, C or CI by S&P. However, such
investments may not exceed more than 5% of the total assets of any Series.
Bonds rated Caa or Ca by Moody's may already be in default on payment of
interest or principal, while bonds rated C by Moody's, their lowest bond
rating, can be regarded as having extremely poor prospects of ever attaining
any real investment standing. Bonds rated CI by S&P, their lowest Bond
rating, are no longer making interest payments.
12
The payment of principal and interest by issuers of certain Municipal
Obligations purchased by each Series may be guaranteed by letters of credit
or other credit facilities offered by banks or other financial institutions.
Such guarantees will be considered in determining whether a Municipal
Obligation meets the investment quality requirements of each Series. In
addition, some issues may contain provisions which permit the Fund, on behalf
of a Series, to demand from the issuer repayment of principal at some
specified period(s) prior to maturity.
Municipal Bonds. Municipal Bonds, as referred to in the Prospectus, are
debt obligations of a state, its cities, municipalities and municipal
agencies (all of which are generally referred to as "municipalities") which
generally have a maturity at the time of issue of one year or more, and the
interest from which is, in the opinion of bond counsel to the issuer at time
of original issuance, exempt from regular federal income tax. In addition to
these requirements, the interest from Municipal Bonds of the designated State
of each Series must be, in the opinion of bond counsel to the issuer at time
of original issuance, exempt from the regular personal income tax of that
State. These obligations are issued to raise funds for various public
purposes, such as construction of a wide range of public facilities, to
refund outstanding obligations and to obtain funds for general operating
expenses or to loan to other public institutions and facilities. In addition,
certain types of industrial development bonds and pollution control bonds are
issued by or on behalf of public authorities to provide funding for various
privately operated facilities.
Municipal Notes. Municipal Notes are short-term obligations of
municipalities, generally with a maturity at the time of issuance ranging
from six months to three years, the interest from which is, in the opinion of
bond counsel to the issuer at time of original issuance, exempt from regular
federal income tax. In addition to those requirements, the interest from
Municipal Notes of the designated State of each Series must be, in the
opinion of bond counsel to the issuer at time of original issuance, exempt
from the regular personal income tax of that State. The principal types of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes, although there are other types
of Municipal Notes, in which each Series may invest. Notes sold in
anticipation of collection of taxes, a bond sale or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Project Notes are issued by local agencies and are guaranteed by the United
States Department of Housing and Urban Development. Such notes are secured by
the full faith and credit of the United States Government.
Municipal Commercial Paper. Municipal Commercial Paper refers to
short-term obligations of municipalities the interest from which is, in the
opinion of bond counsel to the issuer at time of original issuance, exempt
from regular federal income tax. In addition to those requirements, the
interest from the Municipal Commercial Paper of the designated State of each
Series must be, in the opinion of bond counsel to the issuer at time of
original issuance, exempt from the regular personal income tax of that State.
Municipal Commercial Paper may be issued at a discount and is sometimes
referred to as Short-Term Discount Notes. Municipal Commercial Paper is
likely to be used to meet seasonal working capital needs of a municipality or
interim construction financing and to be paid from general revenues of the
municipality or refinanced with long-term debt. In most cases Municipal
Commercial Paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions.
The two principal classifications of Municipal Bonds, Notes and Commercial
Paper are "general obligation" and "revenue" bonds, notes or commercial
paper. General obligation bonds, notes or commercial paper are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds, notes or
commercial paper include a state, its counties, cities, towns and other
governmental units. Revenue bonds, notes or commercial paper are payable from
the revenues derived from a particular facility or class of facilities or, in
some cases, from specific revenue sources. Revenue bonds, notes or commercial
paper are issued for a wide variety of purposes, including the financing of
electric, gas, water and sewer systems and other public utilities; industrial
development and pollution control facilities; single and multi-family housing
units; public buildings and facilities; air and marine ports; transportation
facilities such as toll roads, bridges and tunnels; and health and
educational facilities such as hospitals and dormitories. They rely primarily
on user fees to pay debt service, although the principal revenue source is
often supplemented by additional
13
security features which are intended to enhance the credit worthiness of the
issuer's obligations. In some cases, particularly revenue bonds issued to
finance housing and public buildings, a direct or implied "moral obligation"
of a governmental unit may be pledged to the payment of debt service. In
other cases, a special tax or other charge may augment user fees.
Issuers of Municipal Obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or any state extending the time for payment of principal
or interest, or both, or imposing other constraints upon enforcement of such
obligations or upon municipalities to levy taxes. There is also the
possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay, when due, principal of and
interest on its, or their, Municipal Bonds, Municipal Notes and Municipal
Commercial Paper may be materially affected.
SPECIAL INVESTMENT CONSIDERATIONS
Because of the special nature of securities which are rated below
investment grade by national credit rating agencies ("lower-rated
securities"), the Investment Manager must take into account certain special
considerations in assessing the risks associated with such investments. For
example, as the lower-rated securities market is relatively new, its growth
has paralleled a long economic expansion and it has not weathered a recession
in its present size and form. Therefore, an economic downturn or increase in
interest rates is likely to have a negative effect on this market and on the
value of the lower-rated securities held by each Series of the Fund, as well
as on the ability of the securities' issuers to repay principal and interest
on their borrowings.
The prices of lower-rated securities have been found to be less sensitive
to changes in prevailing interest rates than higher-rated investments, but
are likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal
and interest payment obligations, to meet their projected business goals or
to obtain additional financing. If the issuer of a fixed-income security
owned by any Series defaults, the Series may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of lower rated
securities and a concomitant volatility in the net asset value per share of a
particular Series of the Fund. Moreover, the market prices of certain of the
portfolio securities of each Series which are structured as zero coupon
securities are affected to a greater extent by interest rate changes and
thereby tend to be more volatile than securities which pay interest
periodically and in cash (see "Dividends, Distributions and Taxes" for a
discussion of the tax ramifications of investment in such securities).
The secondary market for lower-rated securities may be less liquid than
the markets for higher quality securities and, as such, may have an adverse
effect on the market prices of certain securities. The limited liquidity of
the market may also adversely affect the ability of the Fund's Trustees to
arrive at a fair value for certain lower-rated securities at certain times
and could make it difficult for a Series to sell certain securities.
New laws and proposed new laws may have a potentially negative impact on
the market for lower-rated securities. For example, recent legislation
requires federally-insured savings and loan associations to divest their
investments in lower-rated securities. This legislation and other proposed
legislation may have an adverse effect upon the value of lower-rated
securities and a concomitant negative impact upon the net asset value per
share of a Series of the Fund.
Variable Rate Obligations. As stated in the Prospectus, each Series of the
Fund may invest in obligations of the type called "variable rate
obligations". The interest rate payable on a variable rate obligation is
adjusted either at predesignated periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based. Other features may include the right whereby the Fund may demand
prepayment of the principal amount of the obligation prior to its stated
maturity (a "demand feature") and the right of the issuer to prepay the
principal amount prior to maturity. The principal benefit of a variable rate
obligation is that the interest rate adjustment minimizes changes
14
in the market value of the obligation. The principal benefit to each Series
of the Fund of purchasing obligations with a demand feature is that
liquidity, and the ability of each Series of the Fund to obtain repayment of
the full principal amount of the obligation prior to maturity, is enhanced.
Lending of Portfolio Securities. The Fund, on behalf of any 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 Fund 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 Fund may invest on behalf
of the Series, the cash collateral in portfolio securities, thereby earning
additional income. The Fund will not lend the portfolio securities of any
Series if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale and will not lend more than
25% of the value of the total assets of any Series. Loans will be subject to
termination by the Fund on behalf of any 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 the Series and its
shareholders. The Fund may pay reasonable finders, borrowers, administrative,
and custodial fees in connection with a loan. The creditworthiness of firms
to which the Fund lends its portfolio securities will be monitored on an
ongoing basis. During the fiscal year ended November 30, 1996, the Fund did
not lend any portfolio securities of any Series.
When-Issued and Delayed Delivery Securities. As stated in the Prospectus,
the Fund may, on behalf of any Series, purchase tax-exempt securities on a
when-issued or delayed delivery basis. When such 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 the commitment. While the
Fund will only purchase securities on a when-issued or delayed delivery basis
with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time the Fund
makes the commitment to purchase a Municipal Obligation on a when-issued or
delayed delivery basis, it will record the transaction and thereafter reflect
the value, each day, of the Municipal Obligation in determining its net asset
value. The Fund, on behalf of each Series, will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other liquid portfolio securities equal in value to
commitments for such when-issued or delayed delivery securities. During the
fiscal year ended November 30, 1996, investments in when-issued and delayed
delivery securities by any Series of the Fund did not exceed 5% of the total
net assets of any such Series.
Repurchase Agreements. When cash may be available for only a few days, it
may be invested by the Fund, on behalf of any Series, in repurchase
agreements until such time as it may otherwise be invested or used for
payments of obligations of the Fund. These agreements, which may be viewed as
a type of secured lending by the Fund, typically involve the acquisition by
the Fund, on behalf of 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 Fund will, on behalf of a Series, sell back
to the institution, and that the institution will repurchase, the underlying
security ("collateral"), which is held by the Fund's Custodian at a specified
price and at a fixed time in the future which is usually not more than seven
days from the date of purchase. The Fund, on behalf of that Series, will
receive interest from the institution until the time when the repurchase is
to occur. Although such date is deemed by the Fund to be the maturity date of
a repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed one year. While
repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase
transactions only with large well-capitalized and well-established financial
institutions, whose financial condition will be continually monitored. In
addition, the value of the collateral underlying the repurchase agreement
will always be at least equal to the repurchase price, including any accrued
interest earned on the repurchase agreement. In the event of a default or
bankruptcy by a selling financial institution, the Fund,
15
on behalf of a Series, will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price,
a particular Series could suffer a loss. It is the current policy of each
Series of the Fund not to invest in repurchase agreements that do not mature
within seven days if any such investment, together with any other illiquid
assets held by a particular Series, amounts to more than 10% of the total
assets of that Series. During the fiscal year ended November 30, 1996, the
Fund did not enter into any repurchase agreements with respect to any Series.
HEDGING ACTIVITIES
The Fund, on behalf of each Series except the New Jersey Series, may enter
into financial futures contracts, options on such futures and municipal bond
index futures contracts for hedging purposes.
FUTURES CONTRACT AND OPTIONS ON FUTURES
As discussed in the Prospectus, the Fund, on behalf of any applicable
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 the Fund, as seller, on behalf
of a Series, to deliver the specific type of instrument called for in the
contract at a specified future time for a specified price. A futures contract
purchase would create an obligation by the Fund, as purchaser, on behalf of
that Series, 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 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 the Fund, on behalf of 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 Fund is immediately paid
the difference and thus, on behalf of that Series, realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the
difference and, on behalf of that Series, realizes the loss. Similarly, the
closing out of a futures contract purchase is effected, on behalf of a
Series, by the Fund entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund, on behalf of that Series,
realizes a gain, and if the offsetting sale price is less than the purchase
price, the Fund, on behalf of that 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.
If the holder decides not to enter into the contract, the premium paid for
the option 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 and is reflected in the net asset value of the
particular Series holding the option.
The Fund, on behalf of each applicable 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. The Fund,
on behalf of any 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 and Bank Certificates of Deposit. The Fund may invest in interest
rate futures contracts covering these types of financial instruments as well
as in new types of contracts that become available in the future.
16
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 their value 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 the Fund's manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Fund, on behalf of 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 similar characteristics as
Exchange-traded options. See below for a further description of 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 this market will develop.
In order to assure that the Fund is utilizing futures transactions for
hedging purposes only, a substantial majority (i.e., approximately 75%) of
all anticipatory hedge transactions of each Series (transactions in which the
Fund, on behalf of a Series, does not own at the time of the transaction, but
expects to acquire, the securities underlying the relevant futures contract)
involving the purchase of futures contracts or call options thereon will be
completed by the purchase of securities which are the subject of the hedge.
The Fund, on behalf of any applicable Series, may not enter into futures
contracts or related options thereon if immediately thereafter the amount
committed to margin of all the Series' futures contracts plus the amount paid
for option premiums exceeds 5% of the value of the Fund's total assets. In
instances involving the purchase of futures contracts by the Fund, on behalf
of a Series, the market value of the futures contract will be deposited in a
segregated account containing cash and cash equivalents to collateralize the
position and thereby ensure that the use of such futures is unleveraged. The
Fund, on behalf of any Series, may not purchase or sell futures contracts or
related options thereon if immediately thereafter more than one-third of the
Series' net assets would be hedged.
Municipal Bond Index Futures. The Fund, on behalf of any applicable
Series, may utilize municipal bond index futures contracts for hedging
purposes. The Fund's 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 purchase or
sale of an offsetting contract for the same delivery month prior to
expiration of the contract. Because trading in municipal bond index futures
contracts commenced only recently, the Fund's ability to utilize such
contracts on behalf of a Series will be dependent upon the development and
maintenance of a liquid secondary market for such contracts.
17
Options. The Fund, on behalf of any applicable Series, may purchase or
sell (write) options on debt securities as a means of achieving additional
return or hedging the value of a Series of the Fund's portfolio. The Fund, on
behalf of a Series, would only buy options listed on national securities
exchanges. The Fund, will not purchase options on behalf of any Series if, as
a result, the aggregate cost of all outstanding options exceeds 10% of the
Fund's total assets.
A call option is a contract that gives the holder of the option the right
to buy from the writer of the call option, in return for a premium, the
security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option has the
obligation upon exercise of the option to deliver the underlying security
upon payment of the exercise price during the option period. A put option is
a contract that gives the holder of the option the right to sell to the
writer, in return for a premium, the underlying security at a specified price
during the term of the option. The writer of the put has the obligation to
buy the underlying security upon exercise, at the exercise price during the
option period.
The Fund, on behalf of any applicable Series, will only write covered call
or covered put options. The Fund may not write covered options on behalf of a
Series in an amount exceeding 20% of the value of the total assets of that
Series. A call option is "covered" if the Fund, on behalf of a Series, owns
the underlying security subject to the option or has an absolute and
immediate right to acquire that security or futures contract without
additional cash consideration (or for additional cash consideration 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 the Fund,
on behalf of 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 the
Fund, on behalf of a Series, in cash, Treasury bills or other liquid
portfolio securities in a segregated account with its custodian. A put option
is "covered" if the Fund, on behalf of 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 the Fund has written an option on behalf of a Series, it may terminate
its obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the option
previously written. However, once the Fund has been assigned an exercise
notice, the Fund, on behalf of that Series, will be unable to effect a
closing purchase transaction. Similarly, if the Fund, on behalf of a 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 any Series
can be effected when the Fund 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
repurchase of a call option may also be wholly or partially offset by
unrealized appreciation of the underlying security. Other principal factors
affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price and price volatility of the
underlying security and the time remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write, on behalf of a Series, only those options for
which there appears to be an active secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
option. In such event it might not be possible to effect closing transactions
in particular options, so that the Fund, on behalf of that Series, would have
to exercise its options in order to realize any profit and would incur
brokerage commissions
18
upon the exercise of call options and upon the subsequent disposition of
underlying securities for the exercise of put options. If the Fund 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.
PORTFOLIO MANAGEMENT
Each Series of the Fund may engage in short-term trading consistent with
its investment objective. Securities may be sold in anticipation of a market
decline (a rise in interest rates) or purchased in anticipation of a market
rise (a decline in interest rates). In addition, a security may be sold and
another security of comparable quality purchased at approximately the same
time to take advantage of what the Investment Manager believes to be a
temporary disparity in the normal yield relationship between the two
securities. These yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general
movement of interest rates, such as changes in the overall demand for, or
supply of, various types of tax-exempt securities.
In general, purchases and sales may also be made to restructure the
portfolio in terms of average maturity, quality, coupon yield, or
diversification for any one or more of the following purposes: (a) to
increase income, (b) to improve portfolio quality, (c) to minimize capital
depreciation, (d) to realize gains or losses, or for such other reasons as
the Investment Manager deems relevant in light of economic and market
conditions.
The Fund does not generally intend to invest more than 25% of the total
assets of any Series in securities of any one governmental unit. Subject to
investment restriction number 2 in the Prospectus, the Fund may invest more
than 25% of the total assets of any Series in private activity bonds (a
certain type of tax-exempt Municipal Obligation).
Each Series of the Fund may invest up to 10% of its total assets in
obligations customarily sold to institutional investors in private
transactions with the issuers thereof and other securities which may be
deemed to be illiquid. Due to the limited market for certain of these
securities, a Series may be unable to dispose of such securities promptly at
reasonable prices. It is the current intention of each Series not to invest
in such obligations.
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO ARIZONA OBLIGATIONS
Arizona's constitution limits the amount of debt payable from general tax
revenues that may be contracted by the State to $350,000. However, certain
other issuers have the statutory power to issue obligations payable from
other sources of revenue which affect the whole or large portions of the
State. For example, the Transportation Board of the State of Arizona
Department of Transportation may issue obligations for highways which are
paid from revenues generated from, among other sources, gasoline taxes.
Arizona's constitution also restricts debt payable from general tax
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
19
payable from, among other revenue sources, project revenues, special
assessments, annual budget appropriations and excise, transaction privilege
and use taxes.
In 1994, the Supreme Court of Arizona ruled that the State of Arizona's
statutory financing scheme for public education was not in compliance with
the Arizona Constitution and directed the Arizona legislature to revise the
statutory financing scheme for public education to bring it into compliance.
The Supreme Court further ordered that this ruling would have prospective
application only, that the public school system should continue under
existing statutes, and that bonded indebtedness incurred under the existing
statutes, as long as they are in effect, are valid and enforceable. In an
effort to respond to the Supreme Court's decision, the Arizona legislature
established a school capital equity fund (the "Fund") with an initial
appropriation of $30 million and a subsequent appropriation of $70 million.
The Fund is available to school districts that meet certain established
criteria. On January 15, 1997, the Supreme Court of Arizona ruled that (i)
the creation of the Fund does not cure the State's statutory finance scheme
and (ii) the legislature must adopt a constitutional funding system by June
30, 1998. If a constitutional funding system is not adopted by June 30, 1998,
the State Superintendent of Public Instruction and State Board of Education
will not be permitted to distribute funds to the schools of the State. If the
State Superintendent of Public Instruction and State Board of Education do
not distribute funds to the school districts as ordered by the Supreme Court,
certain school districts may experience severe adverse financial consequences
that may adversely affect the market value of bonds and may, if severe
enough, cause the bankruptcy or insolvency of such districts and affect
timely payment of certain bonds.
In 1995, taxpayers filed a complaint against a school district in Maricopa
County, Arizona concerning the manner in which constitutional and statutory
debt limits applicable to Arizona school districts are calculated.
Specifically, these citizens argued that the school district's outstanding
principal amount of bonds, together with premium received in connection with
the issuance of such bonds, should be used in such calculations. In 1996, the
Superior Court of Maricopa County entered a judgment in favor of the
taxpayers and concluded that the premium to be treated as debt is determined
on the amount that the underwriter pays to a district for such bonds and not
the amount for which the underwriter resells such bonds. The judgment was not
appealed by the effected district. As a result of the judgment, it is not
clear if all or part of any premium received by a school district is subject
to constitutional and statutory debt limits. The Superior Court's judgment
and any proceedings with respect thereto or proceedings in subsequent cases
could have potential adverse consequences including an adverse impact on the
secondary market for debt securities.
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.
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL
OBLIGATIONS
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. Various developments regarding 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.
In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and
revenues from other sources. Legislation adopted after Proposition 13
provided for assistance to local governments, including the redistribution of
the then-existing surplus in the General Fund, reallocation of revenues to
local governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in
20
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 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 by account for the effects of inflation. Decreases in State
and local revenues in future fiscal years as a consequence of these
initiatives may result in reductions in allocations of state revenues to
California issuers or in the ability of California issuers to pay their
obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution
or ordinance adopted by a two-thirds vote of the governmental entity's
legislative body and by a majority vote of the electorate of the governmental
entity, (ii) requires that any special tax (defined as tax levied for other
than general governmental purposes) imposed by a local governmental entity be
approved by a two-thirds vote of the voters within that jurisdiction, (iii)
restricts the use of revenues from a special tax to the purposes or for the
service for which the special tax was imposed, (iv) prohibits the imposition
of ad valorem taxes on real property by local governmental entities except as
permitted by the Proposition 13 amendment, (v) prohibits the imposition of
transaction taxes and sales taxes on the sale of real property by local
governments, (vi) requires that any tax imposed by a local government on or
after August 1, 1985, be ratified by a majority vote of the electorate within
two years of the adoption of the initiative or be terminated by November 15,
1989, (vii) requires that, in the event a local government fails to comply
with the provisions of this measure, a reduction of the amount of property
tax revenue allocated to such local government occurs in an amount equal to
the revenues received by such entity attributable to the tax levied in
violation of the initiative, and (viii) permits these provisions to be
amended exclusively by the voters of the State of California.
In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality
of certain local taxes enacted by non-charter cities in California without
voter approval. It is not possible to predict the impact of the decision.
In November 1996, California voters approved Proposition 218. The
initiative applied the provisions of Proposition 62 to all entities,
including charter cities. It requires that all taxes for general purposes
obtain a simple majority popular vote and that taxes for special purposes
obtain a two-thirds majority vote. Prior to the effectiveness of Proposition
218, charter cities could levy certain taxes such as transient occupancy
taxes and utility user's taxes without a popular vote. Proposition 218 will
also limit the authority of local governments to impose property-related
assessments, fees and charges, requiring that
21
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 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.
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations and, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in losses
suffered by the County's investment pool due to investments in high risk
"derivative" securities. On June 12, 1996, it emerged from bankruptcy after
the successful sale of $880 million in municipal bonds allowed the county to
pay off the last of its creditors. On January 7, 1997, Orange County returned
to the municipal bond market with a $136 million bond issue maturing in 13
years at an insured yield of 7.23%.
Los Angeles County, the nation's largest county, is also experiencing
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,
among other things, severe operating deficits for the county's health care
system. Also, the county has not yet recovered from the ongoing loss of
revenue caused by state property tax shift initiatives in 1993 through 1995.
Entering the 1996-1997 fiscal year, the county faced a budgetary shortfall of
approximately $516 million. The county's budgetary difficulties have
continued with their effect on the 1997-1998 budget still uncertain.
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.
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO MASSACHUSETTS MUNICIPAL
OBLIGATIONS
Between 1982 and 1988 The Commonwealth of Massachusetts had a strong
economy which was evidenced by low unemployment and high personal income
growth as compared to national trends. Economic growth in the Commonwealth
slowed from 1988 to 1992, however, as the Commonwealth experienced a
significant economic slowdown, with particular deterioration in the
construction, real estate, financial, insurance and manufacturing sectors,
including certain high technology areas. Economic activity began to improve
in 1993 and continued to improve in 1994, particularly in the construction
and service sectors as well as in housing sales. In 1995 and 1996, the
services and
22
wholesale and retail trade industries were the two largest industries by
number of employees. A low rate of inflation is expected to keep wage growth
low and allow for slow-paced positive growth in Massachusetts in 1997.
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 1996
was 4.5%, 0.9% below the national rate of 5.4%.
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 of fiscal 1991, 1992, 1993, 1994, 1995 and
1996. The Commonwealth's fiscal 1997 budgeted revenues and other sources are
estimated to be approximately $17.2 billion. The Commonwealth's fiscal 1997
budgeted expenditures and other uses are estimated to be approximately $17.7
billion. The fiscal year 1997 opening fund balance on a statutory basis is
$1,172.4 million. If the Fiscal 1997 forecast is realized, the ending fund
balance will be approximately $704.7 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.
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 1995 tax
revenues increased to account for approximately 49% of all revenues and
financing sources. Fiscal 1996 tax revenues accounted for 47.5%. Tax revenues
for 1997 are estimated to be 0.6% above fiscal 1996.
Growth of tax revenues in the Commonwealth is limited by law. In addition,
effective July 1, 1990, limitations were placed on the amount of direct bonds
(other than Fiscal Recovery Bonds and certain other limited exceptions) the
Commonwealth may have outstanding in a fiscal year, and the amount of the
total appropriation in any fiscal year that may be expended for payment of
principal of and interest on general obligation debt (other than Fiscal
Recovery Bonds) of the Commonwealth was limited to 10 percent of such
appropriation.
Furthermore, certain of the Commonwealth's cities and towns have at times
experienced serious financial difficulties which have adversely affected
their credit standing. The recurrence of such financial difficulties, or
financial difficulties of the Commonwealth, could adversely effect the market
values and marketability of, or result in default in payment on, outstanding
obligations issued by the Commonwealth or its public authorities or
municipalities. In addition, the Massachusetts statutes which limit the
taxing authority of the Commonwealth or certain Massachusetts governmental
entities may impair the ability of issuers of some Massachusetts obligations
to pay debt service on their obligations.
In Massachusetts the tax on personal property and real estate is virtually
the only source of tax revenues available to cities and towns to meet local
costs. "Proposition 2 1/2," an initiative petition adopted by the voters of
the Commonwealth of Massachusetts on November 4, 1980, limits the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of certain debt service. Proposition 2 1/2 required
many cities and towns to reduce their property tax levels to a stated
percentage of the full and fair cash value of their taxable real estate and
personal property and limited the amount by which the total property taxes
assessed by a city or town might increase from year to year.
To offset shortfalls experienced by local governments as a result of the
implementation of Proposition 2 1/2, the state government increased direct
local aid from the 1981 level of $1.632 billion to
23
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, direct local aid increased to
$3.0 billion, and in fiscal 1996, direct local aid increased to $3.3 billion.
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO MICHIGAN OBLIGATIONS
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. 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 15.4% in 1995. Nevertheless, this
was an increase from the level of 14.9% in 1994. Moreover, manufacturing
(including auto-related manufacturing) continues to be an important part of
Michigan's economy. Those industries are highly cyclical and are expected to
operate at somewhat less than full capacity in 1997. 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 1995 was approximately three percent more
than the national average. For the third consecutive year, contrary to the
prior historical trend, the average annual unemployment rate for 1996 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
one percent or more, the entire amount exceeding the limitation must be
rebated in the following fiscal year's personal income tax or single business
tax. Annual excesses of less than one 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.
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.
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Approximately 59% of General Fund revenues are obtained from the payment of
state taxes, and approximately 41% 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 Aid to Families with Dependent
Children.
Michigan ended fiscal year 1990-91 with a negative General Fund balance of
$169.4 million. As required by the Michigan Constitution, that deficit was
included in the succeeding year's General Fund budget. Michigan ended fiscal
years 1991-92, 1992-93, 1993-94 and 1994-95 with General Fund surpluses of
$24 million, $262.9 million, $460.2 million and $377.3 million, respectively.
During fiscal years 1990-91 and 1991-92, Michigan utilized $230 million and
$170.1 million, respectively, from its Counter-Cyclical Budget and Economic
Stabilization Fund (BSF) to add to the General Fund balances in those years.
In fiscal year 1992-93, the State of Michigan made a deposit of $282.6
million into the BSF, the first since 1986. In fiscal years 1993-94 and
1994-95, the State of Michigan made more deposits into the BSF, those being
in the amounts of $460.2 million and $349.6 million, respectively. The
unreserved balances for the BSF as of the end of fiscal years 1991-92,
1992-93, 1993-94 and 1994-95, reported on a cash basis, were $188.6 million,
$20.7 million, $311.7 million and $1,083.4 million, respectively.
As of January 22, 1997, the State of Michigan projected a fiscal year
1995-96 General Fund surplus of approximately $70 million. The final amount
of the General Fund surplus, however, will not be known until the State
closes its books for fiscal year 1995-96 in late January 1997. The Michigan
Legislature has adopted the budget for fiscal year 1996-97.
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, 1996
totalled approximately $685 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 $265 million remained to be issued as of September 30, 1996.
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. As of
January 22, 1997, those lawsuits involved 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 January 22, 1997.
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,
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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 6 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. Such 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.
Ratings. As of January 22, 1997, Michigan's general obligation bonds were
rated "Aa" by Moody's Investors Service, "AA" by Standard & Poor's Ratings
Services and "AA" by Fitch Investors Service. 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.
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS
During the mid-1970's, New York State (the "State"), some of its agencies,
instrumentalities and public benefit corporations (the "Authorities"), 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 Trust invests.
NEW YORK CITY
General. 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 (the "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
the City's current four-year financial plan assumes that moderate economic
growth will continue through the year 2000.
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP"). The City was required to close
substantial budget gaps in recent years in order to maintain balanced
operating results.
1997-2000 New York City Financial Plan. The Mayor is responsible for
preparing the City's four-year financial plan (the "1997-2000 Financial
Plan," the "Financial Plan" or "City Plan"). On Novem-
26
ber 14, 1996, the City submitted to the Control Board the Financial Plan for
the 1996-1999 fiscal years, which is a modification to a financial plan
submitted to the Control Board on July 21, 1996 (the "June Financial Plan")
and which relates to the City, the Board of Education ("BOE") and the City
University of New York.
The June Financial Plan set forth proposed actions to close a previously
projected gap of approximately $2.6 billion for the 1996 fiscal year,
including: (i) agency actions totaling $1.2 billion; (ii) a revised tax
reduction program which would increase projected tax revenues by $369 million
due to the four year extension of the 12.5% personal income tax surcharge and
other actions; (iii) savings resulting from cost containment in entitlement
programs to reduce City expenditures and additional proposed State aid of $74
million; (iv) the assumed receipt of revenues relating to rent payments for
the City's airports, which are currently the subject of a dispute with the
Port Authority of New York and New Jersey (the "Port Authority"); (v) the
sale of the City's television station for $207 million; and (vi) pension cost
savings totaling $134 million resulting from a proposed increase in the
earnings assumption for pension assets from 8.5% to 8.75%.
The 1997-2000 Financial Plan published on November 14, 1996 reflects
actual receipts and expenditures and changes in forecast revenues and
expenditures since the June Financial Plan. The 1997-2000 Financial Plan
projects revenues and expenditures for 1997 fiscal year balanced in
accordance with GAAP, and projects gaps of $1.2 billion, $2.1 billion and
$3.0 billion for the 1998, 1999 and 2000 fiscal years, respectively. Changes
since the June Financial Plan include: (i) an increase in projected tax
revenues of $450 million, $120 million, $50 million and $45 million in fiscal
years 1997 through 2000, respectively; (ii) a delay in the assumed receipt of
$304 million relating to projected rent payments for the City airports from
the 1997 fiscal year to the 1998 and 1999 fiscal years, and a $34 million
reduction in assumed State and Federal aid for the 1997 fiscal year; (iii) an
approximate $200 million increase in projected overtime and other
expenditures in each of the fiscal years 1997 through 2000; (iv) a $70
million increase in expenditures for BOE in the 1997 fiscal year for school
text books; (v) a reduction in projected pension costs of $34 million, $50
million, $49 million and $47 million in fiscal years 1997 through 2000,
respectively; and (vi) additional agency actions totaling $179 million, $386
million, $473 million and $589 million in fiscal years 1997 through 2000,
respectively, including personnel reductions through attrition and early
retirement.
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 or that the State budgets in future fiscal years
will be adopted by the April 1 statutory deadline and that 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. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and
contingencies include: the condition of the regional and local economies, the
impact on real estate tax revenues of the real estate market, wage increases
for City employees consistent with those assumed in the Financial Plan,
employment growth, the ability to implement proposed reductions in City
personnel and other cost reduction initiatives, which may require in certain
cases the cooperation of the City's municipal unions, the ability of the New
York City Health and Hospitals Corporations and BOE to take actions to offset
reduced revenues, the ability to complete revenue generating transactions,
provision of State and Federal aid and mandate relief and the impact on City
revenues of proposals for Federal and State welfare reform and any future
legislation affecting Medicare or other entitlements.
Implementation of the City Plan is also dependent upon the City's ability
to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1997 through 2000 contemplates the
issuance of $7.7 billion of general obligation bonds primarily and $4.5
billion of bonds to be issued by the proposed New York City Infrastructure
Finance Authority ("IFA") to reconstruct and rehabilitate the City's
infrastructure and physical assets and to make other capital investments. The
27
creation of the IFA is subject to the enactment of State legislation. 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 and IFA Bonds will be subject to prevailing market
conditions, and no assurance can be given that such sales will be completed.
If the City were unable to sell its general obligation bonds and notes or
bonds of the proposed IFA, it would be prevented from meeting its planned
operating and capital expenditures.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than
forecast 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 Baa1.
Standard & Poor's has rated the bonds BBB+. Fitch has rated the bonds A-. On
February 28, 1996, Fitch placed the City's general obligation bonds on
FitchAlert with negative implications. On November 5, 1996, Fitch removed the
City's general obligation bonds from FitchAlert, although Fitch stated that
the outlook remains negative. These ratings do not reflect any bond insurance
relating to any portion of the bonds. The city expects that ratings on the
Financial Guaranty Insured Bonds and the AMBAC Insured Bonds will be received
prior to January 7, 1997. The ratings on the Financial Guaranty Insured Bonds
and the AMBAC Insured Bonds will be based on the insurance policies to be
issued by Financial Guaranty and AMBAC Indemnity, respectively. Bonds insured
to maturity by Financial Guaranty are rated "AAA" by Standard & Poor's, "Aaa"
by Moody's and "AAA" by Fitch. Bonds insured to maturity by AMBAC Indemnity
are rated "AAA" by Standard & Poor's, "Aaa" by Moody's and "AAA" by Fitch.
Such ratings reflect only the views of Moody's, Standard & Poor's and Fitch,
from which an explanation of the significance of such ratings may be
obtained. There is no assurance that such ratings will continue for any given
period of time or that they will not be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse
effect on the market prices of the bonds.
Outstanding Indebtedness. As of September 30, 1996, the City and the
Municipal Assistance Corporation for the City of New York had, respectively,
$25.099 billion and $3.889 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, 1996 and 1995, claims in
excess of $380 billion and $311 billion, respectively, were outstanding
against the City for which the City estimates its potential future liability
to be $2.8 billion and $2.5 billion, respectively.
NEW YORK STATE
Recent Developments. The national economy has resumed a more robust rate
of growth after a "soft landing" in 1995, with over 11 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 240,000 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 1996-97 New York State Financial Plan (the "State Plan" or "July
Financial Plan") is based on the State's economy showing modest expansion
during the first half of 1996, but that some slowdown is projected during the
second half of the year. Although industries that export goods and services
are expected to continue to do well, growth is expected to be slowed by
government cutbacks at all levels and by tight fiscal constraints on health
and social services. On an average annual basis, employment growth in the
State is expected to be up slightly from the 1995 rate. Personal income is
expected to record moderate gains in 1996. Bonus payments in the securities
industry are expected to increase further from last year's record level.
28
The State Plan is based upon forecasts of national and State economic
activity developed through both internal analysis and review of State and
national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently
failed to predict accurately the timing and magnitude of changes in the
national and the State economies. Many uncertainties exist in forecasts of
both the national and the State economies, including consumer attitudes
toward spending, the extent of corporate and governmental restructuring,
federal fiscal and monetary policies, the level of interest rates, and the
condition of the world economy, which could have an adverse effect on the
State. There can be no assurance that the State economy will not experience
results in the current fiscal year that are worse than predicted, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The 1996-97 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 1996-97 fiscal year. The State Plan projected General Fund
receipts and transfers from other funds at $33.17 billion, an increase of
$365 million from the prior fiscal year, and disbursements and transfers to
other funds at $33.12 billion, an increase of $444 million from the total
disbursed in the prior fiscal year.
The first update to the State Plan (the "Mid-Year Update") on October 25,
1996. The Mid-Year Update projects a continued balanced 1996-97 State
Financial Plan, with a reserve for contingencies in the General Fund of $300
million. This reserve will be utilized to help offset a variety of potential
risks and other unexpected contingencies that the State may face during the
balance of the 1996-97 fiscal year. The Mid-Year Update reflects revisions
made to estimates of both receipts and disbursements based on: (1) updated
economic forecasts for both the nation and the State, (2) an analysis of
actual receipts and disbursements through the first six months of the fiscal
year and (3) an assessment of changing State program requirements.
More specifically, based on the revised economic outlook and actual
receipts for the first six months of 1996-97, projected General Fund receipts
for the 1996-97 State fiscal year have been increased by $420 million. Most
of this projected increase is in the yield of the personal income tax ($241
million), with additional increases now expected in business taxes ($124
million) and other tax receipts ($49 million). Projected collections from
user taxes and fees have been revised downward slightly ($5 million).
Revisions were also made to both miscellaneous receipts and in transfers from
other funds (an $11 million combined projected increase).
Disbursements through the first six months of the fiscal year were $415
million less than projected, primarily because of delays in processing
payments following delayed enactment of the State budget. As a result, no
savings are included in the Mid-Year Update from this slower-than-expected
spending. Projections of 1996-97 General Fund disbursements are increased by
$120 million, since increased General Fund disbursements for education are
required to replace a projected decrease in lottery receipts.
Revisions to the all governmental funds receipts and disbursements
estimates primarily reflect changes to the General Fund and transfers between
fund types. The projected closing fund balance for all governmental funds is
$623 million, unchanged from the projection in the State Plan. The annual
increase in spending for all governmental funds remains approximately 4
percent, the same as projected in the State Plan.
Uncertainties with regard to the economy, as well as the outcome of
certain litigation now pending against the State, could produce adverse
effects on the projections of receipts and disbursements in the Mid-Year
Update. For example, changes to current levels of interest rates or
deteriorating world economic conditions could have an adverse effect on the
State economy and produce results in the current fiscal year that are worse
than predicted. Similarly, an adverse judgment in legal proceedings against
the State could exceed amounts reserved in the 1996-97 Financial Plan for
payment of such judgments and produce additional unbudgeted costs to the
State.
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
29
("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) plus certain other amounts.
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 for those
purposes. 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,
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.
As of June 30, 1995, LGAC had issued bonds and notes to provide net
proceeds of $4.7 billion completing the program. The impact of the borrowings
together with the availability of certain cash reserves is that the State
Plan includes no seasonal short-term borrowing.
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, construction and rehabilitation 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 (i.e. public benefit corporations created
pursuant to State law, other than local authorities), which generally have
responsibility for financing, constructing and operating revenue-producing
public benefit facilities. The State's public authorities ("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 of, and as otherwise restricted by, their legislative authorization.
As of September 30, 1995, there were 17 Authorities that had outstanding debt
of $100 million or more and the aggregate outstanding debt, including
refunding bonds, of these 17 Authorities was $73.45 billion.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges or tunnels, highway
tolls and rentals for dormitory rooms and 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. On January 13, 1992, Standard & Poor's reduced its ratings on the
State's general obligation bonds from A to A- and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26,
1993, Standard & Poor's revised the rating outlook assessment to stable. On
February 14, 1994, Standard & Poor's raised its outlook to positive and, on
August 5, 1996, confirmed its A- rating. On January 6, 1992, Moody's Investors
Service reduced its ratings on outstanding limited-liability State lease
purchase and contractual obligations from A to Baa1. On July 26, 1996,
Moody's Investors Service reconfirmed its A rating on the State's general
obligation long-term indebtedness. 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
30
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 Securities in which the New York Fund invests.
General Obligation Debt. As of March 31, 1996, the State had outstanding
approximately $5.05 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
$743.3 million for the 1995-96 fiscal year and are estimated to be $719
million for the State's 1996-97 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 1996-1997 fiscal year or thereafter.
The State believes that the 1996-1997 State Financial Plan includes
sufficient reserves for the payment of judgments that may be required during
the 1996-97 fiscal year. There can be no assurance, however, that an adverse
decision in any of these proceedings would not exceed the amount of the
1996-1997 Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced
1996-1997 State Financial Plan. In its audited financial statements for the
fiscal year ended March 31, 1996, the State reported its estimated liability
for awarded and unanticipated unfavorable judgments at $474 million.
In addition, the State is party to other claims and litigations which its
counsel has advised are not probable of adverse court decisions. 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 1996-97 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 1996-97 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 1996-97 fiscal year.
For example, fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the
City of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board
is charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the Governor or the State Legislature to assist Yonkers could result
in increased State expenditures for extraordinary local assistance.
SPECIAL INVESTMENT CONSIDERATIONS RELATING TO PENNSYLVANIA MUNICIPAL
OBLIGATIONS
The Prospectus sets forth certain general socio-economic and economic
information regarding the Commonwealth. The following information, which is
based principally on information drawn from recent Official Statements
relating to securities offerings by the Commonwealth, provides additional
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 develop-
31
ment 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 $5,054 million (of which
$4,206 million was for non-highway purposes) at June 30, 1996, an increase of
$9.1 million from June 30, 1995. Over the 10-year period ending June 30,
1996, total outstanding general obligation debt increased at an annual rate
of 1.1 percent. Within the most recent 5-year period, outstanding general
obligation debt has also grown at an annual rate of 1.1 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 $55.1 million in bonds
outstanding as of June 30, 1996.
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 $523.5 million in revenue bond debt
outstanding on June 30, 1996.
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 $1,061.8
million of debt outstanding as of June 30, 1996.
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 $121.0 million in bonds outstanding as of June 30, 1996.
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
$1,408.8 million in bonds outstanding as of June 30, 1996.
Pennsylvania Higher Education Facilities Authority ("PHEFA"): The PHEFA is
a public corporation of the Commonwealth established to finance college
facilities. As of June 30, 1996, the PHEFA had
32
$2,654.8 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 $339.3 million in revenue bond
debt outstanding on June 30, 1996, to which all of its revenues are pledged.
Pennsylvania Turnpike Commission ("PTC"): The PTC operates the
Pennsylvania Turnpike System ("System"). Its outstanding indebtedness,
$1,252.6 million as of June 30, 1996, 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 $213.1 million revenue bonds outstanding
as of June 30, 1996.
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
$63.9 million in bonds outstanding as of June 30, 1996.
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 $330.0 million of revenue bonds outstanding on June 30, 1996.
"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 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, 1996, PHFA had $2,349.3 million of revenue bonds
outstanding.
The Hospitals and Higher Education Facilities Authority of Philadelphia
(the "Hospitals Authority"): The Hospitals Authority is a municipal authority
organized by the City of Philadelphia (the "City") 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
33
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,
1996, $1.49 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.
INVESTMENT RESTRICTIONS
-----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund, on
behalf of each Series, as fundamental policies, which may not be changed
without the vote of a majority of the outstanding voting securities of each
Series, as defined in the Act. Such a majority is defined as the lesser of
(a) 67% of the shares of that Series present at a meeting of shareholders, if
the holders of more than 50% of the outstanding shares of that Series are
present or represented by proxy or (b) more than 50% of the outstanding
shares of that Series. For purposes of the following restrictions and those
recited in the Prospectus: (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 securities guaranteed by separate
entities will be considered a separate security; (b) a "taxable security" is
any security the interest on which is subject to regular federal income tax;
and (c) all percentage limitations apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund, on behalf of any Series, may not:
1. Invest in common stock.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the
Investment Manager owns more than 1/2 of 1% of the outstanding securities
of such issuer, and such officers, trustees and directors who own more
than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer.
3. Purchase or sell real estate or interests therein (including limited
Partnership interests), although it may purchase securities secured by
real estate or interests therein.
34
4. Purchase or sell commodities except that the Fund, on behalf of each
Series, may purchase financial futures contracts and related options in
accordance with procedures adopted by the Trustees described in its
Prospectus and Statement of Additional Information.
5. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.
6. Write, purchase or sell puts, calls, or combinations thereof except
options on futures contracts or options on debt securities.
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
8. Borrow money, except that the Fund, on behalf of any Series, may
borrow from a bank for temporary or emergency purposes in amounts up to 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).
9. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. (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.)
10. Issue senior securities as defined in the Act except insofar as the
Fund, on behalf of any Series, may be deemed to have issued a senior
security by reason of: (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; or
(c) borrowing money in accordance with restrictions described above.
11. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; and (c) by lending its portfolio securities.
12. Make short sales of securities.
13. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities. The
deposit or payment by the Fund, on behalf of any 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.
14. Engage in the underwriting of securities, except insofar as the Fund,
on behalf of any Series, may be deemed an underwriter under the Securities
Act of 1933 in disposing of a portfolio security.
15. Invest for the purpose of exercising control or management of any
other issuer.
PORTFOLIO TRANSACTIONS AND BROKERAGE
-----------------------------------------------------------------------------
The Investment Manager is responsible for decisions to buy and sell
securities and commodities for each Series of the Fund, the selection of
brokers and dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. The Fund expects that the primary market for
the securities in which it intends to invest will generally be the
over-the-counter market. Securities are generally traded in the
over-the-counter market on a "net" basis with dealers acting as principal for
their own accounts without charging a stated commission, although the price
of the security usually includes a profit to the dealer. Options and futures
transactions will usually be effected through a broker and a commission will
be charged. The Fund also expects that securities for each Series will be
purchased at times in underwritten offerings where the price includes a fixed
amount of compensation, generally referred to as the underwriter's concession
or discount. On occasion, the Fund, on behalf of each Series, may also
purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid. For the fiscal years ended
November 30, 1994, 1995 and 1996, the Fund paid no brokerage commissions.
35
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 adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated
among the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client
accounts, various factors may be considered, including the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinion of the persons
responsible for managing the portfolios of the Fund and other client
accounts. In the case of certain initial and secondary public offerings, the
Investment Manager may utilize a pro-rata allocation process based on the
size of the Dean Witter Funds involved and the number of shares available
from the public offering.
The policy of the Fund, regarding purchases and sales of securities for
each Series' portfolio, is that primary consideration be given to obtaining
the most favorable prices and efficient execution 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 such price 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. Such
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 every
case, 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 will
not reduce the management fee each Series pays to the Investment Manager by
any amount that may be attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund,
on behalf of each Series, may effect principal transactions in certain money
market instruments with DWR. The Fund, on behalf of each Series, will limit
its transactions with DWR to U.S. Government and Government Agency
Securities, Bank Money Instruments (i.e. Certificates of Deposit and Bankers'
Acceptances) and Commercial Paper. Such transactions will be effected with
DWR only when the price available from DWR is better than that available from
other dealers.
Consistent with the policy described above, brokerage transactions in
securities and commodities listed on exchanges or admitted to unlisted
trading privileges may be effected through DWR. In order for DWR to effect
portfolio transactions for each Series of the Fund, the commissions, fees or
other remuneration received by DWR 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 DWR to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arms-length transaction. Furthermore, the Trustees of the Fund, including a
majority of the Trustees who are not "interested" Trustees, have adopted
procedures which are reasonably designed to provide that any commissions,
fees or other remuneration paid to DWR are consistent with the foregoing
standard. During the fiscal year ended November 30, 1996, the Fund paid no
brokerage commissions to DWR.
36
PURCHASE OF FUND SHARES
-----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers its shares for sale to the
public through Dean Witter Distributors Inc. (the "Distributor"). The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of DWDC.
The Distributor has entered into a selected dealer agreement with DWR, which
through its own sales organization, sells shares of each Series of the Fund.
In addition, the Distributor may enter into selected dealer agreements with
other selected broker-dealers. The Trustees of the Fund, including a majority
of the Trustees who are not, and were not at the time they voted, interested
persons of the Fund, as defined in the Act (the "Independent Trustees"),
approved, at their meeting held on October 30, 1992, a Distribution Agreement
appointing the Distributor exclusive Distributor of the Fund's shares and
providing for the Distributor to bear distribution expenses not borne by the
Fund. At the same meeting, the Trustees of the Fund, including all of the
Independent Trustees, approved a new Distribution Agreement between the Fund
and the Distributor, which took effect upon the spin-off by Sears, Roebuck &
Co. of its remaining shares of DWDC. The new Distribution Agreement is
substantively identical to the current Distribution Agreement in all material
respects, except for the dates of effectiveness. By its terms, the
Distribution Agreement had an initial term ending April 30, 1994, and will
remain in effect from year to year thereafter if approved by the Board. At
their meeting held on April 17, 1996, the Trustees, including all of the
Independent Trustees, approved the most recent continuation of the
Distribution Agreement until April 30, 1997.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor will also pay certain expenses in
connection with the distribution of the shares of each Series of the Fund,
including the costs of preparing, printing and distributing advertising or
promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also will bear the costs of registering the Fund and
its shares under federal and state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. 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.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"). The Plan was approved by the Trustees on December 11,
1990, and by DWR as the Fund's then sole shareholder on December 26, 1990,
whereupon the Plan went into effect. With respect to the Arizona Series, the
Plan was initially approved by the Trustees on April 16, 1991. The Plan was
approved by the shareholders of each Series of the Fund at a Special Meeting
of shareholders on June 24, 1992 and on January 12, 1993. The vote of the
Trustees, which was cast in person at a meeting called for the purpose of
voting on such Plan, included a majority of the Trustees who are not and were
not at the time of their voting interested persons of the Fund and who have
and had at the time of their votes no direct or indirect financial interest
in the operation of the Plan (the "Independent 12b-1 Trustees"). In making
their decision to adopt the Plan, the Trustees requested from DWR and
received such information as they deemed necessary to make an informed
determination as to whether or not adoption of the Plan was in the best
interests of the shareholders of the Fund. After due consideration of the
information received, the Trustees, including the Independent 12b-1 Trustees,
determined that adoption of the Plan would benefit the shareholders of the
Fund.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments
to the Plan which took effect in January, 1993 and were designed to reflect
the fact that upon the reorganization described above the share distribution
activities theretofore performed for the Fund by DWR were assumed by the
Distributor and DWR's sales activities
37
are now being performed pursuant to the terms of a selected dealer agreement
between the Distributor and DWR. The amendments provide that payments under
the Plan will be made to the Distributor rather than to DWR as before the
amendment, and that the Distributor in turn is authorized to make payments to
DWR, its affiliates or other selected broker-dealers (or direct that the Fund
pay such entities directly). The Distributor is also authorized to retain
part of such fee as compensation for its own distribution-related expenses.
The Fund is authorized to reimburse the Distributor for specific expenses
the distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. Reimbursement is made through monthly payments in amounts
determined in advance of each fiscal quarter by the Trustees, including a
majority of the Independent 12b-1 Trustees. 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. Such payment is treated by each Series
of the Fund as an expense in the year it is accrued. No interest or other
financing charges will be incurred by the Distributor 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
pursuant to the Plan, will be reimbursable under the Plan.
The Distributor has informed the Fund that the fee payable by the Fund
each year pursuant to the Plan not to exceed to 0.15% of the Fund's average
daily net assets is characterized as a "service fee" under the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The fee is a payment made for personal service
and/or the maintenance of shareholder accounts.
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.
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 $67,470,
$169,430, $103,255, $23,727, $30,115, $14,761, $64,078, $18,838, $31,989 and
$73,195, respectively pursuant to the Plan of Distribution for the fiscal
year ended November 30, 1996. Such payment amounted to an annual rate of 0.14
of 1% of the average daily net assets of the Arizona Series, Florida Series,
Michigan Series, Minnesota Series and New Jersey Series, 0.15% of the daily
net assets of the California Series, Massachusetts Series, Ohio Series and
Pennsylvania Series, and 0.13% of the daily net assets of the New York
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
$2,373,022, $1,341,329 and $1,324,657, for the fiscal years ended 1994, 1995
and 1996, respectively.
The Plan remained in effect until April 30, 1991 and will continue in
effect, from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees, including a majority of the Independent
12b-1 Trustees. At their meeting held on April 17, 1996, the Trustees
approved the most recent continuation of the Plan until April 30, 1997. At
that meeting, the Trustees, including a majority of the Independent 12b-1
Trustees, also approved certain technical amendments to the Plan in
connection with recent amendments adopted by the National Association of
Securities Dealers, Inc. to its Rules of Fair Practice. Prior to approving
the continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to
continue the Plan, the Trustees considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated: (2) the benefits the Fund had obtained, was obtaining and would
be likely to obtain under the Plan; and (3) what services had been provided
and were continuing to be provided under the Plan to the Fund and its
shareholders. Based upon their review, the Trustees of the Fund, including
each of the independent 12b-1 Trustees, determined that continuation of the
Plan would be in the best interest of the Fund and would have a reasonable
likelihood of continuing to benefit the Fund
38
and its shareholders. In the Trustees' quarterly review of the Plan, they
will consider its continued appropriateness and the level of compensation
provided herein. An amendment to increase materially the maximum amount
authorized to be spent under the Plan and Agreement on behalf of any Series
must be approved by the shareholders of such Series, and all material
amendments to the Plan must be approved by the Trustees in the manner
described above. The Plan may be terminated on behalf of any Series at any
time, without payment of any penalty, by vote of the holders of a majority of
the Independent 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of such Series (as defined in the Act) on not more than 30
days written notice to any other party to the Plan. The authority to make
reimbursement payments to the Distributor automatically terminates in the
event of an assignment (as defined in the Act); however the Trustees'
authority under the Plan to utilize its assets to finance the distribution of
its shares would continue. After such an assignment, the Fund's authority to
make payments to its Distributor would resume, subject to certain conditions.
So long as the Plan is in effect, the selection or nomination of the
Independent 12b-1 Trustees is committed to the discretion of the Independent
12b-1 Trustees.
Under the Plan, the Distributor provides each Series of 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 by the Distributor on behalf of each Series of the Fund
during such fiscal quarter, which report includes (1) an itemization of the
types of expenses and the purposes therefor; (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 Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, had any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor or certain of its 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.
REDUCED SALES CHARGES
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefiting from the reduced sales charges available for purchases
of shares of any Series of the Fund totalling at least $25,000 in net asset
value. For example, if any person or entity who qualifies for this privilege
holds shares of any Series of the Fund having a current value of $5,000, and
purchases $20,000 of additional shares of any Series of the Fund, the sales
charge applicable to the $20,000 purchase would be 3.5% of the offering
price.
For the purposes of this Right of Accumulation, the cumulative current net
asset value of any shares of a Series and shares of any other Series held by
the shareholder will be added to the value of shares of the Fund owned by the
shareholder in determining the sales charge applicable to any new purchases
of Fund shares.
The Distributor must be notified by the dealer or the shareholder 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 by the dealer or the shareholder when such an order is placed by
mail. The reduced sales charge will not be granted if: (a) such notification
is not furnished at the time of the order; or (b) a review of the records of
the Distributor or Dean Witter Trust Company (the "Transfer Agent") fails to
confirm the investor's represented holdings.
Letter of Intent. As discussed in the prospectus under the caption
"Reduced Sales Charges," reduced sales charges are available to investors who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of any Series of the Fund from the
Distributor or from a single dealer which has entered into a Selected Dealer
Agreement with the Distributor.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single
39
purchase. A number of shares equal in value to 5% of the dollar amount of the
Letter of Intent will be held in escrow by the Transfer Agent, in the name of
the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the shareholder to liquidate a sufficient number
of his or her escrowed shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced
sales in the same manner as set forth above under Right of Accumulation, but
there will be no retroactive reduction of sales charges on previous
purchases. For the purpose of determining whether the investor is entitled to
a further reduced sales charge applicable to purchases at or above a sales
charge level which exceeds the stated goal of a Letter of Intent, the
cumulative current net asset value of shares of any Series owned by the
investor will be added to the cost or net asset value of shares of any other
Series owned by the investor. However, the purchase of shares of any other
Dean Witter Funds will not be included in determining whether the stated goal
of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus, 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 of the Fund it uses both a computerized grid
matrix of tax-exempt securities and evaluations by its staff, in each case
based on information concerning market transactions and quotations from
dealers which reflect the bid side of the market each day. The portfolio
securities for 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.
As stated in the Prospectus, short-term debt securities with remaining
maturities of sixty days or less at the 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 short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty 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' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Listed options 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 latest
bid and asked prices. Unlisted options are valued at the mean between their
latest bid and asked prices. Futures are valued at the latest sale price on
the commodities exchange on which they trade unless the Trustees determine
such price does not reflect their market value, in which case they will be
valued at their fair 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.
40
The net asset value per share of each Series will not be determined on
such federal and non-federal holidays as are observed by the New York Stock
Exchange. The New York Stock Exchange currently observes the following
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
SHAREHOLDER SERVICES
-----------------------------------------------------------------------------
Upon the purchase of shares of any Series of the Fund, a Shareholder
Investment Account is opened for the investor on the books of the Fund and
maintained by the Fund's Transfer Agent, Dean Witter Trust Company (the
"Transfer Agent"). This is an open account in which shares owned by the
investor are credited by the Transfer Agent in lieu of issuance of a share
certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares
and may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the
shareholder will be mailed a confirmation of the transaction from the Fund or
from DWR or another selected broker-dealer.
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at net asset value
(without sales charge), next determined by returning the check or the
proceeds to the Transfer Agent within thirty days after the payment date. If
the shareholder returns the proceeds of a dividend or distribution, such
funds must be accompanied by a signed statement indicating that the proceeds
constitute a dividend or distribution to be invested. Such investment will be
made at the net asset value per share next determined after receipt of the
check or proceeds by the Transfer Agent.
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of any Series
of the Fund having a minimum value of $10,000 based upon the then current
offering price. The Withdrawal Plan provides for monthly or quarterly (March,
June, September and December) checks in any dollar amount, not less than $25,
or in any whole percentage of the account balance, on an annualized basis.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent within five business days after
the date of redemption. The Withdrawal Plan may be terminated at any time by
the Fund.
Withdrawal plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Systematic Withdrawal Plan, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charges applicable to
the purchase of additional shares.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or address to
which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate
41
the Systematic Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular shareholder investment account. The shareholder may also redeem all
or part of the shares held in the Withdrawal Plan account (see "Redemptions
and Repurchases" in the Prospectus) at any time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter
Multi-State Municipal Series Trust (include name of Series), directly to the
Fund's Transfer Agent. After deduction of the applicable sales charge, the
balance will be applied to the purchase of shares of the respective Series at
the net asset value per share of that Series next computed after receipt of
the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of any Series of the
Fund may exchange their shares for shares of any other Series of the Fund,
for shares of other Dean Witter Funds sold with a front-end (at time of
purchase) sales charge ("FESC Funds"), for shares of Dean Witter Funds sold
with a contingent deferred (at time of purchase) sales charge ("CDSC Funds
"), for shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Balanced Income Fund, Dean Witter Balanced Growth Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are
money market funds (the foregoing eleven non-CDSC funds are hereinafter
referred to as the "Exchange Funds"). Exchanges may be made after the shares
of the CDSC fund or FESC fund acquired by purchase (not by exchange or
dividend reinvestment) have been held for thirty days. There is no holding
period for exchanges of shares acquired by exchange or dividend reinvestment.
However, shares of CDSC funds, including shares acquired in exchange for
shares of FESC funds, may not be exchanged for shares of FESC funds. Thus,
shareholders who exchange their Fund shares for shares of CDSC funds may
subsequently exchange those shares for shares of other CDSC funds or Exchange
Funds but may not reacquire FESC fund shares by exchange. An exchange will be
treated for federal income tax purposes and applicable state income tax
purposes the same as a repurchase or redemption of shares, on which the
shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
With respect to the repurchase of shares of any Series of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. 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 selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
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 fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
42
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000
for Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income
Trust, Dean Witter New York Municipal Money Market Trust and Dean Witter
California Tax-Free Daily Income Trust although those funds may, at their
discretion, accept initial investments of as low as $1,000. The minimum
initial investment for Dean Witter Short-Term U.S. Treasury Trust is $10,000,
although that fund, in its discretion, may accept initial investments of as
low as $5,000. The minimum initial investment is $5,000 for Dean Witter
Special Value Fund. The minimum initial investment for all other Dean Witter
Funds for which the Exchange Privilege is available is $1,000.) Upon exchange
into an Exchange Fund, the shares of that fund will be held in a special
Exchange Privilege Account separately from accounts of those shareholders who
have acquired their shares directly from that fund. As a result, certain
services normally available to shareholders of those funds, including the
check writing feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required
by applicable regulatory agencies (presently sixty days' prior written notice
for termination or material revision), provided that six months' prior
written notice of termination will be given to the shareholders who hold
shares of an Exchange Fund, pursuant to this Exchange Privilege and provided
further that the Exchange Privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on that Exchange
is restricted, (c) when an emergency exists as result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist) or (e) if the Fund
would be unable to invest amounts effectively in accordance with its
investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR account executive or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
-----------------------------------------------------------------------------
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. The term "good order" means
that the share certificate, if any, and request for redemption, are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or the Transfer Agent.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the Securities and Exchange Commission by
order so permits; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist. If the shares to be redeemed have recently
been purchased by check (including a certified or bank cashier's check),
payment of redemption proceeds may be delayed for the minimum time needed to
verify that the check used for investment has been honored (nor more than
fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their account executive regarding restrictions
on redemption of shares of the Fund pledged in the margin accounts.
Involuntary Redemption. As described in the Prospectus, due to the
relatively high cost of handling small investments, the Fund reserves the
right to redeem, at net asset value, the shares of any shareholder whose
shares have a value of less than $100, or such lesser amount as may be fixed
by the
43
Board of Trustees. However, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares is less than $100 and allow him or her 60 days to make an
additional investment in an amount which will increase the value of his or
her account to $100 or more before the redemption is processed.
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within thirty days after the
redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Series of the Fund held by the
shareholder at the net asset value (without sales charge) next determined
after a reinstatement request, together with the proceeds, is received by the
Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax and state income tax treatment of any gain or loss realized upon the
redemption or repurchase, except that if the redemption or repurchase
resulted in a loss and reinstatement is made in shares of the Fund, some or
all of the loss, depending on the amount reinstated, will not be allowed as a
deduction for federal income tax and state personal income tax purposes but
will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
-----------------------------------------------------------------------------
As stated in the Prospectus, each Series of the Fund intends to distribute
substantially all of its net investment income and all of its net short-term
capital gains, if any, and will determine whether to retain all or part of
any net long-term capital gains for reinvestment. If any such gains are
retained, each Series of the Fund will pay federal income tax thereon, and
will notify shareholders that following such election by that Series, the
shareholders of that Series will be required to include such undistributed
gains in determining their taxable income and may claim their share of the
tax paid by that Series as a credit against their individual federal income
tax (but not the personal income tax of a particular state).
As discussed in the Prospectus, each Series of the Fund may invest a
portion of its assets in certain "private activity bonds" issued after August
7, 1986. As a result, a portion of the exempt-interest dividends paid by each
Series of the Fund may be an item of tax preference to shareholders subject
to the federal 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.
Each shareholder will be sent a summary of his or her account, at least
quarterly, including information as to reinvested dividends and capital gains
distributions. Share certificates for dividends or distributions will not be
issued unless a shareholder requests in writing that a certificate be issued
for a specific number of shares.
In computing interest income, each Series of the Fund will amortize any
premiums and original issue discounts on securities owned. Capital gains or
losses realized upon sale or maturity of such securities will be based on
their amortized cost.
Gains or losses on the sales of securities by each Series of the Fund will
be long-term capital gains or losses if the securities have been held by a
Series for more than twelve months. Gains or losses on the sale of securities
held for twelve months or less will be short-term capital gains or losses.
Gains and losses on the sale, expiration or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities. Pursuant to present federal income tax laws, futures contracts
held by each Series of the Fund at the end of each fiscal year will be
required to be "marked to market", that is, treated as having been sold at
their fair market value at such date. Sixty percent of any gain or loss
recognized on these deemed sales will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
Gains or losses from options on futures and options on debt instruments will
also generally be treated as part short-term and part long-term capital gains
or losses, unless such gains or losses were incurred as part of a securities
"straddle," in which case the appropriate straddle rules of the Internal
Revenue Code (the "Code") would apply.
44
Each Series of the Fund has qualified and intends to remain qualified as a
regulated investment company under Subchapter M of the Code. If so qualified,
each Series will not be subject to federal income tax on its net investment
income and capital gains, if any, realized during any fiscal year to the
extent that it distributes such income and capital gains to its shareholders.
One of the requirements for regulated investment company status is that at
least 90% of a fund's gross income be derived from dividends, interest, gains
from the sale or other disposition of securities and certain other related
income. Another requirement for regulated investment company status is that
less than 30% of a fund's gross income can be derived from gains from the
sale or other disposition of securities held less than three months.
Accordingly, each Series of the Fund may be restricted in the writing of
options on securities held for less than three months, in the writing of
options which expire in less than three months, and in effecting closing
transactions with respect to call or put options which have been written or
purchased less than three months prior to such transactions. Each Series of
the Fund may also be restricted in its ability to engage in transactions
involving futures contracts.
As discussed in the Prospectus, each Series of the Fund intends to qualify
to pay "exempt-interest dividends" to its shareholders by maintaining, as of
the close of each quarter of its taxable year, at least 50% of the value of
its total assets in tax-exempt securities. An exempt-interest dividend is
that part of dividend distributions made by any Series which consists of
interest received by that Series on tax-exempt securities upon which the
shareholder incurs no federal income taxes (apart from any possible
application of the alternative minimum tax).
Within 60 days after the end of its calendar year, the Fund will mail to
shareholders of each Series a statement indicating the percentage of the
dividend distributions for such fiscal year which constitutes exempt-interest
dividends and the percentage, if any, that is taxable, and the percentage, if
any, of the exempt-interest dividends which constitutes an item of tax
preference, and to what extent the taxable portion is long-term capital gain,
short-term capital gain or ordinary income. These percentages should be
applied uniformly to all monthly distributions made during the fiscal year to
determine the proportion of dividends that is tax-exempt. The percentages may
differ from the percentage of tax-exempt dividend distributions for any
particular month.
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 gains, regardless
of how long the shareholder has held Fund shares of any Series and whether
the distribution is received in additional shares or in cash. Since each
Series' income is expected to be derived entirely from interest rather than
dividends, none of such dividend distributions will be eligible for the 70%
dividends received deduction generally available to corporations. Net
long-term capital gains distributions are not eligible for the dividends
received deduction.
Any loss on the sale or exchange of shares of any Series of the Fund which
are held for six months or less is disallowed to the extent of the amount of
any exempt-interest dividends paid with respect to such shares. Treasury
Regulations may provide for a reduction in such required holding period. If a
shareholder receives a distribution that is taxed as long-term capital gain
on shares held for six months or less and sells those shares at a loss, the
loss will be treated as a long-term capital loss to the extent of the capital
gains distribution.
Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of a Series of the Fund is not deductible to the
extent allocable to exempt-interest dividends of that Series of the Fund
(which allocation does not take into account capital gain dividends of that
Series of the Fund). 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 any
Series of the Fund. "Substantial user" is defined generally by Income Tax
Regulation 1.103-11 (b) as including a "non-exempt person" who regularly uses
in a trade or business a part of a facility financed from the proceeds of
industrial development bonds.
45
Federal Income Tax Status. At November 30, 1996, the California Series had
net capital loss carryovers of approximately $376,900 of which $76,900, which
will be available through November 30, 2002, $247,100 will be available
through November 30, 2003 and $52,900 will be available through November 30,
2004 to offset future gains to the extent provided by regulations; the
Minnesota Series had net capital loss carryovers of $76,600 of which $32,000
will be available through November 30, 2002, $24,300 will be available
through November 30, 2003 and $20,300 will be available through November 30,
2004 to offset future gains to the extent provided by regulations; the New
Jersey Series had net capital loss carryovers of $155,900 which will be
available through November 30, 2003 to offset future gains to the extent
provided by regulations; and the New York Series had net capital loss
carryovers of $24,000 of which $6,300 will be available through November 30,
2002 and $17,700 will be available through November 30, 2004 to offset future
gains to the extent provided by regulations. At November 30, 1996, the
Arizona Series, Florida Series, Michigan Series, and Ohio Series had net
capital loss carryovers of approximately $6,700, $35,000, $8,400, and
$158,100, respectively, available through November 30, 2002 to offset future
gains to the extent provided by regulations. To the extent that these net
capital loss carryovers are used to offset future capital gains, it is
probable that the gains so offset will not be distributed to shareholders.
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. It can be expected that similar proposals
may be introduced in the future. If such a proposal were enacted, the
availability of municipal securities for investment by each Series of the
Fund could be affected. In such event, the Fund would re-evaluate its
investment objective and policies.
Any dividends or capital gains distributions received by a shareholder
from any investment company will have the effect of reducing the net asset
value of the shareholder's stock in that fund by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions are, and some portion of the dividends may be, subject to
income tax. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of taxable dividends or the
distribution of realized long-term capital gains, such payment or
distribution would be in part a return of capital but nonetheless taxable to
the shareholder. Therefore, an investor should consider the tax implications
of purchasing Fund shares immediately prior to a distribution record date.
The foregoing relates to federal income taxation in effect as of the date
of the Prospectus.
The Fund is organized as a Massachusetts business trust. Under current
law, so long as it qualifies as a "regulated investment company" under the
Internal Revenue Code, the Fund itself is not liable for any income or
franchise tax in The Commonwealth of Massachusetts.
PERFORMANCE INFORMATION
-----------------------------------------------------------------------------
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, 1996, the yields, calculated pursuant to the formula
described above, for the Arizona Series, the California Series, the Florida
Series, the Massachusetts Series, the Michigan Series, the Minnesota Series,
the New Jersey Series, the New York Series, the Ohio Series and the
Pennsylvania Series were 4.35%, 4.70%, 4.56%, 4.75%, 4.84%, 4.62%, 4.77%,
4.88%, 4.90% and 4.71% respectively. During the period, the Investment
Manager assumed certain expenses with respect to the Massachusetts Series,
the Michigan Series, the Minnesota Series, the New York Series and the Ohio
Series. Had each Series borne these expenses for the period, the yield
46
for each of the aforementioned Series for the 30-day period ending November
30, 1996 would have been 4.51%, 4.71%, 4.32%, 4.64% and 4.80%, 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 42.98%, 46.24%, 39.60%,
46.84%, 42.26%, 44.73%, 43.45%, 44.70%, 43.83% and 41.29% respectively for
the 30 day period ended November 30, 1996, were 7.63%, 8.74%, 7.55%, 8.94%,
8.38%, 8.36%, 8.44%, 8.80%, 8.72% and 8.02% respectively, based upon the
respective yields quoted above. During the period, the Investment Manager
assumed certain expenses with respect to the Massachusetts Series, the
Michigan Series, the Minnesota Series, the New York Series and the Ohio
Series. Had each Series borne these expenses for the period, the yield for
each of the aforementioned Series for the 30-day period ending November 30,
1996 would have been 8.49%, 8.16%, 7.82%, 8.39% and 8.55%, respectively.
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, 1996, for
the five years ended November 30, 1996 and for the period January 15, 1991
(commencement of operations) (May 1, 1991 for the Arizona Series) through
November 30, 1996 were:
[Download Table]
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, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
-------------------- ----------------- ----------------- -----------------
Arizona Series ...... 0.45% 6.59% 6.93%
California Series .. 2.49% 6.93% 7.65%
Florida Series ...... 0.83% 6.82% 7.31%
Massachusetts Series 0.87% 7.13% 7.75%
Michigan Series .... 0.88% 7.03% 7.61%
Minnesota Series ... 1.00% 6.67% 6.94%
New Jersey Series .. 0.74% 6.70% 7.34%
New York Series .... 1.24% 6.87% 7.67%
Ohio Series ......... 0.84% 7.07% 7.44%
Pennsylvania Series 1.06% 6.95% 7.41%
47
During the period January 15, 1991 through November 30, 1996, 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,
1996, for the five years ended November 30, 1996 and for the period January
15, 1991 through November 30, 1991 would have been:
[Enlarge/Download Table]
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, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
-------------------- --------------------- -------------------- -----------------
Massachusetts Series 0.49% 6.77% 7.39%
Michigan Series .... 0.60% 6.71% 7.28%
Minnesota Series ... 0.52% 6.12% 6.40%
New York Series .... 0.95% 6.83% 7.26%
Ohio Series ......... 0.66% 6.77% 7.13%
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. In
addition, each Series of the Fund may also compute its aggregate total return
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing
the ending value by the initial $1,000 investment and subtracting 1 from the
result.
Based on the foregoing calculation, the 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, 1996, for
the five years ended November 30, 1996 and for the period January 15, 1991
(May 1, 1991 for the Arizona Series) through November 30, 1996 were:
[Enlarge/Download Table]
TOTAL RETURN TOTAL RETURN
TOTAL RETURN (WITHOUT DEDUCTION (WITHOUT DEDUCTION FOR
(WITHOUT DEDUCTION OF 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, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
-------------------- --------------------- --------------------- --------------------------
Arizona Series ...... 4.63% 7.46% 7.71%
California Series .. 6.76% 7.81% 8.40%
Florida Series ...... 5.03% 7.69% 8.06%
Massachusetts Series 5.07% 8.01% 8.50%
Michigan Series .... 5.09% 7.91% 8.36%
Minnesota Series ... 5.21% 7.54% 7.69%
New Jersey Series .. 4.93% 7.58% 8.08%
New York Series .... 5.46% 7.75% 8.42%
Ohio Series ......... 5.04% 7.94% 8.19%
Pennsylvania Series 5.27% 7.82% 8.16%
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
48
distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without
reduction for any sales charge) by the initial $1,000 investment and
subtracting 1 from the result. Based on the foregoing calculation, the total
returns for the fiscal year ended November 30, 1996, for the five years ended
November 30, 1996 and for the period January 15, 1991 (May 1, 1991 for the
Arizona Series) through November 30, 1996 were:
[Enlarge/Download Table]
TOTAL RETURN
FOR PERIOD OF COMMENCEMENT
TOTAL RETURN TOTAL RETURN OF OPERATIONS
FOR FISCAL YEAR ENDED FOR FIVE YEARS ENDED THROUGH
SERIES NOVEMBER 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
-------------------- --------------------- -------------------- --------------------------
Arizona Series ...... 4.63% 43.32% 51.44%
California Series .. 6.76% 45.65% 60.65%
Florida Series ...... 5.03% 44.86% 57.66%
Massachusetts Series 5.07% 46.98% 61.49%
Michigan Series .... 5.09% 46.32% 60.28%
Minnesota Series ... 5.21% 43.86% 54.53%
New Jersey Series .. 4.93% 44.08% 57.90%
New York Series .... 5.46% 45.22% 60.80%
Ohio Series ......... 5.04% 46.55% 58.78%
Pennsylvania Series 5.27% 45.75% 58.54%
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:
[Download Table]
INVESTMENT AT COMMENCEMENT
OF OPERATIONS OF
--------------------------------
SERIES $10,000 $50,000 $100,000
-------------------- --------- --------- ----------
Arizona Series ...... $14,538 $73,259 $147,275
California Series .. $15,422 $77,714 $156,232
Florida Series ...... $15,135 $76,268 $153,324
Massachusetts Series $15,503 $78,121 $157,049
Michigan Series .... $15,387 $77,535 $155,872
Minnesota Series ... $14,835 $74,754 $150,280
New Jersey Series .. $15,158 $76,384 $153,558
New York Series .... $15,437 $77,787 $156,378
Ohio Series ......... $15,243 $76,810 $154,414
Pennsylvania Series $15,220 $76,694 $154,180
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.
49
SHARES OF THE FUND
-----------------------------------------------------------------------------
Shareholders of each Series of the Fund are entitled to a full vote for
each full share held. All of the Trustees except for Messrs. Bozic, Purcell
and Schroeder have been elected by the Shareholders of the Fund at a Special
Meeting of Shareholders held on January 12, 1993. Messrs. Bozic, Purcell and
Schroeder were elected by the other Trustees of the Fund on April 8, 1994.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration and appoint their own successors,
provided that always at least a majority of the Trustees has been elected by
the shareholders of the Fund. Under certain circumstances the Trustees may be
removed by action of the Trustees. The shareholders also have the right under
certain circumstances to remove the Trustees. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all Trustees being selected,
while the holders of the remaining shares would be unable to elect any
Trustees.
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 Act or the Declaration of Trust.
The 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 (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). However, the Trustees have
not presently authorized any such additional series or classes of shares.
The Declaration of Trust further 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's 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.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust con cerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
-----------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets. Any Fund cash balances with the Custodian
in excess of $100,000 are unprotected by Federal deposit insurance. Such
balances may at times be substantial.
Dean Witter Trust Company, Two Montgomery Street, Jersey City, New Jersey
07302 is the Transfer Agent of the Fund's shares and Dividend Disbursing
Agent for payment of dividends and distributions of Fund shares and Agent for
shareholders under various investment plans described herein. Dean Witter
Trust Company is an affiliate of Dean Witter InterCapital Inc., the Fund's
Investment Manager and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter
Trust Company's responsibilities include maintaining shareholder accounts,
disbursing cash dividends and distributions and reinvesting dividends and
distributions, 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, Dean Witter
Trust Company receives a per shareholder account fee from the Fund.
50
INDEPENDENT ACCOUNTANTS
-----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
-----------------------------------------------------------------------------
The Fund, on behalf of each Series, will send to shareholders, at least
semi-annually, reports showing each Series' portfolio and other information.
An annual report, containing financial statements audited by independent
accountants, together with their report thereon, will be sent to shareholders
each year.
The Fund's fiscal year ends on November 30. The financial statements of
the Fund must be audited at least once a year by independent accountants
whose selection is made annually by the Fund's Trustees.
VALIDITY OF SHARES OF BENEFICIAL INTEREST
-----------------------------------------------------------------------------
The validity of shares offered by the Prospectus will be passed upon for
the Fund by Sheldon Curtis, Esq., who is an officer and General Counsel of
the Investment Manager and an officer and General Counsel of the Fund.
LEGAL COUNSEL
-----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
-----------------------------------------------------------------------------
The financial statements of the Fund for the fiscal year ended November
30, 1996 included in this Statement of Additional Information and
incorporated by reference in the Prospectus have been so included and
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
REGISTRATION STATEMENT
-----------------------------------------------------------------------------
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 Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
51
APPENDIX
-----------------------------------------------------------------------------
RATINGS OF INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
MUNICIPAL BOND RATINGS
[Enlarge/Download Table]
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.
52
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 undeniabale 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.
[Enlarge/Download Table]
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.
53
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.
54
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.
COMMERICAL 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.
55
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
ARIZONA TAX-EXEMPT MUNICIPAL BONDS (92.1%)
GENERAL OBLIGATION (12.4%)
$ 200 Chandler, Sierra Vista Refg Ser 1991 (FGIC) ............................. 7.00% 07/01/12 $ 221,792
1,000 Paradise Valley Unified School District #69, Ser B 1995 (MBIA) ......... 5.25 07/01/15 999,950
Phoenix,
1,000 Refg Ser 1993 A ........................................................ 5.25 07/01/12 1,002,690
1,550 Refg Ser 1992 .......................................................... 6.375 07/01/13 1,669,149
750 Tucson, Refg Ser 1995 (FGIC) ............................................ 5.50 07/01/12 763,822
1,000 Tucson Unified School District #1, 1989 Ser D 1992 (FGIC) .............. 6.10 07/01/11 1,061,190
----------- -------------
5,500 5,718,593
----------- -------------
EDUCATIONAL FACILITIES REVENUE (6.6%)
1,000 Arizona Board of Regents, Arizona State University Ser 1992 A .......... 5.50 07/01/19 993,550
1,000 Arizona State University, Research Park Refg Ser 1995 (MBIA) ........... 5.00 07/01/21 955,020
1,000 University of Arizona, Telecommunications Ser 1991 COPs ................. 6.50 07/15/12 1,095,620
----------- -------------
3,000 3,044,190
----------- -------------
ELECTRIC REVENUE (2.3%)
1,000 Salt River Agricultural Improvement & Power District, Refg 1992 Ser D .. 6.25 01/01/27 1,052,460
----------- -------------
HOSPITAL REVENUE (8.4%)
700 Arizona Health Facilities Authority, Phoenix Memorial Hospital Refg
Ser 1991 ............................................................... 8.20 06/01/21 760,480
2,000 Maricopa County Industrial Development Authority, Catholic Healthcare
West 1992 Ser A (MBIA) ................................................. 5.75 07/01/11 2,050,500
1,100 Pima County Industrial Development Authority, Carondelet Health Care
Corp Ser 1993 (MBIA) ................................................... 5.25 07/01/13 1,095,127
----------- -------------
3,800 3,906,107
----------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (10.4%)
1,000 Greenlee County Industrial Development Authority, Phelps Dodge Corp
Refg 1994 .............................................................. 5.45 06/01/09 1,014,810
2,000 Mohave County Industrial Development Authority, Citizens Utilities Co
1993 Ser B (AMT) ....................................................... 5.80 11/15/28 2,028,500
1,700 Santa Cruz County Industrial Development Authority, Citizens Utilities
Co Ser 1991 (AMT) ...................................................... 7.15 02/01/23 1,794,010
----------- -------------
4,700 4,837,320
----------- -------------
MORTGAGE REVENUE - MULTI-FAMILY (2.2%)
970 Pima County Industrial Development Authority, Rancho Mirage Ser 1992
(AMT) (AGRC) ........................................................... 7.05 04/01/22 1,023,175
----------- -------------
56
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
---------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
PUBLIC FACILITIES REVENUE (3.9%)
Arizona,
$ 500 Refg Ser 1992 B COPs (AMBAC) ........................................... 6.25% 09/01/10 $ 539,450
500 Ser 1991 COPs (FSA) .................................................... 6.25 09/01/11 532,710
700 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1988 A . 7.90 07/01/07 754,278
----------- -------------
1,700 1,826,438
----------- -------------
TRANSPORTATION FACILITIES REVENUE (17.8%)
Phoenix,
2,000 Street & Highway User Refg Ser 1993 .................................... 5.125 07/01/11 1,974,440
1,000 Street & Highway User Ser 1992 ......................................... 6.25 07/01/11 1,113,560
2,000 Phoenix Civic Improvement Corporation, Airport Terminal Excise Tax
Ser 1989 (AMT) ......................................................... 7.80 07/01/11 2,081,920
Tucson,
1,000 Street & Highway User Sr Lien Refg Ser 1993 ............................ 5.50 07/01/09 1,021,910
1,000 Street & Highway User Sr Lien Refg Ser 1996 (MBIA) ..................... 6.00 07/01/10 1,085,350
1,000 Puerto Rico Highway & Transportation Authority, Refg Ser X ............. 5.25 07/01/21 944,600
----------- -------------
8,000 8,221,780
----------- -------------
WATER & SEWER REVENUE (18.0%)
1,000 Arizona Wastewater Management Authority, Wastewater Ser 1992 A (AMBAC) . 5.95 07/01/12 1,047,630
Chandler,
750 Water & Sewer Refg Ser 1991 (FGIC) ..................................... 7.00 07/01/12 831,390
1,000 Water & Sewer Refg Ser 1992 (FGIC) ..................................... 6.25 07/01/13 1,072,880
1,000 Gilbert, Water & Wastewater Refg Ser 1992 (FGIC) ........................ 6.50 07/01/22 1,103,920
Phoenix Civic Improvement Corporation,
1,000 Wastewater Refg Ser 1993 ............................................... 4.75 07/01/23 873,770
1,000 Wastewater Jr Lien Ser 1994 ............................................ 5.45 07/01/19 985,890
2,200 Tucson, Water Refg Ser 1991 ............................................. 6.50 07/01/16 2,368,784
----------- -------------
7,950 8,284,264
----------- -------------
OTHER REVENUE (1.5%)
700 Puerto Rico Industrial, Tourist, Educational, Medical & Environmental
Control Facilities Financing Authority, Teachers Retirement 1996 Ser B .. 5.50 07/01/16 702,940
----------- -------------
REFUNDED (8.6%)
Arizona Health Facilities Authority, Phoenix Baptist Hospital & Medical
1,150 Center Inc & Medical Environments Inc Ser 1992 (MBIA) (ETM) ........... 6.25 09/01/11 1,239,539
1,500 Arizona Transportation Board, Sub Highway Ser 1991 A .................... 6.50 07/01/01++ 1,656,525
1,000 Central Arizona Water Conservation District, Ser 1991 B ................. 6.50 05/01/01++ 1,103,840
----------- -------------
3,650 3,999,904
----------- -------------
40,970 TOTAL ARIZONA TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $40,450,936) ......................... 42,617,171
----------- -------------
57
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- ARIZONA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
---------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
SHORT-TERM ARIZONA TAX-EXEMPT MUNICIPAL OBLIGATIONS (5.2%)
$ 300 Maricopa County, Arizona Public Service Co Palo Verde 1994 Ser C (Demand
12/02/96) .............................................................. 4.00*% 05/01/29 $ 300,000
2,100 Pinal County Industrial Development Authority, Newmont Mining Corp
Ser 1984 (Demand 12/02/96) ............................................. 4.00* 12/01/09 2,100,000
----------- -------------
2,400 TOTAL SHORT-TERM ARIZONA TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $2,400,000) .................................................................. 2,400,000
----------- -------------
$43,370 TOTAL INVESTMENTS (IDENTIFIED COST $42,850,936) (A) ............................... 97.3% 45,017,171
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .................................... 2.7 1,231,046
----- -------------
NET ASSETS ........................................................................ 100.0% $46,248,217
===== ===========
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$2,192,864 and the aggregate gross unrealized depreciation is
$26,629, resulting in net unrealized appreciation of $2,166,235.
Bond Insurance:
AGRC Asset Guaranty Reinsurance Company.
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
58
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- ------------------------------------------------------------------------- -------- ----------- --------------
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (95.2%)
GENERAL OBLIGATION (4.4%)
$ 2,000 California, Various Purpose 04/01/93 (FSA) ............................... 5.50% 04/01/19 $ 1,962,020
3,000 Mojave Water Agency, Impr Dist M Morongo Basin Pipeline
Refg Ser 1996 (FGIC) .................................................... 5.80 09/01/22 3,066,450
----------- --------------
5,000 5,028,470
----------- --------------
EDUCATIONAL FACILITIES REVENUE (12.1%)
California Educational Facilities Authority,
3,000 Carnegie Institution of Washington 1993 Ser A ........................... 5.60 10/01/23 2,966,880
4,000 Claremont Colleges Ser 1992 ............................................. 6.375 05/01/22 4,198,320
2,000 Loyola Marymount University Refg Ser 1992 ............................... 6.00 10/01/14 2,028,260
2,500 University of Southern California Ser 1993 B ............................ 5.80 10/01/15 2,525,600
2,000 University of Southern California Refg Ser 1996 ......................... 4.35 10/01/19 2,016,260
----------- --------------
13,500 13,735,320
----------- --------------
ELECTRIC REVENUE (11.0%)
2,000 Kings River Conservation District, Pine Flat Power Ser D ................. 6.00 01/01/17 2,029,360
2,000 Los Angeles Department of Water & Power, Refg Issue of 1993 ............. 5.375 09/01/23 1,921,720
1,750 Northern California Power Agency, Geothermal #3 1993 Refg Ser A ......... 5.85 07/01/10 1,849,260
7,000 Southern California Public Power Authority, Mead -Phoenix (AMBAC) ....... 5.15 07/01/15 6,740,440
----------- --------------
12,750 12,540,780
----------- --------------
HOSPITAL REVENUE (11.1%)
1,000 Berkeley, Alta Bates Medical Center Refg Ser A ........................... 6.50 12/01/11 1,024,270
California Health Facilities Financing Authority,
2,000 Catholic Health Corp Ser 1992 (MBIA) .................................... 6.00 07/01/13 2,076,320
3,000 Scripps Memorial Hospitals Ser 1992 A (MBIA) ............................ 6.375 10/01/22 3,254,550
2,000 California Statewide Communities Development Authority,
Cedar Sinai Medical Center Ser 1992 COPs ................................ 6.50 08/01/12 2,221,460
Duarte,
2,000 City of Hope National Medical Center Ser 1993 COPs ...................... 6.00 04/01/08 2,021,760
2,000 City of Hope National Medical Center Ser 1993 COPs ...................... 6.125 04/01/13 2,010,560
----------- --------------
12,000 12,608,920
----------- --------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (3.2%)
California Pollution Control Financing Authority,
1,000 Atlantic Richfield Co Ser 1996 A ........................................ 5.00 04/01/08 988,010
1,000 Pacific Gas & Electric Co 1992 Ser A (AMT) .............................. 6.625 06/01/09 1,068,240
1,500 San Diego Gas and Electric Co 1996 Ser A ................................ 5.90 06/01/14 1,589,490
----------- --------------
3,500 3,645,740
----------- --------------
MORTGAGE REVENUE - MULTI-FAMILY (1.8%)
2,000 California Housing Finance Agency, Rental II 1992 Ser B .................. 6.70 08/01/15 2,082,360
----------- --------------
MORTGAGE REVENUE - SINGLE FAMILY (1.5%)
690 California Housing Finance Agency, Home 1991 Ser C (AMT) (MBIA) ......... 7.00 08/01/23 725,970
935 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ................................................................... 6.85 10/15/23 979,618
----------- --------------
1,625 1,705,588
----------- --------------
59
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
--------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
PUBLIC FACILITIES REVENUE (9.0%)
$ 2,000 Los Angeles County, 1991 Master Refg COPs ................................ 6.708% 05/01/15 $ 2,066,760
2,000 Nevada County, Western Nevada County Solid Waste Mgmt 1991 COPs ......... 7.50 06/01/21 2,066,260
2,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C ......... 6.375 09/01/13 2,099,720
2,700 Torrance, Refg 1991 COPs ................................................. 6.80 07/01/12 2,921,454
1,000 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1988 A .. 7.90 07/01/07 1,077,540
----------- --------------
9,700 10,231,734
----------- --------------
TAX ALLOCATION (4.4%)
1,000 Industry Urban-Development Agency, Transportation-Distribution-
Industrial Redev Proj #3 1992 Refg ...................................... 6.90 11/01/16 1,076,790
1,000 Riverside County Redevelopment Agency, Proj #4 1991 Ser A ................ 7.50 10/01/26 1,089,870
3,000 Rosemead Redevelopment Agency, Proj #1 Ser 1993 A ........................ 5.50 10/01/18 2,825,790
----------- --------------
5,000 4,992,450
----------- --------------
TRANSPORTATION FACILITIES REVENUE (9.7%)
2,000 California Maritime Infrastructure Authority, San Diego Unified Port
District-Lindbergh Field Ser 1995 (AMT) (AMBAC) ......................... 5.25 11/01/15 1,943,860
2,000 Los Angeles County Transportation Commission, Sales Tax Ser 1991-B ...... 6.50 07/01/13 2,129,660
2,000 San Diego County Regional Transportation Commission, Sales Tax
1994 Ser A (FGIC) ....................................................... 4.75 04/01/08 1,958,680
San Francisco Bay Area Rapid Transit District,
1,000 Sales Tax Ser 1991 (FGIC) ............................................... 6.60 07/01/12 1,098,070
1,850 Sales Tax Ser 1995 (FGIC) ............................................... 5.50 07/01/20 1,833,017
2,000 Santa Clara Transit District, Sales Tax 1991 Ser A ....................... 6.25 06/01/21 2,053,260
----------- --------------
10,850 11,016,547
----------- --------------
WATER & SEWER REVENUE (15.5%)
1,000 Alameda County Water District, 1992 COPs (MBIA) .......................... 6.20 06/01/13 1,052,790
1,000 California Department of Water Resources, Central Valley Ser J-2 ........ 6.00 12/01/20 1,019,650
2,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC) ................... 5.00 10/01/13 1,937,900
1,000 Contra Costa Water Authority, 1992 Ser E (AMBAC) ......................... 6.25 10/01/12 1,120,360
3,000 East Bay Municipal Utility District, Water Refg Ser 1992 ................. 6.00 06/01/20 3,089,370
1,000 Los Angeles, Wastewater 1991 Ser C ....................................... 7.10 06/01/18 1,078,100
2,100 Metropolitan Water District of Southern California, Water 1996 Ser C (WI) 5.25 07/01/15 2,072,910
4,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA) ................. 6.30 04/08/21 4,257,800
2,000 San Francisco Public Utilities Commission, Water 1992 Refg Ser A ........ 6.00 11/01/15 2,063,100
----------- --------------
17,100 17,691,980
----------- --------------
60
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- CALIFORNIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
--------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
REFUNDED (11.5%)
$ 2,000 California Department of Water Resources, Central Valley Ser K .......... 6.00% 06/01/02++ $ 2,185,760
2,000 California Educational Facilities Authority, University of San Francisco
Ser 1992 ................................................................ 6.40 10/01/02++ 2,251,440
2,000 California Public Works Board, California State University 1992 Ser A ... 6.70 10/01/02++ 2,273,460
2,000 Central Coast Water Authority, Ser 1992 (AMBAC) .......................... 6.50 10/01/02++ 2,261,680
2,700 Mojave Water Agency, Impr Dist M Morongo Basin Pipeline Ser 1992 ........ 6.60 09/01/02++ 3,062,529
1,000 San Diego County Regional Transportation Commission Sales Tax 1991 Ser A
(ETM) ................................................................... 6.00 04/01/08 1,063,570
----------- --------------
11,700 13,098,439
----------- --------------
104,725 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $102,931,533) ...................... 108,378,328
----------- --------------
SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (4.9%)
California Pollution Control Financing Authority,
2,900 Southern California Edison Co Ser 1986 B (Demand 12/02/96) ............. 4.25* 02/28/08 2,900,000
2,700 Pacific Gas & Electric Co Ser 1996 F (Demand 12/02/96) .................. 4.00* 11/01/26 2,700,000
----------- --------------
5,600 TOTAL SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $5,600,000) ................................................................... 5,600,000
----------- --------------
$110,325 TOTAL INVESTMENTS (IDENTIFIED COST $108,531,533) (A) ............................... 100.1% 113,978,328
===========
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ..................................... (0.1) (119,274)
------ --------------
NET ASSETS ......................................................................... 100.0% $113,859,054
===== ============
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
WI Security purchased on a when issued basis.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$5,906,335 and the aggregate gross unrealized depreciation is
$459,540, resulting in net unrealized appreciation of $5,446,795.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
61
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
FLORIDA TAX-EXEMPT MUNICIPAL BONDS (92.4%)
GENERAL OBLIGATION (5.4%)
$1,750 Florida Board of Education, Cap Outlay Refg Ser 1992 A ................... 6.40% 06/01/19 $1,875,615
2,000 Reedy Creek Improvement District, Ser 1995 C (AMBAC) ..................... 5.00 06/01/19 1,896,500
----------- -------------
3,750 3,772,115
----------- -------------
EDUCATIONAL FACILITIES REVENUE (2.2%)
1,500 Volusia County Educational Facilities Authority, Embry-Riddle
Aeronautical University Ser 1996 A ...................................... 6.125 10/15/16 1,542,615
----------- -------------
ELECTRIC REVENUE (8.9%)
2,500 Jacksonville Electric Authority, St Johns River Power Park Issue 2 Ser 7.. 5.50 10/01/14 2,505,450
Orlando Utilities Commission,
1,000 Refg Ser 1993 A ......................................................... 5.25 10/01/14 982,880
1,000 Ser 1993 ................................................................ 5.125 10/01/19 944,050
2,000 Puerto Rico Electric Power Authority, Power Ser O ........................ 5.00 07/01/12 1,868,320
----------- -------------
6,500 6,300,700
----------- -------------
HOSPITAL REVENUE (9.6%)
1,000 Alachua County Health Facilities Authority, Shands Teaching Hospital &
Clinics Ser 1996 A (MBIA) ............................................... 6.25 12/01/11 1,106,250
500 Cape Canaveral Hospital District, Cape Canaveral Hospital Ser 1991 COPs
(AMBAC) ................................................................. 6.875 01/01/21 549,055
1,000 Jacksonville, University Medical Center Inc Ser 1992 (Connie Lee) ....... 6.60 02/01/21 1,093,770
1,000 Lakeland, Regional Medical Center Ser 1992 A (FGIC) ...................... 6.125 11/15/22 1,039,830
2,000 Orange County Health Facilities Authority, Adventist Health/Sunbelt
Ser 1995 (AMBAC) ........................................................ 5.25 11/15/20 1,949,400
980 Polk County Industrial Development Authority, United Haven Hospital 1985
Ser 2 (MBIA) ............................................................ 6.25 09/01/15 1,047,277
----------- -------------
6,480 6,785,582
----------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (8.2%)
Citrus County,
1,000 Florida Power Corp Refg Ser 1992 B ...................................... 6.35 02/01/22 1,049,720
2,000 Florida Power Corp Refg Ser 1992 A ...................................... 6.625 01/01/27 2,146,460
1,500 St Johns County Industrial Development Authority, Professional Golf
Hall of Fame Ser 1996 (MBIA) ............................................ 5.80 09/01/16 1,540,935
1,000 St Lucie County, Florida Power & Light Co Ser 1992 (AMT) ................. 6.70 05/01/27 1,070,550
----------- -------------
5,500 5,807,665
----------- -------------
MORTGAGE REVENUE - SINGLE FAMILY (3.3%)
630 Brevard County Housing Finance Authority, Refg Ser 1991 B (FSA) ......... 7.00 03/01/13 668,392
365 Florida Housing Finance Agency, GNMA Collateral 1990 Ser G-1 (AMT) ...... 7.90 03/01/22 386,057
1,230 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ................................................................... 6.85 10/15/23 1,288,696
----------- -------------
2,225 2,343,145
----------- -------------
NURSING & HEALTH RELATED FACILITIES REVENUE (1.5%)
1,000 Hillsborough County Industrial Authority, Allegany Health/John Knox
----------- Village of Tampa Bay Inc Ser 1992 (MBIA) ............................... 6.375 12/01/12 1,072,620
-------------
62
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
-------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
PUBLIC FACILITIES REVENUE (4.4%)
$ 1,000 Miami Sports & Exhibition Authority, Refg Ser 1992 A (FGIC) ............. 6.15% 10/01/20 $ 1,048,630
2,000 Orlando, Cap Impr Refg Ser 1992 .......................................... 6.00 10/01/22 2,049,320
----------- -------------
3,000 3,097,950
----------- -------------
RESOURCE RECOVERY REVENUE (3.1%)
1,000 Broward County, Broward Waste Energy Co North Ser 1984 ................... 7.95 12/01/08 1,105,160
1,000 Lee County, Solid Waste Ser 1991 A (AMT) (MBIA) .......................... 6.50 10/01/13 1,071,830
----------- -------------
2,000 2,176,990
----------- -------------
TRANSPORTATION FACILITIES REVENUE (20.1%)
Dade County,
1,000 Aviation 1992 Ser B (AMT) (MBIA) ........................................ 6.60 10/01/22 1,086,040
2,000 Seaport Refg Ser 1996 (MBIA) ............................................ 5.125 10/01/16 1,940,500
1,000 Seaport Refg Ser 1996 (MBIA) ............................................ 5.125 10/01/26 956,530
1,000 Florida Department of Transportation, Turnpike Ser 1991 A (AMBAC) ....... 6.25 07/01/20 1,046,890
Greater Orlando Aviation Authority,
750 Ser 1992 A (AMT) (FGIC) ................................................. 6.50 10/01/12 813,165
1,000 Ser 1993 A (AMT) (AMBAC) ................................................ 5.50 10/01/18 966,630
1,250 Hillsborough County Aviation Authority, Tampa Int'l Airport
Refg Ser 1993 B (FGIC) .................................................. 5.60 10/01/19 1,237,187
1,500 Lee County, Refg Ser 1991 (AMBAC) ........................................ 6.00 10/01/17 1,542,240
3,000 Mid-Bay Bridge Authority, Sr Lien Crossover Refg Ser 1993 A ............. 6.10 10/01/22 3,040,590
1,500 Osceola County, Osceola Parkway (MBIA) ................................... 6.10 04/01/17 1,569,270
----------- -------------
14,000 14,199,042
----------- -------------
WATER & SEWER REVENUE (10.8%)
2,000 Dade County, Water & Sewer Ser 1995 (FGIC) ............................... 5.50 10/01/25 1,985,540
1,000 Key West, Sewer Refg Ser 1993 (FGIC) ..................................... 5.70 10/01/20 1,010,980
1,000 Orange County, Water Utilities Ser 1992 (AMBAC) .......................... 6.25 10/01/17 1,067,880
500 Port St Lucie, Stormwater Utility Ser 1991 (AMBAC) ....................... 6.625 05/01/15 533,915
2,000 Sunrise, Utility Ser 1996 A (AMBAC) ...................................... 5.75 10/01/21 2,040,240
1,000 Tampa, Water & Sewer Ser 1995 (FGIC) ..................................... 5.125 10/01/17 969,420
----------- -------------
7,500 7,607,975
----------- -------------
REFUNDED (14.9%)
500 Boynton Beach, Utility Ser 1992 (FGIC) (ETM) ............................. 6.25 11/01/12 554,625
1,500 Brevard County School Board, Florida School Boards Assn Inc
Ser 1992 A COPs (AMBAC) ................................................. 6.50 07/01/02++ 1,682,790
1,000 Homestead, Hurricane Andrew Special Insurance Assessment Ser 1993 (MBIA)
(ETM) ................................................................... 5.25 03/01/03 1,045,420
1,900 Orlando Utilities Commission, Ser 1991 A ................................. 6.50 10/01/01++ 2,116,961
1,000 South Broward Hospital District, Ser 1991 B & C (AMBAC) .................. 6.611 05/01/01++ 1,105,460
2,150 St Lucie County, Sales Tax Ser 1992 (FGIC) ............................... 6.50 10/01/02++ 2,420,577
1,440 Tampa, Water & Sewer Ser 1992 A (FGIC) ................................... 6.00 10/01/02++ 1,572,466
----------- -------------
9,490 10,498,299
----------- -------------
62,945 TOTAL FLORIDA TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $61,392,720) .......................... 65,204,698
----------- -------------
63
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- FLORIDA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
----------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
SHORT-TERM FLORIDA TAX-EXEMPT MUNICIPAL OBLIGATIONS (6.0%)
$ 900 Dade County Health Facilities Authority, Miami Childrens Hospital
Ser 1990 (Demand 12/02/96) .............................................. 4.20*% 09/01/20 $ 900,000
3,300 Jacksonville Health Facilities Authority, Baptist Medical Center Ser 1993
(MBIA) (Demand 12/02/96) ................................................ 4.05* 06/01/08 3,300,000
----------- -------------
4,200 TOTAL SHORT-TERM FLORIDA TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $4,200,000) .................................................................. 4,200,000
----------- -------------
$67,145 TOTAL INVESTMENTS (IDENTIFIED COST $65,592,720) (A) ................................ 98.4% 69,404,698
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ..................................... 1.6 1,137,048
---- -------------
NET ASSETS ......................................................................... 100.0% $70,541,746
===== =============
------------
AMT Alternative Minimum Tax.
COPs Certificate of Participation.
ETM Escrowed to Maturity.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$3,857,709, and the aggregate gross unrealized depreciation is
$45,731, resulting in net unrealized appreciation of $3,811,978.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
64
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MASSACHUSETTS SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
MASSACHUSETTS TAX-EXEMPT MUNICIPAL BONDS (89.6%)
GENERAL OBLIGATION (10.8%)
Massachusetts,
$ 500 Refg 1992 Ser B ..................................................... 6.50% 08/01/08 $ 563,310
1,000 Refg 1993 Ser A ..................................................... 5.50 02/01/11 1,009,080
150 Nantucket, 1991 ...................................................... 6.80 12/01/11 164,379
----------- -------------
1,650 1,736,769
----------- -------------
EDUCATIONAL FACILITIES REVENUE (27.4%)
Massachusetts Health & Educational Facilities Authority,
100 Amherst College Ser E ............................................... 6.80 11/01/21 108,555
1,000 Boston College Ser K ................................................ 5.25 06/01/18 971,150
400 Boston University Ser K & L (MBIA) .................................. 6.66 10/01/31 429,780
150 Community College Ser A (Connie Lee) ................................ 6.60 10/01/22 163,540
400 Suffolk University Ser B (Connie Lee) ............................... 6.25 07/01/12 424,752
300 Suffolk University Ser C (Connie Lee) ............................... 5.75 07/01/26 302,508
500 University of Massachusetts Foundation Inc/Medical School Research
Ser A (Connie Lee) .................................................. 6.00 07/01/23 507,570
150 Worcester Polytechnic Institute Refg Ser E .......................... 6.625 09/01/17 162,186
Massachusetts Industrial Finance Agency,
500 Brooks School Ser 1993 .............................................. 5.90 07/01/13 509,065
500 Holy Cross College 1996 (MBIA) ...................................... 5.50 03/01/16 498,775
300 Mount Holyoke College Refg Ser 1992 A (MBIA) ........................ 6.30 07/01/13 320,328
----------- -------------
4,300 4,398,209
----------- -------------
ELECTRIC REVENUE (6.5%)
500 Massachusetts Municipal Wholesale Electric Company, Power Supply
1992 Ser C .......................................................... 6.625 07/01/18 534,605
500 Puerto Rico Electric Power Authority, Power Ser X .................... 6.00 07/01/15 511,770
----------- -------------
1,000 1,046,375
----------- -------------
HOSPITAL REVENUE (15.5%)
500 Boston, Boston City Hospital -FHA Insured Mtge Refg Ser B ........... 5.75 02/15/13 502,120
Massachusetts Health & Educational Facilities Authority,
100 Charlton Memorial Hospital Ser B .................................... 7.25 07/01/13 108,565
500 Lahey Clinic Medical Center Ser B (MBIA) ............................ 5.625 07/01/15 499,115
1,000 Massachusetts General Hospital Ser F (AMBAC) ........................ 6.00 07/01/15 1,037,960
200 McLean Hospital Ser C (FGIC) ........................................ 6.625 07/01/15 220,040
100 New England Deaconess Hospital Ser C ................................ 7.20 04/01/22 109,066
----------- -------------
2,400 2,476,866
----------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (6.2%)
1,000 Massachusetts Industrial Finance Agency, Eastern Edison Co
Refg Ser 1993 ....................................................... 5.875 08/01/08 984,740
----------- -------------
MORTGAGE REVENUE - MULTI-FAMILY (3.3%)
500 Massachusetts Housing Finance Agency, Rental 1994 Ser A
(AMT) (AMBAC) ....................................................... 6.60 07/01/14 519,750
----------- -------------
MORTGAGE REVENUE - SINGLE FAMILY (4.2%)
Massachusetts Housing Finance Agency,
435 Ser 21 (AMT) ........................................................ 6.30 06/01/25 442,003
220 Ser 21 (AMT) ........................................................ 7.125 06/01/25 234,337
----------- -------------
655 676,340
----------- -------------
65
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MASSACHUSETTS SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
---------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
STUDENT LOAN REVENUE (3.8%)
$ 150 Massachusetts Educational Facilities Authority, Education Loan
Issue D Ser A 1991 (AMT) (MBIA) ..................................... 7.25% 01/01/09 $ 163,793
400 New England Education Loan Marketing Corporation,
1992 Sub Issue H (AMT) .............................................. 6.90 11/01/09 439,600
----------- -------------
550 603,393
----------- -------------
TRANSPORTATION FACILITIES REVENUE (1.5%)
250 Massachusetts Turnpike Authority, 1993 Ser A ......................... 5.00 01/01/13 239,328
----------- -------------
WATER & SEWER REVENUE (9.4%)
500 Boston Water & Sewer Commission, Sr 1992 Ser A ....................... 5.75 11/01/13 518,100
500 Massachusetts Water Pollution Abatement Trust, Pool Ser 2 ........... 5.70 02/01/12 514,260
500 Massachusetts Water Resources Authority, 1995 Ser B (MBIA) .......... 5.00 12/01/25 469,465
----------- -------------
1,500 1,501,825
----------- -------------
REFUNDED (1.0%)
150 Massachusetts Industrial Finance Agency, Holy Cross College Ser 1992 6.45 01/01/02++ 166,064
----------- -------------
13,955 TOTAL MASSACHUSETTS TAX-EXEMPT MUNICIPAL BONDS
(IDENTIFIED COST $13,693,093) ............................................................... 14,349,659
----------- -------------
SHORT-TERM MASSACHUSETTS TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.5%)
500 Massachusetts Health & Educational Facilities Authority, Capital
Asset Ser E (Demand 12/02/96) ....................................... 4.05* 01/01/35 500,000
700 Massachusetts Industries Financing Agency, New England Power Co
1992 Ser (Demand 12/02/96) .......................................... 3.90* 10/01/22 700,000
----------- -------------
1,200 TOTAL SHORT-TERM MASSACHUSETTS TAX-EXEMPT MUNICIPAL OBLIGATIONS
----------- (IDENTIFIED COST $1,200,000) ................................................................ 1,200,000
-------------
$15,155 TOTAL INVESTMENTS (IDENTIFIED COST $14,893,093) (A) ............................ 97.1% 15,549,659
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ................................. 2.9 471,301
---- -------------
NET ASSETS ..................................................................... 100.0% $16,020,960
===== =============
AMT Alternative Minimum Tax.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$682,861 and the aggregate gross unrealized depreciation is
$26,295, resulting in net unrealized appreciation of $656,566.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
66
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MICHIGAN SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
MICHIGAN TAX-EXEMPT MUNICIPAL BONDS (89.5%)
GENERAL OBLIGATION (17.2%)
$1,000 Chelsea School District, 1995 Bldg & Site (FGIC) ............... 5.875% 05/01/25 $1,023,550
1,000 Holly Area School District, 1995 Bldg & Site (FGIC) ........... 5.375 05/01/13 995,100
500 Kentwood Public Schools, 1992 Bldg & Site Refg ................. 6.40 05/01/15 529,590
1,000 Mona Shores Public Schools, 1995 Bldg & Site (FGIC) ........... 5.80 05/01/17 1,029,420
----------- -------------
3,500 3,577,660
----------- -------------
EDUCATIONAL FACILITIES REVENUE (14.7%)
1,000 Central Michigan University, Refg Ser 1993 (MBIA) .............. 5.50 10/01/10 1,014,540
1,000 Michigan State University, Ser 1992 A .......................... 6.00 08/15/16 1,026,560
1,000 Oakland University, Board of Trustees Ser 1995 (MBIA) ......... 5.75 05/15/26 1,015,680
----------- -------------
3,000 3,056,780
----------- -------------
ELECTRIC REVENUE (7.1%)
1,000 Michigan Public Power Agency, Belle River 1993 A ............... 5.25 01/01/18 958,140
500 Wyandotte, Electric Refg 1992 (MBIA) ........................... 6.25 10/01/17 529,120
----------- -------------
1,500 1,487,260
----------- -------------
HOSPITAL REVENUE (8.3%)
Michigan Hospital Finance Authority,
300 Detroit Medical Center Oblig Group Ser 1991 A ................. 7.50 08/15/11 331,854
1,000 Mercy Health Services Oblig Group 1996 Ser (AMBAC) (WI) ...... 5.375 08/15/16 979,100
400 University of Michigan, Ser 1990 ............................... 6.375 12/01/24 412,140
----------- -------------
1,700 1,723,094
----------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (2.6%)
500 Monroe County, Detroit Edison Co Monroe & Fermi Plants
Collateralized Ser 1-1992 (AMT) (MBIA) ........................ 6.875 09/01/22 548,850
----------- -------------
MORTGAGE REVENUE - MULTI-FAMILY (9.5%)
Michigan Housing Development Authority,
500 Rental Ser 1992 A ............................................. 6.60 04/01/12 518,490
1,000 1992 Ser A (FSA) .............................................. 6.50 04/01/23 1,034,590
400 Ser 1990 A (AMT) .............................................. 7.70 04/01/23 426,092
----------- -------------
1,900 1,979,172
----------- -------------
NURSING & HEALTH RELATED FACILITIES REVENUE (6.1%)
1,200 University of Michigan, Medical Service Plan Ser 1991 ......... 6.50 12/01/21 1,279,968
----------- -------------
PUBLIC FACILITIES REVENUE (7.5%)
1,500 Michigan Building Authority, Refg Ser I ........................ 6.25 10/01/20 1,565,880
----------- -------------
TRANSPORTATION FACILITIES REVENUE (1.3%)
250 Wayne County, Detroit Metropolitan Wayne County Airport Sub
Lien Ser 1991 B (AMT) (MBIA) .................................. 6.75 12/01/21 270,637
----------- -------------
67
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MICHIGAN SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
---------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
WATER & SEWER REVENUE (6.7%)
Detroit,
$ 1,000 Sewage Refg Ser 1993 A (FGIC) ................................. 5.70% 07/01/23 $ 983,820
400 Water Supply Refg Ser 1992 (FGIC) ............................. 6.375 07/01/22 419,404
----------- -------------
1,400 1,403,224
----------- -------------
REFUNDED (8.5%)
Detroit,
500 Sewage Disposal Ser 1991 (FGIC) ............................... 6.625 07/01/01++ 556,260
600 Water Supply Refg Ser 1992 (FGIC) ............................. 6.375 07/01/02++ 662,070
500 Royal Oak Hospital Finance Authority, William Beaumont Hospital
Ser 1991 D .................................................... 6.75 01/01/01++ 553,665
----------- -------------
1,600 1,771,995
----------- -------------
18,050 TOTAL MICHIGAN TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $17,737,223) .............. 18,664,520
----------- -------------
SHORT-TERM MICHIGAN TAX-EMEMPT MUNICIPAL OBLIGATIONS (12.9%)
900 Delta County Economic Development Corporation, Mead-Escanaba
Paper Corp 1985 Ser E (Demand 12/02/96) ....................... 4.00* 12/01/23 900,000
900 University Michigan, Medical Service Plan 1995 Ser A
(Demand 12/02/96) ............................................. 4.15* 12/01/27 900,000
900 Royal Oak Hospital Finance Authority, William Beaumont Hospital
Ser 1996 J (Demand 12/02/96) .................................. 4.00* 01/01/03 900,000
----------- -------------
2,700 TOTAL SHORT-TERM MICHIGAN TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $2,700,000) ......................................................... 2,700,000
----------- -------------
$20,750 TOTAL INVESTMENTS (IDENTIFIED COST $20,437,223) (A) ...................... 102.4% 21,364,520
======= LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ........................... (2.4) (501,409)
----- -------------
NET ASSETS ............................................................... 100.0% $20,863,111
====== =============
AMT Alternative Minimum Tax.
WI Security purchased on a when issued basis.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$943,497, and the aggregate gross unrealized depreciation is
$16,200, resulting in net unrealized appreciation of $927,297.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
68
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MINNESOTA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- ------------------------------------------------------------------ -------- ----------- ------------
MINNESOTA TAX-EXEMPT MUNICIPAL BONDS (87.9%)
GENERAL OBLIGATION (4.2%)
Minneapolis,
$ 100 Sales Tax Refg Ser 1992 .......................................... 6.25% 04/01/12 $ 107,127
300 Dtd 8/15/92 ...................................................... 5.90 12/01/13 308,628
----------- ------------
400 415,755
----------- ------------
EDUCATIONAL FACILITIES REVENUE (14.9%)
Minnesota Higher Education Facilities Authority,
200 Northfield St Olaf College 1992 .................................. 6.40 10/01/21 213,416
1,000 University of Minnesota Ser 1993 A ............................... 4.80 08/15/03 1,011,930
250 University of St Thomas Refg Ser Three-R2 ........................ 5.60 09/01/14 250,663
----------- ------------
1,450 1,476,009
----------- ------------
ELECTRIC REVENUE (9.8%)
500 Southern Minnesota Municipal Power Agency, Ser 1993 B ............ 5.00 01/01/13 472,485
500 Western Minnesota Municipal Power Agency, Refg 1996 Ser A (AMBAC) 5.50 01/01/12 505,770
----------- ------------
1,000 978,255
----------- ------------
HOSPITAL REVENUE (12.8%)
500 Robbinsdale, North Memorial Medical Center Ser 1993 A (AMBAC) .... 5.45 05/15/13 499,770
Rochester,
250 Mayo Foundation/Mayo Medical Center Ser 1992 I ................... 5.75 11/15/21 252,215
200 Mayo Foundation/Mayo Medical Center Ser 1992 F ................... 6.25 11/15/21 211,142
300 Saint Paul Housing & Redevelopment Authority, Health East Refg
Ser 1993-A ....................................................... 6.625 11/01/17 307,587
----------- ------------
1,250 1,270,714
----------- ------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (12.8%)
500 Anoka County, United Power Assoc Ser 1987 A NRU-CFC Gtd (AMT) .... 6.95 12/01/08 539,895
500 Bass Brook, Minnesota Power & Light Co Refg Ser 1992 ............. 6.00 07/01/22 503,690
Minneapolis Community Development Agency,
100 Ltd Tax Supported Common Bond Fund Ser 1991-3 .................... 8.25 12/01/11 116,378
100 Ltd Tax Supported Common Bond Fund Ser 1991-1 (AMT) ............. 8.00 12/01/16 114,559
----------- ------------
1,200 1,274,522
----------- ------------
MORTGAGE REVENUE -- MULTI-FAMILY (5.2%)
300 Burnsville, Summit Park Apts -- FHA Insured Refg Ser 1993 ........ 6.00 07/01/33 302,583
200 Minneapolis Housing Finance Agency, Ser 1992 A .................... 6.95 08/01/17 211,636
----------- ------------
500 514,219
----------- ------------
MORTGAGE REVENUE -- SINGLE FAMILY (9.5%)
165 Minneapolis-Saint Paul Housing Finance Board, GNMA-Backed
Phase IX Ser 1991 (AMT) .......................................... 7.25 08/01/21 173,778
Minnesota Housing Finance Agency,
95 Ser 1990 D (AMT) ................................................. 8.00 01/01/23 100,377
445 Ser 1992 C-1 (AMT) ............................................... 6.75 07/01/23 461,785
200 Ser 1992 H (AMT) ................................................. 6.50 01/01/26 204,906
----------- ------------
905 940,846
----------- ------------
69
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- MINNESOTA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
-----------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
NURSING & HEALTH RELATED FACILITIES REVENUE (5.5%)
$ 500 Minneapolis & Saint Paul Housing & Redevelopment Authority,
Group Health Plan Inc Ser 1992 ................................... 6.75% 12/01/13 $ 547,155
----------- ------------
PUBLIC FACILITIES REVENUE (3.3%)
300 Hennepin County, Ser 1991 COPs .................................... 6.80 05/15/17 327,444
----------- ------------
WATER & SEWER REVENUE (1.1%)
100 Minnesota Public Facilities Authority, Water Pollution Control
Ser 1991 A ....................................................... 6.95 03/01/13 111,990
----------- ------------
REFUNDED (8.8%)
100 Dakota & Washington Counties Housing & Redevelopment Authority,
GNMA-Backed Ser 1988 (AMT) (ETM) ................................. 8.375 09/01/21 136,913
200 Minnesota Higher Education Facilities Authority, Hamline
University Ser Three-K .......................................... 6.60 06/01/02++ 220,956
100 Minnesota Public Facilities Authority, Water Pollution Control
Ser 1992 A ...................................................... 6.50 03/01/01++ 108,730
400 Saint Paul Housing & Redevelopment Authority, Civic Center
Ser 1993 (ETM) ................................................... 5.45 11/01/13 403,552
----------- ------------
800 870,151
----------- ------------
8,405 TOTAL MINNESOTA TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $8,324,902) ................. 8,727,060
----------- ------------
SHORT-TERM MINNESOTA TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.1%)
300 Beltrami County, Northwood Panelboard Co Ser 1991
(Demand 12/02/96) ................................................ 4.10* 12/01/21 300,000
400 Minneapolis & St Paul Housing & Redevelopment Authority,
Children's Health Care Ser 1995 B (Demand 12/02/96) .............. 4.10* 08/15/25 400,000
----------- ------------
700 TOTAL SHORT-TERM MINNESOTA TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $700,000) .............................................................. 700,000
----------- ------------
$9,105 TOTAL INVESTMENTS (IDENTIFIED COST $9,024,902) (A) .......................... 95.0% 9,427,060
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .............................. 5.0 495,829
----- ------------
NET ASSETS .................................................................. 100.0% $9,922,889
===== ============
AMT Alternative Minimum Tax.
COPs Cerificates of Participation.
ETM Escrowed to Maturity.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$417,368 and the aggregate gross unrealized depreciation is
$15,210, resulting in net unrealized appreciation of $402,158.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
See Notes to Financial Statements
70
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
NEW JERSEY TAX-EXEMPT MUNICIPAL BONDS (93.2%)
GENERAL OBLIGATION (5.4%)
$2,000 Guam, 1993 Ser A .................................................. 5.375% 11/15/13 $1,888,360
500 Essex County, Ser 1991 (FSA) ...................................... 6.50 12/01/11 547,435
----------- -------------
2,500 2,435,795
----------- -------------
EDUCATIONAL FACILITIES REVENUE (9.3%)
New Jersey Economic Development Authority,
2,000 Educational Testing Service Ser 1995 A (MBIA) .................... 5.90 05/15/15 2,075,840
1,000 The Lawrenceville School Ser A 1996 .............................. 5.75 07/01/16 1,021,160
500 The Seeing Eye Inc 1991 .......................................... 7.30 04/01/11 526,485
500 Rutgers, The State University Refg Ser R .......................... 6.50 05/01/13 541,375
----------- -------------
4,000 4,164,860
----------- -------------
ELECTRIC REVENUE (4.2%)
2,000 Puerto Rico Electric Power Authority, Power Ser O ................. 5.00 07/01/12 1,868,320
----------- -------------
HOSPITAL REVENUE (12.4%)
New Jersey Health Care Facilities Financing Authority,
1,000 Allegany Health System Ser 1993 (MBIA) ........................... 5.125 07/01/13 972,090
1,000 Atlantic City Medical Center Ser C ............................... 6.80 07/01/11 1,084,580
500 Cathedral Health Services Inc -FHA Insured Mtges Ser A .......... 7.25 02/15/21 528,390
1,000 Columbus Hospital Ser A .......................................... 7.50 07/01/08 1,043,590
460 Pascack Valley Hospital Assn Ser 1991 ............................ 6.90 07/01/21 478,175
465 Robert Wood Johnson University Hospital Ser B (MBIA) ............ 6.625 07/01/16 507,840
1,000 Somerset Medical Center Ser A (FGIC) ............................. 5.10 07/01/14 965,060
----------- -------------
5,425 5,579,725
----------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (12.2%)
500 Middlesex County Pollution Control Financing Authority, Amerada
Hess Corp Refg Ser 1992 .......................................... 6.875 12/01/22 526,095
New Jersey Economic Development Authority,
500 American Airlines Inc Ser 1991 (AMT) ............................. 7.10 11/01/31 537,720
1,000 BP Oil Ser 1982 .................................................. 6.55 10/01/12 1,038,490
1,000 Elizabethtown Water Co 1995 Ser (AMT) (MBIA) ..................... 5.60 12/01/25 988,690
500 Hackensack Water Co Ser C (AMT) .................................. 7.00 10/01/17 511,450
300 Jersey Central Power & Light Co 1985 Ser ......................... 7.10 07/01/15 319,236
1,500 Salem County Pollution Control Financing Authority,
E I du Pont de Nemours & Co 1992 Ser A (AMT) ..................... 6.125 07/15/22 1,539,060
----------- -------------
5,300 5,460,741
----------- -------------
MORTGAGE REVENUE - MULTI-FAMILY (8.2%)
New Jersey Housing & Mortgage Finance Agency,
2,000 1995 Ser A (AMBAC) ............................................... 6.00 11/01/14 2,054,460
1,000 Presidential Plaza at Newport -FHA Insured Mtges Refg 1991 Ser 1 7.00 05/01/30 1,074,690
500 Rental 1991 Ser A (AMT) .......................................... 7.25 11/01/22 526,620
----------- -------------
3,500 3,655,770
----------- -------------
71
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
----------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
NURSING & HEALTH RELATED FACILITIES REVENUE (2.2%)
$ 955 New Jersey Health Care Facilities Financing Authority,
Spectrum For Living - FHA Insured Mortgage Refg Ser B ........... 6.50% 02/01/22 $ 988,597
----------- -------------
PUBLIC FACILITIES REVENUE (6.6%)
1,000 Atlantic County Utilities Authority, Solid Waste Ser 1992 ........ 7.125 03/01/16 1,006,190
2,000 New Jersey Sports & Exposition Authority, State Contract 1993
Ser A ............................................................ 5.50 09/01/23 1,969,520
----------- -------------
3,000 2,975,710
----------- -------------
RESOURCE RECOVERY REVENUE (4.5%)
1,000 Mercer County Improvement Authority, Refg Ser A 1992 (AMT) (FGIC) 6.70 04/01/13 1,006,720
900 Warren County Pollution Control Financing Authority, Warren Energy
Resource Co Ltd Partnership Ser 1984 (MBIA) ...................... 6.60 12/01/07 1,005,201
----------- -------------
1,900 2,011,921
----------- -------------
TRANSPORTATION FACILITIES REVENUE (17.8%)
2,000 Delaware River Port Authority, Ser 1995 (FGIC) .................... 5.50 01/01/26 1,985,540
1,500 New Jersey Highway Authority, Sr Parkway Refg 1992 Ser ........... 6.25 01/01/14 1,586,850
1,000 New Jersey Turnpike Authority, Ser C .............................. 5.75 01/01/11 1,009,710
1,500 Port Authority of New York & New Jersey, Cons 99th Ser (AMT)
(FGIC) ........................................................... 5.75 05/01/15 1,519,875
2,000 Puerto Rico Highway & Transportation Authority, Refg Ser X ....... 5.25 07/01/21 1,889,200
----------- -------------
8,000 7,991,175
----------- -------------
WATER & SEWER REVENUE (9.2%)
1,000 Atlantic City Municipal Utilities Authority, Refg Ser 1993 ....... 5.75 05/01/17 1,006,540
1,000 Northwest Bergen County Utilities Authority, Refg 1992 Ser (MBIA) 6.00 07/15/13 1,051,430
2,000 Passaic Valley Sewerage Commissioners, Ser 1992 D (AMBAC) ........ 5.75 12/01/13 2,051,540
----------- -------------
4,000 4,109,510
----------- -------------
REFUNDED (1.2%)
500 University of Medicine & Dentistry of New Jersey, Refg Ser D ..... 6.50 12/01/01++ 557,385
----------- -------------
41,080 TOTAL NEW JERSEY TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $40,106,413) ............... 41,799,509
----------- -------------
72
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW JERSEY SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
SHORT-TERM NEW JERSEY TAX-EXEMPT MUNICIPAL OBLIGATIONS (4.7%)
$ 1,100 New Jersey Economic Development Authority,
Toys "R" Us (Demand 12/02/96) .................................... 3.85*% 04/01/19 $ 1,100,000
1,000 Union County Industrial Pollution Control Financing Authority,
Exxon Corp (Demand 12/02/96) ..................................... 4.00* 07/01/33 1,000,000
----------- -------------
2,100 TOTAL SHORT-TERM NEW JERSEY TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $2,100,000) ............................................................ 2,100,000
----------- -------------
$43,180 TOTAL INVESTMENTS (IDENTIFIED COST $42,206,413) (A) ......................... 97.9% 43,899,509
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .............................. 2.1 929,764
---- -------------
NET ASSETS .................................................................. 100.0% $44,829,273
===== =============
AMT Alternative Minimum Tax.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$1,831,677 and the aggregate gross unrealized depreciation is
$138,581, resulting in net unrealized appreciation of $1,693,096.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
73
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW YORK SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- ----------------------------------------------------------------------- -------- ----------- -------------
NEW YORK TAX-EXEMPT MUNICIPAL BONDS (96.5%)
GENERAL OBLIGATION (9.7%)
$ 500 New York City, 1995 Ser D (MBIA) ....................................... 6.20% 02/01/07 $ 545,675
500 New York State, Refg Ser 1995 B ........................................ 5.70 08/15/13 511,135
300 Puerto Rico, Pub Impr Refg Ser 1992 A .................................. 6.00 07/01/14 306,576
----------- -------------
1,300 1,363,386
----------- -------------
EDUCATIONAL FACILITIES REVENUE (26.9%)
500 Hempstead Industrial Development Agency, Hofstra University
Ser 1996 (MBIA) ....................................................... 5.80 07/01/15 513,565
New York State Dormitory Authority,
1,380 Cooper Union Ser 1996 (AMBAC) (WI) .................................... 5.375 07/01/16 1,361,025
400 Manhattan College Ser 1992 ............................................ 6.50 07/01/19 429,108
1,000 State University Ser 1993 A ........................................... 5.25 05/15/15 960,020
500 University of Rochester Ser 1993 A .................................... 5.625 07/01/12 507,625
----------- -------------
3,780 3,771,343
----------- -------------
ELECTRIC REVENUE (6.3%)
500 New York State Power Authority, Gen Purpose Ser CC ..................... 5.25 01/01/18 479,665
400 Puerto Rico Electric Power Authority, Power Ser X ...................... 6.00 07/01/15 409,416
----------- -------------
900 889,081
----------- -------------
HOSPITAL REVENUE (5.4%)
New York State Medical Care Facilities Finance Agency,
500 Hospital - FHA Insured Mtge 1994 Ser A (AMBAC) ......................... 6.50 08/15/29 547,390
200 Insured Hospital & Nursing Home -FHA Insured Mtge 1992 Ser A ......... 6.70 08/15/23 213,624
----------- -------------
700 761,014
----------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (13.5%)
500 New York City Industrial Development Agency, Japan Airlines Co
1991 (AMT) (FSA) ...................................................... 6.00 11/01/15 512,390
New York State Energy Research & Development Authority,
1,000 Brooklyn Union Gas Co 1991 Ser A & B (AMT) ............................ 6.952 07/01/26 1,113,180
250 Rochester Gas & Electric Corp Ser 1992 B (AMT) (MBIA) ................. 6.50 05/15/32 268,555
----------- -------------
1,750 1,894,125
----------- -------------
MORTGAGE REVENUE - SINGLE FAMILY (4.5%)
New York State Mortgage Agency,
500 Home Owners Ser 27 .................................................... 6.90 04/01/15 532,260
95 Home Owners Ser UU (AMT) .............................................. 7.75 10/01/23 100,558
----------- -------------
595 632,818
----------- -------------
PUBLIC FACILITIES REVENUE (3.7%)
500 New York City Cultural Resources Trust, The New York Botanical Garden
Ser 1996 (MBIA) ....................................................... 5.75 07/01/16 510,305
----------- -------------
RESOURCE RECOVERY REVENUE (3.8%)
500 Oneida-Herkimer Solid Waste Management Authority, Ser 1992 ............ 6.65 04/01/05 533,520
----------- -------------
74
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- NEW YORK SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
---------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
TRANSPORTATION FACILITIES REVENUE (11.3%)
$ 550 Buffalo & Fort Erie Public Bridge Authority, Toll Bridge Ser 1995
(MBIA) ................................................................ 5.75% 01/01/25 $ 558,382
500 New York State Thruway Authority, Ser C (FGIC) ......................... 6.00 01/01/25 523,470
500 Port Authority of New York & New Jersey, Cons 99th Ser (AMT) (FGIC) ... 5.75 05/01/15 506,625
----------- -------------
1,550 1,588,477
----------- -------------
WATER & SEWER REVENUE (3.7%)
500 New York City Municipal Water Finance Authority, 1993 Ser A ........... 6.00 06/15/17 511,535
----------- -------------
OTHER REVENUE (3.7%)
500 United Nations Development Corporation, Sr Lien 1992 Refg Ser A ....... 6.00 07/01/26 507,335
----------- -------------
REFUNDED (4.0%)
500 New York Local Government Assistance Corporation, Ser 1991 C .......... 7.00 04/01/01++ 562,890
----------- -------------
13,075 TOTAL NEW YORK TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $12,811,946) ....................... 13,525,829
----------- -------------
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (5.7%)
300 New York State Energy Research & Development Authority, New York
State Electric & Gas Corp Ser 1994 C (Demand 12/02/96) ................ 3.80* 06/01/29 300,000
500 Port Authority of New York & New Jersey, Ser 2 (Demand 12/02/96) ...... 4.10* 05/01/19 500,000
----------- -------------
800 TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $800,000) ................................................................... 800,000
----------- -------------
$13,875 TOTAL INVESTMENTS (IDENTIFIED COST $13,611,946) (A) .............................. 102.2 % 14,325,829
===========
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ................................... (2.2) (305,738)
----- -------------
NET ASSETS ....................................................................... 100.0 % $14,020,091
===== =============
AMT Alternative Minimum Tax.
WI Security purchased on a when issued basis.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$724,828 and the aggregate gross unrealized depreciation is
$10,945, resulting in net unrealized appreciation of $713,883.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
75
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- OHIO SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
OHIO TAX-EXEMPT MUNICIPAL BONDS (91.3%)
GENERAL OBLIGATION (14.3%)
$ 300 Bedford School District, Ser 1993 ................................ 6.25% 12/01/13 $ 317,595
1,000 Delaware City School District, Ohio, Construction & Impr (FGIC) . 5.75 12/01/20 1,019,810
180 Euclid, Ser 1991 ................................................. 6.625 12/01/11 194,872
250 Hilliard City School District, Impr Refg Ser 1992 (FGIC) ........ 6.55 12/01/05 283,247
1,000 North Olmsted, Various Purpose Impr Ltd Tax Ser 1996 (AMBAC) (WI) 6.20 12/01/11 1,113,260
100 South Euclid, Unltd Tax Recreational ............................. 7.00 12/01/11 109,948
----------- -------------
2,830 3,038,732
----------- -------------
EDUCATIONAL FACILITIES REVENUE (14.5%)
Ohio Higher Educational Facility Commission,
500 Case Western Reserve University Ser 1992 ........................ 6.00 10/01/22 509,965
1,000 Oberlin College Ser 1993 ........................................ 5.375 10/01/15 986,520
500 University of Cincinnati, General Receipts Ser G ................. 7.00 06/01/11 554,965
1,000 University of Toledo, Ser 1992 A (FGIC) .......................... 5.90 06/01/20 1,024,970
----------- -------------
3,000 3,076,420
----------- -------------
ELECTRIC REVENUE (2.5%)
500 Hamilton!, Refg 1992 Ser A (FGIC) ................................ 6.00 10/15/12 524,895
----------- -------------
HOSPITAL REVENUE (13.1%)
1,000 Akron Bath & Copley Joint Township Hospital District, Summa
Health Ser 1992 A ............................................... 6.25 11/15/07 1,042,570
670 Cuyahoga County, Meridia Health Ser 1990 ......................... 7.25 08/15/19 728,478
Hamilton County,
475 Bethesda Hospital Inc Ser 1986 A ................................ 7.00 01/01/09 485,251
500 Franciscan Sisters of the Poor/Providence Hospital Ser 1992 .... 6.875 07/01/15 519,535
----------- -------------
2,645 2,775,834
----------- -------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (4.5%)
400 Ashtabula County, Ashland Oil Inc Refg 1992 Ser A ................ 6.90 05/01/10 425,872
500 Ohio Water Development Authority, Dayton Power & Light Co
Collateralized Refg 1992 Ser A .................................. 6.40 08/15/27 527,985
----------- -------------
900 953,857
----------- -------------
MORTGAGE REVENUE - SINGLE FAMILY (8.5%)
Ohio Housing Finance Agency,
750 GNMA-Backed 1990 Ser A-1 & 2 (AMT) .............................. 6.903 03/24/31 787,433
1,000 Residential 1996 Ser B-2 (AMT) .................................. 6.10 09/01/28 1,008,480
----------- -------------
1,750 1,795,913
----------- -------------
TRANSPORTATION FACILITIES REVENUE (4.7%)
1,000 Ohio Turnpike Commission, 1994 Ser A ............................. 5.75 02/15/24 1,007,010
----------- -------------
76
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- OHIO SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
-----------------------------------------------------------------------
WATER & SEWER REVENUE (24.1%)
$ 1,000 Clermont County, Sewer Refg Ser 1993 (AMBAC) ..................... 5.20% 12/01/21 $ 971,400
1,000 Cleveland, Water Works Impr & Refg Ser H 1996 (MBIA) ............ 5.75 01/01/16 1,024,670
1,000 Montgomery County, Water Ser 1992 (FGIC) ......................... 6.25 11/15/17 1,073,260
1,000 Northeast Ohio Regional Sewer District, Wastewater Impr Refg
Ser 1995 (AMBAC) ................................................ 5.60 11/15/13 1,019,510
1,000 Ohio Water Development Authority, Water Pollution Ser 1995 (MBIA) 5.60 06/01/10 1,027,010
----------- -------------
5,000 5,115,850
----------- -------------
REFUNDED (5.1%)
1,000 Clermont County, Mercy Health Ser 1991 ........................... 6.733 09/25/01++ 1,083,890
----------- -------------
18,625 TOTAL OHIO TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $18,544,040) ..................... 19,372,401
----------- -------------
SHORT-TERM OHIO TAX-EXEMPT MUNICIPAL OBLIGATIONS (11.8%)
Ohio Air Quality Development Authority,
900 Mead Corp 1986 Ser A (Demand 12/02/96) .......................... 3.90* 10/01/01 900,000
900 Sohio Air-British Petroleum Co Ser 1995 (Demand 12/02/96) ...... 4.00* 11/01/22 900,000
700 Ohio Water Quality Development Authority,
Mead Corp Refg 1986 Ser B (Demand 12/02/96) ..................... 3.90* 11/01/15 700,000
----------- -------------
2,500 TOTAL SHORT-TERM OHIO TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $2,500,000) ........................................................... 2,500,000
----------- -------------
$21,125 TOTAL INVESTMENTS (IDENTIFIED COST $21,044,040) (A) ........................ 103.1% 21,872,401
===========
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ............................. (3.1) (664,934)
---- -------------
NET ASSETS ................................................................. 100.0% $21,207,467
===== ===========
--------------
AMT Alternative Minimum Tax.
WI Security purchased on a when issued basis.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$843,163 and the aggregate gross unrealized depreciation is
$14,802, resulting in net unrealized appreciation of $828,361.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
77
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- PENNSYLVANIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- ------------
PENNSYLVANIA TAX-EXEMPT MUNICIPAL BONDS (90.1%)
GENERAL OBLIGATION (5.6%)
$ 2,000 Berks County, Second Ser 1992 (FGIC) .................................. 5.75% 11/15/12 $ 2,038,280
600 Puerto Rico, Pub Impr Refg Ser 1992 A ................................. 6.00 07/01/14 613,152
----------- ------------
2,600 2,651,432
----------- ------------
EDUCATIONAL FACILITIES REVENUE (22.4%)
2,000 Delaware County Authority, Villanova University Ser 1995 (AMBAC) ..... 5.80 08/01/25 2,039,680
1,000 Northeastern Pennsylvania Hospital & Education Authority, Kings
College Ser B 1993 ................................................... 6.00 07/15/11 976,170
Pennsylvania Higher Educational Facilities Authority,
750 Allegheny College Impr & Refg Ser 1993 B ............................. 6.00 11/01/22 750,983
500 Temple University First Ser 1991 (MBIA) .............................. 6.50 04/01/21 544,120
1,000 Thomas Jefferson University 1992 Ser A ............................... 6.625 08/15/09 1,096,950
Pennsylvania State University,
1,000 Second Refg Ser 1992 ................................................. 5.50 08/15/16 999,910
1,000 Ser B 1992 ........................................................... 5.50 08/15/16 999,910
1,000 Swarthmore Borough Authority, Swarthmore College Ser 1992 ............ 6.00 09/15/20 1,026,790
2,000 University of Pittsburgh, Cap 1992 Ser A (MBIA) ....................... 6.125 06/01/21 2,089,760
----------- ------------
10,250 10,524,273
----------- ------------
HOSPITAL REVENUE (14.7%)
1,000 Allegheny County Hospital Development Authority, Presbyterian
University Health System Inc Ser 1992 B (MBIA) ....................... 6.00 11/01/12 1,042,790
1,000 Berks County Municipal Authority, Reading Hospital & Medical Center
Ser of 1993 (MBIA) ................................................... 5.50 10/01/08 1,042,380
Philadelphia Hospitals & Higher Educational Facilities Authority,
1,750 Chestnut Hill Hospital Ser of 1992 ................................... 6.375 11/15/11 1,805,510
1,000 Temple University Hospital 1993 Ser A ................................ 6.50 11/15/08 1,065,080
2,000 The Children's Hospital of Philadelphia Ser A of 1993 ................ 5.375 02/15/14 1,983,200
----------- ------------
6,750 6,938,960
----------- ------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (2.4%)
1,000 Montgomery County Industrial Development Authority, Philadelphia
----------- Electric Co Refg 1991 Ser B (MBIA) ................................... 6.70 12/01/21 1,111,250
------------
MORTGAGE REVENUE - MULTI-FAMILY (2.3%)
Pennsylvania Housing Finance Agency,
60 Moderate Rehab Sec 8 Assisted Issue B ................................ 9.00 08/01/01 61,081
1,000 Ser 1992-35 D (AMT) .................................................. 6.20 04/01/25 1,010,720
----------- ------------
1,060 1,071,801
----------- ------------
78
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- PENNSYLVANIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
-------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
MORTGAGE REVENUE - SINGLE FAMILY (8.0%)
Pennsylvania Housing Finance Agency,
$ 1,000 Ser 1993-37 A ........................................................ 5.45% 10/01/17 $ 974,410
2,000 Ser 1991-31 C (AMT) .................................................. 7.00 10/01/23 2,111,580
635 Puerto Rico Housing Finance Corporation, Portfolio One GNMA-Backed
Ser C ................................................................ 6.85 10/15/23 665,302
----------- ------------
3,635 3,751,292
----------- ------------
PUBLIC FACILITIES REVENUE (2.1%)
1,000 Puerto Rico Public Buildings Authority, Ser A (AMBAC) ................. 5.50 07/01/21 1,002,330
----------- ------------
RESOURCE RECOVERY REVENUE (2.3%)
1,000 Montgomery County Industrial Development Authority, Ser 1989 ......... 7.50 01/01/12 1,078,660
----------- ------------
STUDENT LOAN REVENUE (4.5%)
Pennsylvania Higher Education Assistance Agency,
1,000 1988 Ser D (AMT) (AMBAC) ............................................. 6.05 01/01/19 1,022,090
1,000 1991 Ser B (AMT) (AMBAC) ............................................. 6.854 09/01/26 1,075,100
----------- ------------
2,000 2,097,190
----------- ------------
TRANSPORTATION FACILITIES REVENUE (14.3%)
1,000 Guam, Highway 1992 Ser A (FSA) ........................................ 6.30 05/01/12 1,063,810
500 Allegheny County, Greater Pittsburgh Int'l Airport Ser 1992 (AMT)
(FSA) ................................................................ 6.625 01/01/22 535,920
2,000 Delaware River Port Authority, Ser 1995 (FGIC) ........................ 5.50 01/01/26 1,985,540
2,000 Pennsylvania Turnpike Commission, Ser O of 1992 (FGIC) ................ 6.00 12/01/12 2,098,340
1,000 Pittsburgh Public Parking Authority, Ser 1992 A (FGIC) ................ 5.875 12/01/12 1,039,100
----------- ------------
6,500 6,722,710
----------- ------------
WATER & SEWER REVENUE (4.7%)
2,000 Philadelphia, Water & Wastewater Ser 1995 (MBIA) ...................... 6.25 08/01/11 2,226,600
----------- ------------
OTHER REVENUE (3.4%)
1,500 Pennsylvania Finance Authority, Cap Impr Refg Ser 1993 ................ 6.60 11/01/09 1,618,050
----------- ------------
REFUNDED (3.4%)
440 Lehigh County Industrial Development Authority, Strawbridge & Clothier
Refg Ser of 1991 (ETM) ............................................... 7.20 12/15/01 477,638
1,000 Reading, Ser of 1992 (AMBAC) .......................................... 6.50 11/15/02++ 1,108,490
----------- ------------
1,440 1,586,128
----------- ------------
40,735 TOTAL PENNSYLVANIA TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $40,250,274) ................. 42,380,676
----------- ------------
79
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST -- PENNSYLVANIA SERIES
PORTFOLIO OF INVESTMENTS November 30, 1996 (continued)
-------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
----------- -------- ----------- -------------
SHORT-TERM PENNSYLVANIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (7.8%)
$ 2,000 Delaware County Industrial Development Authority, United Parcel
Service of America Inc Ser 1985 (Demand 12/02/96) .................... 3.90*% 12/01/15 $ 2,000,000
1,700 Philadelphia Hospitals & Higher Education Facilities Authority,
Children's Hospital of Philadelphia 1996 Ser A (Demand 12/02/96) .... 4.00* 03/01/27 1,700,000
----------- ------------
3,700 TOTAL SHORT-TERM PENNSYLVANIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $3,700,000) ................................................................ 3,700,000
----------- ------------
$44,435 TOTAL INVESTMENTS (IDENTIFIED COST $43,950,274) (A) ............................. 97.9% 46,080,676
===========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .................................. 2.1 974,698
----- ------------
NET ASSETS ...................................................................... 100.0% $47,055,374
===== ============
AMT Alternative Minimum Tax.
ETM Escrowed to Maturity.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized
appreciation is $2,167,848 and the aggregate gross unrealized
depreciation is $37,446, resulting in net
unrealized appreciation of $2,130,402.
Bond Insurance:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Corporation.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
80
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS
------------- -------------- ------------- ---------------
ASSETS:
Investments in securities, at value* .................... $45,017,171 $113,978,328 $69,404,698 $15,549,659
Cash .................................................... 224,681 302,842 248,831 190,760
Receivable for:
Investments sold ....................................... -- -- 35,000 --
Shares of beneficial interest sold ..................... 92,185 56,863 103,176 3,264
Interest ............................................... 973,961 1,715,360 890,131 303,506
Prepaid expenses ........................................ 6,923 7,454 6,011 4,180
Receivable from affiliate ............................... -- -- -- 2,175
------------- -------------- ------------- ---------------
TOTAL ASSETS ........................................ 46,314,921 116,060,847 70,687,847 16,053,544
------------- -------------- ------------- ---------------
LIABILITIES:
Payable for:
Investment purchased ................................... -- 2,073,370 -- --
Shares of beneficial interest repurchased .............. -- -- 58,637 --
Dividends to shareholders .............................. 18,907 47,859 29,211 6,635
Plan of distribution fee ............................... 5,682 13,936 8,645 1,974
Investment management fee .............................. 13,258 32,518 20,171 1,744
Accrued expenses ........................................ 28,857 34,110 29,437 22,231
------------- -------------- ------------- ---------------
TOTAL LIABILITIES ................................... 66,704 2,201,793 146,101 32,584
------------- -------------- ------------- ---------------
NET ASSETS:
Paid-in-capital ......................................... 44,082,341 108,909,091 66,808,337 15,368,858
Accumulated undistributed net investment income ........ 6,307 15,953 9,723 2,211
Accumulated undistributed net realized gain (loss) ..... (6,666) (512,785) (88,292) (6,675)
Net unrealized appreciation ............................. 2,166,235 5,446,795 3,811,978 656,566
------------- -------------- ------------- ---------------
NET ASSETS .......................................... $46,248,217 $113,859,054 $70,541,746 $16,020,960
============= ============== ============= ===============
*IDENTIFIED COST ........................................ $42,850,936 $108,531,533 $65,592,720 $14,893,093
============= ============== ============= ===============
SHARES OF BENEFICIAL INTEREST OUTSTANDING ............... 4,368,278 10,535,972 6,492,603 1,467,200
============= ============== ============= ===============
NET ASSET VALUE PER SHARE (unlimited authorized shares
of $.01 par value) ..................................... $10.59 $10.81 $10.86 $10.92
====== ====== ====== ======
MAXIMUM OFFERING PRICE PER SHARE (net asset value plus
4.17% of net asset value)** ............................ $11.03 $11.26 $11.31 $11.38
====== ====== ====== ======
** On sales of $25,000 or more, the offering price is reduced.
See Notes to Financial Statements
81
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[Enlarge/Download Table]
MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
------------- ------------ ------------- ------------- ------------- --------------
$21,364,520 $9,427,060 $43,899,509 $14,325,829 $21,872,401 $46,080,676
178,109 376,477 211,880 393,273 133,949 306,548
-- -- -- 483,626 -- 60,000
94,272 -- 33,766 -- 30,218 31,316
236,699 145,728 744,457 203,593 302,150 656,816
2,658 1,156 3,610 2,449 2,687 5,611
-- -- -- -- -- --
------------- ------------ ------------- ------------- ------------- --------------
21,876,258 9,950,421 44,893,222 15,408,770 22,341,405 47,140,967
------------- ------------ ------------- ------------- ------------- --------------
963,467 -- -- 1,357,712 1,095,552 --
10,250 80 -- -- -- 19,477
8,696 4,044 18,922 5,794 8,719 19,477
2,541 1,219 5,519 1,726 2,599 5,753
3,753 270 12,879 1,144 4,058 13,423
24,440 21,919 26,629 22,303 23,010 27,463
------------- ------------ ------------- ------------- ------------- --------------
1,013,147 27,532 63,949 1,388,679 1,133,938 85,593
------------- ------------ ------------- ------------- ------------- --------------
19,942,390 9,598,246 43,285,800 13,328,363 20,531,387 44,819,851
1,808 1,347 6,293 1,935 2,825 6,499
(8,384) (78,862) (155,916) (24,090) (155,106) 98,622
927,297 402,158 1,693,096 713,883 828,361 2,130,402
------------- ------------ ------------- ------------- ------------- --------------
$20,863,111 $9,922,889 $44,829,273 $14,020,091 $21,207,467 $47,055,374
============= ============ ============= ============= ============= ==============
$20,437,223 $9,024,902 $42,206,413 $13,611,946 $21,044,040 $43,950,274
============= ============ ============= ============= ============= ==============
1,935,781 936,141 4,191,281 1,286,668 1,968,447 4,335,927
============= ============ ============= ============= ============= ==============
$10.78 $10.60 $10.70 $10.90 $10.77 $10.85
====== ====== ====== ====== ====== ======
$11.23 $11.04 $11.15 $11.35 $11.22 $11.30
====== ====== ====== ====== ====== ======
82
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
STATEMENT OF OPERATIONS For the year ended November 30, 1996
-----------------------------------------------------------------------------
[Enlarge/Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS
------------ ------------ ------------ ---------------
INVESTMENT INCOME:
INTEREST INCOME ........................ $2,733,780 $6,729,367 $4,095,716 $927,653
------------ ------------ ------------ ---------------
EXPENSES
Investment management fee ............. 165,968 401,258 249,499 56,700
Plan of distribution fee .............. 67,470 169,430 103,255 23,727
Professional fees ..................... 26,772 28,945 27,791 27,515
Transfer agent fees and expenses ..... 16,577 32,283 24,075 6,104
Shareholder reports and notices ...... 9,105 20,991 12,354 3,031
Trustees' fees and expenses ........... 3,659 5,962 3,378 711
Registration fees ..................... 6,385 3,752 6,382 7,407
Custodian fees ........................ 3,477 5,461 3,914 1,179
Organizational expenses ............... -- 414 414 414
Other ................................. 8,967 12,545 10,912 5,498
------------ ------------ ------------ ---------------
TOTAL EXPENSES BEFORE EXPENSE OFFSET
AND AMOUNTS WAIVED/REIMBURSED ..... 308,380 681,041 441,974 132,286
LESS: AMOUNTS WAIVED/REIMBURSED .... -- -- -- (50,275)
LESS: EXPENSE OFFSET ................ (3,463) (5,432) (3,885) (1,173)
------------ ------------ ------------ ---------------
TOTAL EXPENSES AFTER EXPENSE OFFSET
AND AMOUNTS WAIVED/REIMBURSED ..... 304,917 675,609 438,089 80,838
------------ ------------ ------------ ---------------
NET INVESTMENT INCOME ............... 2,428,863 6,053,758 3,657,627 846,815
------------ ------------ ------------ ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) .............. 234,117 (188,814) (10,934) (6,674)
Net change in unrealized appreciation (594,791) 1,413,134 (216,205) (59,232)
------------ ------------ ------------ ---------------
NET GAIN (LOSS) ..................... (360,674) 1,224,320 (227,139) (65,906)
------------ ------------ ------------ ---------------
NET INCREASE ........................ $2,068,189 $7,278,078 $3,430,488 $780,909
============ ============ ============ ===============
See Notes to Financial Statements
83
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MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
------------ ----------- ------------ ---------- ------------ --------------
$1,199,802 $599,203 $2,696,547 $803,800 $1,259,436 $2,881,560
------------ ----------- ------------ ---------- ------------ --------------
72,796 36,759 160,350 48,928 76,978 173,524
30,115 14,761 64,078 18,838 31,989 73,195
27,075 30,504 28,922 26,301 28,131 27,400
11,493 5,259 21,752 5,812 10,082 19,980
4,523 2,109 7,361 2,664 3,680 8,387
1,070 429 2,275 683 1,286 3,018
2,743 2,628 6,402 5,830 2,432 2,821
1,419 880 2,647 1,211 1,738 4,693
414 414 414 414 414 414
6,277 6,892 9,509 6,189 7,132 9,138
------------ ----------- ------------ ---------- ------------ --------------
157,925 100,635 303,710 116,870 163,862 322,570
(52,490) (47,620) -- (46,461) (52,949) --
(1,412) (879) (2,627) (1,203) (1,721) (4,681)
------------ ----------- ------------ ---------- ------------ --------------
104,023 52,136 301,083 69,206 109,192 317,889
------------ ----------- ------------ ---------- ------------ --------------
1,095,779 547,067 2,395,464 734,594 1,150,244 2,563,671
------------ ----------- ------------ ---------- ------------ --------------
4,837 (23,006) 220,181 (17,737) 14,562 123,735
(91,304) (14,644) (459,218) 34,135 (137,210) (236,754)
------------ ----------- ------------ ---------- ------------ --------------
(86,467) (37,650) (239,037) 16,398 (122,648) (113,019)
------------ ----------- ------------ ---------- ------------ --------------
$1,009,312 $509,417 $2,156,427 $750,992 $1,027,596 $2,450,652
============ =========== ============ ========== ============ ==============
84
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------
For the year ended November 30,
[Enlarge/Download Table]
ARIZONA CALIFORNIA
---------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------- -------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ....................... $ 2,428,863 $ 2,634,161 $ 6,053,758 $ 6,371,272
Net realized gain (loss) .................... 234,117 136,451 (188,814) (247,082)
Net change in unrealized appreciation/
depreciation ............................... (594,791) 5,859,879 1,413,134 15,149,432
------------- ------------- -------------- --------------
Net increase .............................. 2,068,189 8,630,491 7,278,078 21,273,622
------------- ------------- -------------- --------------
Dividends and distributions from:
Net investment income ....................... (2,422,556) (2,634,161) (6,037,805) (6,371,272)
Net realized gain ........................... -- -- -- --
------------- ------------- -------------- --------------
Total ..................................... (2,422,556) (2,634,161) (6,037,805) (6,371,272)
------------- ------------- -------------- --------------
Transactions in shares of beneficial
interest:
Net proceeds from sales ..................... 4,009,521 5,174,717 10,738,339 9,740,664
Reinvestment of dividends and
distributions .............................. 1,192,120 1,334,340 2,920,191 3,199,688
Cost of shares repurchased .................. (8,889,549) (9,843,250) (18,809,193) (22,523,316)
------------- ------------- -------------- --------------
Net decrease .............................. (3,687,908) (3,334,193) (5,150,663) (9,582,964)
------------- ------------- -------------- --------------
Total increase (decrease) ................. (4,042,275) 2,662,137 (3,910,390) 5,319,386
NET ASSETS:
Beginning of period .......................... 50,290,492 47,628,355 117,769,444 112,450,058
------------- ------------- -------------- --------------
END OF PERIOD ................................ $46,248,217 $50,290,492 $113,859,054 $117,769,444
============= ============= ============== ==============
Undistributed net investment income ......... $ 6,307 $ -- $ 15,953 $ --
============= ============= ============== ==============
SHARES ISSUED AND REPURCHASED:
Sold ......................................... 382,246 508,816 1,015,703 954,040
Reinvestment of dividends and distributions . 114,076 130,488 276,280 313,444
Repurchased .................................. (850,272) (971,313) (1,789,292) (2,223,029)
------------- ------------- -------------- --------------
Net decrease ................................. (353,950) (332,009) (497,309) (955,545)
============= ============= ============== ==============
See Notes to Financial Statements
85
-----------------------------------------------------------------------------
[Enlarge/Download Table]
FLORIDA MASSACHUSETTS MICHIGAN
------------------------------ ---------------------------- ----------------------------
1996 1995 1996 1995 1996 1995
-------------- -------------- ------------- ------------- ------------- -------------
$ 3,657,627 $ 3,872,871 $ 846,815 $ 887,197 $ 1,095,779 $ 1,145,642
(10,934) 297,548 (6,674) 79,118 4,837 11,026
(216,205) 8,855,916 (59,232) 2,071,069 (91,304) 2,758,269
-------------- -------------- ------------- ------------- ------------- -------------
3,430,488 13,026,335 780,909 3,037,384 1,009,312 3,914,937
-------------- -------------- ------------- ------------- ------------- -------------
(3,647,904) (3,872,871) (844,604) (887,197) (1,093,971) (1,145,642)
-- -- (35,280) -- -- --
-------------- -------------- ------------- ------------- ------------- -------------
(3,647,904) (3,872,871) (879,884) (887,197) (1,093,971) (1,145,642)
-------------- -------------- ------------- ------------- ------------- -------------
9,196,793 10,874,113 1,641,760 2,298,582 2,833,619 2,130,223
1,309,984 1,388,435 488,781 499,293 628,246 653,136
(13,805,676) (18,815,557) (2,965,069) (3,500,367) (4,186,713) (3,711,031)
-------------- -------------- ------------- ------------- ------------- -------------
(3,298,899) (6,553,009) (834,528) (702,492) (724,848) (927,672)
-------------- -------------- ------------- ------------- ------------- -------------
(3,516,315) 2,600,455 (933,503) 1,447,695 (809,507) 1,841,623
74,058,061 71,457,606 16,954,463 15,506,768 21,672,618 19,830,995
-------------- -------------- ------------- ------------- ------------- -------------
$ 70,541,746 $ 74,058,061 $16,020,960 $16,954,463 $20,863,111 $21,672,618
============== ============== ============= ============= ============= =============
$ 9,723 $ -- $ 2,211 $ -- $ 1,808 $ --
============== ============== ============= ============= ============= =============
858,505 1,040,055 152,246 217,640 267,388 205,926
122,498 132,818 45,436 47,460 59,047 63,129
(1,292,611) (1,813,124) (275,364) (335,507) (394,837) (361,199)
-------------- -------------- ------------- ------------- ------------- -------------
(311,608) (640,251) (77,682) (70,407) (68,402) (92,144)
============== ============== ============= ============= ============= =============
86
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS (continued)
-----------------------------------------------------------------------------
For the year ended November 30,
[Enlarge/Download Table]
MINNESOTA NEW JERSEY
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ....................... $ 547,067 $ 576,268 $ 2,395,464 $ 2,566,230
Net realized gain (loss) .................... (23,006) 17,107 220,181 (125,009)
Net change in unrealized appreciation/
depreciation ............................... (14,644) 1,390,495 (459,218) 6,003,704
------------- ------------- ------------- -------------
Net increase .............................. 509,417 1,983,870 2,156,427 8,444,925
------------- ------------- ------------- -------------
Dividends from net investment income ........ (545,720) (576,268) (2,389,171) (2,566,230)
------------- ------------- ------------- -------------
Transactions in shares of beneficial
interest:
Net proceeds from sales ..................... 559,751 1,489,363 4,426,421 3,969,557
Reinvestment of dividends ................... 329,304 319,206 1,341,520 1,419,332
Cost of shares repurchased .................. (2,159,547) (1,779,338) (8,594,526) (8,876,237)
------------- ------------- ------------- -------------
Net increase (decrease) ................... (1,270,492) 29,231 (2,826,585) (3,487,348)
------------- ------------- ------------- -------------
Total increase (decrease) ................. (1,306,795) 1,436,833 (3,059,329) 2,391,347
NET ASSETS:
Beginning of period .......................... 11,229,684 9,792,851 47,888,602 45,497,255
------------- ------------- ------------- -------------
END OF PERIOD ................................ $ 9,922,889 $11,229,684 $44,829,273 $47,888,602
============= ============= ============= =============
Undistributed net investment income ......... $ 1,347 $ -- $ 6,293 $ --
============= ============= ============= =============
SHARES ISSUED AND REPURCHASED:
Sold ......................................... 53,608 145,931 419,871 385,163
Reinvestment of dividends .................... 31,517 31,444 127,384 137,676
Repurchased .................................. (207,315) (173,959) (818,142) (867,546)
------------- ------------- ------------- -------------
Net increase (decrease) ...................... (122,190) 3,416 (270,887) (344,707)
============= ============= ============= =============
See Notes to Financial Statements
87
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[Enlarge/Download Table]
NEW YORK OHIO PENNSYLVANIA
---------------------------- ---------------------------- ------------------------------
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- -------------- --------------
$ 734,594 $ 807,985 $ 1,150,244 $ 1,191,350 $ 2,563,671 $ 2,703,574
(17,737) 9,027 14,562 161,498 123,735 59,271
34,135 2,049,802 (137,210) 2,795,212 (236,754) 6,305,461
------------- ------------- ------------- ------------- -------------- --------------
750,992 2,866,814 1,027,596 4,148,060 2,450,652 9,068,306
------------- ------------- ------------- ------------- -------------- --------------
(732,659) (807,985) (1,147,419) (1,191,350) (2,557,172) (2,703,574)
------------- ------------- ------------- ------------- -------------- --------------
1,812,721 1,474,331 2,846,349 2,891,735 3,426,864 8,975,484
377,028 426,508 684,898 733,649 1,356,713 1,417,646
(2,576,180) (4,093,402) (5,307,661) (4,171,051) (11,556,735) (10,380,066)
------------- ------------- ------------- ------------- -------------- --------------
(386,431) (2,192,563) (1,776,414) (545,667) (6,773,158) 13,064
------------- ------------- ------------- ------------- -------------- --------------
(368,098) (133,734) (1,896,237) 2,411,043 (6,879,678) 6,377,796
14,388,189 14,521,923 23,103,704 20,692,661 53,935,052 47,557,256
------------- ------------- ------------- ------------- -------------- --------------
$14,020,091 $14,388,189 $21,207,467 $23,103,704 $ 47,055,374 $ 53,935,052
============= ============= ============= ============= ============== ==============
$ 1,935 $ -- $ 2,825 $ -- $ 6,499 $ --
============= ============= ============= ============= ============== ==============
169,476 144,006 267,942 279,961 321,119 864,290
35,233 41,174 64,506 71,040 127,040 136,142
(241,090) (397,106) (502,913) (408,164) (1,081,877) (1,003,414)
------------- ------------- ------------- ------------- -------------- --------------
(36,381) (211,926) (170,465) (57,163) (633,718) (2,982)
============= ============= ============= ============= ============== ==============
88
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1996
-----------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Dean Witter Multi-State Municipal
Series Trust (the "Fund") is registered under the Investment Company Act of
1940, as amended (the "Act"), as a non-diversified, open-end management
investment company. The investment objective of each Series is to provide a
high level of current income exempt from both Federal and the designated
state income taxes consistent with preservation of capital.
The Fund, organized on October 29, 1990, as a Massachusetts business trust,
is comprised of ten separate Series (the "Series"); the Arizona Series, the
California Series, the Florida Series, the Massachusetts Series, the Michigan
Series, the Minnesota Series, the New Jersey Series, the New York Series, the
Ohio Series and the Pennsylvania Series. Each of the Series commenced
operations on January 15, 1991, with the exception of the Arizona Series
which commenced operations on April 30, 1991.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- Portfolio securities are valued by an
outside independent pricing service approved by the Fund's Trustees. The
pricing service has informed the Fund that in valuing the portfolio
securities, it uses both a computerized matrix of tax-exempt securities
and evaluations by its staff, in each case based on information concerning
market transactions and quotations from dealers which reflect the bid side
of the market each day. The portfolio securities are thus valued by
reference to a combination of transactions and quotations for the same or
other securities believed to be comparable in quality, coupon, maturity,
type of issue, call provisions, trading characteristics and other features
deemed to be relevant. Short-term debt securities having a maturity date
of more than sixty days at time of purchase are valued on a mark-to-market
basis until sixty days prior to maturity and thereafter at amortized cost
based on their value on the 61st day. Short-term debt securities having a
maturity date of sixty days or less at the time of purchase are valued at
amortized cost.
B. Accounting for Investments -- Security transactions are accounted for
on the trade date (date the order to buy or sell is executed). Realized
gains and losses on security transactions are determined by the identified
cost method. Discounts are accreted and premiums are amortized over the
life of the respective securities. Interest income is accrued daily.
C. Federal Income Tax Status -- It is the Fund's policy to comply
individually for each Series with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of
its taxable and nontaxable income to its shareholders. Accordingly, no
federal income tax provision is required.
D. Dividends and Distributions to Shareholders -- The Fund records
dividends and distributions to its shareholders on the record date. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences
89
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1996 (continued)
are permanent in nature, such amounts are reclassified within the capital
accounts based on their federal tax-basis treatment; temporary differences
do not require reclassification. Dividends and distributions which exceed
net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in
excess of net investment income or distributions in excess of net realized
capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
E. Organizational Expenses -- Dean Witter InterCapital Inc. (the
"Investment Manager") paid the organizational expenses of the Fund of
approximately $204,000 of which $150,000 of such expenses ($16,667 for
each of the initial Series excluding the Arizona Series) have been
reimbursed. Such expenses were deferred and fully amortized as of January
14, 1996.
F. Expenses -- Direct expenses are charged to the respective Series and
general corporate expenses are allocated on the basis of relative net
assets or equally among the Series.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement, each Series of the Fund pays the Investment Manager a management
fee, accrued daily and payable monthly, by applying the annual rate of 0.35%
to the daily net assets of each Series determined as of the close of each
business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes office space and facilities, equipment, clerical,
bookkeeping and certain legal services, and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
The Investment Manager has undertaken to waive management fees and assume
all expenses that exceeded 0.50% of the daily net assets with respect to the
Massachusetts, Michigan, Minnesota, New York and Ohio Series through December
31, 1996.
3. PLAN OF DISTRIBUTION -- Dean Witter Distributors Inc. (the "Distributor"),
an affiliate of the Investment Manager, is the distributor of the Fund's
shares and, in accordance with a Plan of Distribution (the "Plan") pursuant
to Rule 12b-1 under the Act, finances certain expenses in connection with the
distribution of shares of the Fund.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses
that the Trustees determined 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, account executives of Dean Witter
Reynolds Inc., an affiliate of the Investment Manager and Distributor, other
employees and selected broker-dealers; (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.
90
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1996 (continued)
The Fund is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no
event exceed an amount equal to a payment at the annual rate of 0.15% of the
Fund's average daily net assets during the month. Expenses incurred by the
Distributor pursuant to the Plan in any fiscal year will not be reimbursed by
the Fund through payments accrued in any subsequent fiscal year. For the year
ended November 30, 1996, the distribution fees were accrued at the following
annual rates:
[Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ --------- --------------- ----------
Annual Rate .. 0.14% 0.15% 0.14% 0.15% 0.14%
========= ============ ========= =============== ==========
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
----------- ------------ ---------- ------- --------------
0.14% 0.14% 0.13% 0.15% 0.15%
=========== ============ ========== ======= ==============
For the year ended November 30, 1996, the Distributor has informed the
Fund that it received commissions from the sale of the Fund's shares of
beneficial interest as follows:
[Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
---------- ------------ ---------- --------------- ----------
Commissions .. $116,515 $315,934 $312,204 $50,734 $91,586
========== ============ ========== =============== ==========
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
----------- ------------ ---------- --------- --------------
$18,380 $155,149 $55,204 $97,602 $111,349
=========== ============ ========== ========= ==============
Such commissions are not an expense of the Fund; they are deducted from
the proceeds of the sale of the shares of beneficial interest.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from the sales of portfolio securities, excluding
short-term investments, for the year ended November 30, 1996 were as follows:
[Enlarge/Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
------------ ------------- ------------- --------------- --------------
Purchases .. $4,007,948 $20,941,999 $16,969,560 $1,702,771 $ 958,540
============ ============= ============= =============== ==============
Sales ....... $9,747,084 $25,996,179 $17,507,031 $2,771,374 $ 2,784,225
============ ============= ============= =============== ==============
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
------------ ------------- ------------- --------------- --------------
Purchases .. $ 489,860 $ 1,974,240 $ 2,830,012 $6,506,250 $ --
============ ============= ============= =============== ==============
Sales ....... $2,080,886 $ 8,707,625 $ 3,044,837 $8,939,973 $10,689,070
============ ============= ============= =============== ==============
91
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1996 (continued)
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. For the year ended November 30,
1996, each of the Series had transfer agent fees and expenses payable as
follows:
[Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ --------- --------------- ----------
Transfer Agent Fees
and Expenses
Payable ........... $1,514 $2,388 $1,933 $521 $1,069
========= ============ ========= =============== ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
[Download Table]
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
----------- ------------ ---------- ------ --------------
Transfer Agent Fees
and Expenses
Payable ........... $506 $1,749 $672 $814 $2,035
=========== ============ ========== ====== ==============
The Fund has an unfunded noncontributory defined benefit pension plan
covering all Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under
this plan are based on years of service and compensation during the last five
years of service. Aggregate pension costs for the year ended November 30,
1996 included in Trustees' fees and expenses in the Statement of Operations
and the accrued pension liability included in accrued expenses in the
Statement of Assets and Liabilities for each of the respective Series were as
follows:
[Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN
--------- ------------ --------- --------------- ----------
Aggregate Pension
Costs ........... $ 667 $1,846 $ 976 $ 290 $ 362
========= ============ ========= =============== ==========
Accrued Pension
Liability ....... $3,186 $7,792 $4,801 $1,124 $1,403
========= ============ ========= =============== ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
[Download Table]
MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
----------- ------------ ---------- -------- --------------
Aggregate Pension
Costs ........... $170 $ 627 $171 $ 447 $ 894
=========== ============ ========== ======== ==============
Accrued Pension
Liability ....... $729 $3,069 $953 $1,538 $3,388
=========== ============ ========== ======== ==============
5. FEDERAL INCOME TAX STATUS -- At November 30, 1996, the following Series
had an approximate net capital loss carryover to offset future capital gains
to the extent provided by regulations:
[Download Table]
AVAILABLE THROUGH NOVEMBER 30, 2002 2003 2004 TOTAL
----------------------------- --------- ---------- --------- ---------
Arizona ...................... $ 6,700 -- -- $ 6,700
California ................... 76,900 $247,100 $52,900 376,900
Florida ...................... 35,000 -- -- 35,000
Massachusetts ................ -- -- 6,700 6,700
Michigan ..................... 8,400 -- -- 8,400
Minnesota .................... 32,000 24,300 20,300 76,600
New Jersey ................... -- 155,900 -- 155,900
New York ..................... 6,300 -- 17,700 24,000
Ohio ......................... 158,100 -- -- 158,100
During the year ended November 30, 1996, the following Series utilized
capital loss carryovers of approximately:
[Download Table]
ARIZONA FLORIDA MICHIGAN NEW JERSEY OHIO PENNSYLVANIA
---------- --------- ---------- ------------ --------- --------------
$234,000 $40,800 $4,800 $220,200 $14,600 $25,100
========== ========= ========== ============ ========= ==============
Capital losses incurred after October 31 ("post-October" losses) within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. The California, Florida and Minnesota Series incurred and
will elect to defer net capital losses during fiscal 1996 of $135,900,
$53,300 and $2,700, respectively.
92
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
[Enlarge/Download Table]
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
NOVEMBER 30, OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
----------------- ----------- ------------ -------------- ------------ -------------- ---------------- ---------------
Arizona Series
1991(b) $ 9.60 $0.36 $ 0.17 $ 0.53 $(0.36) $ -- $(0.36)
1992 9.77 0.64 0.41 1.05 (0.64) -- (0.64)
1993 10.18 0.58 0.56 1.14 (0.58) (0.02) (0.60)
1994 10.72 0.55 (1.29) (0.74) (0.55) (0.01) (0.56)
1995 9.42 0.54 1.23 1.77 (0.54) -- (0.54)
1996 10.65 0.54 (0.06) 0.48 (0.54) -- (0.54)
California Series
1991(a) 9.60 0.60 0.39 0.99 (0.60) -- (0.60)
1992 9.99 0.67 0.34 1.01 (0.67) (0.01) (0.68)
1993 10.32 0.61 0.68 1.29 (0.61) -- (0.61)
1994 11.00 0.58 (1.48) (0.90) (0.58) (0.14) (0.72)
1995 9.38 0.56 1.29 1.85 (0.56) -- (0.56)
1996 10.67 0.56 0.14 0.70 (0.56) -- (0.56)
Florida Series
1991(a) 9.60 0.55 0.28 0.83 (0.55) -- (0.55)
1992 9.88 0.64 0.41 1.05 (0.64) -- (0.64)
1993 10.29 0.59 0.64 1.23 (0.59) -- (0.59)
1994 10.93 0.56 (1.33) (0.77) (0.56) -- (0.56)
1995 9.60 0.56 1.28 1.84 (0.56) -- (0.56)
1996 10.88 0.55 (0.02) 0.53 (0.55) -- (0.55)
Massachusetts Series
1991(a) 9.60 0.54 0.38 0.92 (0.54) -- (0.54)
1992 9.98 0.66 0.42 1.08 (0.66) (0.04) (0.70)
1993 10.36 0.60 0.72 1.32 (0.60) -- (0.60)
1994 11.08 0.56 (1.38) (0.82) (0.56) (0.10) (0.66)
1995 9.60 0.57 1.37 1.94 (0.57) -- (0.57)
1996 10.97 0.57 (0.03) 0.54 (0.57) (0.02) (0.59)
Michigan Series
1991(a) 9.60 0.54 0.36 0.90 (0.54) -- (0.54)
1992 9.96 0.65 0.46 1.11 (0.65) (0.01) (0.66)
1993 10.41 0.61 0.64 1.25 (0.61) -- (0.61)
1994 11.05 0.56 (1.41) (0.85) (0.56) (0.18) (0.74)
1995 9.46 0.57 1.35 1.92 (0.57) -- (0.57)
1996 10.81 0.56 (0.03) 0.53 (0.56) -- (0.56)
(a) January 15, 1991 (commencement of operations) to November 30, 1991.
(b) April 30, 1991 (commencement of operations) to November 30, 1991.
See Notes to Financial Statements
93
-----------------------------------------------------------------------------
[Enlarge/Download Table]
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(AFTER EXPENSES WERE (BEFORE EXPENSES WERE
ASSUMED) ASSUMED)*
-------------------------- --------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN++ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
---------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
$ 9.77 5.66%(1) $ 20,733 0.15%(2) 6.32%(2) 1.43%(2) 5.04%(2) 8%(1)
10.18 11.08 38,812 0.15 6.33 0.74 5.74 15
10.72 11.42 59,877 0.48 5.40 0.65 5.22 5
9.42 (7.16) 47,628 0.62 5.33 0.63 5.32 11
10.65 19.21 50,290 0.65 (3) 5.33 0.65 5.33 6
10.59 4.63 46,248 0.65 (3) 5.12 0.65 5.12 9
9.99 10.29 (1) 41,568 0.15 (2) 6.53 (2) 0.97 (2) 5.71 (2) 24 (1)
10.32 10.23 95,604 0.15 6.36 0.67 5.84 5
11.00 12.77 139,308 0.48 5.57 0.60 5.45 11
9.38 (8.65) 112,450 0.58 5.59 0.59 5.58 12
10.67 20.15 117,769 0.60 (3) 5.50 0.60 5.50 5
10.81 6.76 113,859 0.59 5.28 0.59 5.28 19
9.88 8.84 (1) 17,719 0.15 (2) 6.45 (2) 1.27 (2) 5.33 (2) 10 (1)
10.29 10.92 51,560 0.15 6.19 0.73 5.62 6
10.93 12.20 84,494 0.48 5.39 0.63 5.23 3
9.60 (7.29) 71,458 0.61 5.34 0.62 5.33 3
10.88 19.54 74,058 0.63 (3) 5.34 0.63 5.34 8
10.86 5.03 70,542 0.62 (3) 5.13 0.62 5.13 25
9.98 9.87 (1) 3,205 0.15 (2) 6.50 (2) 2.50 (2) 4.08 (2) 40 (1)
10.36 11.19 10,113 0.14 6.26 1.25 5.16 10
11.08 13.06 18,344 0.48 5.47 0.84 5.10 12
9.60 (7.71) 15,507 0.50 5.35 0.78 5.07 10
10.97 20.58 16,954 0.50 (3) 5.39 0.79 5.11 7
10.92 5.07 16,021 0.50 (3) 5.23 0.82 4.91 11
9.96 9.54 (1) 6,630 0.15 (2) 6.54 (2) 1.73 (2) 4.96 (2) 46 (1)
10.41 11.78 13,809 0.14 6.28 1.01 5.42 9
11.05 12.28 22,083 0.48 5.53 0.80 5.20 15
9.46 (8.07) 19,831 0.50 5.44 0.75 5.19 9
10.81 20.69 21,673 0.50 (3) 5.49 0.77 5.22 22
10.78 5.09 20,863 0.50 (3) 5.27 0.76 5.01 5
--------------
* After application of the Fund's expense limitation.
++ 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) Not annualized.
(2) Annualized.
(3) The above ratios do not reflect the effect of expense offsets of
0.01%.
94
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
FINANCIAL HIGHLIGHTS (continued)
-----------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
[Enlarge/Download Table]
NET ASSET TOTAL
YEAR VALUE NET NET REALIZED TOTAL FROM DIVIDENDS
ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO DISTRIBUTIONS TO AND
NOVEMBER 30, OF PERIOD INCOME GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
------------- ----------- ------------ -------------- ------------ -------------- ---------------- ---------------
Minnesota Series
1991(a) $ 9.60 $0.51 $ 0.19 $ 0.70 $(0.51) $ -- $(0.51)
1992 9.79 0.63 0.32 0.95 (0.63) -- (0.63)
1993 10.11 0.58 0.67 1.25 (0.58) -- (0.58)
1994 10.78 0.55 (1.42) (0.87) (0.55) (0.08) (0.63)
1995 9.28 0.54 1.33 1.87 (0.54) -- (0.54)
1996 10.61 0.54 (0.01) 0.53 (0.54) -- (0.54)
New Jersey Series
1991(a) 9.60 0.55 0.35 0.90 (0.55) -- (0.55)
1992 9.95 0.66 0.44 1.10 (0.66) (0.04) (0.70)
1993 10.35 0.60 0.62 1.22 (0.60) (0.03) (0.63)
1994 10.94 0.55 (1.39) (0.84) (0.55) (0.08) (0.63)
1995 9.47 0.56 1.26 1.82 (0.56) -- (0.56)
1996 10.73 0.55 (0.03) 0.52 (0.55) -- (0.55)
New York Series
1991(a) 9.60 0.54 0.46 1.00 (0.54) -- (0.54)
1992 10.06 0.68 0.34 1.02 (0.68) (0.06) (0.74)
1993 10.34 0.62 0.69 1.31 (0.62) -- (0.62)
1994 11.03 0.57 (1.52) (0.95) (0.57) (0.05) (0.62)
1995 9.46 0.56 1.42 1.98 (0.56) -- (0.56)
1996 10.88 0.56 0.02 0.58 (0.56) -- (0.56)
Ohio Series
1991(a) 9.60 0.53 0.25 0.78 (0.53) -- (0.53)
1992 9.85 0.66 0.41 1.07 (0.66) (0.01) (0.67)
1993 10.25 0.60 0.72 1.32 (0.60) -- (0.60)
1994 10.97 0.55 (1.43) (0.88) (0.55) (0.12) (0.67)
1995 9.42 0.56 1.38 1.94 (0.56) -- (0.56)
1996 10.80 0.55 (0.03) 0.52 (0.55) -- (0.55)
Pennsylvania Series
1991(a) 9.60 0.53 0.30 0.83 (0.53) -- (0.53)
1992 9.90 0.66 0.44 1.10 (0.66) -- (0.66)
1993 10.34 0.61 0.67 1.28 (0.61) -- (0.61)
1994 11.01 0.56 (1.39) (0.83) (0.56) (0.06) (0.62)
1995 9.56 0.55 1.29 1.84 (0.55) -- (0.55)
1996 10.85 0.55 -- 0.55 (0.55) -- (0.55)
(a) January 15, 1991 (commencement of operations) to November 30, 1991.
See Notes to Financial Statements
95
-----------------------------------------------------------------------------
[Enlarge/Download Table]
RATIOS TO AVERAGE NET RATIOS TO AVERAGE NET
ASSETS ASSETS
(AFTER EXPENSES WERE (BEFORE EXPENSES WERE
ASSUMED) ASSUMED)*
-------------------------- --------------------------
NET ASSET NET ASSETS
VALUE TOTAL END OF NET NET PORTFOLIO
END OF INVESTMENT PERIOD INVESTMENT INVESTMENT TURNOVER
PERIOD RETURN++ (000'S) EXPENSES INCOME EXPENSES INCOME RATE
---------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
$ 9.79 $ 7.42(1) $ 3,131 0.15%(2) 6.04%(2) 2.50%(2) 2.87%(2) 4%(1)
10.11 9.91 6,420 0.14 6.16 1.46 4.85 23
10.78 12.64 11,538 0.48 5.39 1.04 4.83 8
9.28 (8.42) 9,793 0.50 5.41 0.91 5.00 14
10.61 20.60 11,230 0.50(4) 5.35 0.98 4.88 3
10.60 5.21 9,923 0.50(4) 5.21 0.96 4.75 5
9.95 9.59(1) 15,812 0.15(2) 6.43(2) 1.21(2) 5.36(2) 36 (1)
10.35 11.34 32,123 0.15 6.36 0.79 5.71 19
10.94 12.03 54,499 0.48 5.41 0.69 5.20 7
9.47 (7.96) 45,497 0.64 5.38 0.65 5.37 6
10.73 19.60 47,889 0.67(4) 5.42 0.67 5.42 14
10.70 4.93 44,829 0.66(4) 5.23 0.66 5.23 5
10.06 10.73(1) 3,976 0.15(2) 6.44(2) 2.22(2) 4.37(2) 51 (1)
10.34 10.35 9,604 0.15 6.45 1.23 5.37 21
11.03 12.91 15,955 0.48 5.61 0.88 5.21 11
9.46 (8.96) 14,522 0.50 5.48 0.82 5.16 14
10.88 21.40 14,388 0.50(4) 5.43 0.85 5.09 24
10.90 5.46 14,020 0.50(4) 5.25 0.84 4.91 22
9.85 8.35(1) 6,267 0.15(2) 6.38(2) 2.04(2) 4.48(2) 22 (1)
10.25 11.12 13,686 0.15 6.41 1.01 5.56 23
10.97 13.19 24,849 0.48 5.45 0.78 5.14 20
9.42 (8.34) 20,693 0.50 5.31 0.71 5.10 18
10.80 21.02 23,104 0.50(4) 5.42 0.77 5.16 19
10.77 5.04 21,207 0.50(4) 5.23 0.75 4.98 32
9.90 8.77(1) 12,147 0.15(2) 6.46(2) 1.54(2) 5.07(2) 12 (1)
10.34 11.47 31,509 0.15 6.31 0.81 5.65 3
11.01 12.64 53,378 0.48 5.54 0.68 5.33 5
9.56 (7.84) 47,557 0.64 5.37 0.66 5.35 19
10.85 19.65 53,935 0.66(4) 5.29 0.66 5.29 8
10.85 5.27 47,055 0.65(4) 5.17 0.65 5.17 --
* After application of the Fund's expense limitation.
++ 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) Not annualized.
(2) Annualized.
(4) The above ratios do not reflect the effect of expense offsets of
0.01%.
96
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
-----------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter Multi-State Municipal Series
Trust
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Arizona
Series, the California Series, the Florida Series, the Massachusetts Series,
the Michigan Series, the Minnesota Series, the New Jersey Series, the New
York Series, the Ohio Series, and the Pennsylvania Series (constituting the
Dean Witter Multi-State Municipal Series Trust, hereafter referred to as the
"Fund") at November 30, 1996, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
five years in the period then ended and for the period January 15, 1991
(commencement of operations for all Series except the Arizona Series) and
April 30, 1991 (commencement of operations for the Arizona Series) through
November 30, 1991, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at November 30, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
January 15, 1997
1996 FEDERAL INCOME TAX NOTICE (UNAUDITED)
During the year ended November 30, 1996, the Fund paid to shareholders
dividends per share from net investment income as follows:
[Enlarge/Download Table]
ARIZONA CALIFORNIA FLORIDA MASSACHUSETTS MICHIGAN MINNESOTA NEW JERSEY NEW YORK OHIO PENNSYLVANIA
------- ---------- ------- ------------- -------- --------- ---------- -------- ---- ------------
$0.54 $0.56 $0.55 $0.57 $0.56 $0.54 $0.55 $0.56 $0.55 $0.55
All of the Fund's dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax purposes.
For the same period, the Massachusetts Series paid to shareholders long-term
capital gains of $0.02 per share.
97
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial statements and schedules, included in Prospectus
(Part A):
Page in
-------
Prospectus
----------
Financial highlights for the period January 15,
1991 to November 30, 1991 and for the period April
30, 1991 to November 30, 1991 and for the years
ended November 30, 1992, 1993, 1994, 1995 and 1996.. 4
(2) Financial statements included in the Statement of Page in
-------
Additional Information (Part B): SAI
----
Portfolio Summary at November 30, 1996 ............. 56
Portfolio of Investments at November 30, 1996....... 80
Statement of Assets and Liabilities at November 30,
1996................................................ 83
Statement of Operations for the year ended November 30,
1996................................................ 85
Statement of changes in net assets for the years ended
November 30, 1995 and 1996 ......................... 87
Notes to Financial Statements......................
(3) Financial statements included in Part C:
None
(b) Exhibits:
2.-- By-Laws of the Registrant, Amended and Restated as of October 25, 1996
8.-- Form of Amendment to the Custody Agreement between Registrant and The
Bank of New York
11.-- Consent of Independent Accountants
16.-- Schedules for Computation of Performance Quotations and Yield
Quotation
1
27.-- Financial Data Schedule
----------------------------
All other exhibits previously filed and incorporated by reference.
Item 25. Persons Controlled by or Under Common Control With Registrant.
None
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at January 31, 1997
-------------- -----------------------
Shares of Beneficial Interest 10,018
Item 27. Indemnification
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was
not unlawful. In addition, indemnification is permitted only if it is
determined that the actions in question did not render them liable by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligations and
duties to the Registrant. Trustees, officers, employees and agents will be
indemnified for the expense of litigation if it is determined that they are
entitled to indemnification against any liability established in such
litigation. The Registrant may also advance money for these expenses provided
that they give their undertakings to repay the Registrant unless their conduct
is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the
case of bad faith, willful misfeasance, gross negligence or reckless disregard
of duties to the Registrant.
2
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 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a
wholly-owned subsidiary of Dean Witter, Discover & Co. The principal address
of the Dean Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
3
Closed-End Investment Companies
-------------------------------
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
Open-end Investment Companies:
------------------------------
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
4
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
(59) Dean Witter Financial Services Trust
The term "TCW/DW Funds" refers to the following registered
investment companies:
Open-End Investment Companies
-----------------------------
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
Closed-End Investment Companies
-------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
5
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust
Company ("DWTC"); Chairman,
Director or Trustee, President and
Chief Executive Officer of the
Dean Witter Funds and Chairman,
Chief Executive Officer and
Trustee of the TCW/DW Funds;
Formerly Executive Vice President
and Director of Dean Witter,
Discover & Co. ("DWDC"); Director
and/or officer of various DWDC
subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee
of the Dean Witter Funds; Director
and/or officer of various DWDC
subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since
January, 1993) and Chairman (since
January, 1995) of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
6
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
----------------- -------------------------------------------------
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment Vice President of the Dean Witter Funds and
Officer Director of DWTC.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC,
Distributors and DWTC and Director of DWTC; Vice
President of the Dean Witter Funds and the TCW/DW
Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Jenny B. Jones
Senior Vice President Vice President of Dean Witter Special Value Fund.
7
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
----------------- -------------------------------------------------
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Barry Fink Assistant Secretary of DWR; First Vice President,
First Vice President Secretary and General Counsel of DWSC; First Vice
Secretary and President, Assistant Secretary and Assistant
General Counsel General Counsel of Distributors; Vice President,
Secretary and General Counsel of the Dean Witter
Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
8
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
----------------- -------------------------------------------------
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of various Dean Witter Funds.
Douglas Brown
Vice President
Philip Casparius
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
John Hechtlinger
Vice President
9
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
----------------- ------------------------------------------------
Peter Hermann
Vice President Vice President of various Dean Witter Funds.
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael Knox
Vice President Vice President of various Dean Witter Funds.
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
10
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
----------------- -------------------------------------------------
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
Hugh Rose
Vice President
Robert Rossetti Vice President of Dean Witter Precious Metals and
Vice President Minerals Trust.
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust.
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust.
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
Katherine C. Wickham
Vice President
11
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
12
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value Fund
(58) Dean Witter Financial Services Trust
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers
of Distributors not listed in Item 28 above. The principal address
of Distributors is Two World Trade Center, New York, New York 10048.
None of the following persons has any position or office with the
Registrant.
Positions and
Office with
Name Distributors
---- ------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. 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 31. Management Services
Registrant is not a party to any such management-related service
contract.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
13
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York and
State of New York on the 28th day of February, 1997.
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
By /s/ Sheldon Curtis
---------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 8 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 02/28/97
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 02/28/97
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 02/28/97
--------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/ David M. Butowsky 02/28/97
--------------------------
David M. Butowsky
Attorney-in-Fact
DEAN WITTER MULTI-STATE MUNICIPAL SERIES TRUST
EXHIBIT INDEX
2. -- Amended and Restated By-Laws of the Registrant
dated as of October 25, 1996
8. -- Amendment to the Custody Agreement between the Registrant
and The Bank of New York
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
27. -- Financial Data Schedules
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘485BPOS’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 11/30/04 | | 101 | | | | | 24F-2NT, NSAR-B |
| | 11/30/03 | | 101 | | | | | 24F-2NT, N-CSR, NSAR-B |
| | 11/30/02 | | 101 | | | | | 24F-2NT, 24F-2NT/A, N-30D, NSAR-B |
| | 6/30/99 | | 43 | | 44 |
| | 6/30/98 | | 75 |
| | 7/1/97 | | 50 |
| | 6/30/97 | | 42 | | 49 |
| | 4/30/97 | | 61 | | 93 |
| | 3/3/97 |
| Filed on / Effective on: | | 2/28/97 | | 1 | | 56 |
| | 2/24/97 | | 3 |
| | 2/5/97 | | 11 |
| | 1/31/97 | | 4 | | 155 |
| | 1/22/97 | | 40 | | 81 |
| | 1/15/97 | | 1 | | 153 | | | 24F-2NT |
| | 1/7/97 | | 77 | | 83 |
| | 1/1/97 | | 6 |
| | 12/31/96 | | 6 | | 145 |
| | 11/30/96 | | 1 | | 154 | | | 24F-2NT, N-30D, NSAR-B |
| | 11/14/96 | | 82 |
| | 11/5/96 | | 83 |
| | 10/25/96 | | 84 | | 168 |
| | 9/30/96 | | 80 | | 83 |
| | 8/5/96 | | 48 | | 85 |
| | 7/26/96 | | 48 | | 85 |
| | 7/21/96 | | 82 |
| | 7/1/96 | | 64 |
| | 6/30/96 | | 43 | | 89 |
| | 6/12/96 | | 77 |
| | 4/17/96 | | 61 | | 93 |
| | 4/1/96 | | 37 |
| | 3/31/96 | | 86 |
| | 2/28/96 | | 83 |
| | 1/14/96 | | 145 |
| | 1/1/96 | | 6 | | 28 |
| | 11/30/95 | | 60 | | 154 | | | 24F-2NT, 24F-2NT/A, N-30D, N-30D/A, NSAR-B |
| | 9/30/95 | | 85 |
| | 7/1/95 | | 49 |
| | 6/30/95 | | 41 | | 87 |
| | 6/28/95 | | 49 |
| | 4/17/95 | | 61 |
| | 1/1/95 | | 38 | | 81 |
| | 12/6/94 | | 77 |
| | 11/30/94 | | 60 | | 154 | | | 24F-2NT, N-30D, NSAR-B |
| | 11/8/94 | | 38 |
| | 6/30/94 | | 47 |
| | 5/1/94 | | 80 |
| | 4/30/94 | | 61 | | 92 |
| | 4/8/94 | | 105 |
| | 3/15/94 | | 80 |
| | 2/14/94 | | 48 | | 85 |
| | 1/12/94 | | 38 | | | | | 24F-2NT |
| | 1/1/94 | | 60 |
| | 12/31/93 | | 61 |
| | 12/1/93 | | 60 |
| | 11/30/93 | | 60 | | 154 | | | 24F-2NT, NSAR-B |
| | 6/30/93 | | 41 | | 60 |
| | 4/30/93 | | 25 |
| | 4/26/93 | | 48 | | 85 |
| | 1/12/93 | | 60 | | 105 |
| | 11/30/92 | | 154 |
| | 11/2/92 | | 37 |
| | 10/30/92 | | 60 | | 92 |
| | 6/24/92 | | 60 | | 92 |
| | 1/13/92 | | 48 | | 85 |
| | 1/6/92 | | 48 | | 85 |
| List all Filings |
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