<PAGE> 1
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS June 30, 1996 New York 10048
DEAR SHAREHOLDER:
During the first half of 1996, the fixed income market outlook shifted from
bullishness associated with a weak economy and low inflation to bearishness
caused by stronger economic growth and the potential threat of renewed
inflation. This change in market psychology began in earnest after a
surprisingly larger increase in payroll employment was reported in early March.
Other measures of economic activity and rising commodity prices added to the
concern. In addition, the market began to speculate that the Federal Reserve
Board would reverse its series of interest rate reductions with a move toward
higher interest rates. The bond market reacted to these expectations by pushing
long-term yields sharply higher.
MUNICIPAL MARKET CONDITIONS
Municipal bond yields as measured by 30-year insured revenue bonds began the
year at 5.50 percent. Interest rates subsequently began to rise in mid-February
on signs of stronger economic growth and reached a high of 6.15 percent in April
and again in mid-June before finishing the first half of 1996 at 5.90 percent.
Yields on one-year municipal notes increased from 3.60 percent to 3.90 percent
over the first six months of the year. In June, the yield curve pickup for
extending maturities from 1 to 30 years was 200 basis points.
Tax-exempt bonds outperformed U.S. Treasury securities during the first half of
1996 as the risk faded that flat tax proposals would cause a radical change in
the tax code. The ratio of insured revenue bond yields to 30-year U.S. Treasury
yields, which began the year at 92 percent, declined to 85 percent by the end of
June. A declining ratio means that municipal bond prices were relatively
stronger than U.S. Treasury prices.
The municipal market also benefited from steady demand. In addition to regular
maturities and calls for redemption this year, it has been estimated that
investors also face the retirement of $66 billion of previously refunded debt.
On the supply side, new issues increased
<PAGE> 2
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1996, continued
30 percent to $90 billion during the first six months of 1996. However, as
interest rates rose, underwritings were frequently postponed and the pace of
activity slowed.
California retained its number one position as the state with the greatest new
issue volume. Underwritings totaled $13 billion and continued to represent 14
percent of total volume in the first six months. Yields on California issues
became more attractive as they more closely matched the yields available in the
general municipal market.
PERFORMANCE
Dean Witter California Tax-Free Income Fund's total return for the first half of
1996 was -1.51 percent. The Fund's net asset value declined from $12.92 to
$12.35 per share. Tax-free dividends of $0.29 per share and taxable long-term
capital gains distributions of $0.09 per share were paid during the period.
Since its inception on July 11, 1984, the Fund has provided shareholders with an
average annual total return of 8.50 percent. The trailing 30-day SEC and
distribution yields on June 30, 1996 were 4.40 percent and 4.73 percent,
respectively.
PORTFOLIO STRUCTURE
The Fund's net assets of $987 million were diversified among 12 long-term
sectors and 84 credits. In response to the changing interest rate environment,
the Fund increased its cash and short-term investment position from 3 percent to
7 percent of net assets during the first half of the year. Portfolio sales
shifted to more market sensitive issues. Discount and current-coupon sales
exceeded sales of defensive, higher coupon bonds with shorter calls. The average
maturity and call protection of the long-term portfolio were 19 years and
California Tax-Free
FIVE LARGEST SECTORS AS OF JUNE 30, 1996
(% OF NET ASSETS)
TRANSPORTATION 14%
WATER & SEWER 14%
REFUNDED 12%
HOSPITAL 10%
ELECTRIC 9%
OTHER 41%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT RATINGS AS OF JUNE 30, 1996
(% OF TOTAL LONG-TERM PORTFOLIO)
Aaa OR AA 51%
Aa OR AA 17%
A OR A 21%
Baa OR BBB 8%
NOT RATED 3%
AS MEASURED BY STANDARD & POOR'S CORP. OR MOODY'S INVESTORS
SERVICE, INC.
<PAGE> 3
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1996, continued
7 years, respectively. The portfolio has consistently maintained its high
quality characteristic with 68 percent of its long-term holdings rated double
"A" or better.
LOOKING AHEAD
Future tax reduction proposals may renew investor concern. However, the balance
between the supply of new issues and demand created by maturities should remain
positive for the municipal market. Long-term insured municipal securities
currently yield 85 percent to the yield on U.S. Treasury securities and may be
expected to move in tandem with the Treasury market.
We appreciate your ongoing support of Dean Witter California Tax-Free Income
Fund and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (92.0%)
General Obligation (3.4%)
California,
$ 5,000 Ser 1990............................................................... 7.00 % 08/01/07 $ 5,719,250
5,000 Ser 1990............................................................... 7.00 08/01/08 5,732,100
2,000 Ser AT................................................................. 9.50 02/01/10 2,680,020
10,000 Various Purpose dtd 04/01/93 (FSA)..................................... 5.50 04/01/19 9,441,800
4,000 Santa Margarita/Dana Point Authority, Impr Dists #3, 3A, 4 & 4A
1994 Ser B Refg (MBIA)................................................. 5.75 08/01/20 3,943,320
6,000 Santa Margarita Water District, Impr Dists #3 & 4 Refg Ser 1986......... 7.50 11/01/05 6,226,080
- -------- ----------
32,000 33,742,570
- -------- ----------
Educational Facilities Revenue (5.0%)
California Educational Facilities Authority,
1,750 Loyola Marymount University Ser 1992 B................................. 6.55 10/01/12 1,801,432
2,300 Loyola Marymount University Ser 1992 B................................. 6.60 10/01/22 2,400,740
3,000 Stanford University Ser I.............................................. 6.75 01/01/13 3,201,000
3,500 University of Southern California Ser 1989 A........................... 7.20 10/01/15 3,682,420
8,000 California Public Works Board, California State University 1992 Ser A... 6.70 10/01/17 8,439,440
California Statewide Communities Development Authority,
3,400 Gemological Institute of America COPs (Connie Lee)..................... 6.00 05/01/20 3,417,238
4,100 Gemological Institute of America COPs (Connie Lee)..................... 6.00 05/01/25 4,120,787
15,000 University of California, Multiple Purpose Refg Ser 1993 C (AMBAC)...... 5.125 09/01/18 13,485,600
10,000 Whittier, Whittier College Refg Ser 1993 (Connie Lee)................... 5.40 12/01/18 9,104,800
- -------- ----------
51,050 49,653,457
- -------- ----------
Electric Revenue (9.2%)
15,000 Los Angeles Department of Water & Power, Second Issue of 1993........... 5.40 11/15/13 14,331,600
5,000 Northern California Power Agency, Hydro #1 1993 Refg Ser A (MBIA)....... 5.50 07/01/16 4,800,900
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA)................................................. 5.75 01/01/11 5,737,278
26,000 Refg 1992 Ser A (FGIC)................................................. 6.30 08/15/18 26,593,840
Southern California Public Power Authority,
5,000 Mead-Adelanto 1994 Ser A (AMBAC)....................................... 5.15 07/01/15 4,580,350
7,000 Transmission Refg Ser 1988 (FGIC)...................................... 0.00 07/01/06 4,104,310
10,000 Transmission 1986 Refg Ser B........................................... 5.50 07/01/23 9,272,600
Puerto Rico Electric Power Authority,
9,000 Power Ser O............................................................ 5.00 07/01/12 8,005,680
9,000 Power Ser X............................................................ 6.125 07/01/21 9,104,040
4,000 Power Ser X............................................................ 5.50 07/01/25 3,752,680
- -------- ----------
95,700 90,283,278
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Hospital Revenue (10.0%)
$ 7,100 Antelope Valley Hospital District, Ser 1989 COPs........................ 7.35 % 01/01/20 $ 7,422,624
Bakersfield,
1,750 Bakersfield Memorial Hospital Ser 1992 A............................... 6.375 01/01/12 1,803,025
2,000 Bakersfield Memorial Hospital Ser 1992 A............................... 6.50 01/01/22 2,045,200
7,600 Berkeley, Alta Bates Medical Center Refg Ser A.......................... 6.50 12/01/11 7,562,912
California Health Facilities Financing Authority,
5,000 Children's Hospital - San Diego Refg Ser 1996 (MBIA)................... 5.375 07/01/16 4,710,850
4,350 Downey Community Hospital Ser 1993..................................... 5.625 05/15/08 4,274,005
5,000 Kaiser Permanente 1983 Ser............................................. 5.45 10/01/13 4,665,700
1,215 Merritt Peralta Medical Center 1985 Ser A.............................. 9.00 05/01/15 1,225,534
3,500 Sutter/CHS Ser 1996 A (MBIA) (WI)...................................... 5.875 08/15/16 3,469,130
4,000 California Statewide Communities Development Authority, Sutter Health
COPs (MBIA)............................................................ 5.50 08/15/22 3,808,280
20,000 Desert Hospital District, Desert Hospital Corp Ser 1992 COPs (FSA)...... 6.392 07/28/20 20,479,200
Duarte,
3,000 City of Hope National Medical Center Ser 1993 COPs..................... 5.50 04/01/01 2,942,040
4,000 City of Hope National Medical Center Ser 1993 COPs..................... 6.25 04/01/23 3,873,440
6,000 Eden Township Hospital District, Ser 1989............................... 7.40 11/01/19 6,022,680
Madera County,
7,500 Valley Children's Hospital Ser 1995 COPs (MBIA)........................ 6.50 03/15/15 8,156,850
2,000 Valley Children's Hospital Ser 1995 COPs (MBIA)........................ 6.125 03/15/23 2,025,640
2,950 Rancho Mirage Joint Powers Financing Authority, Eisenhower Memorial
Hospital COPs.......................................................... 7.00 03/01/22 3,148,122
2,000 Stockton, Dameron Hospital Assn Refg Ser 1988........................... 8.25 12/01/00 2,112,980
9,000 University of California, UCLA Medical Center Refg Ser 1994 (MBIA)...... 5.50 12/01/14 8,608,140
- -------- ----------
97,965 98,356,352
- -------- ----------
Industrial Development/Pollution Control Revenue (5.9%)
California Pollution Control Financing Authority,
5,000 Atlantic Richfield Co Ser 1996 A....................................... 5.00 04/01/08 4,781,850
6,000 Pacific Gas & Electric Co 1987 Ser B (AMT)............................. 8.875 01/01/10 6,402,480
3,000 San Diego Gas & Electric Co 1996 Ser A (WI)............................ 5.90 06/01/14 3,015,030
5,000 Southern California Edison Co 1988 Ser A (AMT)......................... 6.90 09/01/06 5,378,350
10,000 Southern California Edison Co 1987 Ser D............................... 6.85 12/01/08 10,493,500
10,000 Southern California Edison Co 1992 Ser B (AMT)......................... 6.40 12/01/24 10,123,900
5,000 Waste Management Inc 1991 Ser A (AMT).................................. 7.15 02/01/11 5,310,200
1,400 Intermodal Container Transfer Facility Joint Powers Authority,
Southern Pacific Transportation Co 1989 Ser A.......................... 7.70 11/01/14 1,485,386
San Diego,
6,000 San Diego Gas & Electric Co 1986 Ser B (AMT)........................... 7.375 12/01/21 6,160,800
5,000 San Diego Gas & Electric Co 1987 Ser A (AMT)........................... 8.75 03/01/23 5,303,950
- -------- ----------
56,400 58,455,446
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Mortgage Revenue - Single Family (4.5%)
California Housing Finance Agency,
$ 9,000 Home 1995 Ser J (AMBAC)................................................ 6.00 % 08/01/17 $ 8,946,180
5,830 Home 1989 Ser A........................................................ 7.75 08/01/17 6,156,538
7,000 Home 1995 Ser M (AMT) (MBIA)........................................... 6.15 08/01/27 6,857,060
9,215 Home 1995 Ser K (AMT) (AMBAC).......................................... 6.25 08/01/27 9,151,785
4,275 Home 1991 Ser G (AMT).................................................. 7.05 08/01/27 4,435,996
7,000 Purchase 1995 Ser B-2 (AMT)............................................. 6.30 08/01/24 6,926,710
Puerto Rico Housing Finance Corporation,
1,220 Portfolio One GNMA-Backed Ser B........................................ 7.65 10/15/22 1,277,303
705 Portfolio One GNMA-Backed Ser C........................................ 6.85 10/15/23 731,029
- -------- ----------
44,245 44,482,601
- -------- ----------
Public Facilities Revenue (4.7%)
10,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA)........ 5.65 06/01/15 9,574,100
1,875 Campbell Redevelopment Agency, 1991 COPs................................ 6.75 10/01/17 1,973,419
3,000 El Dorado County Public Agency Financing Authority, 1996 (FGIC)......... 5.50 02/15/21 2,859,900
5,560 Grossmont Union High School District, Land Acquisition Convert Cap
Apprec COPs (FSA)...................................................... 0.00+ 09/01/25 5,680,430
5,500 Los Angeles County-West Covina Civic Center Authority, 1987 Refg COPs... 6.875 09/01/14 5,689,475
6,500 Nevada County, Western Nevada County Solid Waste Mgmt 1991 COPs......... 7.50 06/01/21 6,562,140
10,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C......... 6.375 09/01/13 10,139,400
2,500 Stanislaus County Capital Improvements Financing Authority, Ser A 1996
COPs (MBIA)............................................................ 5.25 05/01/14 2,324,575
1,200 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1988
A...................................................................... 7.90 07/01/07 1,300,668
- -------- ----------
46,135 46,104,107
- -------- ----------
Tax Allocation (6.6%)
5,000 Fountain Valley Agency for Community Development, 1985 Industrial
Area................................................................... 9.10 01/01/15 5,179,100
Garden Grove Community Development Agency,
5,000 Refg Issue of 1993..................................................... 5.70 10/01/13 4,671,550
7,000 Refg Issue of 1993..................................................... 5.875 10/01/23 6,485,710
Industry Urban-Development Agency,
10,000 Civic Rec-Ind Redev Proj #1 Sub Refg Ser 1987 A........................ 7.30 05/01/06 10,329,400
2,165 Civic Rec-Ind Redev Proj #1 Sub Refg Ser 1987 B........................ 7.375 05/01/15 2,234,735
25,500 Long Beach Financing Authority, Ser 1992 (AMBAC)........................ 6.00 11/01/17 26,371,335
9,775 Pleasanton Joint Powers Financing Authority, Reassessment 1993 Ser A.... 6.15 09/02/12 9,773,925
- -------- ----------
64,440 65,045,755
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation Facilities Revenue (14.4%)
$ 5,000 Contra Costa Transportation Authority, Sales Tax 1993 Ser A (FGIC)...... 6.00 % 03/01/09 $ 5,244,200
15,000 Foothills/Eastern Transportation Corridor, Toll Road Sr Lien Ser 1995 A. 6.00 01/01/34 14,252,400
Long Beach,
11,000 Harbor Ser 1989 A (AMT)................................................ 7.375 05/15/09 11,726,550
10,000 Harbor Ser 1989 A (AMT)................................................ 7.25 05/15/19 10,602,800
20,000 Harbor Ser 1995 (AMT) (MBIA)........................................... 5.25 05/15/25 18,053,000
10,000 Los Angeles, Department of Airports Refg 1985 Ser A (FGIC).............. 5.50 05/15/09 9,881,300
Los Angeles County Transportation Commission,
20,000 Sales Tax Ser 1991 B................................................... 6.50 07/01/13 20,820,000
5,000 Sales Tax Ser 1986 A................................................... 6.25 07/01/16 5,000,450
20,000 San Diego County Regional Transportation Commission, Sales Tax 1994 Ser
A (FGIC)............................................................... 4.75 04/01/08 18,597,200
5,000 San Francisco Airports Commission, San Francisco Int'l Airport Second
Ser Refg Issue 4 (MBIA)................................................ 6.00 05/01/20 5,009,700
San Francisco Bay Area Rapid Transit District,
5,000 Sales Tax Ser 1990 (AMBAC)............................................. 6.75 07/01/09 5,349,150
5,000 Sales Tax Ser 1995 (FGIC).............................................. 5.50 07/01/15 4,811,900
4,000 Sales Tax Ser 1995 (FGIC).............................................. 5.50 07/01/20 3,815,640
10,000 Puerto Rico Highway & Transportation Authority, Refg Ser X.............. 5.25 07/01/21 9,011,100
- -------- ----------
145,000 142,175,390
- -------- ----------
Water & Sewer Revenue (14.3%)
California Department of Water Resources,
4,000 Central Valley Ser F................................................... 6.00 12/01/11 4,012,000
9,500 Central Valley Ser J-2................................................. 6.125 12/01/13 9,617,420
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA).................. 6.00 08/01/18 8,041,520
10,000 Central Coast Water Authority, Ser 1992 (AMBAC)......................... 6.50 10/01/14 10,493,200
10,000 Contra Costa Water District, Ser G (MBIA)............................... 5.50 10/01/19 9,545,000
East Bay Municipal Utility District,
11,000 Water Refg Ser 1992.................................................... 6.00 06/01/20 11,026,840
5,800 Water Refg Ser 1996 (FGIC)............................................. 5.00 06/01/26 5,099,708
4,000 Eastern Municipal Water District, Water & Sewer Ser 1991 COPs........... 6.00 07/01/23 3,978,800
5,000 Fresno, Sewer 1995 Ser A (MBIA)......................................... 5.00 09/01/23 4,418,550
5,745 Los Angeles, Wastewater Ser 1990........................................ 7.10 06/01/18 6,155,653
15,000 Los Angeles County Sanitation Districts Financing Authority, 1993 Ser A.. 5.375 10/01/13 14,277,750
Metropolitan Water District of Southern California,
5,500 Water Refg 1996 Ser B (MBIA)........................................... 5.00 07/01/14 4,944,170
5,500 Water Refg 1996 Ser B (MBIA)........................................... 5.00 07/01/15 5,020,840
15,000 San Diego, Sewer 1993 Ser A............................................. 5.25 05/15/20 13,493,250
8,000 San Diego County Water Authority, Water Ser 1991 B COPs (MBIA).......... 6.30 04/08/21 8,125,840
10,000 San Diego Public Facilities Financing Authority, Sewer Ser 1995
(FGIC)................................................................. 5.00 05/15/20 8,901,200
5,750 San Francisco Public Utilities Commission, Water 1992 Refg Ser A........ 6.00 11/01/15 5,770,470
4,000 San Jose-Santa Clara Clean Water Financing Authority, Sewer Ser 1995 A
(FGIC)................................................................. 5.375 11/15/20 3,749,640
5,440 Santa Rosa, Wastewater Refg 1996 Ser A (FGIC)........................... 5.00 09/01/22 4,817,229
- -------- ----------
147,235 141,489,080
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Other Revenue (1.9%)
$ 5,400 Los Angeles County, 1991 Master Refg COPs............................... 6.708% 05/01/15 $ 5,437,476
9,500 Los Angeles County, Public Properties Refg of 1987 COPs................. 0.00 04/01/04 5,562,250
5,000 Orange County Community Facilities District #86-2, Rancho Santa
Margarita Ser A of 1990................................................ 7.65 08/15/17 5,114,250
2,750 Sacramento Area Flood Control Agency, Capital Assessment Dist #2 Ser
1995 (FGIC)............................................................ 5.375 10/01/20 2,578,208
- -------- ----------
22,650 18,692,184
- -------- ----------
Refunded (12.1%)
5,000 California Health Facilities Financing Authority, St Joseph Health Ser
1991 A................................................................. 6.75 07/01/01++ 5,536,650
Los Angeles,
6,000 Harbor Department Issue of 1985........................................ 8.70 09/01/99++ 6,152,040
10,000 Wastewater Ser 1990-B.................................................. 7.15 06/01/00++ 11,065,400
Los Angeles Convention & Exhibition Center Authority,
10,000 Ser 1985 COPs.......................................................... 9.00 12/01/05++ 13,020,500
14,000 Ser 1985 COPs.......................................................... 9.00 12/01/05++ 18,228,700
5,000 Los Angeles Department of Water & Power, Water Works Issue of 1991
(Crossover 04/01/01)................................................... 7.00 04/01/31 5,519,750
10,000 Los Angeles County Transportation Commission, Sales Tax Ser 1987 A...... 6.75 07/01/02++ 11,185,600
10,000 Northern California Transmission Agency, California-Oregon 1990 Ser A
(MBIA)................................................................. 7.00 05/01/00++ 10,972,600
11,000 University of California, Multiple Purpose Refg Ser A................... 6.875 09/01/02++ 12,402,060
10,000 Puerto Rico Aqueduct & Sewer Authority, Ser 1988 A...................... 7.875 07/01/98++ 10,917,200
13,000 Puerto Rico Highway Authority, Ser Q.................................... 7.75 07/01/00++ 14,720,550
- -------- ----------
104,000 119,721,050
- -------- ----------
906,820 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $879,532,217)....................... 908,201,270
- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1996 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (7.1%)
California Health Facilities Financing Authority,
$ 8,900 St Joseph Health 1991 Ser B (Demand 07/01/96).......................... 3.00*% 07/01/09 $ 8,900,000
9,800 Sutter Health Ser 1990 B (Demand 07/01/96)............................. 2.90* 03/01/20 9,800,000
25,800 California Pollution Control Financing Authority, Southern California
Edison Co 1986 Ser A (Demand 07/01/96)................................. 3.45* 02/28/08 25,800,000
15,000 California School Cash Reserve Program Authority, 1995 Ser Pool A....... 4.75 07/03/96 15,000,000
10,770 Newport Beach, Hoag Memorial Hospital Presbyterian Ser 1992
(Demand 07/01/96)...................................................... 3.55* 10/01/22 10,770,000
- -------- ----------
70,270 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
- --------
(Identified Cost $70,270,790).................................................................... 70,270,000
----------
$977,090 TOTAL INVESTMENTS (Identified Cost $949,803,007) (a).................................... 99.1% 978,471,270
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 0.9 9,339,004
---- ----------
NET ASSETS............................................................................... 100.0% $987,810,274
==== ==========
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when issued basis.
+ Zero coupon; will convert to 7.375% on September 1, 1996.
++ 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 was
$40,334,576 and the aggregate gross unrealized depreciation was
$11,666,313, resulting in net unrealized appreciation of
$28,668,263.
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
<PAGE> 10
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $949,803,007)....................................... $978,471,270
Cash.................................................................. 1,048,691
Receivable for:
Interest.......................................................... 15,497,858
Shares of beneficial interest sold................................ 793,557
Prepaid expenses...................................................... 44,511
----------
TOTAL ASSETS...................................................... 995,855,887
----------
LIABILITIES:
Payable for:
Investments purchased............................................. 6,447,897
Plan of distribution fee.......................................... 604,062
Investment management fee......................................... 428,323
Dividends to shareholders......................................... 247,299
Shares of beneficial interest repurchased......................... 208,376
Accrued expenses...................................................... 109,656
----------
TOTAL LIABILITIES................................................. 8,045,613
----------
NET ASSETS:
Paid-in-capital....................................................... 956,080,832
Net unrealized appreciation........................................... 28,668,263
Accumulated undistributed net investment income....................... 250,989
Accumulated undistributed net realized gain........................... 2,810,190
----------
NET ASSETS........................................................ $987,810,274
==========
NET ASSET VALUE PER SHARE
80,001,330 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $12.35
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1996 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME....................................................... $ 30,468,264
----------
EXPENSES
Plan of distribution fee.............................................. 3,790,166
Investment management fee............................................. 2,679,693
Transfer agent fees and expenses...................................... 122,385
Custodian fees........................................................ 31,041
Professional fees..................................................... 26,041
Shareholder reports and notices....................................... 25,880
Trustees' fees and expenses........................................... 9,388
Registration fees..................................................... 2,232
Other................................................................. 10,262
----------
TOTAL EXPENSES BEFORE EXPENSE OFFSET.............................. 6,697,088
LESS: EXPENSE OFFSET.............................................. (31,019)
----------
TOTAL EXPENSES AFTER EXPENSE OFFSET............................... 6,666,069
----------
NET INVESTMENT INCOME............................................. 23,802,195
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain..................................................... 2,810,144
Net change in unrealized appreciation................................. (41,734,455)
----------
NET LOSS.......................................................... (38,924,311)
----------
NET DECREASE.......................................................... $(15,122,116)
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED DECEMBER 31,
JUNE 30, 1996 1995
- -----------------------------------------------------------------------------------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 23,802,195 $ 51,093,034
Net realized gain................................. 2,810,144 15,612,579
Net change in unrealized appreciation............. (41,734,455) 78,220,453
------------- -------------
NET INCREASE (DECREASE)....................... (15,122,116) 144,926,066
------------- -------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income............................. (23,819,816) (50,973,219)
Net realized gain................................. (7,417,428) (6,253,247)
------------- -------------
TOTAL......................................... (31,237,244) (57,226,466)
------------- -------------
Net decrease from transactions in shares of
beneficial interest.............................. (20,711,259) (40,657,242)
------------- -------------
TOTAL INCREASE (DECREASE)..................... (67,070,619) 47,042,358
NET ASSETS:
Beginning of period............................... 1,054,880,893 1,007,838,535
------------- -------------
END OF PERIOD
(Including undistributed net investment income
of $250,989 and $268,610, respectively)....... $ 987,810,274 $1,054,880,893
============= ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1996 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter California Tax-Free Income Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide a high level of current income which is exempt from federal and
California income tax, consistent with the preservation of capital. The Fund was
organized as a Massachusetts business trust on April 9, 1984 and commenced
operations on July 11, 1984.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Fund by
an outside independent pricing service approved by the Trustees. The pricing
service has informed the Fund that in valuing the Fund's portfolio securities,
it uses both a computerized matrix of tax-exempt securities and evaluations by
its staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the bid side of the market each day. The
Fund's portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment
<PAGE> 14
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1996 (unaudited) continued
income and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined as of the close of each
business day: 0.55% to the portion of daily net assets not exceeding $500
million; 0.525% to the portion of daily net assets exceeding $500 million but
not exceeding $750 million; 0.50% to the portion of daily net assets exceeding
$750 million but not exceeding $1 billion; 0.475% to the portion of daily net
assets exceeding $1 billion. Effective May 1, 1996, the annual rate will be
reduced to 0.45% to the portion of daily net assets in excess of $1.25 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 0.75% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which
<PAGE> 15
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1996 (unaudited) continued
such charge has been waived; or (b) the Fund's average daily net assets. Amounts
paid under the Plan are paid to the Distributor to compensate it for the
services provided and the expenses borne by it and others in the distribution of
the Fund's shares, including the payment of commissions for sales of the Fund's
shares and incentive compensation to, and expenses of, account executives of
Dean Witter Reynolds Inc., an affiliate of the Investment Manager and
Distributor, and other employees and selected broker-dealers, who engage in or
support distribution of the Fund's shares or who service shareholder accounts,
including overhead and telephone expenses, printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares to other than current shareholders and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the six months ended June 30,
1996, it received approximately $695,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended June 30, 1996 aggregated
$58,103,435 and $125,460,993, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 1996, the Fund had
transfer agent fees and expenses payable of approximately $24,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended June 30, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $464. At June 30, 1996, the Fund had an accrued pension liability of $49,196
which is included in accrued expenses in the Statement of Assets and
Liabilities.
<PAGE> 16
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1996 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1996 DECEMBER 31, 1995
--------------------------- -----------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Sold............................................................ 3,329,936 $ 41,895,641 7,610,885 $ 95,058,902
Reinvestment of dividends and distributions..................... 1,393,930 17,392,275 2,505,960 31,541,595
-------- ---------- --------- -----------
4,723,866 59,287,916 10,116,845 126,600,497
Repurchased..................................................... (6,380,167) (79,999,175) (13,380,382) (167,257,739)
-------- ---------- --------- -----------
Net decrease.................................................... (1,656,301) $(20,711,259) (3,263,537) $ (40,657,242)
======== ========== ========= ===========
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended December 31, 1995, the Fund utilized its net capital loss
carryover of approximately $1,942,000.
<PAGE> 17
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31
JUNE 30, ---------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $12.92 $11.87 $13.31
-------- ----- -----
Net investment income................................................. 0.29 0.61 0.64
Net realized and unrealized gain (loss)............................... (0.48) 1.13 (1.42)
-------- ----- -----
Total from investment operations...................................... (0.19) 1.74 (0.78)
-------- ----- -----
Less dividends and distributions from:
Net investment income.............................................. (0.29) (0.61) (0.64)
Net realized gain.................................................. (0.09) (0.08) (0.02)
-------- ----- -----
Total dividends and distributions..................................... (0.38) (0.69) (0.66)
-------- ----- -----
Net asset value, end of period........................................ $12.35 $12.92 $11.87
-------- ----- -----
-------- ----- -----
TOTAL INVESTMENT RETURN+.............................................. (1.51)%(1) 14.96% (5.97)%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.33%(2)(3) 1.33% 1.32%
Net investment income................................................. 4.71%(2) 4.90% 5.10%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $988 $1,055 $1,008
Portfolio turnover rate............................................... 6%(1) 23% 12%
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
---------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $12.70 $12.46 $11.99
----- ----- -----
Net investment income................................................. 0.67 0.69 0.71
Net realized and unrealized gain (loss)............................... 0.70 0.26 0.48
----- ----- -----
Total from investment operations...................................... 1.37 0.95 1.19
----- ----- -----
Less dividends and distributions from:
Net investment income.............................................. (0.67) (0.69) (0.71)
Net realized gain.................................................. (0.09) (0.02) (0.01)
----- ----- -----
Total dividends and distributions..................................... (0.76) (0.71) (0.72)
----- ----- -----
Net asset value, end of period........................................ $13.31 $12.70 $12.46
===== ===== =====
TOTAL INVESTMENT RETURN+.............................................. 10.97% 7.83% 10.18%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.27% 1.32% 1.28%
Net investment income................................................. 5.03% 5.45% 5.78%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $1,190 $987 $834
Portfolio turnover rate............................................... 10% 6% 3%
</TABLE>
- ---------------------
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) The above expense ratio was 1.32% after expense offset, which reflects
0.01% effect for custody cash credits.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
BOARD OF DIRECTORS
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
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER 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.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they do
not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and directors,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
CALIFORNIA
TAX-FREE
INCOME FUND
[LOGO]
Semiannual Report
June 30, 1996
