<PAGE> 1
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND Two World Trade Center,
LETTER TO THE SHAREHOLDERS June 30, 1997 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Dean Witter
California Tax-Free Income Fund for the six-month period ended June 30, 1997.
A consumer-led acceleration in economic activity in late 1996 carried into the
first quarter of 1997. This contributed to a rise in interest rates between
December 1996 and April 1997. On March 25, 1997, the Federal Reserve Board
raised the federal-funds rate 25 basis points to 5.50 percent in a preemptive
move against a possible increase in the rate of inflation. The bond market
recognized that additional rate hikes by the central bank were possible, but
began to rally when short-term interest rates remained unchanged in May.
MUNICIPAL MARKET CONDITIONS
Municipal yields followed the trend of U.S. Treasury yields, but with less
volatility. Long-term insured revenue bond yields rose from 5.45 percent at the
end of November 1996 to a high of 5.85 percent in mid April 1997 before
declining to 5.50 percent in June.
<TABLE>
<CAPTION>
BOND YIELDS 1994-1997
30-Year Insured 30-Year U.S. Treasury Insured Municipal Revenue Yields
Municipal Revenue Yields Yields as a Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
Dec '93 5.45 6.35 0.8586
5.29 6.24 0.8481
5.64 6.66 0.8468
6.19 7.09 0.8728
6.24 7.31 0.854
6.23 7.43 0.8387
Jun '94 6.31 7.61 0.8293
6.15 7.4 0.8314
6.17 7.45 0.828
6.42 7.82 0.8212
6.66 7.97 0.8356
6.99 8 0.8738
Dec '94 6.65 7.88 0.8438
6.42 7.7 0.834
6.12 7.44 0.8222
6.07 7.43 0.8167
6.05 7.34 0.8245
5.84 6.65 0.8784
Jun '95 6 6.62 0.9066
5.99 6.85 0.875
5.98 6.65 0.8997
5.97 6.5 0.9184
5.79 6.33 0.915
5.61 6.13 0.9151
Dec '95 5.49 5.95 0.923
5.42 6.03 0.8989
5.55 6.47 0.8577
5.89 6.67 0.8835
5.94 6.91 0.8601
5.99 6.99 0.8571
Jun '96 5.86 6.87 0.8529
5.77 6.97 0.8278
5.82 7.12 0.8176
5.71 6.92 0.8248
5.6 6.64 0.8431
5.45 6.35 0.8583
Dec '96 5.56 6.64 0.8372
5.63 6.79 0.8293
5.53 6.8 0.8129
5.83 7.1 0.8216
5.74 6.96 0.8251
5.58 6.91 0.8081
Jun '97 5.49 6.78 0.8092
Source: Bloomberg L.P.
</TABLE>
<PAGE> 2
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1997, continued
<TABLE>
<CAPTION>
LARGEST SECTORS AS OF JUNE 30, 1997
(% OF NET ASSET)
<S> <C>
Refunded 18%
Transportation 15%
Water & Sewer 12%
Electric 9%
Hospital 7%
IDR/PCR* 6%
Tax Allocation 6%
All Others 27%
</TABLE>
* Indutrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
<TABLE>
<CAPTION>
CREDIT RATINGS AS OF JUNE 30, 1997
(% OF TOTAL LONG-TERM PORTFOLIO)
<S> <C>
Aaa or AAA 54%
Aa or AA 16%
A or A 17%
Baa or BBB 12%
NR* 1%
</TABLE>
As measured by Moody's Investor Service, Inc. or Standard & Poor's Corp.
* Not rated at time of purchase; deemed by investment
manager to be comparable to investment-grade securities.
Portfolio structure is subject to change.
<TABLE>
<CAPTION>
CALL STRUCTURE as of June 30, 1997 WEIGHTED AVERAGE
(% of Total Long-Term Portfolio) CALL PROTECTION: 6.0 YEARS
Percent Callable
Years Bonds Callable
<S> <C>
1997 4.0%
1998 5.3%
1999 6.3%
2000 5.7%
2001 8.9%
2002 16.7%
2003 14.2%
2004 4.0%
2005 16.6%
2006 6.1%
2007+ 12.2%
</TABLE>
<PAGE> 3
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1997, continued
The ratio of 30-year insured revenue bond yields to 30-year U.S. Treasury yields
declined from 86 percent at the end of November 1996 to 81 percent in June 1997.
A declining ratio means that municipals have outperformed Treasuries, but have
become relatively less attractive. The annual range of the ratio averaged
between 80 percent and 92 percent over the past three years.
Relative to last year, new-issue municipal volume was ahead only two percent for
the first six months of 1997. Estimated underwriting volume of $180 billion for
the full year is expected to exceed bond maturities and redemptions of $130
billion.
PERFORMANCE
Dean Witter California Tax-Free Income Fund's total return for the six-month
period ended June 30, 1997 was 2.42 percent. The Fund's net asset value
increased slightly from $12.57 to $12.59 per share. Tax-free dividends totaling
$0.29 per share were paid during the period. Tax-free dividends continued to be
the major component of total return. The Fund's net assets were in excess of
$925 million.
PORTFOLIO STRUCTURE
The Fund's cash and short-term investment position during the first half of 1997
increased from seven to nine percent of net assets. Refunded bonds added another
19 percent to the defensive position of the portfolio. Bond sales involved
market-sensitive discount and current-coupon issues. The portfolio's average
maturity was 15 years. The distribution of bond call dates produced an average
call protection of six years.
Investments were diversified among 12 long-term sectors and 68 credits. The
portfolio has consistently maintained high quality with over 70 percent of its
long-term holdings rated double "A" or better. Holdings in the electric revenue
sector reflect the portfolio's ability to respond to changing credit conditions.
With municipal electric utilities facing the increasingly competitive pressures
of deregulation, approximately three quarters of the electric credits are
enhanced with bond insurance.
LOOKING AHEAD
Since the election-year collapse of flat-tax proposals, municipal bonds have
outperformed U.S. Treasury securities. Tax-free yields are currently somewhat
less attractive in their historical relationship with Treasury yields. However,
the long-term benefits of tax-exempt income remain intact and have fostered
demand for municipal bonds.
<PAGE> 4
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1997, continued
On June 30, 1997, the Fund's Board of Trustees approved a proposal to adopt a
multiple class share structure. Through this arrangement the Fund will offer
four classes of shares with various sales charges, ongoing fees and other
features. This conversion occurred on July 28, 1997. Existing shares were
designated Class B. A revised prospectus, which includes complete details
regarding this change, was mailed with your June 1997 statement.
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> 5
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
RESULTS OF SPECIAL MEETING (unaudited)
* * *
On May 21, 1997, a special meeting of the Fund's shareholders was held for the
purpose of voting on four separate matters, the results of which were as
follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND
DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF
MORGAN STANLEY GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For...................................................................... 41,680,168
Against.................................................................. 718,677
Abstain.................................................................. 4,593,634
</TABLE>
(2) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For.................... 45,152,302
Withheld............... 1,840,177
Charles A. Fiumefreddo
For.................... 45,156,540
Withheld............... 1,835,939
Edwin J. Garn
For.................... 45,085,786
Withheld............... 1,906,693
John R. Haire
For.................... 45,115,108
Withheld............... 1,877,371
Wayne E. Hedien
For.................... 45,162,178
Withheld............... 1,830,301
Dr. Manuel H. Johnson
For.................... 45,084,836
Withheld............... 1,907,643
Michael E. Nugent
For.................... 45,106,888
Withheld............... 1,885,591
Philip J. Purcell
For.................... 45,050,904
Withheld............... 1,941,575
John L. Schroeder
For.................... 45,130,377
Withheld............... 1,862,102
</TABLE>
(3) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN CERTAIN
OTHER INVESTMENT COMPANIES:
<TABLE>
<S> <C>
For...................................................................... 39,923,883
Against.................................................................. 1,316,460
Abstain.................................................................. 5,752,136
</TABLE>
(4) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For...................................................................... 43,192,630
Against.................................................................. 877,692
Abstain.................................................................. 2,922,157
</TABLE>
<PAGE> 6
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (90.3%)
General Obligation (5.1%)
California,
$ 5,000 Ser 1990............................................................... 7.00% 08/01/07 $ 5,879,850
5,000 Ser 1990............................................................... 7.00 08/01/08 5,884,950
2,000 Ser AT................................................................. 9.50 02/01/10 2,766,500
10,000 Various Purpose dtd 04/01/93 (FSA)..................................... 5.50 04/01/19 9,703,000
13,000 Ser 1996 (AMBAC)....................................................... 5.25 06/01/21 12,453,220
4,000 Santa Margarita/Dana Point Authority, Impr Dists #3, 3A, 4 & 4A
1994 Ser B Refg (MBIA)................................................. 5.75 08/01/20 4,025,080
6,000 Santa Margarita Water District, Impr Dists #3 & 4 Refg Ser 1986......... 7.50 11/01/05 6,157,320
------- -----------
45,000 46,869,920
------- -----------
Educational Facilities Revenue (2.9%)
California Educational Facilities Authority,
1,750 Loyola Marymount University Ser 1992 B................................. 6.55 10/01/12 1,873,060
2,300 Loyola Marymount University Ser 1992 B................................. 6.60 10/01/22 2,462,564
3,000 Stanford University Ser I.............................................. 6.75 01/01/13 3,162,150
2,000 University of Southern California Ser 1997 A (WI)...................... 5.70 10/01/15 2,045,160
California Statewide Communities Development Authority,
3,400 Gemological Institute of America COPs (Connie Lee)..................... 6.00 05/01/20 3,488,706
4,100 Gemological Institute of America COPs (Connie Lee)..................... 6.00 05/01/25 4,206,969
10,000 University of California, Multiple Purpose Refg Ser 1993 C (AMBAC)...... 5.125 09/01/18 9,402,700
------- -----------
26,550 26,641,309
------- -----------
Electric Revenue (9.1%)
13,000 Los Angeles Department of Water & Power, Second Issue of 1993
(Secondary AMBAC)...................................................... 5.40 11/15/13 12,923,690
5,000 Northern California Power Agency, Hydro #1 1993 Refg Ser A (MBIA)....... 5.50 07/01/16 4,924,750
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA)................................................. 5.75 01/01/11 5,921,160
26,000 Refg 1992 Ser A (FGIC)................................................. 6.30 08/01/18 27,680,640
Southern California Public Power Authority,
7,000 Mead-Adelanto 1994 Ser A (AMBAC)....................................... 5.15 07/01/15 6,722,310
5,000 Palo-Verde 1993 Ser A (Secondary AMBAC)................................ 5.00 07/01/15 4,689,450
1,750 Transmission Refg Ser 1988 (FGIC)...................................... 0.00 07/01/06 1,124,847
Puerto Rico Electric Power Authority,
9,000 Power Ser O............................................................ 5.00 07/01/12 8,500,410
9,000 Power Ser X............................................................ 6.125 07/01/21 9,400,140
2,000 Power Ser X............................................................ 5.50 07/01/25 1,928,120
------- -----------
83,450 83,815,517
------- -----------
Hospital Revenue (6.8%)
7,100 Antelope Valley Hospital District, Ser 1989 COPs........................ 7.35 01/01/20 7,322,514
Bakersfield,
1,750 Bakersfield Memorial Hospital Ser 1992 A............................... 6.375 01/01/12 1,836,660
2,000 Bakersfield Memorial Hospital Ser 1992 A............................... 6.50 01/01/22 2,096,980
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 7,600 Berkeley, Alta Bates Medical Center Refg Ser A.......................... 6.50% 12/01/11 $ 7,962,292
3,500 California Health Facilities Financing Authority, Sutter/CHS Ser 1996 A
(MBIA)................................................................. 5.875 08/15/16 3,564,120
Duarte,
3,000 City of Hope National Medical Center Ser 1993 COPs..................... 5.50 04/01/01 3,036,180
4,000 City of Hope National Medical Center Ser 1993 COPs..................... 6.25 04/01/23 4,025,840
6,000 Eden Township Hospital District, Ser 1989............................... 7.40 11/01/19 6,316,740
Madera County,
7,500 Valley Children's Hospital Ser 1995 COPs (MBIA)........................ 6.50 03/15/15 8,506,275
2,000 Valley Children's Hospital Ser 1995 COPs (MBIA)........................ 6.125 03/15/23 2,083,700
Rancho Mirage Joint Powers Financing Authority,
3,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)....................... 5.25 07/01/12 2,972,370
4,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)....................... 5.25 07/01/17 3,842,120
2,000 Stockton, Dameron Hospital Assn Refg Ser 1988........................... 8.25 12/01/00 2,065,220
7,000 University of California, UCLA Medical Center Refg Ser 1994 (MBIA)...... 5.50 12/01/14 6,953,170
------- -----------
60,450 62,584,181
------- -----------
Industrial Development/Pollution Control Revenue (5.7%)
California Pollution Control Financing Authority,
5,000 Atlantic Richfield Co Ser 1996 A....................................... 5.00 04/01/08 4,987,250
6,000 Pacific Gas & Electric Co 1987 Ser B (AMT)............................. 8.875 01/01/10 6,216,600
3,000 San Diego Gas and Electric Co 1996 Ser A............................... 5.90 06/01/14 3,157,350
5,000 Southern California Edison Co 1988 Ser A (AMT)......................... 6.90 09/01/06 5,307,700
10,000 Southern California Edison Co 1987 Ser D............................... 6.85 12/01/08 10,594,900
10,000 Southern California Edison Co 1992 Ser B (AMT)......................... 6.40 12/01/24 10,593,500
5,000 Waste Management Inc 1991 Ser A (AMT).................................. 7.15 02/01/11 5,413,100
1,400 Intermodal Container Transfer Facility Joint Powers Authority, Southern
Pacific Transportation Co 1989 Ser A................................... 7.70 11/01/14 1,490,160
5,000 San Diego, San Diego Gas & Electric Co 1987 Ser A (AMT)................. 8.75 03/01/23 5,133,400
------- -----------
50,400 52,893,960
------- -----------
Mortgage Revenue - Single Family (4.7%)
California Housing Finance Agency,
9,000 Home 1995 Ser J (AMBAC)................................................ 6.00 08/01/17 9,218,250
4,960 Home 1989 Ser A........................................................ 7.75 08/01/17 5,202,197
6,735 Home 1995 Ser M (AMT) (MBIA)........................................... 6.15 08/01/27 6,876,368
8,540 Home 1995 Ser K (AMT) (AMBAC).......................................... 6.25 08/01/27 8,777,327
4,010 Home 1991 Ser G (AMT).................................................. 7.05 08/01/27 4,205,127
7,000 Purchase 1995 Ser B-2 (AMT)............................................ 6.30 08/01/24 7,196,070
Puerto Rico Housing Finance Corporation,
1,065 Portfolio One GNMA-Backed Ser B........................................ 7.65 10/15/22 1,118,261
665 Portfolio One GNMA-Backed Ser C........................................ 6.85 10/15/23 696,953
------- -----------
41,975 43,290,553
------- -----------
Public Facilities Revenue (4.3%)
4,000 Anaheim Public Financing Authority, Anaheim Pub Impr Sub 1997 Ser C
(FSA).................................................................. 6.00 09/01/16 4,304,000
10,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA)........ 5.65 06/01/15 9,888,500
1,875 Campbell Redevelopment Agency, 1991 COPs................................ 6.75 10/01/17 2,004,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Los Angeles County,
$ 5,400 1991 Master Refg COPs.................................................. 6.708% 05/01/15 $ 5,603,904
9,500 Public Properties Refg of 1987 COPs.................................... 0.00 04/01/04 6,083,705
10,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C......... 6.375 09/01/13 10,488,900
1,200 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1988
A...................................................................... 7.90 07/01/07 1,268,256
------- -----------
41,975 39,642,165
------- -----------
Tax Allocation (5.7%)
5,000 Fountain Valley Agency for Community Development, 1985 Industrial
Area................................................................... 9.10 01/01/15 5,138,450
Garden Grove Community Development Agency,
5,000 Refg Issue of 1993..................................................... 5.70 10/01/13 4,931,800
6,000 Refg Issue of 1993..................................................... 5.875 10/01/23 5,939,940
25,500 Long Beach Financing Authority, Ser 1992 (AMBAC)........................ 6.00 11/01/17 27,339,570
9,490 Pleasanton Joint Powers Financing Authority, Reassessment 1993 Ser A.... 6.15 09/02/12 9,840,276
------- -----------
50,990 53,190,036
------- -----------
Transportation Facilities Revenue (15.0%)
15,000 Foothills/Eastern Transportation Corridor Agency, Toll Road Sr Lien Ser
1995 A................................................................. 6.00 01/01/34 15,043,050
Long Beach,
11,000 Harbor Ser 1989 A (AMT)................................................ 7.375 05/15/09 11,492,800
10,000 Harbor Ser 1989 A (AMT)................................................ 7.25 05/15/19 10,440,900
20,000 Harbor Ser 1995 (AMT) (MBIA)........................................... 5.25 05/15/25 18,643,800
10,000 Los Angeles, Department of Airports Refg 1985 Ser A (FGIC).............. 5.50 05/15/09 10,330,200
20,000 Los Angeles County Transportation Commission, Sales Tax Ser 1991 B...... 6.50 07/01/13 21,232,000
5,000 Orange County, Airport Refg Ser 1997 (MBIA)............................. 5.50 07/01/11 5,043,750
20,000 San Diego County Regional Transportation Commission, Sales Tax
1994 Ser A (FGIC)...................................................... 4.75 04/01/08 19,668,200
5,000 San Francisco Airports Commission, San Francisco Int'l Airport Second
Ser
Refg Issue 4 (MBIA).................................................... 6.00 05/01/20 5,140,950
San Francisco Bay Area Rapid Transit District,
5,000 Sales Tax Ser 1990 (AMBAC)............................................. 6.75 07/01/09 5,376,750
5,000 Sales Tax Ser 1995 (FGIC).............................................. 5.50 07/01/15 5,019,350
4,000 Sales Tax Ser 1995 (FGIC).............................................. 5.50 07/01/20 3,933,400
8,000 Puerto Rico Highway & Transportation Authority, Refg Ser X.............. 5.25 07/01/21 7,532,320
------- -----------
138,000 138,897,470
------- -----------
Water & Sewer Revenue (12.3%)
California Department of Water Resources,
4,000 Central Valley Ser F................................................... 6.00 12/01/11 4,046,800
6,870 Central Valley Ser J-2................................................. 6.125 12/01/13 7,169,738
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA).................. 6.00 08/01/18 8,259,520
6,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC).................. 5.00 10/01/16 5,659,560
10,000 Contra Costa Water District, Ser G (MBIA)............................... 5.50 10/01/19 9,798,000
11,000 East Bay Municipal Utility District, Water Refg Ser 1992................ 6.00 06/01/20 11,242,660
4,000 Eastern Municipal Water District, Water & Sewer Ser 1991 COPs........... 6.00 07/01/23 4,054,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
$ 5,745 Los Angeles, Wastewater Ser 1990........................................ 7.10% 06/01/18 $ 6,120,838
15,000 Los Angeles County Sanitation Districts Financing Authority, 1993 Ser
A...................................................................... 5.375 10/01/13 14,704,200
10,000 San Diego, Sewer 1993 Ser A............................................. 5.25 05/15/20 9,379,600
8,000 San Diego County Water Authority, Ser 1991 B COPs (MBIA)................ 6.30 04/08/21 8,496,080
10,000 San Diego Public Facilities Financing Authority, Sewer Ser 1995
(FGIC)................................................................. 5.00 05/15/25 9,170,900
San Francisco Public Utilities Commission,
5,750 Water 1992 Refg Ser A.................................................. 6.00 11/01/15 5,918,360
10,870 Water 1996 Ser A....................................................... 5.00 11/01/21 10,131,057
------- -----------
115,235 114,151,513
------- -----------
Other Revenue (0.5%)
5,000 Orange County Community Facilities District #86-2, Rancho Santa
------- Margarita
Ser A of 1990.......................................................... 7.65 08/15/17 5,185,100
-----------
Refunded (18.2%)
5,000 California Health Facilities Financing Authority, St Joseph Health Ser
1991 A................................................................. 6.75 07/01/01+ 5,528,450
8,000 California Public Works Board, California State University 1992 Ser A... 6.70 10/01/02+ 9,021,440
10,000 Central Coast Water Authority, Ser 1992 (AMBAC)......................... 6.50 10/01/02+ 11,183,700
20,000 Desert Hospital District, Desert Hospital Corp Ser 1992 COPs (FSA)...... 6.392 07/01/02+ 22,100,200
Los Angeles,
6,000 Harbor Department Issue of 1985........................................ 8.70 09/01/99+ 6,569,280
10,000 Wastewater Ser 1990-B.................................................. 7.15 06/01/00+ 10,990,900
Los Angeles Convention & Exhibition Center Authority,
10,000 Ser 1985 COPs.......................................................... 9.00 12/01/05+ 13,091,300
14,000 Ser 1985 COPs.......................................................... 9.00 12/01/05+ 18,327,820
10,000 Los Angeles County Transportation Commission, Sales Tax Ser 1987 A...... 6.75 07/01/02+ 11,254,000
5,000 Los Angeles Department of Water & Power, Water Works Issue of 1991...... 7.00 04/01/01++ 5,505,900
10,000 Northern California Transmission Agency, California-Oregon 1990 Ser A
(MBIA)................................................................. 7.00 05/01/00+ 10,885,100
2,950 Rancho Mirage Joint Powers Financing Authority, Eisenhower Memorial
Hospital Ser 1992 COPs................................................. 7.00 03/01/02+ 3,323,824
5,250 Southern California Public Power Authority (ETM)........................ 0.00 07/01/06 3,356,797
11,000 University of California, Multiple Purpose Refg Ser A................... 6.875 09/01/02+ 12,443,200
10,000 Puerto Rico Aqueduct & Sewer Authority, Ser 1988 A...................... 7.875 07/01/98+ 10,595,500
13,000 Puerto Rico Highway Authority, Ser Q.................................... 7.75 07/01/00+ 14,534,390
------- -----------
150,200 168,711,801
------- -----------
809,225 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $784,534,396)..................... 835,873,525
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1997 (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 (7.9%)
$ 3,500 California Educational Facilities Authority, University Southern
California
Ser 1989 A............................................................. 7.20% 10/01/97++ $ 3,598,980
California Pollution Control Financing Authority,
27,400 Pacific Gas & Electric Co Ser 1996 F (Demand 07/01/97)................. 3.85* 11/01/26 27,400,000
11,480 Southern California Edison Co Ser 1996 A (Demand 07/01/97)............. 3.00* 02/28/08 11,480,000
5,500 Los Angeles County-West Covina Civic Center Authority, 1987 Refg COPs... 6.875 09/01/97+ 5,637,170
25,000 Newport Beach, Hoag Memorial Hospital Presbyterian Ser 1992
------- (Demand 07/01/97)...................................................... 3.00* 10/01/22 25,000,000
------------
72,880 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
------- (Identified Cost $72,843,593)................................................................. 73,116,150
------------
$882,105 TOTAL INVESTMENTS (Identified Cost $857,377,989) (a).................................. 98.2% 908,989,675
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 1.8 16,967,692
------ ------------
NET ASSETS............................................................................. 100.0% $925,957,367
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
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.
++ Refunded on call date shown by forward delivery contract or crossover refunded.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross
unrealized appreciation is $52,714,298 and the aggregate gross unrealized depreciation is $1,102,612,
resulting in net unrealized appreciation of $51,611,686.
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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $857,377,989)....................................... $908,989,675
Cash.................................................................. 2,085,497
Receivable for:
Interest.......................................................... 13,554,620
Investments sold.................................................. 5,000,000
Shares of beneficial interest sold................................ 427,340
Prepaid expenses and other assets..................................... 37,445
------------
TOTAL ASSETS...................................................... 930,094,577
------------
LIABILITIES:
Payable for:
Investments purchased............................................. 1,957,697
Shares of beneficial interest repurchased......................... 602,372
Plan of distribution fee.......................................... 591,899
Dividends to shareholders......................................... 467,858
Investment management fee......................................... 421,140
Accrued expenses and other payables................................... 96,244
------------
TOTAL LIABILITIES................................................. 4,137,210
------------
NET ASSETS:
Paid-in-capital....................................................... 875,466,064
Net unrealized appreciation........................................... 51,611,686
Accumulated undistributed net investment income....................... 16,195
Accumulated net realized loss......................................... (1,136,578)
------------
NET ASSETS........................................................ $925,957,367
============
NET ASSET VALUE PER SHARE,
73,552,721 shares outstanding
(unlimited shares authorized of $.01 par value)...................... $12.59
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................................................ $27,688,786
-----------
EXPENSES
Plan of distribution fee............................................... 3,497,441
Investment management fee.............................................. 2,488,329
Transfer agent fees and expenses....................................... 120,042
Shareholder reports and notices........................................ 32,102
Professional fees...................................................... 28,836
Custodian fees......................................................... 18,888
Trustees' fees and expenses............................................ 5,828
Other.................................................................. 17,578
-----------
TOTAL EXPENSES..................................................... 6,209,044
LESS: EXPENSE OFFSET............................................... (18,826)
-----------
NET EXPENSES....................................................... 6,190,218
-----------
NET INVESTMENT INCOME.............................................. 21,498,568
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss...................................................... (831,780)
Net change in unrealized appreciation.................................. 1,550,609
-----------
NET GAIN........................................................... 718,829
-----------
NET INCREASE........................................................... $22,217,397
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, ENDED
1997 DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $21,498,568 $ 46,594,742
Net realized gain (loss)............................ (831,780) 3,510,899
Net change in unrealized appreciation............... 1,550,609 (20,341,641)
----------- ---------------
NET INCREASE.................................... 22,217,397 29,764,000
----------- ---------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income............................... (21,482,373) (46,863,352)
Net realized gain................................... -- (11,233,171)
----------- ---------------
TOTAL........................................... (21,482,373) (58,096,523)
----------- ---------------
Net decrease from transactions in shares of
beneficial interest................................ (50,479,862) (50,846,165)
----------- ---------------
NET DECREASE.................................... (49,744,838) (79,178,688)
NET ASSETS:
Beginning of period................................. 975,702,205 1,054,880,893
----------- ---------------
END OF PERIOD
(Including undistributed net investment income
of $16,195 and $0, respectively)................ $925,957,367 $ 975,702,205
============ ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1997 (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> 15
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1997 (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 but not exceeding $1.25 billion; and 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> 16
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1997 (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. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the Fund's
shares or who service shareholder accounts, including overhead and telephone
expenses, 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 utilize fees paid
pursuant to the Plan to compensate DWR and other selected broker-dealers for
their opportunity costs in advancing such amounts, which compensation would be
in the form of a carrying charge on any unreimbursed distribution expenses.
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.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, including carrying charges, totaled $1,512,656 at
June 30, 1997.
The Distributor has informed the Fund that for the six months ended June 30,
1997, it received approximately $602,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
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, 1997 aggregated
$28,116,800 and $89,937,782, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 1997, the Fund had
transfer agent fees and expenses payable of approximately $17,000.
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
<PAGE> 17
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1997 (unaudited) continued
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, 1997 included in Trustees' fees and expenses in
the Statement of Operations amounted to $993. At June 30, 1997, the Fund had an
accrued pension liability of $47,510 which is included in accrued expenses in
the Statement of Assets and Liabilities.
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, 1997 DECEMBER 31, 1996
--------------------------- -----------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Sold........................................................ 2,799,992 $ 34,894,371 6,335,468 $ 79,395,308
Reinvestment of dividends and distributions................. 885,067 11,023,584 2,574,842 32,170,169
----------- -------------- ------------ ------------
3,685,059 45,917,955 8,910,310 111,565,477
Repurchased................................................. (7,723,827) (96,397,817) (12,976,452) (162,411,642)
----------- -------------- ------------ ------------
Net decrease................................................ (4,038,768) $(50,479,862) (4,066,142) $ (50,846,165)
=========== ============== ============ ============
</TABLE>
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $305,000 during fiscal 1996.
As of December 31, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
7. SUBSEQUENT EVENT
On June 30, 1997, the Fund's Board of Trustees approved a proposal to adopt a
multiple class share structure. Through this arrangement, the Fund will offer
four classes of shares with various sales charges, ongoing fees and other
features. This conversion occurred on July 28, 1997.
<PAGE> 18
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, -------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $12.57 $12.92 $11.87
------ ------ ------
Net investment income........................................... 0.29 0.58 0.61
Net realized and unrealized gain (loss)......................... 0.02 (0.21) 1.13
------ ------ ------
Total from investment operations................................ 0.31 0.37 1.74
------ ------ ------
Less dividends and distributions from:
Net investment income........................................ (0.29) (0.58) (0.61)
Net realized gain............................................ -- (0.14) (0.08)
------ ------ ------
Total dividends and distributions............................... (0.29) (0.72) (0.69)
------ ------ ------
Net asset value, end of period.................................. $12.59 $12.57 $12.92
====== ====== ======
TOTAL INVESTMENT RETURN+........................................ 2.42%(1) 3.13% 14.96%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................................ 1.33%(2) 1.32%(3) 1.33%
Net investment income........................................... 4.61%(2) 4.66%(3) 4.90%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions.......................... $926 $976 $1,055
Portfolio turnover rate......................................... 3%(1) 11% 23%
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $13.31 $12.70 $12.46
------ ------ ------
Net investment income........................................... 0.64 0.67 0.69
Net realized and unrealized gain (loss)......................... (1.42) 0.70 0.26
------ ------ ------
Total from investment operations................................ (0.78) 1.37 0.95
------ ------ ------
Less dividends and distributions from:
Net investment income........................................ (0.64) (0.67) (0.69)
Net realized gain............................................ (0.02) (0.09) (0.02)
------ ------ ------
Total dividends and distributions............................... (0.66) (0.76) (0.71)
------ ------ ------
Net asset value, end of period.................................. $11.87 $13.31 $12.70
====== ====== ======
TOTAL INVESTMENT RETURN+........................................ (5.97)% 10.97% 7.83%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................................ 1.32% 1.27% 1.32%
Net investment income........................................... 5.10% 5.03% 5.45%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions.......................... $1,008 $1,190 $987
Portfolio turnover rate......................................... 12% 10% 6%
</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) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 19
(This page has been left blank intentionally)
<PAGE> 20
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
Joseph R. Arcieri
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
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
CALIFORNIA
TAX-FREE
INCOME FUND
[PHOTO]
Semiannual Report
June 30, 1997
