<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND TWO WORLD TRADE CENTER, NEW YORK,
NEW YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Dean Witter
California Tax-Free Income Fund for the year ended December 31, 1996.
After accelerating in the first half of 1996, domestic economic growth moderated
during the summer. Inflation remained under control despite full employment and
stronger growth in the fourth quarter. The need for a tightening move by the
Federal Reserve Board abated. Market confidence improved under these conditions
and fixed-income yields moved lower in the second half of the year.
MUNICIPAL MARKET CONDITIONS
Long insured revenue bond yields rose from 5.40 percent in February to reach
6.15 percent in April and again in mid-June. Subsequently, demand for municipal
bonds improved and followed the trend of U.S. Treasury securities to lower
rates. By the end of December, insured bond yields stood at 5.60 percent. The
yield pickup for extending maturities from 1 to 30 years was 210 basis points at
year end.
The ratio of insured revenue bond yields to 30-year U.S. Treasury yields, fell
from 92 to 84 percent during the year. A declining ratio means that municipal
bond prices outperformed U.S. Treasury prices. The ratio's average range for the
past three years has been as low (rich) as 81 and as high (cheap) as 92 percent.
The relative improvement in municipals occurred when flat-tax proposals failed
to gain public support.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000
<S> <C> <C> <C>
($ IN THOUSANDS)
FUND LEHMAN(4) LIPPER(5)
Dec-86 10000 10000 10000
9730 10151 9888
Dec-88 10823 11182 10947
11855 12389 12015
Dec-90 12530 13292 12800
13805 14906 14232
Dec-92 14886 16220 15442
16519 18212 17399
Dec-94 15533 17271 16143
17857 20286 19114
Dec-96 18415 21185 19816
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-5%, 5
years-2%, 10 years-0%). See the Fund's current prospectus for complete
details on fees and sales charges.
(3) Closing value assuming a complete redemption on December 31, 1996.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or more and a minimum credit rating of Baa
or BBB, as measured by Moody's Investors Service, Inc. or Standard & Poor's
Corp. The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(5) The Lipper California Municipal Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper California Muni Debt Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this Index.
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
The municipal market achieved a balance between new-issue supply and maturing
securities in 1996. New-issue volume increased by 14 percent to $183 billion.
Maturities and redemptions of older issues essentially matched underwriting
volume. California remained the state with the greatest new-issue volume.
Underwriting in the state totaled $25 billion for the year and represented 14
percent of national volume.
PERFORMANCE
Dean Witter California Tax-Free Income Fund's total return for the fiscal year
ended December 31, 1996 was 3.13 percent. The Fund's net asset value declined
from $12.92 to $12.57 per share. Tax-free dividends of $0.58 per share and
taxable long-term capital gains distributions of $0.14 per share
were paid during the period. Dividends from
tax-exempt income gave the Fund a positive
total return. The trailing 30-day SEC yield
and distribution yield on December 31, 1996
were 4.07 percent and 4.60 percent,
respectively.
Since its inception on July 11, 1984, the Fund has provided shareholders with an
average annual total return of 8.54 percent. The accompanying chart illustrates
the performance of $10,000 investment in the Fund for the 10 years ended
December 31, 1996, versus the performance of a similar hypothetical investment
in the issues comprising the Lehman Brothers Municipal Bond Index, as well as
the performance of the Lipper Analytical Services, Inc. California Municipal
Debt Funds Index.
PORTFOLIO STRUCTURE
The Fund's net assets of $976 million were diversified among 12 long-term
sectors and 77 credits. The Fund's cash and short-term investment position was
increased to a range of 5 to 10 percent during 1996 in response to market
volatility. Portfolio sales shifted to more market sensitive issues. The sales
of discount and current-coupon issues exceeded sales of defensive, higher-coupon
bonds with shorter calls. New purchases focused on securities with 15- to
25-year maturities rather than 20- to 30-year maturities. Modest discount or
premium bonds with shorter durations were favored.
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FIVE LARGEST SECTORS as of December 31, 1996
<S> <C>
(% of Net Assets)
Water & Sewer 13%
Hospital 9%
Electric 8%
All Others 40%
Refunded 15%
Transportation 15%
Portfolio structure is subject to change.
CREDIT RATINGS as of December 31, 1996
(% of Total Long-Term Portfolio)
Aaa or AAA 53%
A or A 16%
Baa or BBB 12%
Not Rated* 2%
Aa or AA 17%
As measured by Moody's Investors 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>
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
During the year the average maturity of the long-term portfolio moved from 19 to
17 years. The portfolio's distribution of older, shorter-call issues and newer
issues with longer call dates provided an average call protection of 6 years.
Bonds with shorter than average call protection had book yields in excess of
6.50 percent. The book yields of bonds with longer call protection averaged
under 6 percent. The portfolio has continued to maintain high-quality, with
nearly 70 percent of its long-term holdings rated double "A" or better.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CALL STRUCTURE AS OF DECEMBER 31, 1996
<S> <C>
(% OF TOTAL LONG-TERM PORTFOLIO)
YEARS PERCENT CALLABLE
1997 6%
1998 5%
1999 6%
2000 6%
2001 9%
2002 15%
2003 14%
2004 4%
2005 16%
2006 8%
2007-2011 6%
2012+ 5%
</TABLE>
LOOKING AHEAD
With the collapse of flat-tax proposals, municipal bonds have improved relative
to U.S. Treasury securities. Tax-free yields are currently near the "rich" end
of their average range versus Treasury yields. Under these conditions, the Fund
has accumulated an above average cash position and has moved to shorter
maturities. If municipals were to cheapen in the future, the fund would likely
draw down some of its cash and extend maturities in seeking opportunities to
pick up income.
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,
[SIGNATURE]
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (92.8%)
GENERAL OBLIGATION (5.0%)
California,
$ 5,000 Ser 1990............................................................ 7.00% 08/01/07 $ 5,827,250
5,000 Ser 1990............................................................ 7.00 08/01/08 5,856,500
2,000 Ser AT.............................................................. 9.50 02/01/10 2,755,180
10,000 Various Purpose dtd 04/01/93 (FSA).................................. 5.50 04/01/19 9,760,900
15,000 Ser 1996 (AMBAC).................................................... 5.25 06/01/21 14,420,850
4,000 Santa Margarita/Dana Point Authority, Impr Dists #3, 3A, 4 & 4A 1994
Ser B Refg (MBIA)................................................... 5.75 08/01/20 4,023,200
6,000 Santa Margarita Water District, Impr Dists #3 & 4 Refg Ser 1986....... 7.50 11/01/05 6,204,000
------------
- ---------
48,847,880
47,000
------------
- ---------
EDUCATIONAL FACILITIES REVENUE (4.1%)
California Educational Facilities Authority,
1,750 Loyola Marymount University Ser 1992 B.............................. 6.55 10/01/12 1,869,437
2,300 Loyola Marymount University Ser 1992 B.............................. 6.60 10/01/22 2,457,872
3,000 Stanford University Ser I........................................... 6.75 01/01/13 3,184,410
2,000 University of Southern California Ser 1997 A (WI)................... 5.70 10/01/15 1,976,300
3,500 University of Southern California Ser 1989 A........................ 7.20 10/01/15 3,638,390
California Statewide Communities Development Authority,
3,400 Gemological Institute of America COPs (Connie Lee).................. 6.00 05/01/20 3,480,138
4,100 Gemological Institute of America COPs (Connie Lee).................. 6.00 05/01/25 4,196,637
10,000 University of California, Multiple Purpose Refg Ser 1993 C (AMBAC).... 5.125 09/01/18 9,336,000
10,000 Whittier, Whittier College Refg Ser 1993 (Connie Lee)................. 5.40 12/01/18 9,459,400
------------
- ---------
39,598,584
40,050
------------
- ---------
ELECTRIC REVENUE (8.2%)
13,000 Los Angeles Department of Water & Power, Second Issue of 1993......... 5.40 11/15/13 12,648,480
5,000 Northern California Power Agency, Hydro #1 1993 Refg Ser A (MBIA)..... 5.50 07/01/16 4,923,650
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA).............................................. 5.75 01/01/11 5,877,612
26,000 Refg 1992 Ser A (FGIC).............................................. 6.30 08/15/18 27,526,720
Southern California Public Power Authority,
7,000 Mead-Adelanto 1994 Ser A............................................ 5.15 07/01/15 6,725,670
1,750 Transmission Refg Ser 1988 (FGIC)................................... 0.00 07/01/06 1,084,580
Puerto Rico Electric Power Authority,
9,000 Power Ser O......................................................... 5.00 07/01/12 8,331,030
9,000 Power Ser X......................................................... 6.125 07/01/21 9,220,500
4,000 Power Ser X......................................................... 5.50 07/01/25 3,828,280
------------
- ---------
80,166,522
80,450
------------
- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HOSPITAL REVENUE (8.9%)
$ 7,100 Antelope Valley Hospital District, Ser 1989 COPs...................... 7.35% 01/01/20 $ 7,392,378
Bakersfield,
1,750 Bakersfield Memorial Hospital Ser 1992 A............................ 6.375 01/01/12 1,829,713
2,000 Bakersfield Memorial Hospital Ser 1992 A............................ 6.50 01/01/22 2,088,960
7,600 Berkeley, Alta Bates Medical Center Refg Ser A........................ 6.50 12/01/11 7,812,116
California Health Facilities Financing Authority,
5,000 Children's Hospital - San Diego Refg Ser 1996 (MBIA)................ 5.375 07/01/16 4,879,100
3,500 Sutter/CHS Ser 1996 A (MBIA)........................................ 5.875 08/15/16 3,581,165
20,000 Desert Hospital District, Desert Hospital Corp Ser 1992 COPs (FSA).... 6.392 07/28/20 21,197,000
Duarte,
3,000 City of Hope National Medical Center Ser 1993 COPs.................. 5.50 04/01/01 3,021,150
4,000 City of Hope National Medical Center Ser 1993 COPs.................. 6.25 04/01/23 4,037,200
6,000 Eden Township Hospital District, Ser 1989............................. 7.40 11/01/19 6,333,060
Madera County,
7,500 Valley Children's Hospital Ser 1995 COPs (MBIA)..................... 6.50 03/15/15 8,364,225
2,000 Valley Children's Hospital Ser 1995 COPs (MBIA)..................... 6.125 03/15/23 2,091,660
2,950 Rancho Mirage Joint Powers Financing Authority, Eisenhower Memorial
Hospital Ser 1992 COPs.............................................. 7.00 03/01/22 3,193,729
2,000 Stockton, Dameron Hospital Assn Refg Ser 1988......................... 8.25 12/01/00 2,092,400
9,000 University of California, UCLA Medical Center Refg Ser 1994 (MBIA).... 5.50 12/01/14 8,898,570
------------
- ---------
86,812,426
83,400
------------
- ---------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (5.4%)
California Pollution Control Financing Authority,
5,000 Atlantic Richfield Co Ser 1996 A.................................... 5.00 04/01/08 4,898,550
6,000 Pacific Gas & Electric Co 1987 Ser B (AMT).......................... 8.875 01/01/10 6,321,720
3,000 San Diego Gas and Electric Co 1996 Ser A............................ 5.90 06/01/14 3,143,520
5,000 Southern California Edison Co 1988 Ser A (AMT)...................... 6.90 09/01/06 5,333,950
10,000 Southern California Edison Co 1987 Ser D............................ 6.85 12/01/08 10,645,600
10,000 Southern California Edison Co 1992 Ser B (AMT)...................... 6.40 12/01/24 10,421,000
5,000 Waste Management Inc 1991 Ser A (AMT)............................... 7.15 02/01/11 5,444,900
1,400 Intermodal Container Transfer Facility Joint Powers Authority,
Southern Pacific Transportation Co 1989 Ser A....................... 7.70 11/01/14 1,489,390
5,000 San Diego, San Diego Gas & Electric Co 1987 Ser A (AMT)............... 8.75 03/01/23 5,227,800
------------
- ---------
52,926,430
50,400
------------
- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE REVENUE - SINGLE FAMILY (4.6%)
California Housing Finance Agency,
$ 9,000 Home 1995 Ser J (AMBAC)............................................. 6.00% 08/01/17 $ 9,147,510
5,120 Home 1989 Ser A..................................................... 7.75 08/01/17 5,397,606
7,000 Home 1995 Ser M (AMT) (MBIA)........................................ 6.15 08/01/27 7,072,380
9,215 Home 1995 Ser K (AMT)(AMBAC)........................................ 6.25 08/01/27 9,385,754
4,275 Home 1991 Ser G (AMT)............................................... 7.05 08/01/27 4,478,063
7,000 Purchase 1995 Ser B-2 (AMT)......................................... 6.30 08/01/24 7,158,270
Puerto Rico Housing Finance Corporation,
1,115 Portfolio One GNMA-Backed Ser B..................................... 7.65 10/15/22 1,171,921
665 Portfolio One GNMA-Backed Ser C..................................... 6.85 10/15/23 697,139
------------
- ---------
44,508,643
43,390
------------
- ---------
PUBLIC FACILITIES REVENUE (5.8%)
10,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA)...... 5.65 06/01/15 9,808,900
1,875 Campbell Redevelopment Agency, 1991 Financing COPs.................... 6.75 10/01/17 2,005,463
3,000 El Dorado County Public Agency Financing Authority, 1996 (FGIC)....... 5.50 02/15/21 2,948,670
5,560 Grossmont Union High School District, Land Acquisition COPs (FSA)..... 7.375 09/01/25 5,797,356
Los Angeles County,
5,400 1991 Master Refg COPs............................................... 6.708 05/01/15 5,578,200
9,500 Public Properties Refg of 1987 COPs................................. 0.00 04/01/04 5,862,545
5,500 Los Angeles County-West Covina Civic Center Authority, 1987 Refg
COPs................................................................ 6.875 09/01/14 5,669,785
6,500 Nevada County, Western Nevada County Solid Waste Mgmt 1991 COPs....... 7.50 06/01/21 6,734,585
10,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C....... 6.375 09/01/13 10,430,900
1,200 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1988
A................................................................... 7.90 07/01/07 1,287,360
------------
- ---------
56,123,764
58,535
------------
- ---------
TAX ALLOCATION (6.8%)
5,000 Fountain Valley Agency for Community Development, 1985 Industrial
Area................................................................ 9.10 01/01/15 5,163,650
Garden Grove Community Development Agency,
5,000 Refg Issue of 1993.................................................. 5.70 10/01/13 4,868,100
7,000 Refg Issue of 1993.................................................. 5.875 10/01/23 6,819,750
Industry Urban-Development Agency,
10,000 Civic Rec-Ind Redev Proj #1 Sub Refg Ser 1987 A..................... 7.30 05/01/06 10,262,600
2,165 Civic Rec-Ind Redev Proj #1 Sub Refg Ser 1987 B..................... 7.375 05/01/15 2,221,203
25,500 Long Beach Financing Authority, Ser 1992 (AMBAC)...................... 6.00 11/01/17 27,297,750
9,585 Pleasanton Joint Powers Financing Authority, Reassessment 1993 Ser
A................................................................... 6.15 09/02/12 9,875,905
------------
- ---------
66,508,958
64,250
------------
- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION FACILITIES REVENUE (15.4%)
$ 5,000 Contra Costa Transportation Authority, Sales Tax 1993 Ser A (FGIC).... 6.00% 03/01/09 $ 5,408,550
15,000 Foothills/Eastern Transportation Corridor Agency, Toll Road
Sr Lien Ser 1995 A.................................................. 6.00 01/01/34 15,011,100
Long Beach,
11,000 Harbor Ser 1989 A (AMT)............................................. 7.375 05/15/09 11,657,360
10,000 Harbor Ser 1989 A (AMT)............................................. 7.25 05/15/19 10,557,700
20,000 Harbor Ser 1995 (AMT) (MBIA)........................................ 5.25 05/15/25 18,607,600
10,000 Los Angeles, Department of Airports Refg 1985 Ser A (FGIC)............ 5.50 05/15/09 10,221,400
Los Angeles County Transportation Commission,
20,000 Sales Tax Ser 1991 B................................................ 6.50 07/01/13 21,191,600
5,000 Sales Tax Ser 1986 A................................................ 6.25 07/01/16 5,002,200
5,000 Orange County, Airport Refg Ser 1997 (MBIA) (WI)...................... 5.50 07/01/11 4,862,100
20,000 San Diego County Regional Transportation Commission, Sales Tax
1994 Ser A (FGIC)................................................... 4.75 04/01/08 19,288,600
5,000 San Francisco Airports Commission, San Francisco Int'l Airport Second
Ser Refg Issue 4 (MBIA)............................................. 6.00 05/01/20 5,154,800
San Francisco Bay Area Rapid Transit District,
5,000 Sales Tax Ser 1990 (AMBAC).......................................... 6.75 07/01/09 5,419,000
5,000 Sales Tax Ser 1995 (FGIC)........................................... 5.50 07/01/15 4,948,550
4,000 Sales Tax Ser 1995 (FGIC)........................................... 5.50 07/01/20 3,932,680
10,000 Puerto Rico Highway & Transportation Authority, Refg Ser X............ 5.25 07/01/21 9,224,100
------------
- ---------
150,487,340
150,000
------------
- ---------
WATER & SEWER REVENUE (13.0%)
California Department of Water Resources,
4,000 Central Valley Ser F................................................ 6.00 12/01/11 4,041,880
6,870 Central Valley Ser J-2.............................................. 6.125 12/01/13 7,150,708
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA)................ 6.00 08/01/18 8,276,320
6,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC)................ 5.00 10/01/16 5,654,640
10,000 Contra Costa Water District, Ser G (MBIA)............................. 5.50 10/01/19 9,795,800
East Bay Municipal Utility District,
11,000 Water Refg Ser 1992................................................. 6.00 06/01/20 11,256,740
3,000 Water Refg Ser 1996 (FGIC).......................................... 5.00 06/01/26 2,766,030
4,000 Eastern Municipal Water District, Water & Sewer Ser 1991 COPs......... 6.00 07/01/23 4,051,440
5,745 Los Angeles, Wastewater Ser 1990...................................... 7.10 06/01/18 6,168,464
15,000 Los Angeles County Sanitation Districts Financing Authority, 1993 Ser
A................................................................... 5.375 10/01/13 14,650,800
Metropolitan Water District of Southern California,
5,500 Water Refg 1996 Ser B (MBIA)........................................ 5.00 07/01/14 5,276,975
5,500 Water Refg 1996 Ser B (MBIA)........................................ 5.00 07/01/15 5,238,420
10,000 San Diego, Sewer 1993 Ser A........................................... 5.25 05/15/20 9,324,400
8,000 San Diego County Water Authority, Ser 1991 B COPs (MBIA).............. 6.30 04/08/21 8,484,960
10,000 San Diego Public Facilities Financing Authority, Sewer Ser 1995
(FGIC).............................................................. 5.00 05/15/25 9,204,700
San Francisco Public Utilities Commission,
5,750 Water 1992 Refg Ser A............................................... 6.00 11/01/15 5,897,085
10,870 Water 1996 Ser A.................................................... 5.00 11/01/21 10,082,360
------------
- ---------
127,321,722
129,235
------------
- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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 $ 5,188,200
------------
- ---------
REFUNDED (15.1%)
2,630 California Department of Water Resources, Central Valley Ser J-2...... 6.125 06/01/01++ 2,847,711
5,000 California Health Facilities Financing Authority, St Joseph Health Ser
1991 A.............................................................. 6.75 07/01/01++ 5,557,200
8,000 California Public Works Board, California State University 1992 Ser
A................................................................... 6.70 10/01/02++ 9,057,120
10,000 Central Coast Water Authority, Ser 1992 (AMBAC)....................... 6.50 10/01/02++ 11,246,900
Los Angeles,
6,000 Harbor Department Issue of 1985..................................... 8.70 09/01/99++ 6,673,380
10,000 Wastewater Ser 1990-B............................................... 7.15 06/01/00++ 11,116,500
Los Angeles Convention & Exhibition Center Authority,
10,000 Ser 1985 COPs....................................................... 9.00 12/01/05++ 13,188,100
14,000 Ser 1985 COPs....................................................... 9.00 12/01/05++ 18,463,340
10,000 Los Angeles County Transportation Commission, Sales Tax Ser 1987 A.... 6.75 07/01/02++ 11,325,900
5,000 Los Angeles Department of Water & Power, Water Works Issue of 1991
(Crossover 04/01/01)................................................ 7.00 04/01/31 5,556,850
10,000 Northern California Transmission Agency, California-Oregon 1990 Ser A
(MBIA).............................................................. 7.00 05/01/00++ 11,005,500
5,250 Southern California Public Power Authority (ETM)...................... 0.00 07/01/06 3,253,740
11,000 University of California, Multiple Purpose Refg Ser A................. 6.875 09/01/02++ 12,491,930
10,000 Puerto Rico Aqueduct & Sewer Authority, Ser 1988 A.................... 7.875 07/01/98++ 10,787,700
13,000 Puerto Rico Highway Authority, Ser Q.................................. 7.75 07/01/00++ 14,739,790
------------
- ---------
147,311,661
129,880
------------
- ---------
TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $855,741,053)...................
881,590 905,802,130
- --------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (6.8%)
$ 12,000 California Health Facilities Financing Authority, Sutter Health Ser
1990 B (Demand 01/02/97)............................................ 5.10*% 03/01/26 $ 12,000,000
California Pollution Control Finance Authority,
9,500 Pacific Gas & Electric Co Ser 1996 F (Demand 01/02/97).............. 4.80* 11/01/26 9,500,000
12,000 Southern California Edison Co Ser 1996 A (Demand 01/02/97).......... 4.50* 02/28/08 12,000,000
33,000 Newport Beach, Hoag Memorial Hospital Presbyterian Ser 1992
(Demand 01/02/97)................................................... 5.15* 10/01/22 33,000,000
------------
- ---------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $66,500,000)................................................................
66,500 66,500,000
- --------- ------------
$948,090 TOTAL INVESTMENTS (IDENTIFIED COST $922,241,053) (a).................. 99.6% 972,302,130
- ---------
- ---------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................ 0.4 3,400,075
------ ------------
NET ASSETS............................................................ 100.0% $975,702,205
------ ------------
------ ------------
<FN>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to Maturity.
WI Security purchased on a when issued basis.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$53,066,998 and the aggregate gross unrealized depreciation is
$3,005,921, resulting in net unrealized appreciation of
$50,061,077.
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>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $922,241,053)............................ $972,302,130
Cash........................................................ 476,220
Receivable for:
Interest................................................ 14,580,573
Shares of beneficial interest sold...................... 295,986
Investments sold........................................ 40,765
Prepaid expenses and other assets........................... 23,545
------------
TOTAL ASSETS........................................... 987,719,219
------------
LIABILITIES:
Payable for:
Investments purchased................................... 6,884,447
Dividends and distributions............................. 3,390,438
Plan of distribution fee................................ 642,082
Shares of beneficial interest repurchased............... 520,860
Investment management fee............................... 455,350
Accrued expenses and other payables......................... 123,837
------------
TOTAL LIABILITIES...................................... 12,017,014
------------
NET ASSETS:
Paid-in-capital............................................. 925,945,926
Net unrealized appreciation................................. 50,061,077
Accumulated net realized loss............................... (304,798)
------------
NET ASSETS............................................. $975,702,205
------------
------------
NET ASSET VALUE PER SHARE,
77,591,489 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$12.57
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 59,806,976
------------
EXPENSES
Plan of distribution fee.................................... 7,504,744
Investment management fee................................... 5,313,150
Transfer agent fees and expenses............................ 238,582
Custodian fees.............................................. 73,674
Shareholder reports and notices............................. 59,142
Professional fees........................................... 52,081
Trustees' fees and expenses................................. 17,592
Registration fees........................................... 5,615
Other....................................................... 21,234
------------
TOTAL EXPENSES......................................... 13,285,814
LESS: EXPENSE OFFSET................................... (73,580)
------------
NET EXPENSES........................................... 13,212,234
------------
NET INVESTMENT INCOME.................................. 46,594,742
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 3,510,899
Net change in unrealized appreciation....................... (20,341,641)
------------
NET LOSS............................................... (16,830,742)
------------
NET INCREASE................................................ $ 29,764,000
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 46,594,742 $ 51,093,034
Net realized gain........................................... 3,510,899 15,612,579
Net change in unrealized appreciation/depreciation.......... (20,341,641) 78,220,453
----------------- -----------------
NET INCREASE........................................... 29,764,000 144,926,066
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (46,863,352) (50,973,219)
Net realized gain........................................... (11,233,171) (6,253,247)
----------------- -----------------
TOTAL.................................................. (58,096,523) (57,226,466)
----------------- -----------------
Net decrease from transactions in shares of beneficial
interest.................................................. (50,846,165) (40,657,242)
----------------- -----------------
NET INCREASE (DECREASE)................................ (79,178,688) 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 $0 AND
$268,610, RESPECTIVELY)................................. $ 975,702,205 $ 1,054,880,893
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
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.
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
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 average daily net assets not exceeding
$500 million; 0.525% to the portion of average daily net assets exceeding $500
million but not exceeding $750 million; 0.50% to the portion of average daily
net assets exceeding $750 million but not exceeding $1 billion; and 0.475% to
the portion of average daily net assets exceeding $1 billion. Effective May 1,
1996, the annual rate was reduced to 0.45% to the portion of average 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
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
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 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.
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 $3,649,503 at
December 31, 1996.
The Distributor has informed the Fund that for the year ended December 31, 1996,
it received approximately $1,325,000 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 year ended December 31, 1996 aggregated
$105,636,105 and $197,934,653, respectively.
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $23,000.
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 year ended December 31, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $933. At December 31, 1996, the Fund had an accrued pension liability of
$48,878 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 YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 6,335,468 $ 79,395,308 7,610,885 $ 95,058,902
Reinvestment of dividends and distributions...................... 2,574,842 32,170,169 2,505,960 31,541,595
----------- -------------- ----------- ------------
8,910,310 111,565,477 10,116,845 126,600,497
Repurchased...................................................... (12,976,452) (162,411,642) (13,380,382) (167,257,739)
----------- -------------- ----------- ------------
Net decrease..................................................... (4,066,142) $ (50,846,165) (3,263,537) $(40,657,242)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</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.
<PAGE>
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 YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period..... $ 12.92 $11.87 $13.31 $12.70 $12.46 $11.99 $12.05 $11.68 $11.19 $12.25
---------- ------- -------- ------- ------- ------- ------- ------- ------- --------
Net investment income.... 0.58 0.61 0.64 0.67 0.69 0.71 0.72 0.71 0.72 0.72
Net realized and
unrealized gain
(loss).................. (0.21) 1.13 (1.42) 0.70 0.26 0.48 (0.06) 0.37 0.50 (1.06)
---------- ------- -------- ------- ------- ------- ------- ------- ------- --------
Total from investment
operations.............. 0.37 1.74 (0.78) 1.37 0.95 1.19 0.66 1.08 1.22 (0.34)
---------- ------- -------- ------- ------- ------- ------- ------- ------- --------
Less dividends and
distributions from:
Net investment
income................ (0.58) (0.61) (0.64) (0.67) (0.69) (0.71) (0.72) (0.71) (0.72) (0.72)
Net realized gain..... (0.14) (0.08) (0.02) (0.09) (0.02) (0.01) -- -- (0.01) --
---------- ------- -------- ------- ------- ------- ------- ------- ------- --------
Total dividends and
distributions........... (0.72) (0.69) (0.66) (0.76) (0.71) (0.72) (0.72) (0.71) (0.73) (0.72)
---------- ------- -------- ------- ------- ------- ------- ------- ------- --------
Net asset value,
end of period........... $ 12.57 $12.92 $11.87 $13.31 $12.70 $12.46 $11.99 $12.05 $11.68 $11.19
---------- ------- -------- ------- ------- ------- ------- ------- ------- --------
---------- ------- -------- ------- ------- ------- ------- ------- ------- --------
TOTAL INVESTMENT
RETURN+.................. 3.13% 14.96% (5.97)% 10.97% 7.83% 10.18% 5.69% 9.54% 11.23% (2.70)%
RATIOS TO AVERAGE
NET ASSETS:
Expenses................. 1.32%(1) 1.33% 1.32% 1.27% 1.32% 1.28% 1.30% 1.32% 1.34% 1.35%
Net investment income.... 4.66% 4.90% 5.10% 5.03% 5.45% 5.78% 5.98% 6.00% 6.31% 6.27%
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions..... $976 $1,055 $1,008 $1,190 $ 987 $ 834 $ 677 $ 567 $ 430 $ 365
Portfolio turnover
rate.................... 11% 23% 12% 10% 6% 3% 16% 13% 13% 23%
<FN>
- ---------------------
+ 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) The above ratio does not reflect the effect of expense offsets of 0.01%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter California Tax-Free
Income Fund (the "Fund") at December 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the ten years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 10, 1997
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 1996, the Fund paid to the
shareholders $0.58 per share from net investment income. All of
the Fund's dividends from net investment income were exempt
interest dividends, excludable from gross income for Federal
income tax purposes. For the year ended December 31, 1996, the
Fund paid to shareholders $0.14 per share from long-term capital
gains.
<PAGE>
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
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
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
(The following charts below represent information which appears in graph
form in the printed report)
A pie chart reflecting the credit quality of the portfolio as rated by
Moody's or Standard & Poors Credit Ratings as of December 31, 1996.
FIVE LARGEST SECTORS PERCENT
-------------------- -------
All others 40%
Refunded 15%
Transportation 15%
Water & Sewer 13%
Hospital 9%
Electric 8%
CREDIT RATING PERCENT
------------- -------
Aaa or AAA 53%
Aa or AA 17%
A or A 16%
Baa or BBB 12%
Not rated 2%
A bar graph reflecting the Call Structure as of December 31, 1996, of the
total Long-Term Portfolio:
YEAR % OF TOTAL LONG TERM PORTFOLIO
---- ------------------------------
1997 6%
1998 5%
1999 6%
2000 6%
2001 9%
2002 15%
2003 14%
2004 4%
2005 16%
2006 8%
2007-2011 6%
2012 + 5%
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND FUND
GROWTH OF $10,000
DATE TOTAL LEHMAN IX LIPPER IX
- -------------------------------------------------------------------------------
December 31, 1986 $10,000 $10,000 $10,000
- -------------------------------------------------------------------------------
December 31, 1987 $9,730 $10,151 $9,868
- -------------------------------------------------------------------------------
December 31, 1988 $10,823 $11,182 $10,947
- -------------------------------------------------------------------------------
December 31, 1989 $11,855 $12,389 $12,015
- -------------------------------------------------------------------------------
December 31, 1990 $12,530 $13,292 $12,800
- -------------------------------------------------------------------------------
December 31, 1991 $13,805 $14,906 $14,232
- -------------------------------------------------------------------------------
December 31, 1992 $14,886 $16,220 $15,442
- -------------------------------------------------------------------------------
December 31, 1993 $16,519 $18,212 $17,399
- -------------------------------------------------------------------------------
December 31, 1994 $15,533 $17,271 $16,143
- -------------------------------------------------------------------------------
December 31, 1995 $17,857 $20,286 $19,114
- -------------------------------------------------------------------------------
December 31, 1996 $18,415(3) $21,185 $19,815
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------
3.13(1) 5.93(1) 6.30(1)
-------------------------------------------------------
-1.74(2) 5.61(2) 6.30(2)
-------------------------------------------------------
-----------------------------------------------------------------
________ Fund ________ Lehman IX (4) ________ Lipper IX (5)
-----------------------------------------------------------------
Past performance is not predictive of future returns.
_____________________________________
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable contingent deferred sales charge (CDSC)
(1 year-5%, 5 years-2%, 10 years-0).See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value, assuming a complete redemption on December 31, 1996.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of
municipal bonds with maturities of 2 years or more and a minimum credit
rating of Baa or BBB, as measured by Moody's Investors Service, Inc.
or Standard & Poor's Corp.The Index does not include any expenses, fees,
or charges. The Index is unmanaged and should not be considered an
investment.
(5) The Lipper California Muni Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets)
in the Lipper California Municipal Debt Funds objective. The Index, which
is adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment.There are currently
30 funds represented in this index.
