<PAGE> 1
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 1998 New York, New York 10048
</TABLE>
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter California Tax-Free Income Fund for the period ended June
30, 1998.
The deflationary impact of the Asian financial crisis has begun to temper U.S.
economic growth. Although employment conditions strengthened in the United
States and unemployment declined to its lowest level since 1970, inflation
remained subdued. This was primarily the result of improved productivity, lower
oil costs and cheaper imports.
Foreign currency turmoil strengthened the value of the U.S. dollar and created
demand for U.S. Treasury securities. Municipal bonds followed the trend of
Treasuries, with yields declining to a range not seen in over 20 years. The bond
market rally was also aided by prospects of the first federal budget surplus in
more than two decades.
MUNICIPAL MARKET CONDITIONS
Long-term insured index yields stood at 5.20 percent at the end of June 1998.
Since the beginning of the year index yields have ranged from
BOND YIELDS 1994 - 1998
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.4% 6.34% 85.17%
5.4 6.24 86.54
5.8 6.66 87.09
6.4 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.5 7.61 85.41
6.25 7.39 84.57
6.3 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.2 7.34 84.47
5.8 6.66 87.09
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.9 6.89 85.63
5.85 6.97 83.93
5.9 7.11 82.98
5.7 6.93 82.25
5.65 6.64 85.09
5.5 6.35 86.61
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
a low of 5.15 percent in January to 5.35 percent in April. Insured index yields
were as high as 5.60 percent in June 1997.
The overall decline in interest rates led to an increase in new-issue municipal
volume. In contrast, U.S. Treasury borrowing needs have shrunk with the decline
in the budget deficit. Under these conditions the municipal rally lagged the
rally in Treasuries. The ratio of municipal yields to Treasury yields improved
from 83 percent in June 1997 to over 90 percent this June. A rising ratio means
that municipals have underperformed Treasuries and have become more attractive
on a relative basis.
For the year-to-date, total municipal volume of $141 billion is up 50 percent
from the same period last year. Underwriting was led by the record $3.4 billion
Long Island Power Authority issue. Half the underwritings were enhanced with
bond insurance. Refundings represented nearly one-third of total new issues.
California new-issue underwriting accounted for 12 percent of national volume.
PERFORMANCE
For the six-month period ended June 30, 1998 Morgan Stanley Dean Witter
California Tax-Free Income Fund's Class A, B, C and D Shares produced total
returns of 2.28 percent, 2.26 percent, 1.95 percent and 2.09 percent,
respectively. Performance of the Fund's share classes varies because of
differing expenses. Over the same period, the Lehman Brothers Municipal Bond
Index posted a total return of 2.69 percent, while the Lipper Analytical
Services, Inc. California Municipal Debt Funds Index registered a total return
of 2.45 percent. The Fund's net assets exceeded $903 million.
PORTFOLIO STRUCTURE
During the past six months portfolio duration, a measure of sensitivity to
interest rate changes, was extended from 6.8 years to 7.5 years. This was
primarily accomplished by selling refunded bonds to purchase new issues.
Refunded bonds were reduced from 19 percent to 9 percent of net assets.
Investments were diversified among 12 long-term sectors and 66 credits.
Throughout the period, high credit quality was maintained with over 75 percent
of its long-term holdings rated double or triple "A." The average maturity of
the portfolio was 18 years. As illustrated in the accompanying chart the
distribution of call dates produced 8 years of weighted average call protection.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
<TABLE>
<CAPTION>
LARGEST SECTORS AS OF JUNE 30, 1998
(% OF NET ASSETS)
<S> <C>
TRANSPORTATION 21%
WATER & SEWER 17%
ELECTRIC 10%
REFUNDED 9%
GENERAL OBLIGATION 6%
HOSPITAL 6%
TAX ALLOCATION 6%
IDR/PCR* 5%
MORTGAGE 5%
PUBLIC FACILITIES 5%
ALL OTHERS 10%
</TABLE>
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE
<TABLE>
<CAPTION>
CREDIT RATING AS OF JUNE 30, 1998
(% OF TOTAL LONG-TERM PORTFOLIO)
<S> <C>
Aaa or AAA 63%
Aa or AA 13%
A or A 12%
Baa or BBB 12%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
<TABLE>
<CAPTION>
CALL STRUCTURE AS OF JUNE 30, 1998
(% OF TOTAL LONG-TERM PORTFOLIO)
PERCENT CALLABLE
WEIGHTED AVERAGE
CALL PROTECTION: 8 YEARS
YEARS BONDS CALLABLE PERCENT CALLABLE
<S> <C>
1998 0%
1999 5%
2000 1%
2001 7%
2002 10%
2003 13%
2004 4%
2005 17%
2006 6%
2007 7%
2008 16%
2009+ 14%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
LOOKING AHEAD
The economic fundamentals are in place for another year of solid economic growth
in the United States. Events in Asia have strengthened the U.S. dollar and
contributed to lower interest rates. Furthermore, the Asian financial crisis
seems likely to continue to moderate inflationary pressures and provide a
favorable environment for municipal bonds. The Federal Reserve Board remains
sensitive to the risk of an acceleration in labor costs but has maintained its
neutral stance.
We appreciate your ongoing support of Morgan Stanley 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
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (92.7%)
General Obligation (5.8%)
California,
$ 5,000 Ser 1990................................................... 7.00 % 08/01/07 $ 5,948,250
5,000 Ser 1990................................................... 7.00 08/01/08 6,004,250
2,000 Ser AT..................................................... 9.50 02/01/10 2,879,200
2,400 Veterans Ser BH (AMT) (FSA)................................ 5.40 12/01/16 2,442,912
10,000 Various Purpose Dtd 04/01/93 (FSA)......................... 5.50 04/01/19 10,259,700
13,000 Ser 1996 (AMBAC)........................................... 5.25 06/01/21 13,019,370
3,000 Veterans Ser BD, BE & BF (AMT) (AMBAC)..................... 6.375 02/01/27 3,065,490
Santa Margarita/Dana Point Authority,
4,500 Impr Dists #2, 2A, 3 & 4 1997 Ser A (AMBAC)................ 5.125 08/01/18 4,463,550
4,000 Impr Dists #3, 3A, 4 & 4A 1994 Ser B Refg (MBIA)........... 5.75 08/01/20 4,208,200
- -------- -----------
48,900 52,290,922
- -------- -----------
Educational Facilities Revenue (4.0%)
California Educational Facilities Authority,
6,000 University of San Diego Ser 1998 (AMBAC)................... 5.00 10/01/22 5,859,420
2,000 University of Southern California 1997 Ser A............... 5.70 10/01/15 2,145,220
5,975 University of Southern California 1997 Ser C............... 5.125 10/01/28 5,897,564
4,000 California Public Works Board, University of California 1997
Ser C (AMBAC).............................................. 5.125 09/01/22 3,953,280
California Statewide Communities Development Authority,
3,400 Gemological Institute of America COPs (Connie Lee)......... 6.00 05/01/20 3,633,070
4,100 Gemological Institute of America COPs (Connie Lee)......... 6.00 05/01/25 4,381,055
10,000 University of California, Multiple Purpose Refg Ser 1993 C
(AMBAC)..................................................... 5.125 09/01/18 9,930,900
- -------- -----------
35,475 35,800,509
- -------- -----------
Electric Revenue (9.6%)
13,000 Los Angeles Department of Water & Power, Second Issue of
1993 (Secondary AMBAC)..................................... 5.40 11/15/13 13,386,100
5,000 Northern California Power Agency, Hydro #1 1993 Refg Ser A
(MBIA)..................................................... 5.50 07/01/16 5,146,200
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA)..................................... 5.75 01/01/11 6,133,143
26,000 Refg 1992 Ser A (FGIC)..................................... 6.30 08/15/18 28,270,060
Southern California Public Power Authority,
7,000 Mead-Adelanto 1994 Ser A................................... 5.15 07/01/15 7,199,080
1,750 Transmission Refg Ser 1988 (FGIC).......................... 0.00 07/01/06 1,230,478
5,000 Turlock Irrigation District, Refg 1998 Ser A (MBIA)......... 5.00 01/01/26 4,875,950
Puerto Rico Electric Power Authority,
9,000 Power Ser O................................................ 5.00 07/01/12 8,982,000
9,000 Power Ser X................................................ 6.125 07/01/21 9,859,500
2,000 Power Ser X................................................ 5.50 07/01/25 2,041,900
- -------- -----------
83,450 87,124,411
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Hospital Revenue (5.9%)
$10,000 Antelope Valley Healthcare District Refg Ser 1997 A (FSA)... 5.20 % 01/01/20 $ 9,948,700
Bakersfield,
1,750 Bakersfield Memorial Hospital Ser 1992 A................... 6.375 01/01/12 1,853,565
2,000 Bakersfield Memorial Hospital Ser 1992 A................... 6.50 01/01/22 2,118,340
California Health Facilities Financing Authority,
5,000 Stanford Health Care 1998 Ser A (FSA)...................... 5.00 11/15/28 4,847,850
3,500 Sutter/CHS Ser 1996 A (MBIA)............................... 5.875 08/15/16 3,769,605
Duarte,
3,000 City of Hope National Medical Center Ser 1993 COPs......... 5.50 04/01/01 3,095,460
4,000 City of Hope National Medical Center Ser 1993 COPs......... 6.25 04/01/23 4,240,640
7,500 Madera County, Valley Children's Hospital Ser 1995 COPs
(MBIA)..................................................... 6.50 03/15/15 8,876,550
Rancho Mirage Joint Powers Financing Authority,
3,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)........... 5.25 07/01/12 3,096,210
4,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)........... 5.25 07/01/17 4,029,920
7,000 University of California, UCLA Medical Center Refg Ser 1994
(MBIA)..................................................... 5.50 12/01/14 7,240,730
- -------- -----------
50,750 53,117,570
- -------- -----------
Industrial Development/Pollution Control Revenue (4.6%)
California Pollution Control Financing Authority,
5,000 Atlantic Richfield Co Ser 1996 A........................... 5.00 04/01/08 5,175,300
3,000 San Diego Gas and Electric Co 1996 Ser A................... 5.90 06/01/14 3,304,290
5,000 Southern California Edison Co 1988 Ser A (AMT)............. 6.90 09/01/06 5,252,850
10,000 Southern California Edison Co 1987 Ser D................... 6.85 12/01/08 10,495,400
10,000 Southern California Edison Co 1992 Ser B (AMT)............. 6.40 12/01/24 10,746,400
5,000 Waste Management Inc 1991 Ser A (AMT)...................... 7.15 02/01/11 5,407,300
1,400 Intermodal Container Transfer Facility Joint Powers
Authority, Southern Pacific Transportation Co 1989 Ser A... 7.70 11/01/14 1,479,884
- -------- -----------
39,400 41,861,424
- -------- -----------
Mortgage Revenue - Single Family (5.3%)
California Housing Finance Agency,
9,000 Home 1995 Ser J (AMBAC).................................... 6.00 08/01/17 9,515,610
4,715 Home 1989 Ser A............................................ 7.75 08/01/17 4,912,417
7,000 Purchase 1995 Ser B-2 (AMT)................................ 6.30 08/01/24 7,427,210
6,620 Home 1995 Ser M (AMT) (MBIA)............................... 6.15 08/01/27 6,987,344
8,275 Home 1995 Ser K (AMT) (AMBAC).............................. 6.25 08/01/27 8,774,396
3,915 Home 1991 Ser G (AMT)...................................... 7.05 08/01/27 4,138,468
California Rural Home Financing Authority,
2,320 1997 Ser D-CL 5 (AMT)...................................... 6.70 05/01/29 2,603,318
2,000 GNMA-Backed 1998 Ser A (AMT)............................... 5.75 12/01/29 2,179,000
Puerto Rico Housing Finance Corporation,
675 Portfolio One GNMA-Backed Ser B............................ 7.65 10/15/22 716,054
665 Portfolio One GNMA-Backed Ser C............................ 6.85 10/15/23 710,553
- -------- -----------
45,185 47,964,370
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public Facilities Revenue (4.6%)
Anaheim Public Financing Authority,
$ 4,000 Sub 1997 Ser C (FSA)....................................... 6.00 % 09/01/16 $ 4,509,480
20,000 Sub 1997 Ser C (FSA)........................................ 0.00 09/01/26 4,607,400
10,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A
(MBIA)..................................................... 5.65 06/01/15 10,420,900
5,000 California Public Works Board, Department of Corrections
1998 Ser B (MBIA).......................................... 5.00 09/01/21 4,885,600
9,500 Los Angeles County, Public Properties Refg of 1987 COPs..... 0.00 04/01/04 6,641,545
10,000 San Jose Financing Authority, Convention Center Refg 1993
Ser C...................................................... 6.375 09/01/13 10,671,900
- -------- -----------
58,500 41,736,825
- -------- -----------
Tax Allocation Revenue (6.1%)
5,000 Fountain Valley Agency for Community Development, 1985
Industrial Area............................................ 9.10 01/01/15 5,132,200
Garden Grove Community Development Agency,
5,000 Refg Issue of 1993......................................... 5.70 10/01/13 5,164,250
6,000 Refg Issue of 1993......................................... 5.875 10/01/23 6,190,380
25,500 Long Beach Financing Authority, Ser 1992 (AMBAC)............ 6.00 11/01/17 28,839,990
9,035 Pleasanton Joint Powers Financing Authority, Reassessment
1993 Ser A................................................. 6.15 09/02/12 9,702,596
- -------- -----------
50,535 55,029,416
- -------- -----------
Transportation Facilities Revenue (21.2%)
15,000 Foothills/Eastern Transportation Corridor Agency, Toll Road
Sr. Lien Ser 1995 A........................................ 6.00 01/01/34 15,879,600
Long Beach,
5,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/17 5,586,350
9,000 Harbor Refg Ser 1998 A (AMT) (FGIC)......................... 6.00 05/15/18 10,052,010
3,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/19 3,360,720
20,000 Harbor Ser 1995 (AMT) (MBIA)**............................. 5.25 05/15/25 19,998,800
10,000 Los Angeles, Department of Airports Refg 1985 Ser A
(FGIC)..................................................... 5.50 05/15/09 10,634,400
20,000 Los Angeles County Transportation Commission, Sales Tax Ser
1991 B..................................................... 6.50 07/01/13 21,444,200
5,000 Orange County, Airport Refg Ser 1997 (MBIA) (AMT)........... 5.50 07/01/11 5,283,350
20,000 San Diego County Regional Transportation Commission, Sales
Tax 1994 Ser A (FGIC)...................................... 4.75 04/01/08 20,469,200
San Francisco Airports Commission, San Francisco Int'l
Airport
5,000 Second Ser Refg Issue 4 (MBIA)............................. 6.00 05/01/20 5,405,250
13,970 Second Ser Issue 15 B (MBIA)................................ 4.50 05/01/25 12,637,541
San Francisco Bay Area Rapid Transit District,
5,000 Sales Tax Ser 1995 (FGIC).................................. 5.50 07/01/15 5,189,950
2,305 Sales Tax Ser 1995 (FGIC).................................. 5.50 07/01/20 2,372,583
10,000 Sales Tax Ser 1998 (AMBAC)................................. 4.75 07/01/23 9,427,700
San Joaquin Hills Transportation Corridor Agency,
6,000 Toll Road Refg Ser 1997 A (MBIA)........................... 0.00 01/15/15 2,595,720
10,000 Toll Road Refg Ser 1997 A (MBIA)........................... 0.00 01/15/26 2,380,400
13,450 Toll Road Refg Ser 1997 A (MBIA)........................... 5.25 01/15/30 13,471,251
10,000 Toll Road Refg Ser 1997 A (MBIA)........................... 0.00 01/15/31 1,834,300
10,000 Toll Road Senior Lien...................................... 5.00 01/01/33 9,527,100
15,000 Puerto Rico Highway & Transportation Authority, Ser 1998
A.......................................................... 4.75 07/01/38 14,107,800
- -------- -----------
207,725 191,658,225
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Water & Sewer Revenue (16.5%)
$ 6,870 California Department of Water Resources, Central Valley Ser
J-2........................................................ 6.125% 12/01/13 $ 7,264,338
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA)...... 6.00 08/01/18 8,634,240
6,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC)...... 5.00 10/01/16 5,956,980
10,000 Contra Costa Water District, Ser G (MBIA)................... 5.50 10/01/19 10,313,400
East Bay Municipal Utility District,
11,000 Water Refg Ser 1992........................................ 6.00 06/01/20 11,693,440
15,000 Water Ser 1998 (MBIA) (WI)................................. 4.75 06/01/34 13,975,650
10,000 Eastern Municipal Water District, Water & Sewer Refg Ser
1998 A COPs (FGIC)......................................... 4.75 07/01/23 9,427,700
5,745 Los Angeles, Wastewater Ser 1990............................ 7.10 06/01/18 6,013,636
15,000 Los Angeles County Sanitation Districts Financing Authority,
1993 Ser A................................................. 5.375 10/01/13 15,466,200
15,000 Metropolitan Water District of Southern California,
Waterworks 1997 Ser A....................................... 5.00 07/01/26 14,603,250
10,000 San Diego, Sewer 1993 Ser A................................. 5.25 05/15/20 9,999,400
San Diego County Water Authority,
1,500 Refg Ser 1997 A............................................ 4.75 05/01/18 1,425,885
3,650 Refg Ser 1997 A............................................ 4.75 05/01/20 3,455,090
10,000 San Diego Public Facilities Financing Authority, Sewer Ser
1995 (FGIC)................................................ 5.00 05/15/25 9,739,800
San Francisco Public Utilities Commission,
5,750 Water 1992 Refg Ser A...................................... 6.00 11/01/15 6,097,530
10,870 Water 1996 Ser A........................................... 5.00 11/01/21 10,620,425
5,000 Stockton Wastewater, 1998 Ser A COPs (MBIA)................. 5.00 09/01/23 4,873,850
- -------- -----------
149,385 149,560,814
- -------- -----------
Other Revenue (0.6%)
5,000 Orange County Community Facilities District #86-2, Rancho
- -------- Santa Margarita Ser A of 1990.............................. 7.65 08/15/17 5,421,300
-----------
Refunded (8.5%)
20,000 Desert Hospital District, Desert Hospital Corp Ser 1992 COPs
(FSA)...................................................... 6.392 07/28/02+ 22,072,400
Los Angeles Convention & Exhibition Center Authority,
10,000 Ser 1985 COPs.............................................. 9.00 12/01/05+ 13,002,500
14,000 Ser 1985 COPs.............................................. 9.00 12/01/05+ 18,203,500
5,400 Los Angeles County, 1991 Master Refg COPs................... 6.708 05/01/01+ 5,891,940
8,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA).... 6.30 04/27/06+ 9,176,000
Southern California Public Power Authority,
5,000 Palo-Verde 1993 Ser A (AMBAC) (ETM)........................ 5.00 07/01/15 4,962,750
5,250 Transmission Refg Ser 1988 A (FGIC) (ETM).................. 0.00 07/01/06 3,679,882
- -------- -----------
67,650 76,988,972
- -------- -----------
841,955 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $781,093,282)...... 838,554,758
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
(7.3%)
$ 13,700 California Economic Development Financing Authority,
California Independent System Operator Corp 1998 Ser A
(Demand 07/01/98).......................................... 3.50*% 04/01/08 $13,700,000
11,800 California Pollution Control Financing Authority, Pacific
Gas & Electric Co Ser 1996 F (Demand 07/01/98)............. 3.50* 11/01/26 11,800,000
10,700 California Statewide Communities Development Authority, John
Muir/Mt Diablo Health Ser 1997 COPs (AMBAC) (Demand
07/01/98).................................................. 3.55* 08/15/27 10,700,000
29,500 Newport Beach, Hoag Memorial Hospital/Presbytarian Ser 1992
- -------- (Demand 07/01/98).......................................... 3.60* 10/01/22 29,500,000
-----------
65,700 TOTAL SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
- --------
(Identified Cost $65,700,000)................................................... 65,700,000
-----------
$907,655 TOTAL INVESTMENTS (Identified Cost $846,793,282) (a).................... 100.0% 904,254,758
========
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.......................... (0.0) (324,241)
----- -----------
NET ASSETS.............................................................. 100.0% $903,930,517
===== ===========
</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.
* Current coupon of variable rate demand obligation.
** A portion of this securtiy is segregated in connection with
the purchase of a "when-issued" security.
(a) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $58,382,036 and the aggregate gross
unrealized depreciation is $920,560, resulting in net
unrealized appreciation of $57,461,476.
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
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $846,793,282).......... $904,254,758
Cash..................................... 930,836
Receivable for:
Interest............................. 12,873,822
Investments sold..................... 9,653,079
Shares of beneficial interest sold... 2,139,601
Prepaid expenses and other assets........ 16,254
------------
TOTAL ASSETS......................... 929,868,350
------------
LIABILITIES:
Payable for:
Investments purchased................ 23,958,369
Plan of distribution fee............. 593,081
Shares of beneficial interest
repurchased......................... 458,750
Investment management fee............ 423,483
Dividends and distributions to
shareholders........................ 402,222
Accrued expenses and other payables...... 101,928
------------
TOTAL LIABILITIES.................... 25,937,833
------------
NET ASSETS........................... $903,930,517
============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $830,519,293
Net unrealized appreciation.............. 57,461,476
Accumulated undistributed net realized
gain.................................... 15,949,748
------------
NET ASSETS........................... $903,930,517
============
CLASS A SHARES:
Net Assets............................... $2,290,839
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 177,891
NET ASSET VALUE PER SHARE............ $12.88
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net
asset value)........................ $13.45
============
CLASS B SHARES:
$893,669,069
Net Assets...............................
Shares Outstanding (unlimited authorized, 69,243,978
$.01 par value).........................
NET ASSET VALUE PER SHARE............ $12.91
============
CLASS C SHARES:
$7,751,815
Net Assets...............................
Shares Outstanding (unlimited authorized, 600,834
$.01 par value).........................
NET ASSET VALUE PER SHARE............ $12.90
============
CLASS D SHARES:
$218,794
Net Assets...............................
Shares Outstanding (unlimited authorized, 16,995
$.01 par value).........................
NET ASSET VALUE PER SHARE............ $12.87
============
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................... $24,785,884
-----------
EXPENSES
Investment management fee................. 2,409,006
Plan of distribution fee (Class A
shares).................................. 2,076
Plan of distribution fee (Class B
shares).................................. 1,401,996
Plan of distribution fee (Class C
shares).................................. 19,810
Transfer agent fees and expenses.......... 121,424
Professional fees......................... 30,214
Shareholder reports and notices........... 28,290
Custodian fees............................ 18,455
Trustees' fees and expenses............... 9,941
Other..................................... 17,342
-----------
TOTAL EXPENSES........................ 4,058,554
Less: expense offset...................... (18,407)
-----------
NET EXPENSES.......................... 4,040,147
-----------
NET INVESTMENT INCOME................. 20,745,737
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain......................... 15,949,796
Net change in unrealized appreciation..... (16,233,773)
-----------
NET LOSS.............................. (283,977)
-----------
NET INCREASE.............................. $20,461,760
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY 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
1998 DECEMBER 31, 1997*
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $20,745,737 $ 41,943,761
Net realized gain.................................. 15,949,796 917,033
Net change in unrealized appreciation.............. (16,233,773) 23,634,172
------------ ------------
NET INCREASE................................... 20,461,760 66,494,966
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................. (38,811) (2,074)
Class B shares................................. (20,594,359) (41,903,238)
Class C shares................................. (108,263) (38,101)
Class D shares................................. (4,304) (348)
Net realized gain
Class A shares................................. (1,560) --
Class B shares................................. (605,717) --
Class C shares................................. (4,857) --
Class D shares................................. (149) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.............. (21,358,020) (41,943,761)
------------ ------------
Net decrease from transactions in shares of
beneficial interest............................... (14,477,272) (80,949,361)
------------ ------------
NET DECREASE................................... (15,373,532) (56,398,156)
NET ASSETS:
Beginning of period................................ 919,304,049 975,702,205
------------ ------------
END OF PERIOD.................................. $903,930,517 $919,304,049
============ ============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter California Tax-Free Income Fund (the "Fund"),
formerly Dean Witter California Tax-Free Income 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. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares designated as Class B
shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
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.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
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. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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.
E. 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 Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., 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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
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 Morgan Stanley 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. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 0.75% of
the lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C -- up to 0.75% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, the Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the 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 these 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, in the case of Class B shares, to compensate Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor,
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 expenses.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. 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 there were no excess expenses as of
June 30, 1998.
During the six months ended June 30, 1998, the Distributor rebated a portion of
the distribution fees paid by the Fund on Class B shares in the amount of
$1,769,752.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.75% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended June 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.75%, respectively.
The Distributor has informed the Fund that for the six months ended June 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $407,027 and $833, respectively
and received $16,504 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended June 30, 1998 aggregated
$106,084,155 and $176,238,352, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $9,500.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended June 30, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,101. At June 30, 1998, the Fund had an accrued pension liability of
$48,999 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, 1998 DECEMBER 31, 1997*
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 86,575 $ 1,119,146 91,032 $ 1,171,264
Reinvestment of dividends and distributions................. 389 4,994 98 1,257
Redeemed.................................................... (203) (2,610) -- --
---------- ------------ ----------- -------------
Net increase - Class A...................................... 86,761 1,121,530 91,130 1,172,521
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 3,278,913 42,315,891 5,189,823 65,387,817
Reinvestment of dividends and distributions................. 836,682 10,761,994 1,737,487 21,926,214
Redeemed.................................................... (5,656,531) (72,993,395) (13,733,885) (173,042,410)
---------- ------------ ----------- -------------
Net decrease - Class B...................................... (1,540,936) (19,915,510) (6,806,575) (85,728,379)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 324,624 4,183,190 279,066 3,558,314
Reinvestment of dividends and distributions................. 6,481 83,346 2,255 28,911
Redeemed.................................................... (9,628) (124,996) (1,964) (25,237)
---------- ------------ ----------- -------------
Net increase - Class C...................................... 321,477 4,141,540 279,357 3,561,988
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 13,489 174,684 3,442 44,176
Reinvestment of dividends and distributions................. 38 484 26 333
---------- ------------ ----------- -------------
Net increase - Class D...................................... 13,527 175,168 3,468 44,509
---------- ------------ ----------- -------------
Net decrease in Fund........................................ (1,119,171) $(14,477,272) (6,432,620) $ (80,949,361)
========== ============ =========== =============
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date) through
December 31, 1997.
16
<PAGE> 17
MORGAN STANLEY 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 FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED ----------------------------------------------------------------
JUNE 30, 1998 1997* 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $12.92 $12.57 $12.92 $11.87 $13.31 $12.70
------ ------ ------ ------ ------ ------
Net investment income....................... 0.29 0.57 0.58 0.61 0.64 0.67
Net realized and unrealized gain (loss)..... -- 0.35 (0.21) 1.13 (1.42) 0.70
------ ------ ------ ------ ------ ------
Total from investment operations............ 0.29 0.92 0.37 1.74 (0.78) 1.37
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income...................... (0.29) (0.57) (0.58) (0.61) (0.64) (0.67)
Net realized gain.......................... (0.01) -- (0.14) (0.08) (0.02) (0.09)
------ ------ ------ ------ ------ ------
Total dividends and distributions........... (0.30) (0.57) (0.72) (0.69) (0.66) (0.76)
------ ------ ------ ------ ------ ------
Net asset value, end of period.............. $12.91 $12.92 $12.57 $12.92 $11.87 $13.31
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+.................... 2.26%(2) 7.51% 3.13% 14.96% (5.97)% 10.97%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................... 0.90%(3) 1.33% 1.32%(1) 1.33% 1.32% 1.27%
Net investment income....................... 4.60%(3) 4.51% 4.66% 4.90% 5.10% 5.03%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions...... $894 $914 $976 $1,055 $1,008 $1,190
Portfolio turnover rate..................... 12%(2) 15% 11% 23% 12% 10%
</TABLE>
- ---------------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
+ 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) Does not reflect the effect of expense offset of 0.01%.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.89 $12.80
------ ------
Net investment income....................................... 0.30 0.27
Net realized and unrealized gain............................ -- 0.09
------ ------
Total from investment operations............................ 0.30 0.36
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.30) (0.27)
Net realized gain.......................................... (0.01) --
------ ------
Total dividends and distributions........................... (0.31) (0.27)
------ ------
Net asset value, end of period.............................. $12.88 $12.89
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.28%(1) 2.82%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.82%(2) 0.78%(2)
Net investment income....................................... 4.59%(2) 4.47%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $2,291 $1,175
Portfolio turnover rate..................................... 12%(1) 15%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.92 $12.80
------ ------
Net investment income....................................... 0.27 0.23
Net realized and unrealized gain (loss)..................... (0.01) 0.12
------ ------
Total from investment operations............................ 0.26 0.35
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.27) (0.23)
Net realized gain.......................................... (0.01) --
------ ------
Total dividends and distributions........................... (0.28) (0.23)
------ ------
Net asset value, end of period.............................. $12.90 $12.92
====== ======
TOTAL INVESTMENT RETURN+.................................... 1.95%(1) 2.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.33%(2) 1.31%(2)
Net investment income....................................... 4.10%(2) 4.24%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $7,752 $3,610
Portfolio turnover rate..................................... 12%(1) 15%
</TABLE>
- ---------------------
* The date shares were first issued.
+ 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.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.92 $12.80
------ ------
Net investment income....................................... 0.31 0.28
Net realized and unrealized gain (loss)..................... (0.04) 0.12
------ ------
Total from investment operations............................ 0.27 0.40
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.31) (0.28)
Net realized gain.......................................... (0.01) --
------ ------
Total dividends and distributions........................... (0.32) (0.28)
------ ------
Net asset value, end of period.............................. $12.87 $12.92
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.09%(1) 3.18%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.58%(2) 0.60%(2)
Net investment income....................................... 4.85%(2) 5.34%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $219 $45
Portfolio turnover rate..................................... 12%(1) 15%
</TABLE>
- ---------------------
* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE> 20
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
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
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors 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.
MORGAN STANLEY
DEAN WITTER
CALIFORNIA
TAX-FREE
INCOME FUND
[PHOTO]
SEMIANNUAL REPORT
JUNE 30, 1998
