<PAGE> 1
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 1999 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, 1999.
After last year's global economic difficulties, the financial markets have
experienced a period of global healing. The turmoil, which included the Asian
financial crisis, the Russian debt default and the near collapse of a major
hedge fund, has given way to improved financial conditions. A major catalyst for
this return to stability was the liquidity provided by the Federal Reserve
Board's 75-basis-point reduction in the fed funds rate during the fourth quarter
of 1998.
The U.S. economy, led by consumer demand, continued to experience robust growth
in the first half of 1999. Higher materials prices and wage increases caused the
fixed-income markets to focus on the possibility that the Federal Reserve would
begin to take back some of the liquidity provided during last year's financial
crisis. Long-term interest rates reached 30-year lows in 1998 but have begun to
rise. In June, the central bank raised the fed funds rate 25 basis points to
5.00 percent in its first tightening move since early 1997.
MUNICIPAL MARKET CONDITIONS
Municipal securities outperformed U.S. Treasuries in the first six months of
1999. This is in contrast to last year's flight to quality rally, that primarily
benefited Treasuries. As global turmoil subsided, Treasury yields increased more
than municipal yields. Since the beginning of the year, Treasury bond yields
rose 85 basis points from 5.10 to 5.95 percent. Long-term insured index yields
rose only 45 basis points from 5.05 to 5.50 percent. The ratio of long-term
municipal yields to Treasury yields, a widely followed indicator of relative
performance, declined from 99 to 92 percent. A declining ratio means municipals
have outperformed Treasuries.
<PAGE> 2
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1999, continued
Municipal performance was also aided by a decline in underwriting. New-issue
volume declined 23 percent in the first half of 1999. Higher interest rates
caused a 47 percent decline in refunding activity. Total California volume was
down 22 percent.
30-YEAR BOND YIELDS 1994 - 1999
<TABLE>
<CAPTION>
Insured 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
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
5.00 5.06 98.81
5.05 5.10 99.02
1999 5.00 5.09 98.23
5.10 5.58 91.40
5.15 5.63 91.47
5.20 5.66 91.87
5.30 5.83 90.91
5.47 5.96 91.78
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
PERFORMANCE
For the six-month period ended June 30, 1999, the Fund's Class A, B, C and D
shares produced total returns of -1.57 percent, -1.57 percent, -1.75 percent and
- -1.39 percent, respectively. Performance of the Fund's shares varies because of
differing expenses. Over the same period, the Lehman Brothers Municipal Bond
Index and the Lipper California Municipal Debt Funds Index registered total
returns of -0.89 percent and -1.50 percent, respectively.
PORTFOLIO STRUCTURE
Short-term investments and cash were increased to 5 percent of net assets in
response to market volatility during the first half of 1999. Refunded bond
category comprised 10 percent of net assets and will be called for redemption on
the dates shown in the portfolio. Average duration, a measure of sensitivity to
interest rate changes, was 7.9 years. The Fund's average-weighted maturity was
18 years.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1999, continued
LARGEST LONG-TERM SECTORS AS OF JUNE 30, 1999
(% OF NET ASSETS)
<TABLE>
<S> <C>
TRANSPORTATION 22%
WATER & SEWER 16%
REFUNDED 10%
ELECTRIC 9%
TAX ALLOCATION 7%
GENERAL OBLIGATION 7%
PUBLIC FACILITIES 5%
MORTGAGE 5%
HOSPITAL 5%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT RATINGS AS OF JUNE 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
Aaa or AAA 66%
Aa or AA 15%
A or A 7%
Baa or BBB 12%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CALL STRUCTURE AS OF JUNE 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
WEIGHTED AVERAGE
CALL PROTECTION: 7 YEARS
<TABLE>
<CAPTION>
YEARS BONDS CALLABLE PERCENT CALLABLE
<S> <C>
1999 1%
2000 2%
2001 7%
2002 10%
2003 13%
2004 5%
2005 17%
2006 6%
2007 6%
2008 19%
2009 3%
2010+ 11%
</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, 1999, continued
The Fund's net assets of $864 million were diversified among 12 long-term
sectors and 63 individual credits. The accompanying charts provide current
information on the portfolio's credit quality, sector diversification and
optional redemption (call) provisions.
LOOKING AHEAD
The Federal Reserve Board raised interest rates in June, this confirmed its
previously signaled intention of becoming less accommodative in the face of
continued strong domestic economic growth. It is anticipated that the central
bank may raise the fed funds rate further in an effort to take back the
liquidity it provided in the fall of 1998. However, we believe municipal bonds
continue to offer long-term investors good value, especially in relationship
to Treasuries.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is the President and Chief Operating Officer of Asset
Management for Morgan Stanley Dean Witter & Co. and President, Chief Executive
Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the Fund's
investment manager. He also serves as Chairman, Chief Executive Officer and
Director of the Fund's distributor and transfer agent.
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 /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FUND PERFORMANCE June 30, 1999
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES*
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 6/30/99
- -------------------------
1 Year 1.53(1) -2.78(2)
Since Inception (7/28/97) 3.47(1) 1.16(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES+
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 6/30/99
- -------------------------
1 Year 1.67(1) -3.10(2)
5 Years 5.56(1) 5.24(2)
10 Years 5.98(1) 5.98(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 6/30/99
- -------------------------
1 Year 1.40(1) 0.44(2)
Since Inception (7/28/97) 3.22(1) 3.22(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES#
- ----------------------------------------------
<S> <C>
PERIOD ENDED 6/30/99
- -------------------------
1 Year 2.16(1)
Since Inception (7/28/97) 3.89(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
- ---------------------
<TABLE>
<S> <C>
(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 sales charge. See
the Fund's current prospectus for complete details on fees
and sales charges.
* The maximum front-end sales charge for Class A is 4.25%.
+ The maximum CDSC for Class B is 5.0%. The CDSC declines to
0% after six years.
++ The maximum CDSC for Class C shares is 1% for shares
redeemed within one year of purchase.
# Class D shares have no sales charge.
</TABLE>
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (92.1%)
General Obligation (7.1%)
California,
$ 5,000 Ser 1990................................................... 7.00% 08/01/07 $ 5,776,850
5,000 Ser 1990................................................... 7.00 08/01/08 5,818,100
2,000 Ser AT..................................................... 9.50 02/01/10 2,737,680
2,400 Veterans Ser BH (AMT) (FSA)................................ 5.40 12/01/16 2,416,992
10,000 Various Purpose 04/01/93 (FSA)............................. 5.50 04/01/19 10,072,500
10,000 Ser 1996 (AMBAC)........................................... 5.25 06/01/21 9,833,400
3,000 Veterans Ser BD, BE & BF (AMT) (AMBAC)..................... 6.375 02/01/27 3,033,420
10,000 Los Angeles Unified School District, 1997 Ser B (FGIC)...... 5.00 07/01/23 9,452,600
4,000 Santa Margarita/Dana Point Authority, Impr Dists #3, 3A, 4 &
4A 1994 Ser B Refg (MBIA).................................. 5.75 08/01/20 4,090,760
8,500 Puerto Rico Public Improvement Ser 1999..................... 4.75 07/01/23 7,635,210
- -------- -----------
59,900 60,867,512
- -------- -----------
Educational Facilities Revenue (3.8%)
California Educational Facilities Authority,
6,000 University of San Diego Ser 1998 (AMBAC)................... 5.00 10/01/22 5,676,180
2,000 University of Southern California Ser 1997 A............... 5.70 10/01/15 2,089,180
4,000 University of Southern California 1997 Ser C............... 5.125 10/01/28 3,793,840
4,000 California Public Works Board, University of California 1997
Ser C (AMBAC).............................................. 5.125 09/01/22 3,855,280
California Statewide Communities Development Authority,
3,400 Gemological Institute of America COPs (Connie Lee)......... 6.00 05/01/20 3,560,514
4,100 Gemological Institute of America COPs (Connie Lee)......... 6.00 05/01/25 4,312,831
10,000 University of California, Multiple Purpose Refg Ser 1993 C
(AMBAC).................................................... 5.125 09/01/18 9,754,900
- -------- -----------
33,500 33,042,725
- -------- -----------
Electric Revenue (9.3%)
13,000 Los Angeles Department of Water & Power, Second Issue of
1993 (Secondary AMBAC)..................................... 5.40 11/15/13 13,026,910
Northern California Power Agency,
5,000 Hydro #1 1993 Refg Ser A (MBIA)............................ 5.50 07/01/16 5,055,950
3,000 Hydro #1 Refg 1998 Ser A (MBIA)............................ 5.00 07/01/28 2,820,990
2,000 Capital Facilities 1999 Refg Ser A (AMBAC)................. 5.00 08/01/25 1,886,000
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA)..................................... 5.75 01/01/11 5,986,425
26,000 Refg 1992 Ser A (FGIC)..................................... 6.30 08/15/18 27,842,880
Southern California Public Power Authority,
7,000 Mead-Adelanto 1994 Ser A (AMBAC)........................... 5.15 07/01/15 6,984,810
1,750 Transmission Refg Ser 1988 (FGIC).......................... 0.00 07/01/06 1,268,348
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Turlock Irrigation District, Refg 1998 Ser A (MBIA)......... 5.00% 01/01/26 $ 4,713,150
Puerto Rico Electric Power Authority,
9,000 Power Ser O................................................ 5.00 07/01/12 8,806,500
2,000 Power Ser X................................................ 5.50 07/01/25 2,002,020
- -------- -----------
79,450 80,393,983
- -------- -----------
Hospital Revenue (5.0%)
10,000 Antelope Valley Healthcare District, Refg Ser 1997 A
(FSA)...................................................... 5.20 01/01/20 9,705,600
3,500 California Health Facilities Financing Authority, Sutter/CHS
Ser 1996 A (MBIA).......................................... 5.875 08/15/16 3,674,860
10,000 Duarte, City of Hope National Medical Center Ser 1999 A
COPs....................................................... 5.25 04/01/19 9,323,900
7,500 Madera County, Valley Children's Hospital Ser 1995 COPs
(MBIA)..................................................... 6.50 03/15/15 8,580,750
Rancho Mirage Joint Powers Financing Authority,
3,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)........... 5.25 07/01/12 3,020,880
4,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)........... 5.25 07/01/17 3,949,560
5,000 University of California, UCLA Medical Center Refg Ser 1994
(MBIA)..................................................... 5.50 12/01/14 5,034,650
- -------- -----------
43,000 43,290,200
- -------- -----------
Industrial Development/Pollution Control Revenue (3.0%)
California Pollution Control Financing Authority,
5,000 Atlantic Richfield Co Ser 1996 A........................... 5.00 04/01/08 5,059,700
3,000 San Diego Gas and Electric Co 1996 Ser A................... 5.90 06/01/14 3,206,280
10,000 Southern California Edison Co 1992 Ser B (AMT)............. 6.40 12/01/24 10,639,200
5,000 Waste Management Inc 1991 Ser A (AMT)...................... 7.15 02/01/11 5,275,900
1,400 Intermodal Container Transfer Facility Joint Powers
Authority, Southern Pacific Transportation Co 1989 Ser A... 7.70 11/01/14 1,442,700
- -------- -----------
24,400 25,623,780
- -------- -----------
Mortgage Revenue - Single Family (4.7%)
California Housing Finance Agency,
9,000 Home 1995 Ser J (AMBAC).................................... 6.00 08/01/17 9,433,620
6,430 Home 1995 Ser M (AMT) (MBIA)............................... 6.15 08/01/27 6,726,037
8,215 Home 1995 Ser K (AMT) (AMBAC).............................. 6.25 08/01/27 8,628,707
3,405 Home 1991 Ser G (AMT)...................................... 7.05 08/01/27 3,555,229
1,915 Home 1998 Ser A (AMT)...................................... 6.35 12/01/29 2,039,705
7,000 Purchase 1995 Ser B-2 (AMT)................................ 6.30 08/01/24 7,316,750
2,015 California Rural Home Financing Authority, 1997 Ser D-CL 5
(AMT)...................................................... 6.70 05/01/29 2,242,715
Puerto Rico Housing Finance Corporation,
330 Portfolio One GNMA-Backed Ser B............................ 7.65 10/15/22 344,005
665 Portfolio One GNMA-Backed Ser C............................ 6.85 10/15/23 700,371
- -------- -----------
38,975 40,987,139
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public Facilities Revenue (5.3%)
Anaheim Public Financing Authority,
$ 4,000 Sub 1997 Ser C (FSA)....................................... 6.00% 09/01/16 $ 4,364,920
20,000 Impr Sub 1997 Ser C (FSA).................................. 0.00 09/01/26 4,386,400
Beverly Hills Public Financing Authority,
10,000 1993 Refg Ser A (MBIA)..................................... 5.65 06/01/15 10,292,300
4,600 1999 Refg Ser A (MBIA)..................................... 5.125 06/01/19 4,484,908
5,000 California Public Works Board, Department of Corrections
1998 Ser B (MBIA).......................................... 5.00 09/01/21 4,749,100
9,500 Los Angeles County, Public Properties Refg of 1987 COPs..... 0.00 04/01/04 7,367,820
10,000 San Jose Financing Authority, Convention Center Refg 1993
Ser C...................................................... 6.375 09/01/13 10,500,500
- -------- -----------
63,100 46,145,948
- -------- -----------
Tax Allocation Revenue (6.6%)
Garden Grove Community Redevelopment Agency,
5,000 Refg Issue of 1993......................................... 5.70 10/01/13 5,078,250
6,000 Refg Issue of 1993......................................... 5.875 10/01/23 6,079,140
25,500 Long Beach Financing Authority, Ser 1992 (AMBAC)............ 6.00 11/01/17 27,795,255
8,870 Pleasanton Joint Powers Financing Authority, Reassessment
1993 Ser A................................................. 6.15 09/02/12 9,352,351
10,000 San Jose Redevelopment Agency, Ser 1999 (AMBAC)............. 4.75 08/01/23 8,980,400
- -------- -----------
55,370 57,285,396
- -------- -----------
Transportation Facilities Revenue (21.5%)
10,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999
A (MBIA)................................................... 5.25 10/01/21 9,831,600
15,000 Foothills/Eastern Transportation Corridor Agency, Toll Road
Sr Lien Ser 1995 A......................................... 6.00 01/01/34 15,829,050
Long Beach,
5,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/17 5,388,700
9,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/18 9,689,130
3,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/19 3,225,150
20,000 Harbor Ser 1995 (AMT) (MBIA)............................... 5.25 05/15/25 19,393,400
10,000 Los Angeles, Department of Airports Refg 1995 Ser A
(FGIC)..................................................... 5.50 05/15/09 10,445,400
20,000 Los Angeles County Transportation Commission, Sales Tax Ser
1991 B..................................................... 6.50 07/01/13 21,191,200
5,000 Orange County, Airport Refg Ser 1997 (MBIA) (AMT)........... 5.50 07/01/11 5,155,200
20,000 San Diego County Regional Transportation Commission, Sales
Tax 1994 Ser A (FGIC)...................................... 4.75 04/01/08 20,098,200
San Francisco Airports Commission, San Francisco Int'l
Airport
4,055 Second Ser Refg Issue 4 (MBIA)............................. 6.00 05/01/20 4,238,975
10,000 Second Ser Issue 15 B (MBIA)............................... 4.50 05/01/25 8,604,100
San Francisco Bay Area Rapid Transit District, Sales Tax
5,000 Ser 1995 (FGIC)............................................ 5.50 07/01/15 5,084,150
2,305 Ser 1995 (FGIC)............................................ 5.50 07/01/20 2,319,614
10,000 Ser 1998 (AMBAC)........................................... 4.75 07/01/23 9,019,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
San Joaquin Hills Transportation Corridor Agency, Toll Road
$ 6,000 Refg Ser 1997 A (MBIA)..................................... 0.00% 01/15/15 $ 2,597,520
10,000 Refg Ser 1997 A (MBIA)..................................... 0.00 01/15/26 2,273,200
13,450 Refg Ser 1997 A (MBIA)..................................... 5.25 01/15/30 13,090,616
10,000 Senior Lien................................................ 5.00 01/01/33 9,069,100
10,000 Puerto Rico Highway & Transportation Authority, Ser 1998
A.......................................................... 4.75 07/01/38 8,829,600
- -------- -----------
197,810 185,373,305
- -------- -----------
Water & Sewer Revenue (15.8%)
California Department of Water Resources, Central Valley
6,870 Ser J-2.................................................... 6.125 12/01/13 7,183,615
10,000 Ser U...................................................... 5.00 12/01/29 9,320,700
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA)...... 6.00 08/01/18 8,394,240
6,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC)...... 5.00 10/01/16 5,824,020
10,000 Contra Costa Water District, Ser G (MBIA)................... 5.50 10/01/19 10,088,300
East Bay Municipal Utility District,
11,000 Water Refg Ser 1992........................................ 6.00 06/01/20 11,493,460
5,000 Water Ser 1998 (MBIA)...................................... 4.75 06/01/34 4,427,500
10,000 Eastern Municipal Water District, Water & Sewer Refg Ser
1998 A COPs (FGIC)......................................... 4.75 07/01/23 9,019,400
15,000 Los Angeles County Sanitation Districts Financing Authority,
1993 Ser A................................................. 5.375 10/01/13 15,049,950
15,000 Metropolitan Water District of Southern California,
Waterworks 1997 Ser A...................................... 5.00 07/01/26 14,071,500
10,000 San Diego, Water 1998 Ser A (FGIC).......................... 4.75 08/01/28 8,930,600
San Diego Public Facilities Financing Authority,
10,000 Sewer Ser 1993 A........................................... 5.25 05/15/20 9,825,200
7,000 Sewer Ser 1995 (FGIC)...................................... 5.00 05/15/25 6,593,090
San Francisco Public Utilities Commission,
5,750 Water 1992 Refg Ser A...................................... 6.00 11/01/15 5,988,682
10,870 Water 1996 Ser A........................................... 5.00 11/01/21 10,268,563
- -------- -----------
140,490 136,478,820
- -------- -----------
Other Revenue (0.2%)
1,820 Orange County Community Facilities District #86-2, Rancho
- -------- Santa Margarita Ser A of 1990.............................. 7.65 08/15/17 1,884,483
-----------
Refunded (9.8%)
20,000 Desert Hospital District, Desert Hospital Corp Ser 1992
COPs....................................................... 6.392 07/28/02+ 21,414,800
Los Angeles Convention & Exhibition Center Authority,
10,000 Ser 1985 COPs.............................................. 9.00 12/01/05+ 12,535,000
14,000 Ser 1985 COPs.............................................. 9.00 12/01/05+ 17,549,000
5,400 Los Angeles County, 1991 Master Refg COPs................... 6.708 05/01/01+ 5,729,022
8,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA).... 6.30 04/27/06+ 8,776,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Southern California Public Power Authority,
$ 5,000 Palo Verde Ser A (AMBAC) (ETM)............................. 5.00% 07/01/15 $ 4,925,000
5,250 Transmission Refg Ser 1988 A (FGIC) (AMT).................. 0.00 07/01/06+ 3,799,845
9,000 Puerto Rico Electric Power Authority Power Ser X............ 6.125 07/01/05+ 9,874,710
- -------- ------------
76,650 84,604,177
- -------- ------------
814,465 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $764,583,325)...... 795,977,468
- -------- ------------
SHORT TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (6.4%)
32,000 California Economic Development Financing Authority,
California Independent System Operator Corp 1998 Ser A
(Demand 07/01/99).......................................... 3.05* 04/01/08 32,000,000
3,005 California Housing Finance Agency, Home 1989 Ser A
(08/01/99)................................................. 7.75 08/01/17 3,075,918
5,000 Chula Vista, San Diego Gas & Electric Co Ser 1996 A (Demand
07/01/99).................................................. 3.70* 07/01/21 5,000,000
14,800 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
- -------- (Demand 07/01/99).......................................... 3.15* 10/01/22 14,800,000
------------
54,805 TOTAL SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
- --------
(Identified Cost $54,789,975)................................................... 54,875,918
------------
$869,270 TOTAL INVESTMENTS (Identified Cost $819,373,300) (a)................... 98.5% 850,853,386
========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................ 1.5 13,151,746
----- ------------
NET ASSETS.............................................................. 100.0% $864,005,132
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $39,841,095 and the aggregate gross
unrealized depreciation is $8,361,009, resulting in net
unrealized appreciation of $31,480,086.
Bond Insurance:
- ------------------------------------------------------------------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of
AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurances Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $819,373,300)............................. $850,853,386
Cash........................................................ 1,295,664
Receivable for:
Interest................................................ 12,521,401
Shares of beneficial interest sold...................... 795,428
Investments sold........................................ 107,008
Prepaid expenses and other assets........................... 15,647
------------
TOTAL ASSETS............................................ 865,588,534
------------
LIABILITIES:
Payable for:
Plan of distribution fee................................ 587,033
Investment management fee............................... 421,879
Shares of beneficial interest repurchased............... 283,400
Dividends and distributions to shareholders............. 195,933
Accrued expenses and other payables......................... 95,157
------------
TOTAL LIABILITIES....................................... 1,583,402
------------
NET ASSETS.............................................. $864,005,132
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $831,582,459
Net unrealized appreciation................................. 31,480,086
Accumulated undistributed net realized gain................. 942,587
------------
NET ASSETS.............................................. $864,005,132
============
CLASS A SHARES:
Net Assets.................................................. $6,315,818
Shares Outstanding (unlimited authorized, $.01 par value)... 515,410
NET ASSET VALUE PER SHARE............................... $12.25
============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 4.44% of net asset value)........ $12.79
============
CLASS B SHARES:
Net Assets.................................................. $843,655,389
Shares Outstanding (unlimited authorized, $.01 par value)... 68,457,586
NET ASSET VALUE PER SHARE............................... $12.32
============
CLASS C SHARES:
Net Assets.................................................. $13,230,371
Shares Outstanding (unlimited authorized, $.01 par value)... 1,073,602
NET ASSET VALUE PER SHARE............................... $12.32
============
CLASS D SHARES:
Net Assets.................................................. $803,554
Shares Outstanding (unlimited authorized, $.01 par value)... 65,361
NET ASSET VALUE PER SHARE............................... $12.29
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999 (unaudited)
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 24,064,972
------------
EXPENSES
Investment management fee................................... 2,384,364
Plan of distribution fee (Class A shares)................... 5,173
Plan of distribution fee (Class B shares)................... 3,279,714
Plan of distribution fee (Class C shares)................... 42,339
Transfer agent fees and expenses............................ 116,573
Shareholder reports and notices............................. 32,460
Professional fees........................................... 30,235
Custodian fees.............................................. 18,083
Trustees' fees and expenses................................. 9,338
Registration fees........................................... 4,642
Other....................................................... 11,106
------------
TOTAL EXPENSES.......................................... 5,934,027
Less: expense offset........................................ (18,040)
Less: plan of distribution fee rebate (Class B shares)...... (1,535,143)
------------
NET EXPENSES............................................ 4,380,844
------------
NET INVESTMENT INCOME................................... 19,684,128
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 942,652
Net change in unrealized appreciation....................... (34,121,823)
------------
NET LOSS................................................ (33,179,171)
------------
NET DECREASE................................................ $(13,495,043)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
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
1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $19,684,128 $ 40,654,874
Net realized gain.................................... 942,652 17,556,128
Net change in unrealized appreciation................ (34,121,823) (8,093,340)
------------ ------------
NET INCREASE (DECREASE).......................... (13,495,043) 50,117,662
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................... (119,649) (113,998)
Class B shares................................... (19,321,449) (40,239,955)
Class C shares................................... (227,097) (287,533)
Class D shares................................... (15,933) (13,388)
Net realized gain
Class A shares................................... (8,850) (69,921)
Class B shares................................... (1,176,642) (16,702,217)
Class C shares................................... (18,511) (181,009)
Class D shares................................... (1,125) (10,153)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (20,889,256) (57,618,174)
------------ ------------
Net decrease from transactions in shares of
beneficial interest................................. (12,485,757) (928,349)
------------ ------------
NET DECREASE..................................... (46,870,056) (8,428,861)
NET ASSETS:
Beginning of period.................................. 910,875,188 919,304,049
------------ ------------
END OF PERIOD.................................... $864,005,132 $910,875,188
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley 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. 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 and 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.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (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"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined as of the close of each
business day: 0.55% to the portion of daily net assets not exceeding $500
million; 0.525% to the portion of daily net assets exceeding $500 million but
not exceeding $750 million; 0.50% to the portion of daily net assets exceeding
$750 million but not exceeding $1 billion; 0.475% to the
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited) continued
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 (1)
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; (2) printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and (3) 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.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (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, 1999.
For the six months ended June 30, 1999, the Distributor rebated a portion of the
distribution fees paid by the fund on Class B shares in the amount of
$1,535,143.
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, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.20% and
0.75%, respectively.
The Distributor has informed the Fund that for the six months ended June 30,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $356,476 and $1,790,
respectively and received $19,006 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, 1999 aggregated
$26,791,978 and $74,664,679, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 1999, the Fund had
transfer agent fees and expenses payable of approximately $7,000.
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,892. At June 30, 1999, the Fund had an accrued pension liability of
$51,000 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, 1999 DECEMBER 31, 1998
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 397,440 $ 5,041,124 278,438 $ 3,615,711
Reinvestment of dividends and distributions................. 4,405 55,013 4,755 60,900
Redeemed.................................................... (183,441) (2,332,982) (77,317) (1,003,589)
---------- ------------ ----------- -------------
Net increase - Class A...................................... 218,404 2,763,155 205,876 2,673,022
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 3,232,087 41,058,476 7,164,773 93,003,382
Reinvestment of dividends and distributions................. 820,949 10,385,197 2,410,233 31,062,347
Redeemed.................................................... (5,578,032) (70,831,430) (10,377,338) (134,515,057)
---------- ------------ ----------- -------------
Net decrease - Class B...................................... (1,524,996) (19,387,757) (802,332) (10,449,328)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 374,579 4,742,686 503,894 6,520,311
Reinvestment of dividends and distributions................. 15,419 194,673 29,925 385,668
Redeemed.................................................... (85,373) (1,077,816) (44,199) (576,331)
---------- ------------ ----------- -------------
Net increase - Class C...................................... 304,625 3,859,543 489,620 6,329,648
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 21,886 277,255 39,412 512,790
Reinvestment of dividends and distributions................. 164 2,047 431 5,519
---------- ------------ ----------- -------------
Net increase - Class D...................................... 22,050 279,302 39,843 518,309
---------- ------------ ----------- -------------
Net decrease in Fund........................................ (979,917) $(12,485,757) (66,993) $ (928,349)
========== ============ =========== =============
</TABLE>
18
<PAGE> 19
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, 1999 1998 1997* 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of
period............................ $12.81 $12.92 $12.57 $12.92 $11.87 $13.31
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income............. 0.28 0.58 0.57 0.58 0.61 0.64
Net realized and unrealized gain
(loss).......................... (0.47) 0.13 0.35 (0.21) 1.13 (1.42)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations........................ (0.19) 0.71 0.92 0.37 1.74 (0.78)
------ ------ ------ ------ ------ ------
Less dividends and distributions
from:
Net investment income............. (0.28) (0.58) (0.57) (0.58) (0.61) (0.64)
Net realized gain................. (0.02) (0.24) -- (0.14) (0.08) (0.02)
------ ------ ------ ------ ------ ------
Total dividends and
distributions..................... (0.30) (0.82) (0.57) (0.72) (0.69) (0.66)
------ ------ ------ ------ ------ ------
Net asset value, end of period..... $12.32 $12.81 $12.92 $12.57 $12.92 $11.87
====== ====== ====== ====== ====== ======
TOTAL RETURN+...................... (1.57)%(3) 5.63% 7.51% 3.13% 14.96% (5.97)%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 0.98 %(2)(4)(5) 0.95%(4)(5) 1.33% 1.32%(1) 1.33% 1.32%
Net investment income.............. 4.42 %(2)(4)(5) 4.46%(4)(5) 4.51% 4.66% 4.90% 5.10%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions.......................... $844 $897 $914 $976 $1,055 $1,008
Portfolio turnover rate............ 3 %(3) 20% 15% 11% 23% 12%
</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) Annualized.
(3) Not annualized.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(5) If the Distributor had not rebated a portion of its fees to the Fund, the
expense and net investment income ratios would have been 1.32% and 4.08%,
respectively, for the period ended June 30, 1999 and 1.33% and 4.08%,
respectively, for the year ended December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE> 20
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $12.75 $12.89 $12.80
------ ------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.29 0.59 0.27
Net realized and unrealized gain (loss).................... (0.48) 0.10 0.09
------ ------ ------
Total income (loss) from investment operations.............. (0.19) 0.69 0.36
------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.29) (0.59) (0.27)
Net realized gain.......................................... (0.02) (0.24) --
------ ------ ------
Total dividends and distributions........................... (0.31) (0.83) (0.27)
------ ------ ------
Net asset value, end of period.............................. $12.25 $12.75 $12.89
====== ====== ======
TOTAL RETURN+............................................... (1.57)%(1) 5.50% 2.82%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.78 %(2)(3) 0.83%(3) 0.78%(2)
Net investment income....................................... 4.62 %(2)(3) 4.58%(3) 4.47%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $6,316 $3,788 $1,175
Portfolio turnover rate..................................... 3 %(1) 20% 15%
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $12.81 $12.92 $12.80
------ ------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.26 0.53 0.23
Net realized and unrealized gain (loss).................... (0.47) 0.13 0.12
------ ------ ------
Total income (loss) from investment operations.............. (0.21) 0.66 0.35
------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.26) (0.53) (0.23)
Net realized gain.......................................... (0.02) (0.24) --
------ ------ ------
Total dividends and distributions........................... (0.28) (0.77) (0.23)
------ ------ ------
Net asset value, end of period.............................. $12.32 $12.81 $12.92
====== ====== ======
TOTAL RETURN+............................................... (1.75)%(1) 5.22% 2.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.33 %(2)(3) 1.33%(3) 1.31%(2)
Net investment income....................................... 4.07 %(2)(3) 4.08%(3) 4.24%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $13,230 $9,849 $3,610
Portfolio turnover rate..................................... 3 %(1) 20% 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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE> 21
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $12.78 $12.92 $12.80
------ ------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.30 0.63 0.28
Net realized and unrealized gain (loss).................... (0.47) 0.10 0.12
------ ------ ------
Total income (loss) from investment operations.............. (0.17) 0.73 0.40
------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.30) (0.63) (0.28)
Net realized gain.......................................... (0.02) (0.24) --
------ ------ ------
Total dividends and distributions........................... (0.32) (0.87) (0.28)
------ ------ ------
Net asset value, end of period.............................. $12.29 $12.78 $12.92
====== ====== ======
TOTAL RETURN+............................................... (1.39)%(1) 5.77% 3.18%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.58%(2)(3) 0.58%(3) 0.60%(2)
Net investment income....................................... 4.82%(2)(3) 4.83%(3) 5.34%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $804 $554 $45
Portfolio turnover rate..................................... 3%(1) 20% 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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
21
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<PAGE> 23
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<PAGE> 24
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
James 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. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
CALIFORNIA
TAX-FREE
INCOME FUND
[MORGAN STANLEY GRAPHIC]
SEMIANNUAL REPORT
JUNE 30, 1999
