<PAGE> 1
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 2000 New York, New York 10048
</TABLE>
DEAR SHAREHOLDER:
The U.S. economic expansion continued during the six-month period ended June 30,
2000. Real personal consumption accelerated and unemployment reached a 30-year
low. At the same time, a surge in oil prices heightened the risk of inflation.
The Federal Reserve Board responded by further tightening monetary policy. Three
increases in the federal funds rate, totaling 100 basis points, have occurred
since February. The rate now stands at a nine-year high of 6.50 percent.
Strong economic growth and a less accommodative monetary policy caused long-term
interest rates to increase throughout 1999. This January, however, the U.S.
Treasury announced plans to use the federal budget surplus to reduce its debt.
This announcement initially precipitated a 50 to 75 basis point drop in yields
of longer-maturity Treasuries. Municipal bond yields also declined but lagged
the trend of Treasury yields. Long-term interest rates rose in April, but began
to decline in May and June as signs of an economic slowdown developed.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index began the year at 5.97 percent. This index
reached a high of 6.19 percent in mid January and ended June at 5.84 percent.
Because bond prices move inversely to changes in interest rates, higher yields
caused bond prices to decline significantly last year and improve marginally in
the first six months of this year.
The ratio of municipal yields as a percentage of Treasury yields has
historically been used as a measure of relative value. The increase in the ratio
from 92 percent at the end of 1999 to 99 percent at the end of June may be
attributed to the magnitude of the rally in long-term Treasuries. A rising yield
ratio indicates weaker relative performance by municipals. Over the past five
years, the ratio has ranged between an average annual high of 93 percent and an
average annual low of 85 percent.
During the first six months of this year, new-issue volume was 22 percent lower
than the same period last year. Refunding activity, the most
<PAGE> 2
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
interest rate sensitive component of new issue supply, dropped more than 70
percent and represented less than 10 percent of total volume. Approximately 40
percent of the underwritings were enhanced with bond insurance. California
underwriting accounted for 12 percent of the national total.
30-YEAR BOND YIELDS 1994 - 2000
<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
5.55 6.10 90.98
5.75 6.06 94.88
5.85 6.05 96.69
6.03 6.16 97.89
6.00 6.29 95.39
5.97 6.48 92.13
2000 6.18 6.49 95.22
6.04 6.14 98.37
5.82 5.83 99.83
5.91 5.96 99.16
5.91 6.01 98.34
5.84 5.90 98.98
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
For the six-month period ended June 30, 2000, Morgan Stanley Dean Witter
California Tax-Free Income Fund's Class B shares returned 5.07 percent, compared
to 4.48 percent for the Lehman Brothers Municipal Bond Index.(1) For the same
period, the Fund's Class A, C and D shares returned 4.98 percent, 4.87 percent
and 5.17 percent, respectively. The performance of the Fund's four share classes
varies because of differing expenses. Total return figures assume the
reinvestment of all distributions but do not reflect the deduction of any
applicable sales charges.
---------------------
(1) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of two years or greater and a minimum credit rating of
Baa or BBB, as rated by Moody's Investor Services, Inc., or Standard &
Poor's Corporation, respectively. The index does not include any expenses,
fees or charges. The index is unmanaged and should not be considered an
investment.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
PORTFOLIO STRUCTURE
The Fund's net assets of $751 million were diversified among 12 long-term
sectors and 60 credits. During the past six months the cash and short-term
investment position ranged between 6 and 8 percent of net assets. Issues in the
refunded bond category comprised 10 percent of net assets. Refunded bonds have
been refinanced and will be redeemed on the dates shown in the portfolio. At the
end of June, the portfolio's average maturity was 16 years. Average duration, a
measure of sensitivity to interest-rate changes, was 7.6 years. The accompanying
charts provide current information on the portfolio's credit quality, maturity
distribution and sector concentrations. Optional call provisions and their
respective cost (book) yields are also charted by year.
LOOKING AHEAD
The Federal Reserve Board has expressed concern about consumer wealth and rising
prices. We anticipate that the central bank will continue to focus on inflation
and may increase short-term rates if it feels that the economic momentum is not
slowing sufficiently. We believe municipal bonds continue to offer tax-conscious
investors good long-term value.
As explained in footnote 7 of the Notes to Financial Statements, the Fund
acquired Morgan Stanley Dean Witter Multi-State Municipal Series
Trust -- California Series on July 24, 2000.
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.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
[LARGEST SECTORS PIE CHART]
LARGEST SECTORS AS OF JUNE 30, 2000
(% OF NET ASSETS)
<TABLE>
<S> <C>
Transportation 21%
Water & Sewer 17%
Electric 10%
Refunded 10%
General Obligation 8%
Tax Allocation 8%
Hospital 5%
Mortgage 5%
Public Facilities 5%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[CREDIT RATINGS PIE CHART]
CREDIT RATINGS AS OF JUNE 30, 2000
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C> <C> <C> <C>
Aaa or AAA Aa or AA A or A Baa or BBB
67% 17% 6% 10%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR
STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
[BAR CHART]
DISTRIBUTION BY MATURITY
(% OF NET ASSETS)
WEIGHTED AVERAGE
MATURITY 16 YEARS
<TABLE>
<S> <C>
UNDER 1 YEAR 7.4%
1-5 YEARS 2.5%
5-10 YEARS 14.0%
10-20 YEARS 44.2%
20-30 YEARS 27.6%
30+ YEARS 2.9%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 2000, continued
CALL AND COST (BOOK) YIELD STRUCTURE*
JUNE 30, 2000
WEIGHTED AVERAGE
CALL PROTECTION: 6 YEARS
<TABLE>
<CAPTION>
YEARS BONDS
CALLABLE PERCENT CALLABLE*
----------- -----------------
<S> <C>
2000 1%
2001 8%
2002 9%
2003 13%
2004 5%
2005 13%
2006 7%
2007 7%
2008 19%
2009 3%
2010+ 15%
</TABLE>
WEIGHTED AVERAGE
BOOK YIELD: 6.0%
<TABLE>
<CAPTION>
COST (BOOK) YIELD **
--------------------
<S> <C>
2000 6.1%
2001 6.8%
2002 6.8%
2003 5.7%
2004 6.3%
2005 6.8%
2006 6.0%
2007 6.0%
2008 5.3%
2009 5.2%
2010+ 5.9%
</TABLE>
* % Based on Long-Term Portfolio.
** Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before fund operating expenses. For
example, the fund earned a book yield of 6.8% on 8% of the long-term
portfolio that are callable in 2001.
Portfolio structure is subject to change.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FUND PERFORMANCE June 30, 2000
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES*
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 6/30/00
-------------------------
1 Year 2.48%(1) -1.87%(2)
Since Inception (7/28/97) 3.13%(1) 1.61%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES**
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 6/30/00
-------------------------
1 Year 2.48%(1) -2.40%(2)
5 Years 4.73%(1) 4.41%(2)
10 Years 5.69%(1) 5.69%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 6/30/00
-------------------------
1 Year 2.02%(1) 1.05%(2)
Since Inception (7/28/97) 2.81%(1) 2.81%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 6/30/00
-------------------------
1 Year 2.79%(1)
Since Inception (7/28/97) 3.51%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
---------------------
<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 5.25%.
** The maximum contingent deferred sales charge (CDSC) for
Class B is 5.0%. The CDSC declines to 0% after six years.
+ The maximum CDSC for Class C is 1% for shares redeemed
within one year of purchase.
++ Class D shares have no sales charge.
</TABLE>
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (93.0%)
General Obligation (8.0%)
California,
$ 5,000 Ser 1990................................................... 7.00% 08/01/07 $ 5,715,150
5,000 Ser 1990................................................... 7.00 08/01/08 5,769,600
2,000 Veterans Ser AT............................................ 9.50 02/01/10 2,682,300
2,400 Veterans Ser BH (AMT) (FSA)................................ 5.40 12/01/16 2,376,696
3,000 Various Purpose 04/01/93 (FSA)............................. 5.50 04/01/19 2,978,910
10,000 Ser 1996 (AMBAC)........................................... 5.25 06/01/21 9,559,500
3,000 Veterans Ser BD, BE & BF (AMT) (AMBAC)..................... 6.375 02/01/27 3,001,710
8,000 Los Angeles Unified School District, 1997 Ser B (FGIC)...... 5.00 07/01/23 7,287,200
13,000 San Diego County & School District, TRANs Ser C (WI)........ 6.00 10/04/01 13,248,560
8,500 Puerto Rico, Public Improvement Ser 1998.................... 4.75 07/01/23 7,240,130
-------- -----------
59,900 59,859,756
-------- -----------
Educational Facilities Revenue (2.9%)
California Educational Facilities Authority,
6,000 University of San Diego Ser 1998 (AMBAC)................... 5.00 10/01/22 5,487,720
4,000 University of Southern California 1997 Ser C............... 5.125 10/01/28 3,662,880
3,400 California Statewide Communities Development Authority,
Gemological Institute of America COPs (Connie Lee)......... 6.00 05/01/20 3,478,472
10,000 University of California, Multiple Purpose Refg Ser 1993 C
(AMBAC).................................................... 5.125 09/01/18 9,461,900
-------- -----------
23,400 22,090,972
-------- -----------
Electric Revenue (9.7%)
11,025 Los Angeles Department of Water & Power, Second Issue of
1993
(Secondary AMBAC).......................................... 5.40 11/15/13 11,152,229
5,000 Northern California Power Agency, Hydro #1 1993 Refg Ser A
(MBIA)..................................................... 5.50 07/01/16 5,030,350
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA)..................................... 5.75 01/01/11 5,945,157
26,000 Refg 1992 Ser A (FGIC)..................................... 6.30 08/15/18 27,054,040
Southern California Public Power Authority,
7,000 Mead-Adelanto 1994 Ser A (AMBAC)........................... 5.15 07/01/15 6,710,550
1,750 Transmission Refg Ser 1988 (FGIC).......................... 0.00 07/01/06 1,321,793
5,000 Turlock Irrigation District, Refg 1998 Ser A (MBIA)......... 5.00 01/01/26 4,526,200
Puerto Rico Electric Power Authority,
9,000 Power Ser O................................................ 5.00 07/01/12 8,793,630
2,000 Power Ser X................................................ 5.50 07/01/25 1,916,240
-------- -----------
72,475 72,450,189
-------- -----------
Hospital Revenue (4.9%)
10,000 Antelope Valley Healthcare District, Refg Ser 1997 A
(FSA)...................................................... 5.20 01/01/20 9,409,200
3,000 California Health Facilities Financing Authority, Sutter/CHS
Ser 1996 A (MBIA).......................................... 5.875 08/15/16 3,094,500
10,000 Duarte, City of Hope National Medical Center Ser 1999 A
COPs....................................................... 5.25 04/01/19 8,549,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 7,500 Madera County, Valley Children's Hospital Ser 1995 COPs
(MBIA)..................................................... 6.50% 03/15/15 $ 8,576,475
4,000 Rancho Mirage Joint Powers Financing Authority, Eisenhower
Medical Center Ser 1997 A COPs (MBIA)...................... 5.25 07/01/17 3,886,160
3,000 University of California, UCLA Medical Center Refg Ser 1994
(MBIA)..................................................... 5.50 12/01/14 3,037,650
-------- -----------
37,500 36,553,185
-------- -----------
Industrial Development/Pollution Control Revenue (1.8%)
California Pollution Control Financing Authority,
3,000 San Diego Gas & Electric Co 1996 Ser A..................... 5.90 06/01/14 3,190,710
10,000 Southern California Edison Co 1992 Ser B (AMT)............. 6.40 12/01/24 10,182,900
-------- -----------
13,000 13,373,610
-------- -----------
Mortgage Revenue - Single Family (4.5%)
California Housing Finance Agency,
9,000 Home 1995 Ser J (AMBAC).................................... 6.00 08/01/17 9,128,880
3,000 Home 1995 Ser M (AMT) (MBIA)............................... 6.15 08/01/27 3,010,620
7,335 Home 1995 Ser K (AMT) (AMBAC).............................. 6.25 08/01/27 7,277,714
2,635 Home 1991 Ser G (AMT)...................................... 7.05 08/01/27 2,687,226
6,475 Purchase 1995 Ser B-2 (AMT)................................ 6.30 08/01/24 6,494,360
California Rural Home Financing Authority,
2,015 Home 1997 Ser D-CL 5 (AMT)................................. 6.70 05/01/29 2,198,970
1,915 Home 1998 Ser A (AMT)...................................... 6.35 12/01/29 2,015,997
Puerto Rico Housing Finance Corporation,
80 Portfolio One GNMA-Backed Ser B............................ 7.65 10/15/22 81,819
665 Portfolio One GNMA-Backed Ser C............................ 6.85 10/15/23 688,933
-------- -----------
33,120 33,584,519
-------- -----------
Public Facilities Revenue (4.9%)
4,000 Anaheim Public Financing Authority, Sub 1997 Ser C (FSA).... 6.00 09/01/16 4,355,880
10,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A
(MBIA)..................................................... 5.65 06/01/15 10,037,800
5,000 California Public Works Board, Department of Corrections
1998 Ser B (MBIA).......................................... 5.00 09/01/21 4,595,450
9,500 Los Angeles County, Public Properties Refg of 1987 COPs..... 0.00 04/01/04 7,730,055
10,000 San Jose Financing Authority, Convention Center Refg 1993
Ser C...................................................... 6.375 09/01/13 10,379,400
-------- -----------
38,500 37,098,585
-------- -----------
Tax Allocation (7.7%)
Garden Grove Community Redevelopment Agency,
5,000 Refg Issue of 1993......................................... 5.70 10/01/13 5,016,600
6,000 Refg Issue of 1993......................................... 5.875 10/01/23 5,725,380
25,250 Long Beach Financing Authority, Ser 1992 (AMBAC)**.......... 6.00 11/01/17 27,236,165
10,575 Pleasanton Joint Powers Financing Authority, Reassessment
1993 Ser A................................................. 6.15 09/02/12 10,900,921
10,000 San Jose Redevelopment Agency, Ser 1999 (AMBAC)............. 4.75 08/01/23 8,707,200
-------- -----------
56,825 57,586,266
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation Facilities Revenue (20.7%)
$ 10,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999
A (MBIA)................................................... 5.25% 10/01/21 $ 9,555,400
14,000 Foothill/Eastern Transportation Corridor Agency, Toll Road
Ser 1999................................................... 0.00 01/15/23 7,707,840
Long Beach,
5,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/17 5,329,100
9,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/18 9,528,390
3,000 Harbor Refg Ser 1998 A (AMT) (FGIC)........................ 6.00 05/15/19 3,149,250
15,000 Harbor Ser 1995 (AMT) (MBIA)............................... 5.25 05/15/25 13,882,500
10,000 Los Angeles, Department of Airports Refg 1995 Ser A
(FGIC)..................................................... 5.50 05/15/09 10,371,000
20,000 Los Angeles County Transportation Commission, Sales Tax Ser
1991 B..................................................... 6.50 07/01/13 20,754,400
5,000 Orange County, Airport Refg Ser 1997 (AMT) (MBIA)........... 5.50 07/01/11 5,164,800
17,000 San Diego County Regional Transportation Commission, Sales
Tax 1994 Ser A (FGIC)...................................... 4.75 04/01/08 17,174,590
San Francisco Airports Commission,
4,055 San Francisco Int'l Airport Second Ser Refg Issue 4
(MBIA)................................................... 6.00 05/01/20 4,129,409
10,000 San Francisco Int'l Airport Second Ser Issue 15 B (MBIA)... 4.50 05/01/25 8,276,800
San Francisco Bay Area Rapid Transit District,
5,000 Sales Tax Ser 1995 (FGIC).................................. 5.50 07/01/15 5,058,500
10,000 Sales Tax Ser 1998 (AMBAC)................................. 4.75 07/01/23 8,709,900
San Joaquin Hills Transportation Corridor Agency,
9,000 Toll Road Refg Ser 1997 A (MBIA)........................... 5.25 01/15/30 8,399,970
10,000 Toll Road Refg Ser 1997 A (MBIA)........................... 0.00 01/15/31 1,643,800
10,000 Toll Road Senior Lien...................................... 5.00 01/01/33 8,440,200
10,000 Puerto Rico Highway & Transportation Authority, Ser 1998
A.......................................................... 4.75 07/01/38 8,226,000
-------- -----------
176,055 155,501,849
-------- -----------
Water & Sewer Revenue (17.4%)
California Department of Water Resources,
6,870 Central Valley Ser J-2..................................... 6.125 12/01/13 7,056,795
10,000 Central Valley Ser U....................................... 5.00 12/01/29 8,954,300
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA)...... 6.00 08/01/18 8,229,040
6,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC)...... 5.00 10/01/16 5,710,800
10,000 Contra Costa Water District, Ser G (MBIA)................... 5.50 10/01/19 9,975,500
East Bay Municipal Utility District,
10,000 Water Refg Ser 1992........................................ 6.00 06/01/20 10,152,500
5,000 Water Ser 1998 (MBIA)...................................... 4.75 06/01/34 4,223,450
10,000 Eastern Municipal Water District, Water & Sewer Refg Ser
1998 A COPs (FGIC)......................................... 4.75 07/01/23 8,698,500
15,000 Los Angeles County Sanitation Districts Financing Authority,
1993 Ser A................................................. 5.375 10/01/13 15,200,550
13,000 Metropolitan Water District of Southern California,
Waterworks 1997 Ser A...................................... 5.00 07/01/26 11,757,460
10,000 San Diego, Water 1998 Ser A (FGIC).......................... 4.75 08/01/28 8,577,200
San Diego Public Facilities Financing Authority,
10,000 Sewer 1993 Ser A........................................... 5.25 05/15/20 9,548,300
7,000 Sewer Ser 1995 (FGIC)...................................... 5.00 05/15/25 6,317,920
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
San Francisco Public Utilities Commission,
$ 5,750 Water 1992 Refg Ser A...................................... 6.00% 11/01/15 $ 5,848,210
10,870 Water 1996 Ser A........................................... 5.00 11/01/21 9,949,202
-------- -----------
137,490 130,199,727
-------- -----------
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 1,858,821
-----------
Refunded (10.3%)
10,000 Desert Hospital District, Desert Hospital Corp Ser 1992 COPs
MVRICS (FSA)............................................... 8.157++ 07/28/02+ 11,062,500
Foothill/Eastern Transportation Corridor Agency,
15,000 Toll Road Sr Lien Ser 1995 A............................... 6.00 01/01/07+ 16,273,950
4,000 Toll Road Sr Lien Ser 1995 A............................... 0.00 01/01/10+ 3,505,120
Los Angeles Convention & Exhibition Center Authority,
10,000 Ser 1985 COPs.............................................. 9.00 12/01/05+ 12,201,400
14,000 Ser 1985 COPs.............................................. 9.00 12/01/05+ 17,081,960
8,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA).... 6.30 04/27/06+ 8,738,000
Southern California Public Power Authority,
5,000 Palo Verde Ser A (AMBAC) (ETM)............................. 5.00 07/01/15 4,821,050
5,250 Transmission Refg Ser 1988 A (FGIC) (ETM).................. 0.00 07/01/06 3,981,705
--------
-----------
71,250 77,665,685
-------- -----------
721,335 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $685,339,880)...... 697,823,164
-------- -----------
SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
(7.4%)
26,000 California Pollution Control Financing Authority, Pacific
Gas & Electric Co
Ser 1996 D (Demand 07/03/00)............................... 4.05* 11/01/26 26,000,000
8,800 California Statewide Communities Development Authority, John
Muir/Mt Diablo Health COPs (AMBAC) (Demand 07/03/00)....... 4.00* 08/15/27 8,800,000
6,000 Irvine Ranch Water District, Capital Impr Ser 1986 COPs
(Demand 07/03/00).......................................... 3.50* 08/01/16 6,000,000
5,400 Los Angeles County, 1991 Master Refg COPs................... 6.708 05/01/01+ 5,610,870
9,200 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
-------- (Demand 07/03/00).......................................... 4.25* 10/01/22 9,200,000
-----------
55,400 TOTAL SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
-------- $55,400,000) 55,610,870
-----------
$776,735 TOTAL INVESTMENTS (Identified Cost $740,739,880) (a)................. 100.4% 753,434,034
========
LIABILITIES IN EXCESS OF OTHER ASSETS................................. (0.4)
(2,846,616)
----- -----------
NET ASSETS............................................................. 100.0% $750,587,418
===== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 2000 (unaudited) continued
---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
TRANs Tax and Revenue Anticipation Notes.
WI Security purchased on a "when-issued" basis.
+ Prerefunded to call date shown.
++ Current coupon rate for residual interest bond. This rate
resets periodically as the auction rate on the related
short-term securities fluctuates.
* Current coupon of variable rate demand obligation.
** A portion of this security 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 $28,467,816 and the aggregate gross
unrealized depreciation is $15,773,662, resulting in net
unrealized appreciation of $12,694,154.
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 Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $740,739,880)........... $753,434,034
Cash...................................... 330,668
Receivable for:
Interest.............................. 10,516,230
Shares of beneficial interest sold.... 602,088
Investments sold...................... 56,087
Prepaid expenses and other assets......... 39,307
------------
TOTAL ASSETS.......................... 764,978,414
------------
LIABILITIES:
Payable for:
Investments purchased................. 13,238,030
Plan of distribution fee.............. 453,467
Investment management fee............. 330,780
Dividends to shareholders............. 179,277
Shares of beneficial interest
repurchased.......................... 102,091
Accrued expenses and other payables....... 87,351
------------
TOTAL LIABILITIES..................... 14,390,996
------------
NET ASSETS............................ $750,587,418
============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................... $739,488,243
Net unrealized appreciation............... 12,694,154
Accumulated net realized loss............. (1,594,979)
------------
NET ASSETS............................ $750,587,418
============
CLASS A SHARES:
Net Assets................................ $9,759,838
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 815,815
NET ASSET VALUE PER SHARE............. $11.96
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net
asset value)......................... $12.49
============
CLASS B SHARES:
$727,099,682
Net Assets................................
Shares Outstanding (unlimited authorized, 60,412,391
$.01 par value)..........................
NET ASSET VALUE PER SHARE............. $12.04
============
CLASS C SHARES:
$12,712,876
Net Assets................................
Shares Outstanding (unlimited authorized, 1,056,201
$.01 par value)..........................
NET ASSET VALUE PER SHARE............. $12.04
============
CLASS D SHARES:
$1,015,022
Net Assets................................
Shares Outstanding (unlimited authorized, 84,532
$.01 par value)..........................
NET ASSET VALUE PER SHARE............. $12.01
============
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME........................... $21,606,043
-----------
EXPENSES
Plan of distribution fee (Class A
shares).................................. 8,687
Plan of distribution fee (Class B
shares).................................. 2,751,478
Plan of distribution fee (Class C
shares).................................. 46,819
Investment management fee................. 2,043,976
Transfer agent fees and expenses.......... 93,001
Shareholder reports and notices........... 51,389
Professional fees......................... 34,389
Custodian fees............................ 15,707
Trustees' fees and expenses............... 8,669
Other..................................... 13,571
-----------
TOTAL EXPENSES........................ 5,067,686
Less: expense offset...................... (15,670)
Less: plan of distribution fee rebate
(Class B shares)......................... (1,398,513)
-----------
NET EXPENSES.......................... 3,653,503
-----------
NET INVESTMENT INCOME................. 17,952,540
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss......................... (40,426)
Net change in unrealized appreciation..... 19,080,149
-----------
NET GAIN.............................. 19,039,723
-----------
NET INCREASE.............................. $36,992,263
===========
</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
2000 DECEMBER 31, 1999
--------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $17,952,540 $ 39,314,265
Net realized loss................................... (40,426) (1,554,488)
Net change in unrealized appreciation............... 19,080,149 (71,987,904)
------------ -------------
NET INCREASE (DECREASE)......................... 36,992,263 (34,228,127)
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares.................................. (193,465) (277,350)
Class B shares.................................. (17,449,968) (38,495,780)
Class C shares.................................. (272,866) (503,645)
Class D shares.................................. (36,241) (37,490)
Net realized gain
Class A shares.................................. -- (8,850)
Class B shares.................................. -- (1,176,642)
Class C shares.................................. -- (18,511)
Class D shares.................................. -- (1,125)
------------ -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (17,952,540) (40,519,393)
------------ -------------
Net decrease from transactions in shares of
beneficial interest................................ (50,373,929) (54,206,044)
------------ -------------
NET DECREASE.................................... (31,334,206) (128,953,564)
NET ASSETS:
Beginning of period................................. 781,921,624 910,875,188
------------ -------------
END OF PERIOD................................... $750,587,418 $ 781,921,624
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (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 converted to a
multiple class share structure.
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, 2000 (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, 2000 (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.
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 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, 2000.
For the six months ended June 30, 2000, the Distributor rebated a portion of the
distribution fees paid by the fund on Class B shares in the amount of
$1,398,513.
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, 2000, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.22% and
0.75%, respectively.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited) continued
The Distributor has informed the Fund that for the six months ended June 30,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $413,380 and $3,178,
respectively and received $12,193 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, 2000 aggregated
$1,761,194 and $47,319,506, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 2000, the Fund had
transfer agent fees and expenses payable of approximately $5,400.
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, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,978. At June 30, 2000, the Fund had an accrued pension liability of
$52,010 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At December 31, 1999, the Fund has a net capital loss carryover of approximately
$813,000 which will be available through December 31, 2007 to offset future
capital gains to the extent provided by regulations.
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $741,000 during fiscal 1999.
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 2000 (unaudited) continued
6. 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, 2000 DECEMBER 31, 1999
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 292,646 $ 3,436,725 926,566 $ 11,343,045
Reinvestment of dividends and distributions................. 9,858 116,154 11,792 142,937
Redeemed.................................................... (22,409) (263,012) (699,644) (8,463,085)
---------- ------------ ----------- -------------
Net increase - Class A...................................... 280,095 3,289,867 238,714 3,022,897
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 3,160,918 37,258,486 5,551,229 68,931,047
Reinvestment of dividends and distributions................. 716,354 8,471,829 1,629,078 20,067,143
Redeemed.................................................... (8,369,005) (98,660,939) (12,258,765) (151,099,720)
---------- ------------ ----------- -------------
Net decrease - Class B...................................... (4,491,733) (52,930,624) (5,078,458) (62,101,530)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 70,903 837,884 849,916 10,411,727
Reinvestment of dividends and distributions................. 15,989 189,191 33,209 407,782
Redeemed.................................................... (146,980) (1,736,936) (535,813) (6,487,818)
---------- ------------ ----------- -------------
Net increase (decrease) - Class C........................... (60,088) (709,861) 347,312 4,331,691
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 1,018,219 12,191,893 47,799 586,296
Reinvestment of dividends and distributions................. 1,191 14,158 450 5,466
Redeemed.................................................... (1,022,123) (12,229,362) (4,315) (50,864)
---------- ------------ ----------- -------------
Net increase (decrease) - Class D........................... (2,713) (23,311) 43,934 540,898
---------- ------------ ----------- -------------
Net decrease in Fund........................................ (4,274,439) $(50,373,929) (4,448,498) $ (54,206,044)
========== ============ =========== =============
</TABLE>
7. SUBSEQUENT EVENT
On July 24, 2000, the Fund acquired all the net assets of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust -- California Series ("California
Series") based on the respective valuations as of the close of business on July
21, 2000, pursuant to a plan of reorganization approved by the shareholders of
California Series on June 22, 2000. The acquisition was accomplished by a
tax-free exchange of 7,362,735 Class D shares of the Fund at a net asset value
of $12.09 per share for 8,550,957 shares of California Series. The net assets of
the Fund and California Series immediately before the acquisition were
$746,722,185, and $89,008,730, respectively, including unrealized appreciation
of $1,622,886 for California Series. Immediately after the acquisition, the
combined assets of the Fund amounted to $835,730,915.
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 PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JUNE 30, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period...... $11.67 $12.75 $12.89 $12.80
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income.................... 0.29 0.58 0.59 0.27
Net realized and unrealized gain
(loss)................................. 0.29 (1.06) 0.10 0.09
------ ------ ------ ------
Total income (loss) from investment
operations............................... 0.58 (0.48) 0.69 0.36
------ ------ ------ ------
Less dividends and distributions from:
Net investment income.................... (0.29) (0.58) (0.59) (0.27)
Net realized gain........................ -- (0.02) (0.24) --
------ ------ ------ ------
Total dividends and distributions......... (0.29) (0.60) (0.83) (0.27)
------ ------ ------ ------
Net asset value, end of period............ $11.96 $11.67 $12.75 $12.89
====== ====== ====== ======
TOTAL RETURN+............................. 4.98%(1) (3.91)% 5.50% 2.82%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 0.82%(2)(3) 0.78 %(3)(4) 0.83%(3) 0.78%(2)
Net investment income..................... 4.90%(2)(3) 4.70 %(3) 4.58%(3) 4.47%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands... $9,760 $6,253 $3,788 $1,175
Portfolio turnover rate................... -- 5 % 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.
(4) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE> 20
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED --------------------------------------------------------------------
JUNE 30, 2000 1999 1998 1997* 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period... $11.73 $ 12.81 $ 12.92 $ 12.57 $ 12.92 $ 11.87
------ -------- -------- -------- -------- ----------
Income (loss) from investment
operations:
Net investment income................. 0.28 0.57 0.58 0.57 0.58 0.61
Net realized and unrealized gain
(loss).............................. 0.31 (1.06) 0.13 0.35 (0.21) 1.13
------ -------- -------- -------- -------- ----------
Total income (loss) from investment
operations............................ 0.59 (0.49) 0.71 0.92 0.37 1.74
------ -------- -------- -------- -------- ----------
Less dividends and distributions from:
Net investment income................. (0.28) (0.57) (0.58) (0.57) (0.58) (0.61)
Net realized gain..................... -- (0.02) (0.24) -- (0.14) (0.08)
------ -------- -------- -------- -------- ----------
Total dividends and distributions...... (0.28) (0.59) (0.82) (0.57) (0.72) (0.69)
------ -------- -------- -------- -------- ----------
Net asset value, end of period......... $12.04 $11.73 $12.81 $12.92 $12.57 $12.92
====== ======== ======== ======== ======== ==========
TOTAL RETURN+.......................... 5.07%(1) (3.99)% 5.63% 7.51% 3.13% 14.96%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... 0.97%(2)(3)(5) 0.91%(3)(4)(5) 0.95%(3)(5) 1.33% 1.32%(4) 1.33%
Net investment income.................. 4.75%(2)(3)(5) 4.57%(3)(5) 4.46%(3)(5) 4.51% 4.66% 4.90%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................. $727,100 $761,548 $896,685 $914,474 $975,702 $1,054,881
Portfolio turnover rate................ -- 5% 20% 15% 11% 23%
</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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) Does not reflect the effect of expense offset of 0.01%.
(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 1.35% and 4.37%,
respectively, for the six months ended June 30, 2000 and 1.34% and 4.14% ,
respectively, for the year ended December 31, 1999 and 1.33% and 4.08%,
respectively, for the year ended December 31, 1998.
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 FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JUNE 30, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period............ $11.73 $12.81 $12.92 $12.80
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income.......................... 0.26 0.51 0.53 0.23
Net realized and unrealized gain (loss)........ 0.31 (1.06) 0.13 0.12
------ ------ ------ ------
Total income (loss) from investment
operations..................................... 0.57 (0.55) 0.66 0.35
------ ------ ------ ------
Less dividends and distributions from:
Net investment income.......................... (0.26) (0.51) (0.53) (0.23)
Net realized gain.............................. -- (0.02) (0.24) --
------ ------ ------ ------
Total dividends and distributions............... (0.26) (0.53) (0.77) (0.23)
------ ------ ------ ------
Net asset value, end of period.................. $12.04 $11.73 $12.81 $12.92
====== ====== ====== ======
TOTAL RETURN+................................... 4.87%(1) (4.41)% 5.22% 2.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 1.35%(2)(3) 1.34 %(3)(4) 1.33%(3) 1.31%(2)
Net investment income........................... 4.37%(2)(3) 4.14 %(3) 4.08%(3) 4.24%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands......... $12,713 $13,099 $9,849 $3,610
Portfolio turnover rate......................... -- 5 % 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.
(4) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE> 22
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JUNE 30, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period............ $11.71 $12.78 $12.92 $12.80
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income.......................... 0.30 0.60 0.63 0.28
Net realized and unrealized gain (loss)........ 0.30 (1.05) 0.10 0.12
------ ------ ------ ------
Total income (loss) from investment
operations..................................... 0.60 (0.45) 0.73 0.40
------ ------ ------ ------
Less dividends and distributions from:
Net investment income.......................... (0.30) (0.60) (0.63) (0.28)
Net realized gain.............................. -- (0.02) (0.24) --
------ ------ ------ ------
Total dividends and distributions............... (0.30) (0.62) (0.87) (0.28)
------ ------ ------ ------
Net asset value, end of period.................. $12.01 $11.71 $12.78 $12.92
====== ====== ====== ======
TOTAL RETURN+................................... 5.17%(1) (3.63)% 5.77% 3.18%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 0.60%(2)(3) 0.59 %(3)(4) 0.58%(3) 0.60%(2)
Net investment income........................... 5.12%(2)(3) 4.89 %(3) 4.83%(3) 5.34%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands......... $1,015 $1,021 $554 $45
Portfolio turnover rate......................... -- 5 % 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.
(4) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE> 23
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
23
<PAGE> 24
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
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
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
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
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 Distributors Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
CALIFORNIA
TAX FREE
INCOME FUND
Semiannual Report
June 30, 2000
