MORGAN STANLEY DEAN WITTER CALIFORNIA TAX FREE INCOME FUND, 485BPOS, 2000-02-17

MORGAN STANLEY DEAN WITTER CALIFORNIA TAX FREE INCOME FUND
485BPOS, 2000-02-17

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 2000

FILE NOS.: 2-91103
811-4020

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------

FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/

POST-EFFECTIVE AMENDMENT NO. 18 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 19 /X/
------------------

MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600

BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)

------------------------

COPY TO:
STUART M. STRAUSS, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
----------------

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:

As soon as practicable after this Post-Effective Amendment becomes effective.

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)

___ immediately upon filing pursuant to paragraph (b)
_X_ on February 22, 2000 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485

Amending the Prospectus and Updating Financial Statements

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- --------------------------------------------------------------------------------
<PAGE>

PROSPECTUS - FEBRUARY 22, 2000

Morgan Stanley Dean Witter
CALIFORNIA TAX-FREE INCOME FUND

[COVER PHOTO]

A MUTUAL FUND THAT SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM BOTH FEDERAL AND CALIFORNIA INCOME
TAX, CONSISTENT WITH THE PRESERVATION OF CAPITAL

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this PROSPECTUS. Any representation to
the contrary is a criminal offense.
<PAGE>
CONTENTS

<TABLE>
<S> <C> <C>
The Fund Investment Objective......... 1
Principal Investment
Strategies................... 1
Principal Risks.............. 2
Past Performance............. 4
Fees and Expenses............ 5
Additional Investment
Strategy Information......... 6
Additional Risk
Information.................. 6
Fund Management.............. 7

Shareholder Information Pricing Fund Shares.......... 9
How to Buy Shares............ 9
How to Exchange Shares....... 11
How to Sell Shares........... 12
Distributions................ 14
Tax Consequences............. 15
Share Class Arrangements..... 16

Financial Highlights ............................. 23

Our Family of Funds ............................. Inside Back Cover

THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION
ABOUT THE FUND.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
</TABLE>

<PAGE>
[Sidebar]
INCOME
AN INVESTMENT OBJECTIVE HAVING THE PRIMARY GOAL OF SELECTING SECURITIES TO PAY
OUT INCOME.
[End Sidebar]

THE FUND

[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------

Morgan Stanley Dean Witter California Tax-Free Income Fund seeks to
provide a high level of current income exempt from federal and
California income tax, consistent with the preservation of capital.

[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will normally invest at least 80% of its assets in
securities that pay interest exempt from federal and California state
income taxes. The Fund's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., generally invests the Fund's assets in
investment grade, California municipal obligations.
Municipal obligations are bonds, notes or short-term
commercial paper issued by state governments, local
governments and their respective agencies. These
municipal obligations will have the following
ratings at the time of purchase:

- municipal bonds -- within the four
highest grades by
Moody's Investors
Service Inc.
("Moody's"),
Standard & Poor's
Corporation ("S&P"),
or Fitch IBCA, Inc.
("Fitch");

- municipal notes -- within the two
highest grades or,
if not rated, have
outstanding bonds
within the four
highest grades by
Moody's, S&P or
Fitch; and

- municipal commercial paper -- within the highest
grade by Moody's, S&P
or Fitch.

The Fund may also invest in unrated securities which are judged by
the Investment Manager to have comparable quality to the securities
described above.

The Fund may invest up to 10% of its assets in inverse floating rate
municipal obligations. The interest rates on these obligations
generally move in the reverse direction of market interest rates. If
market interest rates fall, the interest rate on the obligations will
increase and if market interest rates increase, the interest rate on
the obligations will fall.

The Fund may invest up to 20% of its assets in taxable money market
instruments, tax-exempt securities of other states and
municipalities, futures, and securities that pay interest income
subject to the "alternative minimum tax." Since some investors may
have to pay tax on a Fund distribution of this income, the Fund may
not be a suitable investment for them. See the "Tax Consequences"
section for more details.

1
<PAGE>

Municipal bonds, notes and commercial paper are commonly classified
as either "general obligation" or "revenue." General obligation
bonds, notes, and commercial paper are secured by the issuer's faith
and credit, including its taxing power, for payment of principal and
interest. Revenue bonds, notes and commercial paper, however, are
generally payable from a specific source of income. They are issued
to finance a wide variety of municipal projects which may include:
educational facilities, electric utility, hospital/healthcare,
industrial development/pollution control, single & multi-family
housing, transportation and water & sewer facilities. Included in the
revenue bonds category are participations in lease obligations. The
Fund's municipal obligation investments may include zero coupon
securities, which are purchased at a discount and accrue interest,
but make no interest payments until maturity.

In pursuing the Fund's investment objective, the Investment Manager
has considerable leeway in deciding which investments it buys, holds
or sells on a day-to-day basis -- and which investment strategies it
uses. For example, the Investment Manager in its discretion may
determine to use some permitted investment strategies while not using
others.

[ICON] PRINCIPAL RISKS
- --------------------------------------------------------------------------------

There is no assurance that the Fund will achieve its investment
objective. The Fund's share price will fluctuate with changes in the
market value of the Fund's portfolio securities. When you sell Fund
shares, they may be worth less than what you paid for them and,
accordingly, you can lose money investing in this Fund.

CREDIT AND INTEREST RATE RISKS. Principal risks of investing in the
Fund are associated with its municipal investments, particularly its
concentration in municipal obligations of a single state. Municipal
obligations, like other debt securities, are subject to two types of
risks: credit risk and interest rate risk.

Credit risk refers to the possibility that the issuer of a security
will be unable or unwilling to make interest payments and/or repay
the principal on its debt. In the case of revenue bonds, notes or
commercial paper, for example, the credit risk is the possibility
that the user fees from a project or other specified revenue sources
are insufficient to meet interest and/or principal payment
obligations. Private activity bonds used to finance projects, such as
industrial development and pollution control, may also be negatively
impacted by the general credit of the user of the project. Unlike
most fixed-income mutual funds, the Fund is subject to the added
credit risk of concentrating its investments in a single state. The
Fund could be affected by political, economic and regulatory
developments concerning these issuers. Should any difficulties
develop concerning these municipalities' abilities to pay principal
and/or interest on their debt obligations, the Fund's value and yield
could be adversely affected.

Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest

2
<PAGE>
rates goes up, the prices of most fixed-income securities go down.
When the general level of interest rates goes down, the prices of
most fixed-income securities go up. Zero coupon securities are
typically subject to greater price fluctuations than comparable
securities that pay interest. As a general illustration of the
relationship between fixed-income securities and interest rates, the
following table shows how interest rates affect bond prices.

How Interest Rates Affect Bond Prices

<TABLE>
<CAPTION>
PRICE PER $1,000 OF A MUNICIPAL BOND
IF INTEREST RATES:
------------------------------------
INCREASE* DECREASE**
-------------- ------------------
YEARS TO MATURITY BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
1 2000 3.95% $990 $981 $1,010 $1,020
---------------------------------------------------------------------------------------------------------
5 2004 4.70% $957 $916 $1,045 $1,093
---------------------------------------------------------------------------------------------------------
10 2009 5.05% $926 $858 $1,082 $1,171
---------------------------------------------------------------------------------------------------------
20 2019 5.80% $892 $799 $1,128 $1,278
---------------------------------------------------------------------------------------------------------
30 2029 5.95% $875 $773 $1,155 $1,350
---------------------------------------------------------------------------------------------------------
</TABLE>

Source: MUNICIPAL MARKET DATA ( a division of Thomson Financial
Municipal Group): "Aaa" yield curve as of 12/31/99. The table is not
representative of price changes for inverse floating rate municipal
obligations, which typically respond to changes in interest rates to
a greater extent than comparable obligations.

*Assumes no effect from market discount calculation.

**Assumes bonds are non-callable.

The Fund is not limited as to the maturities of the municipal
obligations in which it may invest. Thus, a rise in the general level
of interest rates may cause the price of the Fund's portfolio
securities to fall substantially. In addition, the Fund may invest in
securities with the lowest investment grade rating. These securities
may have speculative characteristics.

INVERSE FLOATING RATE MUNICIPAL OBLIGATIONS. The inverse floating
rate municipal obligations in which the Fund may invest are typically
created through a division of a fixed rate municipal obligation into
two separate instruments, a short-term obligation and a long-term
obligation. The interest rate on the short-term obligation is set at
periodic auctions. The interest rate on the long-term obligation is
the rate the issuer would have paid on the fixed-income obligation:
(i) PLUS the difference between such fixed rate and the rate on the
short-term obligation, if the short-term rate is lower than the fixed
rate; or (ii) MINUS such difference if the interest rate on the
short-term obligation is higher than the fixed rate. Inverse floating
rate municipal obligations offer the potential for higher income than
is available from fixed rate obligations of comparable maturity and
credit rating. They also carry greater risks. In particular, the
prices of inverse floating rate municipal obligations are more
volatile, I.E., they increase and decrease in response to changes in
interest rates to a greater extent than comparable fixed rate
obligations.

3
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S CLASS B SHARES HAS VARIED
FROM YEAR TO YEAR OVER THE LAST 10 CALENDAR YEARS.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME. THE FUND'S RETURNS INCLUDE THE MAXIMUM
APPLICABLE SALES CHARGE FOR EACH CLASS AND ASSUME YOU SOLD YOUR SHARES AT THE
END OF EACH PERIOD.
[End Sidebar]

OTHER RISKS. The performance of the Fund also will depend on whether
the Investment Manager is successful in pursuing the Fund's
investment strategy. The Fund is also subject to other risks from its
permissible investments, including the risks associated with its
futures and lease obligations investments. For more information about
these risks, see the "Additional Risk Information" section.

Shares of the Fund are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.

[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.

ANNUAL TOTAL RETURNS - CALENDAR YEARS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

The bar chart reflects the performance of Class B shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, returns would be less than shown.

During the periods shown in the bar chart, the highest return for a calendar
quarter was 6.11% (quarter ended March 31, 1995) and the lowest return for a
calendar quarter was -5.10% (quarter ended March 31, 1994).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- -------------------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
Class A(1) -8.00% -- --
- -------------------------------------------------------------------------------------
Class B -8.57% 4.94% 5.41%
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Class C(1) -5.33% -- --
- -------------------------------------------------------------------------------------
Class D(1) -3.63% -- --
- -------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(2) -2.06% 6.91% 6.89%
- -------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
1 Classes A, C and D commenced operations on July 28, 1997.
2 The Lehman Brothers Municipal Bond Index tracks the
performance of municipal bonds with maturities of two years
or more and a minimum credit rating of Baa or BBB, as
measured by Moody's Investors Service or Standard & Poor's
Corp. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered
an investment.
</TABLE>

4
<PAGE>
[Sidebar]
SHAREHOLDER FEES
THESE FEES ARE PAID DIRECTLY FROM YOUR INVESTMENT.

ANNUAL FUND OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.

[End Sidebar]
ICON FEES AND EXPENSES
- --------------------------------------------------------------------------------

The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund offers four
Classes of shares: Classes A, B, C and D. Each Class has a different
combination of fees, expenses and other features. The Fund does not
charge account or exchange fees. See the "Share Class Arrangements"
section for further fee and expense information.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) 4.25%(1) None None None
- -------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as
a percentage based on the lesser of the
offering price or net asset value at
redemption) None(2) 5.00%(3) 1.00%(4) None
- -------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------------
Management fee 0.54% 0.54% 0.54% 0.54%
- -------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.19% 0.75% 0.75% None
- -------------------------------------------------------------------------------------
Other expenses 0.05% 0.05% 0.05% 0.05%
- -------------------------------------------------------------------------------------
Total annual Fund operating expenses 0.78% 1.34% 1.34% 0.59%
- -------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
(1) Reduced for purchases of $25,000 and over.
(2) Investments that are not subject to any sales charge at the
time of purchase are subject to a contingent deferred sales
charge ("CDSC") of 1.00% that will be imposed if you sell
your shares within one year after purchase, except for
certain specific circumstances.
(3) The CDSC is scaled down to 1.00% during the sixth year,
reaching zero thereafter. See "Share Class Arrangements" for
a complete discussion of the CDSC.
(4) Only applicable if you sell your shares within one year
after purchase.
</TABLE>

EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your
investment has a 5% return each year, and the Fund's operating
expenses remain the same. Although your actual costs may be higher or
lower, the tables below show your costs at the end of each period
based on these assumptions depending upon whether or not you sell
your shares at the end of each period.

<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
-------------------------------------------- --------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------ --------------------------------------------
CLASS A $501 $664 $840 $1,350 $501 $664 $840 $1,350
- ------------------------------------------------------------------------ --------------------------------------------
CLASS B 636 725 934 1,613 136 425 734 1,613
- ------------------------------------------------------------------------ --------------------------------------------
CLASS C 236 425 734 1,613 136 425 734 1,613
- ------------------------------------------------------------------------ --------------------------------------------
CLASS D 60 189 329 738 60 189 329 738
- ------------------------------------------------------------------------ --------------------------------------------
</TABLE>

Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of
the maximum front-end sales charges permitted by the NASD.

5
<PAGE>
[ICON] ADDITIONAL INVESTMENT STRATEGY INFORMATION
- --------------------------------------------------------------------------------

This section provides additional information relating to the Fund's
principal strategies.

The Fund's policy of investing at least 80% of its assets in
securities the interest on which is exempt from federal income taxes
and California state income taxes, except for "defensive" investing
discussed below, is fundamental. This fundamental policy may not be
changed without shareholder approval. The percentage limitations
relating to the composition of the Fund's portfolio apply at the time
the Fund acquires an investment and refer to the Fund's net assets,
unless otherwise noted. Subsequent percentage changes that result
from market fluctuations will not require the Fund to sell any
portfolio security. The Fund may change its principal investment
strategies without shareholder approval; however, you would be
notified of any changes.

LEASE OBLIGATIONS. Included within the revenue bonds category are
participations in lease obligations or installment purchase contracts
of municipalities. Generally, state and local agencies or authorities
issue lease obligations to finance equipment and facilities for
public and private purposes.

FUTURES. The Fund may purchase or sell futures contracts with respect
to financial instruments and municipal bond indexes. Futures may be
used to seek to hedge against interest rate changes.

DEFENSIVE INVESTING. The Fund may take temporary "defensive"
positions in attempting to respond to adverse market conditions. The
Fund may invest any amount of its assets in taxable money market
securities, non-California tax-exempt securities or in tax-exempt
securities subject to the alternative minimum tax for individual
shareholders when the Investment Manager believes it is advisable to
do so. The Fund will only purchase municipal obligations of other
states that satisfy the same standards as set forth for the
California tax-exempt securities. Although taking a defensive posture
is designed to protect the Fund from an anticipated market downturn,
it could have the effect of reducing the Fund's ability to provide
California tax-exempt income. When the Fund takes a defensive
position, it may not achieve its investment objective.

[ICON] ADDITIONAL RISK INFORMATION
- --------------------------------------------------------------------------------

This section provides additional information relating to the
principal risks of investing in the Fund.

BOND INSURANCE RISK. Many of the municipal obligations the Fund
invests in will be covered by insurance at the time of issuance or at
a later date. Such insurance covers the remaining term of the
security. Insured municipal obligations would generally be assigned a
lower rating if the rating were based primarily on the credit quality
of the issuer without regard to the insurance feature. If the
claims-paying ability of the insurer were downgraded, the ratings on
the municipal obligations it insures may also be downgraded.

6
<PAGE>

[Sidebar]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
THE INVESTMENT MANAGER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND TOGETHER WITH MORGAN STANLEY DEAN WITTER SERVICES COMPANY, INC.,
ITS WHOLLY-OWNED SUBSIDIARY, HAD APPROXIMATELY $145 BILLION IN ASSETS UNDER
MANAGEMENT AS OF JANUARY 31, 2000.

[End Sidebar]
LEASE OBLIGATIONS. Lease obligations may have risks not normally
associated with general obligation or other revenue bonds. Leases and
installment purchase or conditional sale contracts (which may provide
for title to the leased asset to pass eventually to the issuer) have
developed in part, as a means for governmental issuers to acquire
property and equipment without the necessity of complying with the
constitutional and statutory requirements generally applicable for
the issuance of debt. Certain lease obligations contain
"non-appropriation" clauses that provide that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for that purpose by the appropriate
legislative body on an annual or other periodic basis. Consequently,
continued lease payments on those lease obligations containing
"non-appropriation" clauses are dependent on future legislative
actions. If these legislative actions do not occur, the holders of
the lease obligation may experience difficulty in exercising their
rights, including disposition of the property.

FUTURES. If the Fund purchases and sells futures contracts, its
participation in these markets would subject the Fund's portfolio to
certain risks. The Investment Manager's predictions of movements in
the direction of interest rate markets may be inaccurate, and the
adverse consequences to the Fund (E.G., a reduction in the Fund's net
asset value or a reduction in the amount of income available for
distribution) may leave the Fund in a worse position than if these
strategies were not used. Other risks inherent in the use of futures
include, for example, the possible imperfect correlation between the
price of futures contracts and movements in the prices of the
securities being hedged, and the possible absence of a liquid
secondary market for any particular instrument. The risk of imperfect
correlations may be increased by the fact that futures contracts in
which the Fund may invest are taxable securities rather than
tax-exempt securities. The prices of taxable securities may not move
in a similar manner to prices of tax-exempt securities.

[ICON] FUND MANAGEMENT
- --------------------------------------------------------------------------------

The Fund has retained the Investment Manager -- Morgan Stanley Dean
Witter Advisors Inc. -- to provide administrative services, manage
its business affairs and invest its assets, including the placing
of orders for the purchase and sale of portfolio securities. The
Investment Manager is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses: securities, asset management and credit services. Its
main business office is located at Two World Trade Center, New
York, NY 10048.

The Fund's portfolio is managed within the Investment Manager's
Tax-Exempt Group. James F. Willison, a Senior Vice President of the
Investment Manager and Director of the Tax-Exempt Fixed-Income

7
<PAGE>

Group of the Investment Manager, has been a primary portfolio manager
of the Fund since its inception. Joseph R. Arcieri, a Senior Vice
President of the Investment Manager, has been a primary portfolio
manager of the Fund since February 1997. Messrs. Willison and Arcieri
have been portfolio managers with the Investment Manager for over
five years.

The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund,
and for Fund expenses assumed by the Investment Manager. The fee is
based on the Fund's average daily net assets. For the fiscal year
ended December 31, 1999, the Fund accrued total compensation to the
Investment Manager amounting to 0.54% of the Fund's average daily net
assets.

8
<PAGE>

[Sidebar]
CONTACTING A FINANCIAL ADVISOR
IF YOU ARE NEW TO THE MORGAN STANLEY DEAN WITTER FAMILY OF FUNDS AND WOULD LIKE
TO CONTACT A FINANCIAL ADVISOR, CALL (877) 937-MSDW (TOLL-FREE) FOR THE
TELEPHONE NUMBER OF THE MORGAN STANLEY DEAN WITTER OFFICE NEAREST YOU. YOU MAY
ALSO ACCESS OUR OFFICE LOCATOR ON OUR INTERNET SITE AT:
www.msdw.com/individual/funds

[End Sidebar]

SHAREHOLDER INFORMATION

[ICON] PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of Fund shares (excluding sales charges), called "net asset
value," is based on the value of the Fund's portfolio securities.
While the assets of each Class are invested in a single portfolio of
securities, the net asset value of each Class will differ because the
Classes have different ongoing distribution fees.

The net asset value per share of the Fund is determined once daily at
4:00 p.m. Eastern time on each day that the New York Stock Exchange
is open (or, on days when the New York Stock Exchange closes prior to
4:00 p.m., at such earlier time). Shares will not be priced on days
that the New York Stock Exchange is closed.

The Fund's portfolio securities (except for short-term taxable debt
securities and certain other investments) are valued by an outside
independent pricing service. The service uses a computerized grid
matrix of tax-exempt securities and its evaluations in determining
what it believes is the fair value of the portfolio securities. The
Fund's Board of Trustees believes that timely and reliable market
quotations are generally not readily available to the Fund to value
tax-exempt securities and the valuations that the pricing service
supplies are more likely to approximate the fair value of the
securities.

An exception to the Fund's general pricing policy concerns its
short-term debt portfolio securities. Debt securities with remaining
maturities of sixty days or less at the time of purchase are valued
at amortized cost. However, if the cost does not reflect the
securities' market value, these securities will be valued at their
fair value.

[ICON] HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may open a new account to buy Fund shares or buy additional
Fund shares for an existing account by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative. Your Financial Advisor will assist you,
step-by-step, with the procedures to invest in the Fund. You may
also purchase shares directly by calling the Fund's transfer agent
and requesting an application.

Because every investor has different immediate financial needs and
long-term investment goals, the Fund offers investors four Classes
of shares: Classes A, B, C and D. Class D shares are only offered
to a limited group of investors. Each Class of shares offers a
distinct structure of sales charges, distribution and service fees,
and other features that are designed to address a variety of needs.
Your Financial Advisor or other authorized financial representative
can help you decide which Class may be most appropriate for you.
When purchasing Fund shares, you must specify which Class of shares
you wish to purchase.

9
<PAGE>
[Sidebar]
EASYINVEST-SM-
A PURCHASE PLAN THAT ALLOWS YOU TO TRANSFER MONEY AUTOMATICALLY FROM YOUR
CHECKING OR SAVINGS ACCOUNT OR FROM A MONEY MARKET FUND ON A SEMI-MONTHLY,
MONTHLY OR QUARTERLY BASIS. CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR FOR FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]

When you buy Fund shares, the shares are purchased at the next share
price calculated, less any applicable front-end sales charge, after
we receive your purchase order. Your payment is due on the third
business day after you place your purchase order. We reserve the
right to reject any order for the purchase of Fund shares.

<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
------------------------------------------------------------------------------
MINIMUM INVESTMENT
--------------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
<S> <C> <C> <C>
------------------------------------------------------------------------------
Regular Accounts $1,000 $100
------------------------------------------------------------------------------
EASYINVEST-SM-
(Automatically from
your checking or
savings account or
Money Market Fund) $100* $100*
------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* Provided your schedule of investments totals $1,000 in
twelve months.
</TABLE>

There is no minimum investment amount if you purchase Fund shares
through: (1) the Investment Manager's mutual fund asset allocation
plan, (2) a program, approved by the Fund's distributor, in which you
pay an asset-based fee for advisory, administrative and/ or brokerage
services, or (3) employer-sponsored employee benefit plan accounts.

INVESTMENT OPTIONS FOR CERTAIN INSTITUTIONAL AND OTHER
INVESTORS/CLASS D SHARES. To be eligible to purchase Class D shares,
you must qualify under one of the investor categories specified in
the "Share Class Arrangements" section of this PROSPECTUS.

SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to
buying additional Fund shares for an existing account by contacting
your Morgan Stanley Dean Witter Financial Advisor, you may send a
check directly to the Fund. To buy additional shares in this manner:

- Write a "letter of instruction" to the Fund specifying the name(s)
on the account, the account number, the social security or tax
identification number, the Class of shares you wish to purchase and
the investment amount (which would include any applicable front-end
sales charge). The letter must be signed by the account owner(s).

- Make out a check for the total amount payable to: Morgan Stanley
Dean Witter California Tax-Free Income Fund.

- Mail the letter and check to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 1040, Jersey City, NJ 07303.

10
<PAGE>
[ICON] HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------

PERMISSIBLE FUND EXCHANGES. You may exchange shares of any Class of
the Fund for the same Class of any other continuously offered
Multi-Class Fund, or for shares of a No-Load Fund, a Money Market
Fund, North American Government Income Trust or Short-Term U.S.
Treasury Trust, without the imposition of an exchange fee. See the
inside back cover of this PROSPECTUS for each Morgan Stanley Dean
Witter Fund's designation as a Multi-Class Fund, No-Load Fund or
Money Market Fund. If a Morgan Stanley Dean Witter Fund is not
listed, consult the inside back cover of that fund's prospectus for
its designation. For purposes of exchanges, shares of FSC Funds
(subject to a front-end sales charge) are treated as Class A shares
of a Multi-Class Fund.

Exchanges may be made after shares of the fund acquired by purchase
have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
The current prospectus for each fund describes its investment
objective and policies and should be read before investment. Since
exchanges are available only into continuously offered Morgan Stanley
Dean Witter Funds, exchanges are not available into any new Morgan
Stanley Dean Witter Fund during its initial offering period, or when
shares of a particular Morgan Stanley Dean Witter Fund are not being
offered for purchase.

EXCHANGE PROCEDURES. You can process an exchange by contacting your
Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative. Otherwise, you must forward an exchange
privilege authorization form to the Fund's transfer agent - Morgan
Stanley Dean Witter Trust FSB - and then write the transfer agent or
call (800) 869-NEWS to place an exchange order. You can obtain an
exchange privilege authorization form by contacting your Financial
Advisor or other authorized financial representative, or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be
processed until we have received all applicable share certificates.

An exchange to any Morgan Stanley Dean Witter Fund (except a Money
Market Fund) is made on the basis of the next calculated net asset
values of the Funds involved after the exchange instructions are
accepted. When exchanging into a Money Market Fund, the Fund's shares
are sold at their next calculated net asset value and the Money
Market Fund's shares are purchased at their net asset value on the
following business day.

The Fund may terminate or revise the exchange privilege upon required
notice. The check writing privilege is not available for Money Market
Fund shares you acquire in an exchange.

TELEPHONE EXCHANGES. For your protection when calling Morgan Stanley
Dean Witter Trust FSB, we will employ reasonable procedures to
confirm that exchange instructions communicated over the telephone
are genuine. These procedures may include requiring various forms of
personal identification such as name, mailing address, social
security or other tax identification number. Telephone instructions
also may be recorded.

11
<PAGE>

Telephone instructions will be accepted if received by the Fund's
transfer agent between 9:00 a.m. and 4:00 p.m. Eastern time on any
day the New York Stock Exchange is open for business. During periods
of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although
this has not been the case with the Fund in the past.

MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin
account, contact your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative regarding restrictions on
the exchange of such shares.

TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of the Fund
for shares of another Morgan Stanley Dean Witter Fund there are
important tax considerations. For tax purposes, the exchange out of
the Fund is considered a sale of Fund shares - and the exchange into
the other Fund is considered a purchase. As a result, you may realize
a capital gain or loss.

You should review the "Tax Consequences" section and consult your own
tax professional about the tax consequences of an exchange.

LIMITATIONS ON EXCHANGES. Certain patterns of exchanges may result in
the Fund limiting or prohibiting, at its discretion, additional
purchases and/or exchanges. Determinations in this regard may be made
based on the frequency or dollar amount of previous exchanges. The
Fund will notify you in advance of limiting your exchange privileges.

CDSC CALCULATIONS ON EXCHANGES. See the "Share Class Arrangements"
section of this PROSPECTUS for a discussion of how applicable
contingent deferred sales charges (CDSCs) are calculated for shares
of one Morgan Stanley Dean Witter Fund that are exchanged for shares
of another.

For further information regarding exchange privileges, you should
contact your Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS.

[ICON] HOW TO SELL SHARES
- --------------------------------------------------------------------------------
You can sell some or all of your Fund shares at any time. If you sell
Class A, Class B or Class C shares, your net sale proceeds are
reduced by the amount of any applicable CDSC. Your shares will be
sold at the next share price calculated after we receive your order
to sell as described below.

<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
------------------------------------------------------------------------------------
Contact your To sell your shares, simply call your Morgan Stanley Dean
Financial Advisor Witter Financial Advisor or other authorized financial
representative.
------------------------------------------------------------
ICON Payment will be sent to the address to which the account is
registered or deposited in your brokerage account.
------------------------------------------------------------------------------------
</TABLE>

12
<PAGE>

<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
------------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of
instruction" that includes:
------------------------------------------------------------------------------------
ICON - your account number;
------------------------------------------------------------------------------------
- the dollar amount or the number of shares you wish to
sell;
------------------------------------------------------------------------------------
- the Class of shares you wish to sell; and
------------------------------------------------------------------------------------
- the signature of each owner as it appears on the account.
------------------------------------------------------------------------------------
If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Dean Witter
FSB. (You should contact Morgan Stanley Dean Witter Trust
FSB at (800) 869-NEWS for a determination as to whether a
particular institution is an eligible guarantor.) A notary
public CANNOT provide a signature guarantee. Additional
documentation may be required for shares held by a
corporation, partnership, trustee or executor.
------------------------------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at
P.O. Box 983, Jersey City,NJ 07303. If you hold share
certificates, you must return the certificates, along with
the letter and any required additional documentation.
------------------------------------------------------------------------------------
A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter
Withdrawal Plan Family of Funds has a total market value of at least
ICON $10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a Fund's balance (provided the
amount is at least $25), on a monthly, quarterly,
semi-annual or annual basis, from any Fund with a balance of
at least $1,000. Each time you add a Fund to the plan, you
must meet the plan requirements.
------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC
may be waived under certain circumstances. See the Class B
waiver categories listed in the "Share Class Arrangements"
section of this PROSPECTUS.
------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your
Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS. You may terminate or suspend your plan at
any time. Please remember that withdrawals from the plan are
sales of shares, not Fund "distributions," and ultimately
may exhaust your account balance. The Fund may terminate or
revise the plan at any time.
------------------------------------------------------------------------------------
</TABLE>

PAYMENT FOR SOLD SHARES. After we receive your complete instructions
to sell as described above, a check will be mailed to you within
seven days, although we will attempt to make payment within one
business day. Payment may also be sent to your brokerage account.

Payment may be postponed or the right to sell your shares suspended
under unusual circumstances. If you request to sell shares that were
recently purchased by check, your sale will not effected until it has
been verified that the check has been honored.

REINSTATEMENT PRIVILEGE. If you sell Fund shares and have not
previously exercised the reinstatement privilege, you may, within 35
days after the date of sale, invest any portion of the proceeds in
the same Class of Fund shares at their net asset value and receive a
pro rata credit for any CDSC paid in connection with the sale.

INVOLUNTARY SALES. The Fund reserves the right, on sixty days'
notice, to sell the shares of any shareholder (other than shares held
in an IRA or 403(b) Custodial Account)

13
<PAGE>
[Sidebar]
TARGETED DIVIDENDS-SM-
YOU MAY SELECT TO HAVE YOUR FUND DISTRIBUTIONS AUTOMATICALLY INVESTED IN OTHER
CLASSES OF FUND SHARES OR CLASSES OF ANOTHER MORGAN STANLEY DEAN WITTER FUND
THAT YOU OWN. CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL ADVISOR FOR
FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]
whose shares, due to sales by the shareholder, have a value below $100, or in
the case of an account opened through EASYINVEST -SM-, if after 12 months the
shareholder has invested less than $1,000 in the account.

However, before the Fund sells your shares in this manner, we will
notify you and allow you sixty days to make an additional investment
in an amount that will increase the value of your account to at least
the required amount before the sale is processed. No CDSC will be
imposed on any involuntary sale.

[ICON] DISTRIBUTIONS
- --------------------------------------------------------------------------------

The Fund passes substantially all of its earnings from income and
capital gains along to its investors as "distributions." The Fund
earns interest from fixed-income investments. These amounts are
passed along to Fund shareholders as "income dividend
distributions." The Fund realizes capital gains whenever it sells
securities for a higher price than it paid for them. These amounts
may be passed along as "capital gain distributions."

The Fund declares income dividends separately for each Class.
Distributions paid on Class A and Class D shares will be higher
than for Class B and Class C because distribution fees that
Class B and Class C pay are higher. Normally, income dividends are
declared on each day the New York Stock Exchange is open for
business, and are distributed to shareholders monthly. Capital
gains, if any, are usually distributed in June and December. The
Fund, however, may retain and reinvest any long-term capital gains.
The Fund may at times make payments from sources other than income
or capital gains that represent a return of a portion of your
investment.

Distributions are reinvested automatically in additional shares of
the same Class and automatically credited to your account, unless
you request in writing that all distributions be paid in cash. If
you elect the cash option, processing of your dividend checks
begins immediately following the monthly payment date, and the Fund
will mail a monthly dividend check to you normally during the first
seven days of the following month. No interest will accrue on
uncashed checks. If you wish to change how your distributions are
paid, your request should be received by the Fund's transfer agent,
Morgan Stanley Dean Witter Trust FSB, at least five business days
prior to the record date of the distributions.

14
<PAGE>
[ICON] TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your Fund investment
will be taxed. The tax information in this PROSPECTUS is provided as
general information. You should consult your own tax professional
about the tax consequences of an investment in the Fund.

You need to be aware of the possible tax consequences when:

- The Fund makes distributions; and

- You sell Fund shares, including an exchange to another Morgan
Stanley Dean Witter Fund.

TAXES ON DISTRIBUTIONS. Your income dividend distributions are
normally exempt from federal and California's personal income taxes
-- to the extent they are derived from California's municipal
obligations. Income derived from other portfolio securities may be
subject to federal, state and/or local income taxes.

Income derived from some municipal securities is subject to the
federal "alternative minimum tax." Certain tax-exempt securities
whose proceeds are used to finance private, for-profit organizations
are subject to this special tax system that ensures that individuals
pay at least some federal taxes. Although interest on these
securities is generally exempt from federal income tax, some
taxpayers who have many tax deductions or exemptions nevertheless may
have to pay tax on the income.

If you borrow money to purchase shares of the Fund, the interest on
the borrowed money is generally not deductible for personal income
tax purposes.

If the Fund makes any capital gain distributions, those distributions
will normally be subject to federal and California income tax when
they are paid, whether you take them in cash or reinvest them in the
Fund shares. Any long-term capital gain distributions are taxable to
you as long-term capital gains, no matter how long you have owned
shares in the Fund.

The Fund may derive gains in part from municipal obligations the Fund
purchased below their principal or face values. All, or a portion, of
these gains may be taxable to you as ordinary income rather than
capital gains.

Every January, you will be sent a statement (IRS Form 1099-DIV)
showing the taxable distributions paid to you in the previous year.
The statement provides information on your dividends and capital
gains for tax purposes.

TAXES ON SALES. Your sale of Fund shares normally is subject to
federal and state income tax and may result in a taxable gain or loss
to you. A sale also may be subject to local income tax. Your exchange
of Fund shares for shares of another Morgan Stanley Dean Witter Fund
is treated for tax purposes like a sale of your original shares and a
purchase of your new shares. Thus, the exchange may, like a sale,
result in a taxable gain or loss to you and will give you a new tax
basis for your new shares.

15
<PAGE>
When you open your Fund account, you should provide your social
security or tax identification number on your investment application.
By providing this information, you will avoid being subject to a
federal backup withholding tax of 31% on taxable distributions and
redemption proceeds. Any withheld amount would be sent to the IRS as
an advance tax payment.

[ICON] SHARE CLASS ARRANGEMENTS
- --------------------------------------------------------------------------------
The Fund offers several Classes of shares having different
distribution arrangements designed to provide you with different
purchase options according to your investment needs. Your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative can help you decide which Class may be appropriate for
you.

The general public is offered three Classes: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales
charges and ongoing expenses. A fourth Class, Class D shares, is
offered only to a limited category of investors. Shares that you
acquire through reinvested distributions will not be subject to any
front-end sales charge or CDSC - contingent deferred sales charge.
Sales Personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide
for the distribution financing of shares of that Class.

The chart below compares the sales charge and maximum annual 12b-1
fee applicable to each Class:

<TABLE>
<CAPTION>
MAXIMUM
CLASS SALES CHARGE ANNUAL 12B-1 FEE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------
A Maximum 4.25% initial sales charge reduced for purchase of
$25,000 or more; shares sold without an initial sales charge
are generally subject to a 1.0% CDSC during the first year 0.25%
-------------------------------------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year decreasing to 0%
after six years 0.75%
-------------------------------------------------------------------------------------------------------------
C 1.0% CDSC during the first year 0.75%
-------------------------------------------------------------------------------------------------------------
D None None
-------------------------------------------------------------------------------------------------------------
</TABLE>

CLASS A SHARES Class A shares are sold at net asset value plus an
initial sales charge of up to 4.25%. The initial sales charge is
reduced for purchases of $25,000 or more according to the schedule
below. Investments of $1 million or more are not subject to an initial
sales charge, but are generally subject to a contingent deferred sales
charge, or CDSC, of 1.0% on sales made within one year after the last
day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25% of
the average daily net assets of the Class.

16
<PAGE>
[Sidebar]
FRONT-END SALES CHARGE OR FSC
AN INITIAL SALES CHARGE YOU PAY WHEN PURCHASING CLASS A SHARES THAT IS BASED ON
A PERCENTAGE OF THE OFFERING PRICE. THE PERCENTAGE DECLINES BASED UPON THE
DOLLAR VALUE OF CLASS A SHARES YOU PURCHASE. WE OFFER THREE WAYS TO REDUCE YOUR
CLASS A SALES CHARGES - THE COMBINED PURCHASE PRIVILEGE, RIGHT OF ACCUMULATION
AND LETTER OF INTENT.
[End Sidebar]

The offering price of Class A shares includes a sales charge
(expressed as a percentage of the offering price) on a single
transaction as shown in the following table:

<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
-------------------------------------------------
PERCENTAGE OF APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED
<S> <C> <C>
-----------------------------------------------------------------------------------
Less than $25,000 4.25% 4.44%
-----------------------------------------------------------------------------------
$25,000 but less than
$50,000 4.00% 4.17%
-----------------------------------------------------------------------------------
$50,000 but less than
$100,000 3.50% 3.63%
-----------------------------------------------------------------------------------
$100,000 but less than
$250,000 2.75% 2.83%
-----------------------------------------------------------------------------------
$250,000 but less than $1
million 1.75% 1.78%
-----------------------------------------------------------------------------------
$1 million and over 0 0
-----------------------------------------------------------------------------------
</TABLE>

The reduced sales charge schedule is applicable to
purchases of Class A shares in a single transaction
by:

- A single account (including an individual, trust or
fiduciary account).

- Family member accounts (limited to husband, wife
and children under the age of 21).

- Pension, profit sharing or other employee benefit plans of
companies and their affiliates.

- Tax-exempt organizations.

- Groups organized for a purpose other than to buy mutual fund
shares.

COMBINED PURCHASE PRIVILEGE. You also will have the benefit of
reduced sales charges by combining purchases of Class A shares of the
Fund in a single transaction with purchases of Class A shares of
other Multi-Class Funds and shares of FSC Funds.

RIGHT OF ACCUMULATION. You also may benefit from a reduction of sales
charges if the cumulative net asset value of Class A shares of the
Fund purchased in a single transaction, together with shares of other
Funds you currently own which were previously purchased at a price
including a front-end sales charge (including shares acquired through
reinvestment of distributions), amounts to $25,000 or more. Also, if
you have a cumulative net asset value of all your Class A and
Class D shares equal to at least $5 million, you are eligible to
purchase Class D shares of any Fund subject to the Fund's minimum
initial investment requirement.

You must notify your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative (or Morgan Stanley Dean
Witter Trust FSB if you purchase directly through the Fund), at the
time a purchase order is placed, that the purchase qualifies for the
reduced charge under the Right of Accumulation. Similar notification
must be made in writing when an order is placed by mail. The reduced
sales charge will

17
<PAGE>
not be granted if: (i) notification is not furnished at the time of
the order; or (ii) a review of the records of Dean Witter Reynolds or
other authorized dealer of Fund shares or the Fund's transfer agent
does not confirm your represented holdings.

LETTER OF INTENT. The schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written
"letter of intent." A letter of intent provides for the purchase of
shares of Class A of the Fund or other Multi-Class Funds or shares of
FSC Funds within a thirteen-month period. The initial purchase under
a letter of intent must be at least 5% of the stated investment goal.
To determine the applicable sales charge reduction, you may also
include: (1) the cost of shares of other Morgan Stanley Dean Witter
Funds which were previously purchased at a price including a
front-end sales charge during the 90-day period prior to the
distributor receiving the letter of intent, and (2) the cost of
shares of other Funds you currently own acquired in exchange for
shares of Funds purchased during that period at a price including a
front-end sales charge. You can obtain a letter of intent by
contacting your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative, or by calling (800) 869-NEWS. If
you do not achieve the stated investment goal within the thirteen-
month period, you are required to pay the difference between the
sales charges otherwise applicable and sales charges actually paid,
which may be deducted from your investment.

OTHER SALES CHARGE WAIVERS. In addition to investments of $1 million
or more, your purchase of Class A shares is not subject to a
front-end sales charge (or a CDSC upon sale) if your account
qualifies under one of the following categories:

- A trust for which Morgan Stanley Dean Witter Trust FSB provides
discretionary trustee services.

- Persons participating in a fee-based investment program (subject to
all of its terms and conditions, including termination fees,
mandatory sale or transfer restrictions on termination) approved by
the Fund's distributor pursuant to which they pay an asset-based
fee for investment advisory, administrative and/or brokerage
services.

- A client of a Morgan Stanley Dean Witter Financial Advisor who
joined us from another investment firm within six months prior to
the date of purchase of Fund shares, and used the proceeds from the
sale of shares of a proprietary mutual fund of that Financial
Advisor's previous firm that imposed either a front-end or deferred
sales charge to purchase Class A shares, provided that: (1) you
sold the shares not more than 60 days prior to purchase, and (2)
the sale proceeds were maintained in the interim in cash or a money
market fund.

- Current or retired Directors/Trustees of the Morgan Stanley Dean
Witter Funds, such persons' spouses and children under the age of
21, and trust accounts for which any of such persons is a
beneficiary.

18
<PAGE>
[Sidebar]
CONTINGENT DEFERRED SALES CHARGE OR CDSC
A FEE YOU PAY WHEN YOU SELL SHARES OF CERTAIN MORGAN STANLEY DEAN WITTER FUNDS
PURCHASED WITHOUT AN INITIAL SALES CHARGE. THIS FEE DECLINES THE LONGER YOU HOLD
YOUR SHARES AS SET FORTH IN THE TABLE.
[End Sidebar]

- Current or retired directors, officers and employees of Morgan
Stanley Dean Witter & Co. and any of its subsidiaries, such
persons' spouses and children under the age of 21, and trust
accounts for which any of such persons is a beneficiary.

CLASS B SHARES Class B shares are offered at net asset value with no
initial sales charge but are subject to a contingent deferred sales
charge, or CDSC, as set forth in the table below. For the purpose of
calculating the CDSC, shares are deemed to have been purchased on the
last day of the month during which they were purchased.

<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
YEAR SINCE PURCHASE PAYMENT MADE OF AMOUNT REDEEMED
<S> <C>
----------------------------------------------------------------------------
First 5.0%
----------------------------------------------------------------------------
Second 4.0%
----------------------------------------------------------------------------
Third 3.0%
----------------------------------------------------------------------------
Fourth 2.0%
----------------------------------------------------------------------------
Fifth 2.0%
----------------------------------------------------------------------------
Sixth 1.0%
----------------------------------------------------------------------------
Seventh and thereafter None
----------------------------------------------------------------------------
</TABLE>

Each time you place an order to sell or exchange shares, shares with
no CDSC will be sold or exchanged first, then shares with the lowest
CDSC will be sold or exchanged next. For any shares subject to a
CDSC, the CDSC will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being sold.

CDSC WAIVERS. A CDSC, if otherwise applicable, will be waived in the
case of:

- Sales of shares held at the time you die or become disabled (within
the definition in Section 72(m)(7) of the Internal Revenue Code
which relates to the ability to engage in gainful employment), if
the shares are: (i) registered either in your name (not a trust) or
in the names of you and your spouse as joint tenants with right of
survivorship; or (ii) held in a qualified corporate or
self-employed retirement plan, IRA or 403(b) Custodial Account,
provided in either case that the sale is requested within one year
of your death or initial determination of disability.

- Sales in connection with the following retirement plan
"distributions:" (i) lump-sum or other distributions from a
qualified corporate or self-employed retirement plan following
retirement (or, in the case of a "key employee" of a "top heavy"
plan, following attainment of age 59 1/2); (ii) distributions from
an IRA or 403(b) Custodial Account following attainment of age
59 1/2; or (iii) a tax-free return of an excess IRA contribution (a
"distribution" does not include a direct transfer of IRA, 403(b)
Custodial Account or retirement plan assets to a successor
custodian or trustee).

- Sales of shares in connection with the Systematic Withdrawal Plan
of up to 12% annually of the value of each Fund from which plan
sales are made. The percentage is determined on the date you
establish the Systematic Withdrawal Plan and based on the

19
<PAGE>
next calculated share price. You may have this CDSC waiver applied
in amounts up to 1% per month, 3% per quarter, 6% semi-annually or
12% annually. Shares with no CDSC will be sold first, followed by
those with the lowest CDSC. As such, the waiver benefit will be
reduced by the amount of your shares that are not subject to a
CDSC. If you suspend your participation in the plan, you may later
resume plan payments without requiring a new determination of the
account value for the 12% CDSC waiver.

- Sales of shares if you simultaneously invest the proceeds in the
Investment Manager's mutual fund asset allocation program, pursuant
to which investors pay an asset-based fee. Any shares you acquire
in connection with the Investment Manager's mutual fund asset
allocation program are subject to all of the terms and conditions
of that program, including termination fees, mandatory sale or
transfer restrictions on terminations.

All waivers will be granted only following the Fund's distributor
receiving confirmation of your entitlement. If you believe you are
eligible for a CDSC waiver, please contact your Financial Advisor or
call (800) 869-NEWS.

DISTRIBUTION FEE. Class B shares are also subject to an annual
distribution (12b-1) fee of up to 0.75% of the lesser of: (a) the
average daily aggregate gross purchases by all shareholders of the
Fund's Class B shares since the inception of the Fund (not including
reinvestment of dividends or capital gains distributions), less the
average daily aggregate net asset value of the Fund's Class B shares
sold by all shareholders since the Fund's inception upon which a CDSC
has been imposed or waived, or (b) the average daily net assets of
Class B.

CONVERSION FEATURE. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales
charge. The ten year period runs from the last day of the month in
which the shares were purchased, or in the case of Class B shares
acquired through an exchange, from the last day of the month in which
the original Class B shares were purchased; the shares will convert
to Class A shares based on their relative net asset values in the
month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically
reinvested distributions will convert to Class A shares on the same
basis. (Class B shares held before May 1, 1997, however, will convert
to Class A shares in May 2007.)

Currently, the Class B share conversion is not a taxable event; the
conversion feature may be cancelled if it is deemed a taxable event
in the future by the Internal Revenue Service.

If you exchange your Class B shares for shares of a Money Market
Fund, a No-Load Fund, North American Government Income Trust or
Short-Term U.S. Treasury Trust, the holding period for conversion is
frozen as of the last day of the month of the exchange and resumes on
the last day of the month you exchange back into Class B shares.

EXCHANGING SHARES SUBJECT TO A CDSC. There are special considerations
when you exchange Fund shares that are subject to a CDSC. When
determining the length of time you held the shares and the
corresponding CDSC rate, any period (starting at the end of

20
<PAGE>
the month) during which you held shares of a fund that does NOT
charge a CDSC WILL NOT BE COUNTED. Thus, in effect the "holding
period" for purposes of calculating the CDSC is frozen upon
exchanging into a fund that does not charge a CDSC.

For example, if you held Class B shares of the Fund for one year,
exchanged to Class B of another Morgan Stanley Dean Witter
Multi-Class Fund for another year, then sold your shares, a CDSC rate
of 4% would be imposed on the shares based on a two year holding
period -- one year for each Fund. However, if you had exchanged the
shares of the Fund for a Money Market Fund (which does not charge a
CDSC) instead of the Multi-Class Fund, then sold your shares, a CDSC
rate of 5% would be imposed on the shares based on a one year holding
period. The one year in the Money Market Fund would not be counted.
Nevertheless, if shares subject to a CDSC are exchanged for a Fund
that does not charge a CDSC, you will receive a credit when you sell
the shares equal to the distribution (12b-1) fees you paid on those
shares while in that Fund up to the amount of any applicable CDSC.

In addition, shares that are exchanged into or from a Morgan Stanley
Dean Witter Fund subject to a higher CDSC rate will be subject to the
higher rate, even if the shares are re-exchanged into a Fund with a
lower CDSC rate.

CLASS C SHARES Class C shares are sold at net asset value with no
initial sales charge but are subject to a CDSC of 1.0% on sales made
within one year after the last day of the month of purchase. The CDSC
will be assessed in the same manner and with the same CDSC waivers as
with Class B shares.

DISTRIBUTION FEE. Class C shares are subject to an annual
distribution (12b-1) fee of 0.75% of the average daily net assets of
that Class. The Class C shares' distribution fee may cause that
Class to have higher expenses and pay lower dividends than Class A or
Class D shares. Unlike Class B shares, Class C shares have no
conversion feature and, accordingly, an investor that purchases
Class C shares may be subject to distribution (12b-1) fees applicable
to Class C shares for an indefinite period.

CLASS D SHARES Class D shares are offered without any sales charge on
purchases or sales and without any distribution (12b-1) fee. Class D
shares are offered only to investors meeting an initial investment
minimum of $5 million and the following investor categories:

- Investors participating in the Investment Manager's mutual fund
asset allocation program (subject to all of its terms and
conditions, including termination fees, mandatory sale or transfer
restrictions on termination) pursuant to which they pay an
asset-based fee.

21
<PAGE>
- Certain unit investment trusts sponsored by Dean Witter Reynolds.

- Certain other open-end investment companies whose shares are
distributed by the Fund's distributor.

- Investors who were shareholders of the Dean Witter Retirement
Series on September 11, 1998 for additional purchases for their
former Dean Witter Retirement Series accounts.

MEETING CLASS D ELIGIBILITY MINIMUMS. To meet the $5 million initial
investment to qualify to purchase Class D shares you may combine: (1)
purchases in a single transaction of Class D shares of the Fund and
other Morgan Stanley Dean Witter Multi-Class Funds and/or
(2) previous purchases of Class A and Class D shares of Multi-
Class Funds and shares of FSC Funds you currently own, along with
shares of Morgan Stanley Dean Witter Funds you currently own that you
acquired in exchange for those shares.

NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a
cash payment representing an income dividend or capital gain and you
reinvest that amount in the applicable Class of shares by returning the
check within 30 days of the payment date, the purchased shares would
not be subject to an initial sales charge or CDSC.

PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company
Act of 1940 with respect to the distribution of Class A, Class B and
Class C shares. The Plan allows the Fund to pay distribution fees for
the sale and distribution of these shares. It also allows the Fund to
pay for services to shareholders of Class A, Class B and Class C
shares. Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of your
investment in these Classes and may cost you more than paying other
types of sales charges.

22
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).

This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------- FOR THE PERIOD JULY 28, 1997*
1999 1998 THROUGH DECEMBER 31, 1997
<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 0.58 0.59 0.27
Net realized and unrealized gain (loss) (1.06) 0.10 0.09
------ ------ ------
Total income (loss) from investment operations (0.48) 0.69 0.36
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.58) (0.59) (0.27)
Net realized gain (0.02) (0.24) --
------ ------ ------
Total dividends and distributions (0.60) (0.83) (0.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.67 $12.75 $12.89
- ---------------------------------------------------------------------------------------------------------------------------------

TOTAL RETURN+ (3.91)% 5.50% 2.82%(1)
- ---------------------------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses 0.78 %(3)(4) 0.83%(3) 0.78%(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.70 %(3) 4.58%(3) 4.47%(2)
- ---------------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $6,253 $3,788 $1,175
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 5 % 20% 15%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997* 1996 1995
<S> <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
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income 0.57 0.58 0.57 0.58 0.61
Net realized and unrealized gain
(loss) (1.06) 0.13 0.35 (0.21) 1.13
-------- -------- -------- -------- ----------
Total income (loss) from investment
operations (0.49) 0.71 0.92 0.37 1.74
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (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 (0.59) (0.82) (0.57) (0.72) (0.69)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.73 $12.81 $12.92 $12.57 $12.92
- ---------------------------------------------------------------------------------------------------------------------------------

TOTAL RETURN+ (3.99)% 5.63% 7.51% 3.13% 14.96%
- ---------------------------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses 0.91 %(1)(2)(3) 0.95%(2)(3) 1.33% 1.32%(1) 1.33%
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.57%(2)(3) 4.46%(2)(3) 4.51% 4.66% 4.90%
- ---------------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $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) Does not reflect the effect of expense offset of 0.01%.
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(3) If the Distributor had not rebated a portion of its fees to the Fund, the
expense and net investment income ratios would have been 1.34% 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.

24
<PAGE>

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31, JULY 28, 1997*
-------------------------------------- THROUGH
1999 1998 DECEMBER 31, 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------

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 0.51 0.53 0.23
Net realized and unrealized gain (loss) (1.06) 0.13 0.12
------ ------ ------
Total income (loss) from investment operations (0.55) 0.66 0.35
- ------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.51) (0.53) (0.23)
Net realized gain (0.02) (0.24) --
------ ------ ------
Total dividends and distributions (0.53) (0.77) (0.23)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.73 $12.81 $12.92
- ------------------------------------------------------------------------------------------------------------------

Total Return+ (4.41)% 5.22% 2.80%(1)
- ------------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------
Expenses 1.34 %(3)(4) 1.33%(3) 1.31%(2)
- ------------------------------------------------------------------------------------------------------------------
Net investment income 4.14 %(3) 4.08%(3) 4.24%(2)
- ------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $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%.

25
<PAGE>

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 0.60 0.63 0.28
Net realized and unrealized gain (loss) (1.05) 0.10 0.12
------ ------ ------
Total income (loss) from investment operations (0.45) 0.73 0.40
- ------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.60) (0.63) (0.28)
Net realized gain (0.02) (0.24) --
------ ------ ------
Total dividends and distributions (0.62) (0.87) (0.28)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.71 $12.78 $12.92
- ------------------------------------------------------------------------------------------------------------------------

Total Return+ (3.63)% 5.77% 3.18%(1)
- ------------------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------
Expenses 0.59 %(3)(4) 0.58%(3) 0.60%(2)
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 4.89 %(3) 4.83%(3) 5.34%(2)
- ------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $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%.

26
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers investors a wide range of
investment choices. Come on in and meet the family!
- --------------------------------------------------------------------------------
GROWTH FUNDS
- ---------------------------------
GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities

Growth Fund

Market Leader Trust

Mid-Cap Equity Trust

Next Generation Trust

SmallCap Growth Fund

Special Value Fund

21st Century Trend Fund

THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund

Natural Resource Development Securities

GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas"
Portfolio
European Growth Fund
Fund of Funds - International Portfolio

International Fund

International SmallCap Fund
Japan Fund

Latin American Growth Fund

Pacific Growth Fund
- --------------------------------------------------------------------------------
GROWTH & INCOME FUNDS
- ---------------------------------
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust

Dividend Growth Securities
Equity Fund

Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund

Total Market Index Fund

Total Return Trust
Value Fund

Value-Added Market Series/Equity Portfolio

THEME FUNDS

Real Estate Fund

Utilities Fund

GLOBAL FUNDS

Global Dividend Growth Securities

Global Utilities Fund

- --------------------------------------------------------------------------------
INCOME FUNDS
- ---------------------------------
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust

DIVERSIFIED INCOME FUNDS
Diversified Income Trust

CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund (NL)
GLOBAL INCOME FUNDS

North American Government Income Trust

World Wide Income Trust

TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust (FSC)
Limited Term Municipal Trust (NL)
Multi-State Municipal Series Trust (FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
- ---------------------------------
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund (MM)
U.S. Government Money Market Trust (MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust (MM)
N.Y. Municipal Money Market Trust (MM)
Tax-Free Daily Income Trust (MM)

There may be Funds created after this PROSPECTUS was published. Please consult
the inside back cover of a new Fund's prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.

Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A mutual fund offering multiple Classes of shares. The other
types of funds are: NL - No-Load (Mutual) Fund; MM - Money Market Fund; FSC - A
mutual fund sold with a front-end sales charge and a distribution (12b-1) fee.

<PAGE>

PROSPECTUS - FEBRUARY 22, 2000

Additional information about the Fund's investments is available in the Fund's
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL REPORT, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's Statement of Additional Information also provides additional information
about the Fund. The Statement of Additional Information is incorporated herein
by reference (legally is part of this PROSPECTUS). For a free copy of any of
these documents, to request other information about the Fund, or to make
shareholder inquiries, please call:

(800) 869-NEWS

You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:

www.msdw.com/individual/funds

Information about the Fund (including the
STATEMENT OF ADDITIONAL INFORMATION) can be
viewed and copied at the Securities and Exchange
Commission's Public Reference Room in
Washington, DC. Information about the
Reference Room's operations may be obtained
by calling the SEC at (202) 942-8090. Reports
and other information about the Fund are
available on the EDGAR Database on the SEC's
Internet site (www.sec.gov), and copies of this
information may be obtained, after paying a
duplicating fee, by electronic request at the
following E-mail address: [email protected],
or by writing the Public Reference Section
of the SEC, Washington, DC 20549-0102.

TICKER SYMBOLS:

<TABLE>
<S> <C>
CLASS A: CLFAX CLASS C: CLFCX
- --------------------- ---------------------

CLASS B: CLFBX CLASS D: CLFDX
- --------------------- ---------------------
</TABLE>

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811- 4020)

Morgan Stanley Dean Witter
CALIFORNIA TAX-FREE
INCOME FUND

[BACK COVER PHOTO]

A MUTUAL FUND THAT SEEKS
TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME EXEMPT FROM
BOTH FEDERAL AND CALIFORNIA
INCOME TAX, CONSISTENT WITH
THE PRESERVATION OF CAPITAL

<PAGE>

<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY
FEBRUARY 22, 2000 DEAN WITTER
CALIFORNIA
TAX-FREE
INCOME FUND
</TABLE>

- --------------------------------------------------------------------------------

This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
(dated February 22, 2000) for the Morgan Stanley Dean Witter California Tax-Free
Income Fund may be obtained without charge from the Fund at its address or
telephone number listed below or from Dean Witter Reynolds at any of its branch
offices.

Morgan Stanley Dean Witter
California Tax-Free Income Fund
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
I. Fund History............................................. 4

II. Description of the Fund and Its Investments and Risks... 4

A. Classification......................................... 4

B. Investment Strategies and Risks........................ 4

C. Fund Policies/Investment Restrictions.................. 13

III. Management of the Fund................................. 14

A. Board of Trustees...................................... 14

B. Management Information................................. 15

C. Compensation........................................... 19

IV. Control Persons and Principal Holders of Securities..... 21

V. Investment Management and Other Services................. 21

A. Investment Manager..................................... 21

B. Principal Underwriter.................................. 21

C. Services Provided by the Investment Manager............ 22

D. Dealer Reallowances.................................... 23

E. Rule 12b-1 Plan........................................ 23

F. Other Service Providers................................ 27

VI. Brokerage Allocation and Other Practices................ 27

A. Brokerage Transactions................................. 27

B. Commissions............................................ 28

C. Brokerage Selection.................................... 28

D. Directed Brokerage..................................... 28

E. Regular Broker-Dealers................................. 29

VII. Capital Stock and Other Securities..................... 29

VIII. Purchase, Redemption and Pricing of Shares............ 30

A. Purchase of Shares..................................... 30

B. Offering Price......................................... 30

IX. Taxation of the Fund and Shareholders................... 31

X. Underwriters............................................. 34

XI. Calculation of Performance Data......................... 34

XII. Financial Statements................................... 36

XIII. Appendix -- rating of investments..................... 56
</TABLE>

2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------

The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).

"CUSTODIAN"--The Bank of New York.

"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.

"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.

"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.

"FUND"--Morgan Stanley Dean Witter California Tax-Free Income Fund, a registered
open-end investment company.

"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.

"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.

"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.

"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor; and (ii) that
hold themselves out to investors as related companies for investment and
investor services.

"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.

"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.

"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.

"TRUSTEES"--The Board of Trustees of the Fund.

3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------

The Fund was organized under the laws of the Commonwealth of Massachusetts
on April 9, 1984 as a Massachusetts business trust under the name Dean Witter
California Tax-Free Income Fund. Effective June 22, 1998, the Fund's name was
changed to Morgan Stanley Dean Witter California Tax-Free Income Fund.

II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------

A. CLASSIFICATION

The Fund is an open-end, diversified management investment company whose
investment objective is to provide a high level of current income exempt from
both federal and California income tax, consistent with the preservation of
capital.

B. INVESTMENT STRATEGIES AND RISKS

The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's PROSPECTUS titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."

TAXABLE SECURITIES. The Fund may invest up to 20% of its total assets, or
more than 20% of its total assets when assuming a temporary defensive position,
in taxable money market instruments, tax-exempt securities of other states and
municipalities and futures and options. Investments in taxable money market
instruments would generally be made under any one of the following
circumstances: (a) pending investment of proceeds of the sale of the Fund's
shares or of portfolio securities, (b) pending settlement of purchases of
portfolio securities and (c) to maintain liquidity for the purpose of meeting
anticipated redemptions. Only those tax-exempt securities of other states which
satisfy the standards established for the tax-exempt securities of the state of
California may be purchased by the Fund.

The types of taxable money market instruments in which the Fund may invest
are limited to the following short-term fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United States
Government, its agencies, instrumentalities or authorities; (ii) commercial
paper rated P-1 by Moody's Investors Services, Inc. ("Moody's") or A-1 by
Standard & Poor's Corporation ("S&P"); (iii) certificates of deposit of domestic
banks with assets of $1 billion or more; and (iv) repurchase agreements with
respect to portfolio securities.

VARIABLE RATE AND FLOATING RATE OBLIGATIONS. The Fund may invest in
Municipal Bonds and Municipal Notes ("Municipal Obligations") of the type called
variable rate. The interest rate payable on a variable rate obligation is
adjusted either at predesignated periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based. Other features may include the right whereby the Fund may demand
prepayment of the principal amount of the obligation prior to its stated
maturity (a "demand feature") and the right of the issue to prepay the principal
amount prior to maturity. The principal benefit of a variable rate obligation is
that the interest rate adjustment minimizes changes in the market value of the
obligation. The principal benefit to the Fund of purchasing obligations with a
demand feature is that liquidity, and the ability of the Fund to obtain
repayment of the full principal amount of an obligation prior to maturity, is
enhanced.

FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may invest in financial
futures contracts ("futures contracts") and related options thereon. These
futures contracts and related options thereon will be used only as a hedge
against anticipated interest rate changes. A futures contract sale creates an
obligation by the Fund, as seller, to deliver the specific type of instrument
called for in the contract at a specified future time for a specified price. A
futures contract purchase would create an obligation by the Fund, as purchaser,
to take delivery of the specific type of financial instrument at a specified
future time at a specified price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until on or near that
date. The determination would be in accordance with the rules of the exchange on
which the futures contract sale or purchase was effected.

4
<PAGE>
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is usually effected by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale is
effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument at the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is immediately paid the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Fund entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Fund realizes a gain, and
if the offsetting sale price is less than the purchase price, the Fund realizes
a loss.

Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract (a long
position in the case of a call option and a short position in the case of a put
option). If the holder decides not to enter into the contract, the premium paid
for the contract is lost. Since the value of the option is fixed as the point of
sale, there are no daily payments of cash to reflect the change in the value of
the underlying contract, as discussed below for futures contracts. The value of
the option change is reflected in the net asset value of the Fund.

The Fund is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. In
addition, due to current industry practice, daily variations in gains and losses
on open contracts are required to be reflected in cash in the form of variation
margin payments. The Fund may be required to make additional margin payments
during the term of the contract.

Currently, futures contracts can be purchased on debt securities such as
U.S. Treasury Bills and Bonds, U.S. Treasury Notes with maturities between 6 1/2
and 10 years, Certificates of the Government National Mortgage Association, Bank
Certificates of Deposit and on a municipal bond index. The Fund may invest in
interest rate futures contracts covering these types of financial instruments as
well as in new types of contracts that become available in the future.

Financial futures contracts are traded in an auction environment on the
floors of several Exchanges--principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each Exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the Exchange membership which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A risk in employing futures contracts may correlate imperfectly with the
behavior of the cash prices of the Fund's portfolio securities. The correlation
may be distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and a short time period. The correlation may be further
distorted since the futures contracts that are being used to hedge are not based
on municipal obligations.

Another risk is that the Fund's Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an increase
in interest rates, and the interest rates went down instead, causing bond prices
to rise, the Fund would lose money on the sale. Put and call options on
financial futures have characteristics similar to Exchange traded options.

In addition to the risks associated in investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that such a market will develop.

5
<PAGE>
The Fund may not enter into futures contracts or related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
option premiums exceeds 5% of the value of the Fund's total assets. There is no
limit, however, on the percentage of the Fund's assets that may be committed to
hedging transactions.

MUNICIPAL BOND INDEX FUTURES. The Fund may utilize municipal bond index
futures contracts for hedging purposes. The strategies in employing such
contracts will be similar to that discussed above with respect to financial
futures and options thereon. A municipal bond index is a method of reflecting in
a single number the market value of many different municipal bonds and is
designed to be representative of the municipal bond market generally. The index
fluctuates in response to changes in the market values of the bonds included
within the index. Unlike futures contracts on particular financial instruments,
transactions in futures on a municipal bond index will be settled in cash, if
held until the close of trading in the contract. However, like any other futures
contract, a position in the contract may be closed out by a purchase or sale of
an offsetting contract for the same delivery month prior to expiration of the
contract.

OPTIONS.

The Fund may purchase or sell (write) options on debt securities as a means
of achieving additional return or hedging the value of the Fund's portfolio. The
Fund will only buy options listed on national securities exchanges. The Fund
will not purchase options if, as a result, the aggregate cost of all outstanding
options exceeds 10% of the Fund's total assets.

Presently there are no options on California tax-exempt securities traded on
national securities exchanges. The Fund will not invest in options on debt
securities in the coming year or until such time as they become available on
national securities exchanges.

A call option is a contract that gives the holder of the option the right to
buy from the writer of the call option, in return for a premium, the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option has the obligation, upon exercise
of the option, to deliver the underlying security upon payment of the exercise
price during the option period. A put option is a contract that gives the holder
of the option the right to sell to the writer, in return for a premium, the
underlying security at a specified price during the term of the option. The
writer of the put has the obligation to buy the underlying security upon
exercise, at the exercise price during the option period.

The Fund will only write covered call or covered put options listed on
national exchanges. The Fund may not write covered options in an amount
exceeding 20% of the value of the total assets of the Fund. A call option is
"covered" if the Fund owns the underlying security subject to the option or has
an absolute and immediate right to acquire that security or futures contract
without additional cash consideration (or for additional cash consideration in
cash, Treasury Bills or other liquid portfolio securities) held in a segregated
account on the Fund's books, upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund holds a call on
the same security or futures contract as the call written, where the exercise
price of the call held is (i) equal to or less than the exercise price of the
call written or (ii) greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other liquid
portfolio securities in a segregated account on the Fund's books. A put option
is "covered" if the Fund maintains cash, Treasury bills or other liquid
portfolio securities with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security or futures
contract as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written.

If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option,
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same fund as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction on behalf of the Fund can be effected when the Fund so desires.

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The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the purchase of a call
option may also be wholly or partially offset by unrealized appreciation of the
underlying security. If a put option written by the Fund is exercised, the Fund
may incur a loss equal to the difference between the exercise price of the
option and the sum of the sale price of the underlying security plus the
premiums received from the sale of the option. Other principal factors affecting
the market value of a put or a call option include supply and demand, interest
rates, the current market price and price volatility of the underlying security
and the time remaining until the expiration date.

An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event, it might not be
possible to effect closing transactions in particular options, so that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commission upon the exercise of call options and upon covered
call option writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.

REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a bank,
savings and loan association or broker-dealer. The agreement provides that the
Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The collateral will be marked-to-market daily to determine
that the value of the collateral, as specified in the agreement, does not
decrease below the purchase price plus accrued interest. If such decrease
occurs, additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest from
the institution until the time when the repurchase is to occur. Although this
date is deemed by the Fund to be the maturity date of a repurchase agreement,
the maturities of securities subject to repurchase agreements are not subject to
any limits.

While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Trustees. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Fund will seek to liquidate such collateral. However,
the exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds form any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss.

LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
brokers, dealers and other financial institutions, provided that the loans are
callable at any time by the Fund, and are at all

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times secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least 100%
of the market value, determined daily, of the loaned securities. The advantage
of these loans is that the Fund continues to receive the income on the loaned
securities while at the same time earning interest on the cash amounts deposited
as collateral, which will be invested in short-term obligations. The Fund will
not lend its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale and will not
lend more than 25% of the value of its total assets.

As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the Fund's management to be creditworthy and
when the income which can be earned from such loans justifies the attendant
risks. Upon termination of the loan, the borrower is required to return the
securities to the Fund. Any gain or loss in the market price during the loan
period would inure to the Fund.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of the rights
if the matters involved would have a material effect on the Fund's investment in
the loaned securities. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time the Fund may purchase securities on a when-issued or delayed
delivery basis or may purchase or sell securities on a forward commitment basis.
When these transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of commitment. While the Fund will only purchase securities on a
when-issued, delayed delivery or forward commitment basis with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date, if it is deemed advisable. The securities so purchased or sold are subject
to market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date.

At the time the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The Fund will also establish a segregated account on the Fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis.

YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today were designed in such a way
that they may not be able to recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded and calculated. That
failure could have a negative impact on the handling of securities trades,
pricing and account services.

Improperly functioning trading systems may result in settlement problems and
liquidity issues. Corporate and governmental data processing errors could result
in production problems for individual issuers and overall economic
uncertainties. Operations ran smoothly from the last week in December through
the first few weeks of January, but the year 2000 issue may yet have an adverse
impact on financial market participants and other entities, including the
issuers whose securities are contained in the Fund's portfolio.

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THE STATE OF CALIFORNIA--SPECIAL INVESTMENT CONSIDERATIONS

The following describes certain risks with respect to municipal obligations
of California issuers in which the Fund may invest. This summarized information
is based on information drawn from official statements and prospectuses relating
to securities offerings of the State of California and other public documents
available as of the date of this Statement of Additional Information. Although
the Investment Manager has not independently verified such information, it has
no reason to believe that such information is not correct in all material
respects.

The Fund will be affected by any political, economic or regulatory
developments affecting the ability of California issuers to pay interest or
repay principal. Provisions of the California Constitution and State statutes
which limit the taxing and spending authority of California governmental
entities may impair the ability of California issuers to maintain debt service
on their obligations. Future California political and economic developments,
constitutional amendments, legislative measures, executive orders,
administrative regulations, litigation and voter initiatives could have an
adverse effect on the debt obligations of California issuers.

Certain debt obligations held by the Fund may be obligations of issuers
which rely in whole or in substantial part on California state revenues for the
continuance of their operations and payment of their obligations. Whether and to
what extent the California Legislature will continue to appropriate a portion of
the State's General Fund to counties, cities and their various entities, is not
entirely certain. To the extent local entities do not receive money from the
State to pay for their operations and services, their ability to pay debt
service on obligations held by the Fund may be impaired.

In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources. Legislation adopted after Proposition 13 provided for
assistance to local governments, including the redistribution of the
then-existing surplus in the General Fund, reallocation of revenues to local
governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in future years. In NORDLINGER V. HAHN, the
United States Supreme Court upheld certain provisions of Proposition 13 against
claims that it violated the equal protection clause of the Constitution.

In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the State and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by State and local government entities.
"Appropriations limit" does not include appropriations for qualified capital
outlay projects, certain increases in transportation-related taxes, and certain
emergency appropriations.

If a government entity raises revenues beyond its "appropriations limit" in
any year, a portion of the excess which cannot be appropriated within the
following year's limit must be returned to the entity's taxpayers within two
subsequent fiscal years, generally by a tax credit, refund or temporary
suspension of tax rates or fee schedules. "Debt service" is excluded from these
limitations, and is defined as "appropriations required to pay the cost of
interest and redemption charges, including the funding of any reserve or sinking
fund required in connection therewith, on indebtedness existing or legally
authorized as of January 1, 1979 or on bonded indebtedness thereafter approved
[by the voters]." In addition, Article XIIIB requires the State Legislature to
establish a prudent State reserve, and to require the transfer of 50% of excess
revenue to the State School Fund; any amounts allocated to the State School Fund
will increase the appropriations limit.

In June 1982, the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to

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account for the effects of inflation. Decreases in State and local revenues in
future fiscal years as a consequence of these initiatives may result in
reductions in allocations of state revenues to California issuers or in the
ability of California issuers to pay their obligations.

In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and
(viii) permits these provisions to be amended exclusively by the voters of the
State of California.

In September 1995, the California Supreme Court upheld the constitutionality
of Proposition 62, creating uncertainty as to the legality of certain local
taxes enacted by non-charter cities in California without voter approval. It is
not possible to predict the impact of the decision.

In November 1996, California voters approved Proposition 218. The initiative
applied the provisions of Proposition 62 to all entities, including charter
cities. It requires that all taxes for general purposes obtain a simple majority
popular vote and that taxes for special purposes obtain a two-thirds majority
vote. Prior to the effectiveness of Proposition 218, charter cities could levy
certain taxes such as transient occupancy taxes and utility user's taxes without
a popular vote. Proposition 218 will also limit the authority of local
governments to impose property-related assessments, fees and charges, requiring
that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal
previously-authorized taxes, assessments, fees and charges.

In 1988, State voters approved Proposition 87, which amended Article XVI of
the State Constitution to authorize the State Legislature to prohibit
redevelopment agencies from receiving any property tax revenues raised by
increased property taxes to repay bonded indebtedness of local government which
is not approved by voters on or before January 1, 1989. It is not possible to
predict whether the State Legislature will enact such a prohibition, nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.

In November 1988, California voters approved Proposition 98. This initiative
requires that (i) revenues in excess of amounts permitted to be spent and which
would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits to be annually increased
for any such allocation made in the prior year. Proposition 98 also requires the
State of California to provide a minimum level of funding for public schools and
community colleges. The initiative permits the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.

Certain tax-exempt securities in which the Fund may invest may be
obligations payable solely from the revenues of specific institutions, or may be
secured by specific properties, which are subject to

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provisions of California law which could adversely affect the holders of such
obligations. For example, the revenues of California health care institutions
may be subject to state laws, and California law limits the remedies of a
creditor secured by a mortgage or deed of trust on real property.

California is the most populous state in the nation with a total population
currently estimated at 33.4 million. The State now comprises 12.4% of the
nation's population and 12.7% of its total personal income. Its economy is broad
and diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After experiencing strong
growth throughout much of the 1980s, from 1990-1993 the State suffered through a
severe recession, the worst since the 1930's, heavily influenced by large
cutbacks in defense/aerospace industries and military base closures and a major
drop in real estate construction. California's economy has been performing
strongly since 1994, to the point where the State's economic growth is outpacing
the rest of the nation. The unemployment rate, while still higher than the
national average, fell to an average of 5.9% in 1998, and to 4.8% in November,
1999, compared to over 10% at the worst of the recession. A significant downturn
in U.S. stock market prices could adversely affect California's economy by
reducing household spending and business investment, particularly in the
important high technology sector. Moreover, a large and increasing share of the
State's General Fund revenue in the form of income and capital gains taxes is
directly related to, and would be adversely affected by a significant downturn
in the performance of, the stock markets.

The recession severely affected state revenues while the State's health and
welfare costs were increasing. Consequently, the State had a lengthy period of
budget imbalance; the State's accumulated budget deficit approached $2.8 billion
at its peak at June 30, 1993. The large budget deficits depleted the State's
available cash resources and it had to use a series of external borrowings to
meet its cash needs. With the end of the recession, the State's financial
condition improved in the 1995-96 through 1998-99 fiscal years, with a
combination of better than expected revenues, slowdown in growth of social
welfare programs, and continued spending restraint. The accumulated budget
deficit from the recession years was eliminated. No deficit borrowing has
occurred at the end of the last four fiscal years and the State's cash flow
borrowing was limited to $1.7 billion in 1998-99. The State issued $1.0 billion
of revenue anticipation notes for the 1999-2000 fiscal year.

On June 29, 1999, the Governor of California signed the 1999-2000 Budget
Act. The Budget Act estimated General Fund revenues and transfers of $63.0
billion, and contained expenditures totaling $63.7 billion. The Budget Act also
contained expenditures of $16.1 billion from special funds and $1.5 billion from
bond funds. The Administration estimated a budget reserve balance at June 30,
2000, of approximately $880 million. Not included in this amount was an
additional $300 million which (after the Governor's vetoes) was "set aside" to
provide funds for employee salary increases (to be negotiated in bargaining with
employee unions), and for litigation reserves. The Budget Act anticipates normal
cash flow borrowing during the fiscal year. Continued State economic expansion
and large revenue increases enabled the Governor and State legislature to
provide increases in spending programs in the 1999-2000 budget. These included
large increases in education and health and human services funding.

The Governor's 2000-2001 proposed budget provides for total State spending
of $85.1 billion (excluding expenditures of federal funds and selected bond
funds), an increase of 3.7% from the current year. Approximately 80% of this
total is from the General Fund and 20% from special funds. The proposed budget
assumes that General Fund revenues will total $68.2 billion in 2000-01, a 4.7%
increase from the current year. General Fund expenditures are proposed to be
$68.8 billion, an increase of 4.5%. After accounting for various set-asides, the
year-end reserve is estimated to be $1.2 billion, or about 1.8% of total 2000-01
General Fund revenues.

As of January 1, 2000, the State had over $17.5 billion aggregate amount of
its general obligation bonds outstanding. General obligation bond authorizations
in an aggregate amount of approximately $10.6 billion remained unissued as of
that date. The State also builds and acquires capital facilities through the use
of lease purchase borrowing. As of January 1, 2000, the State had approximately
$6.7 billion of outstanding Lease-Purchase Debt.

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In addition to the general obligation bonds, State agencies and authorities
had approximately $26 billion aggregate principal amount of revenue bonds and
notes outstanding as of June 30, 1999. Revenue bonds represent both obligations
payable from State revenue-producing enterprises and projects, which are not
payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, educational facilities (including the California
State University and University of California systems), housing, health
facilities, and pollution control facilities.

Because of the State of California's budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by S&P, and to A from AA by Fitch. Moody's, Fitch and S&P expressed
uncertainty in the State's ability to balance its budget by 1996. However, in
1996, citing California's improving economy and budget situation, both Fitch and
S&P raised their ratings from A to A+. In October, 1997, Fitch raised its rating
from A+ to AA- referring to the State's fundamental strengths, the extent of its
economic recovery and the return of financial stability. In October 1998,
Moody's raised its rating from A1 to Aa3 citing the State's continuing economic
recovery and a number of actions taken to improve the State's credit condition,
including the rebuilding of cash and budget reserves. In August 1999, S&P raised
its rating from A+ to AA- citing the State's strong economic performance and its
return to structural fiscal balance.

The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations and which, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.

Some local governments in California have experienced notable financial
difficulties on December 6, 1994, Orange County, California, became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in losses
suffered by the County's investment pool due to investments in high risk
"derivative" securities. On June 12, 1996, it emerged from bankruptcy after the
successful sale of $880 million in municipal bonds allowed the county to pay off
the last of its creditors. On January 7, 1997, Orange County returned to the
municipal bond market with a $136 million bond issue maturing in 13 years at an
insured yield of 7.23%. In December, 1997, Moody's raised its ratings on $325
million of Orange County pension obligation bonds to Baa3 from Ba. In February
1998, Fitch assigned outstanding Orange County pension obligation bonds a BBB
rating. In September 1999, Moody's assigned the County an issuer (implied
general obligation) rating of Aa3 and, among other things, upgraded the ratings
on the County's pension obligation bonds to A1. In January 2000, S&P upgraded
its rating on the County's pension obligation bonds from BB to A-.

Los Angeles County, the nation's largest county, has also experienced
financial difficulty. Between 1992 and 1995, the County's long term bonds were
downgraded three times. This occurred as a result of, and among other things,
severe operating deficits for the county's health care system. In addition, the
county was affected by an ongoing loss of revenue caused by state property tax
shift initiatives in 1993 through 1995. The County's improving financial
condition has been reflected in improved general obligation bond ratings. In
June 1999, the Los Angeles County Board of Supervisors approved a budget of
approximately $15 billion for 1999-2000, up from the $13.6 billion approved for
the previous fiscal year. The County's financial condition will continue to be
affected by the large number of County residents who are dependent on government
services and by a structural deficit in its health department.

The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.

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C. FUND POLICIES/INVESTMENT RESTRICTIONS

The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act of
1940 (the "Investment Company Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the Fund.
The Investment Company Act defines a majority as the lesser of (a) 67% or more
of the shares present at a meeting of shareholders, if the holders of 50% of the
outstanding shares of the Fund are present or represented by proxy; or (b) more
than 50% of the outstanding shares of the Fund.

In addition, for purposes of the following restrictions: (a) an "issuer" of
a security is the entity whose assets and revenues are committed to the payment
of interest and principal on that particular security, provided that the
guarantee of a security will be considered a separate security; (b) a "taxable
security" is any security the interest on which is subject to federal income
tax; and (c) all percentage limitations apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.

The Fund will:

1. Seek to provide a high level of current income which is exempt from
both federal and California income tax, consistent with the preservation of
capital.

The Fund may not:

1. With respect to 75% of its total assets, purchase securities of any
issuer if immediately thereafter more than 5% of the Fund's total assets are
in the securities of any one issuer (other than obligations issued, or
guaranteed by, the United States Government, its agencies or
instrumentalities, or by the State of California or its political
subdivisions).

2. Purchase more than 10% of all outstanding taxable debt securities
of any one issuer (other than obligations issued, or guaranteed as to
principal and interest by, the United States Government, its agencies or
instrumentalities).

3. Invest more than 25% of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities or to municipal obligations,
including those issued by the State of California or its political
subdivisions.

4. Invest in common stock.

5. Write, purchase or sell puts, calls, or combinations thereof,
except for options on futures contracts or options on debt securities.

6. Invest in securities of any issuer, if, to the knowledge of the
Fund, any officer or trustee of the Fund or of the Investment Manager owns
more than 1/2 of 1% of the outstanding securities of the issuer, and the
officers and trustees who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of the issuer.

7. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein.

8. Purchase or sell commodities except that the Fund may purchase
financial futures contracts and related options.

9. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of the value of its total assets (not
including the amount borrowed).

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10. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowing. However, for the purpose of this restriction,
collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial margin for futures are not
deemed to be pledges of assets and neither such arrangements nor the
purchase or sale of futures are deemed to be the issuance of a senior
security as set forth in restriction 11.

11. Issue senior securities as defined in the Investment Company Act,
except insofar as the Fund may be deemed to have issued a senior security by
reason of: (a) entering into any repurchase agreement; (b) purchasing any
securities on a when-issued or delayed delivery basis; or (c) borrowing
money.

12. Make loans of money or securities, except: (a) by the purchase of
debt obligations; (b) by investment in repurchase agreements; and (c) by
lending its portfolio securities.

13. Make short sales of securities.

14. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities. The
deposit or payment by the Fund of initial or variation margin in connection
with futures contracts or related options thereon is not considered the
purchase of a security on margin.

15. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act in disposing of a
portfolio security.

16. Invest for the purpose of exercising control or management of any
other issuer.

17. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.

18. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.

Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.

III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

A. BOARD OF TRUSTEES

The Board of Trustees of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided to
the Fund in a satisfactory manner.

Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and not the Trustee's own
interest or the interest of another person or organization. A Trustee satisfies
his or her duty of care by acting in good faith with the care of an ordinarily
prudent person and in a manner the Trustee reasonably believes to be in the best
interest of the Fund and its shareholders.

14
<PAGE>
B. MANAGEMENT INFORMATION

TRUSTEES AND OFFICERS. The Board of the Fund consists of eight
(8) Trustees. These same individuals also serve as directors or trustees for all
of the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment Manager or any of
its affiliated persons and do not own any stock or other securities issued by
the Investment Manager's parent company, MSDW. These are the "non-interested" or
"independent" Trustees. The other two Trustees (the "management Trustees") are
affiliated with the Investment Manager.

The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 95 Morgan Stanley Dean Witter Funds, are shown
below.

Charles A. Fiumefreddo* (66) ................ Chairman, Director or Trustee and Chief
Chairman of the Board, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; formerly Chairman, Chief
Two World Trade Center Executive Officer and Director of the
New York, New York Investment Manager, the Distributor and MSDW
Services Company; Executive Vice President and
Director of Dean Witter Reynolds; Chairman and
Director of the Transfer Agent; formerly
Director and/or officer of various MSDW
subsidiaries (until June 1998).

Edwin J. Garn (67) .......................... Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor
Salt Lake City, Utah of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of
Franklin Covey (time management systems), BMW
Bank of North America, Inc. (industrial loan
corporation), United Space Alliance (joint
venture between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various
civic and charitable organizations.
</TABLE>

15
<PAGE>

Dr. Manuel H. Johnson (51) .................. Senior Partner, Johnson Smick
Trustee International, Inc., a consulting firm;
c/o Johnson Smick International, Inc. Co-Chairman and a founder of the Group of Seven
1133 Connecticut Avenue, N.W. Council (G7C), an international economic
Washington, D.C. commission; Chairman of the Audit Committee and
Director or Trustee of the Morgan Stanley Dean
Witter Funds; Director of Greenwich Capital
Markets, Inc. (broker-dealer) and NVR, Inc.
(home construction); Chairman and Trustee of
the Financial Accounting Foundation (oversight
organization of the Financial Accounting
Standards Board); formerly Vice Chairman of the
Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of
the U.S. Treasury.

Michael E. Nugent (63) ...................... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; Chairman of the
c/o Triumph Capital, L.P. Insurance Committee and Director or Trustee of
237 Park Avenue the Morgan Stanley Dean Witter Funds; formerly
New York, New York Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); director of
various business organizations.

Philip J. Purcell* (56) ..................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director of American
Airlines, Inc. and its parent company, AMR
Corporation; Director and/or officer of various
MSDW subsidiaries.

John L. Schroeder (69) ...................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Mayer, Brown & Platt Dean Witter Funds; Director of Citizens
Counsel to the Independent Trustees Utilities Company (telecommunications, gas,
1675 Broadway electric and water utilities company); formerly
New York, New York Executive Vice President and Chief Investment
Officer of the Home Insurance Company (August
1991-September 1995).
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
Mitchell M. Merin (46) ...................... President and Chief Operating Officer of Asset
President Management of MSDW (since December 1998);
Two World Trade Center President and Director (since April 1997) and
New York, New York Chief Executive Officer (since June 1998) of
the Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998);
Chairman and Chief Executive Officer (since
June 1998) and Director (since January 1998) of
the Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley
Dean Witter Funds (since May 1999); Trustee of
various Van Kampen investment companies (since
December 1999); previously Chief Strategic
Officer of the Investment Manager and MSDW
Services Company and Executive Vice President
of the Distributor (April 1997-June 1998), Vice
President of the Morgan Stanley Dean Witter
Funds (May 1997-April 1999), and Executive Vice
President of Dean Witter, Discover & Co.
Barry Fink (45) ............................. Executive Vice President (since December 1999)
Vice President, and Secretary and General Counsel (since
Secretary and General Counsel February 1997) and Director (since July 1998)
Two World Trade Center of the Investment Manager and MSDW Services
New York, New York Company; Executive Vice President (since
December 1999) and Assistant Secretary and
Assistant General Counsel (since February 1997)
of the Distributor; Assistant Secretary of Dean
Witter Reynolds (since August 1996); Vice
President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds (since
February 1997); previously Senior Vice
President (March 1997-December 1999) First Vice
President (June 1993-February 1997), Vice
President and Assistant Secretary and Assistant
General Counsel of the Investment Manager and
MSDW Services Company, Senior Vice President of
the Distributor (March 1997-December 1999) and
Assistant Secretary of the Morgan Stanley Dean
Witter Funds.
James F. Willison (56) ...................... Senior Vice President of the Investment Manager
Vice President and Director of the Tax-Exempt Fixed-Income
Two World Trade Center Group of the Investment Manager; Vice President
New York, New York of various Morgan Stanley Dean Witter Funds.
Joseph R. Arcieri (51) ...................... Senior Vice President of the Investment
Vice President Manager; Vice President of various Morgan
Two World Trade Center Stanley Dean Witter Funds.
New York, New York
Thomas F. Caloia (53) ....................... First Vice President and Assistant Treasurer of
Treasurer the Investment Manager, the Distributor and
Two World Trade Center MSDW Services Company; Treasurer of the Morgan
New York, New York Stanley Dean Witter Funds.
</TABLE>

- ------------------------
* Denotes Trustees who are "interested persons" of the Fund as defined by the
Investment Company Act.

17
<PAGE>

In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, and JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
and PETER M. AVELAR, Senior Vice President of the Investment Manager and
Director of the High Yield Group of the Investment Manager and JONATHAN R. PAGE,
Senior Vice President of the Investment Manager and Director of the Money Market
Group of the Investment Manager, and KATHERINE H. STROMBERG, Senior Vice
President of the Investment Manager and GERARD J. LIAN, Vice President of the
Investment Manager, are Vice Presidents of the Fund.

In addition, MARILYN K. CRANNEY, TODD LEBO, LOU ANNE D. MCINNIS, CARSTEN
OTTO and RUTH ROSSI, First Vice Presidents and Assistant General Counsels of the
Investment Manager and MSDW Services Company, and NATASHA KASSIAN, Assistant
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.

INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.

The independent directors/trustees are charged with recommending to the full
board approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent director/trustee vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter
Funds have a Rule 12b-1 plan.

The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
board.

The board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Fund.

Finally, the board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.

ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/trustees for each of the Morgan Stanley Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as independent directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that having the same individuals serve
as independent directors/trustees of all the Funds tends to increase

18
<PAGE>

their knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility of
separate groups of independent directors/trustees arriving at conflicting
decisions regarding operations and management of the Funds and avoids the cost
and confusion that would likely ensue. Finally, having the same independent
directors/trustees serve on all Fund boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of independent
directors/trustees, of the caliber, experience and business acumen of the
individuals who serve as independent directors/trustees of the Morgan Stanley
Dean Witter Funds.

TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.

C. COMPENSATION

The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairman of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.

The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended December 31, 1999.

FUND COMPENSATION

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic............................................... $1,550
Edwin J. Garn............................................... 1,600
Wayne E. Hedien............................................. 1,600
Dr. Manuel H. Johnson....................................... 2,100
Michael E. Nugent........................................... 1,933
John L. Schroeder........................................... 1,933
</TABLE>

19
<PAGE>

The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1999.

CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS

<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES
TO
93 MORGAN
NAME OF STANLEY DEAN
INDEPENDENT TRUSTEE WITTER FUNDS
- ------------------- ------------
<S> <C>
Michael Bozic............................................... $134,600
Edwin J. Garn............................................... 138,700
Wayne E. Hedien............................................. 138,700
Dr. Manuel H. Johnson....................................... 208,638
Michael E. Nugent........................................... 193,324
John L. Schroeder........................................... 193,324
</TABLE>

As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an independent director/ trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
independent director/trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "Adopting Fund"
and each such trustee referred to as an "Eligible Trustee") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service.

Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
independent director/ trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years of service. The foregoing percentages may be
changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses on the books of
the Adopting Funds. Such benefits are not secured or funded by the Adopting
Funds.

The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the year ended December 31, 1999 and
by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for the year
ended December 31, 1999, and the estimated retirement benefits for the
Independent Trustees, to commence upon their retirement, from the Fund as of
December 31, 1999 and from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1999.

RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS

<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
----------------------------- RETIREMENT BENEFITS ESTIMATED ANNUAL
ESTIMATED ACCRUED AS BENEFITS
CREDITED EXPENSES UPON RETIREMENT(2)
YEARS ESTIMATED ------------------- --------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------- ------------- ------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic............... 10 60.44% $378 $ 20,933 $ 907 $ 50,588
Edwin J. Garn............... 10 60.44 557 31,737 909 50,675
Wayne E. Hedien............. 9 51.37 711 39,566 771 43,000
Dr. Manuel H. Johnson....... 10 60.44 229 13,129 1,360 75,520
Michael E. Nugent........... 10 60.44 395 23,175 1,209 67,209
John L. Schroeder........... 8 50.37 768 41,558 955 52,994
</TABLE>

- ------------------------
(1) An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote 1 above.

20
<PAGE>
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------

The following persons owned 5% or more of the outstanding shares of Class A
on February 1, 2000: Thomas J. Mcmurray Jr. and Gretha K. Mcmurry JTTEn, P.O.
Box 1032, Eureka, CA 95502-1032--26%; Harry Lewis and Janet Lewis, Trustees for
the Harry & Janet Lewis revocable Trust dated 3/29/95, P.O. Box 352, Pebble
Beach, CA 93953-0352--14.9%; Michael A. Lopiano, Trustee and Audrey R. H.
Lopiano, Trustee, Lopiano 1982 Trust dated 7/6/82, 3098 Seaview, Ventura, CA
93001-4242--8.62%; Lynda Trelut & James Trelut JTTEN, 1617 El Dorado Dr.,
Gilroy, CA 95020-3754--7.82%; Leo J. Tauber & Lucy C. Tauber TTEE of the Tauber
Family 1990 REV Trust dated 7/2/90, 317 Carol Drive, Ventura, C.A.
93003-1710--6.28% and Sylvia Coe Tolk as Trustee of the Sylvia Coe Tolk 1998
Trust dated 6/16/98, 852 Green Street, San Francisco, CA 94133-3717. The
following persons owned 5% or more of the outstanding shares of Class C on
February 1, 2000: Glenn A. Wildman II, 2058 Colusa Way, San Jose CA,
95130-1807--7.904%; Donald B. Schmickrath & Melody Schmickrath, Trustees o/t
Schmickrath Family Rev. Trust dated 10/7/96, 12510 Barley Hill Rd., Los Altos
Hills, CA 94024-5211--7.41% and Janice Pruett Gouveiz Trustee of the Dempsey R.
Parsley Trust dated 2-13-91, 4713 Newport Avenue, San Diego, CA
92107-2204--5.39%. The following persons owned 5% or more of the outstanding
shares of Class D on February 1, 2000: Robert H. Killen Trustee for the Robert
H. & Margeret R. Killen Trust dated 6/12/86, P.O. Box 547, South Pasadena CA
91031-0547--17.05%; Herbert E. Hoover & Jean E. Hoover JTWROS, 4495 S El Pomar
Road, Templeton CA, 93465-8670--11.4%; Nadine S, Robert J. & Vicki Rushakoff Co.
Trustees f/t Rushakoff Survivors Trust dated 5/20/97, 221 Morningside Drive, San
Francisco CA, 94132-1240--9.58% and Morgan Stanley Dean Witter Trust FSB, Agent
for American Baptist Homes Foundation of the West Inc., Trustee FBO Stokes #2
P.O. Box 503, Jersey City, N.J. 07311--9.40%.

As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1% of the Fund's shares of beneficial
interest outstanding.

V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------

A. INVESTMENT MANAGER

The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New York,
NY 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a
Delaware corporation. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.

Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services and manage the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Fund pays the Investment Manager monthly compensation calculated
daily by applying the following annual rates to the net assets of the Fund
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; and 0.475%
of the portion of the daily net assets exceeding $1 billion. The management fee
is allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. For the fiscal years ended December 31, 1997, 1998
and 1999, the Investment Manager accrued total compensation under the Management
Agreement in the amounts of $4,966,928, $4,871,646 and $4,616,624, respectively.

The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.

B. PRINCIPAL UNDERWRITER

The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has

21
<PAGE>
entered into a selected dealer agreement with Dean Witter Reynolds, which
through its own sales organization sells shares of the Fund. In addition, the
Distributor may enter into similar agreements with other selected
broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW.

The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors,
the cost of educational and/or business-related trips, and educational and/or
promotional and business-related expenses. The Distributor also pays certain
expenses in connection with the distribution of the Fund's shares, including the
costs of preparing, printing and distributing advertising or promotional
materials, and the costs of printing and distributing prospectuses and
supplements thereto used in connection with the offering and sale of the Fund's
shares. The Fund bears the costs of initial typesetting, printing and
distribution of prospectuses and supplements thereto to shareholders. The Fund
also bears the costs of registering the Fund and its shares under federal and
state securities laws and pays filing fees in accordance with state securities
laws.

The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.

C. SERVICES PROVIDED BY THE INVESTMENT MANAGER

The Investment Manager manages the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Investment Manager obtains and evaluates the information and
advice relating to the economy, securities markets, and specific securities as
it considers necessary or useful to continuously manage the assets of the Fund
in a manner consistent with its investment objective.

Under the terms of the Management 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, the office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal and
state securities commissions (except insofar as the participation or assistance
of independent accountants and attorneys is, in the opinion of the Investment
Manager, necessary or desirable). In addition, the Investment Manager 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
service, heat, light, power and other utilities provided to the Fund.

Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Distributor, will be paid by the Fund. These
expenses will be allocated among the four Classes of shares pro rata based on
the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing prospectuses of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager); fees and expenses of the Fund's independent accountants; membership
dues of industry associations; interest on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and Trustees) of the Fund
which inure to its benefit; extraordinary

22
<PAGE>
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other costs
of the Fund's operation. The 12b-1 fees relating to a particular Class will be
allocated directly to that Class. In addition, other expenses associated with a
particular Class (except advisory or custodial fees) may be allocated directly
to that Class, provided that such expenses are reasonably identified as
specifically attributable to that Class and the direct allocation to that
Class is approved by the Trustees.

The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.

The Management Agreement will remain in effect from year to year, provided
continuance of the Management Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Investment Company Act, of
the outstanding shares of the Fund, or by the Trustees; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees, including a majority of the Independent Trustees.

D. DEALER REALLOWANCES

Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is defined
in the Securities Act.

E. RULE 12b-1 PLAN

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act (the "Plan") pursuant to which each Class, other than
Class D, pays the Distributor compensation accrued daily and payable monthly at
the following annual rates: 0.25% and 0.75% of the average daily net assets of
Class A and Class C, respectively, and, with respect to Class B, 0.75% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including reinvestment of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's Class B shares redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or upon which such
charge has been waived; or (b) the average daily net assets of Class B.

The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Dean Witter
Reynolds received the proceeds of CDSCs and FSCs, for the last three fiscal
years ended December 31, in approximate amounts as provided in the table below
(the Distributor did not retain any of these amounts).

<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Class A..................... FSCs:(1) $ 26,238 FSCs:(1) $ 43,401 FSCs: $ 6,670
CDSCs: 0 CDSCs: 0 CDSCs: 0
Class B..................... CDSCs: $714,211 CDSCs: $694,975 CDSCs: $1,100,000
Class C..................... CDSCs: $ 6,349 CDSCs: $ 1,943 CDSCs: $ 237
</TABLE>

- ------------------------

(1) FSCs apply to Class A only.

The Distributor has informed the Fund that the entire fee payable by
Class A and a portion of the fees payable by each of Class B and Class C each
year pursuant to the Plan equal to 0.20% of the average daily net assets of
Class B and 0.25% of the average daily net assets of Class C are currently each
characterized as a "service fee" under the Rules of the National Association of
Securities Dealers, Inc. (of which the Distributor is a member). The "service
fee" is a payment made for personal service and/or the maintenance of
shareholder accounts. The remaining portion of the Plan fees payable by a Class,
if any, is characterized as an "asset-based sales charge" as such is defined by
the Rules of the Association.

Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under

23
<PAGE>

the Plan and the purpose for which such expenditures were made. Class B shares
of the Fund accrued amounts payable to the Distributor under the Plan, during
the fiscal year ended December 31, 1999, of $6,314,572. This amount is equal to
0.75% of the Fund's average daily net assets for the fiscal year and was
calculated pursuant to clause (b) of the compensation formula under the Plan.
The Distributor rebated a total of 3,599,718 back to the Fund. Therefore, the
total amount paid by the Distributor was $2,714,854, which amount is equal to
0.32% of the Fund's average daily net assets for the year. For the fiscal year
ended December 31, 1999, Class A and Class C shares of the Fund accrued payments
under the Plan amounting to $11,519 and $91,541, respectively, which amounts are
equal to 0.19% and 0.75% of the average daily net assets of Class A and
Class C, respectively, for the fiscal year.

The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.

With respect to Class A shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid), the Investment Manager compensates Financial Advisors by paying them,
from its own funds, a gross sales credit of 1.0% of the amount sold.

With respect to Class B shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 4.0% of the amount
sold and an annual residual commission, currently a residual of up to 0.20% of
the current value (not including reinvested dividends or distributions) of the
amount sold in all cases.

With respect to Class C shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class C shares, currently a gross sales credit of up to 1.0% of the amount
sold and an annual residual commission, currently up to 0.75% of the current
value of the respective accounts for which they are the Financial Advisors of
record.

With respect to Class D shares other than shares held by participants in the
Investment Manager's mutual fund asset allocation program, the Investment
Manager compensates Dean Witter Reynolds's Financial Advisors by paying them,
from its own funds, commissions for the sale of Class D shares, currently a
gross sales credit of up to 1.0% of the amount sold. There is a chargeback of
100% of the amount paid if the Class D shares are redeemed in the first year and
a chargeback of 50% of the amount paid if the Class D shares are redeemed in the
second year after purchase. The Investment Manager also compensates Dean Witter
Reynolds's Financial Advisors by paying them, from its own funds, an annual
residual commission, currently up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record (not
including accounts of participants in the Investment Manager's mutual fund asset
allocation program).

The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds's
Fund-associated distribution-related expenses, including sales compensation, and
overhead and other branch office distribution-related expenses including
(a) the expenses of operating Dean Witter Reynolds's branch offices in
connection with the sale of Fund shares, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund sales.

The Investment Manager pays a retention fee to Financial Advisors at an
annual rate of 0.05% of the value of shares of the Fund sold after January 1,
2000 and held for at least one year. Shares purchased through the reinvestment
of dividends will be eligible for a retention fee, provided that such dividends

24
<PAGE>

were earned on shares otherwise eligible for a retention fee payment. Shares
owned in variable annuities, closed-end fund shares and shares held in 401(k)
plans where the Transfer Agent or Dean Witter Reynold's Retirement Plan Services
is either recordkeeper or trustee are not eligible for a retention fee.

For the first year only, the retention fee is paid on any shares of the Fund
sold after January 1, 2000 and held by shareholders on December 31, 2000.

The retention fees are paid by the Investment Manager from its own assets,
which may include profits from investment management fees payable under the
Management Agreement, as well as from borrowed funds.

The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on behalf
of the Fund and, in the case of Class B shares, opportunity costs, such as the
gross sales credit and an assumed interest charge thereon ("carrying charge").
These expenses may include the cost of Fund-related educational and/or
business-related trips or payment of Fund-related educational and/or promotional
expenses of Financial Advisors. In the Distributor's reporting of the
distribution expenses to the Fund, in the case of Class B shares, such assumed
interest (computed at the "broker's call rate") has been calculated on the gross
credit as it is reduced by amounts received by the Distributor under the Plan
and any contingent deferred sales charges received by the Distributor upon
redemption of shares of the Fund. No other interest charge is included as a
distribution expense in the Distributor's calculation of its distribution costs
for this purpose. The broker's call rate is the interest rate charged to
securities brokers on loans secured by exchange-listed securities.

The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 0.75%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to Financial Advisors and other authorized financial
representatives, such amounts shall be determined at the beginning of each
calendar quarter by the Trustees, including, a majority of the Independent
Trustees. Expenses representing the service fee (for Class A) or a gross sales
credit or a residual to Financial Advisors and other authorized financial
representatives (for Class C) may be reimbursed without prior determination. In
the event that the Distributor proposes that monies shall be reimbursed for
other than such expenses, then in making quarterly determinations of the amounts
that may be reimbursed by the Fund, the Distributor will provide and the
Trustees will review a quarterly budget of projected distribution expenses to be
incurred on behalf of the Fund, together with a report explaining the purposes
and anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.

Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended December 31, 1999 to the Distributor. The
Distributor and Dean Witter Reynolds estimate that they have spent, pursuant to
the Plan, $89,397,826 on behalf of Class B since the inception of the Plan. It
is estimated that this amount was spent in approximately the following ways:
(i) 4.83% ($4,318,849)--advertising and promotional expenses; (ii) 0.32%
($290,140)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 94.84% ($84,788,837)--other expenses, including the
gross sales credit and the carrying charge, of which 7.22% ($6,119,779)
represents carrying charges, 38.41% ($32,568,990) represents commission credits
to Dean Witter Reynolds branch offices and other authorized financial
representatives for payments of commissions to Financial Advisors and other
authorized financial representatives, and 54.37% ($46,100,068) represents
overhead and

25
<PAGE>

other branch office distribution-related expenses. The amounts accrued by
Class A and a portion of the amounts accrued by Class C under the Plan during
the fiscal year ended December 31, 1999 were service fees. The remainder of the
amounts accrued by Class C were for expenses which relate to compensation of
sales personnel and associated overhead expenses.

In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that
there were no excess expenses as of December 31, 1999. Because there is no
requirement under the Plan that the Distributor be reimbursed for all
distribution expenses with respect to Class B shares or any requirement that the
Plan be continued from year to year, this excess amount does not constitute a
liability of the Fund. 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 CDSCs 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. Any cumulative expenses incurred, but
not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.

In the case of Class A 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 commission credited to Morgan Stanley Dean Witter Financial Advisors
and other authorized financial representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed expenses representing a gross sales commission credited to
Morgan Stanley Dean Witter Financial Advisors and other authorized financial
representatives at the time of sale totaled $19,872 in the case of Class C at
December 31, 1999 (end of the calendar year), which amount was equal to 0.15% of
the net assets of Class C on such date, and that there were no such expenses
that may be reimbursed in the subsequent year in the case of Class A on such
date. No interest or other financing charges will be incurred on any Class A or
Class C distribution expenses incurred by the Distributor under the Plan or on
any unreimbursed expenses due to the Distributor pursuant to the Plan.

No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Fund.

On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated;
(2) the benefits the Fund had obtained, was obtaining and would be likely to
obtain under the Plan, including that: (a) the Plan is essential in order to
give Fund investors a choice of alternatives for payment of distribution and
service charges and to enable the Fund to continue to grow and avoid a pattern
of net redemptions which, in turn, are essential for effective investment
management; and (b) without the compensation to individual brokers and the
reimbursement of distribution and account maintenance expenses of Dean Witter
Reynolds's branch offices made possible by the 12b-1 fees, Dean Witter Reynolds
could not establish and maintain an effective system for distribution, servicing
of Fund shareholders and maintenance of shareholder accounts; and (3) what
services had been provided and were continuing to be provided under the Plan to
the Fund and its shareholders. Based upon their review, the Trustees, including
each of the Independent Trustees,

26
<PAGE>
determined that continuation of the Plan would be in the best interest of the
Fund and would have a reasonable likelihood of continuing to benefit the Fund
and its shareholders. In the Trustees' quarterly review of the Plan, they will
consider its continued appropriateness and the level of compensation provided
therein.

The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act) on not more than thirty days' written notice to any other party to the
Plan. So long as the Plan is in effect, the election and nomination of
Independent Trustees shall be committed to the discretion of the Independent
Trustees.

F. OTHER SERVICE PROVIDERS

(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT

Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for the Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans. The principal business address of the Transfer Agent is Harborside
Financial Center, Plaza Two, Jersey City, NJ 07311.

(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS

The Bank of New York, 100 Church Street, New York, NY, 10007 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.

(3) AFFILIATED PERSONS

The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from the Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.

VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------

A. BROKERAGE TRANSACTIONS

Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the dealer. The Fund also expects that securities will be
purchased at times in underwritten offerings where the price includes a fixed
amount of compensation, generally referred to as the underwriter's concession or
discount. Options and futures transactions will usually be effected through a
broker and a commission will be charged. On occasion, the Fund may also purchase
certain money market instruments directly from an issuer, in which case no
commissions or discounts are paid.

For the fiscal years ended December 31, 1997, 1998 and 1999, the Fund did
not pay any brokerage commissions.

27
<PAGE>
B. COMMISSIONS

Pursuant to an order of the SEC, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. The Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will be
effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.

During the fiscal years ended December 31, 1997, 1998 and 1999, the Fund did
not effect any principal transactions with Dean Witter Reynolds.

Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Trustees, including the Independent
Trustees, have adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to an affiliated broker or
dealer are consistent with the foregoing standard. The Fund does not reduce the
management fee it pays to the Investment Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer.

C. BROKERAGE SELECTION

The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. In seeking to
implement the Fund's policies, the Investment Manager effects transactions with
those brokers and dealers who the Investment Manager believes provide the most
favorable prices and are capable of providing efficient executions. If the
Investment Manager believes the prices and executions are obtainable from more
than one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Investment Manager. The services may include, but
are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investment; wire services; and appraisals
or evaluations of portfolio securities. The information and services received by
the Investment Manager from brokers and dealers may be of benefit to the
Investment Manager in the management of accounts of some of its other clients
and may not in all cases benefit the Fund directly.

The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or advisor to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager utilizes a pro rata
allocation process based on the size of the Morgan Stanley Dean Witter Funds
involved and the number of shares available from the public offering.

D. DIRECTED BROKERAGE

During the fiscal year ended December 31, 1999, the Fund did not pay any
brokerage commissions in connection with transactions to brokers because of
research services provided.

28
<PAGE>
E. REGULAR BROKER-DEALERS

During the fiscal year ended December 31, 1999, the Fund did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year. At December 31, 1999, the Fund did not purchase
securities issued by any of such issuers.

VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------

The shareholders of the Fund are entitled to a full vote for each full share
of beneficial interest held. The Fund is authorized to issue an unlimited number
of shares of beneficial interest. All shares of beneficial interest of the Fund
are of $0.01 par value and are equal as to earnings, assets and voting
privileges except that each Class will have exclusive voting privileges with
respect to matters relating to distribution expenses borne solely by such
Class or any other matter in which the interests of one Class differ from the
interests of any other Class. In addition, Class B shareholders will have the
right to vote on any proposed material increase in Class A's expenses, if such
proposal is submitted separately to Class A shareholders. Also, Class A,
Class B and Class C bear expenses related to the distribution of their
respective shares.

The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional Classes of shares
within any series. The Trustees have not presently authorized any such
additional series or Classes of shares other than as set forth in the
PROSPECTUS.

The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by action of the
Trustees. In addition, under certain circumstances, the shareholders may call a
meeting to remove the Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50% of the shares
voting can, if they choose, elect all Trustees being selected, while the holders
of the remaining shares would be unable to elect any Trustees.

Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that notice
of such Fund obligations include such disclaimer, and provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Fund, the risk to Fund shareholders of personal liability is remote.

All of the Trustees have been elected by the shareholders of the Fund, most
recently at a Special Meeting of Shareholders held on May 21, 1997. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees (as provided for in the Declaration of Trust), and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of the Fund.

29
<PAGE>
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------

A. PURCHASE OF SHARES

Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's PROSPECTUS.

TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean Witter Funds and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such functions. With respect to exchanges, redemptions or
repurchases, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.

The Distributor and any authorized broker-dealer have appointed the Transfer
Agent to act as their agent in connection with the application of proceeds of
any redemption of Fund shares to the purchase of shares of any other Morgan
Stanley Dean Witter Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange privilege.

TRANSFERS OF SHARES. In the event a shareholder requests a transfer of Fund
shares to a new registration, the shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.

B. OFFERING PRICE

The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor, Dean
Witter Reynolds and other authorized dealers as described in Section "V.
Investment Management and Other Services--E Rule 12b-1 Plan."

The price of the Fund, called "net asset value," is based on the value of
the Fund's portfolio securities.

Portfolio securities (other than short-term debt securities and futures and
options) 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 portfolio securities for the Fund it uses both a computerized grid
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 portfolio securities for the
Fund 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. The Trustees believe
that timely and reliable market quotations are generally not readily available
to the Fund for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service, using the procedures outlined above
and subject to periodic review, are more likely to approximate the fair value of
such securities. The Investment Manager will periodically review and evaluate
the procedures, methods and quality of services provided by the pricing service
then being used by the Fund and may, from time to time, recommend to the
Trustees the use of other pricing services or discontinuance of the use of any
pricing service in whole or part. The Trustees may determine to approve such
recommendation or take other provisions for pricing of the portfolio securities
for the Fund.

30
<PAGE>
Short-term taxable debt securities with remaining maturities of 60 days or
less at time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Other taxable short-term debt securities with maturities of more than
60 days will be valued on a mark to market basis until such time as they reach a
maturity of 60 days, whereupon they will be valued at amortized cost using their
value on the 61st day unless the Trustees determine such does not reflect the
securities' fair value, in which case these securities will be valued at their
fair market value as determined by the Trustees. Listed options on debt
securities are valued at the latest sale price on the exchange on which they are
listed unless no sales of such options have taken place that day, in which case,
they will be valued at the mean between their closing bid and asked prices.
Unlisted options on debt securities are valued at the mean between their latest
bid and asked price. Futures are valued at the latest sale price on the
commodities exchange on which they trade unless the Trustees determines that
such price does not reflect their fair value, in which case they will be valued
at their fair market value as determined by the Trustees. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Trustees.

IX. TAXATION OF THE FUND AND SHAREHOLDERS
- --------------------------------------------------------------------------------

The Fund generally will make three basic types of distributions: tax exempt
dividends, ordinary dividends and long-term capital gain distributions. These
types of distributions are reported differently on a shareholder's income tax
return and they are also subject to different rates of tax. The tax treatment of
the investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. Shareholders are urged to
consult their own tax professionals regarding specific questions as to federal,
state or local taxes.

INVESTMENT COMPANY TAXATION. The Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.

All or a portion of any gain from tax-exempt obligations purchased at a
market discount may be treated as ordinary income rather than capital gain.

The Fund generally intends to distribute sufficient income and gains so that
the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any ordinary income or capital gains in any year for reinvestment. In
such event, the Fund will pay federal income tax (and possibly excise tax) on
such retained income or gains.

Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have a tax holding period of more than one
year. Gains or losses on the sale of securities with a tax holding period of one
year or less will be short-term gains or losses.

In computing net investment income, the Fund will amortize any premiums and
original issue discounts on securities owned, if applicable. Capital gains or
losses realized upon sale or maturity of such securities will be based on their
amortized cost.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be affected. In that event, the Fund
would re-evaluate its investment objective and policies.

TAXATION OF DIVIDENDS AND DISTRIBUTIONS. The Fund intends to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each quarter end of its taxable years, at

31
<PAGE>

least 50% of the value of its assets in tax-exempt securities. An obligation
shall be considered a tax-exempt security only if, in the opinion of bond
counsel, the interest payable thereon is exempt from federal and California
income tax. An exempt-interest dividend is that part of the dividend
distributions made by the Fund which consists of interest received by the Fund
on tax-exempt securities upon which the shareholder incurs no federal income
taxes. Exempt-interest dividends are included, however, in determining what
portion, if any, of a person's Social Security benefits are subject to federal
income tax. If a shareholder of the Fund receives exempt-interest dividends with
respect to any share and if such share is held by the shareholder for six months
or less, then any loss on the sale or exchange of such share may, to the extent
of such exempt-interest dividends, be disallowed.

The Fund intends to invest a portion of its assets in certain "private
activity bonds". As a result, a portion of the exempt-interest dividends paid by
the Fund will be an item of tax preference to shareholders subject to the
alternative minimum tax. Certain corporations which are subject to the
alternative minimum tax may also have to include exempt-interest dividends in
calculating their alternative minimum taxable income in situations where the
"adjusted current earnings" of the corporation exceeds its alternative minimum
taxable income.

Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of net
short-term capital gains. Such dividends and distributions are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Distributions of
long-term capital gains, if any, are taxable as long-term capital gains,
regardless of how long the shareholder has held the Fund shares and regardless
of whether the distribution is received in additional shares or in cash. Since
the income of the Fund is expected to be derived entirely from interest rather
than dividends, it is anticipated that no portion of such dividend distributions
will be eligible for the federal dividends received deduction available to
corporations.

Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.

Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of any taxable interest income and short term
capital gains.

After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the percentage of any distributions which constitute
an item of tax preference for purposes of the alternative minimum tax.

PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. Any dividend or
capital gains distribution received by a shareholder from the Fund will have the
effect of reducing the net asset value of the shareholder's stock in the Fund by
the exact amount of the dividend or capital gains distribution. Furthermore,
capital gains distributions and some portion of the dividends may be subject to
federal income taxes. If the net asset value of the shares should be reduced
below a shareholder's cost as a result of the payment of dividends or the
distribution of realized long-term capital gains, such payment or distribution
would be in part a return of the shareholder's investment but nonetheless would
be taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing shares of the Fund immediately prior to a
distribution record date.

In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Shares of the Fund held for a
period of one year or less will, for tax purposes, generally result in
short-term gains or losses and those held for

32
<PAGE>

more than one year generally result in long-term gain or loss. Under current
law, the maximum tax rate on long-term capital gains realized by non-corporate
shareholders is 20%. Any loss realized by shareholders upon a sale or redemption
of shares within six months of the date of their purchase will be treated as a
long-term capital loss to the extent of any distributions of net long-term
capital gains with respect to such shares during the six-month period.

Gain or loss on the sale or redemption of shares in the Fund is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.

Exchanges of shares in the Fund for shares of other Morgan Stanley Dean
Witter Funds, are also subject to similar tax treatment. Such an exchange is
treated for tax purposes as a sale of the original shares in the Fund, followed
by the purchase of shares in the Fund.

If a shareholder realizes a loss on the redemption or exchange of a shares
in the Fund and reinvests in shares of the Fund within 30 days before or after
the redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund is not deductible. Furthermore, entities or persons who are
"substantial users" (or related persons) of facilities financed by industrial
development bonds should consult their tax advisers before purchasing shares of
the Fund. "Substantial user" is defined generally by Treasury Regulation Section
1.103-11(b) as including a "non-exempt person" who regularly uses in a trade or
business a part of a facility financed from the proceeds of industrial
development bonds.

THE STATE OF CALIFORNIA--SPECIAL TAX CONSIDERATIONS. In any year in which
the Fund qualifies as a regulated investment company under the Internal Revenue
Code as in effect on January 1, 1998, and is exempt from federal income tax,
(i) the Fund will also be exempt from the California corporate income and
franchise taxes to the extent it distributes its income and (ii), provided 50%
or more of the value of the total assets of the Fund at the close of each
quarter of its taxable year consists of obligations the interest on which (when
held by an individual) is exempt from personal income taxation under California
law, the Fund will be qualified under California law to pay "exempt-interest"
dividends which will be exempt from the California personal income tax.

The portion of dividends constituting exempt-interest dividends is that
portion derived from interest on obligations which pay interest excludable from
California personal income under California law. The total amount of California
exempt-interest dividends paid by the Fund to all of its shareholders with
respect to any taxable year cannot exceed the amount of interest received by the
Fund during such year on such obligations less any expenses and expenditures
(including dividends paid to corporate shareholders) deemed to have been paid
from such interest. Any dividends paid to corporate shareholders subject to the
California franchise tax will be taxed as ordinary dividends to such
shareholders.

Individual shareholders of the Fund who reside in California will not be
subject to California personal income tax on distributions received from the
Fund to the extent such distributions are attributable to interest received by
the Fund during its taxable year on obligations, the interest on which (when
held by an individual) is exempt from taxation under California law.

Because, unlike Federal law, California law does not impose personal income
tax on an individual's Social Security benefits, the receipt of California
exempt-interest dividends will have no effect on an individual's California
personal income tax.

Individual shareholders will normally be subject to federal and California
personal income tax on dividends paid from interest income derived from taxable
securities and distributions of net capital gains. In addition, distributions
other than exempt-interest dividends to such shareholders are includable in

33
<PAGE>
income subject to the California alternative minimum tax. For federal income tax
and California personal income tax purposes, distributions of long-term capital
gains, if any, are taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held shares of the Fund and regardless
of whether the distribution is received in additional shares or in cash. The
maximum federal capital gains rate for individuals is 20% with respect to
capital assets held more than 12 months. The maximum capital gains rate for
corporate shareholders is the same as the maximum tax rate for ordinary income.
In addition, unlike federal law, the shareholders of the Fund will not be
subject to tax, or receive a credit for tax paid by the Fund, on undistributed
capital gains, if any.

Interest on indebtedness incurred by shareholders or related parties to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the Fund, generally will not be deductible by the investor
for federal or state personal income tax purposes. In addition, as a result of
California's incorporation of certain provisions of the Code, a loss realized by
a shareholder upon the sale of shares held for six months or less may be
disallowed to the extent of any exempt-interest dividends received with respect
to such shares. Moreover, any loss realized upon the redemption of shares within
six months from the date of purchase of such shares and following receipt of a
long-term capital gains distribution will be treated as long-term capital loss
to the extent of such long-term capital gains distribution. Finally, any loss
realized upon the redemption of shares within 30 days before or after the
acquisition of other shares of the Fund may be disallowed under the "wash sale"
rules.

Distributions from investment income and long-term and short-term capital
gains will not be excludable from taxable income in determining the California
corporate franchise tax for corporate shareholders. Such distributions may also
be includable in income subject to the alternative minimum tax. In addition,
distributions from investment income and long-term and short-term capital gains
may be subject to state taxes in states other than California, and to local
taxes.

X. UNDERWRITERS
- --------------------------------------------------------------------------------

The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain obligations
under the Distribution Agreement concerning the distribution of the shares.
These obligations and the compensation the Distributor receives are described
above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plans."

XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------

From time to time, the Fund may quote its "yield" and/or "total return" in
advertisements and sales literature. These figures are computed separately for
Class A, Class B, Class C and Class D shares. Yield is calculated for any 30-day
period as follows: the amount of interest income for each security in the Fund's
portfolio is determined in accordance with regulatory requirements; the total
for the entire portfolio constitutes the Fund's gross income for the period.
Expenses accrued during the period are subtracted to arrive at "net investment
income" of each Class. The resulting amount is divided by the product of the
maximum offering price per share on the last day of the period multiplied by the
average number of shares of the applicable Class outstanding during the period
that were entitled to dividends. This amount is added to 1 and raised to the
sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. The yields for the 30-day
period ended December 31, 1999, calculated pursuant to the formula described
above, were 4.44%, 4.13%, 4.13% and 4.89% for Class A, Class B, Class C and
Class D, respectively.

The Fund may also quote a "tax-equivalent yield" determined by dividing the
tax-exempt portion of the quoted yield by 1 minus the stated income tax rate and
adding the result to the portion of the yield that is not tax-exempt. The
tax-equivalent yields, based upon a combined Federal and California personal
income tax bracket of 45.22% (the highest current individual marginal tax rate),
for the 30-day period ending December 31, 1999, were 8.11%, 7.54%, 7.54%, and
8.93% for Class A, Class B, Class C and Class D, respectively, based upon the
yields quoted above.

34
<PAGE>

These figures are computed separately for Class A, Class B, Class C and
Class D shares. The Fund's "average annual total return" represents an
annualization of the Fund's total return over a particular period and is
computed by finding the annual percentage rate which will result in the ending
redeemable value of a hypothetical $1,000 investment made at the beginning of a
one, five or ten year period, or for the period from the date of commencement of
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any contingent deferred sales charge ("CDSC") at the end of the one,
five, ten year or other period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing the average annual total return involves a percentage obtained by
dividing the ending redeemable value by the amount of the initial investment
(which in the case of Class A shares is reduced by the Class A initial sales
charge), taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns for Class B for the one year, five year and ten year
periods ended December 31, 1999 were -8.57%, 4.94% and 5.41%, respectively. The
average annual total returns of Class A for the fiscal year ended December 31,
1999 and for the period July 28, 1997 (inception of the Class) through
December 31, 1999 were -8.00% and -0.08%, respectively. The average annual total
returns of Class C for the fiscal year ended December 31, 1999 and for the
period July 28, 1997 (inception of the Class) through December 31, 1999 were
- -5.33% and 1.39%, respectively. The average annual total returns of Class D for
the fiscal year ended December 31, 1999 and for the period July 28, 1997
(inception of the Class) through December 31, 1999 were -3.63% and 2.10%,
respectively.

In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction of
the CDSC for each of Class B and Class C which, if reflected, would reduce the
performance quoted. For example, the average annual total return of the Fund may
be calculated in the manner described above, but without deduction for any
applicable sales charge. Based on this calculation, the average annual total
returns of Class B for the one year, five year and ten year periods ended
December 31, 1999, were -3.99%, 5.27% and 5.41%, respectively. The average
annual total returns of Class A for the fiscal year ended December 31, 1999 and
for the period July 28, 1997 through December 31, 1999 were -3.91% and 1.72%,
respectively. The average annual total returns of Class C for the fiscal year
ended December 31, 1999 and for the period July 28, 1997 through December 31,
1999 were -4.41% and 1.39%, respectively. The average annual total returns of
Class D for the fiscal year ended December 31, 1999 and for the period July 28,
1997 through December 31, 1999 were -3.63% and 2.10%, respectively.

In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the total
returns for Class B for the one year, five year and ten year periods ended
December 31, 1999, were -3.99%, 29.26% and 69.37%, respectively. The total
returns of Class A for the fiscal year ended December 31, 1999 and for the
period July 28, 1997 through December 31, 1999 were -3.91% and 4.23%,
respectively. The total returns of Class C for the fiscal year ended
December 31, 1999 and for the period July 28, 1997 through December 31, 1999
were -4.41% and 3.39%, respectively. The total returns of Class D for the fiscal
year ended December 31, 1999 and for the period July 28, 1997 through
December 31, 1999 were -3.63% and 5.17%, respectively.

The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,575, $48,250 and $97,250 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each

35
<PAGE>

of Class B, Class C and Class D, as the case may be. Investments of $10,000,
$50,000 and $100,000 in each Class at inception of the Class would have grown
(declined) to the following amounts at December 31, 1999:

<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION --------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Class A............................................ 7/28/97 $ 9,980 $ 50,291 $101,364
Class B............................................ 7/11/84 30,306 151,530 303,060
Class C............................................ 7/28/97 10,339 51,695 103,390
Class D............................................ 7/28/97 10,517 52,585 105,170
</TABLE>

The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.

XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

EXPERTS. The financial statements of the Fund for the fiscal year ended
December 31, 1999 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS are included herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

* * * * *

This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain
all of the information set forth in the REGISTRATION STATEMENT the Fund has
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.

36
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999

<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (92.8%)
GENERAL OBLIGATION (7.1%)
California,
$ 5,000 Ser 1990............................................................ 7.00 % 08/01/07 $ 5,623,750
5,000 Ser 1990............................................................ 7.00 08/01/08 5,656,400
2,000 Veterans Ser AT..................................................... 9.50 02/01/10 2,674,660
2,400 Veterans Ser BH (AMT) (FSA)......................................... 5.40 12/01/16 2,260,296
10,000 Various Purpose 04/01/93 (FSA)...................................... 5.50 04/01/19 9,542,400
10,000 Ser 1996 (AMBAC).................................................... 5.25 06/01/21 9,090,700
3,000 Veterans Ser BD, BE & BF (AMT) (AMBAC).............................. 6.375 02/01/27 3,000,300
10,000 Los Angeles Unified School District, 1997 Ser B (FGIC)................ 5.00 07/01/23 8,658,400
2,000 Santa Margarita/Dana Point Authority, Impr Dists #3, 3A, 4 & 4A
1994 Ser B Refg (MBIA).............................................. 5.75 08/01/20 1,959,740
8,500 Puerto Rico, Public Improvement Ser 1999.............................. 4.75 07/01/23 6,877,775
------------
--------
55,344,421
57,900
------------
--------
EDUCATIONAL FACILITIES REVENUE (3.2%)
California Educational Facilities Authority,
6,000 University of San Diego Ser 1998 (AMBAC)............................ 5.00 10/01/22 5,213,160
4,000 University of Southern California 1997 Ser C........................ 5.125 10/01/28 3,464,720
California Statewide Communities Development Authority,
3,400 Gemological Institute of America COPs (Connie Lee).................. 6.00 05/01/20 3,412,070
4,100 Gemological Institute of America COPs (Connie Lee).................. 6.00 05/01/25 4,101,722
10,000 University of California, Multiple Purpose Refg Ser 1993 C (AMBAC).... 5.125 09/01/18 9,066,200
------------
--------
25,257,872
27,500
------------
--------
ELECTRIC REVENUE (9.3%)
13,000 Los Angeles Department of Water & Power, Second Issue of 1993
(Secondary AMBAC)................................................... 5.40 11/15/13 12,948,910
5,000 Northern California Power Agency, Hydro #1 1993 Refg Ser A (MBIA)..... 5.50 07/01/16 4,852,400
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA).............................................. 5.75 01/01/11 5,848,029
26,000 Refg 1992 Ser A (FGIC).............................................. 6.30 08/15/18 26,751,920
Southern California Public Power Authority,
7,000 Mead-Adelanto 1994 Ser A (AMBAC).................................... 5.15 07/01/15 6,593,440
1,750 Transmission Refg Ser 1988 (FGIC)................................... 0.00 07/01/06 1,262,257
5,000 Turlock Irrigation District, Refg 1998 Ser A (MBIA)................... 5.00 01/01/26 4,293,200
Puerto Rico Electric Power Authority,
9,000 Power Ser O......................................................... 5.00 07/01/12 8,496,000
2,000 Power Ser X......................................................... 5.50 07/01/25 1,828,940
------------
--------
72,875,096
74,450
------------
--------
HOSPITAL REVENUE (4.8%)
10,000 Antelope Valley Healthcare District, Refg Ser 1997 A (FSA)............ 5.20 01/01/20 9,015,200
3,500 California Health Facilities Financing Authority, Sutter/CHS
Ser 1996 A (MBIA)................................................... 5.875 08/15/16 3,500,910
10,000 Duarte, City of Hope National Medical Center Ser 1999 A COPs.......... 5.25 04/01/19 8,306,600
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED

<TABLE>
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 $ 8,208,300
4,000 Rancho Mirage Joint Powers Financing Authority, Eisenhower Medical
Center Ser 1997 A COPs (MBIA)....................................... 5.25 07/01/17 3,698,080
5,000 University of California, UCLA Medical Center Refg Ser 1994 (MBIA).... 5.50 12/01/14 4,914,950
------------
--------
37,644,040
40,000
------------
--------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (2.3%)
California Pollution Control Financing Authority,
5,000 Atlantic Richfield Co Ser 1996 A.................................... 5.00 04/01/08 4,928,250
3,000 San Diego Gas and Electric Co 1996 Ser A............................ 5.90 06/01/14 3,070,140
10,000 Southern California Edison Co 1992 Ser B (AMT)...................... 6.40 12/01/24 9,964,700
------------
--------
17,963,090
18,000
------------
--------
MORTGAGE REVENUE - SINGLE FAMILY (4.9%)
California Housing Finance Agency,
9,000 Home 1995 Ser J (AMBAC)............................................. 6.00 08/01/17 9,026,550
6,300 Home 1995 Ser M (AMT) (MBIA)........................................ 6.15 08/01/27 6,192,837
8,215 Home 1995 Ser K (AMT) (AMBAC)....................................... 6.25 08/01/27 8,150,430
2,930 Home 1991 Ser G (AMT)............................................... 7.05 08/01/27 2,996,482
6,900 Purchase 1995 Ser B-2 (AMT)......................................... 6.30 08/01/24 6,921,804
California Rural Home Financing Authority,
2,015 Home 1997 Ser D-CL 5 (AMT).......................................... 6.70 05/01/29 2,103,539
1,915 Home 1998 Ser A (AMT)............................................... 6.35 12/01/29 1,932,867
Puerto Rico Housing Finance Corporation,
175 Portfolio One GNMA-Backed Ser B..................................... 7.65 10/15/22 180,061
665 Portfolio One GNMA-Backed Ser C..................................... 6.85 10/15/23 692,910
------------
--------
38,197,480
38,115
------------
--------
PUBLIC FACILITIES REVENUE (4.7%)
4,000 Anaheim Public Financing Authority, Sub 1997 Ser C (FSA).............. 6.00 09/01/16 4,158,320
10,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA)...... 5.65 06/01/15 9,898,100
5,000 California Public Works Board, Department of Corrections 1998 Ser B
(MBIA) ............................................................. 5.00 09/01/21 4,370,350
9,500 Los Angeles County, Public Properties Refg of 1987 COPs............... 0.00 04/01/04 7,487,615
10,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C....... 6.375 09/01/13 10,434,500
------------
--------
36,348,885
38,500
------------
--------
TAX ALLOCATION REVENUE (6.9%)
Garden Grove Community Redevelopment Agency,
5,000 Refg Issue of 1993.................................................. 5.70 10/01/13 4,892,400
6,000 Refg Issue of 1993.................................................. 5.875 10/01/23 5,582,880
25,500 Long Beach Financing Authority, Ser 1992 (AMBAC)...................... 6.00 11/01/17 26,202,780
8,830 Pleasanton Joint Powers Financing Authority, Reassessment 1993
Ser A............................................................... 6.15 09/02/12 8,929,956
10,000 San Jose Redevelopment Agency, Ser 1999 (AMBAC)....................... 4.75 08/01/23 8,257,900
------------
--------
53,865,916
55,330
------------
--------
TRANSPORTATION FACILITIES REVENUE (19.9%)
10,000 Alameda Corridor Transportation Authority, Sr Lien Ser 1999 A
(MBIA).............................................................. 5.25 10/01/21 9,083,300
14,000 Foothill/Eastern Transportation Corridor Agency, Toll Road
Ser 1999............................................................ 0.00 01/15/23 7,230,440
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED

<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Long Beach,
$ 5,000 Harbor Refg Ser 1998 A (AMT) (FGIC)................................. 6.00 % 05/15/17 $ 5,135,800
9,000 Harbor Refg Ser 1998 A (AMT) (FGIC)................................. 6.00 05/15/18 9,190,800
3,000 Harbor Refg Ser 1998 A (AMT) (FGIC)................................. 6.00 05/15/19 3,044,520
15,000 Harbor Ser 1995 (AMT) (MBIA)........................................ 5.25 05/15/25 13,136,850
10,000 Los Angeles, Department of Airports Refg 1995 Ser A (FGIC)............ 5.50 05/15/09 10,184,800
20,000 Los Angeles County Transportation Commission, Sales Tax Ser 1991 B.... 6.50 07/01/13 20,899,000
5,000 Orange County, Airport Refg Ser 1997 (AMT) (MBIA)..................... 5.50 07/01/11 5,047,900
20,000 San Diego County Regional Transportation Commission, Sales Tax
1994 Ser A (FGIC)................................................... 4.75 04/01/08 19,670,600
San Francisco Airports Commission, San Francisco Int'l Airport
4,055 Second Ser Refg Issue 4 (MBIA)...................................... 6.00 05/01/20 4,071,098
10,000 Second Ser Issue 15 B (MBIA)........................................ 4.50 05/01/25 7,862,500
San Francisco Bay Area Rapid Transit District, Sales Tax
5,000 Ser 1995 (FGIC)..................................................... 5.50 07/01/15 4,933,350
2,305 Ser 1995 (FGIC)..................................................... 5.50 07/01/20 2,180,461
10,000 Ser 1998 (AMBAC).................................................... 4.75 07/01/23 8,261,100
San Joaquin Hills Transportation Corridor Agency, Toll Road
10,000 Refg Ser 1997 A (MBIA).............................................. 0.00 01/15/31 1,466,700
10,000 Refg Ser 1997 A (MBIA).............................................. 5.25 01/15/30 8,835,500
10,000 Senior Lien......................................................... 5.00 01/01/33 8,040,100
10,000 Puerto Rico Highway & Transportation Authority, Ser 1998 A............ 4.75 07/01/38 7,684,300
------------
--------
155,959,119
182,360
------------
--------
WATER & SEWER REVENUE (16.4%)
California Department of Water Resources, Central Valley
6,870 Ser J-2............................................................. 6.125 12/01/13 7,042,918
10,000 Ser U............................................................... 5.00 12/01/29 8,470,900
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA)................ 6.00 08/01/18 8,064,320
6,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC)................ 5.00 10/01/16 5,453,580
10,000 Contra Costa Water District, Ser G (MBIA)............................. 5.50 10/01/19 9,547,300
East Bay Municipal Utility District,
11,000 Water Refg Ser 1992................................................. 6.00 06/01/20 11,020,460
5,000 Water Ser 1998 (MBIA)............................................... 4.75 06/01/34 3,961,000
10,000 Eastern Municipal Water District, Water & Sewer Refg Ser 1998 A COPs
(FGIC).............................................................. 4.75 07/01/23 8,239,700
15,000 Los Angeles County Sanitation Districts Financing Authority, 1993
Ser A............................................................... 5.375 10/01/13 14,862,150
15,000 Metropolitan Water District of Southern California, Waterworks 1997
Ser A............................................................... 5.00 07/01/26 12,862,950
10,000 San Diego, Water 1998 Ser (FGIC)...................................... 4.75 08/01/28 8,094,100
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED

<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
San Diego Public Facilities Financing Authority,
$ 10,000 Sewer 1993 Ser A.................................................... 5.25 % 05/15/20 $ 9,080,500
7,000 Sewer Ser 1995 (FGIC)............................................... 5.00 05/15/25 6,012,020
San Francisco Public Utilities Commission,
5,750 Water 1992 Refg Ser A............................................... 6.00 11/01/15 5,799,967
10,870 Water 1996 Ser A.................................................... 5.00 11/01/21 9,448,639
------------
--------
127,960,504
140,490
------------
--------
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 1,862,097
------------
--------
REFUNDED (13.1%)
20,000 Desert Hospital District, Desert Hospital Corp Ser 1992 COPs (FSA).... 6.392 07/01/02+ 21,234,200
Foothill/Eastern Transportation Corridor Agency, Toll Road Sr Lien
4,000 Ser 1995 A.......................................................... 0.00 01/01/10+ 3,392,200
15,000 Ser 1995 A.......................................................... 6.00 01/01/07+ 16,059,450
Los Angeles Convention & Exhibition Center Authority,
10,000 Ser 1985 COPs....................................................... 9.00 12/01/05+ 12,198,000
14,000 Ser 1985 COPs....................................................... 9.00 12/01/05+ 17,077,200
5,400 Los Angeles County, 1991 Master Refg COPs............................. 6.708 05/01/01+ 5,661,468
8,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA).............. 6.30 04/27/06+ 8,743,760
Southern California Public Power Authority,
5,000 Palo Verde Ser A (AMBAC) (ETM)...................................... 5.00 07/01/15 4,604,250
5,250 Transmission Refg Ser 1988 A (FGIC) (ETM)........................... 0.00 07/01/06 3,808,455
9,000 Puerto Rico Electric Power Authority, Power Ser X..................... 6.125 07/01/05+ 9,763,830
------------
--------
102,542,813
95,650
------------
--------
770,115 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $732,207,328)................... 725,821,333
------------
--------

SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS (6.1%)
13,000 California Health Facilities Financing Authority, Adventist Health
West 1998 Ser B (MBIA) (Demand 01/03/00)............................ 4.25* 09/01/28 13,000,000
14,000 California Pollution Control Financing Authority, Pacific Gas &
Electric Co Ser 1996 D (Demand 01/03/00)............................ 4.40* 11/01/26 14,000,000
3,500 California Statewide Communities Development Authority, John Muir/
Mt Diablo Health COPs (AMBAC) (Demand 01/03/00)..................... 4.25* 08/15/27 3,500,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999, CONTINUED

<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 17,000 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
(Demand 01/03/00)................................................... 4.40*% 10/01/22 $ 17,000,000
------------
--------

47,500 TOTAL SHORT-TERM CALIFORNIA TAX-EXEMPT MUNICIPAL OBLIGATIONS
- ---------- (IDENTIFIED COST $47,500,000)................................................................
47,500,000
------------
</TABLE>

<TABLE>
<C> <S> <C> <C>
$817,615 TOTAL INVESTMENTS (IDENTIFIED COST $779,707,328) (a)......................................... 98.9% 773,321,333
- --------
- --------

CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 1.1 8,600,291
----- -------------

NET ASSETS................................................................................. 100.0% $ 781,921,624
----- -------------
----- -------------
</TABLE>

- ---------------------

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
$22,689,340 and the aggregate gross unrealized depreciation is
$29,075,335, resulting in net unrealized depreciation of $6,385,995.

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.

SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $779,707,328)............................ $773,321,333
Cash........................................................ 197,826
Receivable for:
Interest................................................ 11,351,714
Investments sold........................................ 61,148
Shares of beneficial interest sold...................... 33,311
Prepaid expenses and other assets........................... 28,688
------------
TOTAL ASSETS........................................... 784,994,020
------------
LIABILITIES:
Payable for:
Dividends and distributions to shareholders............. 1,813,265
Plan of distribution fee................................ 499,241
Investment management fee............................... 362,927
Shares of beneficial interest repurchased............... 288,364
Accrued expenses and other payables......................... 108,599
------------
TOTAL LIABILITIES...................................... 3,072,396
------------
NET ASSETS............................................. $781,921,624
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $789,862,172
Net unrealized depreciation................................. (6,385,995)
Accumulated net realized loss............................... (1,554,553)
------------
NET ASSETS............................................. $781,921,624
============
CLASS A SHARES:
Net Assets.................................................. $6,252,598
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 535,720
NET ASSET VALUE PER SHARE.............................. $11.67
============

MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)...... $12.19
============
CLASS B SHARES:
Net Assets.................................................. $761,548,098
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 64,904,124
NET ASSET VALUE PER SHARE.............................. $11.73
============
CLASS C SHARES:
Net Assets.................................................. $13,099,494
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 1,116,289
NET ASSET VALUE PER SHARE.............................. $11.73
============
CLASS D SHARES:
Net Assets.................................................. $1,021,434
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 87,245
NET ASSET VALUE PER SHARE.............................. $11.71
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<S> <C>
NET INVESTMENT INCOME:

INTEREST INCOME............................................. $ 47,166,010
------------

EXPENSES
Plan of distribution fee (Class A shares)................... 11,519
Plan of distribution fee (Class B shares)................... 6,314,572
Plan of distribution fee (Class C shares)................... 91,541
Investment management fee................................... 4,616,624
Transfer agent fees and expenses............................ 219,286
Professional fees........................................... 78,760
Shareholder reports and notices............................. 70,014
Custodian fees.............................................. 34,863
Trustees' fees and expenses................................. 18,620
Registration fees........................................... 7,565
Other....................................................... 22,879
------------

TOTAL EXPENSES......................................... 11,486,243
Less: expense offset........................................ (34,780)
Less: plan of distribution fee rebate (Class B shares)...... (3,599,718)
------------

NET EXPENSES........................................... 7,851,745
------------

NET INVESTMENT INCOME.................................. 39,314,265
------------

NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (1,554,488)
Net change in unrealized appreciation....................... (71,987,904)
------------

NET LOSS............................................... (73,542,392)
------------

NET DECREASE................................................ $(34,228,127)
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>

INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income........................... $ 39,314,265 $ 40,654,874
Net realized gain (loss)........................ (1,554,488) 17,556,128
Net change in unrealized appreciation........... (71,987,904) (8,093,340)
------------ ------------

NET INCREASE (DECREASE).................... (34,228,127) 50,117,662
------------ ------------

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income
Class A shares.............................. (277,350) (113,998)
Class B shares.............................. (38,495,780) (40,239,955)
Class C shares.............................. (503,645) (287,533)
Class D shares.............................. (37,490) (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.......... (40,519,393) (57,618,174)
------------ ------------
Net decrease from transactions in shares of
beneficial interest........................... (54,206,044) (928,349)
------------ ------------

NET DECREASE............................... (128,953,564) (8,428,861)

NET ASSETS:
Beginning of period............................. 910,875,188 919,304,049
------------ ------------

END OF PERIOD.............................. $781,921,624 $910,875,188
============ ============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999

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.

45
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 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

46
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED

$750 million; 0.50% to the portion of daily net assets exceeding $750 million
but not exceeding $1 billion; 0.475% to the portion of daily net assets
exceeding $1 billion but not exceeding $1.25 billion; and 0.45% to the portion
of daily net assets in excess of $1.25 billion.

Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.

3. PLAN OF DISTRIBUTION

Shares of the Fund are distributed by 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.

47
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED

("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.

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
December 31, 1999.

For the year ended December 31, 1999, the Distributor rebated a portion of the
distribution fees paid by the fund on Class B shares in the amount of
$3,599,718.

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 year ended December 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.19% and
0.75%, respectively.

The Distributor has informed the Fund that for the year ended December 31, 1999,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $714,211 and $6,349, respectively
and received $26,238 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 year ended December 31, 1999 aggregated
$41,251,818 and $122,863,713, respectively.

48
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED

Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $6,900.

The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended December 31, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,902. At December 31, 1999, the Fund had an accrued pension liability of
$52,766 which is included in accrued expenses in the Statement of Assets and
Liabilities.

5. FEDERAL INCOME TAX STATUS

At December 31, 1999, the Fund had 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.

6. SUBSEQUENT EVENT

On January 26, 2000, the Board of Trustees of the Fund and of Morgan Stanley
Dean Witter Multi-State Municipal Series Trust -- California
Series ("California Series") approved a reorganization plan ("the Plan") whereby
California Series would be merged into the Fund. The Plan is subject to the
consent of California Series' shareholders. If approved, the assets of
California Series would be combined with the assets of the Fund and shareholders
of California Series would become Class D shareholders of the Fund, receiving
Class D shares of the Fund equal to the value of their holdings in California
Series.

49
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, CONTINUED

7. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................... 926,566 $ 11,343,045 278,438 $ 3,615,711
Reinvestment of dividends and distributions........ 11,792 142,937 4,755 60,900
Redeemed........................................... (699,644) (8,463,085) (77,317) (1,003,589)
----------- -------------- ----------- -------------
Net increase - Class A............................. 238,714 3,022,897 205,876 2,673,022
----------- -------------- ----------- -------------
CLASS B SHARES
Sold............................................... 5,551,229 68,931,047 7,164,773 93,003,382
Reinvestment of dividends and distributions........ 1,629,078 20,067,143 2,410,233 31,062,347
Redeemed........................................... (12,258,765) (151,099,720) (10,377,338) (134,515,057)
----------- -------------- ----------- -------------
Net decrease - Class B............................. (5,078,458) (62,101,530) (802,332) (10,449,328)
----------- -------------- ----------- -------------
CLASS C SHARES
Sold............................................... 849,916 10,411,727 503,894 6,520,311
Reinvestment of dividends and distributions........ 33,209 407,782 29,925 385,668
Redeemed........................................... (535,813) (6,487,818) (44,199) (576,331)
----------- -------------- ----------- -------------
Net increase - Class C............................. 347,312 4,331,691 489,620 6,329,648
----------- -------------- ----------- -------------
CLASS D SHARES
Sold............................................... 47,799 586,296 39,412 512,790
Reinvestment of dividends and distributions........ 450 5,466 431 5,519
Redeemed........................................... (4,315) (50,864) -- --
----------- -------------- ----------- -------------
Net increase - Class D............................. 43,934 540,898 39,843 518,309
----------- -------------- ----------- -------------
Net decrease in Fund............................... (4,448,498) $ (54,206,044) (66,993) $ (928,349)
=========== ============== =========== =============
</TABLE>

50
<PAGE>
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 YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1999 1998 1997* 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <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
-------- -------- -------- -------- ----------

Income (loss) from investment
operations:
Net investment income................ 0.57 0.58 0.57 0.58 0.61
Net realized and unrealized gain
(loss)............................... (1.06) 0.13 0.35 (0.21) 1.13
-------- -------- -------- -------- ----------

Total income (loss) from investment
operations............................. (0.49) 0.71 0.92 0.37 1.74
-------- -------- -------- -------- ----------

Less dividends and distributions from:
Net investment income................ (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....... (0.59) (0.82) (0.57) (0.72) (0.69)
-------- -------- -------- -------- ----------

Net asset value, end of period.......... $ 11.73 $ 12.81 $ 12.92 $ 12.57 $ 12.92
======== ======== ======== ======== ==========

TOTAL RETURN+........................... (3.99)% 5.63% 7.51% 3.13% 14.96%

RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 0.91 %(1)(2)(3) 0.95%(2)(3) 1.33% 1.32%(1) 1.33%

Net investment income................... 4.57%(2)(3) 4.46%(2)(3) 4.51% 4.66% 4.90%

SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $761,548 $896,685 $914,474 $975,702 $1,054,881

Portfolio turnover rate................. 5 % 20% 15% 11% 23%
</TABLE>

- ---------------------

<TABLE>
<C> <S>
* 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) Reflects overall Fund ratios for investment income and
non-class specific expenses.
(3) If the Distributor had not rebated a portion of its fees to
the Fund, the expense and net investment income ratios would
have been 1.34% 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.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
<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.................................... 0.58 0.59 0.27
Net realized and unrealized gain (loss).................. (1.06) 0.10 0.09
------ ------ ------

Total income (loss) from investment operations.............. (0.48) 0.69 0.36
------ ------ ------

Less dividends and distributions from:
Net investment income.................................... (0.58) (0.59) (0.27)
Net realized gain........................................ (0.02) (0.24) --
------ ------ ------

Total dividends and distributions........................... (0.60) (0.83) (0.27)
------ ------ ------

Net asset value, end of period.............................. $11.67 $12.75 $12.89
====== ====== ======

TOTAL RETURN+............................................... (3.91)% 5.50% 2.82%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.78 %(3)(4) 0.83%(3) 0.78%(2)

Net investment income....................................... 4.70 %(3) 4.58%(3) 4.47%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $6,253 $3,788 $1,175

Portfolio turnover rate..................................... 5 % 20% 15%
</TABLE>

- ---------------------

<TABLE>
<C> <S>
* 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%.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED

SELECTED PER SHARE DATA:

Net asset value, beginning of period........................ $ 12.81 $12.92 $12.80
------- ------ ------

Income (loss) from investment operations:
Net investment income.................................... 0.51 0.53 0.23
Net realized and unrealized gain (loss).................. (1.06) 0.13 0.12
------- ------ ------

Total income (loss) from investment operations.............. (0.55) 0.66 0.35
------- ------ ------

Less dividends and distributions from:
Net investment income.................................... (0.51) (0.53) (0.23)
Net realized gain........................................ (0.02) (0.24) --
------- ------ ------

Total dividends and distributions........................... (0.53) (0.77) (0.23)
------- ------ ------

Net asset value, end of period.............................. $ 11.73 $12.81 $12.92
======= ====== ======

TOTAL RETURN+............................................... (4.41)% 5.22% 2.80%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.34 %(3)(4) 1.33%(3) 1.31%(2)

Net investment income....................................... 4.14 %(3) 4.08%(3) 4.24%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $13,099 $9,849 $3,610

Portfolio turnover rate..................................... 5 % 20% 15%
</TABLE>

- ---------------------

SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED

SELECTED PER SHARE DATA:

Net asset value, beginning of period........................ $12.78 $12.92 $12.80
------ ------ ------

Income (loss) from investment operations:
Net investment income.................................... 0.60 0.63 0.28
Net realized and unrealized gain (loss).................. (1.05) 0.10 0.12
------ ------ ------

Total income (loss) from investment operations.............. (0.45) 0.73 0.40
------ ------ ------

Less dividends and distributions from:
Net investment income.................................... (0.60) (0.63) (0.28)
Net realized gain........................................ (0.02) (0.24) --
------ ------ ------

Total dividends and distributions........................... (0.62) (0.87) (0.28)
------ ------ ------

Net asset value, end of period.............................. $11.71 $12.78 $12.92
====== ====== ======

TOTAL RETURN+............................................... (3.63)% 5.77% 3.18%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.59 %(3)(4) 0.58%(3) 0.60%(2)

Net investment income....................................... 4.89 %(3) 4.83%(3) 5.34%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,021 $554 $45

Portfolio turnover rate..................................... 5 % 20% 15%
</TABLE>

- ---------------------

<TABLE>
<C> <S>
* 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%.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>

<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-
FREE INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
</TABLE>

TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
California Tax-Free Income Fund (the "Fund") at December 31, 1999, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.

PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 7, 2000

1999 FEDERAL TAX NOTICE (UNAUDITED)

During the year ended December 31, 1999, the Fund paid the
following per share amounts from tax-exempt income: $0.58 to
Class A shareholders, $0.57 to Class B shareholders, $0.51 to
Class C shareholders and $0.60 to Class D shareholders.

For the year ended December 31, 1999 the Fund paid long-term
capital gains of $0.02 per share to Class A, B, C and D
shareholders.

55
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------

RATINGS OF INVESTMENTS

MOODY'S INVESTORS SERVICE INC. ("MOODY'S")

MUNICIPAL BOND RATINGS

<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.

Baa Bonds which are rated Baa are considered as medium grade
obligation; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.

Bonds rated Aaa, Aa, A and Baa are considered investment
grade bonds.

Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may
be very moderate, and therefore not well safeguarded during
both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract
over any long period of time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

Ca Bonds which are rated Ca present obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
</TABLE>

CONDITIONAL RATING: Bonds for which the security depends upon the
completion of some act of the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience,
(c) rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.

56
<PAGE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates a mid-range ranking; and a modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

MUNICIPAL NOTE RATINGS

Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). MIG 1 denotes best quality and means
there is present strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. MIG 2 denotes high quality and means that margins of protection are
ample although not as large as in MIG 1. MIG 3 denotes favorable quality and
means that all security elements are accounted for but that the undeniable
strength of the previous grades, MIG 1 and MIG 2, is lacking. MIG 4 denotes
adequate quality and means that the protection commonly regarded as required of
an investment security is present and that while the notes are not distinctly or
predominantly speculative, there is specific risk.

VARIABLE RATE DEMAND OBLIGATIONS

A short-term rating, in addition to the Bond or MIG ratings, designated VMIG
may also be assigned to an issue having a demand feature. The assignment of the
VMIG symbol reflects such characteristics as payment upon periodic demand rather
than fixed maturity dates and payment relying on external liquidity. The VMIG
rating criteria are identical to the MIG criteria discussed above.

COMMERCIAL PAPER RATINGS

Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. These ratings apply to Municipal commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, Prime-2, Prime-3.

Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.

STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")

MUNICIPAL BOND RATINGS

A Standard & Poor's municipal rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.

57
<PAGE>

<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.

AA Debt rated "AA" has a very strong capacity to pay interest
and repay principal and differs from the highest-rated
issues only in small degree.

A Debt rated "A" has a strong capacity to pay interest and
repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.

BBB Debt rated "BBB" is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher-rated
categories.

Bonds rated AAA, AA, A and BBB are considered investment
grade bonds.

BB Debt rated "BB" has less near-term vulnerability to default
than other speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payment.

B Debt rated "B" has a greater vulnerability to default but
presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or
willingness to pay interest and repay principal.

CCC Debt rated "CCC" has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial
and economic conditions to meet timely payments of interest
and repayments of principal. In the event of adverse
business, financial or economic conditions, it is not likely
to have the capacity to pay interest and repay principal.

CC The rating "CC" is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC"
rating.

C The rating "C" is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC"
debt rating.

Cl The rating "Cl" is reserved for income bonds on which no
interest is being paid.

D Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.

NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of
obligation as a matter of policy.

Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as
having predominantly speculative characteristics with
respect to capacity to pay interest and repay principal.
"BB" indicates the least degree of speculation and "C" the
highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.

PLUS (+) OR MINUS ( ): The ratings from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show
relative standing within the major ratings categories.
</TABLE>

58
<PAGE>
<TABLE>
<S> <C>
The foregoing ratings are sometimes followed by a "p" which
indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project
being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no
comment on the likelihood or risk of default upon failure of
such completion.
</TABLE>

MUNICIPAL NOTE RATINGS

Commencing on July 27, 1984, Standard & Poor's instituted a new rating
category with respect to certain municipal note issues with a maturity of less
than three years. The new note ratings denote the following:

SP-1 denotes a very strong or strong capacity to pay principal and interest.
Issues determined to possess overwhelming safety characteristics are given a
plus (+) designation (SP-1+).

SP-2 denotes a satisfactory capacity to pay principal and interest.

SP-3 denotes a speculative capacity to pay principal and interest.

COMMERCIAL PAPER RATINGS

Standard and Poor's commerical paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:

Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.

A-1 indicates that the degree of safety regarding timely payments is very
strong.

A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".

A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.

59
<PAGE>
FITCH IBCA, INC. ("FITCH")

MUNICIPAL BOND RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.

Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

<TABLE>
<S> <C>
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."

A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB Bonds considered to be investment grade and of
satisfactory-credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.

Plus (+) or Plus and minus signs are used with a rating symbol to
Minus (-) indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in
the"AAA" category.

NR Indicates that Fitch does not rate the specific issue.

Conditional A conditional rating is premised on the successful
completion of a project or the occurrence of a specific
event.
</TABLE>

60
<PAGE>
<TABLE>
<S> <C>
Suspended A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for
rating purposes.

Withdrawn A rating will be withdrawn when an issue matures or is
called or refinanced and, at Fitch's discretion, when an
issuer fails to furnish proper and timely information.

FitchAlert Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and
the likely direction of such change. These are designated as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving,"where ratings may be
raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.

Ratings Outlook An outlook is used to describe the most likely direction of
any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a
designation indicates a stable outlook.
</TABLE>

SPECULATIVE GRADE BOND RATINGS: Fitch speculative grade bond ratings provide
a guide to investors in determining the credit risk associated with a particular
security. The ratings ("BB" to "C") represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating ("DDD" to "D") is an assessment of the ultimate recovery value through
reorganization or liquidation.

Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.

<TABLE>
<S> <C>
BB Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time
by adverse economic changes. However, business and finan-
cial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.

CCC Bonds have certain identifiable characteristics which, if
not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.

CC Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.

C Bonds are in imminent default in payment of interest or
principal.

DDD Bonds are in default on interest and/or principal payments.
DD and D Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.

Plus(+) or Plus and minus signs are used with a rating symbol to
Minus(-) indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
"DDD," "DD," or "D" categories.
</TABLE>

61
<PAGE>
SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.

Fitch short-term ratings are as follows:

<TABLE>
<S> <C>
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated "F-1+."

F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned
"F-1+" and "F-1" ratings.

F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse
changes could cause these securities to be rated below in
investment grade.

F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.

D Default. Issues assigned this rating are in actual or
imminent payment default.

LOC The symbol "LOC" indicates that the rating is based on a
letter of credit issued by a commercial bank.
</TABLE>

62
<PAGE>

MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND

PART C OTHER INFORMATION

ITEM 23. EXHIBITS

1(a). Declaration of Trust of the Registrant, dated April 9, 1984, is
incorporated by reference to Exhibit 1 of Post-Effective Amendment No.
12 to the Registration Statement on Form N-1A, filed on February 23,
1996.

1(b). Amendment, dated May 21, 1984, to the Declaration of Trust of the
Registrant, is filed herein.

1(c). Instrument Establishing and Designating Additional Classes, dated July
28, 1997, is incorporated by reference to Exhibit 1 of Post-Effective
Amendment No. 14 to the Registration Statement on Form N-1A, filed on
July 17, 1997.

1(d). Amendment, dated June 22, 1998, to the Declaration of Trust of the
Registrant, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on February 26, 1999.

2. Amended and Restated By-Laws of the Registrant, dated May 1, 1999, is
incorporated by reference to Exhibit 2 of Post-Effective Amendment No.
17 to the Registration Statement on Form N-1A, filed on April 29,
1999.

3. Not Applicable.

4. Amended Investment Management Agreement between the Registrant and
Morgan Stanley Dean Witter Advisors Inc., dated April 30, 1998, is
incorporated by reference to Exhibit 4 of Post-Effective Amendment No.
16 to the Registration Statement on Form N-1A, filed on February 26,
1999.

5(a). Amended Distribution Agreement between the Registrant and Morgan
Stanley Dean Witter Distributors Inc., dated June 22, 1998, is
incorporated by reference to Exhibit 5(a) of Post-Effective Amendment
No. 16 to the Registration Statement on Form N-1A, filed on February
26, 1999.

5(b). Selected Dealers Agreement between Morgan Stanley Dean Witter
Distributors Inc. and Dean Witter Reynolds Inc., dated January 4,
1993, is incorporated by reference to Exhibit 6(b) of Post-Effective
Amendment No. 10 to the Registration Statement on Form N-1A, filed on
February 24, 1994.

5(c). Omnibus Selected Dealer Agreement between Morgan Stanley Dean Witter
Distributors Inc. and National Financial Services Corporation, dated
October 17, 1998, is incorporated by reference to Exhibit 5(b) of
Post-Effective Amendment No. 16 to the Registration Statement of Form
N-1A, filed on February 26, 1999.

6. Amended and Restated Retirement Plan for Non-Interested Trustees or
Directors, dated May 8, 1997, is incorporated by reference to Exhibit
6 of Post-Effective Amendment No. 17 to the Registration Statement on
Form N-1A, filed on April 29, 1999.

7(a). Custody Agreement between The Bank of New York and the Registrant,
dated September 20, 1991, is incorporated by reference to Exhibit 8 of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on February 23, 1996.

1
<PAGE>

7(b). Amendment to the Custody Agreement, dated April 17, 1996, is
incorporated by reference to Exhibit 8 of Post-Effective Amendment No.
13 to the Registration Statement on Form N-1A, filed on March 13,
1997.

8(a). Amended and Restated Transfer Agency and Service Agreement between the
Registrant and Morgan Stanley Dean Witter Trust FSB, dated June 22,
1998, is incorporated by reference to Exhibit 7of Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A, filed on
February 26, 1999.

8(b). Amended Services Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Services Company Inc., dated June
22, 1998, is incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A, filed on
February 26, 1999.

9. Opinion of Sheldon Curtis, Esq., dated March 20, 1985, filed herein.

10. Consent of Independent Accountants, filed herein.

11. Not Applicable.

12. Not Applicable.

13. Amended and Restated Plan of Distribution pursuant to Rule 12b-1
between the Registrant and Morgan Stanley Dean Witter Distributors
Inc., dated July 28, 1997, is incorporated by reference to Exhibit 15
of Post-Effective Amendment No. 14 to the Registration Statement on
Form N-1A, filed on July 17, 1997.

14. Amended Multi-Class Plan pursuant to Rule 18f-3 is incorporated by
reference to Exhibit 15 of Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A, filed on February 26, 1999.

Other Powers of Attorney of Trustees are incorporated by reference to
Exhibit (Other) of Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A, filed on February 23, 1995 and Exhibit (Other)
of Post-Effective Amendment No. 15 to the Registration Statement on
Form N-1A, filed on April 6, 1998.

2
<PAGE>

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.

None

Item 25. INDEMNIFICATION.

Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.

Pursuant to Section 5.2 of the Registrant's Declaration of Trust
and paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such trustee,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act, and will be governed by the final adjudication of such
issue.

The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company Act
of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act
remains in effect.

Registrant, in conjunction with the Investment Manager,
Registrant's Trustees, and other registered investment management companies
managed by the Investment Manager, maintains insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of Registrant, or who is or
was serving at the request of Registrant as a trustee, director, officer,
employee or agent of another trust or corporation, against any liability
asserted against him and incurred by him or arising out of his position.
However, in no event will Registrant

3
<PAGE>

maintain insurance to indemnify any such person for any act for which Registrant
itself is not permitted to indemnify him.

Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

See "The Fund and Its Management" in the Prospectus regarding the
business of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.

The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:

CLOSED-END INVESTMENT COMPANIES
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities

OPEN-END INVESTMENT COMPANIES
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund

4
<PAGE>

(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Real Estate Fund
(51) Morgan Stanley Dean Witter S&P 500 Index Fund
(52) Morgan Stanley Dean Witter S&P 500 Select Fund
(53) Morgan Stanley Dean Witter Select Dimensions Investment Series
(54) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(55) Morgan Stanley Dean Witter Short-Term Bond Fund
(56) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(57) Morgan Stanley Dean Witter Small Cap Growth Fund
(58) Morgan Stanley Dean Witter Special Value Fund
(59) Morgan Stanley Dean Witter Strategist Fund
(60) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(61) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(62) Morgan Stanley Dean Witter Total Market Index Fund

5
<PAGE>

(63) Morgan Stanley Dean Witter Total Return Trust
(64) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(65) Morgan Stanley Dean Witter U.S. Government Securities Trust
(66) Morgan Stanley Dean Witter Utilities Fund
(67) Morgan Stanley Dean Witter Value-Added Market Series
(68) Morgan Stanley Dean Witter Value Fund
(69) Morgan Stanley Dean Witter Variable Investment Series
(70) Morgan Stanley Dean Witter World Wide Income Trust

<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of Asset Management of
President, Chief Morgan Stanley Dean Witter & Co. ("MSDW); Chairman, Chief
Executive Officer and Executive Officer and Director of Morgan Stanley Dean Witter
Director Distributors Inc. ("MSDW Distributors") and Morgan Stanley
Dean Witter Trust FSB ("MSDW Trust"); President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"); President of the
Morgan Stanley Dean Witter Funds; Executive Vice President
and Director of Dean Witter Reynolds Inc. ("DWR"); Director
of various MSDW subsidiaries; Trustee of various Van Kampen
investment companies.

Barry Fink Assistant Secretary of DWR; Executive Vice President,
Executive Vice President, Secretary, General Counsel and Director of MSDW Services;
Secretary, General Executive Vice President, Assistant Secretary Assistant
and Counsel and Director General Counsel of MSDW Distributors; Vice President,
Secretary and General Counsel of the Morgan Stanley Dean
Witter Funds.

Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds;
Executive Vice President Director of MSDW Trust.
and Chief Investment
Officer

Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds.
Officer and Director

Edward C. Oelsner, III
Executive Vice President

Joseph R. Arcieri Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

6
<PAGE>

<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the High
Yield Group

Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Douglas Brown
Senior Vice President

Rosalie Clough
Senior Vice President
and Director of Marketing

Richard Felegy
Senior Vice President

Sheila A. Finnerty Vice President of Morgan Stanley Dean Witter Prime
Senior Vice President Income Trust.

Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW
Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley
Dean Witter Funds.

Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer -
Investments

Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

7
<PAGE>

<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
John B. Kemp, III President of MSDW Distributors.
Senior Vice President

Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of Sector
Rotation

Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Money
Market Group

Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
Group

Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

James Solloway
Senior Vice President

Katherine H. Stromberg Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
and Income Group

Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication

James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Tax-Exempt Fixed
Income Group

8
<PAGE>

Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds.

Thomas Chronert
First Vice President

Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors and the Morgan Stanley Dean Witter
Funds.

Salvatore DeSteno First Vice President of MSDW Services.
First Vice President

Peter W. Gurman
First Vice President

Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.

David Johnson
First Vice President

Stanley Kapica
First Vice President

Douglas J. Ketterer
First Vice President

Todd Lebo First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.

Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.

Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors and
and Assistant Secretary the Morgan Stanley Dean Witter Funds.

9
<PAGE>

Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.

James P. Wallin
First Vice President

Robert Abreu
Vice President

Dale Albright
Vice President

Joan G. Allman
Vice President

Andrew Arbenz Vice President of Morgan Stanley Dean Witter Global
Vice President Utilities Fund.

Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Maurice Bendrihem
Vice President and
Assistant Controller

Thomas A. Bergeron
Vice President

Philip Bernstein
Vice President

Dale Boettcher
Vice President

Michelina Calandrella
Vice President

Ronald Caldwell
Vice President

Joseph Cardwell
Vice President

10
<PAGE>

Philip Casparius
Vice President

Annette Celenza
Vice President

Aaron Clark
Vice President

William Connerly
Vice President

Michael J. Davey
Vice President

David Dineen Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Glen H. Frey Vice President of Morgan Stanley Dean Witter Information
Vice President Fund.

Jeffrey D. Geffen
Vice President

Sandra Gelpieryn
Vice President

Charmaine George
Vice President

Michael Geringer
Vice President

Gail Gerrity-Burke
Vice President

Peter Gewirtz
Vice President

Ellen Gold
Vice President

Stephen Greenhut
Vice President

11
<PAGE>

Laury A. Haskamp
Vice President

Matthew T. Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

David T. Hoffman
Vice President

Thomas G. Hudson II
Vice President

Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Carol Espejo-Kane
Vice President

Nancy Karole-Kennedy
Vice President

Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Kimberly LaHart
Vice President

Thomas Lawlor
Vice President

Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Cameron J. Livingstone
Vice President

Nancy Login
Vice President

Sharon Loguercio
Vice President

12
<PAGE>

Catherine Maniscalco Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Peter R. McDowell
Vice President

Albert McGarity
Vice President

Teresa McRoberts Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Mark Mitchell
Vice President

Julie Morrone Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Mary Beth Mueller
Vice President

David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.

James Nash
Vice President

Richard Norris
Vice President

Hilary A. O'Neill
Vice President

Anne Pickrell
Vice President

Mori Paulson
Vice President

Frances Roman
Vice President

Dawn Rorke
Vice President

13
<PAGE>

<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------
<S> <C>
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund.

Hugh Rose
Vice President

Robert Rossetti Vice President of Morgan Stanley Dean Witter Competitive
Vice President Edge Fund.

Sally Sancimino
Vice President

Deborah Santaniello
Vice President

Patrice Saunders
Vice President

Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.

Alison M. Sharkey
Vice President

Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Ronald B. Silvestri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Robert Stearns
Vice President

Naomi Stein
Vice President

William Stevens
Vice President

Michael Strayhorn
Vice President

Marybeth Swisher
Vice President

Michael Thayer
Vice President

14
<PAGE>

David Walsh
Vice President

Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

John Wong
Vice President
</TABLE>

The principal address of MSDW Advisors, MSDW Services, MSDW
Distributors, DWR, and the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048. The principal address of MSDW is 1585
Broadway, New York, New York 10036. The principal address of MSDW Trust is 2
Harborside Financial Center, Jersey City, New Jersey 07311.

Item 27. PRINCIPAL UNDERWRITERS

(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:

(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust

15
<PAGE>

(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Prime Income Trust
(51) Morgan Stanley Dean Witter Real Estate Fund
(52) Morgan Stanley Dean Witter S&P 500 Index Fund
(53) Morgan Stanley Dean Witter S&P 500 Select Fund
(54) Morgan Stanley Dean Witter Short-Term Bond Fund
(55) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(56) Morgan Stanley Dean Witter Small Cap Growth Fund
(57) Morgan Stanley Dean Witter Special Value Fund
(58) Morgan Stanley Dean Witter Strategist Fund
(59) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(60) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(61) Morgan Stanley Dean Witter Total Market Index Fund
(62) Morgan Stanley Dean Witter Total Return Trust
(63) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(64) Morgan Stanley Dean Witter U.S. Government Securities Trust
(65) Morgan Stanley Dean Witter Utilities Fund
(66) Morgan Stanley Dean Witter Value-Added Market Series
(67) Morgan Stanley Dean Witter Value Fund
(68) Morgan Stanley Dean Witter Variable Investment Series
(69) Morgan Stanley Dean Witter World Wide Income Trust

(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than Mr.
Purcell, who is a Trustee of the Registrant, none of the following persons has
any position or office with the Registrant.

16
<PAGE>

<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS
<S> <C>
Michael T. Gregg Vice President and Assistant Secretary.

James F. Higgins Director

Philip J. Purcell Director

John Schaeffer Director

Charles Vadala Senior Vice President and Financial Principal.
</TABLE>

Item 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.

Item 29. MANAGEMENT SERVICES

Registrant is not a party to any such management-related service
contract.

Item 30. UNDERTAKINGS

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

17
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 17th day of February, 2000.

MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND

By /s/ Barry Fink
------------------------
Barry Fink
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 18 has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
(1) Principal Executive Officer Chairman, Chief Executive Officer,
and Trustee
By /s/ Charles A. Fiumefreddo 02/17/00
--------------------------
Charles A. Fiumefreddo

(2) Principal Financial Officer Treasurer and Principal
Accounting Officer

By /s/ Thomas F. Caloia 02/17/00
--------------------------
Thomas F. Caloia

(3) Majority of the Trustees

Charles A. Fiumefreddo (Chairman)
Philip J. Purcell

By /s/ Barry Fink 02/17/00
--------------------------
Barry Fink
Attorney-in-Fact

Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder

By /s/ David M. Butowsky 02/17/00
--------------------------
David M. Butowsky
Attorney-in-Fact
</TABLE>

<PAGE>

MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND

EXHIBIT INDEX

1(b). Amendment, dated May 21, 1984, to the Declaration of Trust of the
Registrant.

9. Opinion of Sheldon Curtis, Esq., dated March 20, 1985.

10. Consent of Independent Accountants.

<PAGE>

CERTIFICATE
-----------

The undersigned hereby certifies that he is the Secretary of Dean Witter
California Tax-Free Income Fund (the "Trust"), an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts, that
annexed hereto is an Amendment to the Declaration of Trust of the Trust
adopted by the unanimous written consent of the Trustees of the Trust on May
18, 1984, as provided in Section 9.3 of the said Declaration, said Amendment
to take effect on May 18, 1984, and I do hereby further certify that such
Amendment has not been amended and is on the date hereof in full force and
effect.

Dated this 21st day of May, 1984.

/s/ Sheldon Curtis
-----------------------
Sheldon Curtis
Secretary

[SEAL]

<PAGE>

AMENDMENT
---------

Dated: May 18, 1984

To Be Effective: May 18, 1984

TO
--
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
-------------------------------------------
DECLARATION OF TRUST
--------------------
DATED APRIL 9, 1984
-------------------

<PAGE>

Amendment dated May 18,
1984 to the
Declaration
of Trust (the "Declara-
tion") of Dean Witter
California Tax-Free
Income Fund dated
April 9, 1984

WHEREAS, the Trust was established by the Declaration on the
date hereinabove set forth under the laws of The Commonwealth
of Massachusetts; and

WHEREAS, the Trustees of the Trust have deemed it advisable to
appoint a resident agent of the Trust in The Commonwealth of
Massachusetts, such provision to be effective on May 18, 1984.

NOW, THEREFORE, pursuant to Section 9.3 of the Declaration, the
Trustees hereby amend the Declaration as follows, to be
effective on May 18, 1984.

1. Section 11.2 of Article XI of the Declaration is
hereby amended so that that Section shall read in
its entirety as follows:

"SECTION 11.2. RESIDENT AGENT. The Prentice-Hall
Corporation System, Inc., 84 State Street, Boston,
Massachusetts 02109 is the resident agent of the
Trust in The Commonwealth of Massachusetts."

2. The Trustees of the Trust hereby reaffirm the
Declaration, as amended, in all respects.

3. This Amendment may be executed in more than one
counterpart, each of which shall be deemed an
original, but all of which together shall constitute
one and the same document.

<PAGE>

IN WITNESS WHEREOF, the undersigned, the Trustees of
the rust, have executed this instrument this 18th
day of May, 1984.

/s/ Charles A. Fiumefreddo
--------------------------
Charles A. Fiumefreddo
One World Trade Center
New York, New York 10048

/s/ Sheldon Curtis
--------------------------
Sheldon Curtis
One World Trade Center
New York, New York 10048

/s/ Andrew J. Melton, Jr.
---------------------------
Andrew J. Melton, Jr.
Five World Trade Center
New York, New York 10048

<PAGE>

STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )

On this 18th day of May, 1984, Charles A. Fiumefreddo, Andrew J. Melton,
Jr. and Sheldon Curtis, known to me and known to me to be the individuals
described in and who executed the foregoing instrument, personally appeared
before me and they severally acknowledged the foregoing instrument to be
their free act and deed.

/s/ Rodd M. Baxter
-----------------------
Notary Public

RODD M. BAXTER
Notary Public, State of New York
No. 41-4637346
Qualified in Nassau County
Commission Expires March 30, 1986

<PAGE>

DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND

June 26, 1984

Dean Witter California
Tax-Free Income Fund
One World Trade Center
New York, New York 10048

Dear Sirs:

With respect to the Registration Statement on Form N-1A (File No.
2-91103) (the "Registration Statement") filed by Dean Witter California
Tax-Free Income Fund, a Massachusetts business trust (the "Trust"), with the
Securities and Exchange Commission for the purpose of registering under the
Securities Act of 1933, as amended, an indefinite number of shares of
beneficial interest of $0.01 par value of the Trust (the "Shares"), I, as
your counsel, have examined such Trust records, certificates and other
documents and reviewed such questions of law as I have considered necessary
or appropriate for the purposes of this opinion, and on the basis of such
examination and review, I advise you that, in my opinion, proper trust
proceedings have been taken by the Trust so that the Shares have been validly
authorized; and when the shares have been issued and sold in accordance with
the terms of the Distribution Agreement referred to in the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.

I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Validity
of Shares of Beneficial Interest" in the Statement of Additional Information
forming a part of the Registration Statement. In giving this consent, I do
not thereby admit that I am within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.

Very truly yours,
/s/ Sheldon Curtis
Sheldon Curtis
General Counsel
SC:rw

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form N-1A of
our report dated February 7, 2000, relating to the financial statements and
financial highlights of Morgan Stanley Dean Witter California Tax-Free Income
Fund, which appears in such Registration Statement. We also consent to the
references to us under the headings "Custodian and Independent Accountants"
and "Experts" in such Registration Statement.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 2000