<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND TWO WORLD TRADE CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Dean Witter New
York Tax-Free Income Fund for the year ended December 31, 1996.
After accelerating in the first half of 1996, domestic economic growth moderated
during the summer. Inflation remained under control despite full employment and
stronger growth in the fourth quarter. The need for a tightening move by the
Federal Reserve Board abated. Market confidence improved under these conditions
and fixed-income yields moved lower in the second half of the year.
MUNICIPAL MARKET CONDITIONS
Long insured revenue bond yields rose from 5.40 percent in February to reach
6.15 percent in April and again in mid-June. Subsequently, demand for municipal
bonds improved and followed the trend of U.S. Treasury securities to lower
rates. By the end of December, insured bond yields stood at 5.60 percent. The
yield pickup for extending maturities from 1 to 30 years was 210 basis points at
year end.
The ratio of insured revenue bond yields to 30-year U.S. Treasury yields, fell
from 92 to 84 percent during the year. A declining ratio means that municipal
bond prices outperformed U.S. Treasury prices. The ratio's average range for the
past three years has been as low (rich) as 81 and as high (cheap) as 92 percent.
The relative improvement in municipals occurred when flat-tax proposals failed
to gain public support.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Dec-86 10000 10000 10000
<S> <C> <C> <C>
9811 10151 9771
Dec-88 10881 11182 10871
11898 12389 11884
Dec-90 12375 13292 12487
13976 14906 14181
Dec-92 15192 16220 15570
16973 18212 17539
Dec-94 15659 17271 16240
18257 20286 19036
Dec-96 18771 21185 19579
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year--5%,
5 years--2%, 10 years-- -0%). See the Fund's current prospectus for complete
details on fees and sales charges.
(3) Closing value assuming a complete redemption on December 31, 1996.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of municipal
bonds with maturities of 2 years or more and a minimum credit rating of Baa
or BBB, as measured by Moody's Investors Service, Inc. or Standard & Poor's
Corp. The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(5) The Lipper New York Municipal Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper New York Municipal Debt Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this Index.
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
The municipal market achieved a balance between new-issue supply and maturing
securities in 1996. New-issue volume increased by 14 percent to $183 billion.
Maturities and redemptions of older issues essentially matched underwriting
volume. New York remained the second largest state source of new issue volume.
Underwriting in the state totaled $22 billion for the year and represented 12
percent of national volume.
PERFORMANCE
Dean Witter New York Tax-Free Income Fund's total return for the fiscal year
ended December 31, 1996 was 2.82 percent. The Fund's net asset value declined
from $11.96 to $11.71 per share. Tax-free dividends of $0.53 per share and
taxable long-term capital gains distributions of $0.04 per share were paid
during the period. Dividends from tax-
exempt income gave the Fund a positive total return. The
trailing 30-day SEC yield and distribution yield on December 31,
1996 were 4.15 percent and 4.43 percent, respectively.
Since its inception on April 25, 1985, the Fund has provided shareholders with
an average annual total return of 7.98 percent. The accompanying chart
illustrates the performance of a $10,000 investment in the Fund for the 10 years
ended December 31, 1996, versus the performance of a similar hypothetical
investment in the issues comprising the Lehman Brothers Municipal Bond Index, as
well as the performance of the Lipper Analytical Services, Inc. New York
Municipal Debt Funds Index.
PORTFOLIO STRUCTURE
The Fund's net assets of $192 million were diversified among 12 long-term
sectors and 31 credits. The Fund's cash and short-term investment position was
increased to a range of 5 to 10 percent during 1996 in response to market
volatility. Portfolio sales shifted to more market-sensitive issues. The sales
of discount and current-coupon issues exceeded sales of defensive, higher-coupon
bonds with shorter calls. New purchases focused on securities with 15- to
25-year maturities rather than the 20- to 30-year range. Modest discount or
premium bonds with shorter durations were favored.
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FIVE LARGEST SECTORS as of December 31, 1996
<S> <C>
(% of Net Assets)
Water & Sewer 8%
All Others 46%
IDR/PCR* 15%
General Obligation 13%
Education 9%
Mortgage 9%
*Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT RATINGS as of December 31, 1996
(% of Total Long-Term Portfolio)
Aaa or AAA 27%
A or A 35%
Not Rated* 3%
Baa or BBB 26%
Aa or AA 9%
As measured by Moody's Investors Service, Inc. or Standard & Poor's
Corp.
*Not rated at time of purchase; deemed by investment
manager to be comparable to investment-grade securities.
Portfolio structure is subject to change.
</TABLE>
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
During the year the average maturity of the long-term portfolio moved from 19 to
16 years. The portfolio's distribution of older, shorter-call issues and newer
issues with longer call dates provided an average call protection of 7 years.
Bonds with shorter than average call protection had book yields in excess of 7
percent. The book yields of bonds with longer call protection averaged 6
percent. Over 70 percent of long-term holdings were rated single "A" or better.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Call Structure as of December 31,
1996
<S> <C>
(% of Total Long-Term Portfolio)
Years Percent Callable
1997 13%
1998 0%
1999 13%
2000 2%
2001 6%
2002 7%
2003 7%
2004 15%
2005 4%
2006 13%
2007-2012 11%
2012+ 9%
</TABLE>
LOOKING AHEAD
With the collapse of flat-tax proposals, municipal bonds have improved relative
to U.S. Treasury securities. Tax-free yields are currently near the "rich" end
of their average range versus Treasury yields. Under these conditions, the Fund
has accumulated an above average cash position and has moved to shorter
maturities. If municipals were to cheapen in the future, the Fund would likely
draw down some of its cash and extended maturities in seeking opportunities to
pick up income.
We appreciate your ongoing support of Dean Witter New York Tax-Free Income Fund
and look forward to continuing to serve your investment needs.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
NEW YORK TAX-EXEMPT MUNICIPAL BONDS (92.3%)
GENERAL OBLIGATION (12.9%)
Monroe County,
$ 1,000 Public Improvement Refg 1996.......................................................... 6.00 % 03/01/13
1,000 Public Improvement Refg 1996.......................................................... 6.00 03/01/15
New York City,
3,500 Various Purpose 1973.................................................................. 3.50 05/01/01
2,500 Various Purpose 1973.................................................................. 3.50 05/01/03
4,000 1990 Ser D............................................................................ 6.00 08/01/06
New York State,
2,500 Ser 1996 A Refg....................................................................... 6.00 07/15/08
3,000 Ser 1995 B Refg....................................................................... 5.70 08/15/13
8,800 Puerto Rico, Public Improvement Refg Ser 1987 A......................................... 3.00 07/01/06
- -----------
26,300
- -----------
EDUCATIONAL FACILITIES REVENUE (9.2%)
New York State Dormitory Authority,
2,150 City University Ser 1992 U............................................................ 6.375 07/01/08
3,000 City University Ser 1993 A............................................................ 5.75 07/01/09
3,000 State University Ser 1989 B........................................................... 0.00 05/15/05
5,000 State University Ser 1993 C........................................................... 5.375 05/15/13
2,000 State University Ser 1993 A........................................................... 5.25 05/15/15
4,000 University of Rochester Ser 1987...................................................... 6.50 07/01/09
- -----------
19,150
- -----------
ELECTRIC REVENUE (5.3%)
3,000 New York State Power Authority, Ser CC.................................................. 5.00 01/01/14
8,000 Puerto Rico Electric Power Authority, Power Ser O....................................... 5.00 07/01/12
- -----------
11,000
- -----------
HOSPITAL REVENUE (4.8%)
9,460 New York State Medical Care Facilities Finance Agency, Insured Hospital & Nursing
Home-FHA Ins Mtge 1993 Ser B.......................................................... 5.50 02/15/22
- -----------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (14.7%)
New York City Industrial Development Agency,
4,500 1990 American Airlines Inc (AMT)...................................................... 8.00 07/01/20
4,000 Japan Airlines Co 1991 (AMT) (FSA).................................................... 6.00 11/01/15
New York State Energy Research & Development Authority,
3,000 Brooklyn Union Gas Co 1993 Ser B...................................................... 6.368 04/01/20
11,000 Brooklyn Union Gas Co 1991 Ser A (AMT)................................................ 6.952 07/01/26
4,000 Consolidated Edison Co of New York Inc Ser 1986 A (AMT)............................... 7.50 11/15/21
- -----------
26,500
- -----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------
<C> <C>
$ 1,000 $ 1,073,040
1,000 1,071,220
3,500 3,247,195
2,500 2,217,375
4,000 4,042,560
2,500 2,689,850
3,000 3,045,150
8,800 7,322,040
---------------
- -----------
24,708,430
26,300
---------------
- -----------
2,150 2,241,569
3,000 3,023,970
3,000 1,843,740
5,000 4,676,650
2,000 1,872,260
4,000 4,117,560
---------------
- -----------
17,775,749
19,150
---------------
- -----------
3,000 2,810,520
8,000 7,405,360
---------------
- -----------
10,215,880
11,000
---------------
- -----------
9,460
9,183,673
---------------
- -----------
4,500 4,768,830
4,000 4,077,720
3,000 3,150,000
11,000 12,213,080
4,000 4,088,440
---------------
- -----------
28,298,070
26,500
---------------
- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MORTGAGE REVENUE - MULTI-FAMILY (5.2%)
New York City Housing Development Corporation,
$ 2,348 East Midtown Proj-FHA Ins Sec 223..................................................... 6.50 % 11/15/18
2,358 Ruppert Proj-FHA Ins Sec 223.......................................................... 6.50 11/15/18
5,000 New York State Housing Finance Agency, Housing 1996 Ser A Refg (FSA).................... 6.10 11/01/15
- -----------
9,706
- -----------
MORTGAGE REVENUE - SINGLE FAMILY (3.3%)
New York State Mortgage Agency,
4,500 Homeowner Ser 27...................................................................... 6.90 04/01/15
1,400 Homeowner Ser MM-1 (AMT).............................................................. 7.95 10/01/21
- -----------
5,900
- -----------
NURSING & HEALTH RELATED FACILITIES REVENUE (4.7%)
2,500 New York State Medical Care Facilities Finance Authority, Long Term Health Care 1992 Ser
D (FSA)............................................................................... 6.50 11/01/15
6,995 New York State Medical Care Facilities Finance Agency, Mental Health Ser F.............. 5.25 02/15/19
- -----------
9,495
- -----------
RESOURCE RECOVERY REVENUE (4.3%)
3,000 Hempstead Industrial Development Agency, 1985 American REF-FUEL Co of Hempstead......... 7.40 12/01/10
3,000 New York State Environmental Facilities Corporation, Huntington
1989 Ser A (AMT)...................................................................... 7.50 10/01/12
2,000 Oneida-Herkimer Solid Waste Management Authority, Ser 1992.............................. 6.75 04/01/14
- -----------
8,000
- -----------
TRANSPORTATION FACILITIES REVENUE (4.5%)
New York State Thruway Authority,
3,500 Ser A................................................................................. 5.75 01/01/12
2,000 Ser C (FGIC).......................................................................... 6.00 01/01/25
3,000 Puerto Rico Highway & Transportation Authority, Refg Ser X.............................. 5.50 07/01/15
- -----------
8,500
- -----------
WATER & SEWER REVENUE (8.2%)
New York City Municipal Water Finance Authority,
2,000 1994 Ser B............................................................................ 5.375 06/15/07
4,000 1990 Ser A............................................................................ 6.00 06/15/19
Suffolk County Industrial Development Agency,
5,000 Southwest Sewer Ser 1994 (FGIC)....................................................... 6.00 02/01/07
4,000 Southwest Sewer Ser 1994 (FGIC)....................................................... 6.00 02/01/08
- -----------
15,000
- -----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------
<C> <C>
$ 2,348 $ 2,434,992
2,358 2,408,093
5,000 5,156,400
---------------
- -----------
9,999,485
9,706
---------------
- -----------
4,500 4,772,655
1,400 1,488,144
---------------
- -----------
6,260,799
5,900
---------------
- -----------
2,500
2,695,950
6,995 6,285,567
---------------
- -----------
8,981,517
9,495
---------------
- -----------
3,000 3,075,000
3,000
3,172,110
2,000 2,043,040
---------------
- -----------
8,290,150
8,000
---------------
- -----------
3,500 3,548,230
2,000 2,071,460
3,000 2,979,360
---------------
- -----------
8,599,050
8,500
---------------
- -----------
2,000 2,018,200
4,000 4,016,120
5,000 5,454,050
4,000 4,347,680
---------------
- -----------
15,836,050
15,000
---------------
- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
OTHER REVENUE (8.0%)
$ 5,000 Municipal Assistance Corporation for the City of New York, Ser E........................ 6.00 % 07/01/06
5,000 New York Local Government Assistance Corporation, Ser 1994 A............................ 5.50 04/01/17
5,000 United Nations Development Corporation, 1992 Refg Ser A Sr Lien......................... 6.00 07/01/26
- -----------
15,000
- -----------
REFUNDED (7.2%)
5,000 New York Local Government Assistance Corporation, Ser 1991 B............................ 7.50 04/01/01++
3,000 New York State Dormitory Authority, Suffolk County Judicial Ser 1986 (ETM).............. 7.375 07/01/16
4,000 New York State Medical Care Facilities Finance Agency, St Lukes-Roosevelt Hospital
Center-FHA Ins Mtge 1989 Ser B........................................................ 7.40 02/15/00++
- -----------
12,000
- -----------
TOTAL NEW YORK TAX-EXEMPT MUNICIPAL BONDS (IDENTIFIED COST $165,042,190)........................................
176,011
- -----------
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (6.2%)
4,100 New York City, Fiscal 1994 Sub-Ser A-5 (Demand 01/02/97)................................ 5.00* 08/01/15
5,400 New York State Dormitory Authority, Oxford University Press Inc Ser 1993 (Demand
01/02/97)............................................................................. 5.45* 07/01/23
2,500 New York State Energy Research & Development Authority, New York Electric & Gas Corp Ser
1994 D (Demand 01/02/97).............................................................. 4.40* 10/01/29
- -----------
TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $12,000,000)...................................................................................
12,000
- -----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------
<C> <C>
$ 5,000 $ 5,409,850
5,000 4,993,500
5,000 5,039,700
---------------
- -----------
15,443,050
15,000
---------------
- -----------
5,000 5,683,750
3,000 3,632,670
4,000
4,431,800
---------------
- -----------
13,748,220
12,000
---------------
- -----------
176,011 177,340,123
- ----------- ---------------
4,100 4,100,000
5,400
5,400,000
2,500
2,500,000
---------------
- -----------
12,000 12,000,000
- ----------- ---------------
$ 188,011 TOTAL INVESTMENTS (IDENTIFIED COST $177,042,190)(A)......................... 98.5% 189,340,123
- -----------
- -----------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................. 1.5 2,851,604
----- ------------
NET ASSETS.................................................................. 100.0% $192,191,727
----- ------------
----- ------------
<FN>
- ---------------------
AMT Alternative Minimum Tax.
ETM Escrowed to Maturity.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $12,855,119, and the
aggregate gross unrealized depreciation is $557,186, resulting in net
unrealized appreciation of $12,297,933.
BOND INSURANCE:
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $177,042,190)............................ $189,340,123
Cash........................................................ 186,629
Receivable for:
Interest................................................ 3,188,286
Shares of beneficial interest sold...................... 227,043
Prepaid expenses and other assets........................... 17,759
------------
TOTAL ASSETS........................................... 192,959,840
------------
LIABILITIES:
Payable for:
Dividends to shareholders............................... 359,088
Plan of distribution fee................................ 126,461
Investment management fee............................... 92,738
Shares of beneficial interest repurchased............... 87,189
Accrued expenses and other payables......................... 102,637
------------
TOTAL LIABILITIES...................................... 768,113
------------
NET ASSETS:
Paid-in-capital............................................. 180,760,263
Net unrealized appreciation................................. 12,297,933
Accumulated undistributed net investment income............. 26
Accumulated net realized loss............................... (866,495)
------------
NET ASSETS............................................. $192,191,727
------------
------------
NET ASSET VALUE PER SHARE,
16,409,289 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$11.71
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $12,045,647
-----------
EXPENSES
Plan of distribution fee.................................... 1,518,807
Investment management fee................................... 1,113,792
Transfer agent fees and expenses............................ 74,718
Professional fees........................................... 56,931
Shareholder reports and notices............................. 50,583
Trustees' fees and expenses................................. 14,146
Custodian fees.............................................. 9,737
Registration fees........................................... 3,560
Other....................................................... 11,523
-----------
TOTAL EXPENSES......................................... 2,853,797
LESS: EXPENSE OFFSET................................... (9,709)
-----------
NET EXPENSES........................................... 2,844,088
-----------
NET INVESTMENT INCOME.................................. 9,201,559
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (866,502)
Net change in unrealized appreciation....................... (3,130,905)
-----------
NET LOSS............................................... (3,997,407)
-----------
NET INCREASE................................................ $ 5,204,152
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 9,201,559 $ 10,093,730
Net realized gain (loss).................................... (866,502) 2,568,550
Net change in unrealized appreciation/depreciation.......... (3,130,905) 20,081,778
----------------- -----------------
NET INCREASE........................................... 5,204,152 32,744,058
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (9,254,430) (10,054,862)
Net realized gain........................................... (656,506) (1,424,236)
----------------- -----------------
TOTAL.................................................. (9,910,936) (11,479,098)
----------------- -----------------
Net decrease from transactions in shares of beneficial
interest.................................................. (19,719,531) (11,693,907)
----------------- -----------------
NET INCREASE (DECREASE)................................ (24,426,315) 9,571,053
NET ASSETS:
Beginning of period......................................... 216,618,042 207,046,989
----------------- -----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $26
AND $52,897, RESPECTIVELY).............................. $192,191,727 $216,618,042
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter New York 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, New York
State and New York City income tax, consistent with the preservation of capital.
The Fund was organized as a Massachusetts business trust on January 17, 1985 and
commenced operations on April 25, 1985.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Fund by
an outside independent pricing service approved by the Trustees. The pricing
service has informed the Fund that in valuing the Fund's portfolio securities,
it uses both a computerized matrix of tax-exempt securities and evaluations by
its staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the bid side of the market each day. The
Fund's portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined as of the close of each
business day: 0.55% to the portion of daily net assets not exceeding $500
million and 0.525% to the portion of daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 0.75% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
imposed or upon which such charge has been waived; or (b) the Fund's average
daily net assets. Amounts paid under the Plan are paid to the Distributor to
compensate it for the services provided and the expenses borne by it and others
in the distribution of the Fund's shares, including the payment of commissions
for sales of the Fund's shares and incentive compensation to, and expenses of,
account executives of Dean Witter Reynolds Inc., an affiliate of the Investment
Manager and Distributor, and other employees and selected broker-dealers, who
engage in or support distribution of the Fund's shares or who service
shareholder accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, including carrying charges, totaled $2,741,726 at
December 31, 1996.
The Distributor has informed the Fund that for the year ended December 31, 1996,
it received approximately $224,082 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended December 31, 1996 aggregated
$31,110,448 and $60,183,584, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $8,000.
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended December 31, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $14,146. At December 31 ,1996, the Fund had an accrued pension liability of
$48,715 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 1,126,418 $ 13,143,567 1,646,704 $ 18,911,488
Reinvestment of dividends and distributions...................... 492,455 5,712,064 580,096 6,745,389
----------- -------------- ----------- ------------
1,618,873 18,855,631 2,226,800 25,656,877
Repurchased...................................................... (3,323,154) (38,575,162) (3,239,090) (37,350,784)
----------- -------------- ----------- ------------
Net decrease..................................................... (1,704,281) $ (19,719,531) (1,012,290) $(11,693,907)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
At December 31, 1996, the Fund had a net capital loss carryover of approximately
$820,000, which will be available through December 31, 2004 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 $46,000 during fiscal 1996.
As of December 31, 1996, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of
period.......... $ 11.96 $ 10.83 $ 12.50 $ 11.98 $ 11.68 $ 11.00 $ 11.25 $ 10.94 $ 10.50 $ 11.57
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Net investment
income.......... 0.53 0.55 0.57 0.65 0.65 0.68 0.68 0.68 0.68 0.70
Net realized and
unrealized gain
(loss).......... (0.21) 1.20 (1.51) 0.72 0.34 0.70 (0.25) 0.31 0.44 (0.93)
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Total from
investment
operations...... 0.32 1.75 (0.94) 1.37 0.99 1.38 0.43 0.99 1.12 (0.23)
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Less dividends
and
distributions
from:
Net investment
income........ (0.53) (0.54) (0.57) (0.65) (0.65) (0.68) (0.68) (0.68) (0.67) (0.70)
Net realized
gain.......... (0.04) (0.08) (0.16) (0.20) (0.04) (0.02) -- -- (0.01) (0.14)
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Total dividends
and
distributions... (0.57) (0.62) (0.73) (0.85) (0.69) (0.70) (0.68) (0.68) (0.68) (0.84)
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Net asset value,
end of period... $ 11.71 $ 11.96 $ 10.83 $ 12.50 $ 11.98 $ 11.68 $ 11.00 $ 11.25 $ 10.94 $ 10.50
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
TOTAL INVESTMENT
RETURN+ 2.82% 16.59% (7.74)% 11.72% 8.70% 12.94% 4.01% 9.34% 10.91% (1.89)%
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.40%(1) 1.42%(1) 1.40% 1.27% 1.40% 1.32% 1.37% 1.37% 1.41% 1.40%
Net investment
income.......... 4.54% 4.70% 4.96% 5.20% 5.48% 6.00% 6.13% 6.09% 6.28% 6.44%
SUPPLEMENTAL
DATA:
Net assets, end
of period, in
millions........ $192 $217 $207 $246 $209 $182 $158 $147 $129 $113
Portfolio
turnover rate... 16% 17% 10% 25% 16% 17% 23% 4% 18% 40%
<FN>
- ---------------------
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) The above ratios do not reflect the effect of expense offsets of 0.01%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER NEW YORK TAX-FREE INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter New York Tax-Free
Income Fund (the "Fund") at December 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the ten years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statements presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 10, 1997
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 1996, the Fund paid to the
shareholders $0.53 per share from net investment income. All of
the Fund's dividends from net investment income were exempt
interest dividends, excludable from gross income for Federal
income tax purposes. For the year ended December 31, 1996, the
Fund paid to shareholders $0.04 per share from long-term capital
gains.
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
GROWTH OF $10,000
DATE TOTAL LEHMAN IX LIPPER IX
December 31, 1986 $10,000 $10,000 $10,000
December 31, 1987 $ 9,811 $10,151 $ 9,771
December 31, 1988 $10,881 $11,182 $10,871
December 31, 1989 $11,898 $12,389 $11,884
December 31, 1990 $12,375 $13,292 $12,487
December 31, 1991 $13,976 $14,906 $14,181
December 31, 1992 $15,192 $16,220 $15,570
December 31, 1993 $16,973 $18,212 $17,539
December 31, 1994 $15,659 $17,271 $16,240
December 31, 1995 $18,257 $20,286 $19,036
December 31, 1996 $18,771(3) 21,185 $19,579
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
2.82(1) 6.08(1) 6.50(1)
-2.08(2) 5.76(2) 6.50(2)
_______ Fund _______ Lehman IX (4) _______ Lipper IX (5)
Past performance is not predictive of future returns.
_____________________________________
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-5%,
5 years-2%, 10 years-0). See the Fund's current prospectus for complete
details on fees and sales charges.
(3) Closing value, assuming a complete redemption on December 31, 1996.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of
municipal bonds with maturities of 2 years or more and a minimum credit
rating of Baa or BBB, as measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp. The Index does not include any expenses, fees, or
charges. The Index is unmanaged and should not be considered an
investment.
(5) The Lipper New York Muni Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper New York Municipal Debt Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this index.
<PAGE>
DEAN WITTER NEW YORK TAX-FREE INCOME FUND
(The following charts below represent information which appears in graph
form in the printed report)
A pie chart reflecting the credit quality of the portfolio as rated by
Moody's or Standard & Poors Credit Ratings as of December 31, 1996.
FIVE LARGEST SECTORS PERCENT
-------------------- -------
All others 46%
IDR/PCR* 15%
General Obligation 13%
Education 9%
Mortgage 9%
Water & Sewer 8%
CREDIT RATING PERCENT
------------- -------
Aaa or AAA 27%
Aa or AA 9%
A or A 35%
Baa or BBB 26%
Not rated 3%
A bar graph reflecting the Call Structure as of December 31, 1996, of the
total Long-Term Portfolio:
YEAR % OF TOTAL LONG TERM PORTFOLIO
---- ------------------------------
1997 13%
1998 0%
1999 13%
2000 2%
2001 6%
2002 7%
2003 7%
2004 15%
2005 4%
2006 13%
2007-2011 11%
2012 + 9%
