<PAGE> 1
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter New York Tax-Free Income Fund for the period ended June 30,
1998.
The deflationary impact of the Asian financial crisis has begun to temper U.S.
economic growth. Although employment conditions strengthened in the United
States and unemployment declined to its lowest level since 1970, inflation
remained subdued. This was primarily the result of improved productivity, lower
oil costs and cheaper imports.
Foreign currency turmoil strengthened the value of the U.S. dollar and created
demand for U.S. Treasury securities. Municipal bonds followed the trend of
Treasuries, with yields declining to a range not seen in over 20 years. The bond
market rally was also aided by prospects of the first federal budget surplus in
more than two decades.
MUNICIPAL MARKET CONDITIONS
Long-term insured index yields stood at 5.20 percent at the end of June 1998.
Since the beginning of the year index yields have ranged from
BOND YIELDS 1994-1998
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.4% 6.34% 85.17%
5.4 6.24 86.54
5.8 6.66 87.09
6.4 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.5 7.61 85.41
6.25 7.39 84.57
6.3 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.2 7.34 84.47
5.8 6.66 87.09
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.9 6.89 85.63
5.85 6.97 83.93
5.9 7.11 82.98
5.7 6.93 82.25
5.65 6.64 85.09
5.5 6.35 86.61
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
a low of 5.15 percent in January to 5.35 percent in April. Insured index yields
were as high as 5.60 percent in June 1997.
The overall decline in interest rates led to an increase in new-issue municipal
volume. In contrast, U.S. Treasury borrowing needs have shrunk with the decline
in the budget deficit. Under these conditions the municipal rally lagged the
rally in Treasuries. The ratio of municipal yields to Treasury yields improved
from 83 percent in June 1997 to over 90 percent this June. A rising ratio means
that municipals have underperformed Treasuries and have become more attractive
on a relative basis.
For the year-to-date, total municipal volume of $141 billion is up 50 percent
from the same period last year. Half the underwritings were enhanced with bond
insurance. Refundings represented nearly one-third of total new issues. New York
new-issue underwriting, led by the record $3.4 billion Long Island Power
Authority issue in mid-May, accounted for 14 percent of national volume.
PERFORMANCE
For the six-month period ended June 30, 1998 Morgan Stanley Dean Witter New York
Tax-Free Income Fund's Class A, B, C and D shares produced total returns of 2.11
percent, 2.12 percent, 2.10 percent and 2.49 percent, respectively. Performance
of the Fund's share classes varies because of differing expenses. Over the same
period, the Lehman Brothers Municipal Bond Index posted a total return of 2.69
percent, while the Lipper Analytical Services, Inc. New York Municipal Debt
Funds Index registered a total return of 2.45 percent. The Fund's net assets
exceeded $163 million.
PORTFOLIO STRUCTURE
During the past six months portfolio duration, a measure of sensitivity to
interest rate changes, was extended from 6.5 years to 7.9 years. This was
primarily accomplished by selling refunded bonds to purchase new issues.
Refunded bonds were reduced from 12 percent to 8 percent of net assets.
Investments were diversified among 13 long-term sectors and 35 credits. Nearly
85 percent of its long-term holdings are rated single "A" or higher. The average
maturity of the portfolio was 17 years. As illustrated in the accompanying chart
the distribution of call dates produced 8 years of weighted average call
protection.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
<TABLE>
<CAPTION>
LARGEST SECTORS AS OF JUNE 30, 1998 (% OF NET ASSETS)
<S> <C>
GENERAL OBLIGATION 14%
IDR/PCR* 14%
EDUCATION 11%
MORTGAGE 10%
WATER & SEWER 8%
REFUNDED 8%
HOSPITAL 7%
ELECTRIC 7%
NURSING & HEALTH 6%
TRANSPORTATION 5%
ALL OTHERS 10%
</TABLE>
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
<TABLE>
<CAPTION>
CREDIT RATINGS AS OF JUNE 30, 1998 (% OF TOTAL LONG-TERM PORTFOLIO)
<S> <C>
A OR A 43%
Aaa OR AAA 31%
Aa OR AA 12%
Baa OR BBB 12%
N/R 2%
</TABLE>
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC. OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
<TABLE>
<CAPTION>
CALL STRUCTURE AS OF JUNE 30, 1998
(% OF TOTAL LONG-TERM PORTFOLIO)
PERCENT CALLABLE
WEIGHTED AVERAGE
CALL PROTECTION: 8 YEARS
YEARS BONDS CALLABLE PERCENT CALLABLE
<S> <C>
1998 4%
1999 11%
2000 0%
2001 3%
2002 8%
2003 5%
2004 13%
2005 3%
2006 15%
2007 3%
2008 21%
2009+ 14%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
LOOKING AHEAD
The economic fundamentals are in place for another year of solid economic growth
in the United States. Events in Asia have strengthened the U.S. dollar and
contributed to lower interest rates. Furthermore, the Asian financial crisis
seems likely to continue to moderate inflationary pressures and provide a
favorable environment for municipal bonds. The Federal Reserve Board remains
sensitive to the risk of an acceleration in labor costs but has maintained its
neutral stance.
We appreciate your ongoing support of Morgan Stanley Dean Witter New York
Tax-Free Income Fund and look forward to continuing to serve your investment
needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK TAX-EXEMPT MUNICIPAL BONDS (97.4%)
General Obligation (14.1%)
Monroe County,
$ 1,000 Public Improvement Refg 1996............................... 6.00 % 03/01/13 $ 1,126,380
1,000 Public Improvement Refg 1996............................... 6.00 03/01/15 1,127,910
New York City,
2,880 Various Purpose 1973....................................... 3.50 05/01/01 2,839,363
2,500 Various Purpose 1973....................................... 3.50 05/01/03 2,417,650
1,565 1997 Ser D................................................. 6.00 08/01/06 1,598,100
New York State,
2,500 Ser 1996 A Refg............................................ 6.00 07/15/08 2,793,825
3,000 Ser 1995 B Refg............................................ 5.70 08/15/13 3,174,690
9,000 Puerto Rico, Public Improvement Refg Ser 1987 A............. 3.00 07/01/06 7,978,140
- -------- -----------
23,445 23,056,058
- -------- -----------
Educational Facilities Revenue (11.4%)
New York State Dormitory Authority,
965 City University Ser 1992 U................................. 6.375 07/01/08 1,046,388
3,000 City University Ser 1993 A................................. 5.75 07/01/09 3,241,410
2,000 Ithaca College Ser 1998 (AMBAC)............................ 5.00 07/01/21 1,951,940
1,000 New York University Ser 1998 A (MBIA)...................... 5.75 07/01/15 1,099,740
3,000 State University Ser 1989 B................................ 0.00 05/15/05 2,195,940
4,000 State University Ser 1993 C................................ 5.375 05/15/13 4,088,560
2,000 State University Refg 1993 Ser A........................... 5.25 05/15/15 2,061,040
30 University of Rochester Ser 1997 A (MBIA).................. 6.50 07/01/09 30,508
3,000 University of Rochester Ser 1998 A (MBIA).................. 5.00 07/01/23 2,924,760
- -------- -----------
18,995 18,640,286
- -------- -----------
Electric Revenue (7.3%)
4,000 Long Island Power Authority, Electric System Ser 1998 A
(FSA)...................................................... 5.125 12/01/22 3,947,720
8,000 Puerto Rico Electric Power Authority, Power Ser O........... 5.00 07/01/12 7,984,000
- -------- -----------
12,000 11,931,720
- -------- -----------
Hospital Revenue (7.1%)
2,500 New York State Dormitory Authority, Long Island Jewish
Medical Center Ser 1998 A (MBIA) (WI)...................... 5.00 07/01/25 2,424,350
8,955 New York State Medical Care Facilities Finance Agency,
Insured Hospital & Nursing Home - FHA Insured Mtge 1993
Ser B...................................................... 5.50 02/15/22 9,161,323
- -------- -----------
11,455 11,585,673
- -------- -----------
Industrial Development/Pollution Control Revenue (13.6%)
New York City Industrial Development Agency,
5,000 Brooklyn Navy Yard Cogeneration Partners, LP Proj Ser 1997
(AMT)**.................................................. 5.75 10/01/36 5,094,250
900 Japan Airlines Co 1991 (AMT) (FSA)......................... 6.00 11/01/15 963,990
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New York State Energy Research & Development Authority,
$ 3,000 Brooklyn Union Gas Co 1993 Ser B........................... 6.368% 04/01/20 $ 3,373,170
11,000 Brooklyn Union Gas Co 1991 Ser A (AMT)..................... 6.952 07/01/26 12,741,080
- -------- -----------
19,900 22,172,490
- -------- -----------
Mortgage Revenue - Multi-Family (6.2%)
New York City Housing Development Corporation,
2,279 East Midtown Proj - FHA Ins Sec 223........................ 6.50 11/15/18 2,393,567
2,296 Ruppert Proj - FHA Ins Sec 223............................. 6.50 11/15/18 2,411,377
4,935 New York State Housing Finance Agency, Housing 1996 Ser A
Refg (FSA)................................................. 6.10 11/01/15 5,343,322
- -------- -----------
9,510 10,148,266
- -------- -----------
Mortgage Revenue - Single Family (3.9%)
New York State Mortgage Agency,
4,500 Homeowner Ser 27........................................... 6.90 04/01/15 4,844,295
1,400 Homeowner Ser MM-1 (AMT)................................... 7.95 10/01/21 1,502,228
- -------- -----------
5,900 6,346,523
- -------- -----------
Nursing & Health Related Facilities Revenue (5.8%)
New York State Medical Care Facilities Finance Authority,
2,295 Long Term Health Care 1992 Ser D (FSA)..................... 6.50 11/01/15 2,510,707
6,995 Mental Health Ser F........................................ 5.25 02/15/19 6,942,328
- -------- -----------
9,290 9,453,035
- -------- -----------
Resource Recovery Revenue (1.9%)
3,000 Hempstead Industrial Development Agency, American REF-FUEL
- -------- Co of Hempstead Ser 1997 (MBIA)............................ 5.00 12/01/09 3,073,350
-----------
Transportation Facilities Revenue (4.8%)
2,000 Metropolitan Transportation Authority, Commuter Facilities
Ser 1998 B (FGIC) (WI) 4.75 07/01/26 1,879,240
Puerto Rico Highway & Transportation Authority,
3,000 Refg Ser X**............................................... 5.50 07/01/15 3,173,970
3,000 Ser 1998 A................................................. 4.75 07/01/38 2,821,560
- -------- -----------
8,000 7,874,770
- -------- -----------
Water & Sewer Revenue (7.6%)
4,000 New York City Municipal Water Finance Authority, 1998
Ser D**.................................................... 4.75 06/15/25 3,724,080
2,000 New York State Environmental Facilities Corporation, Clean
Drinking Water Ser 1998 C.................................. 5.00 06/15/19 1,959,260
Suffolk County Industrial Development Agency,
2,000 Southwest Sewer Ser 1994 (FGIC)............................ 6.00 02/01/07 2,214,620
4,000 Southwest Sewer Ser 1994 (FGIC)............................ 6.00 02/01/08 4,456,240
- -------- -----------
12,000 12,354,200
- -------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Other Revenue (5.8%)
$ 2,000 Municipal Assistance Corporation for the City of New York,
Ser E...................................................... 6.00 % 07/01/06 $ 2,211,060
2,000 New York City Transitional Finance Authority, 1998 Ser A.... 5.00 08/15/27 1,940,200
5,000 New York Local Government Assistance Corporation, Ser
1994 A..................................................... 5.50 04/01/17 5,320,400
- -------- ------------
9,000 9,471,660
- -------- ------------
Refunded (7.9%)
3,000 New York State Dormitory Authority, Suffolk County Judicial
Ser 1986 (ETM)............................................. 7.375 07/01/16 3,737,760
3,500 New York State Thruway Authority, Ser A..................... 5.75 01/01/02+ 3,753,330
2,000 Oneida-Herkimer Solid Waste Management Authority, Ser
1992....................................................... 6.75 04/01/03+ 2,167,500
3,000 United Nations Development Corporation, Sr Lien 1992 Refg
Ser A...................................................... 6.00 07/01/03+ 3,305,880
- -------- ------------
11,500 12,964,470
- -------- ------------
153,995 TOTAL NEW YORK TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $145,652,861)....... 159,072,501
- -------- ------------
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (4.1%)
New York State Dormitory Authority,
3,500 Cornell University Ser 1990 B (Demand 07/01/98)............ 3.85* 07/01/25 3,500,000
1,055 University of Rochester Ser 1987........................... 6.50* 10/02/98+ 1,076,100
2,250 Port Authority of New York & New Jersey, Ser 2 (Demand
- -------- 07/01/98).................................................. 4.00 05/01/19 2,250,000
------------
6,805 TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
- -------- $5,750,000).................................................................... 6,826,100
------------
$160,800 TOTAL INVESTMENTS (Identified Cost $151,402,861) (a).................... 101.5% 165,898,601
========
LIABILITIES IN EXCESS OF OTHER ASSETS.................................... (1.5) (2,526,473)
----- ------------
NET ASSETS.............................................................. 100.0% $163,372,128
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
WI Security purchased on a "when-issued" basis.
+ Prerefunded to call date shown.
* Current coupon of variable rate demand obligation.
** A portion of these securities are segregated in connection
with the purchase of "when-issued" securities.
(a) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $14,519,123 and the aggregate gross
unrealized depreciation is $23,383, resulting in net
unrealized appreciation of $14,495,740.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $151,402,861)............................. $165,898,601
Receivable for:
Interest................................................ 2,383,930
Shares of beneficial interest sold...................... 47,317
Prepaid expenses and other assets........................... 11,231
------------
TOTAL ASSETS............................................ 168,341,079
------------
LIABILITIES:
Payable for:
Investments purchased................................... 4,319,198
Plan of distribution fee................................ 107,863
Investment management fee............................... 79,225
Dividends and distributions to shareholders............. 71,893
Shares of beneficial interest repurchased............... 42,465
Payable to bank............................................. 260,399
Accrued expenses and other payables......................... 87,908
------------
TOTAL LIABILITIES....................................... 4,968,951
------------
NET ASSETS.............................................. $163,372,128
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $145,632,088
Net unrealized appreciation................................. 14,495,740
Accumulated undistributed net realized gain................. 3,244,300
------------
NET ASSETS.............................................. $163,372,128
============
CLASS A SHARES:
Net Assets.................................................. $324,123
Shares Outstanding (unlimited authorized, $.01 par value)... 26,732
NET ASSET VALUE PER SHARE............................... $12.12
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net asset value)........ $12.66
======
CLASS B SHARES:
Net Assets.................................................. $162,313,117
Shares Outstanding (unlimited authorized, $.01 par value)... 13,358,451
NET ASSET VALUE PER SHARE............................... $12.15
======
CLASS C SHARES:
Net Assets.................................................. $690,122
Shares Outstanding (unlimited authorized, $.01 par value)... 56,908
NET ASSET VALUE PER SHARE............................... $12.13
======
CLASS D SHARES:
Net Assets.................................................. $44,766
Shares Outstanding (unlimited authorized, $.01 par value)... 3,689
NET ASSET VALUE PER SHARE............................... $12.13
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (unaudited)
NET INVESTMENT INCOME:
<S> <C>
INTEREST INCOME............................................. $ 4,571,407
-----------
EXPENSES
Plan of distribution fee (Class A shares)................... 366
Plan of distribution fee (Class B shares)................... 617,237
Plan of distribution fee (Class C shares)................... 1,725
Investment management fee................................... 454,868
Transfer agent fees and expenses............................ 36,002
Professional fees........................................... 27,286
Shareholder reports and notices............................. 15,055
Trustees' fees and expenses................................. 10,909
Registration fees........................................... 5,827
Custodian fees.............................................. 4,409
Other....................................................... 7,628
-----------
TOTAL EXPENSES.......................................... 1,181,312
Less: expense offset........................................ (4,400)
-----------
NET EXPENSES............................................ 1,176,912
-----------
NET INVESTMENT INCOME................................... 3,394,495
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 3,244,298
Net change in unrealized appreciation....................... (3,101,493)
-----------
NET GAIN................................................ 142,805
-----------
NET INCREASE................................................ $ 3,537,300
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 3,394,495 $ 7,723,428
Net realized gain.................................. 3,244,298 1,162,683
Net change in unrealized appreciation.............. (3,101,493) 5,299,300
------------ ------------
NET INCREASE................................... 3,537,300 14,185,411
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................. (7,037) (1,135)
Class B shares................................. (3,377,313) (7,720,917)
Class C shares................................. (9,152) (1,150)
Class D shares................................. (993) (259)
Net realized gain
Class A shares................................. (587) --
Class B shares................................. (294,262) --
Class C shares................................. (1,249) --
Class D shares................................. (81) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.............. (3,690,674) (7,723,461)
------------ ------------
Net decrease from transactions in shares of
beneficial interest............................... (6,577,405) (28,550,770)
------------ ------------
NET DECREASE................................... (6,730,779) (22,088,820)
NET ASSETS:
Beginning of period................................ 170,102,907 192,191,727
------------ ------------
END OF PERIOD.................................. $163,372,128 $170,102,907
============ ============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter New York Tax-Free Income Fund (the "Fund"), formerly
Dean Witter New York Tax-Free Income Fund, is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is to provide a
high level of current income which is exempt from federal, 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. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Fund by
an outside independent pricing service approved by the Trustees. The pricing
service has informed the Fund that in valuing the Fund's portfolio securities,
it uses both a computerized matrix of tax-exempt securities and evaluations by
its staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the bid side of the market each day. The
Fund's portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., the Fund pays the Investment Manager a management fee, accrued daily and
payable monthly, by applying the following annual rates to the Fund's net assets
determined as of the close of each business day: 0.55% to the portion of daily
net assets not exceeding $500 million and 0.525% to the portion of daily net
assets exceeding $500 million.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 0.75% of
the lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C -- up to 0.75% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, the Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the shares or who service shareholder accounts, including overhead and
telephone expenses; printing and distribution of prospectuses and reports used
in connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor,
and other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
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 such excess amounts, including carrying charges, totaled $1,658,094 at June
30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.75% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended June 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.75%, respectively.
The Distributor has informed the Fund that for the six months ended June 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares of $81,991 and received $6,825 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders pay
such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended June 30, 1998 aggregated
$25,392,295 and $29,218,613, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $2,200.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended June 30, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,963. At June 30, 1998, the
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
Fund had an accrued pension liability of $48,901 which is included in accrued
expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
------------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 19,171 $ 233,875 7,668 $ 92,057
Reinvestment of dividends and distributions................. 594 7,187 93 1,125
Redeemed.................................................... (794) (9,600) -- --
---------- ------------ ---------- ------------
Net increase - Class A...................................... 18,971 231,462 7,761 93,182
---------- ------------ ---------- ------------
CLASS B SHARES
Sold........................................................ 311,359 3,789,273 697,881 8,245,711
Reinvestment of dividends and distributions................. 174,570 2,115,978 366,318 4,331,957
Redeemed.................................................... (1,095,227) (13,310,502) (3,505,739) (41,360,108)
---------- ------------ ---------- ------------
Net decrease - Class B...................................... (609,298) (7,405,251) (2,441,540) (28,782,440)
---------- ------------ ---------- ------------
CLASS C SHARES
Sold........................................................ 47,642 579,214 8,859 106,083
Reinvestment of dividends and distributions................. 748 9,045 74 891
Redeemed.................................................... (415) (5,068) -- --
---------- ------------ ---------- ------------
Net increase - Class C...................................... 47,975 583,191 8,933 106,974
---------- ------------ ---------- ------------
CLASS D SHARES
Sold........................................................ 1,016 12,382 2,585 31,255
Reinvestment of dividends and distributions................. 67 811 21 259
---------- ------------ ---------- ------------
Net increase - Class D...................................... 1,083 13,193 2,606 31,514
---------- ------------ ---------- ------------
Net decrease in Fund........................................ (541,269) $ (6,577,405) (2,422,240) $(28,550,770)
========== ============ ========== ============
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date) through
December 31, 1997.
15
<PAGE> 16
MORGAN STANLEY 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 SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED ----------------------------------------------------
JUNE 30, 1998 1997* 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................... $12.16 $11.71 $11.96 $10.83 $12.50 $11.98
------ ------ ------ ------ ------ ------
Net investment income................................... 0.25 0.51 0.53 0.55 0.57 0.65
Net realized and unrealized gain (loss)................. 0.01 0.45 (0.21) 1.20 (1.51) 0.72
------ ------ ------ ------ ------ ------
Total from investment operations........................ 0.26 0.96 0.32 1.75 (0.94) 1.37
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income.................................. (0.25) (0.51) (0.53) (0.54) (0.57) (0.65)
Net realized gain...................................... (0.02) -- (0.04) (0.08) (0.16) (0.20)
------ ------ ------ ------ ------ ------
Total dividends and distributions....................... (0.27) (0.51) (0.57) (0.62) (0.73) (0.85)
------ ------ ------ ------ ------ ------
Net asset value, end of period.......................... $12.15 $12.16 $11.71 $11.96 $10.83 $12.50
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+................................ 2.12%(2) 8.43% 2.82% 16.59% (7.74)% 11.72%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ 1.42%(3) 1.43%(1) 1.40%(1) 1.42%(1) 1.40% 1.27%
Net investment income................................... 4.10%(3) 4.33% 4.54% 4.70% 4.96% 5.20%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions.................. $162 $170 $192 $217 $207 $246
Portfolio turnover rate................................. 16%(2) 10% 16% 17% 10% 25%
</TABLE>
- ---------------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Does not reflect the effect of expense offset of 0.01%.
(2) Not annualized.
(3) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.16 $12.02
------ ------
Net investment income....................................... 0.28 0.24
Net realized and unrealized gain (loss)..................... (0.02) 0.14
------ ------
Total from investment operations............................ 0.26 0.38
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.28) (0.24)
Net realized gain.......................................... (0.02) --
------ ------
Total dividends and distributions........................... (0.30) (0.24)
------ ------
Net asset value, end of period.............................. $12.12 $12.16
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.11%(1) 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.90%(2) 0.92%(2)
Net investment income....................................... 4.56%(2) 4.78%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $324 $94
Portfolio turnover rate..................................... 16%(1) 10%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.14 $12.02
------ ------
Net investment income....................................... 0.26 0.22
Net realized and unrealized gain............................ 0.01 0.12
------ ------
Total from investment operations............................ 0.27 0.34
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.26) (0.22)
Net realized gain.......................................... (0.02) --
------ ------
Total dividends and distributions........................... (0.28) (0.22)
------ ------
Net asset value, end of period.............................. $12.13 $12.14
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.10%(1) 2.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.41%(2) 1.40%(2)
Net investment income....................................... 3.98%(2) 4.12%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $690 $108
Portfolio turnover rate..................................... 16%(1) 10%
</TABLE>
- ---------------------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER NEW YORK TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.15 $12.02
------ ------
Net investment income....................................... 0.29 0.26
Net realized and unrealized gain............................ -- 0.13
------ ------
Total from investment operations............................ 0.29 0.39
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.29) (0.26)
Net realized gain.......................................... (0.02) --
------ ------
Total dividends and distributions........................... (0.31) (0.26)
------ ------
Net asset value, end of period.............................. $12.13 $12.15
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.49%(1) 3.27%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.67%(2) 0.66%(2)
Net investment income....................................... 4.84%(2) 5.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $45 $32
Portfolio turnover rate..................................... 16%(1) 10%
</TABLE>
- ---------------------
* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien MORGAN STANLEY
Dr. Manuel H. Johnson DEAN WITTER
Michael E. Nugent NEW YORK
Philip J. Purcell TAX-FREE
John L. Schroeder INCOME FUND
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Joseph R. Arcieri
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT [PHOTO]
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS SEMIANNUAL REPORT
JUNE 30, 1998
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
