<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND TWO WORLD TRADE CENTER, NEW YORK,
NEW YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Dean Witter
California Tax-Free Income Fund for the year ended December 31, 1997.
As 1997 drew to a close the securities markets were dominated by the Asian
financial crisis and its potential impact on the U.S. economy. Foreign currency
turmoil strengthened the value of the U.S. dollar and created a "flight to
quality" demand for Treasuries. Long-term interest rates fell to yields last
seen more than 20 years ago. Domestic employment conditions improved throughout
the year and the unemployment rate reached its lowest level since 1973.
Inflation remained in check despite the economy's strength. The bond market
rally was also aided by prospects of the first federal budget surplus in more
than two decades.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BOND YIELDS 1994-1997
30-Year
Insured 30-Year U.S. Insured Municipal Revenue
Treasury
Municipal Yields Yields on a
Percentage of U.S. Treasury
Revenue Yields Yields
<S> <C> <C> <C>
12/31/93 5.40% 6.34% 85.17%
1/31/94 5.40% 6.24% 86.54%
2/28/94 5.80% 6.66% 87.09%
3/31/94 6.40% 7.09% 90.27%
4/29/94 6.35% 7.32% 86.75%
5/31/94 6.25% 7.43% 84.12%
6/30/94 6.50% 7.61% 85.41%
7/29/94 6.25% 7.39% 84.57%
6/31/94 6.30% 7.45% 84.56%
9/30/94 6.55% 7.81% 83.87%
10/31/94 6.75% 7.96% 84.80%
11/30/94 7.00% 8.00% 87.50%
12/30/94 6.75% 7.88% 85.66%
1/31/95 6.40% 7.70% 83.12%
2/28/95 6.15% 7.44% 82.66%
3/31/95 6.15% 7.43% 82.77%
4/28/95 6.20% 7.34% 84.47%
5/31/95 5.80% 6.66% 87.09%
6/30/95 6.10% 6.62% 92.15%
7/31/95 6.10% 6.86% 88.92%
8/31/95 6.00% 6.86% 90.09%
9/29/95 5.95% 6.48% 91.82%
10/31/95 5.75% 6.33% 90.84%
11/30/95 5.00% 6.14% 89.58%
12/29/95 5.35% 5.94% 90.07%
1/31/96 5.40% 6.03% 89.55%
2/29/96 5.60% 6.46% 88.69%
3/29/96 5.85% 6.66% 87.84%
4/30/96 5.95% 6.89% 86.36%
5/31/96 6.05% 6.99% 86.55%
6/28/96 5.90% 6.89% 85.63%
7/31/96 5.85% 6.97% 83.93%
8/30/96 5.90% 7.11% 82.98%
9/30/96 5.70% 6.93% 82.25%
10/31/96 5.65% 6.64% 85.09%
11/29/96 5.60% 6.35% 86.61%
12/31/96 5.60% 6.63% 84.46%
1/31/97 5.70% 6.79% 83.95%
2/28/97 5.65% 6.80% 83.09%
3/31/97 5.90% 7.10% 83.10%
4/30/97 5.75% 6.94% 82.85%
5/30/97 5.65% 6.91% 81.77%
6/30/97 5.60% 6.78% 82.60%
7/30/97 5.30% 6.30% 84.00%
8/31/97 5.50% 6.61% 83.00%
9/30/97 5.40% 6.40% 84.40%
10/31/97 5.35% 6.15% 86.90%
11/30/97 5.30% 6.05% 87.60%
12/31/97 5.15% 5.92% 86.90%
Source: Municipal Market
Data
</TABLE>
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
MUNICIPAL MARKET CONDITIONS
The long-term insured revenue index began 1997 yielding 5.60 percent. Municipal
yields rose in the first quarter but subsequently declined in a sustained rally.
The Fed tightened monetary policy in March in a preemptive move against a
possible increase in inflation. Index yields moved as high as 5.90 percent.
However, inflation remained benign and the Asian financial crisis drove
municipal yields as low as 5.15 percent by year end.
As usually happens when interest rates change rapidly, the municipal rally
lagged the rally in Treasuries. The ratio of municipal yields to Treasury yields
improved from an historically rich 83
percent of Treasuries in March to a
more attractive 87 percent in December.
A rising ratio means that municipals
have underperformed Treasuries and have
become relatively more attractive.
Total municipal volume increased 20
percent in 1997. New-issue supply
reached $220 billion, with half the
underwritings enhanced by bond
insurance. Much of this growth came
from refunding issues sold in the
second half of the year. Overall,
refundings represented one-quarter of
total new issues.
PERFORMANCE
Dean Witter California Tax-Free Income
Fund's Class B shares registered a
total return of 7.51 percent for the
year ended December 31, 1997. In
comparison, the Lehman Brothers
Municipal Bond Index posted a total
return of 9.19 percent and Lipper
Analytical Services Inc. California
Municipal Debt Funds Index produced a
total return of 8.85 percent. The net
asset value of the Fund's Class B
shares increased from $12.57 to $12.92
per share. Tax-free dividends of $0.57
per share were paid during the fiscal
year.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000 -- Class
B
($ in Thousands)
Average Annual Total
Returns
1 Year 5 Years 10 Years
<S> <C> <C> <C>
7.51%(1) 5.87%(1) 7.36%(1)
2.51%(2) 5.55%(2) 7.36%(2)
Fund Lehman(4) Lipper(5)
December 31, 1987 $10,000 $10,000 $10,000
December 31, 1988 $11,123 $11,016 $11,093
December 31, 1989 $12,184 $12,205 $12,176
December 31, 1990 $12,877 $13,094 $12,971
December 31, 1991 $14,168 $14,684 $14,422
December 31, 1992 $15,299 $15,979 $15,648
December 31, 1993 $16,978 $17,941 $17,632
December 31, 1994 $15,964 $17,014 $16,359
December 31, 1995 $18,352 $19,984 $19,369
December 31, 1996 $18,927 $20,870 $20,078
December 31, 1997 $20,347(3) $22,788 $21,855
</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, 1997.
(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 California Municipal Debt Funds Index is an equally weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper California 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 CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LARGEST SECTORS as of December 31, 1997
(% of Net Assets)
<S> <C>
Refunded 20%
Transportation 18%
Water & Sewer 14%
Electric 10%
General Obligation 6%
Tax Allocation 6%
Hospital 6%
IDR/PCR* 5%
Mortgage 5%
All Other 10%
*Industrial Development/Pollution Control Revenue
Portfolio structure is subject to change.
CREDIT RATINGS as of December 31, 1997
(% of Total Long-Term Portfolio)
Aaa/AAA 59%
Aa/AA 16%
A/A 14%
Baa/BBB 10%
N/R* 1%
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>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Call Structure as of December 31,
1997
(% of Total Long-Term Portfolio)
Percent Callable
<S> <C> <C> <C>
1998 3%
1999 6% WEIGHTED AVERAGE
2000 5% CALL PROTECTION: 6.9 YEARS
2001 8%
2002 15%
2003 14%
2004 4%
2005 16%
2006 6%
2007 6%
2008+ 17%
Years Bonds Callable
</TABLE>
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1997, CONTINUED
The accompanying chart illustrates the growth of a $10,000 investment in the
Fund for the 10 years ended December 31, 1997, versus similar hypothetical
investments in the issues that comprise the
Lehman Brothers Municipal Bond Index and the funds that comprise the Lipper
California Municipal Debt Funds Index.
On July 28, 1997, the Fund began offering four classes of shares: A, B, C and D,
each with its own sales charge and distribution fee structure. A revised
prospectus, which includes complete details regarding the Fund's conversion to
multiple classes of shares, was mailed to shareholders in mid-summer.
PORTFOLIO STRUCTURE
In anticipation of tightening moves by the Federal Reserve Board, the Fund
increased its cash position, sold market-sensitive issues and retained refunded
bonds during the first half of 1997. These defensive actions reduced the Fund's
volatility. By the end of the summer, the Fund began to draw down cash and
extend maturity as market conditions improved.
At the end of 1997 the portfolio's average maturity was 17 years. The
distribution of bond call dates (illustrated in the accompanying chart) produced
an average call protection of 7 years. The Fund's net assets of $919 million
were diversified among 12 long-term sectors and 69 credits. Credit quality
remained a major focus with 75 percent of long-term holdings rated double or
triple "A."
LOOKING AHEAD
The economic fundamentals are in place for another year of solid but less
spectacular domestic growth in 1998. Events in the Far East have strengthened
the U.S. dollar and led to lower interest rates. The Asian financial crisis
seems likely to slow U.S. growth and moderate inflationary pressures in the
economy.
We appreciate your ongoing support of Dean Witter California 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 CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS (97.1%)
GENERAL OBLIGATION (5.7%)
California,
$ 5,000 Ser 1990..................................................................... 7.00% 08/01/07 $ 6,007,350
5,000 Ser 1990..................................................................... 7.00 08/01/08 6,075,100
2,000 Ser AT....................................................................... 9.50 02/01/10 2,872,620
2,400 Veterans Ser BH (AMT) (FSA).................................................. 5.40 12/01/16 2,419,416
10,000 Various Purpose Dtd 04/01/93 (FSA)........................................... 5.50 04/01/19 10,233,000
13,000 Ser 1996 (AMBAC)............................................................. 5.25 06/01/21 13,009,750
3,000 Veterans Ser BD, BE & BF (AMT) (AMBAC)....................................... 6.375 02/01/27 3,065,160
Santa Margarita/Dana Point Authority,
4,500 Impr Dists #2, 2A, 3 & 4 1997 Ser A (AMBAC).................................. 5.125 08/01/18 4,468,680
4,000 Impr Dists #3, 3A, 4 & 4A 1994 Ser B Refg (MBIA)............................. 5.75 08/01/20 4,190,040
- --------- ------------
48,900 52,341,116
- --------- ------------
EDUCATIONAL FACILITIES REVENUE (3.6%)
4,000 California Public Works Board, University of California 1997 Ser C (AMBAC)..... 5.125 09/01/22 3,936,440
California Educational Facilities Authority,
3,000 Stanford University Ser I.................................................... 6.75 01/01/13 3,131,400
2,000 University of Southern California Ser 1997 A................................. 5.70 10/01/15 2,153,340
5,975 University of Southern California 1997 Ser C................................. 5.125 10/01/28 5,888,064
California Statewide Communities Development Authority,
3,400 Gemological Institute of America COPs (Connie Lee)........................... 6.00 05/01/20 3,649,492
4,100 Gemological Institute of America COPs (Connie Lee)........................... 6.00 05/01/25 4,400,858
10,000 University of California, Multiple Purpose Refg Ser 1993 C (AMBAC)............. 5.125 09/01/18 9,928,700
- --------- ------------
32,475 33,088,294
- --------- ------------
ELECTRIC REVENUE (9.5%)
13,000 Los Angeles Department of Water & Power, Second Issue of 1993 (Secondary
AMBAC)....................................................................... 5.40 11/15/13 13,397,280
5,000 Northern California Power Agency, Hydro #1 1993 Refg Ser A (MBIA).............. 5.50 07/01/16 5,148,450
Sacramento Municipal Utility District,
5,700 Refg 1994 Ser H (MBIA)....................................................... 5.75 01/01/11 6,145,797
26,000 Refg 1992 Ser A (FGIC)....................................................... 6.30 08/15/18 28,362,620
Southern California Public Power Authority,
7,000 Mead-Adelanto 1994 Ser A..................................................... 5.15 07/01/15 7,162,540
5,000 Palo-Verde 1993 Ser A (AMBAC)................................................ 5.00 07/01/15 4,966,600
1,750 Transmission Refg Ser 1988 (FGIC)............................................ 0.00 07/01/06 1,198,837
Puerto Rico Electric Power Authority,
9,000 Power Ser O.................................................................. 5.00 07/01/12 8,972,460
9,000 Power Ser X.................................................................. 6.125 07/01/21 9,780,570
2,000 Power Ser X.................................................................. 5.50 07/01/25 2,024,500
- --------- ------------
83,450 87,159,654
- --------- ------------
HOSPITAL REVENUE (6.4%)
11,830 Antelope Valley Healthcare District Refg Ser 1997 A (FSA).................... 5.20 01/01/20 11,722,939
Bakersfield,
1,750 Bakersfield Memorial Hospital Ser 1992 A..................................... 6.375 01/01/12 1,850,608
2,000 Bakersfield Memorial Hospital Ser 1992 A..................................... 6.50 01/01/22 2,111,260
3,500 California Health Facilities Financing Authority, Sutter/CHS Ser 1996 A
(MBIA)....................................................................... 5.875 08/15/16 3,780,665
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Duarte,
$ 3,000 City of Hope National Medical Center Ser 1993 COPs........................... 5.50% 04/01/01 $ 3,103,290
4,000 City of Hope National Medical Center Ser 1993 COPs........................... 6.25 04/01/23 4,211,120
6,000 Eden Township Hospital District, Ser 1989...................................... 7.40 11/01/19 6,343,080
Madera County,
7,500 Valley Children's Hospital Ser 1995 COPs (MBIA).............................. 6.50 03/15/15 8,902,875
2,000 Valley Children's Hospital Ser 1995 COPs (MBIA).............................. 6.125 03/15/23 2,182,940
Rancho Mirage Joint Powers Financing Authority,
3,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)............................. 5.25 07/01/12 3,091,470
4,000 Eisenhower Medical Center Ser 1997 A COPs (MBIA)............................. 5.25 07/01/17 4,048,240
7,000 University of California, UCLA Medical Center Refg Ser 1994 (MBIA)............. 5.50 12/01/14 7,263,690
- --------- ------------
55,580 58,612,177
- --------- ------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (4.6%)
California Pollution Control Financing Authority,
5,000 Atlantic Richfield Co Ser 1996 A............................................. 5.00 04/01/08 5,182,350
3,000 San Diego Gas and Electric Co 1996 Ser A..................................... 5.90 06/01/14 3,314,040
5,000 Southern California Edison Co 1988 Ser A (AMT)............................... 6.90 09/01/06 5,303,300
10,000 Southern California Edison Co 1987 Ser D..................................... 6.85 12/01/08 10,586,700
10,000 Southern California Edison Co 1992 Ser B (AMT)............................... 6.40 12/01/24 10,744,100
5,000 Waste Management Inc 1991 Ser A (AMT)........................................ 7.15 02/01/11 5,436,700
1,400 Intermodal Container Transfer Facility Joint Powers Authority, Southern Pacific
Transportation Co 1989 Ser A................................................. 7.70 11/01/14 1,491,966
- --------- ------------
39,400 42,059,156
- --------- ------------
MORTGAGE REVENUE - SINGLE FAMILY (5.0%)
California Housing Finance Agency,
9,000 Home 1995 Ser J (AMBAC)...................................................... 6.00 08/01/17 9,488,880
4,715 Home 1989 Ser A.............................................................. 7.75 08/01/17 4,935,049
7,000 Purchase 1995 Ser B-2 (AMT).................................................. 6.30 08/01/24 7,401,310
6,645 Home 1995 Ser M (AMT) (MBIA)................................................. 6.15 08/01/27 6,965,023
8,300 Home 1995 Ser K (AMT) (AMBAC)................................................ 6.25 08/01/27 8,745,793
4,010 Home 1991 Ser G (AMT)........................................................ 7.05 08/01/27 4,244,505
2,320 California Rural Home Financing Authority 1997 Ser D-CL 5 (AMT)................ 5.50 05/01/29 2,562,602
Puerto Rico Housing Finance Corporation,
930 Portfolio One GNMA-Backed Ser B.............................................. 7.65 10/15/22 991,706
665 Portfolio One GNMA-Backed Ser C.............................................. 6.85 10/15/23 704,587
- --------- ------------
43,585 46,039,455
- --------- ------------
PUBLIC FACILITIES REVENUE (4.0%)
4,000 Anaheim Public Financing Authority, Sub 1997 Ser C (FSA)....................... 6.00 09/01/16 4,523,320
10,000 Beverly Hills Public Financing Authority, 1993 Refg Ser A (MBIA)............... 5.65 06/01/15 10,316,500
Los Angeles County,
9,500 Public Properties Refg of 1987 COPs.......................................... 0.00 04/01/04 6,454,870
10,000 San Jose Financing Authority, Convention Center Refg 1993 Ser C................ 6.375 09/01/13 10,677,100
5,000 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1997 A
(AMBAC)...................................................................... 5.00 07/01/28 4,892,800
- --------- ------------
38,500 36,864,590
- --------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX ALLOCATION (6.0%)
$ 5,000 Fountain Valley Agency for Community Development, 1985 Industrial Area......... 9.10% 01/01/15 $ 5,127,400
Garden Grove Community Development Agency,
5,000 Refg Issue of 1993........................................................... 5.70 10/01/13 5,118,900
6,000 Refg Issue of 1993........................................................... 5.875 10/01/23 6,162,660
25,500 Long Beach Financing Authority, Ser 1992 (AMBAC)**............................. 6.00 11/01/17 28,897,875
9,385 Pleasanton Joint Powers Financing Authority, Reassessment 1993 Ser A........... 6.15 09/02/12 10,038,759
- --------- ------------
50,885 55,345,594
- --------- ------------
TRANSPORTATION FACILITIES REVENUE (18.0%)
15,000 Foothills/Eastern Transportation Corridor Agency, Toll Road Sr Lien Ser 1995
A............................................................................ 6.00 01/01/34 15,700,200
Long Beach,
5,000 Harbor Refg Ser 1998 A (AMT) (FGIC) (WI)..................................... 6.00 05/15/17 5,515,350
9,000 Harbor Refg Ser 1998 A (AMT) (FGIC) (WI)..................................... 6.00 05/15/18 9,943,470
3,000 Harbor Refg Ser 1998 A (AMT) (FGIC) (WI)..................................... 6.00 05/15/19 3,319,080
20,000 Harbor Ser 1995 (AMT) (MBIA)................................................. 5.25 05/15/25 19,883,600
10,000 Los Angeles, Department of Airports Refg 1985 Ser A (FGIC)..................... 5.50 05/15/09 10,658,000
20,000 Los Angeles County Transportation Commission, Sales Tax Ser 1991 B............. 6.50 07/01/13 21,482,600
5,000 Orange County, Airport Refg Ser 1997 (MBIA) (AMT).............................. 5.50 07/01/11 5,283,900
20,000 San Diego County Regional Transportation Commission, Sales Tax
1994 Ser A (FGIC)............................................................ 4.75 04/01/08 20,613,000
5,000 San Francisco Airports Commission, San Francisco Int'l Airport Second Ser
Refg Issue 4 (MBIA).......................................................... 6.00 05/01/20 5,371,350
San Francisco Bay Area Rapid Transit District,
5,000 Sales Tax Ser 1990 (AMBAC)................................................... 6.75 07/01/09 5,392,200
5,000 Sales Tax Ser 1995 (FGIC).................................................... 5.50 07/01/15 5,201,250
4,000 Sales Tax Ser 1995 (FGIC).................................................... 5.50 07/01/20 4,100,920
San Joaquin Hills Transportation Corridor Agency,
6,000 Toll Road Refg Ser 1997 A (MBIA)............................................. 0.00 01/15/15 2,510,220
13,450 Toll Road Refg Ser 1997 A (MBIA)............................................. 5.25 01/15/30 13,449,731
10,000 Toll Road Senior Lien........................................................ 5.00 01/01/33 9,479,100
8,000 Puerto Rico Highway & Transportation Authority, Refg Ser X..................... 5.25 07/01/21 7,946,640
- --------- ------------
163,450 165,850,611
- --------- ------------
WATER & SEWER REVENUE (13.6%)
6,870 California Department of Water Resources, Central Valley Ser J-2............... 6.125 12/01/13 7,269,971
8,000 Castaic Lake Water Agency, Refg Ser 1994 A COPs (MBIA)......................... 6.00 08/01/18 8,657,840
6,000 Central Coast Water Authority, Refg Ser 1996 A (AMBAC)......................... 5.00 10/01/16 5,959,860
10,000 Contra Costa Water District, Ser G (MBIA)...................................... 5.50 10/01/19 10,271,500
11,000 East Bay Municipal Utility District, Water Refg Ser 1992....................... 6.00 06/01/20 11,643,390
4,000 Eastern Municipal Water District, Water & Sewer Ser 1991 COPs.................. 6.00 07/01/23 4,184,440
5,745 Los Angeles, Wastewater Ser 1990............................................... 7.10 06/01/18 6,079,072
15,000 Los Angeles County Sanitation Districts Financing Authority, 1993 Ser A........ 5.375 10/01/13 15,250,500
15,000 Metropolitan Water District of Southern California, Waterworks 1997 Ser A...... 5.00 07/01/26 14,643,750
10,000 San Diego, Sewer 1993 Ser A.................................................... 5.25 05/15/20 9,895,500
San Diego County Water Authority,
1,500 Refg Ser 1997 A (WI)......................................................... 4.75 05/01/18 1,423,020
3,650 Refg Ser 1997 A (WI)......................................................... 4.75 05/01/20 3,451,294
10,000 San Diego Public Facilities Financing Authority, Sewer Ser 1995 (FGIC)......... 5.00 05/15/25 9,780,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
San Francisco Public Utilities Commission,
$ 5,750 Water 1992 Refg Ser A........................................................ 6.00% 11/01/15 $ 6,094,885
10,870 Water 1996 Ser A............................................................. 5.00 11/01/21 10,661,513
- --------- ------------
123,385 125,267,035
- --------- ------------
OTHER REVENUE (0.6%)
5,000 Orange County Community Facilities District #86-2, Rancho Santa Margarita
Ser A of 1990................................................................ 7.65 08/15/17 5,261,400
- --------- ------------
REFUNDED (20.1%)
7,600 Berkeley, Alta Bates Medical Center Refg Ser A................................. 6.50 12/01/02+ 8,504,324
California Educational Facilities Authority,
1,750 Loyola Marymount University Ser 1992 B....................................... 6.55 10/01/02+ 1,956,833
2,300 Loyola Marymount University Ser 1992 B....................................... 6.60 10/01/02+ 2,576,736
5,000 California Health Facilities Financing Authority, St Joseph's Health Ser 1991
A............................................................................ 6.75 07/01/01+ 5,519,900
8,000 California Public Works Board, California State University 1992 Ser A.......... 6.70 10/01/02+ 9,022,640
1,875 Campell Redevelopment Agency, 1991 COPs........................................ 6.75 10/01/01+ 2,028,975
10,000 Central Coast Water Authority, California, Ser 1992 (AMBAC).................... 6.50 10/01/02+ 11,192,800
20,000 Desert Hospital District, Desert Hospital Corp Ser 1992 COPs (FSA)............. 6.392 07/23/02+ 22,151,800
Los Angeles,
6,000 Harbor Department Issue of 1985.............................................. 8.70 09/01/99+ 6,460,860
10,000 Wastewater Ser 1990-B........................................................ 7.15 06/01/00+ 10,921,200
Los Angeles Convention & Exhibition Center Authority,
14,000 Ser 1985 COPs................................................................ 9.00 12/01/05+ 18,431,140
10,000 Ser 1985 COPs................................................................ 9.00 12/01/05+ 13,165,100
5,400 Los Angeles County, 1991 Master Refg COPs...................................... 6.708 05/01/01+ 5,748,030
10,000 Los Angeles County Transportation Commission, Sales Tax Ser 1987 A............. 6.75 07/01/02+ 11,249,900
5,000 Los Angeles Department of Water & Power, Water Works Issue of 1991............. 7.00 04/01/01++ 5,517,750
10,000 Northern California Transmission Agency, California-Oregon 1990 Ser A (MBIA)... 7.00 05/01/00+ 10,819,700
8,000 San Diego County Water Authority, Ser 1991-B COPs (MBIA)....................... 6.30 04/27/06+ 9,130,320
5,250 Southern California Public Power Authority, Transmission Refg Ser 1988 A
(FGIC) (ETM)................................................................. 0.00 07/01/06 3,584,595
11,000 University of California, Multiple Purpose Refg Ser A.......................... 6.875 09/01/02+ 12,434,180
13,000 Puerto Rico Highway Authority, Ser Q........................................... 7.75 07/01/00+ 14,407,380
- --------- ------------
164,175 184,824,163
- --------- ------------
848,785 TOTAL CALIFORNIA TAX-EXEMPT MUNICIPAL BONDS
(IDENTIFIED COST $820,061,051)..................................................................... 892,713,245
- --------- ------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS (3.9%)
4,000 California Department of Water Resources, Central Valley Ser F................. 6.00 06/01/98+ 4,028,960
12,500 California Pollution Control Financing Authority, Pacific Gas & Electric Co
Ser 1996 F (Demand 01/02/98)................................................. 4.75* 11/01/26 12,500,000
10,000 Long Beach, Harbor Ser 1989 A (AMT)............................................ 7.25 05/15/98+ 10,306,900
8,000 Newport Beach, Hoag Memorial Hospital Presbytarian Ser 1996 C (Demand
01/02/98).................................................................... 5.00* 10/01/26 8,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,200 Puerto Rico Infrastructure Financing Authority, Special Tax Ser 1988 A......... 7.90% 07/01/98+ $ 1,249,656
- --------- ------------
35,700 TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL OBLIGATIONS
(IDENTIFIED COST $35,042,461)...................................................................... 36,085,516
- --------- ------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
$884,485 TOTAL INVESTMENTS
(IDENTIFIED COST $855,103,512) (a)........................................................... 101.0 % 928,798,761
- ---------
- ---------
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................... (1.0) (9,494,712)
------ -------------
NET ASSETS................................................................................... 100.0 % $ 919,304,049
------ -------------
------ -------------
</TABLE>
- ---------------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Security purchased on a when issued basis.
+ Prerefunded to call date shown.
++ Refunded on call date shown by forward delivery contract or
crossover refunded.
* Current coupon of variable rate demand obligation.
** All of this security is 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
$73,711,759 and the aggregate gross unrealized depreciation is
$16,510, resulting in net unrealized appreciation of $73,695,249.
BOND INSURANCE:
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $855,103,512).............................................................. $928,798,761
Cash.......................................................................................... 2,479,316
Receivable for:
Interest.................................................................................. 13,129,109
Shares of beneficial interest sold........................................................ 1,459,742
Investments sold.......................................................................... 30,574
Prepaid expenses and other assets............................................................. 18,229
------------
TOTAL ASSETS............................................................................. 945,915,731
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 23,476,440
Dividends and distributions to shareholders............................................... 1,876,735
Plan of distribution fee.................................................................. 621,021
Investment management fee................................................................. 442,338
Shares of beneficial interest repurchased................................................. 91,640
Accrued expenses and other payables........................................................... 103,508
------------
TOTAL LIABILITIES........................................................................ 26,611,682
------------
NET ASSETS............................................................................... $919,304,049
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $844,996,565
Net unrealized appreciation................................................................... 73,695,249
Accumulated undistributed net realized gain................................................... 612,235
------------
NET ASSETS............................................................................... $919,304,049
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $ 1,174,632
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 91,130
NET ASSET VALUE PER SHARE................................................................ $12.89
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)........................................ $13.46
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $914,474,266
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 70,784,914
NET ASSET VALUE PER SHARE................................................................ $12.92
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $ 3,610,350
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 279,357
NET ASSET VALUE PER SHARE................................................................ $12.92
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $ 44,801
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 3,468
NET ASSET VALUE PER SHARE................................................................ $12.92
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................ $54,301,544
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 116
Plan of distribution fee (Class B shares)...................................................... 6,971,901
Plan of distribution fee (Class C shares)...................................................... 6,739
Investment management fee...................................................................... 4,966,928
Transfer agent fees and expenses............................................................... 244,009
Shareholder reports and notices................................................................ 59,211
Professional fees.............................................................................. 58,870
Custodian fees................................................................................. 34,186
Trustees' fees and expenses.................................................................... 11,597
Registration fees.............................................................................. 10,501
Other.......................................................................................... 27,792
-----------
TOTAL EXPENSES............................................................................ 12,391,850
Less: expense offset........................................................................... (34,067)
-----------
NET EXPENSES.............................................................................. 12,357,783
-----------
NET INVESTMENT INCOME..................................................................... 41,943,761
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain.............................................................................. 917,033
Net change in unrealized appreciation.......................................................... 23,634,172
-----------
NET GAIN.................................................................................. 24,551,205
-----------
NET INCREASE................................................................................... $66,494,966
-----------
-----------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE YEAR
DECEMBER 31, ENDED
1997* DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 41,943,761 $ 46,594,742
Net realized gain................................. 917,033 3,510,899
Net change in unrealized appreciation............. 23,634,172 (20,341,641)
----------------- ------------------
NET INCREASE................................. 66,494,966 29,764,000
----------------- ------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................ (2,074) --
Class B shares................................ (41,903,238) (46,863,352)
Class C shares................................ (38,101) --
Class D shares................................ (348) --
Net realized gain
Class B shares................................ -- (11,233,171)
----------------- ------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............ (41,943,761) (58,096,523)
----------------- ------------------
Net decrease from transactions in shares of
beneficial interest............................. (80,949,361) (50,846,165)
----------------- ------------------
NET DECREASE................................. (56,398,156) (79,178,688)
NET ASSETS:
Beginning of period............................... 975,702,205 1,054,880,893
----------------- ------------------
END OF PERIOD................................ $919,304,049 $ 975,702,205
----------------- ------------------
----------------- ------------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
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, 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.
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 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 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; 0.525% to the portion of daily net assets exceeding $500 million but
not exceeding $750 million;
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
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 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 account executives
of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, 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 DWR 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.
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that there were no excess expenses as of
December 31, 1997.
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 account executives may be reimbursed in the subsequent
calendar year. For the period ended December 31, 1997, 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 year ended December 31, 1997,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $1,086,395 and $237, respectively
and received $6,670 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, 1997 aggregated
$128,771,782 and $151,653,655, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At December 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $11,000.
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, 1997
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, CONTINUED
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,529. At December 31, 1997, the Fund had an accrued pension liability of
$48,259 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, 1997 DECEMBER 31, 1996
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold................................................... 91,032 $ 1,171,264 -- --
Reinvestment of dividends.............................. 98 1,257 -- --
------------ ------------- ------------ -------------
Net increase - Class A................................. 91,130 1,172,521 -- --
------------ ------------- ------------ -------------
CLASS B SHARES
Sold................................................... 5,189,823 65,387,817 6,335,468 $ 79,395,308
Reinvestment of dividends and distributions............ 1,737,487 21,926,214 2,574,842 32,170,169
Redeemed............................................... (13,733,885) (173,042,410) (12,976,452) (162,411,642)
------------ ------------- ------------ -------------
Net decrease - Class B................................. (6,806,575) (85,728,379) (4,066,142) (50,846,165)
------------ ------------- ------------ -------------
CLASS C SHARES*
Sold................................................... 279,066 3,558,314 -- --
Reinvestment of dividends.............................. 2,255 28,911 -- --
Redeemed............................................... (1,964) (25,237) -- --
------------ ------------- ------------ -------------
Net increase - Class C................................. 279,357 3,561,988 -- --
------------ ------------- ------------ -------------
CLASS D SHARES*
Sold................................................... 3,442 44,176 -- --
Reinvestment of dividends.............................. 26 333 -- --
------------ ------------- ------------ -------------
Net increase - Class D................................. 3,468 44,509 -- --
------------ ------------- ------------ -------------
Net decrease in Fund................................... (6,432,620) $ (80,949,361) (4,066,142) $ (50,846,165)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
- ---------------------
* For the period July 28, 1997 (issue date) through December 31, 1997.
<PAGE>
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
------------------------------------------------------------------------------------------------------------------
1997* 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
period........ $ 12.57 $ 12.92 $ 11.87 $ 13.31 $ 12.70 $ 12.46 $ 11.99 $ 12.05 $ 11.68 $ 11.19
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Net investment
income........ 0.57 0.58 0.61 0.64 0.67 0.69 0.71 0.72 0.71 0.72
Net realized
and unrealized
gain (loss)... 0.35 (0.21) 1.13 (1.42) 0.70 0.26 0.48 (0.06) 0.37 0.50
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Total from
investment
operations.... 0.92 0.37 1.74 (0.78) 1.37 0.95 1.19 0.66 1.08 1.22
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Less dividends
and
distributions
from:
Net
investment
income...... (0.57) (0.58) (0.61) (0.64) (0.67) (0.69) (0.71) (0.72) (0.71) (0.72)
Net realized
gain........ -- (0.14) (0.08) (0.02) (0.09) (0.02) (0.01) -- -- (0.01)
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Total dividends
and
distributions... (0.57) (0.72) (0.69) (0.66) (0.76) (0.71) (0.72) (0.72) (0.71) (0.73)
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Net asset
value, end of
period........ $ 12.92 $ 12.57 $ 12.92 $ 11.87 $ 13.31 $ 12.70 $ 12.46 $ 11.99 $ 12.05 $ 11.68
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
---------- --------- --------- ---------- --------- --------- ---------- --------- --------- ----------
TOTAL
INVESTMENT
RETURN+........ 7.51% 3.13% 14.96% (5.97)% 10.97% 7.83% 10.18% 5.69% 9.54% 11.23%
RATIOS TO
AVERAGE NET
ASSETS:
Expenses....... 1.33% 1.32%(1) 1.33% 1.32% 1.27% 1.32% 1.28% 1.30% 1.32% 1.34%
Net investment
income........ 4.51% 4.66% 4.90% 5.10% 5.03% 5.45% 5.78% 5.98% 6.00% 6.31%
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions...... $914 $976 $1,055 $1,008 $1,190 $987 $834 $677 $567 $430
Portfolio
turnover
rate.......... 15% 11% 23% 12% 10% 6% 3% 16% 13% 13%
</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%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 12.80
------
Net investment income................................................. 0.27
Net realized and unrealized gain...................................... 0.09
------
Total from investment operations...................................... 0.36
------
Less dividends from net investment income............................. (0.27)
------
Net asset value, end of period........................................ $ 12.89
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.82%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.78%(2)
Net investment income................................................. 4.47%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 1,175
Portfolio turnover rate............................................... 15%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 12.80
------
Net investment income................................................. 0.23
Net realized and unrealized gain...................................... 0.12
------
Total from investment operations...................................... 0.35
------
Less dividends from net investment income............................. (0.23)
------
Net asset value, end of period........................................ $ 12.92
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.31%(2)
Net investment income................................................. 4.24%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 3,610
Portfolio turnover rate............................................... 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 12.80
--------
Net investment income....................................... 0.28
Net realized and unrealized gain............................ 0.12
--------
Total from investment operations............................ 0.40
--------
Less dividends from net investment income................... (0.28)
--------
Net asset value, end of period.............................. $ 12.92
--------
--------
TOTAL INVESTMENT RETURN+.................................... 3.18%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.60%(2)
Net investment income....................................... 5.34%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $45
Portfolio turnover rate..................................... 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF 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 Dean Witter California Tax-Free
Income Fund (the "Fund") at December 31, 1997, 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
presented, 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 statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 10, 1998
1997 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended December 31, 1997, all of the Fund's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Joseph Arcieri
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
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.
DEAN WITTER
CALIFORNIA
TAX-FREE
INCOME FUND
[LOGO]
Annual Report
December 31, 1997
