<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE TWO WORLD TRADE CENTER,
DAILY INCOME TRUST NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Morgan Stanley
Dean Witter California Tax-Free Daily Income Trust for the fiscal year ended
December 31, 1998.
The defining event for the municipal money market in 1998 was the decision in
late September by the Federal Reserve Board to begin easing monetary policy. The
change in policy came in the face of international financial turmoil and took
the form of three separate rate cuts. Aided by the Fed's move, tax-free money
market yields trended lower. Healthy municipal government finances also
contributed to the decline in short-term municipal yields as increased tax
revenues and rising budget surpluses resulted in a diminished need for borrowing
against cash flow. Improving municipal balance sheets had the added benefit of
reducing credit quality concerns.
Within the municipal money market sector, securities with the longest maturities
were the primary beneficiaries of the reduced cost of borrowing. THE BOND BUYER
One Year Note Index, the benchmark indicator for the long end of the tax-free
money market, registered a net decline of 53 basis points (hundredths of a
percent) by the end of the third quarter as investor demand outstripped the
lighter supply of newly issued notes. The Fed's actions during the closing
months of the year helped to bring the Index lower by an additional 20 basis
points. Over the course of the full year, the Index declined by 73 basis points
to 3.04 percent.
At the short end of the tax-free money market, yields for variable rate demand
obligations (VRDOs) with daily and weekly rate changes were only about 25 basis
points lower, on average, during the second half of 1998 than they were during
the second half of 1997. However, seasonal imbalances in supply and demand were
the cause for pronounced swings in the yields for daily and weekly VRDOs. Yields
for weekly VRDOs ranged from a low of 2.75 percent in early September to a high
of 4.00 percent in both late September and late December.
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
PORTFOLIO MANAGEMENT AND PERFORMANCE
Morgan Stanley Dean Witter California Tax-Free Daily Income Trust's net
investment income (ratio to average net assets) was 2.50 percent for the fiscal
year ended December 31, 1998. The Fund's thirty-day moving average yield was
2.32 percent as of December 31, 1998.
On December 31, the Fund's net assets totaled $283.4 million with approximately
66 percent of the Fund's portfolio invested in VRDOs. California-exempt
commercial paper and municipal notes, the two other types of securities utilized
in the portfolio, comprised 26 percent and 8 percent of the portfolio,
respectively.
Portfolio holdings are continuously reviewed to maintain or improve
creditworthiness. In addition to evaluating the issuer's credit, particular
attention is devoted to monitoring the credit quality of institutions which
provide enhancement and/or liquidity facilities. The Fund has had no exposure to
Asian bank letters of credit or liquidity facilities for over two years.
The Fund's weighted average maturity reached a high for the year of 54 days in
late June. The extension of maturity at mid-year followed a typical seasonal
pattern resulting from the purchase of newly issued one-year tax and revenue
anticipation notes (TRANs). These instruments come to market in large supply
each year between mid-June and early July in conjunction with the start of the
new fiscal year for most municipal governments. Investments in longer fixed-rate
securities offset some of the yield volatility associated with daily and weekly
VRDOs. With the absence of a fresh supply of longer-term paper, the Fund's
weighted average maturity gradually shortened over the balance of the year. At
the end of December, the Fund's average maturity was 40 days.
LOOKING FORWARD
Global economic conditions seem likely to keep inflationary pressures under
control and have contributed to lower interest rates. The fixed income markets
appear concerned about the risk of renewed inflation as countries seek to
stimulate economic growth. However, the ability of the Fed to maintain stability
by responding with an appropriate monetary policy is encouraging. With the
unlikely prospects for a near-term rise in municipal money market interest
rates, the weighted average maturity of the Fund's portfolio is expected to
remain in its current range of approximately 30 to 60 days until newly issued
one-year TRANs become available in larger supply.
2
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
We appreciate your support of Morgan Stanley Dean Witter California Tax-Free
Daily Income Trust and look forward to continuing to serve your investment needs
and objectives.
Sincerely yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
3
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (66.5%)
$ 4,920 Alameda-Contra Costa Schools Financing Authority, Capital Improvements Ser F
COPs........................................................................ 3.75% 01/08/99 $ 4,920,000
2,000 California Economic Development Financing Authority, California Independent
System Operator Corp 1998 Ser C............................................. 5.15 01/04/99 2,000,000
California Educational Facilities Authority,
10,300 California Institute of Technology Ser 1994................................. 3.65 01/08/99 10,300,000
8,275 Stanford University Ser L-2................................................. 3.65 01/08/99 8,275,000
California Health Facilities Financing Authority,
4,780 Catholic Healthcare West 1997 Ser B (MBIA).................................. 3.60 01/08/99 4,780,000
6,000 Children's Hospital of Orange County Ser 1991 (MBIA)........................ 3.60 01/08/99 6,000,000
8,000 Memorial Health Services 1994 Ser........................................... 3.90 01/08/99 8,000,000
9,400 St Francis Medical Center 1995 Ser E (MBIA)................................. 3.30 01/08/99 9,400,000
2,275 St Joseph Health System Ser 1985A........................................... 5.10 01/08/99 2,275,000
California Pollution Control Financing Authority,
1,000 Chevron USA Inc Ser 1983.................................................... 3.10 11/15/99 1,000,345
5,000 Chevron USA Inc Ser 1984B................................................... 3.70 06/15/99 5,000,901
13,800 Pacific Gas & Electric Co 1996 Ser F & 1997 Ser A........................... 5.00 01/04/99 13,800,000
10,000 California Public Capital Improvements Financing Authority, Pooled Ser 1988
C........................................................................... 3.10 03/15/99 10,000,000
California Statewide Communities Development Authority,
3,500 House Ear Institute 1993 Ser A COPs......................................... 5.00 01/04/99 3,500,000
5,000 St Joseph Health System COPs................................................ 3.80 01/08/99 5,000,000
10,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1995C.......... 3.60 01/08/99 10,000,000
8,100 Los Angeles, Multi-family 1985 Ser K.......................................... 3.50 01/08/99 8,100,000
5,000 Los Angeles County Metropolitan Transportation Authority, Prop C Sales Tax
Refg Ser 1993-A (MBIA)...................................................... 3.75 01/08/99 5,000,000
12,000 Metropolitan Water District of Southern California, Water 1997 Ser B & C...... 3.65 01/08/99 12,000,000
5,000 Monterey County Financing Authority, 1995 Ser A............................... 3.70 01/08/99 5,000,000
9,500 Newport Beach, Hoag Memorial Hospital/Presbyterian 1996 Ser A & C............. 5.10 01/04/99 9,500,000
5,000 Oakland Joint Powers Financing Authority, 1998 Ser A-2 (FSA).................. 3.65 01/08/99 5,000,000
6,000 Rancho California Water District Financing Authority, Ser 1998A (FGIC)........ 3.75 01/08/99 6,000,000
7,840 Sacramento County, Administration Center & Courthouse Ser 1990 COPs........... 3.70 01/08/99 7,840,000
3,800 San Bernardino County, 1996 County Center Refinancing COPs.................... 3.75 01/08/99 3,800,000
5,075 San Jacinto Unified School District, 1997 COPs (FSA).......................... 3.70 01/08/99 5,075,000
7,000 Southern California Public Power Authority, Transmission Refg Sub 1991 Ser
(AMBAC)..................................................................... 3.65 01/08/99 7,000,000
PUERTO RICO
10,000 Puerto Rico Highway & Transportation Authority, Transportation 1998 Ser A
(AMBAC)..................................................................... 3.50 01/08/99 10,000,000
-----------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS
(AMORTIZED COST $188,566,246).................................................................. 188,566,246
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT IN COUPON MATURITY ON DATE OF
THOUSANDS RATE DATE PURCHASE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (25.8%)
$ 4,000 California Pollution Control Financing Authority, Southern
California Edison Co Ser 1985 A.................................. 2.80% 02/17/99 2.80 % $ 4,000,000
4,800 Contra Costa Water District, Ser A................................. 2.85 03/10/99 2.85 4,800,000
East Bay Municipal Utility District,
4,500 Water............................................................ 3.00 02/09/99 3.00 4,500,000
4,700 Water............................................................ 3.00 02/11/99 3.00 4,700,000
3,500 Water............................................................ 2.80 02/23/99 2.80 3,500,000
Los Angeles,
4,000 Wastewater Ser 1997.............................................. 2.75 02/24/99 2.75 4,000,000
3,500 Wastewater Ser 1997.............................................. 2.90 02/24/99 2.90 3,500,000
3,500 Los Angeles County Metropolitan Transportation Authority, Sales Tax
Ser A............................................................ 2.70 03/09/99 2.70 3,500,000
San Diego,
5,000 San Diego Gas & Electric Co 1995 Ser B........................... 2.75 02/18/99 2.75 5,000,000
4,000 San Diego Gas & Electric Co 1995 Ser A........................... 2.80 02/25/99 2.80 4,000,000
5,300 San Diego County Regional Transportation Commission, Ser A......... 3.10 01/20/99 3.10 5,300,000
San Diego County Water Authority,
2,500 Ser # 1.......................................................... 3.05 01/21/99 3.05 2,500,000
3,700 Ser # 1.......................................................... 2.85 02/08/99 2.85 3,700,000
6,000 Ser # 1.......................................................... 2.90 04/08/99 2.90 6,000,000
San Joaquin County Transportation Authority,
5,000 Sales Tax Ser 1997............................................... 2.70 01/28/99 2.70 5,000,000
4,000 Sales Tax Ser 1997............................................... 2.85 03/05/99 2.85 4,000,000
PUERTO RICO
5,000 Puerto Rico Government Development Bank, Ser 1996.................. 2.75 03/09/99 2.75 5,000,000
------------
TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $73,000,000)....................................................................... 73,000,000
------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (8.2%)
5,000 Alameda County, Ser 1998-99 TRANs dtd 07/08/98..................... 4.50 07/07/99 3.60 5,022,245
5,000 California School Cash Reserve Program Authority,
1998 Pool Ser dtd 07/02/98....................................... 4.50 07/02/99 3.74 5,018,250
5,000 Fresno County, 1998-99 TRANs, dtd 07/02/98......................... 4.00 07/01/99 3.59 5,009,796
5,000 Marin County, 1998-99 TRANs, dtd 07/01/98.......................... 4.50 06/30/99 3.55 5,022,599
3,000 San Francisco Unified School District, 1998 TRANs, dtd 09/03/98.... 4.50 09/22/99 3.40 3,023,224
------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $23,096,114)....................................................................... 23,096,114
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(AMORTIZED COST $284,662,360) (a)......................................................... 100.5% $ 284,662,360
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.5) (1,280,010)
------ -------------
NET ASSETS................................................................................ 100.0% $ 283,382,350
------ -------------
------ -------------
</TABLE>
- ---------------------
COPs Certificates of Participation.
TRANs Tax Revenue Anticipation Notes.
+ Rate shown is the rate in effect at December 31, 1998.
* Date on which the principal amount can be recovered through demand.
(a) Cost is the same for federal income tax purposes.
BOND INSURANCE:
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $284,662,360)............................................................... $284,662,360
Interest receivable........................................................................... 1,419,665
Prepaid expenses and other assets............................................................. 17,677
------------
TOTAL ASSETS............................................................................. 286,099,702
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased................................................. 2,326,364
Investment management fee................................................................. 123,265
Plan of distribution fee.................................................................. 24,653
Payable to bank............................................................................... 153,669
Accrued expenses and other payables........................................................... 89,401
------------
TOTAL LIABILITIES........................................................................ 2,717,352
------------
NET ASSETS............................................................................... $283,382,350
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $283,382,247
Accumulated undistributed net investment income............................................... 103
------------
NET ASSETS............................................................................... $283,382,350
------------
------------
NET ASSET VALUE PER SHARE,
283,382,247 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE).............. $1.00
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................................................... $ 9,448,988
------------
EXPENSES
Investment management fee..................................................................... 1,479,199
Plan of distribution fee...................................................................... 282,477
Transfer agent fees and expenses.............................................................. 166,544
Professional fees............................................................................. 44,750
Shareholder reports and notices............................................................... 40,315
Trustees' fees and expenses................................................................... 18,919
Custodian fees................................................................................ 14,971
Registration fees............................................................................. 7,635
Other......................................................................................... 10,420
------------
TOTAL EXPENSES........................................................................... 2,065,230
Less: expense offset.......................................................................... (14,958)
------------
NET EXPENSES............................................................................. 2,050,272
------------
NET INVESTMENT INCOME......................................................................... $ 7,398,716
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 7,398,716 $ 7,497,660
Dividends from net investment income.............. (7,398,744) (7,497,664)
Net increase (decrease) from transactions in
shares of beneficial interest................... (3,618,367) 27,410,403
----------------- -----------------
NET INCREASE (DECREASE)...................... (3,618,395) 27,410,399
NET ASSETS:
Beginning of period............................... 287,000,745 259,590,346
----------------- -----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $103 AND $131, RESPECTIVELY)............... $ 283,382,350 $ 287,000,745
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter California Tax-Free Daily Income Trust (the "Fund"),
formerly Dean Witter California Tax-Free Daily Income Trust, 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 daily income which is exempt from federal and California
income tax, consistent with stability of principal and liquidity. The Fund was
organized as a Massachusetts business trust on April 25, 1988 and commenced
operations on July 22, 1988.
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 at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to shareholders as of the close of each business day.
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 net assets of the
Fund determined as of the close of each business day: 0.50% to the portion of
the daily net assets not exceeding $500 million; 0.425% to the portion of the
daily net
10
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
assets exceeding $500 million but not exceeding $750 million; 0.375% to the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% to the portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.325% to the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of the
daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to
the portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% to the portion of the daily net assets exceeding $3 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
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"), an affiliate
of the Investment Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor and other
broker-dealers under the Plan: (1) compensation to, and expenses of, Morgan
Stanley Dean Witter Financial Advisors and other selected broker-dealers; (2)
sales incentives and bonuses to sales representatives and to marketing personnel
in connection with promoting sales of the Fund's shares; (3) expenses incurred
in connection with promoting sales of the Fund's shares; (4) preparing and
distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the Fund's
shares. The amount of each monthly reimbursement payment may in no event exceed
an amount equal to a payment at the annual rate of 0.15% of the Fund's average
daily net assets during the month. Expenses incurred by the Distributor
11
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
pursuant to the Plan in any fiscal year will not be reimbursed by the Fund
through payments accrued in any subsequent fiscal year. For the year ended
December 31, 1998, the distribution fee was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/maturities of portfolio securities
for the year ended December 31, 1998 aggregated $568,354,080 and $569,680,000,
respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $9,100.
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, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,981. At December 31, 1998, the Fund had an accrued pension liability of
$51,038 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest, at $1.00 per share, were as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Shares sold................................................. 526,385,736 504,677,431
Shares issued in reinvestment of dividends.................. 7,398,744 7,497,664
----------------- -----------------
533,784,480 512,175,095
Shares repurchased.......................................... (537,402,847) (484,764,692)
----------------- -----------------
Net increase (decrease) in shares outstanding............... (3,618,367) 27,410,403
----------------- -----------------
----------------- -----------------
</TABLE>
12
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
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,
------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- ---------- ---------
Net income from investments operations....... 0.025 0.028 0.026 0.030 0.021
Less dividends from net investment income.... (0.025) (0.028) (0.026) (0.030) (0.021)
--------- --------- --------- ---------- ---------
Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
TOTAL RETURN................................. 2.54% 2.83% 2.68% 3.04% 2.17%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 0.70%(1) 0.72%(1) 0.72%(1) 0.75%(1) 0.72%
Net investment income........................ 2.50% 2.79% 2.63% 3.00% 2.13%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $283,382 $287,001 $259,590 $254,376 $217,079
</TABLE>
- ---------------------
(1) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
California Tax-Free Daily Income Trust (the "Fund"), formerly Dean Witter
California Tax-Free Daily Income Trust, at December 31, 1998, 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 five years in the period then ended in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 5, 1999
1998 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended December 31, 1998, all of the Fund's dividends
from net investment income were exempt interest dividends,
excludable from gross income for Federal income tax purposes.
14
<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
Katherine H. Stromberg
VICE PRESIDENT
Thomas F. Caloia
TREASURER
TRANSFER AGENT
- ------------------------------------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
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PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
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Morgan Stanley Dean Witter Advisors 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.
Morgan Stanley
Dean Witter
California Tax-Free Daily Income Trust
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Annual Report
December 31, 1998
