<PAGE> 1
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS December 31, 1997
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Active
Assets California Tax-Free Trust for the six-month period ended December 31,
1997.
The second half of 1997 was largely uneventful for the tax-free money market.
Short-term municipal interest rates had adjusted upward earlier in the year in
response to the Federal Reserve Board's modest tightening of monetary policy
late in the first quarter. For the balance of the year seasonal changes in
tax-free money fund cash flows became the primary determinant of interest rate
movements. Continuing economic growth left most municipal governments with
improving budgetary balances and kept credit quality concerns to a minimum. The
Asian crisis late in the year had little impact on the municipal money market
because most tax-free money funds had already significantly reduced or
eliminated their exposure to Asian bank liquidity facilities.
Yields for one-year maturities were confined to a narrow range during the final
six months of 1997. The Bond Buyer One-Year Note Index, which tracks the
movement of longer-term municipal money market yields, registered a net decline
of seven basis points from 3.85 percent at the end of June to 3.78 percent at
the end of December. For the year as a whole, however, one-year yields ended 27
basis points higher reflecting the Fed's quarter-point step toward higher
interest rates.
The ratio of the One-Year Note Index to the yield for one-year U.S. Treasury
bills was 68 percent at year end, unchanged from the end of June but up from 64
percent at the end of 1996. The rising ratio means that yields in this sector of
the municipal market became more attractive in relation to Treasuries with
comparable maturities.
At the short end of the tax-free money market maturity range, yields for
variable rate demand obligations (VRDOs) with daily and weekly rate changes were
driven primarily by changing cash flows and fluctuated more widely than yields
for longer maturities. The highest yields for weekly VRDOs during the second
half of 1997 were recorded at the end of each quarter, with a peak of 4.15
percent in late December. The second-half low yield of 3.35 percent was set in
August when cash inflows were strong.
<PAGE> 2
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
LETTER TO THE SHAREHOLDERS December 31, 1997, continued
PORTFOLIO MANAGEMENT AND PERFORMANCE
The Trust's annualized net investment income for the six-month period under
review was 2.86 percent, and its 30-day annualized yield for December was 2.97
percent.
The Trust's net assets totaled $550.6 million with 63 percent of the Trust's
portfolio invested in VRDOs. California-exempt commercial paper and municipal
notes, the two other types of securities held by the portfolio, comprised 30
percent and 7 percent of the portfolio, respectively.
Portfolio holdings are continuously reviewed to maintain or improve
creditworthiness. Particular effort is devoted to monitoring the credit quality
of institutions that provide credit enhancement and liquidity facilities for our
investments. During the period under review, the Trust had no exposure to Asian
bank letters of credit or liquidity facilities.
Seasonal purchases of new one-year tax and revenue anticipation notes (TRANs)
brought the Trust's weighted average maturity out to 56 days in early July.
However, the Trust's maturity extension was more limited than in some previous
years because attractive yields were available for shorter maturities and new
one-year financings were aggressively priced. The Trust's weighted average
maturity shortened again during August and September and then stayed in a
moderate range of approximately 40 to 50 days for the balance of 1997. At the
end of December, the Trust's weighted average maturity was 42 days.
LOOKING FORWARD
No change appears imminent in Federal Reserve Board monetary policy. The rate of
inflation remains low and the potential drag that the Asian crisis might place
on the U.S. economy should keep price pressures from heating up. In the absence
of external forces on interest rates, the tax-free money market yield curve
should remain relatively flat except during periods of heavy cash flows. The
weighted average maturity of the Trust's portfolio is thus expected to be
maintained in its current moderate range of 35 to 55 days.
We appreciate your support of Active Assets California Tax-Free Trust and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 3
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1997 (unaudited)
<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
(62.5%)
$ 5,000 Alameda-Contra Costa Schools Financing Authority, Capital Improvements
Ser B COPs............................................................. 3.90% 01/08/98 $ 5,000,000
8,200 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT)...................... 3.40 01/08/98 8,200,000
11,970 California Alternative Energy Financing Authority, General Electric
Capital Corp-Arroyo Energy Ser 1993 B (AMT)............................. 3.40 01/08/98 11,970,000
California Educational Facilities Authority,
10,000 California Institute of Technology Ser 1994............................. 3.85 01/08/98 10,000,000
5,775 Stanford University Ser L-2............................................. 3.45 01/08/98 5,775,000
2,000 University of Southern California Refg Ser 1996......................... 4.35 10/01/98 2,007,117
California Health Facilities Financing Authority,
5,000 Catholic HealthCare West 1997 Ser C (MBIA).............................. 3.35 01/08/98 5,000,000
2,500 Catholic HealthCare West 1988 Ser A (MBIA).............................. 3.90 01/08/98 2,500,000
6,900 Kaiser Permanente Ser 1993 A............................................ 3.45 01/08/98 6,900,000
14,000 Memorial Health Services Ser 1994....................................... 3.35 01/08/98 14,000,000
9,700 St Francis Medical Center 1995 Ser E (MBIA)............................. 3.65 01/08/98 9,700,000
5,050 St Joseph Health System Ser 1985 A...................................... 4.90 01/02/98 5,050,000
2,800 Sutter Health Ser 1990 A................................................ 5.00 01/02/98 2,800,000
5,000 California Housing Finance Agency, Multi-family III 1997 Ser B (AMT).... 3.65 01/08/98 5,000,000
California Pollution Control Financing Authority,
5,040 Chevron USA Ser 1983.................................................... 3.85 11/16/98 5,046,185
7,325 Chevron USA Ser 1984 B.................................................. 3.90 06/15/98 7,330,097
15,500 Pacific Gas & Electric Co 1996 Ser F & 1997 Ser A....................... 4.75 01/02/98 15,500,000
6,300 Shell Oil Co 1991 Ser B................................................. 4.90 01/02/98 6,300,000
8,000 Shell Oil Co 1996 Ser A (AMT)........................................... 4.85 01/02/98 8,000,000
4,300 Stanislaus Inc Ser 1987 (AMT)........................................... 5.05 01/02/98 4,300,000
16,500 California Public Capital Improvements Financing Authority, Pooled Ser
1988 C................................................................. 3.75 03/15/98 16,500,000
California Statewide Communities Development Authority,
6,639 House Ear Institute 1993 Ser A COPs..................................... 4.75 01/02/98 6,639,000
5,000 John Muir/Mt Diablo Health System Ser 1997 COPs (AMBAC)................. 4.85 01/02/98 5,000,000
9,000 Kaiser Permanente Ser 1995 COPs......................................... 3.45 01/08/98 9,000,000
6,100 St Joseph Health System COPs............................................ 3.30 01/08/98 6,100,000
2,200 Chula Vista, San Diego Gas & Electric Co Ser 1996 B (AMT)............... 4.30 01/02/98 2,200,000
16,000 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1995 C... 3.35 01/08/98 16,000,000
Los Angeles, Multi-Family
7,800 1985 Ser K.............................................................. 3.85 01/08/98 7,800,000
3,600 1994 Ser A (AMT)........................................................ 4.10 01/02/98 3,600,000
7,905 Los Angeles County Metropolitan Transportation Authority, Prop C Sales
Tax Refg Ser 1993 A (MBIA)............................................. 3.85 01/08/98 7,905,000
8,000 M-S -R Public Power Agency, San Juan Ser 1997 D (MBIA).................. 3.85 01/08/98 8,000,000
16,000 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992 & 1996 B.... 5.00 01/02/98 16,000,000
10,595 Northern California Public Power Agency, Geothermal No 3 1996 Ser A
(AMBAC)................................................................ 3.35 01/08/98 10,595,000
Redlands,
3,900 Orange Village Apts 1988 Ser A (AMT).................................... 3.40 01/08/98 3,900,000
3,585 1993 Water Treatment Facilities COPs (FGIC)............................. 3.40 01/08/98 3,585,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 8,000 Sacramento County, Administration Center & Courthouse Ser 1990 COPs..... 3.80% 01/08/98 $ 8,000,000
4,000 San Bernardino County, 1996 County Center Refinancing COPs.............. 3.40 01/08/98 4,000,000
4,000 San Jose, Almaden Lake Village Apts Ser 1997 A (AMT).................... 3.60 01/08/98 4,000,000
7,200 San Jose Redevelopment Agency, Merged Area Ser 1996 B................... 3.40 01/08/98 7,200,000
2,000 San Jose-Santa Clara Clean Water Financing Authority,
Sewer Ser 1995 B (FGIC)................................................. 3.35 01/08/98 2,000,000
4,200 Santa Clara, Electric Ser 1985 B........................................ 3.40 01/08/98 4,200,000
6,800 Santa Clara County-El Camino Hospital District Facilities Authority,
Valley Medical Center 1985 Ser A....................................... 3.50 01/08/98 6,800,000
10,000 Santa Clara County Financing Authority, Valley Medical Center 1994 Ser
B...................................................................... 3.35 01/08/98 10,000,000
17,800 Southern California Public Power Authority, Transmission 1991 Refg Ser
(AMBAC) & 1996 Refg Ser B (FSA)........................................ 3.35 01/08/98 17,800,000
6,790 Turlock, Irrigation District Ser 1988 A................................. 3.50 01/08/98 6,790,000
10,000 West Basin Municipal Water District, Ser 1997 B COPs.................... 3.30 01/08/98 10,000,000
------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS
(Amortized Cost $343,992,399).................................................................. 343,992,399
------------
</TABLE>
<TABLE>
<CAPTION>
YIELD TO
MATURITY
COUPON MATURITY ON DATE OF
RATE DATE PURCHASE
------- --------- ----------
<C> <S> <C> <C> <C> <C>
CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (29.7%)
California,
5,000 Ser 1996................................................. 3.50% 02/05/98 3.50% 5,000,000
5,000 Ser 1996................................................. 3.65 03/12/98 3.65 5,000,000
California Pollution Control Financing Authority,
4,000 Pacific Gas & Electric Co Ser 1996 E..................... 3.60 03/05/98 3.60 4,000,000
4,500 Southern California Edison Co Ser 1985 A................. 3.60 02/19/98 3.60 4,500,000
3,000 Southern California Edison Co Ser 1985 A................. 3.60 02/25/98 3.60 3,000,000
4,600 Southern California Edison Co Ser 1985 A................. 3.60 04/09/98 3.60 4,600,000
2,000 Southern California Edison Co Ser 1985 B................. 3.70 02/17/98 3.70 2,000,000
5,000 Thermal Energy Development Partnership Ser A (AMT)....... 3.65 02/24/98 3.65 5,000,000
5,000 Chula Vista, San Diego Gas & Electric Co Ser 1992 C
(AMT).................................................... 3.70 03/10/98 3.70 5,000,000
6,300 Contra Costa Water District, Ser A........................ 3.55 02/26/98 3.55 6,300,000
Los Angeles,
8,600 Wastewater Ser 1997...................................... 3.75 02/10/98 3.75 8,600,000
5,000 Wastewater Ser 1997...................................... 3.70 03/06/98 3.70 5,000,000
8,000 Wastewater Ser 1997...................................... 3.70 04/07/98 3.70 8,000,000
4,000 Los Angeles County Metropolitan Transportation Authority,
Sales Tax Ser A........................................... 3.70 03/09/98 3.70 4,000,000
Metropolitan Water District of Southern California,
10,000 Ser 1996 B............................................... 3.55 02/06/98 3.55 10,000,000
4,500 Ser 1996 B............................................... 3.70 02/12/98 3.70 4,500,000
5,000 Ser 1996 B............................................... 3.65 04/06/98 3.65 5,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1997 (unaudited) 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>
Sacramento Municipal Utility District,
$ 4,000 Ser I.................................................... 3.45% 02/11/98 3.45% $ 4,000,000
5,000 Ser I.................................................... 3.65 02/17/98 3.65 5,000,000
6,700 San Diego, Gas & Electric Co Ser 1995 B................... 3.60 01/14/98 3.60 6,700,000
4,700 San Diego County Water Authority, Ser #1.................. 3.65 02/13/98 3.65 4,700,000
San Francisco Airport Commission,
5,065 San Francisco International Airport Ser 1997 A (AMT)..... 3.70 02/11/98 3.70 5,065,000
3,035 San Francisco International Airport Ser 1997 A (AMT)..... 3.65 02/12/98 3.65 3,035,000
5,000 San Francisco International Airport Ser 1997 A (AMT)..... 3.70 03/19/98 3.70 5,000,000
San Joaquin County Transportation Authority,
5,000 Sales Tax Ser 1997....................................... 3.60 02/09/98 3.60 5,000,000
5,000 Sales Tax Ser 1997....................................... 3.60 02/24/98 3.60 5,000,000
University of California Regents,
4,000 Ser A.................................................... 3.60 01/28/98 3.60 4,000,000
5,000 Ser A.................................................... 3.65 02/18/98 3.65 5,000,000
4,000 Ser A.................................................... 3.65 02/25/98 3.65 4,000,000
6,500 Ser A.................................................... 3.65 04/23/98 3.65 6,500,000
Puerto Rico Government Development Bank,
5,000 Ser 1996................................................. 3.65 01/22/98 3.65 5,000,000
6,000 Ser 1996................................................. 3.65 02/10/98 3.65 6,000,000
------------
TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER
(Amortized Cost $163,500,000)..................................................................... 163,500,000
------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (7.3%)
5,000 California, 1997 RANs, dtd 09/09/97....................... 4.50 06/30/98 3.85 5,015,520
13,000 San Bernadino County, Ser 1997-98 Ser A TRANs, dtd
07/01/97................................................. 4.50 06/30/98 3.85 13,040,115
6,000 San Mateo County, Ser 1997-98 TRANs, dtd 07/01/97......... 4.50 07/01/98 3.80 6,020,053
16,000 Ventura County, Ser 1997 TRANs, dtd 07/01/97.............. 4.50 07/01/98 3.84 16,050,757
------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES
(Amortized Cost $40,126,445)...................................................................... 40,126,445
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS (Amortized Cost $547,618,844) (a)........................................ 99.5% $547,618,844
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 0.5 2,931,420
--- ------------
NET ASSETS................................................................................. 100.0% $550,550,264
===== ============
</TABLE>
- ---------------------
<TABLE>
<S> <C>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
RANs Revenue Anticipation Notes.
TRANs Tax and Revenue Anticipation Notes.
+ Rate shown is rate in effect at December 31, 1997.
* 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.
MBIA Municipal Bond Investors Assurance Corporation.
FSA Financial Security Assurance Inc.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(amortized cost $547,618,844)........................................ $547,618,844
Cash.................................................................. 242,709
Interest receivable................................................... 3,045,125
Prepaid expenses...................................................... 37,927
------------
TOTAL ASSETS....................................................... 550,944,605
------------
LIABILITIES:
Payable for:
Investment management fee.......................................... 250,272
Plan of distribution fee........................................... 50,910
Shares of beneficial interest repurchased.......................... 1,637
Accrued expenses...................................................... 91,522
------------
TOTAL LIABILITIES.................................................. 394,341
------------
NET ASSETS......................................................... $550,550,264
============
COMPOSITION OF NET ASSETS:
Paid-in-capital....................................................... $550,552,384
Accumulated undistributed net investment income....................... 290
Accumulated net realized loss......................................... (2,410)
------------
NET ASSETS......................................................... $550,550,264
============
NET ASSET VALUE PER SHARE,
550,552,384 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $1.00
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended December 31, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $9,211,347
----------
EXPENSES:
Investment management fee............................................... 1,302,390
Plan of distribution fee................................................ 262,546
Registration fees....................................................... 40,931
Transfer agent fees and expenses........................................ 40,521
Professional fees....................................................... 28,653
Shareholder reports and notices......................................... 17,708
Custodian fees.......................................................... 13,283
Trustees' fees and expenses............................................. 8,714
Other................................................................... 4,063
----------
TOTAL EXPENSES...................................................... 1,718,809
Less: expense offset.................................................... (13,231)
----------
NET EXPENSES........................................................ 1,705,578
----------
NET INVESTMENT INCOME AND NET INCREASE.................................. $7,505,769
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED JUNE 30,
DECEMBER 31, 1997 1997
- -------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 7,505,769 $ 11,980,607
Net realized gain.................................... -- 9,454
----------- -----------
NET INCREASE..................................... 7,505,769 11,990,061
Dividends from net investment income................. (7,505,665) (11,980,506)
Net increase from transactions in shares of
beneficial interest................................. 119,167,708 47,154,733
----------- -----------
NET INCREASE..................................... 119,167,812 47,164,288
NET ASSETS:
Beginning of period.................................. 431,382,452 384,218,164
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$290 and $186, respectively)..................... $ 550,550,264 $431,382,452
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1997 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Active Assets California Tax-Free Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Trust'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 Trust was
organized as a Massachusetts business trust on July 10, 1991 and commenced
operations on November 12, 1991.
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 Trust 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 Trust'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 Trust records dividends
and distributions to shareholders as of the close of each business day.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Trust pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Trust 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 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
<PAGE> 11
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1997 (unaudited) continued
$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 Trust's
investments, the Investment Manager maintains certain of the Trust'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 Trust 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 Trust.
3. PLAN OF DISTRIBUTION
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, is the distributor of the Trust'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 Trust, 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 sales representatives of Dean Witter
Reynolds Inc., an affiliate of the Investment Manager and Distributor; (2) sales
incentives and bonuses to sales representatives and to marketing personnel in
connection with promoting sales of the Trust's shares; (3) expenses incurred in
connection with promoting sales of the Trust'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 Trust is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the
Trust'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 Trust's
average daily net assets during the month. Expenses incurred by the Distributor
pursuant to the Plan in any fiscal year will not be reimbursed by the Trust
through payments accrued in any subsequent fiscal year. For the six months ended
December 31, 1997, the distribution fee was accrued at the annual rate of 0.10%.
<PAGE> 12
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1997 (unaudited) continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/maturities of portfolio securities
for the six months ended December 31, 1997 aggregated $652,197,194 and
$553,910,000, respectively.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as an independent
Trustee for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended December 31, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,072. At December 31, 1997, the Trust had an accrued pension liability of
$35,942 which is included in accrued expenses in the Statement of Assets and
Liabilities.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Trust's transfer agent. At December 31, 1997, the Trust had transfer
agent fees and expenses payable of approximately $500.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest, at $1.00 per share, were as
follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1997
------------------ --------------
(unaudited)
<S> <C> <C>
Shares sold........................................................................ 945,631,453 1,641,164,284
Shares issued in reinvestment of dividends......................................... 7,505,665 11,980,506
--------------- --------------
953,137,118 1,653,144,790
Shares repurchased................................................................. (833,969,410) (1,605,990,057)
--------------- --------------
Net increase in shares outstanding................................................. 119,167,708 47,154,733
=============== ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At June 30, 1997, the Trust had a capital loss carryover of approximately $2,400
of which $1,500 will be available through June 30, 2002 and $900 will be
available through June 30, 2003 to offset future capital gains to the extent
provided by regulations.
<PAGE> 13
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED JUNE 30
MONTHS ENDED -----------------------------------------
DECEMBER 31, 1997 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Net investment income............................. 0.014 0.028 0.028
Less dividends from net investment income......... (0.014) (0.028) (0.028)
------ ------ ------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00
====== ====== ======
TOTAL INVESTMENT RETURN+.......................... 1.45%(1) 2.83% 2.82%
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 0.65%(2) 0.66%(3) 0.67%
Net investment income............................. 2.86%(2) 2.78% 2.79%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $550,550 $431,382 $384,218
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Net investment income............................. 0.029 0.018 0.018
Less dividends from net investment income......... (0.029) (0.018) (0.018)
------ ------ ------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00
====== ====== ======
TOTAL INVESTMENT RETURN+.......................... 2.89% 1.78% 1.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 0.67% 0.68% 0.71%
Net investment income............................. 2.86% 1.77% 1.82%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $313,566 $288,506 $202,149
</TABLE>
- ---------------------
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
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<PAGE> 15
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<PAGE> 16
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
- -----------------------------------------------------
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
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Trust. For more detailed information about the Trust, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Trust.
This report is not authorized for distribution to prospective investors in the
Trust unless preceded or accompanied by an effective prospectus.
- ---------------
ACTIVE
- ---------------
ASSETS(R)
- ---------------
ACCOUNT
- ---------------
Active Assets
California
Tax-Free Trust
Semiannual Report
December 31, 1997
