<PAGE> 1
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS December 31, 1998
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,
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> 2
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
PORTFOLIO MANAGEMENT AND PERFORMANCE
Active Assets California Tax-Free Trust's annualized net investment income
(ratio to average net assets) was 2.36 percent for the six-month period ended
December 31, 1998. The Trust's thirty-day moving average yield was 2.40 percent
as of December 31, 1998.
On December 31, the Trust's net assets totaled $651.6 million with 67 percent of
the Trust'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 7 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 Trust has had no exposure
to Asian bank letters of credit or liquidity facilities for over two years.
The Trust's weighted average maturity reached a high for the year of 57 days at
the end of 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
Trust's weighted average maturity gradually shortened over the balance of the
year. At the end of December, the Trust's average maturity was 37 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 Trust'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> 3
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
We appreciate your support of Active Assets California Tax-Free 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> 4
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998 (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 (66.8%)
$ 7,900 Alameda-Contra Costa Schools Financing Authority, Capital
Improvements Ser B COPs.................................... 3.70% 01/08/99 $ 7,900,000
10,000 Anaheim, 1993 COPs (AMBAC).................................. 3.65 01/08/99 10,000,000
8,200 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT).......... 3.75 01/08/99 8,200,000
11,970 California Alternative Energy Source Financing Authority,
General Electric Capital Corp-Arroyo Energy 1993 Ser B
(AMT)...................................................... 3.65 01/08/99 11,970,000
1,200 California Economic Development Financing Authority,
California Independent System Operator Corp 1998 Ser A..... 5.00 01/04/99 1,200,000
California Educational Facilities Authority,
10,000 California Institute of Technology Ser 1994................ 3.65 01/08/99 10,000,000
15,165 Stanford University Ser L-5................................ 3.65 01/08/99 15,165,000
California Health Facilities Financing Authority,
3,300 Adventist Health System/West 1998 Ser A (MBIA)............. 5.00 01/04/99 3,300,000
5,000 Catholic Healthcare West 1997 Ser C (MBIA)................. 3.60 01/08/99 5,000,000
14,000 Memorial Health Services 1994 Ser.......................... 3.90 01/08/99 14,000,000
9,500 St Francis Medical Center 1995 Ser E (MBIA)................ 3.30 01/08/99 9,500,000
4,880 St Joseph Health System Ser 1985A.......................... 5.10 01/04/99 4,880,000
California Pollution Control Financing Authority,
5,040 Chevron USA Inc Ser 1983................................... 3.10 11/15/99 5,044,588
10,485 Chevron USA Inc Ser 1984B.................................. 3.70 06/15/99 10,490,812
15,500 Pacific Gas & Electric Co 1996 Ser F & 1997 Ser A.......... 5.00 01/04/99 15,500,000
1,600 Pacific Gas & Electric Co 1997 Ser C (AMT)................. 5.10 01/04/99 1,600,000
5,000 Shell Oil Co 1991 Ser B.................................... 5.10 01/04/99 5,000,000
8,000 Shell Oil Co Ser 1996 A (AMT).............................. 4.90 01/04/99 8,000,000
6,300 Stanislaus Inc Ser 1987 (AMT).............................. 5.10 01/04/99 6,300,000
16,500 California Public Capital Improvements Financing Authority,
Pooled Ser 1988 C.......................................... 3.10 03/15/99 16,500,000
California Statewide Communities Development Authority,
5,450 House Ear Institute 1993 Ser A COPs........................ 5.00 01/04/99 5,450,000
5,000 John Muir/Mt Diablo Health System COPs (AMBAC)............. 4.80 01/04/99 5,000,000
6,100 St Joseph Health System COPs............................... 3.80 01/08/99 6,100,000
9,500 Carlsbad Housing & Redevelopment Commission,
Seascape Village Ser A of 1994............................. 3.60 01/08/99 9,500,000
9,300 Contra Costa County, Muti-family The Park Regency 1992 Ser A
(AMT)...................................................... 4.00 01/08/99 9,300,000
19,800 Foothill/Eastern Transportation Corridor Agency, Toll Road
Ser 1995C.................................................. 3.60 01/08/99 19,800,000
9,500 Fremont, Creekside Village Multi-family Issue D of 1985..... 3.70 01/08/99 9,500,000
Los Angeles, Multi-family
7,700 1985 Ser K................................................. 3.60 01/08/99 7,700,000
4,900 1994 Ser A (AMT)........................................... 5.20 01/04/99 4,900,000
7,800 Los Angeles County Metropolitan Transportation Authority,
Prop C Sales Tax Refg Ser 1993-A (MBIA).................... 3.75 01/08/99 7,800,000
2,900 M-S-R Public Power Agency, San Juan Sub Lien Ser 1998F
(MBIA)..................................................... 5.10 01/04/99 2,900,000
10,000 Monterey County Financing Authority, 1995 Ser A............. 3.70 01/08/99 10,000,000
23,160 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992
& 1996 C................................................... 5.10 01/04/99 23,160,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Oakland Joint Powers Financing Authority,
$12,000 1998 Ser A-1 (FSA)......................................... 3.90% 01/08/99 $ 12,000,000
7,000 1998 Ser A-2 (FSA)......................................... 3.65 01/08/99 7,000,000
17,000 Rancho California Water District Financing Authority, Ser
1998A (FGIC)............................................... 3.75 01/08/99 17,000,000
3,800 Redlands, Orange Village Apts 1988 Ser A (AMT).............. 4.00 01/08/99 3,800,000
11,647 Riverside County, 1985 Ser A COPs........................... 3.50 01/08/99 11,647,000
7,805 Sacramento County, Administration Center & Courthouse Ser
1990 COPs.................................................. 3.70 01/08/99 7,805,000
15,000 San Bernardino County, Medical Center Financing Ser 1998
COPs (MBIA)................................................ 3.80 01/08/99 15,000,000
4,000 San Jose, Almaden Lake Village Apts Ser 1997 A (AMT)........ 4.00 01/08/99 4,000,000
7,200 San Jose Redevelopment Agency, Merged Area Ser 1996 B....... 3.20 01/08/99 7,200,000
8,600 San Jose-Santa Clara Clean Water Financing Authority, Sewer
Ser 1995B (FGIC)........................................... 3.65 01/08/99 8,600,000
4,000 Santa Clara, Electric Ser 1985 B............................ 3.75 01/08/99 4,000,000
10,000 Santa Clara County Financing Authority, Valley Medical
Center 1994 Ser B.......................................... 3.80 01/08/99 10,000,000
6,600 Santa Clara County-El Camino Hospital District Hospital
Facilities Authority, Valley Medical Center 1985 Ser A..... 3.65 01/08/99 6,600,000
11,700 Southern California Public Power Authority, Transmission
1991 Sub Refg Ser (AMBAC).................................. 3.65 01/08/99 11,700,000
6,605 Turlock, Irrigation District Ser 1988 A..................... 3.70 01/08/99 6,605,000
12,000 West Basin Municipal Water District, Ser 1997 B COPs........ 3.55 01/08/99 12,000,000
------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE
MUNICIPAL OBLIGATIONS
(Amortized Cost $435,617,400)................................................... 435,617,400
------------
</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 (25.6%)
California Pollution Control Financing Authority,
11,600 Southern California Edison Co Ser 1985 A............... 2.80% 01/27/99 2.80% 11,600,000
4,500 Southern California Edison Co Ser 1985 A............... 2.80 02/17/99 2.80 4,500,000
5,000 Thermal Energy Development Partnership Ser A (AMT)..... 2.90 02/23/99 2.90 5,000,000
5,000 Chula Vista, San Diego Gas & Electric Co Ser 1992 C
(AMT).................................................. 2.90 02/09/99 2.90 5,000,000
5,000 Contra Costa Water District, Ser A...................... 2.85 03/10/99 2.85 5,000,000
4,000 East Bay Municipal Utility District, Water.............. 2.80 02/23/99 2.80 4,000,000
Los Angeles,
8,000 Wastewater Ser 1997.................................... 3.00 02/10/99 3.00 8,000,000
8,000 Wastewater Ser 1997.................................... 2.70 03/09/99 2.70 8,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998 (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>
$ 4,000 Los Angeles County Metropolitan Transportation Authority,
Sales Tax Ser A............................................ 3.25% 02/10/99 3.25% $ 4,000,000
10,000 Metropolitan Water District of Southern California, Ser 1996
B.......................................................... 2.75 03/08/99 2.75 10,000,000
Sacramento Municipal Utility District,
9,000 Ser I...................................................... 2.80 02/08/99 2.80 9,000,000
9,000 Ser I...................................................... 2.85 02/11/99 2.85 9,000,000
6,000 Ser I...................................................... 2.80 02/18/99 2.80 6,000,000
San Diego,
2,000 San Diego Gas & Electric Co 1995 Ser B..................... 2.75 02/18/99 2.75 2,000,000
9,000 San Diego Gas & Electric Co 1995 Ser B..................... 2.90 04/08/99 2.90 9,000,000
5,000 San Diego County Regional Transportation Commission, Ser
A.......................................................... 2.90 02/11/99 2.90 5,000,000
San Diego County Water Authority,
4,700 Ser #1..................................................... 3.05 01/21/99 3.05 4,700,000
6,600 Ser #1..................................................... 3.20 01/21/99 3.20 6,600,000
7,500 San Francisco Bay Area Transit Financing Authority, Ser 1998
B.......................................................... 2.90 02/05/99 2.90 7,500,000
San Francisco Airport Commission,
6,040 San Francisco International Airport Ser 1997 A (AMT)....... 2.80 01/26/99 2.80 6,040,000
3,175 San Francisco International Airport Ser 1997 A (AMT)....... 2.95 02/24/99 2.95 3,175,000
San Joaquin County Transportation Authority,
13,000 Sales Tax Ser 1997......................................... 2.70 01/28/99 2.70 13,000,000
6,000 Sales Tax Ser 1997......................................... 2.85 03/05/99 2.85 6,000,000
9,500 University of California Regents, Ser A..................... 2.85 02/09/99 2.85 9,500,000
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 $166,615,000)................................................................ 166,615,000
------------
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (7.1%)
10,000 Alameda County, 1998-99 TRANs, dtd 07/08/98................. 4.50 07/07/99 3.60 10,044,490
10,000 California School Cash Reserve Program Authority, 1998 Pool
Ser, dtd 07/02/98.......................................... 4.50 07/02/99 3.74 10,036,500
10,000 Fresno County, 1998-99 TRANs, dtd 07/02/98.................. 4.00 07/01/99 3.59 10,019,592
10,000 Marin County, 1998-99 TRANs, dtd 07/01/98................... 4.50 06/30/99 3.55 10,045,198
6,000 San Francisco Unified School District, 1998 TRANs, dtd
09/03/98................................................... 4.50 09/22/99 3.40 6,046,447
------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES
(Amortized Cost $46,192,227)................................................................. 46,192,227
------------
TOTAL INVESTMENTS (Amortized Cost $648,424,627) (a)............................. 99.5% 648,424,627
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.................................. 0.5 3,157,498
----- ------------
NET ASSETS...................................................................... 100.0% $651,582,125
===== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998 (unaudited) continued
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
TRANs Tax and Revenue Anticipation Notes.
+ Rate shown is 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(amortized cost $648,424,627).............................. $648,424,627
Cash........................................................ 42,494
Receivable for:
Interest................................................ 3,221,776
Shares of beneficial interest sold...................... 281,405
Prepaid expenses............................................ 29,152
------------
TOTAL ASSETS............................................ 651,999,454
------------
LIABILITIES:
Payable for:
Investment management fee............................... 265,392
Plan of distribution fee................................ 54,951
Accrued expenses............................................ 96,986
------------
TOTAL LIABILITIES....................................... 417,329
------------
NET ASSETS.............................................. $651,582,125
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $651,581,703
Accumulated undistributed net investment income............. 422
------------
NET ASSETS.............................................. $651,582,125
============
NET ASSET VALUE PER SHARE,
651,581,703 shares outstanding
(unlimited shares authorized of $.01 par value)............ $1.00
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended December 31, 1998 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $9,618,540
----------
EXPENSES
Investment management fee................................... 1,555,335
Plan of distribution fee.................................... 321,481
Transfer agent fees and expenses............................ 42,742
Registration fees........................................... 34,938
Professional fees........................................... 26,169
Shareholder reports and notices............................. 23,654
Custodian fees.............................................. 14,958
Trustees' fees and expenses................................. 9,006
Other....................................................... 8,879
----------
TOTAL EXPENSES.......................................... 2,037,162
Less: expense offset........................................ (14,940)
----------
NET EXPENSES............................................ 2,022,222
----------
NET INVESTMENT INCOME....................................... $7,596,318
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
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, 1998 1998
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 7,596,318 $ 15,064,430
Net realized gain.................................... -- 2,410
------------ ------------
NET INCREASE..................................... 7,596,318 15,066,840
Dividends from net investment income................. (7,596,098) (15,064,414)
Net increase from transactions in shares of
beneficial interest................................. 101,802,574 118,394,453
------------ ------------
TOTAL INCREASE................................... 101,802,794 118,396,879
NET ASSETS:
Beginning of period.................................. 549,779,331 431,382,452
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$422 and $202, respectively)..................... $651,582,125 $549,779,331
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998 (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 with Morgan Stanley Dean Witter
Advisors, Inc. (the "Investment Manager"), 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
11
<PAGE> 12
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998 (unaudited) continued
$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 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
Morgan Stanley 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, and expenses of, the Dean
Witter Reynolds Inc., an affiliate of the Investment Manager and Distributor and
other broker-dealers; (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. 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
12
<PAGE> 13
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998 (unaudited) continued
fiscal year. For the six months 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 six months ended December 31, 1998 aggregated $811,533,560 and
$738,048,000, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At December 31, 1998, the Trust had
transfer agent fees and expenses payable of approximately $700.
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 cost for the six months ended December 31, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,679. At December 31, 1998, the Trust had an accrued pension liability of
$39,379 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 SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1998
----------------- --------------
(unaudited)
<S> <C> <C>
Shares sold................................................. 1,105,139,562 1,906,367,914
Shares issued in reinvestment of dividends.................. 7,596,098 15,064,414
-------------- --------------
1,112,735,660 1,921,432,328
Shares repurchased.......................................... (1,010,933,086) (1,803,037,875)
-------------- --------------
Net increase in shares outstanding.......................... 101,802,574 118,394,453
============== ==============
</TABLE>
13
<PAGE> 14
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, 1998 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <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 $ 1.00
------ ------ ------ ------ ------ ------
Net income from investment operations............ 0.012 0.028 0.028 0.028 0.029 0.018
Less dividends from net investment income........ (0.012) (0.028) (0.028) (0.028) (0.029) (0.018)
------ ------ ------ ------ ------ ------
Net asset value, end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
TOTAL RETURN..................................... 1.20%(1) 2.84% 2.83% 2.82% 2.89% 1.78%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... 0.63%(2) 0.64% 0.66%(3) 0.67% 0.67% 0.68%
Net investment income............................ 2.36%(2) 2.79% 2.78% 2.79% 2.86% 1.77%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......... $651,582 $549,779 $431,382 $384,218 $313,566 $288,506
</TABLE>
- ---------------------
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
(This Page Intentionally Left Blank)
15
<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
- ---------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ---------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ---------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of the
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, 1998
