<PAGE> 1
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS December 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
Tax-free money market yields moved higher during 1999, following the trend in
the taxable money market. Although 1999 began amid fears of a global recession,
economic problems overseas abated as the year progressed. At the same time the
U.S. economy continued to experience robust growth, led by consumer demand. The
stage was set for the Federal Reserve Board to change monetary policy and remove
the liquidity it had provided during the 1998 international economic crisis.
Between June and November, the Fed raised the federal funds rate a total of 75
basis points, from 4.75 percent to 5.50 percent. Subsequently, on February 2,
2000, the federal funds rate was raised an additional 25 basis points.
Within the municipal money market, the upward course of interest rates was most
obvious among longer fixed-rate instruments. One-year yields fell modestly at
the outset of the year, helped by heavy seasonal cash inflows. The Bond Buyer
One Year Note Index, a benchmark indicator for the longest maturities in the
tax-free money market sector, registered its low for the year of 2.88 percent in
February. For the balance of the year, one-year yields trended upward. At the
end of December 1999, the index stood at 3.97 percent, 94 basis points above its
level at the end of 1998.
The ratio of the One Year Note Index to the yield for one-year U.S. Treasury
bills was 67 percent at year-end, just slightly above the level of 66 percent
one year earlier. A stable ratio means that the performance of securities in
this sector of the municipal market has tracked the performance of Treasuries
with comparable maturities.
Yields also moved higher for daily and weekly variable-rate demand obligations
(VRDOs), but within widely fluctuating bands. Yields for these instruments,
which are driven for the most part by changing cash flows, are subject to much
larger swings than yields for longer fixed-rate investments. Weekly VRDO yields
moved over a range of nearly 300 basis points during the year. Their low of 2.20
percent was set in early February when cash inflows were strong. The high of
5.00 percent came
<PAGE> 2
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
LETTER TO THE SHAREHOLDERS December 31, 1999, continued
in late December amid Y2K uncertainty and expectations for the usual seasonal
redemptions. Reflecting the overall rise in interest rates, however, the average
yield for weekly VRDOs was 4.15 percent for the month of December 1999, up 70
basis points from their average of 3.45 percent in December 1998.
PORTFOLIO MANAGEMENT AND PERFORMANCE
Active Assets California Tax-Free Trust's annualized net investment income was
2.46 percent for the six-month period ended December 31, 1999. The Trust's
thirty-day average yield was 2.76 percent as of December 31, 1999.
On December 31, the Trust's net assets totaled $787.4 million, with 69 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 20 percent and 11 percent of the portfolio, respectively.
The Trust's 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 that
provide enhancement and/or liquidity facilities.
At the end of December the weighted average maturity of the Trust stood at 38
days, down from 69 days six months earlier. The longer weighted average maturity
in June resulted 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. During the final quarter of
1999, asset allocation leaned toward investments in highly liquid daily and
weekly VRDOs. The emphasis on liquidity was prompted by anticipated seasonal
cash outflows as well as the uncertainty arising from the Y2K changeover.
LOOKING FORWARD
The Federal Reserve Board's steps to raise short-term interest rates during the
second half of 1999 confirmed its previously disclosed bias of becoming less
accommodative in the face of continued strong domestic economic growth. We
anticipate additional increases in the federal funds rate in the period ahead.
Accordingly, we will monitor the Trust's weighted average maturity with an eye
toward the Fed's stance on monetary policy. However, with the Y2K changeover now
behind us, we anticipate that the Trust's new investments will again be more
evenly balanced among VRDOs and fixed-rate instruments.
2
<PAGE> 3
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
LETTER TO THE SHAREHOLDERS December 31, 1999, continued
We appreciate your ongoing support of Active Assets California Tax-Free Trust
and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1999 (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 (69.0%)
$ 5,090 Alameda-Contra Costa Schools Financing Authority, Capital
Improvements Ser B COPs.................................... 4.70 % 01/07/00 $ 5,090,000
10,850 Anaheim, 1993 COPs (AMBAC).................................. 4.85 01/07/00 10,850,000
15,000 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT).......... 5.00 01/07/00 15,000,000
11,970 California Alternative Energy Source Financing Authority,
General Electric Capital Corp-Arroyo Energy 1993 Ser B
(AMT)...................................................... 5.05 01/07/00 11,970,000
17,000 California Economic Development Financing Authority,
California Independent System Operator Corp 1998 Ser B..... 3.40 01/07/00 17,000,000
California Educational Facilities Authority,
10,000 California Institute of Technology Ser 1994................ 4.75 01/07/00 10,000,000
2,000 Pepperdine University Ser B................................ 4.90 01/07/00 2,000,000
15,165 Stanford University Ser L-5................................ 4.90 01/07/00 15,165,000
California Health Facilities Financing Authority,
9,300 Adventist Health System/West 1998 Ser A & Ser B (MBIA)..... 4.25 01/03/00 9,300,000
14,000 Memorial Health Services 1994 Ser.......................... 5.05 01/07/00 14,000,000
2,425 St Joseph Health System Ser 1985A.......................... 4.20 01/03/00 2,425,000
11,000 California Housing Finance Agency, Single Family Mortgage
1999 Ser E (AMT)........................................... 3.40 08/01/00 11,000,000
California Pollution Control Financing Authority,
5,040 Chevron USA Inc Ser 1983................................... 3.80 11/15/00 5,042,992
10,485 Chevron USA Inc Ser 1984 B................................. 3.15 06/15/00 10,489,912
15,500 OMS Equity of Stanislaus, Inc Ser 1987 (AMT)............... 4.40 01/03/00 15,500,000
2,600 Pacific Gas & Electric Co 1996 Ser F....................... 4.25 01/03/00 2,600,000
18,450 Pacific Gas & Electric Co 1997 Ser C (AMT)................. 4.30 01/03/00 18,450,000
3,000 Shell Oil Co 1991 Ser B.................................... 4.20 01/03/00 3,000,000
8,800 Shell Oil Co 1994 Ser A (AMT).............................. 4.40 01/03/00 8,800,000
14,000 Shell Oil Co 1996 Ser A (AMT).............................. 4.20 01/03/00 14,000,000
16,500 California Public Capital Improvements Financing Authority,
Pooled Ser 1988 C.......................................... 3.70 03/15/00 16,500,000
California Statewide Communities Development Authority,
6,270 House Ear Institute 1993 Ser A COPs........................ 4.25 01/03/00 6,270,000
6,100 St Joseph Health System COPs............................... 5.00 01/07/00 6,100,000
13,000 Sutter Health Ser 1995 COPs (AMBAC)........................ 4.20 01/03/00 13,000,000
9,000 Chula Vista, San Diego Gas & Electric Co Ser 1996 A......... 4.30 01/03/00 9,000,000
9,300 Contra Costa County, Multi-Family The Park Regency 1992 Ser
A (AMT).................................................... 5.05 01/07/00 9,300,000
10,500 Fremont, Creekside Village Multi-Family Issue D of 1985..... 4.90 01/07/00 10,500,000
3,000 Irvine Assessment District No 94-15 Improving Bond Act
1915....................................................... 4.20 01/03/00 3,000,000
Irvine Ranch Water District,
4,500 Cons Refg Ser 1985B........................................ 4.00 01/03/00 4,500,000
6,300 1986 Capital Improvement COPs.............................. 4.30 01/03/00 6,300,000
7,800 Cons Ser 1993 Nos 105, 140, 240 & 250...................... 4.30 01/03/00 7,800,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Los Angeles, Multi-Family
$ 7,500 1985 Ser K................................................. 3.75 % 01/07/00 $ 7,500,000
4,500 1994 Ser A (AMT)........................................... 4.60 01/03/00 4,500,000
7,755 Los Angeles County Metropolitan Transportation Authority,
Prop C Sales Tax Refg Ser 1993-A (MBIA).................... 4.90 01/07/00 7,755,000
M-S-R Public Power Agency,
3,500 San Juan Sub Lien Ser 1997 D (MBIA)........................ 5.10 01/07/00 3,500,000
15,000 San Juan Sub Lien Ser 1997 E (MBIA)........................ 4.80 01/07/00 15,000,000
4,500 San Juan Sub Lien Ser 1998 F (MBIA)........................ 4.35 01/03/00 4,500,000
Metropolitan Water District of Southern California,
6,000 Water 1997 Ser B........................................... 4.25 01/07/00 6,000,000
3,500 Water 1997 Ser B........................................... 4.80 01/07/00 3,500,000
8,500 Monterey County Financing Authority, 1995 Ser A............. 4.95 01/07/00 8,500,000
23,900 Newport Beach, Hoag Memorial Hospital Presbyterian Ser 1992
& 1996 Ser B & C........................................... 4.40 01/03/00 23,900,000
Oakland Joint Powers Financing Authority,
12,000 1998 Ser A-1 (FSA)......................................... 5.00 01/07/00 12,000,000
7,100 1998 Ser A-2 (FSA)......................................... 4.70 01/07/00 7,100,000
17,000 Rancho California Water District Financing Authority, Ser
1998A (FGIC)............................................... 5.00 01/07/00 17,000,000
3,800 Redlands, Orange Village Apts 1988 Ser A (AMT).............. 5.15 01/07/00 3,800,000
2,000 Sacramento County, Administration Center & Courthouse Ser
1990 COPs.................................................. 4.70 01/07/00 2,000,000
25,000 San Bernardino County, Medical Center Financing Ser 1998
COPs (MBIA)................................................ 4.95 01/07/00 25,000,000
3,415 San Jacinto Unified School District, Ser 1997 COPs.......... 5.00 01/07/00 3,415,000
7,000 San Jose, Almaden Lake Village Apts Ser 1997 A (AMT)........ 5.10 01/07/00 7,000,000
7,200 San Jose Redevelopment Agency, Merged Area Ser 1996 B....... 4.20 01/07/00 7,200,000
8,600 San Jose-Santa Clara Clean Water Financing Authority, Sewer
Ser 1995 B (FGIC).......................................... 4.85 01/07/00 8,600,000
10,000 Santa Clara County Financing Authority, Valley Medical
Center 1994 Ser B.......................................... 5.05 01/07/00 10,000,000
6,400 Santa Clara County-El Camino Hospital District Hospital
Facilities Authority, Valley Medical Center 1985 Ser A..... 4.55 01/07/00 6,400,000
11,600 Southern California Public Power Authority, Transmission
1991 Sub Refg Ser (AMBAC).................................. 4.85 01/07/00 11,600,000
6,400 Turlock, Irrigation District Ser 1988 A..................... 5.15 01/07/00 6,400,000
27,760 West Basin Municipal Water District, Ser 1997 B COPs........ 4.80 01/07/00 27,760,000
6,550 Western Riverside County Regional Wastewater Authority, Ser
1996....................................................... 4.20 01/03/00 6,550,000
PUERTO RICO
3,000 Puerto Rico Government Development Bank, Refg Ser 1985
(MBIA)..................................................... 4.95 01/07/00 3,000,000
------------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS
(Amortized Cost $543,432,904)................................................... 543,432,904
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1999 (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>
CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (19.8%)
California Pollution Control Financing Authority,
$11,600 Southern California Edison Co Ser 1985 A.................. 3.50 % 01/20/00 3.50 % $11,600,000
2,500 Southern California Edison Co Ser 1985 A.................. 3.50 01/27/00 3.50 2,500,000
5,000 Southern California Edison Co Ser 1985 A.................. 3.55 01/27/00 3.55 5,000,000
5,000 Chula Vista, San Diego Gas & Electric Co Ser 1992 C
(AMT)..................................................... 3.65 02/03/00 3.65 5,000,000
East Bay Municipal Utility District,
4,000 Water..................................................... 3.20 01/13/00 3.20 4,000,000
5,000 Water Ser 1997............................................ 3.70 02/15/00 3.70 5,000,000
Los Angeles,
8,000 Wastewater Ser 1997....................................... 3.60 02/08/00 3.60 8,000,000
5,000 Wastewater Ser 1997....................................... 3.30 02/09/00 3.30 5,000,000
9,000 Wastewater Ser 1997....................................... 3.55 02/09/00 3.55 9,000,000
15,000 Los Angeles County Metropolitan Transportation Authority,
Sales Tax Ser A........................................... 3.55 02/11/00 3.55 15,000,000
4,000 Sacramento Municipal Utility District, Ser I............... 3.40 01/18/00 3.40 4,000,000
San Diego,
7,500 San Diego Gas & Electric Co 1995 Ser B.................... 3.55 01/12/00 3.55 7,500,000
9,000 San Diego Gas & Electric Co 1995 Ser B.................... 3.40 02/10/00 3.40 9,000,000
San Diego County Water Authority,
11,500 Ser #1.................................................... 3.30 01/13/00 3.30 11,500,000
6,500 Ser #1.................................................... 3.55 02/07/00 3.55 6,500,000
5,000 San Francisco Bay Area Transit Financing Authority, Ser
1992 A.................................................... 3.55 03/08/00 3.55 5,000,000
3,280 San Francisco Airport Commission, San Francisco
International Airport Ser 1997 A (AMT).................... 3.55 02/09/00 3.55 3,280,000
University of California Regents,
9,500 Ser A..................................................... 3.30 02/08/00 3.30 9,500,000
6,000 Ser A..................................................... 3.30 02/10/00 3.30 6,000,000
PUERTO RICO
Puerto Rico Government Development Bank,
4,100 Ser 1996.................................................. 3.25 01/19/00 3.25 4,100,000
3,000 Ser 1996.................................................. 3.40 01/19/00 3.40 3,000,000
6,000 Ser 1996.................................................. 3.20 01/20/00 3.20 6,000,000
5,000 Ser 1996.................................................. 3.50 01/27/00 3.50 5,000,000
5,000 Ser 1996.................................................. 3.55 01/27/00 3.55 5,000,000
-----------
TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER
(Amortized Cost $155,480,000)................................................................ 155,480,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1999 (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>
CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (10.5%)
$ 7,000 Alameda County, 1999-2000 TRANs, dtd 07/08/99.............. 4.00 % 07/07/00 3.32 % $ 7,023,652
10,000 California Community College Financing Authority, 1999 Ser
A TRANs, dtd 07/01/99..................................... 4.00 06/30/00 3.09 10,043,638
26,000 California School Cash Reserve Program Authority, 1999 Pool
Ser A (AMBAC), dtd 07/02/99............................... 4.00 07/03/00 3.10 26,114,060
7,000 Kern County, Ser 1999 - 2000 TRANs, dtd 07/01/99........... 4.00 06/30/00 3.15 7,028,499
24,700 Los Angeles County, 1999 - 2000 Ser A TRANs, dtd
07/01/99.................................................. 4.00 06/30/00 3.32 24,780,350
8,000 Ventura County, Ser 1999 TRANs, dtd 07/01/99............... 4.00 07/06/00 3.20 8,031,654
-----------
TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (Amortized Cost $83,021,853).......... 83,021,853
-----------
TOTAL INVESTMENTS (Amortized Cost $781,934,757) (a)................................... 99.3% 781,934,757
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES......................................... 0.7 5,470,044
---- -----------
NET ASSETS............................................................................ 100.0% $787,404,801
====== ===========
</TABLE>
- ---------------------
<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, 1999.
* 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 Assurance 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, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(amortized cost $781,934,757).............................. $781,934,757
Cash........................................................ 1,165,647
Interest receivable......................................... 4,748,728
Prepaid expenses and other assets........................... 49,187
-----------
TOTAL ASSETS............................................ 787,898,319
-----------
LIABILITIES:
Payable for:
Investment management fee............................... 310,820
Plan of distribution fee................................ 65,946
Shares of beneficial interest repurchased............... 1,699
Accrued expenses............................................ 115,053
-----------
TOTAL LIABILITIES....................................... 493,518
-----------
NET ASSETS.............................................. $787,404,801
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $787,404,502
Accumulated undistributed net investment income............. 299
-----------
NET ASSETS.............................................. $787,404,801
===========
NET ASSET VALUE PER SHARE,
787,404,502 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, 1999 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $11,141,203
----------
EXPENSES:
Investment management fee................................... 1,726,817
Plan of distribution fee.................................... 354,277
Registration fees........................................... 47,100
Transfer agent fees and expenses............................ 44,108
Professional fees........................................... 38,016
Shareholder reports and notices............................. 22,749
Custodian fees.............................................. 16,564
Trustees' fees and expenses................................. 8,189
Other....................................................... 4,971
----------
TOTAL EXPENSES.......................................... 2,262,791
Less: expense offset........................................ (16,531)
----------
NET EXPENSES............................................ 2,246,260
----------
NET INVESTMENT INCOME....................................... $8,894,943
==========
</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, 1999 1999
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 8,894,943 $ 14,766,018
Dividends from net investment income................. (8,895,004) (14,765,860)
Net increase from transactions in shares of
beneficial interest................................. 161,651,580 75,973,793
------------ ------------
NET INCREASE..................................... 161,651,519 75,973,951
NET ASSETS:
Beginning of period.................................. 625,753,282 549,779,331
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$299 and $360, respectively)..................... $787,404,801 $625,753,282
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1999 (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, 1999 (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, 1999 (unaudited) continued
fiscal year. For the six months ended December 31, 1999, 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, 1999 aggregated $800,815,000 and
$721,467,000, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At December 31, 1999, the Trust had
transfer agent fees and expenses payable of approximately $400.
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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,569. At December 31, 1999, the Trust had an accrued pension liability of
$41,561 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, 1999 JUNE 30, 1999
----------------- --------------
(unaudited)
<S> <C> <C>
Shares sold................................................. 1,353,537,233 2,258,604,717
Shares issued in reinvestment of dividends.................. 8,895,004 14,765,860
-------------- --------------
1,362,432,237 2,273,370,577
Shares repurchased.......................................... (1,200,780,657) (2,197,396,784)
-------------- --------------
Net increase in shares outstanding.......................... 161,651,580 75,973,793
============== ==============
</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, 1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(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 0.023 0.028 0.028 0.028 0.029
Less dividends from net investment
income................................. (0.012) (0.023) (0.028) (0.028) (0.028) (0.029)
------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN............................ 1.24%(1) 2.31% 2.84% 2.83% 2.82% 2.89%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 0.62%(2) 0.63%(3) 0.64% 0.66%(3) 0.67% 0.67%
Net investment income................... 2.46%(2) 2.28% 2.79% 2.78% 2.79% 2.86%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $787,405 $625,753 $549,779 $431,382 $384,218 $313,566
</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)
<PAGE> 16
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
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. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
CALIFORNIA TAX-FREE TRUST
Semiannual Report
December 31, 1999
