-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eq4evNwwkDa049qC9sxYWQ7G6UrZBnC/qXPYMr/yvhzwQgRhPGdBBU+bf+0RfrcJ 2zH+1J5CVqrvYIG9nUJd3g== 0000950123-04-002970.txt : 20040308 0000950123-04-002970.hdr.sgml : 20040308 20040308155236 ACCESSION NUMBER: 0000950123-04-002970 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040308 EFFECTIVENESS DATE: 20040308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTIVE ASSETS CALIFORNIA TAX FREE TRUST CENTRAL INDEX KEY: 0000877243 IRS NUMBER: 133622792 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06350 FILM NUMBER: 04654840 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: C/O DEAN WITTER INTERCAPITAL INC CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123921520 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: C/O DEAN WITTER INTERCAPITAL INC CITY: NEW YORK STATE: NY ZIP: 10048 N-CSRS 1 y92924nvcsrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06530 Active Assets California Tax-Free Trust (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: June 30, 2004 Date of reporting period: December 31, 2003 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Active Assets California Tax-Free Trust performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments. This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. FUND REPORT For the six-month period ended December 31, 2003 MARKET CONDITIONS The six months ended December 31, 2003, was a period of record low yields in the municipal money market. After its latest cut in the federal funds rate target on June 25, 2003, the Federal Reserve Open Market Committee (the "Fed") indicated that it intended to remain in an accommodative stance for a considerable period in an attempt to get the economy back onto a solid footing. The short end of the tax-free money market yield curve was largely flat through much of the year, though it inverted in the last quarter as seasonal redemptions pushed yields for the shortest maturities higher. Yields on municipal money market paper were highly attractive relative to taxable instruments. Among one-year maturities the ratio of municipals to taxable yields exceeded 90 percent for much of the year and for overnight paper the ratio at times rose above 100 percent. The accommodative monetary policy appeared to be having a positive effect as corporate profits and overall GDP growth began to show signs of life. As the year drew to a close, these improvements were reflected in better prospects for most municipalities, with tax receipts on the rise and the general trend toward widespread credit downgrades slowing. Many states worked to close budget gaps through a combination of increased fees and service cuts as well as one-time measures such as tobacco bond receipts and long-term refinancing. New York and California continued to lead the country in both issuance and deficits, with California experiencing downgrades in its general obligation bond ratings by both Standard & Poor's and Moody's. Against this backdrop, the issuance of traditional notes rose considerably in 2003. Rising deficits led many issuers to turn to the capital markets for temporary borrowing to meet shortfalls in cash flow. Long-term bond issuance also rose as many states and local issuers moved to lock in low financing rates for capital expenditures and to refinance higher-cost debt. Overall municipal issuance for calendar year 2003 exceeded the record levels of 2002, setting a new all-time high. PERFORMANCE ANALYSIS As of December 31, 2003, Active Assets California Tax-Free Trust had net assets of more than $762 million. For the six-month period ended December 31, 2003, the Fund provided a total return of 0.16 percent. For the seven-day period ended December 31, 2003, the Fund provided an effective annualized yield of 0.53 percent and a current yield of 0.53 percent, while its 30-day moving average yield for December was 0.44 percent. Past performance is no guarantee of future results. The general shape of the yield curve and the very low level of interest rates reduced incentives for extending the portfolio's maturity structure. As a result, Active Assets California Tax-Free Trust spent the period with an emphasis on the short-to-intermediate maturity range within the municipal money market. This approach had the added benefit of positioning the Fund defensively against any potential increases in interest rates at the short end of the curve. The uncertain state of the economy also made us largely unwilling to introduce added interest-rate risk into the Fund's portfolio. 2 Our general caution was reflected in the Fund's composition. By the end of the period, the portfolio was comprised of 75 to 80 percent short-term variable rate paper, with the remainder in short-term tax-exempt commercial paper and fixed-rate municipal notes. As always, we remained highly selective in our security selection and thoroughly screened potential purchases to ensure that they met the Fund's credit criteria. We were especially cautious in our purchases of longer fixed-rate paper, given California's ongoing budgetary difficulties.
PORTFOLIO COMPOSITION Variable Rate Municipal Obligations 75.8% Commercial Paper 14.5 Municipal Notes 9.7
MATURITY SCHEDULE 1-30 Days 80.1% 31-60 Days 5.6 61-90 Days 0.0 91-120 Days 0.0 121+ Days 14.3
Subject to change daily. All percentages are as a percentage of total investments. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. INVESTMENT STRATEGY 1. THE FUND WILL INVEST IN HIGH QUALITY, SHORT-TERM SECURITIES THAT ARE NORMALLY MUNICIPAL OBLIGATIONS THAT PAY INTEREST EXEMPT FROM FEDERAL AND CALIFORNIA INCOME TAXES. 2. THE FUND'S "INVESTMENT MANAGER," MORGAN STANLEY INVESTMENT ADVISORS INC. SEEKS TO MAINTAIN THE FUND'S SHARE PRICE AT $1.00. THE SHARE PRICE REMAINING STABLE AT $1.00 MEANS THAT THE FUND WOULD PRESERVE THE PRINCIPAL VALUE OF YOUR INVESTMENT.* - ---------------------------------------------------- * An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 3 Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED)
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE - --------------------------------------------------------------------------------------------------------- California Tax-Exempt Short-Term Variable Rate Municipal Obligations (78.6%) ABAG Finance Authority for Nonprofit Corporations, $ 3,600 Computer History Museum Ser 2002........................ 1.18% 01/08/04 $ 3,600,000 8,400 Episcopal Homes Foundation Ser 2000 COPs................ 1.28 01/08/04 8,400,000 7,000 Lease Purchase 2003 Ser A............................... 1.30 01/08/04 7,000,000 12,800 Antelope Valley Union High School District, School Facility Bridge Funding 2002 Ser C (FSA)................ 1.04 01/08/04 12,800,000 15,300 Bay Area Toll Authority, San Francisco Bay Area Toll Bridge Ser B (Ambac).................................... 1.16 01/08/04 15,300,000 20,000 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT)........ 1.12 01/08/04 20,000,000 11,970 California Alternative Energy Source Finance Authority, General Electric Capital Corp-Arroyo Energy 1993 Ser B (AMT)................................................... 1.15 01/08/04 11,970,000 8,400 California Department of Water Resources, Power Supply Ser B Subser B-1 & B-6..................... 1.27 01/02/04 8,400,000 California Educational Facilities Authority, 5,000 California Institute of Technology Ser 1994............. 1.10 01/08/04 5,000,000 15,165 Stanford University Ser L-5............................. 1.05 01/08/04 15,165,000 4,220 California Health Facilities Financing Authority, Adventist Health System/West 1998 Ser B (MBIA).......... 1.27 01/02/04 4,220,000 California Housing Finance Agency, 5,000 Home Mortgage 2002 Ser M (AMT).......................... 1.29 01/02/04 5,000,000 15,000 Home Mortgage 2003 Ser F (AMT) (FSA).................... 1.11 01/08/04 15,000,000 California Pollution Control Financing Authority, 10,485 Chevron USA Inc Ser 1984 B.............................. 1.10 06/15/04 10,486,309 5,000 Solid Waste Disposal Waste Management Inc Ser 2002 A (AMT)................................................... 1.29 01/08/04 5,000,000 2,000 California Statewide Communities Development Authority, Sutter Health Ser 1995 COPs (Ambac)..................... 1.27 01/02/04 2,000,000 32,015 California Transit Finance Authority, Ser 1997 (FSA)...... 1.25 01/08/04 32,015,000 10,000 Chino Basin Financing Authority, Inland Empire Utilities Agency Ser 2002 A (Ambac)............................... 1.03 01/08/04 10,000,000 15,000 Contra Costa County, Multifamily The Park Regency Ser 2003 Ser F (AMT).................................... 1.20 01/08/04 15,000,000 9,000 Eastern Municipal Water District, Water & Sewer Ser 1993 B COPs (FGIC)............................................. 1.20 01/08/04 9,000,000 21,000 Elsinore Valley Municipal Water District, Ser 2000 A COPs (FGIC).................................................. 1.10 01/08/04 21,000,000 10,900 Fremont, Creekside Village Multifamily Ser 1985 D......... 1.16 01/08/04 10,900,000 9,000 Fresno, Sewer System Sub Lien Ser 2000 A (FGIC)........... 1.10 01/08/04 9,000,000 7,000 Glendale Financing Authority, 2000 Police Building COPs... 1.25 01/08/04 7,000,000 8,000 Golden Empire Schools Financing Authority, Kern High School District Ser 2001................................ 1.12 01/08/04 8,000,000
4 See Notes to Financial Statements Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE - --------------------------------------------------------------------------------------------------------- Irvine Assessment District, $ 7,150 No 87-8, Improvement Bond Act 1915...................... 1.27% 01/02/04 $ 7,150,000 8,550 No 93-14, Improvement Bond Act 1915..................... 1.26 01/02/04 8,550,000 2,600 Kern Water Bank Authority, Ser 2003 A..................... 1.10 01/08/04 2,600,000 11,700 Lancaster, Antelope Pines Apartment Ser 2001 A............ 1.25 01/08/04 11,700,000 Los Angeles, Multifamily 30,000 1985 Ser K.............................................. 1.20 01/08/04 30,000,000 2,025 1994 Ser A (AMT)........................................ 1.35 01/02/04 2,025,000 16,100 Los Angeles, Wastewater System Ser 2001 A & B (FGIC)...... 1.15 12/09/04 16,100,000 22,100 Los Angeles Community Redevelopment Agency, Grand Promenade Ser 2002...................................... 1.20 01/08/04 22,100,000 10,000 Los Angeles Convention and Exhibition Center Authority, Ser 2003 F (Ambac)...................................... 0.97 06/16/04 10,000,000 16,095 Los Angeles County Metropolitan Transportation Authority, Sales Tax Ser 1993-A (MBIA)............................. 1.10 01/08/04 16,095,000 Los Angeles Department of Water & Power, 12,000 Power System 2001 Ser B Subser B-1...................... 1.20 01/08/04 12,000,000 15,000 Water System 2001 Ser B Subser B-1...................... 1.25 01/08/04 15,000,000 6,500 Water System 2001 Ser B Subser B-6...................... 1.27 01/02/04 6,500,000 Metropolitan Water District of Southern California, 8,000 Water 1999 Ser C........................................ 1.25 01/08/04 8,000,000 13,700 Water 2000 Ser B-2...................................... 1.07 01/08/04 13,700,000 2,000 Water 2000 Ser B-3...................................... 1.26 01/02/04 2,000,000 15,600 Monterey Peninsula Water Management District, Wastewater Ser 1992 COPs........................................... 1.25 01/08/04 15,600,000 5,150 Newport Beach, Hoag Memorial Hospital Presbyterian Ser 1996 B & C.............................................. 1.30 01/02/04 5,150,000 27,700 Oakland-Alameda County Coliseum Authority, Oakland Coliseum 2000 Refg Ser C-1.............................. 1.20 01/08/04 27,700,000 3,000 Orange County Housing Authority, Oasis Martinique Refg 1998 Issue I............................................ 1.24 01/08/04 3,000,000 5,000 Pasadena, City Hall & Park Improvement Ser 2003 COPs (Ambac)................................................. 1.20 01/08/04 5,000,000 4,500 Pomona Redevelopment Agency, Park & Plaza Apartments Ser 1998 A.................................................. 1.20 01/08/04 4,500,000 11,700 Rancho Mirage Joint Powers Financing Authority, Eisenhower Medical Center Ser 1997 B COPs (MBIA)................... 1.11 01/08/04 11,700,000 6,950 Redlands, Orange Village Apartments 1988 Ser A (AMT)...... 1.15 01/08/04 6,950,000 15,000 San Bernardino County, Medical Center Financing Ser 1998 COPs (MBIA)............................................. 1.11 01/08/04 15,000,000 11,275 San Francisco City & County, Folsom-Dore Apartments Ser 2002 A (AMT)............................................ 1.33 01/08/04 11,275,000
5 See Notes to Financial Statements Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE - --------------------------------------------------------------------------------------------------------- $ 3,400 San Francisco City & County Finance Corporation, Moscone Center Ser 2000-1 (Ambac)............................... 1.25% 01/08/04 $ 3,400,000 7,500 San Francisco City & County Redevelopment Agency, Bayside Village Multifamily Ser 1985 A.......................... 1.22 01/08/04 7,500,000 13,400 San Jose Redevelopment Agency, Merged Area 1996 Ser B..... 1.15 01/08/04 13,400,000 9,000 Southern California Public Power Authority, Transmission Refg Ser 2001 A (FSA)................................... 1.10 01/08/04 9,000,000 5,120 Turlock Irrigation District, Ser 1988 A................... 1.12 01/08/04 5,120,000 ------------ Total California Tax-Exempt Short-Term Variable Rate Municipal Obligations (Cost $599,071,309)........................................................ 599,071,309 ------------
YIELD TO MATURITY COUPON MATURITY ON DATE OF RATE DATE PURCHASE ------ -------- ---------- California Tax-Exempt Commercial Paper (15.0%) 5,404 California Department of Water Resources Ser 1......................................... 1.05% 01/22/04 1.05% 5,404,000 10,000 California Infrastructure & Economic Development Bank, Salvation Army Western Territory Ser 2001........................ 1.08 01/28/04 1.08 10,000,000 East Bay Municipal Utility District, 10,000 Water System Ser 1997..................... 0.97 02/10/04 0.97 10,000,000 10,000 Water System Ser 1997..................... 1.05 01/14/04 1.05 10,000,000 11,500 Water System Ser 1997..................... 1.05 02/18/04 1.05 11,500,000 10,000 Los Angeles County Metropolitan Transportation Authority, 2nd Sub Sales Tax Ser A 0.90 01/13/04.. 0.90 10,000,000 San Diego County Water Authority, 7,500 Ser 1..................................... 0.96 01/27/04 0.96 7,500,000 8,000 Ser 1..................................... 1.02 02/10/04 1.02 8,000,000 8,000 Ser 1..................................... 1.02 02/13/04 1.02 8,000,000 6,400 San Gabriel Valley Council of Governments, Alameda Corridor-East GANs................ 0.97 02/10/04 0.97 6,400,000 University of California Regents, 12,000 Ser A..................................... 0.88 01/08/04 0.88 12,000,000 10,000 Ser A..................................... 1.05 01/13/04 1.05 10,000,000 6,000 Ser A..................................... 1.05 01/14/04 1.05 6,000,000 ------------ Total California Tax-Exempt Commercial Paper (Cost $114,804,000)....................................................... 114,804,000 ------------
6 See Notes to Financial Statements Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued
YIELD TO PRINCIPAL MATURITY AMOUNT IN COUPON MATURITY ON DATE OF THOUSANDS RATE DATE PURCHASE VALUE - -------------------------------------------------------------------------------------------------------- California Tax-Exempt Short-Term Municipal Notes (10.1%) $30,000 California School Cash Reserve Program Authority, 2003 Pool Ser A (Ambac), dtd 07/03/03.................................. 2.00% 07/06/04 0.90% $ 30,167,388 14,795 California Statewide Communities Development Authority, 2003 Ser A-1 TRANs (FSA), dtd 07/01/03.................................. 2.00 06/30/04 0.88 14,876,217 8,540 Los Angeles County, 2003-2004 Ser A TRANs, dtd 07/01/03.............................. 2.00 06/30/04 0.85 8,588,151 15,000 Santa Cruz County, 2003-2004 TRANs, dtd 07/02/03.................................. 2.00 07/01/04 0.91 15,080,554 Puerto Rico 8,000 Puerto Rico, Ser 2004 TRANs, dtd 10/15/03... 2.00 07/30/04 1.00 8,045,850 ------------ Total California Tax-Exempt Short-Term Municipal Notes (Cost $76,758,160)........................................................ 76,758,160 ------------ Total Investments (Cost $790,633,469) (a)(b)...................................... 103.7% 790,633,469 Liabilities in Excess of Other Assets............................. (3.7) (28,534,234) ----- ------------ Net Assets........................................................ 100.0% $762,099,235 ===== ============
- --------------------- AMT Alternative Minimum Tax. COPs Certificates of Participation. GANs Grant Anticipation Notes. TRANs Tax and Revenue Anticipation Notes. + Rate shown is rate in effect at December 31, 2003. * Date on which the principal amount can be recovered through demand. (a) Securities have been designated as collateral in an amount equal to $29,797,686 in connection with the purchase of delayed delivery securities. (b) 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.
7 See Notes to Financial Statements Active Assets California Tax-Free Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities December 31, 2003 (unaudited) Assets: Investments in securities, at value (cost $790,633,469)....................................... $790,633,469 Cash........................................................ 123,486 Interest receivable......................................... 1,595,995 Prepaid expenses............................................ 19,591 ------------ Total Assets............................................ 792,372,541 ------------ Liabilities: Payable for: Investments purchased................................... 29,797,686 Investment management fee............................... 323,532 Distribution fee........................................ 68,246 Accrued expenses and other payables......................... 83,842 ------------ Total Liabilities....................................... 30,273,306 ------------ Net Assets.............................................. $762,099,235 ============ Composition of Net Assets: Paid-in-capital............................................. $762,094,569 Accumulated undistributed net investment income............. 4,666 ------------ Net Assets.............................................. $762,099,235 ============ Net Asset Value Per Share, 762,075,243 shares outstanding (unlimited authorized shares of $.01 par value)................................... $1.00 ============
8 See Notes to Financial Statements Active Assets California Tax-Free Trust FINANCIAL STATEMENTS continued Statement of Operations For the six months ended December 31, 2003 (unaudited) Net Investment Income: Interest Income............................................. $3,516,494 ---------- Expenses Investment management fee................................... 1,810,958 Distribution fee............................................ 382,494 Transfer agent fees and expenses............................ 44,867 Professional fees........................................... 27,773 Shareholder reports and notices............................. 20,306 Custodian fees.............................................. 16,504 Registration fees........................................... 10,349 Trustees' fees and expenses................................. 8,227 Other....................................................... 10,598 ---------- Total Expenses.......................................... 2,332,076 Less: expense offset........................................ (16,445) ---------- Net Expenses............................................ 2,315,631 ---------- Net Investment Income....................................... $1,200,863 ==========
9 See Notes to Financial Statements Active Assets California Tax-Free Trust FINANCIAL STATEMENTS continued Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED DECEMBER 31, 2003 JUNE 30, 2003 ----------------- ------------- (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 1,200,863 $ 4,959,218 Dividends to shareholders from net investment income........ (1,200,762) (4,959,654) Net decrease from transactions in shares of beneficial interest.................................................. (348,575) (207,445) ------------ ------------ Net Decrease............................................ (348,474) (207,881) Net Assets: Beginning of period......................................... 762,447,709 762,655,590 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $4,666 and $4,565, respectively)......................... $762,099,235 $762,447,709 ============ ============
10 See Notes to Financial Statements Active Assets California Tax-Free Trust NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003 (UNAUDITED) 1. Organization and Accounting Policies Active Assets California Tax-Free Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is to provide a high level of daily income which is exempt from federal and California income tax consistent with stability of principal and liquidity. The Fund was organized as a Massachusetts business trust on July 10, 1991 and commenced operations on November 12, 1991. 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. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. Dividends and Distributions to Shareholders -- The Fund records dividends and distributions to shareholders as of the close of each business day. E. Use of Estimates -- 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. 2. Investment Management Agreement Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of the daily net assets not exceeding $500 million; 0.425% to the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% to the portion of the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of the daily net assets exceeding $2 billion but not 11 Active Assets California Tax-Free Trust NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003 (UNAUDITED) continued 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. 3. Plan of Distribution Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager, is the distributor of the Fund's shares and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act, finances certain expenses in connection with the promotion of sales of Fund shares. Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the six months ended December 31, 2003, 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, 2003, aggregated $726,159,800 and $791,980,000, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. Aggregate pension costs for the six months ended December 31, 2003, included in Trustees' fees and expenses in the Statement of Operations amounted to $3,283. At December 31, 2003, the Fund had an accrued pension liability of $53,228 which is included in accrued expenses in the Statement of Assets and Liabilities. On December 2, 2003, the Trustees voted to close the plan to new participants, eliminate the future benefits growth due to increases to compensation after July 31, 2003 and effective April 1, 2004, establish an unfunded deferred compensation plan which allows each independent Trustee to defer payment of all or a portion of the fees he receives for serving on the Board of Trustees throughout the year. 12 Active Assets California Tax-Free Trust NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003 (UNAUDITED) continued 5. Shares of Beneficial Interest Transactions in shares of beneficial interest, at $1.00 per share, were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED DECEMBER 31, 2003 JUNE 30, 2003 ----------------- -------------- (unaudited) Shares sold................................................. 1,190,582,630 2,216,990,398 Shares issued in reinvestment of dividends.................. 1,200,762 4,959,654 -------------- -------------- 1,191,783,392 2,221,950,052 Shares redeemed............................................. (1,192,131,967) (2,222,157,497) -------------- -------------- Net decrease in shares outstanding.......................... (348,575) (207,445) ============== ==============
6. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund. 7. Legal Matters The Investment Manager, certain affiliates of the Investment Manager and certain investment companies advised by the Investment Manager or its affiliates, including the Fund, are named as defendants in a number of recently filed, similar class action complaints. These complaints generally allege that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Manager and certain affiliates of the Investment Manager allegedly offered economic incentives to brokers and others to steer investors to the funds advised by the Investment Manager or its affiliates rather than funds managed by other companies, and (ii) that the funds advised by the Investment Manager or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to steer investors to these funds. The complaints seek, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants intend to move to dismiss these actions and otherwise vigorously to defend them. While the Fund believes that it has meritorious defenses, the ultimate outcome of these matters is not presently determinable at this early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of these matters. 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:
FOR THE SIX FOR THE YEAR ENDED JUNE 30, MONTHS ENDED --------------------------------------------------------- DECEMBER 31, 2003 2003 2002 2001 2000 1999 ----------------- --------- --------- --------- --------- --------- (unaudited) 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.... 0.002 0.006 0.011 0.026 0.026 0.023 Less dividends from net investment income.................................. (0.002) (0.006) (0.011) (0.026) (0.026) (0.023) ------- ------- ------- ------- ------- -------- Net asset value, end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= ======== Total Return............................. 0.16%(2) 0.63% 1.15% 2.68% 2.60% 2.31% Ratios to Average Net Assets: Expenses (before expense offset)......... 0.61%(3) 0.60% 0.60% 0.59% 0.61% 0.63%(1) Net investment income.................... 0.31%(3) 0.63% 1.14% 2.64% 2.55% 2.28% Supplemental Data: Net assets, end of period, in thousands............................... $762,099 $762,448 $762,656 $759,089 $697,703 $625,753
- --------------------- (1) Does not reflect the effect of expense offset of 0.01%. (2) Not annualized. (3) Annualized.
14 See Notes to Financial Statements (This Page Intentionally Left Blank) TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Philip J. Purcell Fergus Reid OFFICERS Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Barry Fink Vice President and General Counsel Joseph J. McAlinden Vice President Stefanie V. Chang Vice President Francis J. Smith Treasurer and Chief Financial Officer Thomas F. Caloia Vice President Mary E. Mullin Secretary TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT ADVISOR Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of shareholders of the Fund. Fore more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (c) 2003 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Active Assets California Tax-Free Trust Semiannual Report December 31, 2003 [MORGAN STANLEY LOGO] 13676B04-AP-2/04 Item 2. Code of Ethics. Not applicable for semiannual reports. Item 3. Audit Committee Financial Expert. Not applicable for semiannual reports. Item 4. Principal Accountant Fees and Services Not applicable for semiannual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semiannual reports. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. [Reserved.] Item 9 - Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10 Exhibits (a) Code of Ethics - Not applicable for semiannual reports. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Active Assets California Tax-Free Trust /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer February 18, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer February 18, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer February 18, 2004 3 EX-99.CERT 3 y92924exv99wcert.txt SECTION 302 CERTIFICATION EXHIBIT 10 B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Active Assets California Tax-Free Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 4 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 18, 2004 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 5 EXHIBIT 10 B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 6. I have reviewed this report on Form N-CSR of Active Assets California Tax-Free Trust; 7. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 8. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 9. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: b) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] e) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and f) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 10. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): c) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and 6 d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 18, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer 7 EX-99.906CERT 4 y92924exv99w906cert.txt SECTION 906 CERTIFICATION SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Active Assets California Tax-Free Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended December 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: February 18, 2004 /s/ Ronald E. Robison --------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Active Assets California Tax-Free Trust and will be retained by Active Assets California Tax-Free Trust and furnished to the Securities and Exchange Commission or its staff upon request. 8 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Active Assets California Tax-Free Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended December 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: February 18, 2004 /s/ Francis Smith ---------------------- Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Active Assets California Tax-Free Trust and will be retained by Active Assets California Tax-Free Trust and furnished to the Securities and Exchange Commission or its staff upon request. 9 -----END PRIVACY-ENHANCED MESSAGE-----