-----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, NH3wLKN1qmX4sIS9iCVUqHxRHoiCtW/NWq7IPGdS6axFbq/Fri9mOgqVpF0UDJxM Gr7BG5mR1aere/hUPlMbIA== 0001047469-04-027744.txt : 20040901 0001047469-04-027744.hdr.sgml : 20040901 20040901120753 ACCESSION NUMBER: 0001047469-04-027744 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040901 DATE AS OF CHANGE: 20040901 EFFECTIVENESS DATE: 20040901 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06350 FILM NUMBER: 041010226 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-CSR 1 a2142409zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR 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: June 30, 2004 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 ANNUAL 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 YEAR ENDED JUNE 30, 2004 MARKET CONDITIONS Perhaps the most significant event of the 12-month review period happened on its final day. On June 30, 2004, the Federal Open Market Committee (the "Fed") raised the federal funds rate target by 25 basis points, to 1.25 percent. Prior to that, the target rate had been at a multidecade low for a full year. Indeed, rates across the money market yield curve had steadily trended lower for several years. The Fed's change had been widely anticipated; at the end of the period the market reflected investors' general expectation that rates would rise still further in the coming months as a result of mounting inflationary pressures. In the year prior to the Fed's rate hike the municipal money markets were largely mixed. At the outset of the period, the U.S. economy remained weak and state governments were facing severe budgetary difficulties. Across the board, municipalities were seeking ways to reduce expenditures and boost revenue through a variety of tactics, including new fees and taxes, refinancing of existing debt and, in some instances, borrowing to fund deficits. The economic and investment environments both showed marked improvement in the spring of 2004, when continued growth in employment and corporate profits alike resulted in improving outlooks for municipal tax revenues. The money market yield curve - -- the difference between short- and longer-term yields -- steepened significantly over the first six months of 2004, reflecting the market's expectation of further strength in the U.S. economy. The California municipal market entered this reporting period in the doldrums, with the state's general obligation debt carrying ratings within the lowest investment-grade categories from Moody's, Standard & Poor's and Fitch. Then the market took a turn for the better with the widely publicized election of Arnold Schwarzenegger as governor, and improved further as the new governor successfully implemented new policy initiatives aimed at easing the state's financial woes. Key among these measures was the issuance of $11 billion of economic recovery bonds, part of a total of $15 billion in deficit financing approved by voters that was intended to cover the state's accumulated budget shortfalls. The sale of these bonds, in both fixed-rate and variable-rate form, was highly successful. Spreads between California and national yield levels declined measurably for all maturities, producing outperformance for the state relative to national averages. PERFORMANCE ANALYSIS As of June 30, 2004, Active Assets California Tax-Free Trust had net assets of more than $687 million and an average portfolio maturity of 42 days. For the twelve-month period ended June 30, 2004, the Fund provided a total return of 0.35 percent. For the seven-day period ended June 30, 2004, the Fund provided an effective annualized yield and a current yield both of 0.44 percent, while its 30-day moving average yield for June was 0.42 percent. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 2 We were largely cautious in managing the Fund's portfolio during the period, preferring to avoid the one-year segment of the money market in anticipation of further yield increases there. As a result, the Fund's portfolio ended the period with a weighted average maturity somewhat lower than has historically been the case at this point in the year. We chose to emphasize short-term variable-rate paper and shorter maturities of tax-exempt commercial paper in order to minimize the potential adverse effects of rising interest rates. Given California's budgetary challenges, we remained highly cautious in our security selection over the course of the review period. PORTFOLIO COMPOSITION Variable Rate Municipal Obligations 69.9% Tax-Exempt Commercial Paper 15.2 Municipal Notes 14.9
MATURITY SCHEDULE 1 - 30 Days 80.3% 31 - 60 Days 5.6 61 - 90 Days - 91 - 120 Days - 121 + Days 14.1
DATA AS OF JUNE 30, 2004. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR PORTFOLIO COMPOSITION AND MATURITY SCHEDULE ARE AS A PERCENTAGE OF TOTAL INVESTMENTS. PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED 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 THE FUND INVESTS IN HIGH QUALITY, SHORT-TERM DEBT OBLIGATIONS. IN SELECTING INVESTMENTS, THE "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. ANNUAL HOUSEHOLDING NOTICE TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS. YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS. 3 ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST PORTFOLIO OF INVESTMENTS - JUNE 30, 2004
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE - ----------------------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (77.1%) ABAG Finance Authority for Nonprofit Corporations, $ 8,400 Episcopal Homes Foundation Ser 2000 COPs 1.07% 07/08/04 $ 8,400,000 5,000 Lease Purchase 2003 Ser A 1.17 07/08/04 5,000,000 7,010 Anaheim Public Finance Authority, Distribution System ROCs II-R Ser 6021 (MBIA) 1.11 07/08/04 7,010,000 20,000 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT) 1.11 07/08/04 20,000,000 8,100 California, Economic Recovery Ser 2004 A ROCs II-R Ser 280 (FGIC) (DD) 1.10 07/08/04 8,100,000 11,970 California Alternative Energy Source Finance Authority, General Electric Capital Corp-Arroyo Energy 1993 Ser B (AMT) 1.03 07/08/04 11,970,000 4,900 California Department of Water Resources, Power Supply Ser B Subser B-1 1.08 07/01/04 4,900,000 California Educational Facilities Authority, 5,000 California Institute of Technology Ser 1994 1.05 07/08/04 5,000,000 15,165 Stanford University Ser L-5 0.95 07/08/04 15,165,000 California Health Facilities Financing Authority, 3,400 Adventist Health System/West 1998 Ser B (MBIA) & Ser C (MBIA) 1.08 07/01/04 3,400,000 3,300 Adventist Health System/West 2002 Ser A & B 1.08 07/01/04 3,300,000 1,100 Sisters of Charity of Leavenworth Health System Ser 2003 1.03 07/08/04 1,100,000 15,000 California Housing Finance Agency, Home Mortgage 2003 Ser F (AMT) (FSA) 1.11 07/08/04 15,000,000 10,485 California Pollution Control Financing Authority, Chevron USA Inc Ser 1984 B 1.60 12/15/04 10,485,861 California Statewide Communities Development Authority, 400 House Ear Institute 1993 Ser A COPs 1.08 07/01/04 400,000 4,200 Kaiser Permanente Ser 2004 L 1.15 07/08/04 4,200,000 17,015 California Transit Finance Authority, Ser 1997 (FSA) 1.04 07/08/04 17,015,000 23,140 Chino Basin Financing Authority, Inland Empire Utilities Agency Ser 2002 A (Ambac) (DD) 1.04 07/08/04 23,140,000 12,900 Eastern Municipal Water District, Water & Sewer Ser 1993 B COPs (FGIC) 1.06 07/08/04 12,900,000 11,000 Elsinore Valley Municipal Water District, Ser 2000 A COPs (FGIC) 1.00 07/08/04 11,000,000 21,000 Fresno, Sewer System Sub Lien Ser 2000 A (FGIC) 1.00 07/08/04 21,000,000 4,400 Glendale Financing Authority, 2000 Police Building COPs 1.06 07/08/04 4,400,000
SEE NOTES TO FINANCIAL STATEMENTS 4
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE - ----------------------------------------------------------------------------------------------------------------------------- $ 1,200 Golden Empire Schools Financing Authority, Kern High School District Ser 2001 1.03% 07/08/04 $ 1,200,000 11,700 Lancaster, Antelope Pines Apartments Ser 2001 A 1.07 07/08/04 11,700,000 6,000 Long Beach, Harbor PUTTERs Ser 444 (MBIA) (AMT) 1.11 07/08/04 6,000,000 Los Angeles, 30,000 Multifamily 1985 Ser K 1.06 07/08/04 30,000,000 16,100 Wastewater System Ser 2001 A (FGIC) & Ser 2001 B (FGIC) 1.15 12/09/04 16,100,000 22,100 Los Angeles Community Redevelopment Agency, Grand Promenade Ser 2002 1.06 07/08/04 22,100,000 9,695 Los Angeles Convention and Exhibition Center Authority, Ser 2003 B-1 (Ambac) 1.02 07/08/04 9,695,000 17,695 Los Angeles County Metropolitan Transportation Authority, Prop C Sales Tax Ser 1993-A (MBIA) 1.06 07/08/04 17,695,000 Los Angeles Department of Water & Power, 7,000 Power System 2001 Ser B Subser B-1 1.08 07/08/04 7,000,000 1,100 Power System 2001 Ser B Subser B-6 1.08 07/01/04 1,100,000 16,200 Water System 2001 Ser B Subser B-1 1.06 07/08/04 16,200,000 16,705 Los Angeles Housing Authority, 2004 Ser A 1.00 07/08/04 16,705,000 Los Angeles Unified School District, 2,500 PT-1731 (MBIA) 1.11 07/08/04 2,500,000 8,000 PUTTERs Ser 425 (FSA) 1.11 07/08/04 8,000,000 Metropolitan Water District of Southern California, 8,000 Water 1999 Ser C 1.08 07/08/04 8,000,000 7,000 Water 2000 Ser B-2 1.00 07/08/04 7,000,000 6,335 Milipitas Redevelopment Agency, Redevelopment Project Area No 1 ROCs II-R Ser 4557 (MBIA) 1.09 07/08/04 6,335,000 15,600 Monterey Peninsula Water Management District, Wastewater Ser 1992 COPs 1.10 07/08/04 15,600,000 13,300 Mountain View, Villa Mariposa Multifamily 1985 Ser A 1.12 07/08/04 13,300,000 9,650 Newport Beach, Hoag Memorial Hospital Presbyterian 1996 Ser B & C 1.09 07/01/04 9,650,000 1,661 Orange County, Irvine Coast Assessment District No 88-1 1.08 07/01/04 1,661,000 3,000 Orange County Housing Authority, Oasis Martinique Refg 1998 Issue I 1.08 07/08/04 3,000,000 5,000 Pasadena, City Hall & Park Improvement Ser 2003 COPs (Ambac) 1.06 07/08/04 5,000,000
SEE NOTES TO FINANCIAL STATEMENTS 5
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE - ----------------------------------------------------------------------------------------------------------------------------- $ 4,500 Pomona Redevelopment Agency, Park & Plaza Apartments Ser 1998 A 1.06% 07/08/04 $ 4,500,000 6,850 Redlands, Orange Village Apartments 1988 Ser A (AMT) 1.05 07/08/04 6,850,000 7,905 Roaring Fork Municipal Products, California Economic Recovery Class A Certificates Ser 2004-4 (FGIC) 1.11 07/08/04 7,905,000 4,900 Sacramento County, Administration Center & Courthouse Ser 1990 COPs 1.06 07/08/04 4,900,000 15,000 San Bernardino County, Medical Center Financing Ser 1998 COPs (MBIA) 1.02 07/08/04 15,000,000 11,275 San Francisco City & County, Folsom-Dore Apartments Ser 2002 A (AMT) 1.14 07/08/04 11,275,000 7,500 San Francisco City & County Redevelopment Agency, Bayside Village Multifamily Ser 1985 A 1.08 07/08/04 7,500,000 2,000 San Jose, Almaden Lake Village Apartments Ser 2000 A (AMT) 1.11 07/08/04 2,000,000 200 Santa Ana, Town & County Manor Ser 1990 1.08 07/01/04 200,000 Southern California Public Power Authority, 4,585 Transmission 1991 Refg Ser (Ambac) (DD) 1.04 07/08/04 4,585,000 12,000 Transmission Refg Ser 2001 A (FSA) 1.00 07/08/04 12,000,000 4,920 Turlock Irrigation District, Ser 1988 A 1.03 07/08/04 4,920,000 -------------- TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (COST $530,061,861) 530,061,861 -------------- YIELD TO MATURITY COUPON MATURITY ON DATE OF RATE DATE PURCHASE -------- -------- ---------- CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (16.7%) 10,000 California Infrastructure & Economic Development Bank, Salvation Army Western Territory Ser 2001 1.02% 11/17/04 1.02% 10,000,000 4,400 California Statewide Communities Development Authority, Kaiser Permanente Ser 2004 K 1.08 08/24/04 1.08 4,400,000 East Bay Municipal Utility District, 10,000 Water System Ser 1997 1.08 07/23/04 1.08 10,000,000 10,000 Water System Ser 1997 1.10 07/27/04 1.10 10,000,000 11,500 Water System Ser 1997 1.08 08/19/04 1.08 11,500,000 10,000 Los Angeles County Metropolitan Transportation Authority, 2nd Sub Sales Tax Ser A 1.08 07/19/04 1.08 10,000,000
SEE NOTES TO FINANCIAL STATEMENTS 6
YIELD TO PRINCIPAL MATURITY AMOUNT IN COUPON MATURITY ON DATE OF THOUSANDS RATE DATE PURCHASE VALUE - ----------------------------------------------------------------------------------------------------------------------------- San Diego County Water Authority, $ 8,000 Ser 1 1.08% 07/20/04 1.08% $ 8,000,000 10,000 Ser 1 1.20 11/18/04 1.20 10,000,000 San Francisco County Transportation Authority, 2,250 2004 Ser B 1.02 07/21/04 1.02 2,250,000 4,000 2004 Ser B 1.05 08/12/04 1.05 4,000,000 6,400 San Gabriel Valley Council of Governments, Alameda Corridor-East GANs 1.08 07/22/04 1.08 6,400,000 University of California Regents, 6,000 Ser A 1.09 07/27/04 1.09 6,000,000 12,500 Ser A 1.12 08/18/04 1.12 12,500,000 10,000 Ser A 1.10 08/26/04 1.10 10,000,000 -------------- TOTAL CALIFORNIA TAX-EXEMPT COMMERCIAL PAPER (COST $115,050,000) 115,050,000 -------------- CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (16.5%) 20,000 California, Ser 1994 (FGIC), dtd 11/01/1994 7.00 11/01/04 1.22 20,781,201 California School Cash Reserve Program Authority, 30,000 2003 Pool Ser A (Ambac), dtd 07/03/03 2.00 07/06/04 0.90 30,004,476 19,000 2004 Pool Ser A (Ambac), dtd 07/06/04 (WI) 3.00 07/06/05 1.60 19,261,630 13,000 Sacramento County, 2004 Ser A TRANs, dtd 07/01/04 (WI) 3.00 07/11/05 1.65 13,177,320 Santa Cruz County, 15,000 Ser 2003-2004 TRANs, dtd 07/02/03 2.00 07/01/04 0.91 15,000,000 7,000 Ser 2004-2005 A TRANs, dtd 07/07/04 (WI) 3.00 07/06/05 1.62 7,094,780
SEE NOTES TO FINANCIAL STATEMENTS 7
YIELD TO PRINCIPAL MATURITY AMOUNT IN COUPON MATURITY ON DATE OF THOUSANDS RATE DATE PURCHASE VALUE - -------------- -------- --------- ---------- -------------- PUERTO RICO $ 8,000 Puerto Rico, Ser 2004 TRANs, dtd 10/15/03 2.00% 07/30/04 0.90% $ 8,006,302 -------------- TOTAL CALIFORNIA TAX-EXEMPT SHORT-TERM MUNICIPAL NOTES (COST $113,325,709) 113,325,709 -------------- TOTAL INVESTMENTS (COST $758,437,570) (a) (b) 110.3% 758,437,570 LIABILITIES IN EXCESS OF OTHER ASSETS (10.3) (70,637,264) ----- -------------- NET ASSETS 100.0% $ 687,800,306 ===== ==============
- ---------- AMT ALTERNATIVE MINIMUM TAX. COPs CERTIFICATES OF PARTICIPATION. DD ALL OR A PORTION OF THIS SECURITY WAS PURCHASED ON A DELAYED DELIVERY BASIS. GANs GRANT ANTICIPATION NOTES. PUTTERs PUTTABLE TAX-EXEMPT RECEIPTS. ROCs RESET OPTION CERTIFICATES. TRANs TAX AND REVENUE ANTICIPATION NOTES. WI SECURITY PURCHASED ON A WHEN-ISSUED BASIS. + RATE SHOWN IS THE RATE IN EFFECT AT JUNE 30, 2004. * DATE ON WHICH THE PRINCIPAL AMOUNT CAN BE RECOVERED THROUGH DEMAND. (a) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $72,386,199 IN CONNECTION WITH THE PURCHASE OF WHEN-ISSUED AND 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. SEE NOTES TO FINANCIAL STATEMENTS 8 ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2004 ASSETS: Investments in securities, at value (cost $758,437,570) $ 758,437,570 Cash 6,320 Receivable for: Interest 2,085,208 Investments sold 104,000 Prepaid expenses and other assets 23,233 -------------- TOTAL ASSETS 760,656,331 -------------- LIABILITIES: Payable for: Investments purchased 72,386,199 Investment management fee 303,034 Distribution fee 63,346 Accrued expenses and other payables 103,446 -------------- TOTAL LIABILITIES 72,856,025 -------------- NET ASSETS $ 687,800,306 ============== COMPOSITION OF NET ASSETS: Paid-in-capital $ 687,795,613 Accumulated undistributed net investment income 4,693 -------------- NET ASSETS $ 687,800,306 ============== NET ASSET VALUE PER SHARE, 687,776,287 shares outstanding (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE) $ 1.00 ==============
SEE NOTES TO FINANCIAL STATEMENTS 9 STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2004 NET INVESTMENT INCOME: INTEREST INCOME $ 7,139,345 -------------- EXPENSES Investment management fee 3,560,342 Distribution fee 737,223 Transfer agent fees and expenses 90,310 Professional fees 61,079 Shareholder reports and notices 38,871 Custodian fees 34,171 Registration fees 17,671 Trustees' fees and expenses 16,752 Other 26,417 -------------- TOTAL EXPENSES 4,582,836 Less: expense offset (33,837) -------------- NET EXPENSES 4,548,999 -------------- NET INVESTMENT INCOME $ 2,590,346 ==============
SEE NOTES TO FINANCIAL STATEMENTS 10 STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2004 JUNE 30, 2003 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 2,590,346 $ 4,959,218 Dividends to shareholders from net investment income (2,590,218) (4,959,654) Net decrease from transactions in shares of beneficial interest (74,647,531) (207,445) ------------- ------------- NET DECREASE (74,647,403) (207,881) NET ASSETS: Beginning of period 762,447,709 762,655,590 ------------- ------------- END OF PERIOD (INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $4,693 AND $4,565, RESPECTIVELY) $ 687,800,306 $ 762,447,709 ============= =============
SEE NOTES TO FINANCIAL STATEMENTS 11 ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 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 exceeding $2.5 billion; 0.275% to the portion of the 12 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 year ended June 30, 2004, the distribution fee was accrued at the annual rate of 0.10%. 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The cost of purchases and proceeds from sales/maturities of portfolio securities for the year ended June 30, 2004, aggregated $1,659,970,930 and $1,757,568,000, 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 year ended June 30, 2004, included in Trustees' fees and expenses in the Statement of Operations amounted to $6,572. At June 30, 2004, the Fund had an accrued pension liability of $53,046 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 and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "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. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 13 5. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest, at $1.00 per share, were as follows:
FOR THE FOR THE YEAR ENDED YEAR ENDED JUNE 30, 2004 JUNE 30, 2003 -------------- -------------- Shares sold 2,395,182,645 2,216,990,398 Shares issued in reinvestment of dividends 2,590,218 4,959,654 -------------- -------------- 2,397,772,863 2,221,950,052 Shares redeemed (2,472,420,394) (2,222,157,497) -------------- -------------- Net decrease in shares outstanding (74,647,531) (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, certain officers of such affiliates and certain investment companies advised by the Investment Manager or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges 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 recommend the funds advised by the Investment Manager or its affiliates to investors 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 efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants have moved to dismiss the action and intend to otherwise vigorously defend it. While the Fund believes that it has meritorious defenses, the ultimate outcome of this matter 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 this matter. 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:
FOR THE YEAR ENDED JUNE 30, -------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ SELECTED PER SHARE DATA: Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------------ ------------ ------------ ------------ ------------ Net income from investment operations 0.003 0.006 0.011 0.026 0.026 Less dividends from net investment income (0.003) (0.006) (0.011) (0.026) (0.026) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ============ ============ ============ ============ ============ TOTAL RETURN 0.35% 0.63% 1.15% 2.68% 2.60% RATIOS TO AVERAGE NET ASSETS: Expenses (before expense offset) 0.61% 0.60% 0.60% 0.59% 0.61% Net investment income 0.35% 0.63% 1.14% 2.64% 2.55% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 687,800 $ 762,448 $ 762,656 $ 759,089 $ 697,703
SEE NOTES TO FINANCIAL STATEMENTS 15 ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST: We have audited the accompanying statement of assets and liabilities of Active Assets California Tax-Free Trust (the "Fund"), including the portfolio of investments, as of June 30, 2004, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2004, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Active Assets California Tax-Free Trust as of June 30, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK AUGUST 13, 2004 2004 FEDERAL TAX NOTICE (UNAUDITED) For the year ended June 30, 2004 all of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes. 16 ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST TRUSTEE AND OFFICER INFORMATION INDEPENDENT TRUSTEES:
NUMBER OF PORTFOLIOS IN FUND TERM OF COMPLEX POSITION(S) OFFICE AND OVERSEEN NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- -------------- ----------------------- ---------- -------------------- Michael Bozic (63) Trustee Since Private Investor; 208 Director of Weirton c/o Kramer Levin Naftalis & Frankel LLP April 1994 Director or Trustee of Steel Corporation. Counsel to the Independent Trustees the Retail Funds (since 919 Third Avenue April 1994) and the New York, NY Institutional Funds (since July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (71) Trustee Since Managing Director of 208 Director of Franklin c/o Summit Ventures LLC January 1993 Summit Ventures LLC; Covey (time 1 Utah Center Director or Trustee of management systems), 201 S. Main Street the Retail Funds (since BMW Bank of North Salt Lake City, UT January 1993) and the America, Inc. Institutional Funds (industrial loan (since July 2003); corporation), United member of the Utah Space Alliance Regional Advisory Board (joint venture of Pacific Corp.; between Lockheed formerly United States Martin and the Senator (R-Utah) Boeing Company) and (1974-1992) and Nuskin Asia Pacific Chairman, Senate (multilevel Banking Committee marketing); member (1980-1986), Mayor of of the board of Salt Lake City, Utah various civic and (1971-1974), Astronaut, charitable Space Shuttle Discovery organizations. (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (70) Trustee Since Retired; Director or 208 Director of The PMI c/o Kramer Levin Naftalis & Frankel LLP September Trustee of the Retail Group Inc. (private Counsel to the Independent Trustees 1997 Funds (since September mortgage insurance); 919 Third Avenue 1997) and the Trustee and Vice New York, NY Institutional Funds Chairman of The (since July 2003); Field Museum of formerly associated Natural History; with the Allstate director of various Companies (1966-1994), other business and most recently as charitable Chairman of The organizations. Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994).
17
NUMBER OF PORTFOLIOS IN FUND TERM OF COMPLEX POSITION(S) OFFICE AND OVERSEEN NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- -------------- ----------------------- ---------- -------------------- Dr. Manuel H. Johnson (55) Trustee Since Senior Partner, Johnson 208 Director of NVR, c/o Johnson Smick International, Inc. July 1991 Smick International, Inc. (home 2099 Pennsylvania Avenue, N.W. Inc., a consulting construction); Suite 950 firm; Chairman of the Chairman and Trustee Washington, D.C. Audit Committee and of the Financial Director or Trustee of Accounting the Retail Funds (since Foundation July 1991) and the (oversight Institutional Funds organization of the (since July 2003); Financial Accounting Co-Chairman and a Standards Board); founder of the Group of Director of RBS Seven Council (G7C), an Greenwich Capital international economic Holdings (financial commission; formerly holding company). Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (61) Trustee Since President, Kearns & 209 Director of Electro PMB754 July 2003 Associates LLC Rent Corporation 23852 Pacific Coast Highway (investment (equipment leasing), Malibu, CA consulting); Deputy The Ford Family Chairman of the Audit Foundation, and the Committee and Director UCLA Foundation. or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001- July 2003); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (68) Trustee Since General Partner of 208 Director of various c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P., business 445 Park Avenue a private investment organizations. New York, NY partnership; Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (71) Trustee Since Chairman of Lumelite 209 Trustee and Director c/o Lumelite Plastics Corporation July 2003 Plastics Corporation; of certain 85 Charles Colman Blvd. Chairman of the investment companies Pawling, NY Governance Committee in the JPMorgan and Director or Trustee Funds complex of the Retail Funds managed by J.P. (since July 2003) and Morgan Investment the Institutional Funds Management Inc. (since June 1992).
18 INTERESTED TRUSTEES:
NUMBER OF PORTFOLIOS IN FUND TERM OF COMPLEX POSITION(S) OFFICE AND OVERSEEN NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- -------------- ----------------------- ---------- -------------------- Charles A. Fiumefreddo (71) Chairman of Since Chairman and Director 208 None c/o Morgan Stanley Trust the Board July 1991 or Trustee of the Harborside Financial Center, and Trustee Retail Funds (since Plaza Two, July 1991) and the Jersey City, NJ Institutional Funds (since July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (56) Trustee Since Director or Trustee of 208 Director of AXA c/o Morgan Stanley Trust June 2000 the Retail Funds (since Financial, Inc. and Harborside Financial Center, June 2000) and the The Equitable Life Plaza Two, Institutional Funds Assurance Society of Jersey City, NJ (since July 2003); the United States Senior Advisor of (financial Morgan Stanley (since services). August 2000); Director of the Distributor and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999- August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999).
- ---------- * THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER") (THE "RETAIL FUNDS"). ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE. *** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT INC.). 19 OFFICERS:
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ** - --------------------------------------- ----------- -------------- ----------------------------------------------------------- Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley 1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief New York, NY Executive Officer of the Investment Manager and Morgan Stanley Services; Chairman and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds (since May 1999); Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of the Van Kampen Open-End Funds. Barry Fink (49) Vice Since General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas President February 1997 (since December 2000) of Morgan Stanley Investment New York, NY Management; Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of the Distributor; previously Secretary (February 1997- July 2003) and General Counsel (February 1997-April 2004) of the Retail Funds; Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Ronald E. Robison (65) Executive Since Principal Executive Officer-Office of the Funds (since 1221 Avenue of the Americas Vice April 2003 November 2003); Managing Director of Morgan Stanley & Co. New York, NY President Incorporated, Managing Director of Morgan Stanley; Managing and Director, Chief Administrative Officer and Director of the Principal Investment Manager and Morgan Stanley Services; Chief Executive Executive Officer and Director of the Transfer Agent; Officer Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Institutional Funds (March 2001-July 2003) and Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc. Joseph J. McAlinden (61) Vice Since Managing Director and Chief Investment Officer of the 1221 Avenue of the Americas President July 1995 Investment Manager and Morgan Stanley Investment Management New York, NY Inc., Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Stefanie V. Chang (37) Vice Since Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas President July 2003 Morgan Stanley Investment Management Inc., and the New York, NY Investment Manager; Vice President of the Institutional Funds (since December 1997) and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP).
20
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ** - --------------------------------------- ----------- -------------- ----------------------------------------------------------- Francis J. Smith (38) Treasurer Treasurer Executive Director of the Investment Manager and Morgan c/o Morgan Stanley Trust and since Stanley Services (since December 2001); previously Vice Harborside Financial Center, Chief July 2003 and President of the Retail Funds (September 2002- July 2003), Plaza Two, Financial Chief and Vice President of the Investment Manager and Morgan Jersey City, NJ Officer Financial Stanley Services (August 2000-November 2001) and Senior Officer Manager at PricewaterhouseCoopers LLP (January 1998-August since 2000). September 2002 Thomas F. Caloia (58) Vice Since Executive Director (since December 2002) and Assistant c/o Morgan Stanley Trust President July 2003 Treasurer of the Investment Manager, the Distributor and Harborside Financial Center, Morgan Stanley Services; previously Treasurer of the Retail Plaza Two, Funds (April 1989-July 2003); formerly First Vice President Jersey City, NJ of the Investment Manager, the Distributor and Morgan Stanley Services. Mary E. Mullin (37) Secretary Since Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas July 2003 Morgan Stanley Investment Management Inc. and the New York, NY Investment Manager; Secretary of the Institutional Funds (since June 1999) and the Retail Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
- ---------- * THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE. 21 (This page has been left blank intentionally.) (This page has been left blank intentionally.) 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 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 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 REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of the shareholders of the Fund. For 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) 2004 Morgan Stanley [MORGAN STANLEY LOGO] RA04-00473P-Y06/04 [GRAPHIC] MORGAN STANLEY FUNDS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST ANNUAL REPORT JUNE 30, 2004 [MORGAN STANLEY LOGO] Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown: 2004
REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 26,761 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 452(2) $ 3,225,276(2) TAX FEES $ 4,929(3) $ 610,053(4) ALL OTHER FEES $ - $ - TOTAL NON-AUDIT FEES $ 5,381 $ 3,835,329 TOTAL $ 32,142 $ 3,835,329
2003
REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 25,259 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 684(2) $ 739,996(2) TAX FEES $ 4,357(3) $ 187,500(4) ALL OTHER FEES $ - $ -(5) TOTAL NON-AUDIT FEES $ 5,041 $ 927,496 TOTAL $ 30,300 $ 927,496
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements. (3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant's tax returns. (4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities' tax returns. (5) All other fees represent project management for future business applications and improving business and operational processes. (e)(1) The audit committee's pre-approval policies and procedures are as follows: AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED JULY 31, 2003(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund. The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. - ---------- (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "POLICY"), adopted as of the date above, supercedes and replaces all prior versions that may have been adopted from time to time. The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: MORGAN STANLEY RETAIL FUNDS Morgan Stanley Investment Advisors Inc. Morgan Stanley & Co. Incorporated Morgan Stanley DW Inc. Morgan Stanley Investment Management Morgan Stanley Investments LP Van Kampen Asset Management Inc. Morgan Stanley Services Company, Inc. Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB MORGAN STANLEY INSTITUTIONAL FUNDS Morgan Stanley Investment Management Inc. Morgan Stanley Investments LP Morgan Stanley & Co. Incorporated Morgan Stanley Distribution, Inc. Morgan Stanley AIP GP LP Morgan Stanley Alternative Investment Partners LP (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. Applicable only for reports covering periods ending on or after the earlier of (i) the first annual shareholder meeting after January 15, 2004 or (ii) October 31, 2004. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Applicable only to annual reports filed by closed-end funds. 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) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (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. 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 August 19, 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 August 19, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer August 19, 2004 EX-99.CODEETH 2 a2142409zex-99_codeeth.txt EX-99.CODEETH Exhibit 99.CODE ETH EXHIBIT 10 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED JULY 31, 2003 I. This Code of Ethics (the "Code") for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly) to the detriment of the Fund; - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(2) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - ---------- (2) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - ------------------------- Date: -------------------- EXHIBIT B INSTITUTIONAL FUNDS COVERED OFFICERS Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer RETAIL FUNDS COVERED OFFICERS Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer Frank Smith - Chief Financial Officer and Treasurer EXHIBIT C GENERAL COUNSEL Barry Fink EX-99.CERT 3 a2142409zex-99_cert.txt EX-99.CERT Exhibit 99.CERT 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): 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: August 19, 2004 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 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 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: August 19, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer EX-99.906CERT 4 a2142409zex-99_906cert.txt EX-99.906CERT Exhibit 99.906CERT 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 June 30, 2004 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: August 19, 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. 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 June 30, 2004 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: August 19, 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. -----END PRIVACY-ENHANCED MESSAGE-----