<PAGE> 1
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Tax-Exempt Securities Trust for the period ended June 30,
1998.
The deflationary impact of the Asian financial crisis has begun to temper U.S.
economic growth. Although employment conditions strengthened in the United
States and unemployment declined to its lowest level since 1970, inflation
remained subdued. This was primarily the result of improved productivity, lower
oil costs and cheaper imports.
Foreign currency turmoil strengthened the value of the U.S. dollar and created
demand for U.S. Treasury securities. Municipal bonds followed the trend of
Treasuries, with yields declining to a range not seen in over 20 years. The bond
market rally was also aided by prospects of the first federal budget surplus in
more than two decades.
MUNICIPAL MARKET CONDITIONS
Long-term insured index yields stood at 5.20 percent at the end of June 1998.
Since the beginning of the year index yields have ranged from
BOND YIELDS 1994-1998
<TABLE>
<CAPTION>
30-Year Insured 30-Year U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.4% 6.34% 85.17%
5.4 6.24 86.54
5.8 6.66 87.09
6.4 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.5 7.61 85.41
6.25 7.39 84.57
6.3 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.8
7 8.00 87.5
6.75 7.88 85.66
1995 6.4 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.2 7.34 84.47
5.8 6.66 87.09
6.1 6.62 92.15
6.1 6.86 88.92
6 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.5 6.14 89.58
5.35 5.94 90.07
1996 5.4 6.03 89.55
5.6 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.9 6.89 85.63
5.85 6.97 83.93
5.9 7.11 82.98
5.7 6.93 82.25
5.65 6.64 85.09
5.5 6.35 86.61
5.6 6.63 84.46
1997 5.7 6.79 83.95
5.65 6.80 83.09
5.9 7.10 83.1
5.75 6.94 82.85
5.65 6.91 81.77
5.6 6.78 82.6
5.3 6.30 84.13
5.5 6.61 83.21
5.4 6.40 84.38
5.35 6.15 86.99
5.3 6.05 87.6
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.2 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.2 5.80 89.66
5.2 5.65 92.04
</TABLE>
Source: Municipal Market Data
<PAGE> 2
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
a low of 5.15 percent in January to 5.35 percent in April. Insured index yields
were as high as 5.60 percent in June 1997.
The overall decline in interest rates led to an increase in new-issue municipal
volume. In contrast, U.S. Treasury borrowing needs have shrunk with the decline
in the budget deficit. Under these conditions the municipal rally lagged the
rally in Treasuries. The ratio of municipal yields to Treasury yields improved
from 83 percent in June 1997 to over 90 percent this June. A rising ratio means
that municipals have underperformed Treasuries and have become more attractive
on a relative basis.
For the year-to-date, total municipal volume of $141 billion is up 50 percent
from the same period last year. Half the underwritings were enhanced with bond
insurance. Refundings represented nearly one-third of total new issues.
PERFORMANCE
For the six-month period ended June 30, 1998 Morgan Stanley Dean Witter
Tax-Exempt Securities Trust Class A, B, C and D Shares produced total returns of
2.40 percent, 2.13 percent, 2.08 percent and 2.43 percent, respectively.
Performance of the Fund's shares varies, because of differing expenses. Over the
same period, the Lehman Brothers Municipal Bond Index posted a total return of
2.69 percent, while the Lipper Analytical Services, Inc. General Municipal Debt
Funds Index registered a total return of 2.45 percent. On June 30 the Fund's net
assets exceeded $1.1 billion.
PORTFOLIO STRUCTURE
During the past six months portfolio duration, a measure of sensitivity to
interest rate changes, was extended from 6.5 years to 7.1 years. This was
primarily accomplished by selling refunded bonds to purchase new issues.
Refunded bonds were reduced from 11 percent to 8 percent of net assets.
Investments were diversified among 13 long-term sectors and 139 credits.
Throughout the period under review high credit quality was maintained, with
nearly 80 percent of long-term holdings rated double or triple "A." The
portfolio's average maturity was 18 years. As illustrated in the accompanying
chart, the distribution of call dates produced 7 years of weighted average call
protection.
LOOKING AHEAD
The economic fundamentals are in place for another year of solid economic growth
in the United States. Events in Asia have strengthened the U.S. dollar and
contributed to lower interest rates.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
LARGEST SECTORS AS OF JUNE 30, 1998
(% OF NET ASSETS)
<TABLE>
<S> <C>
All Others 20%
Transportation 17%
Water & Sewer 13%
General Obligation 13%
Electric 11%
Hospital 9%
Mortgage 9%
Refunded 8%
</TABLE>
Portfolio structure is subject to change.
CREDIT RATINGS AS OF JUNE 30, 1998
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
Aaa or AAA 61%
Aa or AA 18%
A or A 14%
Baa or BBB 3%
Ba or BB 2%
N/R 2%
</TABLE>
As measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp.
Portfolio structure is subject to change.
CALL STRUCTURE AS OF JUNE 30, 1998 WEIGHTED AVERAGE
(% OF TOTAL LONG-TERM PORTFOLIO) CALL PROTECTION: 7 YEARS
<TABLE>
<CAPTION>
Year Bonds Callable
<S> <C>
1998 3%
1999 6%
2000 3%
2001 8%
2002 8%
2003 10%
2004 6%
2005 11%
2006 9%
2007 11%
2008 11%
2009+ 14%
</TABLE>
Portfolio structure is subject to change.
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
Furthermore, the Asian financial crisis seems likely to continue to moderate
inflationary pressures and provide a favorable environment for municipal bonds.
The Federal Reserve Board remains sensitive to the risk of an acceleration in
labor costs but has maintained its neutral stance.
We appreciate your ongoing support of Morgan Stanley Dean Witter Tax-Exempt
Securities Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (96.9%)
General Obligation (12.6%)
North Slope Borough, Alaska,
$ 5,000 Ser 1992 A Conv (MBIA)..................................... 5.90% 06/30/03 $ 5,379,300
18,000 Ser 1994 B (FSA)........................................... 0.00 06/30/05 13,155,120
18,500 Ser 1995 A (MBIA).......................................... 0.00 06/30/06 12,877,850
13,925 Ser 1996 B (MBIA).......................................... 0.00 06/30/06 9,693,192
10,000 Ser 1996 B (MBIA).......................................... 0.00 06/30/07 6,623,600
1,000 Santa Margarita/Dana Point Authority, California, Impr Dists
#3, 3A, 4 & 4A 1994 Ser B Refg (MBIA)...................... 5.75 08/01/20 1,052,050
4,000 Connecticut, College Savings 1989 Ser A..................... 0.00 07/01/08 2,540,480
1,000 Atlanta, Georgia, Public Impr Ser 1994 A.................... 6.125 12/01/23 1,094,140
1,000 Chicago, Illinois, Refg Ser 1995 B (FGIC)................... 5.125 01/01/25 982,220
1,000 Chicago Park District, Illinois, Ser 1995................... 6.60 11/15/14 1,122,470
Massachusetts,
20,000 Refg 1996 Ser A (AMBAC).................................... 6.00 11/01/10 22,632,200
5,000 Refg 1993 Ser A............................................ 5.50 02/01/11 5,221,200
4,000 Clark County, Nevada, Transportation Ser 1992 A (AMBAC)..... 6.50 06/01/17 4,736,560
New York City, New York,
1,500 1995 Ser D (MBIA).......................................... 6.20 02/01/07 1,673,325
3,405 1990 Ser D................................................. 6.00 08/01/07 3,477,016
2,865 1990 Ser D................................................. 6.00 08/01/08 2,925,595
10,000 North Carolina, 1997 Ser A.................................. 5.20 03/01/16 10,332,000
1,000 Delaware City School District, Ohio, Constr & Impr (FGIC)... 5.75 12/01/20 1,055,200
10,000 Pennsylvania, First Ser 1995 (FGIC)......................... 5.50 05/01/12 10,523,600
7,000 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/14 7,351,120
20,000 King County, Washington, Ltd Tax 1995 (MBIA)................ 6.00 01/01/23 21,662,600
2,000 Washington, 1995 Ser A...................................... 5.80 09/01/08 2,137,460
- ---------- --------------
160,195 148,248,298
- ---------- --------------
Educational Facilities Revenue (6.1%)
1,000 California Educational Facilities Authority, Claremont
Colleges Ser 1992.......................................... 6.375 05/01/22 1,071,180
500 Atlanta Urban Residential Finance Authority, Georgia,
Morehouse College Refg Ser 1995 (MBIA)..................... 5.75 12/01/14 534,850
10,000 Indiana University, Student Fee Ser K (MBIA)................ 5.875 08/01/20 10,639,700
6,000 Maryland Health & Educational Facilities Authority, The John
Hopkins University Refg Ser 1998........................... 5.125 07/01/20 5,964,780
7,000 Massachusetts Health & Educational Facilities Authority,
Boston University Ser 1991 (MBIA).......................... 6.66 10/01/31 7,614,740
5,000 Missouri Health & Educational Facilities Authority,
Washington University Ser 1998 A........................... 4.75 11/15/37 4,655,900
10,000 New Hampshire Higher Educational & Health Facilities
Authority, Dartmouth College Ser 1993...................... 5.375 06/01/23 10,117,500
2,000 New Jersey Development Authority, The Seeing Eye Inc 1991... 7.30 04/01/11 2,127,600
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 New Jersey Economic Development Authority, Educational
Testing Service Ser B 1995 (MBIA).......................... 6.125% 05/15/15 $ 2,203,420
New York State Dormitory Authority,
500 City University 1994 3rd Resolution Ser 1 (AMBAC).......... 6.30 07/01/24 554,820
5,000 State University Ser 1989 B................................ 0.00 05/15/02 4,219,200
20,000 State University Ser 1990 B................................ 7.00 05/15/16 21,289,600
1,000 Virginia Polytechnic Institute & State University, Ser 1996
A.......................................................... 5.50 06/01/16 1,039,480
- ---------- --------------
70,000 72,032,770
- ---------- --------------
Electric Revenue (11.4%)
25,000 Salt River Project Agricultural Improvement & Power
District, Arizona Refg 1993 Ser C (Secondary MBIA)**....... 5.50 01/01/10 27,038,750
10,000 Sacramento Municipal Utility District, California, Refg 1994
Ser I (MBIA)............................................... 5.75 01/01/15 10,573,300
10,000 Municipal Electric Authority of Georgia, Ser Y (Secondary
MBIA)...................................................... 6.50 01/01/17 11,817,100
5,000 Long Island Power Authority, New York, Electric System Ser
1998 A (FSA)............................................... 5.125 12/01/22 4,934,650
Eugene, Oregon, Electric Utility
1,260 Ser 1996 (FSA)............................................. 5.375 08/01/12 1,308,031
1,000 Ser 1996 (FSA)............................................. 5.375 08/01/13 1,033,380
Puerto Rico Electric Power Authority,
1,500 Power Ser X................................................ 6.00 07/01/15 1,625,640
15,000 Power Ser O................................................ 0.00 07/01/17 5,739,450
5,000 Power Ser EE (MBIA)........................................ 4.50 07/01/18 4,626,550
15,000 South Carolina Public Service Authority, 1995 Refg Ser A
(AMBAC).................................................... 6.25 01/01/22 16,657,350
1,000 Austin, Texas, Combined Utilities Refg Ser 1994 (FGIC)...... 6.25 05/15/16 1,102,840
20,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C.......... 4.70 02/01/06 20,273,800
10,000 Intermountain Power Agency, Utah, Refg 1997 Ser B (MBIA).... 5.75 07/01/19 10,637,500
15,000 Washington Public Power Systems, Proj #2 Refg Ser 1994 A
(Secondary MBIA)........................................... 6.00 07/01/07 16,545,450
- ---------- --------------
134,760 133,913,791
- ---------- --------------
Hospital Revenue (8.6%)
11,465 Birmingham - Carraway Special Care Facilities Financing
Authority, Alabama, Carraway Methodist Ser 1995 A (Connie
Lee)....................................................... 6.25 08/15/09 12,990,189
3,000 Baxter County, Arkansas, Baxter County Regional Hospital
Impr & Refg Ser 1992....................................... 7.50 09/01/21 3,313,920
4,000 Antelope Valley Healthcare District, California, Ser 1997 B
(FSA)...................................................... 5.20 01/01/17 4,001,360
2,000 Orange County Health Facilities Authority, Florida,
Adventist Health/Sunbelt Ser 1995 (AMBAC).................. 5.25 11/15/20 2,001,340
10,000 Tampa, Florida, Health Catholic East Health Ser 1998 A
(MBIA)..................................................... 4.875 11/15/23 9,557,900
Maryland Health & Higher Educational Facilities Authority,
5,000 Helix Health Ser 1997 (AMBAC).............................. 5.00 07/01/27 4,858,350
1,000 Kernan Hospital Ser 1994 (Connie Lee)...................... 6.10 07/01/24 1,090,750
5,000 Massachusetts Health & Educational Facilities Authority,
Hallmark Health
Systems 1997 Ser A (FSA)................................... 5.00 07/01/27 4,822,050
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Rochester, Minnesota,
$ 5,000 Mayo Foundation/Medical Center Ser 1992 I.................. 5.75% 11/15/21 $ 5,180,150
3,700 Mayo Foundation/Medical Center Ser 1992 F.................. 6.25 11/15/21 4,007,544
10,000 Missouri Health & Educational Facilities Authority,
Barnes-Jewish Inc/ Christian Health Services Ser 1993 A.... 5.25 05/15/14 10,293,300
1,300 New Hampshire Higher Educational & Health Facilities
Authority, St Joseph Hospital Ser 1994 (Connie Lee)........ 6.35 01/01/07 1,452,490
6,000 New York State Medical Care Facilities Finance Agency,
Presbyterian Hospital - FHA Insured Mtge 1984 Ser A Refg... 5.25 08/15/14 6,089,940
University of North Carolina,
2,000 Hospitals at Chapel Hill Ser 1996.......................... 5.25 02/15/19 2,014,900
5,000 Hospitals at Chapel Hill Ser 1996.......................... 5.00 02/15/29 4,847,300
2,000 Jackson, Tennessee, Jackson-Madison County General Hospital
Refg & Impr Ser 1995 (AMBAC)............................... 5.625 04/01/15 2,081,820
5,000 North Central Texas Health Facilities Development
Corporation, University Medical Center Inc Ser 1997
(FSA)...................................................... 5.45 04/01/15 5,136,400
10,000 Fredericksburg Industrial Development Authority, Virginia,
Medicorp Health System Refg Ser 1996 (AMBAC)............... 5.25 06/15/16 10,082,700
2,500 Medical College of Virginia Hospitals Authority, Virginia,
Ser 1998 (MBIA) (WI)....................................... 5.125 07/01/23 2,456,775
5,000 Washington Health Care Facilities, Swedish Health Ser 1998
(AMBAC).................................................... 5.125 11/15/22 4,880,700
- ---------- --------------
98,965 101,159,878
- ---------- --------------
Industrial Development/Pollution Control Revenue (6.2%)
1,500 Hawaii Department of Budget & Finance, Hawaiian Electric Co
Ser 1995 A (AMT) (MBIA).................................... 6.60 01/01/25 1,656,780
1,425 Maryland Industrial Development Financing Authority, Medical
Waste Assocs LP 1989 Ser (AMT)............................. 8.75 11/15/10 1,453,571
19,500 Claiborne County, Mississippi, Middle South Energy Inc Ser
C.......................................................... 9.875 12/01/14 20,476,365
10,000 Clark County, Nevada, Nevada Power Co Ser 1992 A (AMT)
(FGIC)..................................................... 6.70 06/01/22 10,870,800
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987
(AMBAC).................................................... 6.30 12/01/14 5,392,800
5,000 New York City Industrial Development Agency, New York,
Brooklyn Navy Yard Cogeneration Partners LP Ser 1997
(AMT)...................................................... 5.75 10/01/36 5,094,250
5,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990
(AMT)...................................................... 7.50 12/01/29 5,400,950
10,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 10,535,800
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993
A.......................................................... 6.90 02/01/13 11,264,200
- ---------- --------------
67,425 72,145,516
- ---------- --------------
Mortgage Revenue - Multi-Family (2.3%)
500 Honolulu, Hawaii, Waipahu Towers GNMA Collateralized 1995
Ser A (AMT)................................................ 6.90 06/20/35 539,670
955 Massachusetts Housing Finance Agency, Rental 1994 Ser A
(AMT) (AMBAC).............................................. 6.65 07/01/19 1,029,891
6,435 Michigan Housing Development Authority, Rental Ser A
(Bifurcated FSA)........................................... 6.50 04/01/23 6,815,309
9,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A
(AMBAC).................................................... 6.05 11/01/20 9,529,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New York City Housing Development Corporation, New York,
$ 4,395 Ruppert Proj - FHA Ins Sec 223F............................ 6.50% 11/15/18 $ 4,615,736
4,251 Stevenson Commons Proj - FHA Ins Sec 223F.................. 6.50 05/15/18 4,464,176
- ---------- --------------
25,536 26,993,982
- ---------- --------------
Mortgage Revenue - Single Family (7.1%)
7,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A
(MBIA)..................................................... 5.875 12/01/24 7,305,620
2,440 California Housing Finance Agency, Home Cap Apprec 1983 Ser
B.......................................................... 0.00 08/01/15 426,000
Colorado Housing Finance Authority,
2,000 1998 Ser A-2 (AMT)......................................... 6.60 05/01/28 2,202,720
2,500 1997 Ser C-2 (AMT)......................................... 6.875 11/01/28 2,791,925
12,100 Illinois Housing Development Authority, Residential 1991 Ser
C (AMT).................................................... 6.875 02/01/18 12,889,041
Missouri Housing Development Commission, Homeownership
3,735 GNMA - FNMA Collateralized 1996 Ser C (AMT)................ 7.45 09/01/27 4,225,667
4,000 GNMA - FNMA Collateralized 1997 Ser C-1.................... 6.55 09/01/28 4,403,440
5,000 Nebraska Investment Finance Authority, GNMA-Backed 1990 Ser
(AMT)...................................................... 7.631 09/10/30 5,302,550
3,505 North Carolina Housing Finance Agency, Ser Q (AMT).......... 8.00 03/01/18 3,799,700
5,350 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser A (AMT)... 6.903 03/01/31 5,677,634
10,000 Pennsylvania Housing Finance Agency, Ser 1991-31 (AMT)...... 7.00 10/01/23 10,690,700
Tennessee Housing Development Agency,
4,000 Mortgage Finance 1993 Ser A................................ 5.90 07/01/18 4,143,600
11,000 Mortgage Finance 1993 Ser A................................ 5.95 07/01/28 11,361,790
1,000 Mortgage Finance 1994 Ser B (AMT).......................... 6.55 07/01/19 1,057,300
575 Utah Housing Finance Agency, Federally Insured/Guaranteed
Loans 1994 Issue E (AMT)................................... 6.50 07/01/26 600,927
5,800 Wisconsin Housing & Economic Development Authority, Home
Ownership 1991 Ser (AMT)................................... 7.097 10/25/22 6,154,670
- ---------- --------------
80,005 83,033,284
- ---------- --------------
Public Facilities Revenue (1.6%)
2,000 North City West School Facilities Authority, California,
Community Dist #1 Special Tax Ser 1995 B (FSA)............. 6.00 09/01/19 2,180,500
3,500 Denver, Colorado, Excise Tax Ser 1985 A..................... 5.00 11/01/08 3,505,250
6,000 Saint Louis Industrial Development Authority, Missouri, Kiel
Center Refg Ser 1992 (AMT)................................. 7.75 12/01/13 6,555,480
5,000 Ohio Building Authority, Correctional 1985 Ser C............ 9.75 10/01/05 6,601,150
- ---------- --------------
16,500 18,842,380
- ---------- --------------
Resource Recovery Revenue (2.5%)
4,950 Connecticut Resources Recovery Development Authority,
Bridgeport RESCO Ser A..................................... 7.625 01/01/09 5,130,180
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 7,000 Savannah Resource Recovery Development Authority, Georgia,
Savannah Energy Systems Co Ser 1992........................ 6.30% 12/01/06 $ 7,500,990
10,000 Northeast Maryland Waste Disposal Authority, Montgomery
County Ser 1993 A (AMT).................................... 6.30 07/01/16 10,707,000
5,000 Onondaga County Resource Recovery Agency, New York, 1992 Ser
(AMT)...................................................... 6.875 05/01/06 5,343,000
- ---------- --------------
26,950 28,681,170
- ---------- --------------
Transportation Facilities Revenue (16.8%)
5,000 San Francisco Bay Area Rapid Transit District, California,
Sales Tax Ser 1998 (AMBAC)................................. 4.75 07/01/23 4,713,850
San Joaquin Hills Transportation Corridor Agency,
California, Toll Road
7,000 Refg Ser 1997 A (MBIA)..................................... 0.00 01/15/30 1,352,750
15,000 Refg Ser 1997 A (MBIA)..................................... 0.00 01/15/31 2,751,450
10,000 E-470 Public Highway Authority, Colorado, Ser 1997 A
(MBIA)..................................................... 5.00 09/01/26 9,734,100
1,000 Lee County, Florida, Ser 1995 (MBIA)........................ 5.75 10/01/22 1,059,490
Mid-Bay Bridge Authority, Florida,
8,965 Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 9,736,707
1,500 Ser 1997 A (AMBAC)......................................... 0.00 10/01/20 468,615
3,000 Ser 1997 A (AMBAC)......................................... 0.00 10/01/21 888,150
10,000 Atlanta, Georgia, Airport Ser 1990 (AMT).................... 6.25 01/01/21 10,508,500
5,000 Hawaii, Airports Second Ser 1991 (AMT)...................... 7.00 07/01/18 5,407,000
850 Regional Transportation Authority, Illinois, Ser 1994 A..... 6.25 06/01/15 936,301
3,000 Kansas, Highway Refg Ser 1998............................... 5.50 09/01/12 3,233,130
Kentucky Turnpike Authority,
9,000 Economic Development Road Refg Ser 1995 (AMBAC)............ 6.50 07/01/08 10,460,700
1,000 Economic Development Road Refg Ser 1995 (AMBAC)............ 5.625 07/01/15 1,050,040
30,000 Resource Recovery Road 1987 Ser A.......................... 5.00 07/01/08 30,006,600
2,500 Maine Turnpike Authority, Ser 1994 (MBIA)................... 6.00 07/01/18 2,721,200
1,500 Massachusetts Port Authority, Refg Ser 1998-A............... 5.75 07/01/12 1,647,300
Massachusetts Turnpike Authority,
20,000 Metropolitan Highway 1997 Ser A (MBIA)..................... 5.00 01/01/37 19,209,000
15,000 Western 1997 Ser A (MBIA).................................. 5.55 01/01/17 15,299,100
10,000 Minneapolis - St Paul Metropolitan Airports Commission,
Minnesota, Ser 1998 A (AMBAC).............................. 5.00 01/01/30 9,737,000
11,000 New Jersey Highway Authority, Sr Parkway Refg 1992 Ser...... 6.25 01/01/14 11,869,000
6,595 Albuquerque, New Mexico, Airport Refg Ser 1997 (AMT)
(AMBAC).................................................... 6.375 07/01/15 7,310,162
1,500 Port Authority of New York & New Jersey, Cons One Hundredth
Ser Second Installment++................................... 5.75 12/15/20 1,577,835
15,000 Ohio Turnpike Commission, 1996 Ser A (MBIA)................. 5.50 02/15/26 15,531,750
5,000 Pennsylvania Turnpike Commission, Ser L of 1991 (MBIA)...... 6.00 06/01/15 5,324,700
10,000 Puerto Rico Highway & Transportation Authority, Refg Ser
X.......................................................... 5.50 07/01/15 10,579,900
4,000 Virginia Transportation Board, US Route 58 Corridor Ser 1993
B.......................................................... 5.625 05/15/13 4,162,560
- ---------- --------------
212,410 197,276,890
- ---------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Water & Sewer Revenue (12.6%)
Birmingham Water Works & Sewer Board, Alabama,
$ 10,000 Ser 1994................................................... 5.50% 01/01/20 $ 10,240,500
1,000 Ser 1993-A................................................. 6.00 01/01/20 1,065,070
2,000 Jefferson County, Alabama, Sewer Refg Ser 1997-A (FGIC)..... 5.375 02/01/27 2,033,580
10,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Water Ser 1994............................................. 5.45 07/01/19 10,300,400
10,000 California Department of Water Resources, Central Valley Ser
L.......................................................... 5.50 12/01/23 10,210,700
1,000 Castaic Lake Water Agency, California, Refg Ser 1994 A COPs
(MBIA)..................................................... 6.00 08/01/18 1,079,280
10,000 Los Angeles, California, Wastewater Ser 1994-A (MBIA)....... 5.875 06/01/24 10,626,400
1,000 Dade County, Florida, Water & Sewer Ser 1995 (FGIC)......... 5.50 10/01/15 1,041,860
5,000 Fulton County, Georgia, Water & Sewerage Ser 1998 (FGIC)
(WI)....................................................... 4.75 01/01/28 4,691,100
5,000 Upper Oconee Basin Water Authority, Georgia, Ser 1997
(FGIC)..................................................... 5.25 07/01/27 5,013,250
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky, Ser 1998 A (FGIC)................................ 4.75 05/15/28 9,378,300
10,000 Massachusetts Water Pollution Abatement Trust, MWRA Loan
Program Ser 1998 A (WI).................................... 4.75 08/01/18 9,514,600
Massachusetts Water Resources Authority,
10,000 Refg 1992 Ser B............................................ 5.50 11/01/15 10,186,400
10,000 1993 Ser C................................................. 5.25 12/01/15 10,323,400
10,000 1996 Ser A (FGIC).......................................... 5.50 11/01/21 10,341,900
Detroit, Michigan,
4,000 Sewage Refg 1993-A (FGIC).................................. 5.70 07/01/13 4,233,880
10,000 Water Supply 1997 Ser A (MBIA)............................. 5.00 07/01/21 9,746,500
2,000 Asheville, North Carolina, Water Ser 1996 (FGIC)............ 5.70 08/01/25 2,111,380
Philadelphia, Pennsylvania,
1,250 Water & Wastewater Ser 1995 (MBIA)......................... 6.25 08/01/11 1,432,437
5,000 Water & Wastewater Ser 1993 (FSA).......................... 5.50 06/15/15 5,115,800
Pittsburgh Water & Sewer Authority,
20,000 1998 Ser B (FGIC).......................................... 0.00 09/01/26 4,645,600
20,000 1998 Ser B (FGIC).......................................... 0.00 09/01/28 4,187,000
11,000 Metropolitan Government of Nashville & Davidson County,
Tennessee, Refg Ser 1998 A (FGIC).......................... 4.75 01/01/22 10,404,240
- ---------- --------------
178,250 147,923,577
- ---------- --------------
Other Revenue (0.9%)
1,005 Mashantucket (Western) Pequot Tribe, Connecticut, Special
1996 Ser A (a)............................................. 6.50 09/01/05 1,118,475
1,000 New Jersey Economic Development Authority, Market Transition
Sr Lien Ser 1994 A (MBIA).................................. 5.875 07/01/11 1,081,990
5,000 New York Local Government Assistance Corporation, Ser 1994
A.......................................................... 5.50 04/01/17 5,320,400
3,000 Houston, Texas, Sr Lien Hotel Occupancy Tax Refg Ser 1995
(FSA)...................................................... 5.50 07/01/11 3,124,020
- ---------- --------------
10,005 10,644,885
- ---------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Refunded (8.2%)
$ 9,000 Los Angeles Convention and Exhibition Center Authority,
California, Ser 1985 COPs.................................. 9.00% 12/01/05+ $ 11,702,250
2,500 Mid-Bay Bridge Authority, Florida, Ser 1991 A (ETM)......... 6.875 10/01/22 3,100,225
1,500 Massachusetts Health & Educational Facilities Authority,
Malden Hospital - FHA Ins Mtge Ser A (ETM)................. 5.00 08/01/16 1,507,050
14,000 New York State Dormitory Authority, Suffolk County Judicial
Ser 1986 (ETM)............................................. 7.375 07/01/16 17,442,880
25,000 Intermountain Power Agency, Utah, Refg 1985 Ser H GAINS..... 0.00# 07/01/03+ 26,547,000
5,000 Salt Lake City, Utah, IHC Hospital Inc Ser 1983 (ETM)....... 5.00 06/01/15 5,016,250
28,000 Fairfax County Industrial Development Authority, Virginia,
Fairfax Hospital Inova Health Ser 1991..................... 6.801 08/15/01+ 30,754,640
- ---------- --------------
85,000 96,070,295
- ---------- --------------
1,166,001 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $1,043,497,642)............... 1,136,966,716
- ---------- --------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.5%)
7,000 Connecticut Resources Recovery Development Authority,
American REF-FUEL Co of Southeastern Connecticut 1988 Ser A
(AMT)...................................................... 8.00 11/15/98++ 7,284,830
14,000 Harris County Health Facilities Development Corporation,
Texas, Methodist Hospital Ser 1994 (Demand 07/01/98)....... 4.00* 12/01/25 14,000,000
7,900 Nueces River Authority, Texas, Reynolds Metal Co Ser 1985
- ---------- (Demand 07/01/98).......................................... 4.10* 12/01/99 7,900,000
--------------
28,900 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
- ---------- $28,900,000)................................................................... 29,184,830
--------------
$1,194,901 TOTAL INVESTMENTS (Identified Cost $1,072,397,642) (b)................. 99.4% 1,166,151,546
==========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 0.6 7,474,174
----- --------------
NET ASSETS.............................................................. 100.0% $1,173,625,720
====== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
GAINS Growth and Income Security.
WI Security purchased on a "when-issued" basis.
++ Joint exemption in New York and New Jersey.
+ Prerefunded to call date shown.
++ Refunded to call date shown by forward delivery contract.
# Currently a zero coupon bond; will convert to 10.0% coupon
on July 1, 2000.
* Current coupon of variable rate demand obligation.
** A portion of this security is segregated in connection with
the purchase of "when-issued" securities.
(a) Resale is restricted to qualified institutional investors.
(b) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $94,903,464 and the aggregate gross
unrealized depreciation is $1,149,560, resulting in net
unrealized appreciation of $93,753,904.
</TABLE>
<TABLE>
<CAPTION>
Bond Insurance:
<C> <S>
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
June 30, 1998
<TABLE>
<S> <C>
Alabama.................. 2.2%
Alaska................... 4.7
Arizona.................. 3.2
Arkansas................. 0.3
California............... 5.3
Colorado................. 1.5
Connecticut.............. 1.4
Florida.................. 2.4
Georgia.................. 3.5
Hawaii................... 0.6
Illinois................. 1.4
Indiana.................. 0.9
Kansas................... 0.3
Kentucky................. 4.3
Maine.................... 0.2
Maryland................. 2.0
Massachusetts............ 10.2
Michigan................. 1.8
Minnesota................ 1.6
Mississippi.............. 1.7
Missouri................. 2.6
Nebraska................. 0.5
Nevada................... 1.8
New Hampshire............ 1.0
New Jersey............... 2.4
New Mexico............... 0.6
New York................. 7.6
North Carolina........... 2.0
Ohio..................... 2.5
Oregon................... 0.2
Pennsylvania............. 3.6
Puerto Rico.............. 1.9
South Carolina........... 1.4
Tennessee................ 3.1
Texas.................... 5.7
Utah..................... 3.6
Virginia................. 4.1
Washington............... 3.9
Wisconsin................ 1.5
Joint Exemptions......... (0.1)
------
Total.................... 99.4%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $1,072,397,642)........................... $1,166,151,546
Cash........................................................ 886,603
Receivable for:
Interest................................................ 17,438,487
Investments sold........................................ 7,369,639
Shares of beneficial interest sold...................... 403,510
Prepaid expenses and other assets........................... 108,473
--------------
TOTAL ASSETS............................................ 1,192,358,258
--------------
LIABILITIES:
Payable for:
Investments purchased................................... 16,732,313
Shares of beneficial interest repurchased............... 745,437
Dividends and distributions to shareholders............. 656,479
Investment management fee............................... 448,946
Plan of distribution fee................................ 61,389
Accrued expenses............................................ 87,974
--------------
TOTAL LIABILITIES....................................... 18,732,538
--------------
NET ASSETS.............................................. $1,173,625,720
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $1,070,583,069
Net unrealized appreciation................................. 93,753,904
Accumulated undistributed net investment income............. 34,517
Accumulated undistributed net realized gain................. 9,254,230
--------------
NET ASSETS.............................................. $1,173,625,720
==============
CLASS A SHARES:
Net Assets.................................................. $9,806,023
Shares Outstanding (unlimited authorized, $.01 par value)... 814,660
NET ASSET VALUE PER SHARE............................... $12.04
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net asset value)......... $12.57
==============
CLASS B SHARES:
$108,211,555
Net Assets..................................................
8,957,603
Shares Outstanding (unlimited authorized, $.01 par value)...
NET ASSET VALUE PER SHARE............................... $12.08
==============
CLASS C SHARES:
$4,578,728
Net Assets..................................................
379,884
Shares Outstanding (unlimited authorized, $.01 par value)...
NET ASSET VALUE PER SHARE............................... $12.05
==============
CLASS D SHARES:
$1,051,029,414
Net Assets..................................................
87,415,500
Shares Outstanding (unlimited authorized, $.01 par value)...
NET ASSET VALUE PER SHARE............................... $12.02
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $33,446,848
-----------
EXPENSES
Investment management fee................................... 2,554,074
Plan of distribution fee (Class A shares)................... 8,026
Plan of distribution fee (Class B shares)................... 303,063
Plan of distribution fee (Class C shares)................... 12,860
Transfer agent fees and expenses............................ 216,972
Registration fees........................................... 32,924
Shareholder reports and notices............................. 32,186
Custodian fees.............................................. 24,341
Professional fees........................................... 23,542
Trustees' fees and expenses................................. 9,942
Other....................................................... 16,788
-----------
TOTAL EXPENSES.......................................... 3,234,718
Less: expense offset........................................ (24,285)
-----------
NET EXPENSES............................................ 3,210,433
-----------
NET INVESTMENT INCOME................................... 30,236,415
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 9,254,294
Net change in unrealized appreciation....................... (10,722,388)
-----------
NET LOSS................................................ (1,468,094)
-----------
NET INCREASE................................................ $28,768,321
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
- ----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 30,236,415 $ 60,954,344
Net realized gain.................................. 9,254,294 9,545,783
Net change in unrealized appreciation.............. (10,722,388) 25,338,447
-------------- --------------
NET INCREASE................................... 28,768,321 95,838,574
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................. (171,477) (48,774)
Class B shares................................. (2,316,390) (673,417)
Class C shares................................. (81,787) (30,406)
Class D shares................................. (27,666,761) (60,167,993)
Net realized gain
Class A shares................................. (36,658) (16,080)
Class B shares................................. (402,639) (395,740)
Class C shares................................. (16,840) (12,228)
Class D shares................................. (3,936,039) (4,910,430)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.............. (34,628,591) (66,255,068)
-------------- --------------
Net decrease from transactions in shares of
beneficial interest............................... (19,894,709) (20,236,797)
-------------- --------------
NET INCREASE (DECREASE)........................ (25,754,979) 9,346,709
NET ASSETS:
Beginning of period................................ 1,199,380,699 1,190,033,990
-------------- --------------
END OF PERIOD
(Including undistributed net investment income
of $34,517 and $34,517, respectively).......... $1,173,625,720 $1,199,380,699
============== ==============
</TABLE>
- ---------------------
* Class A, Class B and Class C shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Tax-Exempt Securities Trust (the "Fund"), formerly
Dean Witter Tax-Exempt Securities Trust is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to provide a high level
of current income which is exempt from federal income tax, consistent with the
preservation of capital. The Fund was incorporated in Maryland in 1979,
commenced operations on March 27, 1980 and reorganized as a Massachusetts
business trust on April 30, 1987. On July 28, 1997, the Fund commenced offering
three additional classes of shares, with the then current shares designated as
Class D shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued for the Fund by
an outside independent pricing service approved by the Trustees. The pricing
service has informed the Fund that in valuing the Fund's portfolio securities,
it uses both a computerized matrix of tax-exempt securities and evaluations by
its staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the bid side of the market each day. The
Fund's portfolio securities are thus valued by reference to a combination of
transactions and quotations for the same or other securities believed to be
comparable in quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., the Fund pays the Investment Manager a management fee, accrued daily and
payable monthly, by applying the following annual rates to the Fund's net assets
determined as of the close of each business day: 0.50% to the portion of daily
net assets not exceeding $500 million; 0.425% to the portion of daily net assets
exceeding $500 million but not exceeding $750 million; 0.375% to the portion of
daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to
the portion of daily net assets exceeding $1 billion but not exceeding $1.25
billion; and 0.325% to the portion of daily net assets exceeding $1.25 billion.
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan"), pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 0.60% of
the average daily net assets of Class B; and (iii) Class C -- up to 0.70% of the
average daily net assets of Class C. In the case of Class A shares, amounts paid
under the Plan are paid to the Distributor for services provided. In the case of
Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for services provided and the expenses borne by it and others in the
distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, the Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; printing and distribution
of prospectuses and reports used in connection with the offering of these shares
to other than current shareholders; and preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and other selected broker-dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $3,280,029 at June 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.70% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended June 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.23% and
0.70%, respectively.
The Distributor has informed the Fund that for the six months ended June 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $56,814 and $3,217, respectively and
received $95,354 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended June 30, 1998 aggregated
$110,702,985 and $137,693,068, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At June 30, 1998, the Fund had transfer agent fees
and expenses payable of approximately $7,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all 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 years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended June 30, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,962. At June 30, 1998, the Fund had an accrued pension liability of
$48,900 which is included in accrued expenses in the Statement of Assets and
Liabilities.
19
<PAGE> 20
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997*
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 521,393 $ 6,297,512 338,676 $ 4,050,692
Reinvestment of dividends and distributions................. 5,032 60,542 2,037 24,532
Redeemed.................................................... (30,798) (371,470) (21,680) (260,983)
---------- ------------ ----------- -------------
Net increase - Class A...................................... 495,627 5,986,584 319,033 3,814,241
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 1,921,579 23,321,423 966,475 10,102,415
Reinvestment of dividends and distributions................. 96,469 1,165,711 50,270 609,389
Shares issued in connection with the acquisition of Dean
Witter National Municipal Trust............................ -- -- 7,189,021 86,346,821
Redeemed.................................................... (933,060) (11,333,929) (333,151) (2,490,026)
---------- ------------ ----------- -------------
Net increase - Class B...................................... 1,084,988 13,153,205 7,872,615 94,568,599
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 178,822 2,162,340 246,149 2,956,204
Reinvestment of dividends and distributions................. 4,328 52,164 2,294 27,678
Redeemed.................................................... (47,097) (569,840) (4,612) (55,937)
---------- ------------ ----------- -------------
Net increase - Class C...................................... 136,053 1,644,664 243,831 2,927,945
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 290,671 3,495,458 1,386,806 16,302,673
Reinvestment of dividends and distributions................. 1,212,913 14,594,022 3,036,080 35,979,041
Redeemed.................................................... (4,872,621) (58,768,642) (14,721,910) (173,829,296)
---------- ------------ ----------- -------------
Net decrease - Class D...................................... (3,369,037) (40,679,162) (10,299,024) (121,547,582)
---------- ------------ ----------- -------------
Net decrease in Fund........................................ (1,652,369) $(19,894,709) (1,863,545) $ (20,236,797)
========== ============ =========== =============
</TABLE>
- ---------------------
* For Class A, B and C, for the period July 28, 1997 (issue date) through
December 31, 1997.
6. ACQUISITION OF DEAN WITTER NATIONAL MUNICIPAL TRUST
As of the close of business on November 7, 1997, the Fund acquired all the net
assets of Dean Witter National Municipal Trust ("National Municipal") pursuant
to a plan of reorganization approved by the shareholders of National Municipal
on October 24, 1997. The acquisition was accomplished by a tax-free exchange of
7,189,021 Class B shares of the Fund at a net asset value of $12.01 per share
for 7,972,312 shares of National Municipal. The net assets of the Fund and
National Municipal immediately before the acquisition were $1,108,511,637 and
$86,346,821, respectively, including unrealized appreciation of $5,153,021.
Immediately after the acquisition, the combined net assets of the Fund amounted
to $1,194,858,458.
20
<PAGE> 21
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED --------------------------------------------------------
JUNE 30, 1998 1997* 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $12.08 $11.77 $12.09 $11.01 $12.41 $11.88
------ ------ ------ ------ ------ ------
Net investment income................................. 0.31 0.63 0.65 0.67 0.70 0.77
Net realized and unrealized gain (loss)............... (0.01) 0.36 (0.24) 1.19 (1.37) 0.54
------ ------ ------ ------ ------ ------
Total from investment operations...................... 0.30 0.99 0.41 1.86 (0.67) 1.31
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................................ (0.31) (0.63) (0.65) (0.67) (0.70) (0.77)
Net realized gain.................................... (0.05) (0.05) (0.08) (0.11) (0.03) (0.01)
------ ------ ------ ------ ------ ------
Total dividends and distributions..................... (0.36) (0.68) (0.73) (0.78) (0.73) (0.78)
------ ------ ------ ------ ------ ------
Net asset value, end of period........................ $12.02 $12.08 $11.77 $12.09 $11.01 $12.41
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+.............................. 2.43%(1) 8.73% 3.61% 17.37% (5.55)% 11.23%
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................. 0.49%(2) 0.49% 0.48% 0.48% 0.47% 0.47%
Net investment income................................. 5.20%(2) 5.34% 5.52% 5.76% 6.02% 6.23%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................ $1,051 $1,097 $1,190 $1,325 $1,295 $1,582
Portfolio turnover rate............................... 10%(1) 16% 18% 21% 16% 13%
</TABLE>
- ---------------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class D shares.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE> 22
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.09 $12.00
------ ------
Net investment income....................................... 0.30 0.25
Net realized and unrealized gain............................ -- 0.14
------ ------
Total from investment operations............................ 0.30 0.39
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.30) (0.25)
Net realized gain.......................................... (0.05) (0.05)
------ ------
Total dividends and distributions........................... (0.35) (0.30)
------ ------
Net asset value, end of period.............................. $12.04 $12.09
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.40%(1) 3.31%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.72%(2) 0.76%(2)(3)
Net investment income....................................... 4.90%(2) 4.96%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $9,806 $3,857
Portfolio turnover rate..................................... 10%(1) 16%
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.14 $12.00
------ ------
Net investment income....................................... 0.28 0.23
Net realized and unrealized gain (loss)..................... (0.01) 0.19
------ ------
Total from investment operations............................ 0.27 0.42
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.28) (0.23)
Net realized gain.......................................... (0.05) (0.05)
------ ------
Total dividends and distributions........................... (0.33) (0.28)
------ ------
Net asset value, end of period.............................. $12.08 $12.14
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.13%(1) 3.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.09%(2) 1.14%(2)(3)
Net investment income....................................... 4.59%(2) 4.87%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $108,212 $95,573
Portfolio turnover rate..................................... 10%(1) 16%
</TABLE>
- ---------------------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.02%.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE> 23
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JUNE 30, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.11 $12.00
------ ------
Net investment income....................................... 0.27 0.23
Net realized and unrealized gain (loss)..................... (0.01) 0.16
------ ------
Total from investment operations............................ 0.26 0.39
------ ------
Less dividends and distributions from:
Net investment income...................................... (0.27) (0.23)
Net realized gain.......................................... (0.05) (0.05)
------ ------
Total dividends and distributions........................... (0.32) (0.28)
------ ------
Net asset value, end of period.............................. $12.05 $12.11
====== ======
TOTAL INVESTMENT RETURN+.................................... 2.08%(1) 3.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.19%(2) 1.20%(2)(3)
Net investment income....................................... 4.45%(2) 4.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $4,579 $2,953
Portfolio turnover rate..................................... 10%(1) 16%
</TABLE>
- ---------------------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.02%.
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE> 24
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Phillip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Joseph R. Arcieri
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion theron.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses, and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
TAX-EXEMPT
SECURITIES TRUST
[PHOTO]
SEMIANNUAL REPORT
JUNE 30, 1998
