<PAGE> 1
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 1999 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,
1999.
After last year's global economic difficulties, the financial markets have
experienced a period of global healing. The turmoil, which included the Asian
financial crisis, the Russian debt default and the near collapse of a major
hedge fund, has given way to improved financial conditions. A major catalyst for
this return to stability was the liquidity provided by the Federal Reserve
Board's 75-basis-point reduction in the fed funds rate during the fourth quarter
of 1998.
The U.S. economy, led by consumer demand, continued to experience robust growth
in the first half of 1999. Higher materials prices and wage increases caused the
fixed-income markets to focus on the possibility that the Federal Reserve would
begin to take back some of the liquidity provided during last year's financial
crisis. Long-term interest rates reached 30-year lows in 1998 but have begun to
rise. In June, the central bank raised the fed funds rate 25 basis points to
5.00 percent in its first tightening move since early 1997.
MUNICIPAL MARKET CONDITIONS
Municipal securities outperformed U.S. Treasuries in the first six months of
1999. This is in contrast to last year's flight to quality rally, that primarily
benefited Treasuries. As global turmoil subsided, Treasury yields increased more
than municipal yields. Since the beginning of the year, Treasury bond yields
rose 85 basis points from 5.10 to 5.95 percent. Long-term insured index yields
rose only 45 basis points, from 5.05 to 5.50 percent. The ratio of long-term
municipal yields to Treasury yields, a widely followed indicator of relative
performance, declined from 99 to 92 percent. A declining ratio means municipals
have outperformed Treasuries.
<PAGE> 2
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS June 30, 1999, continued
Municipal performance was also aided by a decline in underwriting. New-issue
volume declined 23 percent in the first half of 1999. Higher interest rates
caused a 47 percent decline in refunding activity.
30-YEAR BOND YIELDS 1994 - 1999
<TABLE>
<CAPTION>
Insured U.S. Insured Municipal Yields as a
Municipal Yields Treasury Yields Percentage of U.S. Treasury Yields
<S> <C> <C> <C>
1994 5.40% 6.34% 85.17%
5.40 6.24 86.54
5.80 6.66 87.09
6.40 7.09 90.27
6.35 7.32 86.75
6.25 7.43 84.12
6.50 7.61 85.41
6.25 7.39 84.57
6.30 7.45 84.56
6.55 7.81 83.87
6.75 7.96 84.80
7.00 8.00 87.50
6.75 7.88 85.66
1995 6.40 7.70 83.12
6.15 7.44 82.66
6.15 7.43 82.77
6.20 7.34 84.47
5.80 6.66 87.09
6.10 6.62 92.15
6.10 6.86 88.92
6.00 6.66 90.09
5.95 6.48 91.82
5.75 6.33 90.84
5.50 6.14 89.58
5.35 5.94 90.07
1996 5.40 6.03 89.55
5.60 6.46 86.69
5.85 6.66 87.84
5.95 6.89 86.36
6.05 6.99 86.55
5.90 6.89 85.63
5.85 6.97 83.93
5.90 7.11 82.98
5.70 6.93 82.25
5.65 6.64 85.09
5.50 6.35 86.61
5.60 6.63 84.46
1997 5.70 6.79 83.95
5.65 6.80 83.09
5.90 7.10 83.10
5.75 6.94 82.85
5.65 6.91 81.77
5.60 6.78 82.60
5.30 6.30 84.13
5.50 6.61 83.21
5.40 6.40 84.38
5.35 6.15 86.99
5.30 6.05 87.60
5.15 5.92 86.99
1998 5.15 5.80 88.79
5.20 5.92 87.84
5.25 5.93 88.53
5.35 5.95 89.92
5.20 5.80 89.66
5.20 5.65 92.04
5.18 5.71 90.72
5.03 5.27 95.45
4.95 5.00 99.00
5.05 5.16 97.87
5.00 5.06 98.81
5.05 5.10 99.02
1999 5.00 5.09 98.23
5.10 5.58 91.40
5.15 5.63 91.47
5.20 5.66 91.87
5.30 5.83 90.91
5.47 5.96 91.78
</TABLE>
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
PERFORMANCE
For the six-month period ended June 30, 1999, the Fund's Class A, B, C and D
shares produced total returns of -1.20 percent, -1.41 percent, -1.47 percent and
- -1.14 percent, respectively. Performance of the Fund's shares varies because of
differing expenses. Over the same period, the Lehman Brothers Municipal Bond
Index and the Lipper General Municipal Debt Funds Index registered total returns
of -0.89 percent and -1.46 percent, respectively.
PORTFOLIO STRUCTURE
Short-term investments and cash were increased to 5 percent of net assets during
the first half of 1999. Refunded bond category comprised 11 percent of net
assets and will be called for redemption on the dates shown in the portfolio.
Average duration, a measure of sensitivity to interest rate changes, was 6.9
years at the end of June. The Fund's average-weighted maturity was 16 years. The
Fund's net assets
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS June 30, 1999, continued
LARGEST LONG-TERM SECTORS AS OF JUNE 30, 1999
(% OF NET ASSETS)
<TABLE>
<S> <C>
TRANSPORTATION 15%
GENERAL OBLIGATION 15%
WATER & SEWER 13%
ELECTRIC 12%
REFUNDED 11%
MORTGAGE 9%
EDUCATION 7%
HOSPITAL 6%
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT RATINGS as of June 30, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
<TABLE>
<S> <C>
Aaa or AAA 64%
Aa or AA 18%
A or A 13%
Baa or BBB 3%
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, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
WEIGHTED AVERAGE
CALL PROTECTION: 7 YEARS
<TABLE>
<CAPTION>
YEARS BONDS CALLABLE PERCENT CALLABLE
<S> <C>
1999 1%
2000 7%
2001 8%
2002 8%
2003 10%
2004 5%
2005 11%
2006 8%
2007 10%
2008 12%
2009 6%
2010+ 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, 1999, continued
of $1.12 billion were diversified among 13 long-term sectors and 129 individual
credits. The accompanying charts provide current information on the portfolio's
credit quality, sector diversification and optional redemption (call)
provisions.
LOOKING AHEAD
The Federal Reserve Board raised interest rates in June. This confirmed its
previously signaled intention of becoming less accommodative in the face of
continued strong domestic economic growth. It is anticipated that the central
bank may raise the fed funds rate further in an effort to take back the
liquidity it provided in the fall of 1998. However, we believe municipal bonds
continue to offer long-term investors good value, especially in relationship to
Treasuries.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is the President and Chief Operating Officer of Asset
Management for Morgan Stanley Dean Witter & Co. and President, Chief Executive
Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the Fund's
investment manager. He also serves as Chairman, Chief Executive Officer and
Director of the Fund's distributor and transfer agent.
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 /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FUND PERFORMANCE June 30, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES+
- ---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED 6/30/99 PERIOD ENDED 6/30/99
- ------------------------- -------------------------
1 Year 2.14(1) -2.20(2) 1 Year 1.82(1) -2.99(2)
5 Years 6.37(1) 5.45(2) Since Inception (7/28/97) 3.94(1) 1.98(2)
10 Years 6.69(1) 6.22(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
- ---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C>
PERIOD ENDED 6/30/99 PERIOD ENDED 6/30/99
- ------------------------- -------------------------
1 Year 1.70(1) 0.74(2) 1 Year 2.42(1)
Since Inception (7/28/97) 3.69(1) 3.69(2) 5 Years 6.62(1)
10 Years 6.94(1)
</TABLE>
- ---------------------
PRIOR TO JULY 28, 1997 THE FUND OFFERED ONLY ONE CLASS OF SHARES.
BECAUSE THE DISTRIBUTION ARRANGEMENTS FOR CLASS A MOST CLOSELY
RESEMBLED THE DISTRIBUTION ARRANGEMENT APPLICABLE PRIOR TO THE
IMPLEMENTATION OF MULTIPLE CLASSES (I.E., CLASS A IS SOLD WITH A
FRONT-END SALES CHARGE), HISTORICAL PERFORMANCE INFORMATION HAS
BEEN RESTATED TO REFLECT THE ACTUAL MAXIMUM SALES CHARGE
APPLICABLE TO CLASS A (I.E., 4.25%) AS COMPARED TO THE 4.00%
SALES CHARGE IN EFFECT PRIOR TO JULY 28, 1997. IN ADDITION, CLASS
A SHARES ARE NOW SUBJECT TO AN ONGOING 12b-1 FEE WHICH IS
REFLECTED IN THE RESTATED PERFORMANCE FOR THAT CLASS. BECAUSE ALL
SHARES OF THE FUND HELD PRIOR TO JULY 28, 1997 WERE DESIGNATED
CLASS D SHARES, THE FUND'S HISTORICAL PERFORMANCE HAS BEEN
RESTATED TO REFLECT THE ABSENCE OF ANY SALES CHARGE.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and
does not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and
the deduction of the maximum applicable sales charge. See
the Fund's current prospectus for complete details on fees
and sales charges.
* The maximum front-end sales charge for Class A is 4.25%.
+ The maximum CDSC for Class B is 5.0%. The CDSC declines to
0% after six years.
++ The maximum CDSC for Class C shares is 1% for shares
redeemed within one year of purchase.
# Class D shares have no sales charge.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (94.6%)
General Obligation (14.5%)
North Slope Borough, Alaska,
$ 5,000 Ser 1992 A Conv (MBIA)..................................... 5.90 % 06/30/03 $ 5,266,350
18,000 Ser 1994 B (FSA)........................................... 0.00 06/30/05 13,533,840
18,500 Ser 1995 A (MBIA).......................................... 0.00 06/30/06 13,173,665
13,925 Ser 1996 B (MBIA).......................................... 0.00 06/30/06 9,915,853
10,000 Ser 1996 B (MBIA).......................................... 0.00 06/30/07 6,731,000
1,000 Santa Margarita/Dana Point Authority, California, Impr Dists
#3, 3A, 4 & 4A 1994 Ser B Refg (MBIA)...................... 5.75 08/01/20 1,022,690
4,000 Connecticut, College Savings 1989 Ser A..................... 0.00 07/01/08 2,566,560
7,500 Honolulu City & County, Hawaii, Ser 1999 C (FGIC)........... 5.00 07/01/18 7,146,225
5,000 Illinois, Ser 1999 (FGIC)................................... 5.375 06/01/24 4,895,600
20,000 Massachusetts, Refg 1996 Ser A (AMBAC)...................... 6.00 11/01/10 21,713,200
4,000 Clark County, Nevada, Transportation Ser 1992 A (AMBAC)..... 6.50 06/01/17 4,570,840
New York City, New York,
1,500 1995 Ser D (MBIA).......................................... 6.20 02/01/07 1,622,430
3,405 1990 Ser D................................................. 6.00 08/01/07 3,411,401
2,865 1990 Ser D................................................. 6.00 08/01/08 2,870,386
10,000 North Carolina, 1997 Ser A.................................. 5.20 03/01/16 9,970,500
1,000 Delaware City School District, Ohio, Constr & Impr (FGIC)... 5.75 12/01/20 1,023,690
10,000 Pennsylvania, First Ser 1995 (FGIC)......................... 5.50 05/01/12 10,273,800
10,000 South Carolina, Highway Ser 1999 A.......................... 4.60 05/01/19 9,041,700
5,260 Shelby County, Tennessee, Refg 1995 Ser A................... 5.625 04/01/14 5,394,498
5,000 Houston Independent School District, Texas, PSF Gtd School &
Refg Ser 1999 A............................................ 5.25 02/15/18 4,923,800
20,000 King County, Washington, Ltd Tax 1995 (MBIA)................ 6.00 01/01/23 20,780,800
2,000 Washington, Ser 1994 A...................................... 5.80 09/01/08 2,099,600
- ---------- --------------
177,955 161,948,428
- ---------- --------------
Educational Facilities Revenue (6.7%)
10,000 Indiana University, Student Fee Ser K (MBIA)................ 5.875 08/01/20 10,267,800
6,000 Maryland State Health & Educational Facilities Authority,
The Johns Hopkins University Refg Ser 1998................. 5.125 07/01/20 5,830,920
Massachusetts Health & Educational Facilities Authority,
7,000 Boston University Ser 1991 (MBIA).......................... 6.66 10/01/31 7,460,180
5,000 Brandeis University, 1998 Ser I (MBIA)..................... 4.75 10/01/28 4,437,350
5,000 Missouri Health & Educational Facilities Authority,
Washington University Ser 1998 A........................... 4.75 11/15/37 4,317,950
10,000 New Hampshire Higher Educational & Health Facilities
Authority, Dartmouth College Ser 1993...................... 5.375 06/01/23 9,860,500
2,000 New Jersey Economic Development Authority, The Seeing Eye
Inc 1991................................................... 7.30 04/01/11 2,085,120
5,000 New Jersey Educational Facilities Authority, Princeton
University Ser 1999 A...................................... 4.75 07/01/25 4,568,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New York State Dormitory Authority,
$ 5,000 State University Ser 1989 B................................ 0.00 % 05/15/02 $ 4,403,250
20,000 State University Ser 1990 B................................ 7.00 05/15/16 20,889,400
1,000 Virginia Polytechnic Institute & State University, Ser
1996....................................................... 5.50 06/01/16 1,013,310
- ---------- --------------
76,000 75,134,030
- ---------- --------------
Electric Revenue (11.8%)
25,000 Salt River Project Agricultural Improvement & Power
District, Arizona, Refg 1993 Ser C (Secondary MBIA)........ 5.50 01/01/10 25,949,500
10,000 Sacramento Municipal Utility District, California, Refg 1994
Ser L (MBIA)............................................... 5.75 01/01/15 10,367,100
10,000 Municipal Electric Authority of Georgia, Ser Y (Secondary
MBIA)...................................................... 6.50 01/01/17 11,370,200
5,000 Long Island Power Authority, New York, Ser 1998 A (FSA)..... 5.125 12/01/22 4,779,850
Eugene, Oregon, Electric Utility
1,000 Ser 1996 (FSA)............................................. 5.375 08/01/12 1,016,140
1,000 Ser 1996 (FSA)............................................. 5.375 08/01/13 1,013,170
Puerto Rico Electric Power Authority,
1,500 Power Ser X................................................ 6.00 07/01/15 1,577,745
15,000 Power Ser O................................................ 0.00 07/01/17 5,687,550
5,000 Power Ser EE (MBIA)........................................ 4.50 07/01/18 4,496,900
15,000 South Carolina Public Service Authority, 1995 Refg Ser A
(AMBAC).................................................... 6.25 01/01/22 16,134,750
710 Austin, Texas, Combined Utilities Refg Ser 1994 (FGIC)...... 6.25 05/15/16 761,873
San Antonio, Texas, Electric & Gas
13,000 Refg Ser 1994 C............................................ 4.70 02/01/06 12,985,050
5,000 Refg Ser 1998 A............................................ 4.50 02/01/21 4,332,700
Intermountain Power Agency, Utah,
5,000 Refg Ser 1998 A (MBIA)..................................... 5.25 07/01/15 4,946,700
10,000 Refg 1997 Ser B (MBIA)..................................... 5.75 07/01/19 10,229,000
15,000 Washington Public Power Systems, Proj #2 Refg Ser 1994 A
(Secondary MBIA)........................................... 6.00 07/01/07 16,061,100
- ---------- --------------
137,210 131,709,328
- ---------- --------------
Hospital Revenue (5.5%)
11,465 Birmingham-Carraway Special Care Facilities Financing
Authority, Alabama, Carraway Methodist Health Ser 1995 A
(Connie Lee)............................................... 6.25 08/15/09 12,393,092
2,000 Orange County Health Facilities Authority, Florida,
Adventist Health/Sunbelt Ser 1995 (AMBAC).................. 5.25 11/15/20 1,935,020
1,000 Maryland Health & Higher Educational Facilities Authority,
Kernan Hospital Ser 1994 (Connie Lee)...................... 6.10 07/01/24 1,052,440
Rochester, Minnesota,
5,000 Mayo Foundation/Medical Center Ser 1992 I.................. 5.75 11/15/21 5,082,700
3,700 Mayo Foundation/Medical Center Ser 1992 F.................. 6.25 11/15/21 3,942,461
10,000 Missouri Health & Educational Facilities Authority,
Barnes-Jewish Inc/ Christian Health Ser 1993 A............. 5.25 05/15/14 9,929,600
1,300 New Hampshire Higher Educational & Health Facilities
Authority, St Joseph Hospital Ser 1994 (Connie Lee)........ 6.35 01/01/07 1,403,753
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 6,000 New York State Medical Care Facilities Finance Agency,
Presbyterian Hospital - FHA Insured Mtge Ser A Refg........ 5.25 % 08/15/14 $ 5,968,680
4,000 University of North Carolina, Hospitals at Chapel Hill Ser
1996....................................................... 5.00 02/15/29 3,670,800
2,000 Jackson, Tennessee, Jackson-Madison County General Hospital
Refg & Impr Ser 1995 (AMBAC)............................... 5.625 04/01/15 2,025,480
5,000 North Central Texas Health Facilities Development
Corporation, University Medical Center Inc Ser 1997
(FSA)...................................................... 5.45 04/01/15 4,989,050
10,000 Fredericksburg Industrial Development Authority, Virginia,
Medicorp Health Refg Ser 1996 (AMBAC)...................... 5.25 06/15/16 9,758,600
- ---------- --------------
61,465 62,151,676
- ---------- --------------
Industrial Development/Pollution Control Revenue (4.1%)
1,500 Hawaii Department of Budget & Finance, Hawaiian Electric Co
Ser 1995 A (AMT) (MBIA).................................... 6.60 01/01/25 1,615,905
1,375 Maryland Industrial Development Financing Authority, Medical
Waste Assocs LP 1989 Ser (AMT)............................. 8.75 11/15/10 1,383,223
10,000 Clark County, Nevada, Nevada Power Co Ser 1992 A (AMT)
(FGIC)..................................................... 6.70 06/01/22 10,688,300
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987
(AMBAC).................................................... 6.30 12/01/14 5,303,500
5,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990
(AMT)...................................................... 7.50 12/01/29 5,289,100
10,000 Dallas-Fort Worth International Airport Facility Improvement
Corporation, Texas, American Airlines Inc Ser 1995......... 6.00 11/01/14 10,202,600
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993
A.......................................................... 6.90 02/01/13 10,862,000
- ---------- --------------
42,875 45,344,628
- ---------- --------------
Mortgage Revenue - Multi-Family (2.3%)
955 Massachusetts Housing Finance Agency, Rental 1994 Ser A
(AMT) (AMBAC).............................................. 6.65 07/01/19 1,017,027
5,560 Michigan Housing Development Authority, Rental 1992 Ser A
(Bifurcated FSA)........................................... 6.50 04/01/23 5,870,693
9,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A
(AMBAC).................................................... 6.05 11/01/20 9,433,350
New York City Housing Development Corporation, New York,
4,307 Ruppert Proj - FHA Ins Sec 223F............................ 6.50 11/15/18 4,523,410
4,162 Stevenson Commons Proj - FHA Ins Sec 223F.................. 6.50 05/15/18 4,370,283
- ---------- --------------
23,984 25,214,763
- ---------- --------------
Mortgage Revenue - Single Family (6.5%)
7,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A
(MBIA)..................................................... 5.875 12/01/24 7,250,950
2,440 California Housing Finance Agency, Home Cap Apprec 1983 Ser
B.......................................................... 0.00 08/01/15 471,823
Colorado Housing & Finance Authority,
2,000 1998 Ser A-2 (AMT)......................................... 6.60 05/01/28 2,199,100
2,500 1997 Ser C-2 (AMT)......................................... 6.875 11/01/28 2,763,650
12,100 Illinios Housing Development Authority, Residential 1991 Ser
C (AMT).................................................... 6.875 02/01/18 12,736,581
Missouri Housing Development Commission, Homeownership,
3,260 GNMA-FNMA Collateralized 1996 Ser C (AMT).................. 7.45 09/01/27 3,583,457
3,910 GNMA-FNMA Collateralized 1997 Ser C-1...................... 6.55 09/01/28 4,262,330
3,400 Nebraska Investment Finance Authority, GNMA-Backed 1990
(AMT)...................................................... 7.631 09/10/30 3,542,766
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,850 Ohio Housing Finance Agency, GNMA-Backed Ser A 1 & 2
(AMT)...................................................... 6.903% 03/01/31 $ 5,074,361
10,000 Pennsylvania Housing Finance Agency, Ser 1991-31 C (AMT).... 7.00 10/01/23 10,539,900
Tennessee Housing Development Agency,
4,000 Mortgage Finance 1993 Ser A................................ 5.90 07/01/18 4,111,680
1,000 Mortgage Finance 1994 Ser B (AMT).......................... 6.55 07/01/19 1,046,760
11,000 Mortgage Finance 1993 Ser A................................ 5.95 07/01/28 11,340,780
310 Utah Housing Finance Agency, Fed Ins/Gtd Loans 1994 Issue E
(AMT)...................................................... 6.50 07/01/26 315,481
3,000 Wisconsin Housing & Economic Development Authority, Home
Ownership 1991 Ser (AMT)................................... 7.10 10/25/22 3,148,530
- ---------- --------------
70,770 72,388,149
- ---------- --------------
Public Facilities Revenue (1.1%)
2,000 North City West School Facilities Authority, California,
Community Dist #1 Special Tax Ser 1995 B (FSA)............. 6.00 09/01/19 2,098,980
3,500 Denver, Colorado, Excise Tax Ser 1985 A (Secondary FSA)..... 5.00 11/01/08 3,500,560
5,000 Ohio Building Authority, 1985 Ser C......................... 9.75 10/01/05 6,294,850
- ---------- --------------
10,500 11,894,390
- ---------- --------------
Resource Recovery Revenue (2.5%)
4,950 Connecticut Resources Development Authority, Bridgeport
RESCO Ser A................................................ 7.625 01/01/09 5,133,645
7,000 Savannah Resource Recovery Development Authority, Georgia,
Savannah Energy Systems Co Ser 1992........................ 6.30 12/01/06 7,335,230
10,000 Northeast Maryland Waste Disposal Authority, Montgomery
County Ser 1993 A (AMT).................................... 6.30 07/01/16 10,524,200
5,000 Onondaga County Resource Recovery Agency, New York, 1992 Ser
(AMT)...................................................... 6.875 05/01/06 5,223,600
- ---------- --------------
26,950 28,216,675
- ---------- --------------
Transportation Facilities Revenue (14.7%)
5,000 San Francisco Bay Area Rapid Transit District, California,
Sales Tax Ser 1998 (AMBAC)................................. 4.75 07/01/23 4,509,700
10,000 San Joaquin Hills Transportation Corridor Agency,
California, Toll Road Refg Ser 1997 A (MBIA)............... 0.00 01/15/31 1,709,100
9,900 E-470 Public Highway Authority, Colorado, Ser 1997 A
(MBIA)..................................................... 5.00 09/01/26 9,218,484
1,000 Lee County, Florida, Ser 1995 (MBIA)........................ 5.75 10/01/22 1,025,640
Mid-Bay Bridge Authority, Florida,
8,965 Ser 1993 A (AMBAC)......................................... 5.85 10/01/13 9,409,126
3,000 Ser 1997 A (AMBAC)......................................... 0.00 10/01/21 861,540
10,000 Atlanta, Georgia, Airport Ser 1990 (AMT).................... 6.25 01/01/21 10,360,100
5,000 Hawaii, Airports Second Ser 1991 (AMT)...................... 7.00 07/01/18 5,306,500
850 Regional Transportation Authority, Illinois, Ser 1994 A..... 6.25 06/01/15 919,198
3,000 Kansas, Highway Refg Ser 1998............................... 5.50 09/01/12 3,116,760
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Kentucky Turnpike Authority,
$ 9,000 Economic Development Road Refg Ser 1995 (AMBAC)............ 6.50 % 07/01/08 $ 10,045,080
1,000 Economic Development Road Refg Ser 1995 (AMBAC)............ 5.625 07/01/15 1,025,560
30,000 Resource Recovery Road 1987 Ser A.......................... 5.00 07/01/08 30,000,300
13,885 Massachusetts Turnpike Authority, Western 1997 Ser A
(MBIA)..................................................... 5.55 01/01/17 13,954,425
10,000 Minneapolis - St Paul Metropolitan Airports Commission,
Minnesota, Ser 1998 A (AMBAC).............................. 5.00 01/01/30 9,390,900
11,000 New Jersey Highway Authority, Sr Parkway Refg 1992 Ser...... 6.25 01/01/14 11,647,680
6,595 Albuquerque, New Mexico, Airport Refg Ser 1997 (AMT)
(AMBAC).................................................... 6.375 07/01/15 7,123,985
1,500 Port Authority of New York & New Jersey, Cons One Hundredth
Ser Second Installment ++.................................. 5.75 12/15/20 1,548,255
10,000 Ohio Turnpike Commission, Ser 1998 B (FGIC)................. 4.50 02/15/24 8,610,900
Pennsylvania Turnpike Commission,
5,000 Ser L of 1991 (MBIA)....................................... 6.00 06/01/15 5,232,200
5,000 Ser A 1998 (AMBAC)......................................... 4.75 12/01/27 4,463,850
10,000 Puerto Rico Highway & Transportation Authority, Refg Ser
X.......................................................... 5.50 07/01/15 10,224,800
4,000 Virginia Transportation Board, US Route 58 Corridor Ser 1993
B.......................................................... 5.625 05/15/13 4,123,600
- ---------- --------------
173,695 163,827,683
- ---------- --------------
Water & Sewer Revenue (12.7%)
2,000 Jefferson County, Alabama, Sewer Refg Ser 1997 A (FGIC)..... 5.375 02/01/27 1,967,400
10,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Water Ser 1994............................................. 5.45 07/01/19 10,063,600
10,000 California Department of Water Resources, Central Valley Ser
L.......................................................... 5.50 12/01/23 9,999,500
10,000 Los Angeles, California, Wastewater Ser 1994-A (MBIA)....... 5.875 06/01/24 10,371,099
1,000 Dade County, Florida, Water & Sewer Ser 1995 (FGIC)......... 5.50 10/01/15 1,016,480
5,000 Tampa Bay Water, Florida, Utility Ser 1998 B (FGIC)......... 4.75 10/01/27 4,471,550
5,000 Fulton County, Georgia, Water & Sewerage Ser 1998 (FGIC).... 4.75 01/01/28 4,489,850
5,000 Upper Oconee Basin Water Authority, Georgia, Ser 1997
(FGIC)..................................................... 5.25 07/01/27 4,878,250
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky, Ser 1998 A (FGIC)................................ 4.75 05/15/28 8,960,200
10,000 Massachusetts Water Pollution Abatement Trust, MWRA Loan Ser
1998 A..................................................... 4.75 08/01/18 9,153,200
10,000 Massachusetts Water Resources Authority, Refg 1992 Ser B.... 5.50 11/01/15 10,054,200
Detroit, Michigan,
3,320 Sewage Refg Ser 1993 A (FGIC).............................. 5.70 07/01/13 3,402,934
10,000 Water Supply 1997 Ser A (MBIA)............................. 5.00 07/01/21 9,415,000
5,090 Rio Rancho, New Mexico, Water & Wastewater Refg Ser 1998
(AMBAC).................................................... 5.25 05/15/18 5,011,818
2,000 Asheville, North Carolina, Water Ser 1996 (FGIC)............ 5.70 08/01/25 2,044,260
10,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA).... 5.00 01/01/23 9,483,700
Philadelphia, Pennsylvania, Water & Wastewater
1,250 Ser 1995 (MBIA)............................................ 6.25 08/01/11 1,374,875
5,000 Ser 1993 (FSA)............................................. 5.50 06/15/15 5,030,100
Pittsburgh Water & Sewer Authority, Pennsylvania,
20,000 1998 Ser B (FGIC).......................................... 0.00 09/01/26 4,353,000
10,000 1998 Ser B (FGIC).......................................... 0.00 09/01/28 1,942,600
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,000 Spartanburg, South Carolina, Jr Lien Water Ser 1998
(FGIC)..................................................... 5.25 % 06/01/28 $ 4,819,800
11,000 Metropolitan Government of Nashville & Davidson County,
Tennessee, Refg Ser 1998 A (FGIC).......................... 4.75 01/01/22 10,035,080
10,000 Dallas, Texas, Waterworks & Sewer Refg Ser 1998 (FSA)....... 5.00 10/01/29 9,266,200
- ---------- --------------
170,660 141,604,696
- ---------- --------------
Other Revenue (0.8%)
1,000 New Jersey Economic Development Authority, Market Transition
Sr Lien Ser 1994 A (MBIA).................................. 5.875 07/01/11 1,057,210
5,000 New York Local Government Assistance Corporation, Ser 1993
C.......................................................... 5.50 04/01/17 5,131,100
3,000 Houston, Texas, Sr Lien Hotel Occupancy Tax Refg Ser 1995
(FSA)...................................................... 5.50 07/01/11 3,039,960
- ---------- --------------
9,000 9,228,270
- ---------- --------------
Refunded (11.4%)
10,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994..... 5.50 01/01/04+ 10,558,800
3,000 Baxter County, Arkansas, Baxter County Regional Hospital Inc
Impr & Refg Ser 1992....................................... 7.50 09/01/02+ 3,329,070
1,000 California Educational Facilities Authority, Claremont
Colleges Ser 1992.......................................... 6.375 05/01/02+ 1,075,570
9,000 Los Angeles Convention and Exhibition Center Authority,
California, Ser 1985 COPs.................................. 9.00 12/01/05+ 11,281,500
2,500 Mid-Bay Bridge Authority, Florida, Ser 1991 A (ETM)......... 6.875 10/01/22 2,982,500
1,500 Massachusetts Health & Educational Facilities Authority,
Malden Hospital - FHA Ins Mtge Ser A (ETM)................. 5.00 08/01/16 1,459,620
10,000 Massachusetts Water Resources Authority, 1996 Ser A
(FGIC)..................................................... 5.50 11/01/06+ 10,600,300
14,000 New York State Dormitory Authority, Suffolk County Judicial
Ser 1986 (ETM)............................................. 7.375 07/01/16 16,794,400
7,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C (ETM).... 4.70 02/01/06 6,937,420
25,000 Intermountain Power Agency, Utah, Refg 1985 Ser H (GAINS)... 0.00# 07/01/03+ 27,817,250
5,000 Salt Lake City, Utah, IHC Hospital Inc Ser 1983 (ETM)....... 5.00 06/01/15 4,891,750
28,000 Fairfax County Industrial Development Authority, Virginia,
Fairfax Hospital System Inc/Inova Health Ser 1991.......... 6.801 08/15/01+ 29,932,560
- ---------- --------------
116,000 127,660,740
- ---------- --------------
1,097,064 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $1,001,208,020)............... 1,056,323,456
- ---------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (3.8%)
$ 10,000 Maricopa County, Arizona, Arizona Public Service Co Ser 1994
C
(Demand 07/01/99).......................................... 3.45*% 05/01/29 $ 10,000,000
6,000 Massachusetts Health & Educational Facilities Authority,
Capital Asset Ser D (MBIA) (Demand 07/01/99)............... 3.70* 01/01/35 6,000,000
Harris County Health Facilities Development Corporation,
Texas,
9,000 Methodist Hospital Ser 1994 (Demand 07/01/99).............. 3.50* 12/01/25 9,000,000
7,500 St Luke's Episcopal Hospital Ser 1997 A (Demand
07/01/99)................................................ 3.85* 02/15/27 7,500,000
9,500 Platte County, Wyoming, Tri-State Generation & Transmission
Ser 1984 A (Demand 07/01/99)............................... 3.60* 07/01/14 9,500,000
- ---------- --------------
42,000 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost
$42,000,000)................................................................... 42,000,000
- ---------- --------------
$1,139,064 TOTAL INVESTMENTS (Identified Cost $1,043,208,020) (a)................. 98.4% 1,098,323,456
==========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................... 1.6 17,977,126
----- --------------
NET ASSETS.............................................................. 100.0% $1,116,300,582
----- ==============
-----
</TABLE>
- ---------------------
<TABLE>
<C> <S>
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
GAINS Growth and Income Security.
++ Joint exemption in New York and New Jersey.
+ Prerefunded to call date shown.
# Currently a zero coupon bond; will convert to 10.00% coupon
on July 1, 2000.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross unrealized
appreciation is $64,515,664 and the aggregate gross
unrealized depreciation is $9,400,228, resulting in net
unrealized appreciation of $55,115,436.
Bond Insurance
- -----------------------------
AMBAC AMBAC Assurance Corporation.
Connie Lee Connie Lee Insurance Company - A wholly owned subsidiary of
AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
June 30, 1999
<TABLE>
<S> <C>
Alabama.................. 2.2%
Alaska................... 5.0
Arizona.................. 4.1
Arkansas................. 0.3
California............... 4.7
Colorado................. 1.6
Connecticut.............. 0.7
Florida.................. 1.9
Georgia.................. 3.4
Hawaii................... 1.3
Illinois................. 1.7
Indiana.................. 0.9
Kansas................... 0.3
Kentucky................. 4.5
Maryland................. 1.7
Massachusetts............ 7.7
Michigan................. 1.7
Minnesota................ 1.6
Missouri................. 2.0
Nebraska................. 0.3
Nevada................... 1.8
New Hampshire............ 1.0
New Jersey............... 2.7
New Mexico............... 1.1
New York................. 7.3
North Carolina........... 1.4
Ohio..................... 2.7
Oregon................... 0.2
Pennsylvania............. 3.9
Puerto Rico.............. 2.0
South Carolina........... 2.7
Tennessee................ 3.0
Texas.................... 7.1
Utah..................... 4.3
Virginia................. 4.0
Washington............... 3.5
Wisconsin................ 1.3
Wyoming.................. 0.9
Joint Exemptions*........ (0.1)
------
Total.................... 98.4%
======
</TABLE>
- ---------------------
* Joint exemptions have been included in more than one geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $1,043,208,020)...... $1,098,323,456
Cash................................... 1,356,715
Receivable for:
Interest........................... 16,946,329
Shares of beneficial interest
sold.............................. 726,323
Investments sold................... 201,738
Prepaid expenses and other assets...... 113,270
--------------
TOTAL ASSETS....................... 1,117,667,831
--------------
LIABILITIES:
Payable for:
Investment management fee.......... 446,878
Shares of beneficial interest
repurchased....................... 423,879
Dividends and distributions to
shareholders...................... 310,903
Plan of distribution fee........... 88,792
Accrued expenses....................... 96,797
--------------
TOTAL LIABILITIES.................. 1,367,249
--------------
NET ASSETS......................... $1,116,300,582
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................ $1,059,216,915
Net unrealized appreciation............ 55,115,436
Accumulated undistributed net
investment income..................... 18,572
Accumulated undistributed net realized
gain.................................. 1,949,659
--------------
NET ASSETS......................... $1,116,300,582
==============
CLASS A SHARES:
Net Assets............................. $19,022,746
Shares Outstanding (unlimited
authorized, $.01 par value)........... 1,645,796
NET ASSET VALUE PER SHARE.......... $11.56
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net
asset value)...................... $12.07
==============
CLASS B SHARES:
Net Assets............................. $144,123,029
Shares Outstanding (unlimited
authorized, $.01 par value)........... 12,417,650
NET ASSET VALUE PER SHARE.......... $11.61
==============
CLASS C SHARES:
Net Assets............................. $9,759,456
Shares Outstanding (unlimited
authorized, $.01 par value)........... 842,634
NET ASSET VALUE PER SHARE.......... $11.58
==============
CLASS D SHARES:
Net Assets............................. $943,395,351
Shares Outstanding (unlimited
authorized, $.01 par value)........... 81,679,328
NET ASSET VALUE PER SHARE.......... $11.55
==============
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
(unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME.......................... $ 32,003,353
------------
EXPENSES
Investment management fee................ 2,513,422
Plan of distribution fee (Class A
shares)................................. 12,691
Plan of distribution fee (Class B
shares)................................. 419,000
Plan of distribution fee (Class C
shares)................................. 31,464
Transfer agent fees and expenses......... 205,716
Registration fees........................ 48,303
Shareholder reports and notices.......... 42,104
Professional fees........................ 35,468
Custodian fees........................... 23,522
Trustees' fees and expenses.............. 9,203
Other.................................... 23,678
------------
TOTAL EXPENSES....................... 3,364,571
Less: expense offset..................... (23,453)
------------
NET EXPENSES......................... 3,341,118
------------
NET INVESTMENT INCOME................ 28,662,235
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................ 1,949,783
Net change in unrealized appreciation.... (43,944,499)
------------
NET LOSS............................. (41,994,716)
------------
NET DECREASE............................. $(13,332,481)
============
</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, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 28,662,235 $ 59,803,857
Net realized gain.................................. 1,949,783 15,111,631
Net change in unrealized appreciation.............. (43,944,499) (5,416,357)
-------------- --------------
NET INCREASE (DECREASE)........................ (13,332,481) 69,499,131
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................. (442,102) (460,545)
Class B shares................................. (3,101,929) (5,022,084)
Class C shares................................. (193,306) (218,789)
Class D shares................................. (24,924,898) (54,102,439)
Net realized gain
Class A shares................................. (52,983) (187,529)
Class B shares................................. (400,237) (1,743,115)
Class C shares................................. (27,144) (93,965)
Class D shares................................. (2,638,565) (14,360,329)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.............. (31,781,164) (76,188,795)
-------------- --------------
Net decrease from transactions in shares of
beneficial interest............................... (16,774,622) (14,502,186)
-------------- --------------
NET DECREASE................................... (61,888,267) (21,191,850)
NET ASSETS:
Beginning of period................................ 1,178,188,849 1,199,380,699
-------------- --------------
END OF PERIOD
(Including undistributed net investment income
of $18,572 and $18,572, respectively).......... $1,116,300,582 $1,178,188,849
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Tax-Exempt Securities Trust (the "Fund"), 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 converted to a multiple class structure.
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 and 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, 1999 (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"), 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
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited) continued
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.
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 (1) 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; (2) printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and (3) 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
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited) continued
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. The Distributor has advised the Fund that such excess
amounts, including carrying charges, totaled $4,489,480 at June 30, 1999.
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, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.14% and
0.70%, respectively.
The Distributor has informed the Fund that for the six months ended June 30,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $112,609 and $1,759, respectively and
received $68,013 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, 1999 aggregated
$45,806,652 and $80,992,171, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At June 30, 1999, the Fund had
transfer agent fees and expenses payable of approximately $8,700.
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, 1999
included in
19
<PAGE> 20
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited) continued
Trustees' fees and expenses in the Statement of Operations amounted to $2,888.
At June 30, 1999, the Fund had an accrued pension liability of $50,901 which is
included in accrued expenses in the Statement of Assets and Liabilities.
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, 1999 DECEMBER 31, 1998
------------------------- --------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 502,126 $ 6,010,893 1,188,860 $ 14,401,331
Reinvestment of dividends and distributions................. 17,794 210,181 23,219 279,925
Redeemed.................................................... (125,350) (1,492,710) (279,886) (3,403,298)
---------- ------------ ---------- -------------
Net increase - Class A...................................... 394,570 4,728,364 932,193 11,277,958
---------- ------------ ---------- -------------
CLASS B SHARES
Sold........................................................ 2,440,205 29,268,737 4,978,407 60,561,390
Reinvestment of dividends and distributions................. 156,509 1,858,493 307,110 3,717,941
Redeemed.................................................... (1,138,437) (13,617,202) (2,198,759) (26,762,285)
---------- ------------ ---------- -------------
Net increase - Class B...................................... 1,458,277 17,510,028 3,086,758 37,517,046
---------- ------------ ---------- -------------
CLASS C SHARES
Sold........................................................ 352,805 4,213,137 505,118 6,127,960
Reinvestment of dividends and distributions................. 12,225 144,639 18,393 222,199
Redeemed.................................................... (153,440) (1,817,724) (136,298) (1,653,180)
---------- ------------ ---------- -------------
Net increase - Class C...................................... 211,590 2,540,052 387,213 4,696,979
---------- ------------ ---------- -------------
CLASS D SHARES
Sold........................................................ 25,433 302,037 264,495 3,195,718
Reinvestment of dividends and distributions................. 1,282,008 15,169,381 3,213,005 38,720,154
Redeemed.................................................... (4,794,452) (57,024,484) (9,095,698) (109,910,041)
---------- ------------ ---------- -------------
Net decrease - Class D...................................... (3,487,011) (41,553,066) (5,618,198) (67,994,169)
---------- ------------ ---------- -------------
Net decrease in Fund........................................ (1,422,574) $(16,774,622) (1,212,034) $ (14,502,186)
========== ============ ========== =============
</TABLE>
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, 1999 1998 1997* 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.... $12.01 $12.08 $11.77 $12.09 $11.01 $12.41
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income.................. 0.30 0.62 0.63 0.65 0.67 0.70
Net realized and unrealized gain
(loss)............................... (0.43) 0.10 0.36 (0.24) 1.19 (1.37)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations............................. (0.13) 0.72 0.99 0.41 1.86 (0.67)
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income.................. (0.30) (0.62) (0.63) (0.65) (0.67) (0.70)
Net realized gain...................... (0.03) (0.17) (0.05) (0.08) (0.11) (0.03)
------ ------ ------ ------ ------ ------
Total dividends and distributions....... (0.33) (0.79) (0.68) (0.73) (0.78) (0.73)
------ ------ ------ ------ ------ ------
Net asset value, end of period.......... $11.55 $12.01 $12.08 $11.77 $12.09 $11.01
====== ====== ====== ====== ====== ======
TOTAL RETURN+........................... (1.14)%(1) 6.11% 8.73% 3.61% 17.37% (5.55)%
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 0.50 %(2)(4) 0.50%(3)(4) 0.49% 0.48% 0.48% 0.47%
Net investment income................... 5.05 %(2)(4) 5.12%(4) 5.34% 5.52% 5.76% 6.02%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions............................... $943 $1,023 $1,097 $1,190 $1,325 $1,295
Portfolio turnover rate................. 4%(1) 15% 16% 18% 21% 16%
</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.
(3) Does not reflect the effect of expense offset of 0.01%.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
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 FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $12.02 $12.09 $12.00
------ ------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.29 0.59 0.25
Net realized and unrealized gain (loss).................... (0.43) 0.10 0.14
------ ------ ------
Total income (loss) from investment operations.............. (0.14) 0.69 0.39
------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.29) (0.59) (0.25)
Net realized gain.......................................... (0.03) (0.17) (0.05)
------ ------ ------
Total dividends and distributions........................... (0.32) (0.76) (0.30)
------ ------ ------
Net asset value, end of period.............................. $11.56 $12.02 $12.09
====== ====== ======
TOTAL RETURN+............................................... (1.20)%(1) 5.86% 3.31%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.64 %(2)(5) 0.74%(4)(5) 0.76%(2)(3)
Net investment income....................................... 4.91 %(2)(5) 4.88%(5) 4.96%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $19,023 $15,041 $3,857
Portfolio turnover rate..................................... 4 %(1) 15% 16%
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $12.07 $12.14 $12.00
------ ------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.26 0.55 0.23
Net realized and unrealized gain (loss).................... (0.43) 0.10 0.19
------ ------ ------
Total income (loss) from investment operations.............. (0.17) 0.65 0.42
------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.26) (0.55) (0.23)
Net realized gain.......................................... (0.03) (0.17) (0.05)
------ ------ ------
Total dividends and distributions........................... (0.29) (0.72) (0.28)
------ ------ ------
Net asset value, end of period.............................. $11.61 $12.07 $12.14
====== ====== ======
TOTAL RETURN+............................................... (1.41)%(1) 5.47% 3.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.10 %(2)(5) 1.10%(4)(5) 1.14%(2)(3)
Net investment income....................................... 4.45 %(2)(5) 4.52%(5) 4.87%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $144,123 $132,303 $95,573
Portfolio turnover rate..................................... 4 %(1) 15% 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%.
(4) Does not reflect the effect of expense offset of 0.01%.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE> 23
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR JULY 28, 1997*
JUNE 30, ENDED THROUGH
1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $12.04 $12.11 $12.00
------ ------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.26 0.53 0.23
Net realized and unrealized gain (loss).................... (0.43) 0.10 0.16
------ ------ ------
Total income (loss) from investment operations.............. (0.17) 0.63 0.39
------ ------ ------
Less dividends and distributions from:
Net investment income...................................... (0.26) (0.53) (0.23)
Net realized gain.......................................... (0.03) (0.17) (0.05)
------ ------ ------
Total dividends and distributions........................... (0.29) (0.70) (0.28)
------ ------ ------
Net asset value, end of period.............................. $11.58 $12.04 $12.11
====== ====== ======
TOTAL RETURN+............................................... (1.47)%(1) 5.36% 3.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.20 %(2)(5) 1.20%(4)(5) 1.20%(2)(3)
Net investment income....................................... 4.35 %(2)(5) 4.34%(5) 4.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $9,759 $7,599 $2,953
Portfolio turnover rate..................................... 4 %(1) 15% 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%.
(4) Does not reflect the effect of expense offset of 0.01%.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE> 24
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
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 accordingly they
do not express an opinion thereon.
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. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
TAX-EXEMPT
SECURITIES TRUST
[PHOTO]
SEMIANNUAL REPORT
JUNE 30, 1999
