<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS December 31, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Morgan Stanley
Dean Witter Tax-Exempt Securities Trust for the fiscal year ended December 31,
1998.
Since our last report six months ago, global financial turmoil, including the
Russian currency crisis, continued to affect the securities markets. The
resulting flight-to-quality bond rally pushed U.S. Treasury bond yields to
30-year lows. Municipal bond yields declined but lagged the downward trend of
Treasury yields.
The deflationary impact of the international financial crisis began to temper
U.S. economic growth prior to the summer's tumultuous market activity. Lower
commodity prices, cheaper imports and improved productivity offset the
potential inflationary impact of strong domestic employment. With inflation
held in check, the Federal Reserve Board provided liquidity to the markets by
lowering short-term interest rates. Between the end of September and the middle
of November the Federal Reserve Open Market Committee cut the federal funds
rate 75 basis points from 5.50 percent to 4.75 percent in three separate moves.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
BOND YIELDS -- 1994-1998
Date AAA Ins Tsy % Relationship
- ---- ------- --- --------------
12/31/93 5.40% 6.34% 85.17%
01/31/94 5.40 6.24 86.54%
02/28/94 5.80 6.66 87.09%
03/31/94 6.40 7.09 90.27%
04/29/94 6.35 7.32 86.75%
05/31/94 6.25 7.43 84.12%
06/30/94 6.50 7.61 85.41%
07/29/94 6.25 7.39 84.57%
08/31/94 6.30 7.45 84.56%
09/30/94 6.55 7.81 83.87%
10/31/94 6.75 7.96 84.80%
11/30/94 7.00 8.00 87.50%
12/30/94 6.75 7.88 85.66%
01/31/95 6.40 7.70 83.12%
02/28/95 6.15 7.44 82.66%
03/31/95 6.15 7.43 82.77%
04/28/95 6.20 7.34 84.47%
05/31/95 5.80 6.66 87.09%
06/30/95 6.10 6.62 92.15%
07/31/95 6.10 6.86 88.92%
08/31/95 6.00 6.66 90.09%
09/29/95 5.95 6.48 91.82%
10/31/95 5.75 6.33 90.84%
11/30/95 5.50 6.14 89.58%
12/29/95 5.35 5.94 90.07%
01/31/96 5.40 6.03 89.55%
02/29/96 5.60 6.46 86.69%
03/29/96 5.85 6.66 87.84%
04/30/96 5.95 6.89 86.36%
05/31/96 6.05 6.99 86.55%
06/28/96 5.90 6.89 85.63%
07/31/96 5.85 6.97 83.93%
08/30/96 5.90 7.11 82.98%
09/30/96 5.70 6.93 82.25%
10/31/96 5.65 6.64 85.09%
11/29/96 5.50 6.35 86.61%
12/31/96 5.60 6.63 84.46%
01/31/97 5.70 6.79 83.95%
02/28/97 5.65 6.80 83.09%
03/31/97 5.90 7.10 83.10%
04/30/97 5.75 6.94 82.85%
05/30/97 5.65 6.91 81.77%
06/30/97 5.60 6.78 82.60%
07/30/97 5.30 6.30 84.13%
08/31/97 5.50 6.61 83.21%
09/30/97 5.40 6.40 84.38%
10/31/97 5.35 6.15 86.99%
11/30/97 5.30 6.05 87.60%
12/31/97 5.15 5.92 86.99%
01/31/98 5.15 5.80 88.79%
02/28/98 5.20 5.92 87.84%
03/31/98 5.25 5.93 88.53%
04/30/98 5.35 5.95 89.92%
05/29/98 5.20 5.80 89.66%
06/30/98 5.20 5.65 92.04%
07/31/98 5.18 5.71 90.72%
08/31/98 5.03 5.27 95.45%
09/30/98 4.95 5.00 99.00%
10/31/98 5.05 5.16 97.87%
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
MUNICIPAL MARKET CONDITIONS
At the end of December the long-term insured municipal bond index yield stood
at 5.05 percent. This Index declined only 10 basis points from 5.15 percent
over the last 12 months. In contrast, the 30-year U.S. Treasury yield fell 80
basis points during the same period.
As municipals lagged the rally in Treasuries, the ratio of municipal yields to
Treasury yields rose sharply to 99 percent. A rising ratio means that the
attractiveness of municipals relative to Treasuries has improved. The rise in
this ratio is similar to the jump witnessed in 1986 when a radical legislative
tax-reform proposal threatened the favorable tax advantage of municipal bonds.
The overall decline in interest rates led to a substantial increase in new
money municipal financing and stimulated the refunding of older, high cost
debt. Total underwriting of $284 billion for 1998 approached the record set in
1993. Half the underwriting volume was enhanced with bond insurance. Refundings
represented 29 percent of total new issuance.
PERFORMANCE
For the 12-month period ended December 31, 1998 Morgan Stanley Dean Witter
Tax-Exempt Securities Trust Class A, B, C and D shares produced total returns
of 5.86 percent, 5.47 percent, 5.36 percent and 6.11 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 6.48 percent, while the Lipper Analytical Services, Inc. General Municipal
Debt Funds Index registered a total return of 5.64 percent. The Fund's net
assets exceeded $1.1 billion.
PORTFOLIO STRUCTURE
The Fund remained fully invested in long-term municipal bonds during the year.
Investments were diversified among 13 long-term sectors and 134 credits. As
illustrated in the accompanying chart of bond calls, weighted average call
protection was 7 years.
At the time of issuance, municipal bonds generally have 10 years of protection
from the municipality's option to call bonds for redemption. Interest rates
have declined since the Fund's inception and we anticipate that most municipal
issuers will use their optional call provisions to refinance portfolio holdings
at lower yields. In fact, the bonds in the refunded category have been
refinanced and the call dates announced.
The average maturity of the portfolio was 17 years. Average duration (a measure
of sensitivity to interest rate changes) was 7 years. High grade credit quality
was maintained with over 80 percent of long-term holdings rated double or
triple "A."
2
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PIE CHART] [PIE CHART]
LONG-TERM SECTORS AS OF CREDIT RATINGS AS OF
DECEMBER 31, 1998 DECEMBER 31, 1998
(% OF NET ASSETS) (% OF TOTAL LONG-TERM PORTFOLIO)
Electric 12% Aaa or AAA 64%
General Obligation 12% Aa or AA 18%
Refunded 11% A or A 13%
Mortgage 9% Baa or BBB 3%
Hospital 8% NR 2%
All Others 19%
Transportation 16% AS MEASURED BY MOODY'S INVESTORS SERVICE INC.
Water & Sewer 13% OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
TO CHANGE.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
CALL STRUCTURE AS OF DECEMBER 31, 1998 ------------------------
(% OF TOTAL LONG-TERM PORTFOLIO) WEIGHTED AVERAGE
PERCENT CALLABLE CALL PROTECTION: 7 YEARS
------------------------
1999 5%
2000 4%
2001 8%
2002 8%
2003 10%
2004 5%
2005 10%
2006 7%
2007 11%
2008 15%
2009+ 17%
YEAR BONDS CALLABLE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
3
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
LOOKING AHEAD
Global economic conditions seem likely to keep inflationary pressures under
control and have contributed to lower interest rates. The fixed income markets
appear concerned about the risk of reflation as countries seek to stimulate
economic growth. However, the ability of the Fed to maintain stability by
responding with appropriate monetary policy is encouraging. With the municipal
relationship to Treasuries more favorable than it has been in the last 10 years,
the outlook for municipal bonds is positive.
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>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FUND PERFORMANCE December 31, 1998
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
GROWTH OF $10,000
DATE TOTAL CLASS A TOTAL CLASS D LEHMAN LIPPER
---- ------------- ------------- ------ ------
DECEMBER 31, 1988 $ 9,575 $10,000 $10,000 $10,000
DECEMBER 31, 1989 $10,564 $11,061 $11,079 $10,996
DECEMBER 31, 1990 $11,155 $11,709 $11,887 $11,656
DECEMBER 31, 1991 $12,541 $13,196 $13,330 $13,059
DECEMBER 31, 1992 $13,647 $14,396 $14,505 $14,221
DECEMBER 31, 1993 $15,143 $16,013 $16,287 $15,989
DECEMBER 31, 1994 $14,266 $15,124 $15,445 $15,023
DECEMBER 31, 1995 $16,703 $17,751 $18,141 $17,624
DECEMBER 31, 1996 $17,262 $18,392 $18,945 $18,255
DECEMBER 31, 1997 $18,725 $19,997 $20,686 $19,969
DECEMBER 31, 1998 $19,823(3) $21,219(3) $21,893 $21,097
================================================================================
-- Fund -- Lehman (4) -- Lipper (5)
================================================================================
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS B
AND CLASS C SHARES WILL VARY FROM THE PERFORMANCE OF CLASS A AND CLASS D SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES+
- --------------------------------------- ---------------------------------------
PERIOD ENDED 12/31/98 PERIOD ENDED 12/31/98
- --------------------- ---------------------
1 Year 5.86%(1) 1.36%(2) 1 Year 5.47%(1) 0.50%(2)
5 Years 5.53%(1) 4.62%(2) Since Inception 6.39%(1) 3.65%(2)
10 Years 7.55%(1) 7.08%(2)
CLASS C SHARES++ CLASS D SHARES++
- --------------------------------------- ---------------------------------------
PERIOD ENDED 12/31/98 PERIOD ENDED 12/31/98
- --------------------- ---------------------
1 Year 5.36%(1) 4.37%(2) 1 Year 6.11%(1)
Since Inception 6.10%(1) 6.10%(2) 5 Years 5.79%(1)
10 years 7.81%(1)
- ---------------
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.
(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.
(3) Closing value assuming a complete redemption on December 31, 1998.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of
municipal bonds with maturities of 2 years or more and minimum credit
rating of Baa or BBB, as measured by Moody's Investors Service, Inc. or
Standard & Poor's Corp. The Index does not include any expenses, fees, or
charges. The Index is unmanaged and should not be considered an investment.
(5) The Lipper General Municipal Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper General Municipal Debt Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this index.
<PAGE>
* The maximum front-end sales charge for Class A shares is 4.25%.
+ The maximum CDSC for Class B shares 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>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (95.9%)
General Obligation (12.1%)
North Slope Borough, Alaska,
$ 5,000 Ser 1992 A Conv (MBIA) .................................................. 5.90% 06/30/03 $ 5,421,950
18,000 Ser 1994 B (FSA) ........................................................ 0.00 06/30/05 13,738,500
18,500 Ser 1995 A (MBIA) ....................................................... 0.00 06/30/06 13,446,170
13,925 Ser 1996 B (MBIA) ....................................................... 0.00 06/30/06 10,120,969
10,000 Ser 1996 B (MBIA) ....................................................... 0.00 06/30/07 6,930,700
1,000 Santa Margarita/Dana Point Authority, California, Impr Dists
#3, 3A, 4 & 4A 1994 Ser B Refg (MBIA) ................................... 5.75 08/01/20 1,061,700
4,000 Connecticut, College Savings 1989 Ser A ................................... 0.00 07/01/08 2,677,600
20,000 Massachusetts, Refg 1996 Ser A (AMBAC) .................................... 6.00 11/01/10 23,090,000
4,000 Clark County, Nevada, Transportation Ser 1992 A (AMBAC) ................... 6.50 06/01/17 4,800,880
New York City, New York,
1,500 1995 Ser D (MBIA) ....................................................... 6.20 02/01/07 1,701,570
3,405 1990 Ser D .............................................................. 6.00 08/01/07 3,455,632
2,865 1990 Ser D .............................................................. 6.00 08/01/08 2,907,603
10,000 North Carolina, 1997 Ser A ................................................ 5.20 03/01/16 10,488,100
1,000 Delaware City School District, Ohio, Constr & Impr (FGIC) ................. 5.75 12/01/20 1,066,800
10,000 Pennsylvania, First Ser 1995 (FGIC) ....................................... 5.50 05/01/12 10,696,600
7,000 Shelby County, Tennessee, Refg 1995 Ser A ................................. 5.625 04/01/14 7,452,970
20,000 King County, Washington, Ltd Tax 1995 (MBIA) .............................. 6.00 01/01/23 22,057,600
2,000 Washington, 1995 Ser A .................................................... 5.80 09/01/08 2,169,920
-------- --------------
152,195 143,285,264
-------- --------------
Educational Facilities Revenue (6.3%)
1,000 California Educational Facilities Authority, Claremont Colleges Ser 1992 .. 6.375 05/01/22 1,071,380
10,000 Indiana University, Student Fee Ser K (MBIA) .............................. 5.875 08/01/20 10,771,300
6,000 Maryland Health & Educational Facilities Authority, The John Hopkins
University Refg Ser 1998 ................................................ 5.125 07/01/20 6,049,320
Massachusetts Health & Educational Facilities Authority,
7,000 Boston University Ser 1991 (MBIA) ....................................... 6.66 10/01/31 7,592,130
5,000 Brandeis University 1988 Ser I (MBIA) ................................... 4.75 10/01/28 4,704,050
5,000 Missouri Health & Educational Facilities Authority, Washington University
Ser 1998 A .............................................................. 4.75 11/15/37 4,697,000
10,000 New Hampshire Higher Educational & Health Facilities Authority,
Dartmouth College Ser 1993 .............................................. 5.375 06/01/23 10,181,300
2,000 New Jersey Development Authority, The Seeing Eye Inc 1991 ................. 7.30 04/01/11 2,111,420
New York State Dormitory Authority,
500 City University 1994 3rd Resolution Ser 1 (AMBAC) ....................... 6.30 07/01/24 559,310
5,000 State University Ser 1989 B ............................................. 0.00 05/15/02 4,374,900
20,000 State University Ser 1990 B ............................................. 7.00 05/15/16 21,245,800
1,000 Virginia Polytechnic Institute & State University, Ser 1996 A ............. 5.50 06/01/16 1,046,320
-------- --------------
72,500 74,404,230
-------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Electric Revenue (12.4%)
$ 25,000 Salt River Project Agricultural Improvement & Power District, Arizona,
Refg 1993 Ser C (Secondary MBIA) ...........................................
10,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA) .... 5.50% 01/01/10 $ 27,584,500
10,000 Municipal Electric Authority of Georgia, Ser Y (Secondary MBIA) .............. 5.75 01/01/15 10,718,900
5,000 Long Island Power Authority, New York, Ser 1998 A (FSA) ...................... 6.50 01/01/17 11,912,500
Eugene, Oregon, Electric Utility
1,000 Ser 1996 (FSA) ............................................................. 5.125 12/01/22 5,001,900
1,000 Ser 1996 (FSA) ............................................................. 5.375 08/01/12 1,058,550
Puerto Rico Electric Power Authority,
1,500 Power Ser X ................................................................ 5.375 08/01/13 1,058,550
15,000 Power Ser O ................................................................ 6.00 07/01/15 1,628,550
5,000 Power Ser EE (MBIA) ........................................................ 0.00 07/01/17 6,037,800
15,000 South Carolina Public Service Authority, 1995 Refg Ser A (AMBAC) ............. 4.50 07/01/18 4,790,050
1,000 Austin, Texas, Combined Utilities Refg Ser 1994 (FGIC) ....................... 6.25 01/01/22 16,906,650
San Antonio, Texas, Electric & Gas
20,000 Refg Ser 1994 C ............................................................ 6.25 05/15/16 1,122,264
5,000 Refg Ser 1998 A ............................................................ 4.70 02/01/06 20,642,800
Intermountain Power Agency, Utah,
5,000 Refg Ser 1998 A (MBIA) ..................................................... 4.50 02/01/21 4,648,850
10,000 Refg Ser 1997 B (MBIA) ..................................................... 5.25 07/01/15 5,165,150
15,000 Washington Public Power System, Proj #2 Refg Ser 1994 A 5.75 07/01/19 10,716,700
(Secondary MBIA) ........................................................... 6.00 07/01/07 16,776,900
-------- --------------
144,500 145,770,614
-------- --------------
Hospital Revenue (7.7%)
11,465 Birmingham -- Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Ser 1995 A (Connie Lee) ........................ 6.25 08/15/09 13,168,814
3,000 Baxter County, Arkansas, Baxter County Regional Hospital Impr & Refg
Ser 1992 ................................................................... 7.50 09/01/21 3,289,200
4,000 Antelope Valley Healthcare District, California, Ser 1997 B (FSA) ............ 5.20 01/01/17 4,092,920
2,000 Orange County Health Facilities Authority, Florida, Adventist Health/Sunbelt
Ser 1995 (AMBAC) ........................................................... 5.25 11/15/20 2,023,920
10,000 Tampa, Florida, Catholic East Health Ser 1998 A (MBIA) ....................... 4.875 11/15/23 9,698,000
1,000 Maryland Health & Higher Educational Facilities Authority, Kernan Hospital
Ser 1994 (Connie Lee) ...................................................... 6.10 07/01/24 1,099,540
Rochester, Minnesota,
5,000 Mayo Foundation/Medical Center Ser 1992 I .................................. 5.75 11/15/21 5,222,050
3,700 Mayo Foundation/Medical Center Ser 1992 F .................................. 6.25 11/15/21 4,021,530
10,000 Missouri Health & Educational Facilities Authority, Barnes-Jewish Inc/
Christian Health Services Ser 1993 A ....................................... 5.25 05/15/14 10,473,600
1,300 New Hampshire Higher Educational & Health Facilities Authority,
St Joseph Hospital Ser 1994 (Connie Lee) ................................... 6.35 01/01/07 1,463,527
6,000 New York State Medical Care Facilities Finance Agency, Presbyterian
Hospital -- FHA Insured Mtge 1984 Ser A Refg ............................... 5.25 08/15/14 6,241,260
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000 University of North Carolina, Hospitals at Chapel Hill Ser 1996 ............. 5.00% 02/15/29 $ 4,840,950
2,000 Jackson, Tennessee, Jackson-Madison County General Hospital Refg & Impr
Ser 1995 (AMBAC) .......................................................... 5.625 04/01/15 2,116,460
5,000 North Central Texas Health Facilities Development Corporation, University
Medical Center Inc Ser 1997 (FSA) ......................................... 5.45 04/01/15 5,240,500
10,000 Fredericksburg Industrial Development Authority, Virginia, Medicorp
Health Refg Ser 1996 (AMBAC) .............................................. 5.25 06/15/16 10,251,400
2,000 Medical College of Virginia Hospitals Authority, Ser 1998 (MBIA) ............ 5.125 07/01/23 1,990,320
5,000 Washington Health Care Facilities, Swedish Health Ser 1998 (AMBAC) .......... 5.125 11/15/22 4,921,850
------- --------------
86,465 90,155,841
------- --------------
Industrial Development/Pollution Control Revenue (4.4%)
1,500 Hawaii Department of Budget & Finance, Hawaiian Electric Co
Ser 1995 A (AMT) (MBIA) ................................................... 6.60 01/01/25 1,673,010
1,375 Maryland Industrial Development Financing Authority, Medical Waste
Assocs LP 1989 Ser (AMT) .................................................. 8.75 11/15/10 1,390,675
10,000 Clark County, Nevada, Nevada Power Co Ser 1992 A (AMT) (FGIC) ............... 6.70 06/01/22 10,928,200
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMBAC) ............. 6.30 12/01/14 5,426,900
5,000 New York City Industrial Development Agency, New York, Brooklyn Navy
Yard Cogeneration Partners LP Ser 1997 (AMT) .............................. 5.75 10/01/36 5,128,450
5,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990 (AMT) .................. 7.50 12/01/29 5,370,750
10,000 Dallas-Fort Worth International Airport Facility Improvement Corporation,
Texas, American Airlines Inc Ser 1995 ..................................... 6.00 11/01/14 10,412,700
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993 A .............. 6.90 02/01/13 11,194,000
------- --------------
47,875 51,524,685
------- --------------
Mortgage Revenue -- Multi-Family (2.2%)
955 Massachusetts Housing Finance Agency, Rental 1994 Ser A (AMT) (AMBAC) 6.65 07/01/19 1,033,472
5,560 Michigan Housing Development Authority, Rental Ser A (Bifurcated FSA) ....... 6.50 04/01/23 5,937,802
9,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A (AMBAC) ............ 6.05 11/01/20 9,598,950
New York City Housing Development Corporation, New York,
4,352 Ruppert Proj -- FHA Ins Sec 223F .......................................... 6.50 11/15/18 4,571,266
4,207 Stevenson Commons Proj -- FHA Ins Sec 223F ................................ 6.50 05/15/18 4,418,913
------- --------------
24,074 25,560,403
------- --------------
Mortgage Revenue -- Single Family (6.7%)
7,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A (MBIA) .......... 5.875 12/01/24 7,379,330
2,440 California Housing Finance Agency, Home Cap Apprec 1983 Ser B ............... 0.00 08/01/15 448,472
Colorado Housing Finance Authority,
2,000 1998 Ser A-2 (AMT) ........................................................ 6.60 05/01/28 2,241,120
2,500 1997 Ser C-2 (AMT) ........................................................ 6.875 11/01/28 2,815,125
12,100 Illinios Housing Development Authority, Residential 1991 Ser C (AMT) ........ 6.875 02/01/18 12,863,994
Missouri Housing Development Commission, Homeownership,
3,735 GNMA-FNMA Collateralized 1996 Ser C (AMT) ................................. 7.45 09/01/27 4,256,817
3,910 GNMA-FNMA Collateralized 1997 Ser C-1 ..................................... 6.55 09/01/28 4,357,108
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,200 Nebraska Investment Finance Authority, GNMA-Backed 1990 Ser (AMT) ............ 7.631% 09/10/30 $ 4,424,658
1,810 North Carolina Housing Finance Agency, Ser Q (AMT) ........................... 8.00 03/01/18 1,959,596
5,200 Ohio Housing Finance Agency, GNMA-Backed 1990 Ser A (AMT) .................... 6.903 03/01/31 5,503,264
10,000 Pennsylvania Housing Finance Agency, Ser 1991-31 (AMT) ....................... 7.00 10/01/23 10,653,100
Tennessee Housing Development Agency,
4,000 Mortgage Finance 1993 Ser A ................................................ 5.90 07/01/18 4,170,680
1,000 Mortgage Finance 1994 Ser B (AMT) .......................................... 6.55 07/01/19 1,064,450
11,000 Mortgage Finance 1993 Ser A ................................................ 5.95 07/01/28 11,437,800
440 Utah Housing Finance Agency, Federally Insured/Guaranteed Loans 1994
Issue E (AMT) .............................................................. 6.50 07/01/26 451,744
4,400 Wisconsin Housing & Economic Development Authority, Home Ownership
-------- 1991 Ser (AMT) ............................................................. 7.097 10/25/22 4,663,296
75,735 --------------
------- 78,690,554
Public Facilities Revenue (1.0%) --------------
2,000 North City West School Facilities Authority, California, Community Dist #1
Special Tax Ser 1995 B (FSA) ............................................... 6.00 09/01/19 2,207,660
3,500 Denver, Colorado, Excise Tax Ser 1985 A ...................................... 5.00 11/01/08 3,508,505
6,000 Saint Louis Industrial Development Authority, Missouri, Kiel Center Refg
------- Ser 1992 (AMT) ............................................................. 7.75 12/01/13 6,505,680
11,500 --------------
------- 12,221,845
Resource Recovery Revenue (2.4%) --------------
4,950 Connecticut Resources Development Authority, Bridgeport RESCO Ser A .......... 7.625 01/01/09 5,141,070
7,000 Savannah Resource Recovery Development Authority, Georgia, Savannah
Energy Systems Co Ser 1992 ................................................. 6.30 12/01/06 7,473,620
10,000 Northeast Maryland Waste Disposal Authority, Montgomery County
Ser 1993 A (AMT) ........................................................... 6.30 07/01/16 10,707,500
5,000 Onondaga County Resource Recovery Agency, New York, 1992 Ser (AMT) ........... 6.875 05/01/06 5,304,350
------- --------------
26,950 28,626,540
------- --------------
Transportation Facilities Revenue (15.8%)
5,000 San Francisco Bay Area Rapid Transit District, California, Sales Tax
Ser 1998 (AMBAC) ........................................................... 4.75 07/01/23 4,797,300
15,000 San Joaquin Hills Transportation Corridor Agency, California, Toll Road
Refg Ser 1997 A (MBIA) ..................................................... 0.00 01/15/31 2,914,050
10,000 E-470 Public Highway Authority, Colorado, Ser 1997 A (MBIA) .................. 5.00 09/01/26 9,822,800
1,000 Lee County, Florida, Ser 1995 (MBIA) ......................................... 5.75 10/01/22 1,069,360
Mid-Bay Bridge Authority, Florida,
8,965 Ser 1993 A (AMBAC) ......................................................... 5.85 10/01/13 9,999,471
1,500 Ser 1997 A (AMBAC) ......................................................... 0.00 10/01/20 483,030
3,000 Ser 1997 A (AMBAC) ......................................................... 0.00 10/01/21 915,480
10,000 Atlanta, Georgia, Airport Ser 1990 (AMT) ..................................... 6.25 01/01/21 10,502,300
5,000 Hawaii, Airports Second Ser 1991 (AMT) ....................................... 7.00 07/01/18 5,395,550
850 Regional Transportation Authority, Illinois, Ser 1994 A ...................... 6.25 06/01/15 942,803
3,000 Kansas, Highway Refg Ser 1998 ................................................ 5.50 09/01/12 3,307,770
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kentucky Turnpike Authority,
$ 9,000 Economic Development Road Refg Ser 1995 (AMBAC) .......................... 6.50% 07/01/08 $ 10,584,720
1,000 Economic Development Road Refg Ser 1995 (AMBAC) .......................... 5.625 07/01/15 1,068,180
30,000 Resource Recovery Road 1987 Ser A ........................................ 5.00 07/01/08 30,011,100
1,500 Massachusetts Port Authority, Refg Ser 1998-A .............................. 5.75 07/01/12 1,682,505
Massachusetts Turnpike Authority,
10,000 Metropolitan Highway 1997 Ser A (MBIA) ................................... 5.00 01/01/37 9,718,400
13,885 Western 1997 Ser A (MBIA) ................................................ 5.55 01/01/17 14,075,919
10,000 Minneapolis -- St Paul Metropolitan Airports Commission, Minnesota,
Ser 1998 A (AMBAC) ....................................................... 5.00 01/01/30 9,845,100
11,000 New Jersey Highway Authority, Sr Parkway Refg 1992 Ser ..................... 6.25 01/01/14 11,843,040
6,595 Albuquerque, New Mexico, Airport Refg Ser 1997 (AMT) (AMBAC) ............... 6.375 07/01/15 7,420,892
1,500 Port Authority of New York & New Jersey, Cons One Hundredth Ser Second
Installment ++ ........................................................... 5.75 12/15/20 1,602,225
10,000 Ohio Turnpike Commission, Ser 1998 B (FGIC) ................................ 4.50 02/15/24 9,234,900
Pennsylvania Turnpike Commission,
5,000 Ser L of 1991 (MBIA) ..................................................... 6.00 06/01/15 5,331,050
5,000 Ser A 1998 (AMBAC) ....................................................... 4.75 12/01/27 4,722,200
10,000 Puerto Rico Highway & Transportation Authority, Refg Ser X ................. 5.50 07/01/15 10,857,200
4,000 North Texas Tollway Authority, Dallas North Tollway Ser 1998 (FGIC) ........ 4.75 01/01/22 3,801,320
4,000 Virginia Transportation Board, US Route 58 Corridor Ser 1993 B ............. 5.625 05/15/13 4,235,880
-------- --------------
195,795 186,184,545
-------- --------------
Water & Sewer Revenue (12.8%)
2,000 Jefferson County, Alabama, Sewer Refg Ser 1997-A (FGIC) .................... 5.375 02/01/27 2,051,960
10,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien Water Ser 1994 ..... 5.45 07/01/19 10,329,100
10,000 California Department of Water Resources, Central Valley Ser L ............. 5.50 12/01/23 10,372,000
10,000 Los Angeles, California, Wastewater Ser 1994-A (MBIA) ...................... 5.875 06/01/24 10,802,200
1,000 Dade County, Florida, Water & Sewer Ser 1995 (FGIC) ........................ 5.50 10/01/15 1,057,660
10,000 Tampa Bay Water, Florida, Utility Ser 1998 B (FGIC) ........................ 4.75 10/01/27 9,532,300
5,000 Fulton County, Georgia, Water & Sewerage Ser 1998 (FGIC) ................... 4.75 01/01/28 4,772,900
5,000 Upper Oconee Basin Water Authority, Georgia, Ser 1997 (FGIC) ............... 5.25 07/01/27 5,082,050
10,000 Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
Ser 1998 A (FGIC) ........................................................ 4.75 05/15/28 9,528,000
10,000 Massachusetts Water Pollution Abatement Trust, MWRA Loan Ser 1998 A ........ 4.75 08/01/18 9,731,100
10,000 Massachusetts Water Resources Authority, Refg 1992 Ser B ................... 5.50 11/01/15 10,336,400
Detroit, Michigan,
4,000 Sewage Refg 1993 A (FGIC) ................................................ 5.70 07/01/13 4,312,640
10,000 Water Supply 1997 Ser A (MBIA) ........................................... 5.00 07/01/21 9,814,600
2,000 Asheville, North Carolina, Water Ser 1996 (FGIC) ........................... 5.70 08/01/25 2,140,380
10,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA) ................... 5.00 01/01/23 9,889,800
Philadelphia, Pennsylvania,
1,250 Water & Wastewater Ser 1995 (MBIA) ....................................... 6.25 08/01/11 1,457,587
5,000 Water & Wastewater Ser 1993 (FSA) ........................................ 5.50 06/15/15 5,182,350
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pittsburgh Water & Sewer Authority,
$ 20,000 1998 Ser B (FGIC) .......................................................... 0.00% 09/01/26 $ 4,846,000
20,000 1998 Ser B (FGIC) .......................................................... 0.00 09/01/28 4,374,000
5,000 Spartanburg, South Carolina, Jr Lien Water Ser 1998 (FGIC) ................... 5.25 06/01/28 5,122,200
11,000 Metropolitan Government of Nashville & Davidson County, Tennessee,
Refg Ser 1998 A (FGIC) ..................................................... 4.75 01/01/22 10,554,060
10,000 Dallas, Texas, Waterworks & Sewer Refg Ser 1998 (FSA) ........................ 5.00 10/01/29 9,784,000
----------- --------------
181,250 151,073,287
----------- --------------
Other Revenue (1.5%)
1,005 Mashantucket Western Pequot Tribe, Connecticut, Special 1996 Ser A (a) ....... 6.50 09/01/05 1,129,610
1,000 New Jersey Economic Development Authority, Market Transition Sr Lien
Ser 1994 A (MBIA) .......................................................... 5.875 07/01/11 1,097,930
5,000 New York Local Government Assistance Corporation, Ser 1994 C ................. 5.50 04/01/17 5,407,950
5,000 Ohio Building Authority, 1985 Ser C .......................................... 9.75 10/01/05 6,568,850
3,000 Houston, Texas, Sr Lien Hotel Occupancy Tax Refg Ser 1995 (FSA) .............. 5.50 07/01/11 3,182,310
----------- --------------
15,005 17,386,650
----------- --------------
Refunded (10.6%)
Birmingham Water Works & Sewer Board, Alabama,
1,000 Ser 1993-A ................................................................. 6.00 01/01/03+ 1,098,530
10,000 Ser 1994 ................................................................... 5.50 01/01/04+ 10,375,900
9,000 Los Angeles Convention and Exhibition Center Authority, California,
Ser 1985 COPs .............................................................. 9.00 12/01/05+ 11,766,330
2,500 Mid-Bay Bridge Authority, Florida, Ser 1991 A (ETM) .......................... 6.875 10/01/22 3,139,200
5,000 Maryland Health & Higher Educational Facilities Authority, Helix Health
Ser 1997 (AMBAC) (ETM) ..................................................... 5.00 07/01/27 5,013,000
1,500 Massachusetts Health & Educational Facilities Authority,
Malden Hospital -- FHA Ins Mtge Ser A (ETM) ................................ 5.00 08/01/16 1,543,215
10,000 Massachusetts Water Resources Authority, 1996 Ser A (FGIC) ................... 5.50 11/01/06+ 10,966,800
14,000 New York State Dormitory Authority, Suffolk County Judicial Ser 1986 (ETM) ... 7.375 07/01/16 17,828,160
25,000 Intermountain Power Agency, Utah, Refg 1985 Ser H GAINS ...................... 0.00 # 07/01/03+ 27,772,500
5,000 Salt Lake City, Utah, IHC Hospital Inc Ser 1983 (ETM) ........................ 5.00 06/01/15 5,152,200
28,000 Fairfax County Industrial Development Authority, Virginia, Fairfax Hospital
----------- Inova Health Ser 1991 ...................................................... 6.801 08/15/01+ 30,576,000
111,000 --------------
----------- 125,231,835
1,144,844 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $1,031,056,358) ............ --------------
----------- 1,130,116,293
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (2.8%) --------------
10,000 Idaho Health Facilities Authority, St Luke's Regional Medical Center
Ser 1995 (Demand 01/04/99) ................................................. 5.10* 05/01/22 10,000,000
5,500 Illinois Health Facilities Authority, Northwestern Memorial Hospital
Ser 1995 (Demand 01/04/99) ................................................. 5.15* 08/15/25 5,500,000
3,180 Louisiana Public Facilities Authority, Kenner Hotel Ser 1985
(Demand 01/04/99) .......................................................... 5.05* 12/01/15 3,180,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9,500 Massachusetts Health & Educational Facilities Authority, Capital Asset
Ser D (MBIA) (Demand 01/04/99) ........................................ 5.00*% 01/01/35 $ 9,500,000
4,000 Harris County Health Facilities Development Corporation, Texas, Methodist
---------- Hospital Ser 1994 (Demand 01/04/99) ................................... 5.00* 12/01/25 4,000,000
32,180 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS --------------
---------- (Identified Cost $32,180,000) ........................................... 32,180,000
$1,177,024 TOTAL INVESTMENTS --------------
========== (Identified Cost $1,063,236,358) (b) .................................... 98.7% 1,162,296,293
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 1.3 15,892,556
----- --------------
NET ASSETS .............................................................. 100.0% $1,178,188,849
===== ==============
</TABLE>
- ---------------
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) 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
$100,059,253 and the aggregate gross unrealized depreciation is
$999,318, resulting in net unrealized appreciation of $99,059,935.
Bond Insurance:
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.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
December 31, 1998
Alabama ................... 2.3%
Alaska .................... 4.8
Arizona ................. 3.2
Arkansas ................ 0.3
California ................ 5.1
Colorado .................. 1.6
Connecticut ............... 0.8
Florida ................... 3.2
Georgia ................... 3.4
Hawaii .................... 0.6
Idaho ..................... 0.9
Illinois ................ 1.6
Indiana ................... 0.9
Kansas .................... 0.3
Kentucky ................ 4.3%
Louisiana ............... 0.3
Maryland ................ 2.1
Massachusetts ............. 8.8
Michigan .................. 1.7
Minnesota ................. 1.6
Missouri .................. 2.6
Nebraska ................ 0.4
Nevada .................... 1.8
New Hampshire ............. 1.0
New Jersey .............. 2.2
New Mexico ................ 0.6
New York .................. 7.6
North Carolina ............ 1.6
Ohio ...................... 2.7%
Oregon .................... 0.2
Pennsylvania .............. 4.0
Puerto Rico ............... 2.0
South Carolina ............ 1.9
Tennessee ................. 3.1
Texas ..................... 5.8
Utah .................... 4.2
Virginia ................ 4.1
Washington ................ 3.9
Wisconsin ................. 1.3
Joint Exemptions* ......... (0.1)
----
Total ................... 98.7%
====
- ---------------------
* Joint exemptions have been included in more than one geographic location.
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS :
Investments in securities, at value
(identified cost $1,063,236,358).................................. $ 1,162,296,293
Cash ............................................................... 1,900,812
Receivable for :
Interest ......................................................... 17,613,930
Investments sold ................................................. 3,028,939
Shares of beneficial interest sold ............................... 752,644
Prepaid expenses and other assets .................................. 71,333
---------------
TOTAL ASSETS .................................................... 1,185,663,951
---------------
LIABILITIES:
Payable for:
Dividends and distributions to shareholders ..................... 6,660,662
Investment management fee ....................................... 435,962
Shares of beneficial interest repurchased ....................... 179,809
Plan of distribution fee ........................................ 73,871
Accrued expenses and other payables ................................ 124,798
---------------
TOTAL LIABILITIES ............................................... 7,475,102
---------------
NET ASSETS ...................................................... $ 1,178,188,849
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................................... $ 1,075,991,537
Net unrealized appreciation ........................................ 99,059,935
Accumulated undistributed net investment income .................... 18,572
Accumulated net realized gain ...................................... 3,118,805
---------------
NET ASSETS ...................................................... $ 1,178,188,849
===============
CLASS A SHARES:
Net Assets ......................................................... $15,041,235
Shares Outstanding (unlimited authorized, $.01 par value)........... 1,251,226
NET ASSET VALUE PER SHARE ........................................ $12.02
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net asset value) ................ $12.55
======
CLASS B SHARES:
Net Assets ......................................................... $132,302,664
Shares Outstanding (unlimited authorized, $.01 par value) .......... 10,959,373
NET ASSET VALUE PER SHARE ........................................ $12.07
======
CLASS C SHARES:
Net Assets ......................................................... $7,599,049
Shares Outstanding (unlimited authorized, $.01 par value) .......... 631,044
NET ASSET VALUE PER SHARE ....................................... $12.04
======
CLASS D SHARES:
Net Assets ......................................................... $1,023,245,901
Shares Outstanding (unlimited authoriized, $.01 par value) ......... 85,166,399
NET ASSET VALUE PER SHARE ........................................ $12.01
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ................................... $ 66,369,139
------------
EXPENSES
Investment management fee ......................... 5,139,570
Plan of distribution fee (Class A shares) ......... 23,305
Plan of distribution fee (Class B shares) ......... 670,261
Plan of distribution fee (Class C shares) ......... 35,313
Transfer agent fees and expenses .................. 427,026
Shareholder reports and notices ................... 81,593
Registration fees ................................. 77,801
Professional fees ................................. 48,253
Custodian fees .................................... 47,924
Trustees' fees and expenses ....................... 18,914
Other ............................................. 43,155
------------
TOTAL EXPENSES ................................. 6,613,115
Less: expense offset .............................. (47,833)
------------
NET EXPENSES ................................... 6,565,282
------------
NET INVESTMENT INCOME .......................... 59,803,857
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ................................. 15,111,631
Net change in unrealized appreciation ............. (5,416,357)
------------
NET GAIN ....................................... 9,695,274
------------
NET INCREASE ...................................... $ 69,499,131
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 59,803,857 $ 60,954,344
Net realized gain .................................... 15,111,631 9,545,783
Net change in unrealized appreciation ................ (5,416,357) 25,338,447
-------------- --------------
NET INCREASE ...................................... 69,499,131 95,838,574
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares .................................... (460,545) (48,774)
Class B shares .................................... (5,022,084) (673,417)
Class C shares .................................... (218,789) (30,406)
Class D shares .................................... (54,102,439) (60,167,993)
Net realized gain
Class A shares .................................... (187,529) (16,080)
Class B shares .................................... (1,743,115) (395,740)
Class C shares .................................... (93,965) (12,228)
Class D shares .................................... (14,360,329) (4,910,430)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................. (76,188,795) (66,255,068)
-------------- --------------
Net decrease from transactions in shares of beneficial
interest ........................................... (14,502,186) (20,236,797)
-------------- --------------
NET INCREASE (DECREASE) ........................... (21,191,850) 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
$18,572 and $34,517, respectively)................. $1,178,188,849 $1,199,380,699
============== ==============
</TABLE>
- ---------------------
* Class A, Class B and Class C shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998
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 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.
17
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998, 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.
18
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998, 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 (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 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
19
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
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 $3,972,552 at December 31, 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 year ended December 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
0.70%, respectively.
The Distributor has informed the Fund that for the year ended December 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $119,895 and $6,087, respectively and
received $168,708 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 year ended December 31, 1998
aggregated $177,148,205 and $232,551,397, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At December 31, 1998, the Fund
had transfer agent fees and expenses payable of approximately $18,900.
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 year ended December 31, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,976. At December 31, 1998, the Fund had an accrued pension liability of
$51,129 which is included in accrued expenses in the Statement of Assets and
Liabilities.
20
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
-------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................... 1,188,860 $ 14,401,331 338,676 $ 4,050,692
Reinvestment of dividends and distributions ............ 23,219 279,925 2,037 24,532
Redeemed ............................................... (279,886) (3,403,298) (21,680) (260,983)
--------- -------------- ------- --------------
Net increase -- Class A ................................ 932,193 11,277,958 319,033 3,814,241
--------- -------------- ------- --------------
CLASS B SHARES
Sold ................................................... 4,978,407 60,561,390 966,475 10,102,415
Reinvestment of dividends and distributions ............ 307,110 3,717,941 50,270 609,389
Shares issued in connection with the acquisition of Dean
Witter National Municipal Trust ....................... -- -- 7,189,021 86,346,821
Redeemed ............................................... (2,198,759) (26,762,285) (333,151) (2,490,026)
---------- -------------- --------- --------------
Net increase -- Class B ................................ 3,086,758 37,517,046 7,872,615 94,568,599
---------- -------------- --------- --------------
CLASS C SHARES
Sold ................................................... 505,118 6,127,960 246,149 2,956,204
Reinvestment of dividends and distributions ............ 18,393 222,199 2,294 27,678
Redeemed ............................................... (136,298) (1,653,180) (4,612) (55,937)
---------- -------------- --------- --------------
Net increase -- Class C ................................ 387,213 4,696,979 243,831 2,927,945
---------- -------------- --------- --------------
CLASS D SHARES
Sold ................................................... 264,495 3,195,718 1,386,806 16,302,673
Reinvestment of dividends and distributions ............ 3,213,005 38,720,154 3,036,080 35,979,041
Redeemed ............................................... (9,095,698) (109,910,041) (14,721,910) (173,829,296)
---------- -------------- ----------- --------------
Net decrease -- Class D ................................ (5,618,198) (67,994,169) (10,299,024) (121,547,582)
---------- -------------- ----------- --------------
Net decrease in Fund ................................... (1,212,034) $ (14,502,186) (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.
21
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
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.
22
<PAGE>
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 YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997* 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 12.08 $ 11.77 $ 12.09 $ 11.01 $12.41
---------- -------- ------- ------- ------
Income (loss) from investment operations:
Net investment income ................................. 0.62 0.63 0.65 0.67 0.70
Net realized and unrealized gain (loss) ............... 0.10 0.36 (0.24) 1.19 (1.37)
---------- -------- ------- ------- ------
Total income (loss) from investment operations ......... 0.72 0.99 0.41 1.86 (0.67)
---------- -------- ------- ------- ------
Less dividends and distributions from:
Net investment income ................................. (0.62) (0.63) (0.65) (0.67) (0.70)
Net realized gain ..................................... (0.17) (0.05) (0.08) (0.11) (0.03)
---------- -------- ------- ------- ------
Total dividends and distributions ...................... (0.79) (0.68) (0.73) (0.78) (0.73)
---------- -------- ------- ------- ------
Net asset value, end of period ......................... $ 12.01 $ 12.08 $ 11.77 $ 12.09 $11.01
========== ======== ======= ======= ======
TOTAL RETURN+ .......................................... 6.11% 8.73% 3.61% 17.37% (5.55)%
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.50%(1)(2) 0.49% 0.48% 0.48% 0.47%
Net investment income .................................. 5.12%(2) 5.34% 5.52% 5.76% 6.02%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions ................. $ 1,023 $ 1,097 $ 1,190 $ 1,325 $1,295
Portfolio turnover rate ................................ 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) Does not reflect the effect of expense offset of 0.01%.
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 12.09 $ 12.00
---------- ----------
Income from investment operations:
Net investment income .......................... 0.59 0.25
Net realized and unrealized gain ............... 0.10 0.14
---------- ----------
Total income from investment operations ......... 0.69 0.39
---------- ----------
Less dividends and distributions from:
Net investment income .......................... (0.59) (0.25)
Net realized gain .............................. (0.17) (0.05)
---------- ----------
Total dividends and distributions ............... (0.76) (0.30)
---------- ----------
Net asset value, end of period .................. $ 12.02 $ 12.09
========== ==========
TOTAL RETURN+ ................................... 5.86% 3.31%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 0.74%(4)(5) 0.76%(2)(3)
Net investment income ........................... 4.88%(5) 4.96%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 15,041 $ 3,857
Portfolio turnover rate ......................... 15% 16%
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 12.14 $ 12.00
Income from investment operations:
Net investment income .......................... 0.55 0.23
Net realized and unrealized gain ............... 0.10 0.19
------------- -------------
Total income from investment operations ......... 0.65 0.42
------------- -------------
Less dividends and distributions from:
Net investment income .......................... (0.55) (0.23)
Net realized gain .............................. (0.17) (0.05)
------------- -------------
Total dividends and distributions ............... (0.72) (0.28)
------------- -------------
Net asset value, end of period .................. $ 12.07 $ 12.14
============= =============
TOTAL RETURN + .................................. 5.47% 3.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.10%(4)(5) 1.14%(2)(3)
Net investment income ........................... 4.52%(5) 4.87%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 132,303 $ 95,573
Portfolio turnover rate ......................... 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
24
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
DECEMBER 31, 1998 DECEMER 31, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 12.11 $ 12.00
---------- ----------
Income from investment operations:
Net investment income .......................... 0.53 0.23
Net realized and unrealized gain ............... 0.10 0.16
---------- ----------
Total income from investment operations ......... 0.63 0.39
---------- ----------
Less dividends and distributions from:
Net investment income .......................... (0.53) (0.23)
Net realized gain .............................. (0.17) (0.05)
---------- ----------
Total dividends and distributions ............... (0.70) (0.28)
---------- ----------
Net asset value, end of period .................. $ 12.04 $ 12.11
========== ==========
TOTAL RETURN+ ................................... 5.36% 3.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.20%(4)(5) 1.20%(2)(3)
Net investment income ........................... 4.42%(5) 4.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 7,599 $ 2,953
Portfolio turnover rate ......................... 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
25
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
Tax-Exempt Securities Trust (the "Fund"), formerly Dean Witter Tax-Exempt
Securities Trust, at December 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 10, 1999
- --------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
During the year ended December 31, 1998, the Fund paid to shareholders
the following per share amounts from net investment income: Class A,
$0.59; Class B, $0.55; Class C, $0.53; and Class D, $0.62 per share. All
of these dividends from net investment income were exempt interest
dividends, excludable from gross income for Federal income tax purposes.
For the year ended December 31, 1998, the Fund paid to Class A, B, C and
D shareholders $0.16 per share from long-term capital gains, all of which
is taxable as 20% rate gain.
- --------------------------------------------------------------------------------
26
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
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
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
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31, 1998
