<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST Two World Trade Center,
Letter to the Shareholders December 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
Interest rates rose steadily during 1999, making it the worst year for the
fixed-income markets since 1994. The benchmark 30-year Treasury bond began the
year yielding 5.1 percent amid fears of a global recession. However, the
economic problems in Asia, Europe and Latin America abated as the year
progressed. The U.S. economy, led by consumer demand, experienced robust
growth. As a result, the fixed-income markets anticipated that the Federal
Reserve Board would change monetary policy and remove the liquidity it had
provided during the 1998 international economic crises. Between June and
November, the Fed raised the federal funds rate a total of 75 basis points from
4.75 percent to 5.50 percent. At year-end, the yield on the 30-year Treasury
bond was nearly 6.50 percent. Subsequently, on February 2, 2000, the fed-funds
rate was raised an additional 25 basis points.
MUNICIPAL MARKET CONDITIONS
The long-term insured municipal index yield began 1999 near a record low of
5.05 percent. By the end of December, this index yield had increased almost a
full percentage point, to 5.97 percent. Because bond prices move inversely to
changes in interest rates, higher yields have caused bond prices to decline
significantly. The increase in the index yield during 1999 translated into a 13
percent price decline for a generic insured municipal bond with a 30-year
maturity.
The municipal market index outperformed U.S. Treasury bonds early last year but
later gave ground as interest rates continued to rise. The ratio of the 30-year
municipal yield to the Treasury bond yield is a measure of relative
performance. The yield ratio declined from 99 percent in January to 91 percent
in May 1999 and ended the year at 92 percent. A declining ratio means
municipals have outperformed Treasuries and a rising ratio indicates
underperformance by municipals. Over the past five years, the ratio has ranged
from a high of 99 percent to a low of 82 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Letter to the Shareholders December 31, 1999, continued
Higher interest rates reduced municipal market underwriting in 1999. New-issue
volume declined 20 percent. Refunding activity, the most
interest-rate-sensitive component of supply, was down more than 50 percent.
30-YEAR BOND YIELDS 1994-1999
AAA AAA
Date Ins Tsy % Relationship Date Ins Tsy % Relationship
12/31/93 5.40% 6.34% 85.17% 12/31/96 5.60 6.63 84.46%
01/31/94 5.40 6.24 86.54% 01/31/97 5.70 6.79 83.95%
02/28/94 5.80 6.66 87.09% 02/28/97 5.65 6.80 83.09%
03/31/94 6.40 7.09 90.27% 03/31/97 5.90 7.10 83.10%
04/29/94 6.35 7.32 86.75% 04/30/97 5.75 6.94 82.85%
05/31/94 6.25 7.43 84.12% 05/30/97 5.65 6.91 81.77%
06/30/94 6.50 7.61 85.41% 06/30/97 5.60 6.78 82.60%
07/29/94 6.25 7.39 84.57% 07/30/97 5.30 6.30 84.13%
08/31/94 6.30 7.45 84.56% 08/31/97 5.50 6.61 83.21%
09/30/94 6.55 7.81 83.87% 09/30/97 5.40 6.40 84.38%
10/31/94 6.75 7.96 84.80% 10/31/97 5.35 6.15 86.99%
11/30/94 7.00 8.00 87.50% 11/30/97 5.30 6.05 87.60%
12/30/94 6.75 7.88 85.66% 12/31/97 5.15 5.92 86.99%
01/31/95 6.40 7.70 83.12% 01/31/98 5.15 5.80 88.79%
02/28/95 6.15 7.44 82.66% 02/28/98 5.20 5.92 87.84%
03/31/95 6.15 7.43 82.77% 03/31/98 5.25 5.93 88.53%
04/28/95 6.20 7.34 84.47% 04/30/98 5.35 5.95 89.92%
05/31/95 5.80 6.66 87.09% 05/29/98 5.20 5.80 89.66%
06/30/95 6.10 6.62 92.15% 06/30/98 5.20 5.65 92.04%
07/31/95 6.10 6.86 88.92% 07/31/98 5.18 5.71 90.72%
08/31/95 6.00 6.66 90.09% 08/31/98 5.03 5.27 95.45%
09/29/95 5.95 6.48 91.82% 09/30/98 4.95 5.00 99.00%
10/31/95 5.75 6.33 90.84% 10/31/98 5.05 5.16 97.87%
11/30/95 5.50 6.14 89.58% 11/30/98 5.00 5.06 98.81%
12/29/95 5.35 5.94 90.07% 12/31/98 5.05 5.10 99.02%
01/31/96 5.40 6.03 89.55% 01/31/99 5.00 5.09 98.23%
02/29/96 5.60 6.46 86.69% 02/28/99 5.10 5.58 91.40%
03/29/96 5.85 6.66 87.84% 03/31/99 5.15 5.63 91.47%
04/30/96 5.95 6.89 86.36% 04/30/99 5.20 5.66 91.87%
05/31/96 6.05 6.99 86.55% 05/31/99 5.30 5.83 90.91%
06/28/96 5.90 6.89 85.63% 06/30/99 5.47 5.96 91.78%
07/31/96 5.85 6.97 83.93% 07/31/99 5.55 6.10 90.98%
08/30/96 5.90 7.11 82.98% 08/31/99 5.75 6.06 94.88%
09/30/96 5.70 6.93 82.25% 09/30/99 5.85 6.05 96.69%
10/31/96 5.65 6.64 85.09% 10/31/99 6.03 6.16 97.89%
11/29/96 5.50 6.35 86.61% 11/30/99 6.00 6.29 95.39%
12/31/99 5.97 6.48 92.13%
PERFORMANCE
The performance of Morgan Stanley Dean Witter Tax-Exempt Securities Trust was
impacted by the higher interest-rate environment. For the 12-month period ended
December 31, 1999, the Fund's Class A and D shares returned -2.82 percent and
- -2.71 percent, respectively. For the same period, the Fund's Class B and C
shares returned -3.25 percent and -3.37 percent, respectively. (The performance
of the Fund's four share classes varies because of differing expenses. Total
return figures assume the
2
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Letter to the Shareholders December 31, 1999, continued
reinvestment of all distributions and do not reflect the deduction of any
applicable sales charges.) During the same period, the Lehman Brothers
Municipal Bond Index returned -2.06 percent. The accompanying chart compares
the Fund's performance to that of the Lehman index.
PORTFOLIO STRUCTURE
The Fund's net assets of $1.02 billion were diversified among 14 long-term
sectors and 106 credits. As interest rates have increased, the Fund's
short-term investment position, which had ranged from 1 - 3 percent in 1998,
was gradually increased to 7 - 9 percent. Refunded bonds represented 12 percent
of net assets. Refunded issues have been refinanced and are generally defensive
portfolio holdings. At the end of December, the portfolio's average maturity
was 15 years. Average duration, a measure of sensitivity to interest-rate
changes, was a relatively short 7.6 years. The accompanying charts provide
current information on the portfolio's credit quality, sector distribution and
geographic diversification. Optional call provisions by year and their
respective cost (book) yields are also charted.
LOOKING AHEAD
The Federal Reserve Board raised the fed-funds rate twice last summer and once
more in November. These actions confirmed its previously disclosed bias of
becoming less accommodative in the face of continued strong domestic economic
growth. It is anticipated that the central bank may raise short-term interest
rates further in 2000, again influencing long-term rates. However, we believe
municipal bonds continue to offer tax-conscious investors good long-term value
relative to Treasuries. We continue to stress credit quality and a conservative
portfolio management profile.
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,
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Letter to the Shareholders December 31, 1999, continued
LARGEST SECTORS AS OF DECEMBER 31, 1999
(% OF NET ASSETS)
TRANSPORTATION 16%
GENERAL OBLIGATION 15%
ELECTRIC 14%
REFUNDED 12%
WATER & SEWER 9%
MORTGAGE 9%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT RATINGS AS OF DECEMBER 31, 1999
(% OF TOTAL LONG-TERM PORTFOLIO)
Aaa or AAA 65%
Aa or AA 19%
A or A 13%
Baa or BBB 2%
NR 1%
100%
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC.
OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
GEOGRAPHIC SUMMARY OF INVESTMENTS
BASED ON MARKET VALUE AS A PERCENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ALABAMA ................ 1.0% LOUISIANA .............. 0.7% OHIO ................... 3.2%
ALASKA ................. 5.2 MARYLAND ............... 1.2 PENNSYLVANIA ........... 2.9
ARIZONA ................ 4.9 MASSACHUSETTS .......... 6.3 PUERTO RICO ............ 1.8
CALIFORNIA ............. 4.9 MICHIGAN ............... 1.7 SOUTH CAROLINA ......... 2.7
COLORADO ............... 1.3 MINNESOTA .............. 1.5 TENNESSEE .............. 2.8
CONNECTICUT ............ 0.3 MISSOURI ............... 2.0 TEXAS .................. 9.6
FLORIDA ................ 4.2 NEBRASKA ............... 0.3 UTAH ................... 4.7
GEORGIA ................ 3.1 NEVADA ................. 1.9 VIRGINIA ............... 4.1
HAWAII ................. 0.7 NEW HAMPSHIRE .......... 0.1 WASHINGTON ............. 3.7
ILLINOIS ............... 1.6 NEW JERSEY ............. 4.0 WISCONSIN .............. 1.3
INDIANA ................ 1.0 NEW MEXICO ............. 0.7 ----
KANSAS ................. 0.2 NEW YORK ............... 6.9 TOTAL .................. 98.7%
KENTUCKY ............... 4.6 NORTH CAROLINA ......... 1.6 ====
</TABLE>
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
4
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Letter to the Shareholders December 31, 1999, continued
CALL AND COST (BOOK) YIELD STRUCTURE
DECEMBER 31, 1999
PERCENT CALLABLE*
YEARS
BONDS
CALLABLE
- ----------
2000 7%
2001 10%
2002 7%
2003 9%
2004 6%
2005 11%
2006 7%
2007 10%
2008 9%
2009 7%
2010+ 17%
WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS
COST (BOOK) YIELD**
2000 8.0%
2001 6.7%
2002 6.6%
2003 7.5%
2004 5.8%
2005 6.7%
2006 5.8%
2007 5.9%
2008 5.3%
2009 5.7%
2010+ 6.1%
WEIGHTED AVERAGE BOOK YIELD: 6.4%
- ---------------
* % BASED ON LONG-TERM PORTFOLIO.
** COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE FUND OPERATING EXPENSES. FOR
EXAMPLE, THE FUND EARNED A BOOK YIELD OF 6.7% ON 10% OF THE BONDS IN THE
LONG-TERM PORTFOLIO THAT ARE CALLABLE IN 2001.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<PAGE>
MORGAN STANLEY DEAN WITTER TAX EXEMPT SECURITIES TRUST
Fund Performance December 31, 1999
GROWTH OF $10,000 - CLASS A AND D SHARES
($ in Thousands)
Date TOTAL CLASS A TOTAL CLASS D LEHMAN LIPPER
---- ------------- ------------- --------- --------
December 31, 1989 $ 9,575 $10,000 $10,000 $10,000
December 31, 1990 $10,110 $10,586 $10,729 $10,600
December 31, 1991 $11,367 $11,931 $12,032 $11,876
December 31, 1992 $12,370 $13,016 $13,093 $12,933
December 31, 1993 $13,725 $14,478 $14,700 $14,541
December 31, 1994 $12,931 $13,674 $13,940 $13,663
December 31, 1995 $15,139 $16,049 $16,374 $16,028
December 31, 1996 $15,646 $16,629 $17,100 $16,601
December 31, 1997 $16,971 $18,081 $18,671 $18,160
December 31, 1998 $17,966 $19,185 $19,881 $19,184
December 31, 1999 $17,460(3) $18,665(3) $19,472 $18,404
---- 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*
- -------------------------------------------------------------
Period Ended 12/31/99
- ----------------------
1 year (2.82)%(1) (6.95)%(2)
5 years 6.19 %(1) 5.27 %(2)
10 years 6.19 %(1) 5.73 %(2)
Class B Shares+
- -------------------------------------------------------------
Period Ended 12/31/99
- ---------------------
1 year (3.25)%(1) (7.86)%(2)
Since Inception (7/28/97) 2.31 %(1) 1.19 %(2)
Class C Shares++
- -------------------------------------------------------------
Period Ended 12/31/99
- ---------------------
1 year (3.37)%(1) (4.29)%(2)
Since Inception (7/28/97) 2.09 %(1) 2.09 %(2)
Class D Shares#
- -------------------------------------------------------------
Period Ended 12/31/99
- ---------------------
1 year (2.71)%(1)
5 years 6.42 %(1)
10 years 6.44 %(1)
Prior to July 28, 1997 the Fund offered only one class of shares. Because the
distribution arrangement 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, 1999.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of
municipal bonds with maturities of 2 years or more and a 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.
* 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 1.0% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
6
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (90.1%)
General Obligation (14.5%)
North Slope Borough, Alaska,
$ 5,000 Ser 1992 A Conv (MBIA) ...................................................... 5.90 % 06/30/03 $ 5,181,450
15,000 Ser 1994 B (FSA) ............................................................ 0.00 06/30/05 11,304,150
15,000 Ser 1995 A (MBIA) ........................................................... 0.00 06/30/06 10,676,400
10,000 Ser 1996 B (MBIA) ........................................................... 0.00 06/30/06 7,117,600
10,000 Ser 1996 B (MBIA) ........................................................... 0.00 06/30/07 6,715,500
9,500 Ser 1999 A (MBIA) ........................................................... 0.00 06/30/10 5,314,015
4,000 Connecticut, College Savings 1989 Ser A ...................................... 0.00 07/01/08 2,553,640
Florida Board of Education, Capital Outlay
5,000 Refg Ser 1999 B (MBIA) ...................................................... 4.50 06/01/24 3,927,000
5,000 Ser 1998 A .................................................................. 4.75 06/01/28 4,008,500
20,000 Massachusetts, Refg 1996 Ser A (AMBAC) ....................................... 6.00 11/01/10 21,195,199
4,000 Clark County, Nevada, Transportation Ser 1992 A (AMBAC) ...................... 6.50 06/01/17 4,295,040
New York City, New York,
1,500 1995 Ser D (MBIA) ........................................................... 6.20 02/01/07 1,598,640
1,925 1990 Ser D .................................................................. 6.00 08/01/07 1,927,522
1,545 1990 Ser D .................................................................. 6.00 08/01/08 1,547,024
North Carolina,
10,000 1997 Ser A .................................................................. 5.20 03/01/16 9,400,100
8,000 Public School Building, Ser 1999 ............................................ 4.60 04/01/17 6,782,960
10,000 South-Western City School District, Ohio, Ser 1999 (AMBAC) ................... 4.75 12/01/19 8,354,000
10,000 Pennsylvania, First Ser 1995 (FGIC) .......................................... 5.50 05/01/12 10,032,300
4,000 Shelby County, Tennessee, Refg 1995 Ser A .................................... 5.625 04/01/14 3,997,680
20,000 King County, Washington, Ltd Tax 1995 (MBIA) ................................. 6.00 01/01/23 19,633,400
2,000 Washington, Ser 1994 A ....................................................... 5.80 09/01/08 2,056,160
- --------- ------------
171,470 147,618,280
- --------- ------------
Educational Facilities Revenue (3.9%)
10,000 Indiana University, Student Fee Ser K (MBIA) ................................. 5.875 08/01/20 9,749,000
4,000 Maryland State Health & Educational Facilities Authority,
The Johns Hopkins University Refg Ser 1998 .................................. 5.125 07/01/20 3,582,480
7,000 Massachusetts Health & Educational Facilities Authority, Boston University
1991 Ser K & L (MBIA) ....................................................... 6.66 10/01/31 7,261,660
5,000 Missouri Health & Educational Facilities Authority, Washington University
Ser 1998 A .................................................................. 4.75 11/15/37 3,807,050
2,000 New Jersey Economic Development Authority, The Seeing Eye Inc 1991 ........... 7.30 04/01/11 2,046,560
8,000 New Jersey Educational Facilities Authority, Princeton University Ser 1999 A . 4.75 07/01/25 6,576,320
5,000 New York State Dormitory Authority, State University Ser 1989 B .............. 0.00 05/15/02 4,458,600
2,000 Ohio State University, General Receipts, Ser 1999 A .......................... 5.80 12/01/29 1,923,120
- --------- ------------
43,000 39,404,790
- --------- ------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Portfolio of Investments December 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Electric Revenue (14.0%)
$ 25,000 Salt River Project Agricultural Improvement & Power District, Arizona,
Refg 1993 Ser C (Secondary MBIA) ............................................. 5.50 % 01/01/10 $ 25,559,500
10,000 Sacramento Municipal Utility District, California, Refg 1994 Ser I (MBIA) ..... 5.75 01/01/15 10,060,400
10,000 Municipal Electric Authority of Georgia, Ser Y (Secondary MBIA) ............... 6.50 01/01/17 10,739,000
5,000 Long Island Power Authority, New York, Ser 1998 A (FSA) ....................... 5.125 12/01/22 4,368,800
Puerto Rico Electric Power Authority,
1,500 Power Ser X .................................................................. 6.00 07/01/15 1,518,030
15,000 Power Ser O .................................................................. 0.00 07/01/17 5,267,700
5,000 Power Ser EE (MBIA) .......................................................... 4.50 07/01/18 4,139,400
15,000 South Carolina Public Service Authority, 1995 Refg Ser A (AMBAC) .............. 6.25 01/01/22 15,028,050
710 Austin, Texas, Combined Utilities Refg Ser 1994 (FGIC) ........................ 6.25 05/15/16 725,301
20,000 Lower Colorado River Authority, Texas, Refg Ser 1999 A ........................ 5.50 05/15/21 18,531,000
San Antonio, Texas, Electric & Gas
13,000 Refg Ser 1994 C .............................................................. 4.70 02/01/06 12,756,900
5,000 Refg Ser 1998 A .............................................................. 4.50 02/01/21 3,928,100
Intermountain Power Agency, Utah,
5,000 Refg Ser 1998 A (MBIA) ....................................................... 5.25 07/01/15 4,687,300
10,000 Refg 1997 Ser B (MBIA) ....................................................... 5.75 07/01/19 9,681,400
15,000 Washington Public Power Supply System, Proj #2 Refg Ser 1994 A
(Secondary MBIA) ............................................................. 6.00 07/01/07 15,794,550
- ---------- ------------
155,210 142,785,431
- ---------- ------------
Hospital Revenue (3.8%)
Rochester, Minnesota,
5,000 Mayo Foundation/Medical Center Ser 1992 I .................................... 5.75 11/15/21 4,860,300
3,700 Mayo Foundation/Medical Center Ser 1992 F .................................... 6.25 11/15/21 3,733,596
10,000 Missouri Health & Educational Facilities Authority, Barnes-Jewish Inc/
Christian Health Services Ser 1993 A ......................................... 5.25 05/15/14 9,480,300
1,300 New Hampshire Higher Educational & Health Facilities Authority,
St Joseph Hospital Ser 1994 (Connie Lee) ..................................... 6.35 01/01/07 1,368,406
6,000 New York State Medical Care Facilities Finance Agency, Presbyterian
Hospital - FHA Insured Mtge Ser 1994 A ....................................... 5.25 08/15/14 5,738,220
5,000 North Central Texas Health Facilities Development Corporation, University
Medical Center Inc Ser 1997 (FSA) ............................................ 5.45 04/01/15 4,736,800
10,000 Fredericksburg Industrial Development Authority, Virginia, Medicorp
Health Refg Ser 1996 (AMBAC) ................................................. 5.25 06/15/16 9,153,800
- ---------- ------------
41,000 39,071,422
- ---------- ------------
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 1,549,665
10,000 Clark County, Nevada, Nevada Power Co Ser 1992 A (AMT) (FGIC) ................. 6.70 06/01/22 10,233,600
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMBAC) ............... 6.30 12/01/14 5,156,900
5,000 Alliance Airport Authority, Texas, AMR Corp Ser 1990 (AMT) .................... 7.50 12/01/29 5,154,600
</TABLE>
See Notes to Financial Statements
8
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Portfolio of Investments December 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000 Dallas-Fort Worth International Airport Facility Improvement Corporation,
Texas, American Airlines Inc Ser 1995 ....................................... 6.00 % 11/01/14 $ 9,477,500
10,000 Weston, Wisconsin, Wisconsin Public Service Co Refg Ser 1993 A ............... 6.90 02/01/13 10,794,900
- ---------- ------------
41,500 42,367,165
- ---------- ------------
Mortgage Revenue - Multi-Family (2.3%)
880 Massachusetts Housing Finance Agency, Rental 1994 Ser A (AMT)(AMBAC) ......... 6.65 07/01/19 905,177
5,560 Michigan Housing Development Authority, Rental 1992 Ser A (Bifurcated FSA) ... 6.50 04/01/23 5,796,133
9,000 New Jersey Housing & Mortgage Finance Agency, 1995 Ser A (AMBAC) ............. 6.05 11/01/20 8,894,160
New York City Housing Development Corporation, New York,
4,260 Ruppert Proj - FHA Ins Sec 223F ............................................. 6.50 11/15/18 4,302,400
4,114 Stevenson Commons Proj - FHA Ins Sec 223F ................................... 6.50 05/15/18 4,154,020
- ---------- ------------
23,814 24,051,890
- ---------- ------------
Mortgage Revenue - Single Family (6.6%)
7,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A (MBIA) ........... 5.875 12/01/24 6,781,740
2,440 California Housing Finance Agency, Home Cap Apprec 1983 Ser B ................ 0.00 08/01/15 496,686
Colorado Housing & Finance Authority,
2,000 1998 Ser A-2 (AMT) .......................................................... 6.60 05/01/28 2,024,320
2,500 1997 Ser C-2 (AMT) .......................................................... 6.875 11/01/28 2,617,225
12,100 Illinios Housing Development Authority, Residential 1991 Ser C (AMT) ......... 6.875 02/01/18 12,468,929
Missouri Housing Development Commission, Homeownership
3,020 GNMA/FNMA Collateralized 1996 Ser C (AMT) ................................... 7.45 09/01/27 3,210,411
3,910 GNMA/FNMA Collateralized 1997 Ser C-1 ....................................... 6.55 09/01/28 4,049,274
2,800 Nebraska Investment Finance Authority, GNMA-Backed 1990 (AMT) ................ 7.631 09/10/30 2,884,140
3,450 Ohio Housing Finance Agency, GNMA-Backed 1991 Ser A 1 & 2 (AMT) .............. 6.903 03/01/31 3,550,844
10,000 Pennsylvania Housing Finance Agency, Ser 1991-31 C (AMT) ..................... 7.00 10/01/23 10,366,800
Tennessee Housing Development Agency,
3,955 Mortgage Finance 1993 Ser A ................................................. 5.90 07/01/18 3,919,880
1,000 Mortgage Finance 1994 Ser B (AMT) ........................................... 6.55 07/01/19 1,009,990
10,785 Mortgage Finance 1993 Ser A ................................................. 5.95 07/01/28 10,454,440
275 Utah Housing Finance Agency, Fed Ins/Guaranteed Loans 1994 Issue E (AMT) ..... 6.50 07/01/26 277,852
2,800 Wisconsin Housing & Economic Development Authority, Home Ownership
1991 Ser (AMT) .............................................................. 7.097 10/25/22 2,899,568
- ---------- ------------
68,035 67,012,099
- ---------- ------------
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 1,997,520
3,500 Denver, Colorado, Excise Tax Ser 1985 A (Secondary FSA) ...................... 5.00 11/01/08 3,468,500
5,000 Ohio Building Authority, 1985 Ser C .......................................... 9.75 10/01/05 6,102,150
--------- ------------
10,500 11,568,170
--------- ------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Portfolio of Investments December 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Recreational Facilities Revenue (0.3%)
Metropolitan Football Stadium District, Colorado,
$ 4,000 Sales Tax Ser 1999 A (MBIA) .............................................. 0.00 % 01/01/10 $ 2,300,240
2,000 Sales Tax Ser 1999 A (MBIA) .............................................. 0.00 01/01/12 1,010,600
- ---------- --------------
6,000 3,310,840
- ---------- --------------
Resource Recovery Revenue (1.7%)
7,000 Savannah Resource Recovery Development Authority, Georgia, Savannah
Energy Systems Co Ser 1992 ............................................... 6.30 12/01/06 7,228,970
10,000 Northeast Maryland Waste Disposal Authority, Montgomery County
Ser 1993 A (AMT) ......................................................... 6.30 07/01/16 10,116,400
- ---------- --------------
17,000 17,345,370
- ---------- --------------
Transportation Facilities Revenue (16.0%)
5,000 San Francisco Bay Area Rapid Transit District, California, Sales Tax
Ser 1998 (AMBAC) ......................................................... 4.75 07/01/23 4,130,550
13,000 San Joaquin Hills Transportation Corridor Agency, California, Toll Road
Refg Ser 1997 A (MBIA) ................................................... 0.00 01/15/26 2,611,440
5,000 E-470 Public Highway Authority, Colorado, Ser 1997 B (MBIA) ............... 0.00 09/01/16 1,824,850
1,000 Lee County, Florida, Ser 1995 (MBIA) ...................................... 5.75 10/01/22 976,350
Mid-Bay Bridge Authority, Florida,
8,965 Ser 1993 A (AMBAC) ....................................................... 5.85 10/01/13 9,107,095
3,000 Ser 1997 A (AMBAC) ....................................................... 0.00 10/01/21 770,250
10,000 Atlanta, Georgia, Airport Ser 1990 (AMT) .................................. 6.25 01/01/21 9,816,700
5,000 Hawaii, Airports Second Ser 1991 (AMT) .................................... 7.00 07/01/18 5,211,650
4,000 Regional Transportation Authority, Illinois, Refg Ser 1999 (FSA) .......... 5.75 06/01/21 3,875,400
2,000 Kansas, Highway Refg Ser 1998 ............................................. 5.50 09/01/12 2,029,020
Kentucky Turnpike Authority,
9,000 Economic Development Road Refg Ser 1995 (AMBAC) .......................... 6.50 07/01/08 9,847,350
30,000 Resource Recovery Road 1987 Ser A ........................................ 5.00 07/01/08 29,430,599
13,385 Massachusetts Turnpike Authority, Western 1997 Ser A (MBIA) ............... 5.55 01/01/17 13,312,186
7,700 Minneapolis - St Paul Metropolitan Airports Commission, Minnesota,
Ser 1998 A (AMBAC) ....................................................... 5.00 01/01/30 6,421,107
New Jersey Highway Authority,
7,000 Sr Parkway 1999 Ser ...................................................... 5.625 01/01/30 6,608,980
11,000 Sr Parkway Refg 1992 Ser ................................................. 6.25 01/01/14 11,396,220
5,000 New Jersey Transportation Trust Fund Authority, 1999 Ser A ................ 5.75 06/15/16 5,021,000
6,595 Albuquerque, New Mexico, Airport Refg Ser 1997 (AMT) (AMBAC) .............. 6.375 07/01/15 6,801,028
5,000 Ohio Turnpike Commission, Ser 1998 B (FGIC) ............................... 4.50 02/15/24 3,906,550
Pennsylvania Turnpike Commission,
5,000 Ser L of 1991 (MBIA) ..................................................... 6.00 06/01/15 5,093,750
5,000 Ser A 1998 (AMBAC) ....................................................... 4.75 12/01/27 3,987,300
8,000 Puerto Rico Highway & Transportation Authority, Refg Ser X ................ 5.50 07/01/15 7,748,800
10,000 South Carolina Transportation Infrastructure Bank, Ser 1999 A (AMBAC) ..... 5.50 10/01/16 9,669,900
3,000 Virginia Transportation Board, US Route 58 Corridor Ser 1993 B ............ 5.625 05/15/13 3,003,210
- ---------- --------------
182,645 162,601,285
- ---------- --------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Portfolio of Investments December 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water & Sewer Revenue (9.0%)
$ 10,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien Water Ser 1994 ..... 5.45 % 07/01/19 $ 9,366,200
10,000 California Department of Water Resources, Central Valley Ser L ............. 5.50 12/01/23 9,332,800
10,000 Los Angeles, California, Wastewater Ser 1994-A (MBIA) ...................... 5.875 06/01/24 9,878,100
5,000 Fulton County, Georgia, Water & Sewerage Ser 1998 (FGIC) ................... 4.75 01/01/28 4,000,300
10,000 Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
Ser 1998 A (FGIC) ......................................................... 4.75 05/15/28 7,973,400
9,500 Massachusetts Water Resources Authority, Refg 1992 Ser B ................... 5.50 11/01/15 9,111,640
Detroit, Michigan,
3,320 Sewage Refg Ser 1993 A (FGIC) ............................................. 5.70 07/01/13 3,334,276
10,000 Water Supply 1997 Ser A (MBIA) ............................................ 5.00 07/01/21 8,606,500
10,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA) ................... 5.00 01/01/23 8,594,300
5,000 Spartanburg, South Carolina, Jr Lien Water System Ser 1998 (FGIC) .......... 5.25 06/01/28 4,362,750
11,000 Metropolitan Government of Nashville & Davidson County, Tennessee,
Refg Ser 1998 A (FGIC) .................................................... 4.75 01/01/22 9,053,110
10,000 Dallas, Texas, Waterworks & Sewer Refg Ser 1998 (FSA) ...................... 5.00 10/01/29 8,331,300
---------- --------------
103,820 91,944,676
---------- --------------
Other Revenue (0.8%)
5,000 New York Local Government Assistance Corporation, Ser 1993 C ............... 5.50 04/01/17 4,837,350
3,000 Houston, Texas, Sr Lien Hotel Occupancy Tax Refg Ser 1995 (FSA) ............ 5.50 07/01/11 3,000,000
---------- --------------
8,000 7,837,350
---------- --------------
Refunded (12.0%)
10,000 Birmingham Water Works & Sewer Board, Alabama, Ser 1994 .................... 5.50 01/01/04+ 10,417,500
9,000 Los Angeles Convention and Exhibition Center Authority, California,
Ser 1985 COPs ............................................................. 9.00 12/01/05+ 10,978,200
2,500 Mid-Bay Bridge Authority, Florida, Ser 1991 A (ETM) ........................ 6.875 10/01/22 2,777,700
2,500 Massachusetts Health & Educational Facilities Authority,
Malden Hospital - FHA Ins Mtge Ser A (ETM) ................................ 5.00 08/01/16 2,318,800
10,000 Massachusetts Water Resources Authority, 1996 Ser A (FGIC) ................. 5.50 11/01/06+ 10,387,600
14,000 New York State Dormitory Authority, Suffolk County Judicial Ser 1986 (ETM).. 7.375 07/01/16 16,367,400
7,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 C (ETM) ................... 4.70 02/01/06 6,819,120
25,000 Intermountain Power Agency, Utah, Refg 1985 Ser H (GAINS) .................. 0.00 # 07/01/03+ 28,104,000
5,000 Salt Lake City, Utah, IHC Hospital Inc Ser 1983 (ETM) ...................... 5.00 06/01/15 4,691,150
28,000 Fairfax County Industrial Development Authority, Virginia, Fairfax
Hospital/Inova Health Ser 1991 ............................................ 6.801 08/15/01+ 29,404,760
---------- --------------
113,000 122,266,230
---------- --------------
984,994 TOTAL TAX-EXEMPT MUNICIPAL BONDS (Identified Cost $902,914,260) ............. 919,184,998
---------- --------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Portfolio of Investments December 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (8.6%)
$ 15,000 Maricopa County, Arizona Public Service Co Ser 1994 C (Demand 01/03/00)......... 4.80*% 05/01/29 $ 15,000,000
21,000 Collier County Health Facilities Authority, Florida, Cleveland Clinic Health
Ser 1999 (Demand 01/03/00) .................................................... 4.70* 01/01/33 21,000,000
7,000 Louisiana Public Facilities Authority, Kenner Hotel Ser 1985 (Demand 01/03/00).. 5.00* 12/01/15 7,000,000
20,000 New York State Dormitory Authority, State University Ser 1990 B ................ 7.00 05/15/00+ 20,607,000
24,000 Harris County Health Facilities Development Corporation, Texas,
Methodist Hospital Ser 1994 (Demand 01/03/00) ................................. 4.80* 12/01/25 24,000,000
- ---------- --------------
87,000 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (Identified Cost $87,607,000) ......................... 87,607,000
- ---------- --------------
$1,071,994 TOTAL INVESTMENTS (Identified Cost $990,521,260) (a) ......................................... 98.7% 1,006,791,998
==========
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............................................... 1.3 13,433,289
----- --------------
NET ASSETS ................................................................................... 100.0% $1,020,225,287
===== ==============
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
GAINS Growth and Income Security.
+ 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
$38,326,839 and the aggregate gross unrealized depreciation is
$22,056,101, resulting in net unrealized appreciation of
$16,270,738.
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.
See Notes to Financial Statements
12
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $990,521,260) .................................. $1,006,791,998
Cash .............................................................. 1,692,345
Receivable for:
Interest ...................................................... 15,344,365
Shares of beneficial interest sold ............................ 190,362
Investments sold .............................................. 35,000
Prepaid expenses and other assets ................................. 63,621
--------------
TOTAL ASSETS .................................................. 1,024,117,691
--------------
LIABILITIES:
Payable for:
Dividends to shareholders ..................................... 2,408,252
Shares of beneficial interest repurchased ..................... 869,861
Investment management fee ..................................... 393,153
Plan of distribution fee ...................................... 83,114
Accrued expenses .................................................. 138,024
--------------
TOTAL LIABILITIES ............................................. 3,892,404
--------------
NET ASSETS .................................................... $1,020,225,287
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $1,008,602,876
Net unrealized appreciation ....................................... 16,270,738
Accumulated undistributed net investment income ................... 20,278
Accumulated net realized loss ..................................... (4,668,605)
--------------
NET ASSETS .................................................... $1,020,225,287
==============
CLASS A SHARES:
Net Assets ........................................................ $17,198,331
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,552,372
NET ASSET VALUE PER SHARE ..................................... $11.08
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net asset value) ............. $11.57
======
CLASS B SHARES:
Net Assets ........................................................ $139,786,097
Shares Outstanding (unlimited authorized, $.01 par value) ......... 12,564,649
NET ASSET VALUE PER SHARE ..................................... $11.13
======
CLASS C SHARES:
Net Assets ........................................................ $10,024,734
Shares Outstanding (unlimited authorized, $.01 par value) ......... 902,958
NET ASSET VALUE PER SHARE ..................................... $11.10
======
CLASS D SHARES:
Net Assets ........................................................ $853,216,125
Shares Outstanding (unlimited authorized, $.01 par value) ......... 77,068,274
NET ASSET VALUE PER SHARE ..................................... $11.07
======
</TABLE>
See Notes to Financial Statements
13
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Financial Statements, continued
STATEMENT OF OPERATIONS
For the year ended December 31, 1999
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:
<S> <C>
INTEREST INCOME ................................... $ 62,752,799
-------------
EXPENSES
Investment management fee ......................... 4,908,427
Plan of distribution fee (Class A shares) ......... 23,738
Plan of distribution fee (Class B shares) ......... 855,483
Plan of distribution fee (Class C shares) ......... 67,457
Transfer agent fees and expenses .................. 391,939
Registration fees ................................. 97,797
Shareholder reports and notices ................... 88,271
Professional fees ................................. 84,185
Custodian fees .................................... 45,589
Trustees' fees and expenses ....................... 18,226
Other ............................................. 38,492
-------------
TOTAL EXPENSES ................................. 6,619,604
Less: expense offset .............................. (45,456)
-------------
NET EXPENSES ................................... 6,574,148
-------------
NET INVESTMENT INCOME .......................... 56,178,651
-------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ................................. (4,668,605)
Net change in unrealized appreciation ............. (82,789,197)
-------------
NET LOSS ....................................... (87,457,802)
-------------
NET DECREASE ...................................... $ (31,279,151)
=============
</TABLE>
See Notes to Financial Statements
14
<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, 1999 DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 56,178,651 $ 59,803,857
Net realized gain (loss) ............................. (4,668,605) 15,111,631
Net change in unrealized appreciation ................ (82,789,197) (5,416,357)
-------------- --------------
NET INCREASE (DECREASE) ........................... (31,279,151) 69,499,131
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares .................................... (929,080) (460,545)
Class B shares .................................... (6,430,720) (5,022,084)
Class C shares .................................... (422,770) (218,789)
Class D shares .................................... (48,394,252) (54,102,439)
Net realized gain
Class A shares .................................... (52,982) (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 ................. (59,295,750) (76,188,795)
-------------- --------------
Net decrease from transactions in shares of beneficial
interest ........................................... (67,388,661) (14,502,186)
-------------- --------------
NET DECREASE ...................................... (157,963,562) (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
$20,278 and $18,572, respectively) ................ $1,020,225,287 $1,178,188,849
============== ==============
</TABLE>
See Notes to Financial Statements
15
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Notes to Financial Statements December 31, 1999
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 share 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.
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.
16
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Notes to Financial Statements December 31, 1999, continued
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 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.
17
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Notes to Financial Statements December 31, 1999, continued
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, 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 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 $4,717,309 at December 31, 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
18
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Notes to Financial Statements December 31, 1999, continued
broker-dealer representatives may be reimbursed in the subsequent calendar
year. For the year ended December 31, 1999, the distribution fee was accrued
for Class A shares and Class C shares at the annual rate of 0.13% and 0.70%,
respectively.
The Distributor has informed the Fund that for the year ended December 31,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $274,899 and $10,671,
respectively and received $107,818 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, 1999
aggregated $137,618,438 and $245,779,835, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At December 31, 1999, the Fund
had transfer agent fees and expenses payable of approximately $13,800.
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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,892. At December 31, 1999, the Fund had an accrued pension liability of
$52,664 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At December 31, 1999, the Fund had a net capital loss carryover of
approximately $4,670,000 which will be available through December 31, 2007 to
offset future capital gains to the extent provided by regulations.
19
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Notes to Financial Statements December 31, 1999, continued
6. 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, 1999 DECEMBER 31, 1998
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ........................................ 1,023,382 $ 11,894,433 1,188,860 $ 14,401,331
Reinvestment of dividends and distributions . 35,276 407,295 23,219 279,925
Redeemed .................................... (757,512) (8,588,318) (279,886) (3,403,298)
--------- -------------- --------- --------------
Net increase - Class A ...................... 301,146 3,713,410 932,193 11,277,958
--------- -------------- --------- --------------
CLASS B SHARES
Sold ........................................ 5,634,037 65,447,290 4,978,407 60,561,390
Reinvestment of dividends and distributions . 304,367 3,532,880 307,110 3,717,941
Redeemed .................................... (4,333,128) (49,694,515) (2,198,759) (26,762,285)
---------- -------------- ---------- --------------
Net increase - Class B ...................... 1,605,276 19,285,655 3,086,758 37,517,046
---------- -------------- ---------- --------------
CLASS C SHARES
Sold ........................................ 843,726 9,755,515 505,118 6,127,960
Reinvestment of dividends and distributions . 26,647 307,538 18,393 222,199
Redeemed .................................... (598,459) (6,828,777) (136,298) (1,653,180)
---------- -------------- ---------- --------------
Net increase - Class C ...................... 271,914 3,234,276 387,213 4,696,979
---------- -------------- ---------- --------------
CLASS D SHARES
Sold ........................................ 1,880,172 21,134,542 264,495 3,195,718
Reinvestment of dividends and distributions . 2,424,240 28,046,032 3,213,005 38,720,154
Redeemed .................................... (12,402,477) (142,802,576) (9,095,698) (109,910,041)
----------- -------------- ---------- --------------
Net decrease - Class D ...................... (8,098,065) (93,622,002) (5,618,198) (67,994,169)
----------- -------------- ---------- --------------
Net decrease in Fund ........................ (5,919,729) $ (67,388,661) (1,212,034) $ (14,502,186)
=========== ============== ========== ==============
</TABLE>
7. SUBSEQUENT EVENT
On January 26, 2000, the Board of Trustees of the Fund and of Morgan Stanley
Dean Witter Multi-State Municipal Series Trust - Massachusetts Series
("Massachusetts"), Michigan Series ("Michigan"), Minnesota Series ("Minnesota")
and Ohio Series ("Ohio") each approved four reorganization plans ("the Plans")
whereby Massachusetts, Michigan, Minnesota and Ohio would be merged into the
Fund. The Plans are subject to the consent of Massachusetts', Michigan's,
Minnesota's and Ohio's shareholders. If the Plans are approved (each Plan is
independent of the other and therefore, the effectiveness of each Plan is not
20
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Notes to Financial Statements December 31, 1999, continued
dependent upon the approval of the other Plans), the assets of Massachusetts,
Michigan, Minnesota and Ohio would be combined with the assets of the Fund and
shareholders of Massachusetts, Michigan, Minnesota and Ohio would become Class
D shareholders of the Fund, receiving Class D shares of the Fund equal to the
value of their holdings in Massachusetts, Michigan, Minnesota and Ohio,
respectively.
21
<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 PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<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 ................................ 0.58 0.59 0.25
Net realized and unrealized gain (loss) .............. (0.91) 0.10 0.14
------ ------ ------
Total income (loss) from investment operations ......... (0.33) 0.69 0.39
------ ------ ------
Less dividends and distributions from:
Net investment income ................................ (0.58) (0.59) (0.25)
Net realized gain .................................... (0.03) (0.17) (0.05)
------ ------ ------
Total dividends and distributions ...................... (0.61) (0.76) (0.30)
------ ------ ------
Net asset value, end of period ......................... $11.08 $12.02 $12.09
====== ======= ======
TOTAL RETURN+ .......................................... (2.82)% 5.86% 3.31%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.64 %(4)(5) 0.74%(4)(5) 0.76%(2)(3)
Net investment income .................................. 4.98 %(5) 4.88%(5) 4.96%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $17,198 $15,041 $3,857
Portfolio turnover rate ................................ 13 % 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>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 ................................ 0.53 0.55 0.23
Net realized and unrealized gain (loss) .............. (0.91) 0.10 0.19
------ ------ ------
Total income (loss) from investment operations ......... (0.38) 0.65 0.42
------ ------ ------
Less dividends and distributions from:
Net investment income ................................ (0.53) (0.55) (0.23)
Net realized gain .................................... (0.03) (0.17) (0.05)
------ ------ ------
Total dividends and distributions ...................... (0.56) (0.72) (0.28)
------ ------ ------
Net asset value, end of period ......................... $11.13 $12.07 $12.14
====== ====== ======
TOTAL RETURN+ .......................................... (3.25)% 5.47% 3.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.11 %(4)(5) 1.10%(4)(5) 1.14%(2)(3)
Net investment income .................................. 4.51 %(5) 4.52%(5) 4.87%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $139,786 $132,303 $95,573
Portfolio turnover rate ................................ 13 % 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>
MORGAN STANLEY DEAN WITTER TAX-EXEMPT SECURITIES TRUST
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
<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 ................................. 0.51 0.53 0.23
Net realized and unrealized gain (loss) ............... (0.91) 0.10 0.16
------ ------ ------
Total income (loss) from investment operations ......... (0.40) 0.63 0.39
------ ------ ------
Less dividends and distributions from:
Net investment income ................................. (0.51) (0.53) (0.23)
Net realized gain ..................................... (0.03) (0.17) (0.05)
------ ------ ------
Total dividends and distributions ...................... (0.54) (0.70) (0.28)
------ ------ ------
Net asset value, end of period ......................... $11.10 $12.04 $12.11
====== ====== ======
TOTAL RETURN+ .......................................... (3.37)% 5.36% 3.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.21 %(4)(5) 1.20%(4)(5) 1.20%(2)(3)
Net investment income .................................. 4.41 %(5) 4.34%(5) 4.41%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $10,025 $7,599 $2,953
Portfolio turnover rate ................................ 130 % 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 YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997* 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ........................... 0.59 0.62 0.63 0.65 0.67
Net realized and unrealized gain (loss) ......... (0.91) 0.10 0.36 (0.24) 1.19
------ ------ ------ ------ ------
Total income (loss) from investment operations ... (0.32) 0.72 0.99 0.41 1.86
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income ........................... (0.59) (0.62) (0.63) (0.65) (0.67)
Net realized gain ............................... (0.03) (0.17) (0.05) (0.08) (0.11)
------ ------ ------ ------ ------
Total dividends and distributions ................ (0.62) (0.79) (0.68) (0.73) (0.78)
------ ------ ------ ------ ------
Net asset value, end of period ................... $11.07 $12.01 $12.08 $11.77 $12.09
====== ====== ====== ====== ======
TOTAL RETURN+ .................................... (2.71)% 6.11% 8.73% 3.61% 17.37%
RATIOS TO AVERAGE NET ASSETS:
Expenses ......................................... 0.51 %(1)(2) 0.50%(1)(2) 0.49% 0.48% 0.48%
Net investment income ............................ 5.11 %(2) 5.12%(2) 5.34% 5.52% 5.76%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .......... $853,216 $1,023,246 $1,096,998 $1,190,034 $1,325,308
Portfolio turnover rate .......................... 13 % 15% 16% 18% 21%
</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
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") at December 31, 1999, 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 accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 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 7, 2000
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended December 31, 1999, the Fund paid the following
per share amounts from tax-exempt income: $0.58 to Class A shareholders,
$0.53 to Class B shareholders, $0.51 to Class C shareholders and $0.59
to Class D shareholders.
For the year ended December 31, 1999, the Fund paid long-term capital
gains of $0.03 per share to Class A, B, C and D shareholders.
26
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn MORGAN STANLEY
Wayne E. Hedien DEAN WITTER
Dr. Manuel H. Johnson TAX-EXEMPT
Michael E. Nugent SECURITIES TRUST
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
[GRAPHIC OMITTED]
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.
ANNUAL REPORT
This report is not authorized for distribution DECEMBER 31, 1999
to prospective investors in the Fund unless
preceded or accompanied by an effective
prospectus. Read the prospectus carefully before
investing.
