ACTIVE ASSETS TAX-FREE TRUST
Two World Trade Center
New York, NY 11048
===============================================================================
DEAR SHAREHOLDER:
Active Assets Tax-Free Trust's annualized yield for the six months ended
December 31, 1993 was 1.98 percent. The Trust had net assets in excess of $1.4
billion at the end of the period.
MARKET OVERVIEW
Tax-free money market interest rates moved to record low levels early in 1993
and remained low throughout the year. With little change in Federal Reserve
policy, the movement of municipal money market yields was influenced primarily
by changes in the balance of supply and demand. Seasonal factors that have been
in place in previous years were also evident during 1993, although swings in
interest rates were not as pronounced. Crossover investors from the taxable
markets have become familiar with the seasonal pattern of the tax-free sector,
moving in quickly when municipal money market yields are out of line with
taxable interest rates.
The behavior of yields for variable-rate obligations with weekly rate changes
illustrates the market's response to large changes in investment cash flows.
For most of the year, weekly variable-rate yields moved within a range of 2
percent to 2.5 percent. However, in early January and again in early July,
rates dropped quickly and sharply to levels as low as 1.6 percent. This
movement came in response to spikes in demand stemming from coupon payments,
maturities and called bonds. Periods of cash outflows caused rates to move just
as quickly in the opposite direction, increasing to as high as 3 percent, for
example, at the end of September.
The market for longer-term, tax-free, money-market securities also displayed
some of the volatility associated with changes in technical market factors, but
the movement of rates was not as dramatic. The Bond Buyer One Year Note Index
reached a high of 2.99 percent in late July, when the supply of one-year notes
was at its seasonal peak. Following the pattern seen in 1992, the Index
registered a record low of 2.25 percent in December, when demand picked up in
anticipation of large cash inflows after the first of the year.
THE PORTFOLIO
With tax-free money market yields at or near record lows during most of 1993,
the Trust's average maturity was extended only when longer-term securities
provided a clear yield advantage. For much of the first half of the year, the
Trust's average maturity stayed within a range of 40 to 60 days. In June and
July, however, the Trust took advantage of the more attractive yields available
from one-year notes by extending its average maturity out to the 65- to 75-day
range. At the end of December, the Trust's average maturity was shortened
again to 51 days.
Adherence to high quality standards is the prevailing focus in managing the
Trust's portfolio. At year end, the Trust's portfolio was broadly diversified.
Five municipal market sectors--tax supported, health care, industrial
development/pollution control, electric and trans porta tion--re pre sented
approximately 83 percent of the Trust's investments. The portfolio was also
geographically diversified with holdings in 38 states, the District of Columbia
and Puerto Rico. California, Florida, Texas, Pennsylvania and North Carolina,
the five states with the largest aggregate holdings, accounted for 38 percent
of the portfolio as of December 31, 1993. As the economy emerges from its
slowdown, some of the issuers that have been avoided because of budgetary
difficulties may again be considered for investment.
<PAGE>
The changing fortunes of banks providing letters of credit are watched
continually. Ongoing efforts have been made in recent periods to reduce overall
exposure to banks and to confine investments to only the most highly regarded
institutions. Particular attention has been given to limiting investments
backed by Japanese bank letters of credit.
At year end, the Trust was 71 percent invested in variable rate obligations
with demand features. Tax-exempt commercial paper and municipal notes, the two
other types of securities utilized in the portfolio, comprised 14 percent and
15 percent of investments, respectively. To provide greater investment
flexibility, the Trust purchased issues subject to the federal alternative
minimum tax (AMT). These issues represented 18 percent of the portfolio at year
end.
We appreciate your support of Active Assets Tax-Free Trust, and look forward
to continuing to serve your investment needs and objectives.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1993 (unaudited)
===================================================================================================================================
<CAPTION>
Principal
Amount (in Current
thousands) Yield Value
- --------- ----- -----
<C> <S> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS* (71.4%)
ALABAMA
$ 6,500 McIntosh Industrial Development Board, CIBA GEIGY Corp 1986
Ser, 4.50% due 1/3/94......................................................... 4.50 % $ 6,500,000
4,700 Phenix Industrial Development Board, Mead Coated Board
Ser 1990 A (AMT), 4.75% due 1/3/94............................................ 4.75 4,700,000
ALASKA
8,400 Valdez, Marine Terminal Exxon Pipeline Co Ser A, 4.25% due 1/3/94............... 4.25 8,400,000
ARKANSAS
20,000 Crossett, Georgia Pacific Corp Ser 1984, 2.85% due 1/6/94....................... 2.85 20,000,000
17,000 Little River County, Georgia Pacific Corp Ser 1991 (AMT),
3.00% due 1/6/94................................................................ 3.00 17,000,000
CALIFORNIA
5,000 California Statewide Communities Development Authority,
St Joseph Health System COPs, 3.10% due 1/5/94................................. 3.10 5,000,000
5,000 Los Angeles County Metropolitan Transportation Authority, Prop C
Sales Tax Refg Ser 1993-A (MBIA Insured), 2.90% due 1/6/94..................... 2.90 5,000,000
2,505 Newport Beach, Hoag Memorial Hospital/Presbyterian Ser 1992,
4.45% due 1/3/94............................................................... 4.45 2,505,000
COLORADO
30,000 Arapahoe County, Highway E-470 Ser 1986 E, 2.85% due 2/28/94..................... 2.85 30,000,000
10,000 Denver, Airport Ser 1992 E (AMT), 3.45% due 1/5/94............................... 3.45 10,000,000
CONNECTICUT
10,000 Connecticut, Economic Recovery Ser B, 2.90% due 1/5/94........................... 2.90 10,000,000
5,000 Connecticut Housing Finance Authority, 1992 Ser G Subser G-1,
2.65% due 5/16/94.............................................................. 2.65 5,000,000
DISTRICT OF COLUMBIA
8,545 District of Columbia, Georgetown University Ser 1988 B,
3.55% due 1/5/94............................................................... 3.55 8,545,000
FLORIDA
15,000 Atlantic Beach, Fleet Landing Ser 1989, 2.90% due 1/6/94......................... 2.90 15,000,000
23,500 Dade County Industrial Development Authority, Dolphins Stadium
Ser 1985 B & C, 3.15% due 1/4/94............................................... 3.15 23,500,000
6,205 Gulf Breeze, Local Government Loan Ser 1985 B, 2.95% due 1/6/94.................. 2.95 6,205,000
1,000 Homestead, Special Insurance Assessment--Hurricane Andrew
Ser 1993 (MBIA Insured), 2.875% due 3/1/94..................................... 2.875 1,000,000
5,500 Jacksonville Health Facilities Authority, Baptist Health Properties,
4.30% due 1/3/94............................................................... 4.30 5,500,000
10,000 Martin County Industrial Development Authority, Indiantown
Cogeneration Ser 1992 B, 3.50% due 1/5/94...................................... 3.50 10,000,000
30,460 Volusia County Health Facilities Authority, Pooled Ser 1985 (FGIC
Insured), 3.50% due 1/5/94..................................................... 3.50 30,460,000
</TABLE>
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1993 (unaudited) (continued)
===================================================================================================================================
<CAPTION>
Principal
Amount (in Current
thousands) Yield Value
- --------- ----- -----
<C> <S> <C> <C>
GEORGIA
$10,000 Albany-Dougherty County Hospital Authority, Phoebe-Putney
Memorial Hospital Ser 1991 (AMBAC Insured), 3.30% due 1/5/94................... 3.30% $ 10,000,000
11,000 Burke County, Georgia Power Co Vogtle Proj 1st Ser 1989 (AMT),
2.70% due 1/25/94.............................................................. 2.70 11,000,000
15,341 Georgia Municipal Association, Pool Ser 1990 COPs (MBIA Insured),
2.95% due 1/6/94............................................................... 2.95 15,341,000
23,711 Variable Rate Trust Certificates XI, Holding: Metropolitan Atlanta
Rapid Transit Authority, Sales Tax Refg Ser F (Prerefunded) et al,
3.25% due 1/6/94............................................................... 3.25 23,710,500
HAWAII
Hawaii Department of Budget & Finance,
9,000 Kaiser Permanente Semiannual Tender Ser 1984 B,
2.70% due 3/1/94.............................................................. 2.70 9,000,000
23,500 Queens Medical Center Ser 1985 B (FGIC Insured),
3.00% due 1/5/94.............................................................. 3.00 23,500,000
IDAHO
20,000 Idaho Health Facilities Authority, Pooled Ser 1985, 3.60% due 1/4/94............. 3.60 20,000,000
ILLINOIS
Illinois Health Facilities Authority,
5,250 The Carle Foundation Ser 1992 (FGIC Insured), 2.90% due 1/5/94................... 2.90 5,250,000
8,000 Elmhurst Memorial Hospital Ser 1993 B, 4.50% due 1/3/94.......................... 4.50 8,000,000
10,000 La Grange Memorial Health System Ser 1990, 4.50% due 1/3/94...................... 4.50 10,000,000
22,500 Lutheran General Health Care System Ser 1985 B,
2.60% due 1/3/94.............................................................. 2.60 22,500,000
10,000 Parkside Development Corp Ser 1991, 3.25% due 1/5/94............................. 3.25 10,000,000
10,000 Resurrection Health Care System Ser 1993, 4.50% due 1/3/94....................... 4.50 10,000,000
10,000 Revolving Fund Ser 1985 B, 2.90% due 1/5/94...................................... 2.90 10,000,000
INDIANA
10,600 Indiana Hospital Equipment Financing Authority, Ser 1985
(MBIA Insured), 3.25% due 1/5/94............................................... 3.25 10,600,000
KENTUCKY
7,000 Jamestown, Union Underwear Co, 3.10% due 1/5/94.................................. 3.10 7,000,000
4,300 Kentucky Housing Corporation, 1991 Ser D--2 (AMT),
2.75% due 4/28/94.............................................................. 2.75 4,300,000
10,000 Kentucky Pollution Abatement & Water Resources Authority,
Toyota Motor Manufacturers USA Inc Ser 1986 (AMT),
4.50% due 1/3/94............................................................... 4.50 10,000,000
LOUISIANA
22,000 New Orleans Aviation Board, Ser 1993 B (MBIA Insured),
3.15% due 1/5/94............................................................... 3.15 22,000,000
</TABLE>
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1993 (unaudited) (continued)
===================================================================================================================================
<CAPTION>
Principal
Amount (in Current
thousands) Yield Value
- --------- ----- -----
<C> <S> <C> <C>
MAINE
$ 9,500 Biddeford, Maine Energy Recovery Co Ser 1985, 2.75% due 1/3/94................... 2.75 % $ 9,500,000
MARYLAND
5,000 Baltimore Industrial Development Authority, Cap Acq Ser 1986,
3.30% due 1/5/94............................................................... 3.30 5,000,000
9,800 Montgomery County, Cons Ser 1992 B BANs, 3.10% due 1/5/94........................ 3.10 9,800,000
5,000 Montgomery County Housing Opportunities Commission, 1993 Ser B,
2.85% due 1/5/94............................................................... 2.85 5,000,000
MASSACHUSETTS
Massachusetts Health & Educational Facilities Authority,
14,000 Harvard University Ser 1985 I, 2.85% due 1/6/94.................................. 2.85 14,000,000
10,000 Harvard University Ser 1985 I, 2.85% due 1/6/94.................................. 2.85 10,000,000
700 Williams College Ser E, 4.15% due 1/3/94......................................... 4.15 700,000
MICHIGAN
3,200 Michigan Hospital Finance Authority, Equipment Ser 1989,
2.95% due 1/5/94............................................................... 2.95 3,200,000
MINNESOTA
2,155 Minneapolis Community Development Agency, Riverside
Pinnacle Apts, 3.20% due 1/5/94................................................ 3.20 2,155,000
10,000 University of Minnesota, Ser 1985 F, 2.65% due 2/1/94............................ 2.65 10,000,000
MISSOURI
14,000 Missouri Environmental Improvement & Energy Resources Authority,
Noranda Aluminum Inc Ser 1982, 3.35% due 1/5/94................................ 3.35 14,000,000
Missouri Health & Educational Facilities Authority,
13,500 Missouri Baptist Medical Center Ser 1990 B, 2.75% due 2/1/94..................... 2.75 13,500,000
10,000 Sisters of Mercy Health System, St Louis Inc Ser 1989 A,
2.85% due 1/6/94............................................................... 2.85 10,000,000
9,800 St Anthony's Medical Center Ser 1989 A, 3.55% due 1/4/94......................... 3.55 9,800,000
NEBRASKA
Nebraska Higher Education Loan Program Inc,
13,085 1985 Ser E (MBIA Insured), 3.10% due 1/5/94...................................... 3.10 13,085,000
8,600 1986 Ser C (AMT), 3.65% due 1/5/94............................................... 3.65 8,600,000
NEW HAMPSHIRE
2,500 New Hampshire Higher Educational & Health Facilities Authority,
Dartmouth Education Loan Corp Ser 1993 (AMT), 2.75% due 6/1/94................. 2.75 2,500,000
10,000 New Hampshire Housing Finance Authority, Single Family Mortgage
1993 Ser D (AMT), 2.35% due 3/1/94............................................. 2.35 10,000,000
NEW JERSEY
10,000 New Jersey Economic Development Authority, Center For Aging Inc--
Applewood Estates Ser 1989, 2.90% due 1/6/94................................... 2.90 10,000,000
NEW YORK
1,500 New York City Cultural Resources Trust, Carnegie Hall Ser 1990,
2.90% due 1/5/94............................................................... 2.90 1,500,000
7,000 New York State Power Authority, Tender Notes, 2.70% due 3/1/94................... 2.70 7,000,000
</TABLE>
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1993 (unaudited) (continued)
===================================================================================================================================
<CAPTION>
Principal
Amount (in Current
thousands) Yield Value
- --------- ----- -----
<C> <S> <C> <C>
NORTH CAROLINA
North Carolina Medical Care Commission,
$15,700 Duke University Hospital Ser 1985 B, 2.95% due 1/6/94........................... 2.95 % $ 15,700,000
10,785 Duke University Hospital Ser 1985 C, 2.95% due 1/6/94........................... 2.95 10,785,000
15,400 Pooled Ser 1985 (MBIA Insured), 3.50% due 1/4/94................................ 3.50 15,400,000
11,300 Pooled Ser 1991 A, 4.75% due 1/3/94............................................. 4.75 11,300,000
21,700 Person County Industrial Facilities & Pollution Control Financing
Authority, Carolina Power & Light Co Ser 1992 A, 3.05% due 1/5/94.............. 3.05 21,700,000
OHIO
30,000 Ohio Housing Finance Agency, Single Family Mortgage 1992 Ser A-2
(AMT), 2.95% due 6/1/94....................................................... 2.95 30,000,000
OREGON
10,000 Oregon, Veterans' Welfare Ser 73 H, 3.20% due 1/5/94............................. 3.20 10,000,000
PENNSYLVANIA
10,000 Allegheny County Hospital Development Authority, Health
Education & Research Corp Ser 1988 B, 3.40% due 1/5/94......................... 3.40 10,000,000
Emmaus General Authority,
15,000 Local Govt Ser 1989 B Subser B-5, 3.45% due 1/5/94............................. 3.45 15,000,000
6,200 Local Govt Ser 1989 D, 3.40% due 1/5/94........................................ 3.40 6,200,000
10,500 Pennsylvania Energy Development Authority, Clarion Co Piney
Creek Ser A (AMT), 3.50% due 1/5/94............................................ 3.50 10,500,000
5,200 University of Pittsburgh, Univ Cap 1989 Ser A, 2.80% due 1/6/94.................. 2.80 5,200,000
8,400 Washington County Authority, Pooled Ser 1985 A-1 Subser B,
3.05% due 1/5/94............................................................... 3.05 8,400,000
RHODE ISLAND
Rhode Island Housing & Mortgage Finance Corporation,
8,500 Homeownership Ser 10 B, 3.40% due 1/5/94........................................ 3.40 8,500,000
10,000 Homeownership Ser 13, 2.75% due 5/2/94.......................................... 2.75 10,000,000
SOUTH CAROLINA
12,500 York County, North Carolina Electric Membership Corp
Pooled Ser 1984 N-3 & 4 (NRU-CFC Gtd), 2.70% due 3/15/94....................... 2.70 12,500,000
TEXAS
4,500 Angelina & Neches River Authority, TEEC Inc Ser 1984 B,
4.75% due 1/3/94............................................................... 4.75 4,500,000
7,000 Bexar County, Bexar Airforce Village II Ser 1985 B, 3.125% due 1/6/94............ 3.125 7,000,000
5,000 Brazos Higher Education Authority, Student Loan Ser 1992 B
(AMT), 2.70% due 5/2/94........................................................ 2.70 5,000,000
6,500 Brazos River Harbor Navigation District, Dow Chemical Co (AMT),
4.25% due 1/3/94............................................................... 4.25 6,500,000
6,000 Gulf Coast Industrial Development Authority, Amoco Oil Co Ser 1993
(AMT), 4.25% due 1/3/94........................................................ 4.25 6,000,000
Gulf Coast Waste Disposal Authority,
4,600 Amoco Oil Co Ser 1991 (AMT), 2.75% due 4/1/94.................................... 2.75 4,600,000
10,500 Exxon Corp Ser 1989, 4.75% due 1/3/94............................................ 4.75 10,500,000
5,000 Harris County, Toll Road Unlimited Tax Sub Lien Ser 1985 E,
3.00% due 1/6/94............................................................... 3.00 5,000,000
12,440 Hockley County Industrial Development Corporation,
Amoco Oil Co Ser 1985, 2.65% due 5/1/94........................................ 2.65 12,440,000
</TABLE>
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1993 (unaudited) (continued)
===================================================================================================================================
<CAPTION>
Principal
Amount (in Current
thousands) Yield Value
- --------- ----- -----
<C> <S> <C> <C>
UTAH
$27,500 Intermountain Power Agency, 1985 Ser E & F, 2.55% due 3/15/94.................... 2.55 % $ 27,500,000
21,352 Variable Rate Trust Certificates XVII, Holding: Intermountain Power
Agency Refg 1985 Ser G, H & I (Crossover Refunded),
3.375% due 1/6/94.............................................................. 3.375 21,352,500
VIRGINIA
Richmond Redevelopment & Housing Authority,
7,000 Tobacco Row 1989 Ser B-4 (AMT), 3.10% due 1/5/94................................ 3.10 7,000,000
5,710 Tobacco Row 1989 Ser B-7 (AMT), 3.10% due 1/5/94................................ 3.10 5,710,000
11,000 Virginia Education Loan Authority, Ser 1993 H (AMT),
2.85% due 2/24/94.............................................................. 2.85 11,000,000
WASHINGTON
100 Washington Health Care Facilities Authority, Fred Hutchinson Cancer
Hospital Ser A, 4.50% due 1/3/94............................................... 4.50 100,000
4,500 Washington Student Loan Finance Association, Ser 1988 A
(AMT), 3.10% due 1/6/94........................................................ 3.10 4,500,000
14,000 Washington Suburban Sanitary District, 1993 Ser BANs,
3.10% due 1/5/94............................................................... 3.10 14,000,000
WEST VIRGINIA
4,700 Marion County, Grant Town Cogeneration Ser 1990 D (AMT),
3.20% due 1/5/94............................................................... 3.20 4,700,000
WISCONSIN
10,000 Wisconsin Health Facilities Authority, Franciscan Health
Care Inc Ser 1985 A-1, 3.35% due 1/5/94........................................ 3.35 10,000,000
--------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL
OBLIGATIONS (AMORTIZED COST $1,004,444,000)................................. 1,004,444,000
--------------
Yield to
Maturity
on Date of
Purchase
--------
TAX-EXEMPT COMMERCIAL PAPER (13.9%)
COLORADO
Denver, Airport
6,000 Subser D (AMT), 2.75% due 2/18/94............................................... 2.75 % 6,000,000
4,500 Subser B (AMT), 2.65% due 3/8/94................................................ 2.65 4,500,000
3,810 Subser D (AMT), 2.30% due 3/8/94................................................ 2.30 3,810,000
4,000 Subser E (AMT), 2.45% due 4/12/94............................................... 2.45 4,000,000
FLORIDA
8,800 Jacksonville Electric Authority, 2.50% due 2/25/94............................... 2.50 8,800,000
8,000 Lee County Hospital Board of Directors, Lee Memorial Hospital
Ser 1992 B, 2.65% due 3/9/94................................................... 2.65 8,000,000
5,200 Orange County, Health Facilities Authority, Pooled Ser 1985
(MBIA Insured), 2.70% due 1/12/94.............................................. 2.70 5,200,000
GEORGIA
9,900 Georgia Municipal Gas Authority, Ser B, 2.55% due 3/14/94........................ 2.55 9,900,000
</TABLE>
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1993 (unaudited) (continued)
===================================================================================================================================
<CAPTION>
Yield to
Principal Maturity
Amount (in on Date of
thousands) Purchase Value
- --------- ----------- -----
<C> <S> <C> <C>
LOUISIANA
$25,000 St James Parish, Texaco Inc Ser 1988 B, 2.60% due 2/17/94........................ 2.60% $ 25,000,000
NEW HAMPSHIRE
10,000 New Hampshire Industrial Development Authority, New England
Power Co 1990 Ser A (AMT), 2.45% due 4/12/94................................... 2.45 10,000,000
NEW YORK
7,750 New York State, Ser M&P BANs, 2.25% due 2/14/94.................................. 2.25 7,750,000
NORTH CAROLINA
4,500 North Carolina Municipal Power Agency #1, Catawaba Electric,
2.50% due 2/18/94.............................................................. 2.50 4,500,000
OHIO
8,000 Ohio Water Development Authority, Duquesne Light Co Ser 1988
(AMT), 2.75% due 1/25/94....................................................... 2.75 8,000,000
PENNSYLVANIA
Pennsylvania Economic Development Financing Authority,
4,000 Inter-Power/AhlCon Partners 1992 Ser A (AMT),
2.65% due 1/24/94............................................................. 2.65 4,000,000
6,500 2.65% due 3/11/94.............................................................. 2.65 6,500,000
8,900 2.65% due 3/15/94.............................................................. 2.65 8,900,000
11,100 Venango Industrial Development Authority, Scrubgrass Ser 1990 B
(AMT), 2.45% due 4/11/94....................................................... 2.45 11,100,000
PUERTO RICO
1,000 Puerto Rico Industrial Medical Higher Education & Environmental
Pollution Control Facilities Financing Authority, Inter American
University Ser 1988, 2.60% due 2/8/94......................................... 2.60 1,000,000
TEXAS
Lower Colorado River Authority,
10,000 Ser B, 2.55% due 3/17/94....................................................... 2.55 10,000,000
1,000 Ser B, 2.40% due 3/17/94....................................................... 2.40 1,000,000
10,000 Ser C, 2.25% due 3/22/94....................................................... 2.25 10,000,000
6,000 Texas Municipal Power Agency, 2.50% due 2/23/94.................................. 2.50 6,000,000
10,000 Texas Public Finance Authority, Ser 1993 A, 2.60% due 2/23/94.................... 2.60 10,000,000
10,000 University of Texas, Ser A, 2.55% due 3/10/94.................................... 2.55 10,000,000
UTAH
5,000 Intermountain Power Agency, 1985 Ser F, 2.40% due 11/27/94....................... 2.40 5,000,000
7,000 Tooele County, Union Pacific Corp Ser A (AMT), 2.70% due 2/15/94................. 2.70 7,000,000
-------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER
(AMORTIZED COST $195,960,000)................................................ 195,960,000
--------------
</TABLE>
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1993 (unaudited) (continued)
===================================================================================================================================
<CAPTION>
Yield to
Principal Maturity
Amount (in on Date of
thousands) Purchase Value
- --------- ----------- -----
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL NOTES (14.3%)
CALIFORNIA
$23,000 Alameda County, 1993-1994 TRANs, dtd 7/08/93 3.25% due 7/29/94................... 2.75% $ 23,064,011
California School Cash Reserve Program Authority,
7,610 1993 Ser A, dtd 5/28/93 2.85% due 6/21/94........................................ 2.85 7,610,000
60,000 1993 Pool Ser A, dtd 7/2/93 3.40% due 7/5/94..................................... 2.90 60,147,498
25,000 California Statewide Communities Development Authority,
1993 Pool Ser A, dtd 7/1/93 3.25% due 6/30/94.................................. 2.80 25,053,901
10,000 Los Angeles County, 1993-94 TRANs, dtd 7/1/93 3.00% due 6/30/94.................. 2.90 10,004,590
CONNECTICUT
15,000 Connecticut, Special Assessment Unemployment Compensation
1993 Ser C (FGIC Insured), dtd 9/23/93 3.00% due 7/1/94........................ 2.60 15,014,396
IDAHO
15,000 Idaho, Ser 1993 TANs, dtd 7/1/93 3.00% due 6/30/94............................... 2.60 15,028,780
IOWA
10,000 Iowa, Ser 1993 A TRANs, dtd 7/19/93 3.25% due 6/30/94............................ 3.00 10,011,930
OKLAHOMA
15,000 Oklahoma School District & County Cash Management Trust,
1993 Ser COPs, dtd 7/1/93 3.18% due 6/29/94.................................... 2.75 15,030,770
RHODE ISLAND
20,000 Rhode Island and Providence Plantations, TANs, dtd 7/1/93
3.25% due 6/30/94.............................................................. 2.70 20,052,760
---------------
TOTAL SHORT-TERM MUNICIPAL NOTES
(AMORTIZED COST $201,018,636).............................................. 201,018,636
--------------
TOTAL INVESTMENTS (AMORTIZED COST $1,401,422,636) (A)............................ 99.7% 1,401,422,636
----- --------------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES................................... 0.3 4,663,591
----- --------------
NET ASSETS....................................................................... 100.0% $1,406,086,227
===== ==============
<FN>
- ------------
* Due date reflects next rate change.
(a) Cost is the same for federal income tax purposes.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL STATEMENTS
===============================================================================
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1993 (unaudited)
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $1,401,422,636) (Note 1)............... $1,401,422,636
Cash.................................................... 25,286,641
Interest receivable..................................... 7,989,674
Prepaid expenses........................................ 65,151
--------------
TOTAL ASSETS........................................ 1,434,764,102
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased.............. 17,070,801
Investments purchased.................................. 10,814,451
Investment management fee payable
(Note 2)............................................... 526,566
Plan of distribution fee payable (Note 3)............... 126,214
Accrued expenses (Note 4)............................... 139,843
--------------
TOTAL LIABILITIES................................... 28,677,875
--------------
NET ASSETS:
Paid in capital......................................... 1,406,143,550
Accumulated realized loss on investments--net........... (54,373)
Distributions in excess of net investment
income................................................. (2,950)
--------------
NET ASSETS.......................................... $1,406,086,227
==============
NET ASSET VALUE PER SHARE, 1,406,143,550
shares outstanding (unlimited shares
authorized of $.01 par value).......................... $1.00
=====
<CAPTION>
STATEMENT OF OPERATIONS For the six
months ended December 31, 1993 (unaudited)
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME........................................ $18,443,779
-----------
EXPENSES
Investment management fee (Note 2).................... 3,042,137
Plan of distribution fee (Note 3)..................... 725,183
Transfer agent fees and expenses
(Note 4)............................................. 172,308
Registration fees..................................... 75,375
Professional fees..................................... 32,216
Custodian fees........................................ 25,718
Trustees' fees and expenses (Note 4).................. 17,481
Shareholder reports and notices....................... 16,194
Other................................................. 10,490
------------
TOTAL EXPENSES...................................... 4,117,102
------------
INVESTMENT INCOME--NET............................. 14,326,677
------------
NET REALIZED GAIN ON INVESTMENTS (NOTE 1)............... 3,189
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......................... $14,329,866
===========
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
six months ended For the
December 31, 1993 year ended
(unaudited) June 30, 1993
---------------- -------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income--net.................................................... $ 14,326,677 $ 29,439,169
Realized gain on investments--net......................................... 3,189 15,900
-------------- ---------------
Net increase in net assets resulting from operations..................... 14,329,866 29,455,069
Dividends to shareholders from investment income--net...................... (14,330,895) (29,438,000)
Transactions in shares of beneficial interest--net increase (Note 6)....... 51,068,539 50,865,160
-------------- ---------------
Total increase........................................................... 51,067,510 50,882,229
NET ASSETS:
Beginning of period........................................................ 1,355,018,717 1,304,136,488
-------------- --------------
END OF PERIOD (including distributions in excess of net investment
income of $2,950 and undistributed net investment income of
$1,268, respectively)..................................................... $1,406,086,227 $1,355,018,717
============== ==============
See Notes to Financial Statements
</TABLE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited)
===============================================================================
1. ORGANIZATION AND ACCOUNTING POLICIES--Active Assets Tax-Free Trust (the
"Trust") was organized as a Massachusetts business trust on March 30, 1981 and
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as a diversified, open-end management investment company. The Trust commenced
operations on July 7, 1981.
The following is a summary of significant accounting policies:
A. Valuation of Investments--Portfolio securities are valued at
amortized cost, which approximates market value.
B. Accounting for Investments--Security transactions are accounted for
on the trade date (date the order to buy or sell is executed). In computing net
investment income, the Trust amortizes any premiums and original issue
discounts and accrues interest income daily on securities owned. Realized gains
and losses on security transactions are determined on the identified cost
method.
C. Federal Income Tax Status--It is the Trust'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 non-taxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
D. Dividends and Distributions to Shareholders--Dividends and
distributions to shareholders are recorded by the Trust as of the close of the
Trust's business day.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc. (the "Investment
Manager"), the Trust pays its Investment Manager a management fee, calculated
daily and payable monthly, by applying the following annual rates to the net
assets of the Trust determined as of the close of the Trust's business day:
0.50% of the portion of the daily net assets not exceeding $500 million; 0.425%
of the portion of the daily net assets exceeding $500 million but not exceeding
$750 million; 0.375% of the portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.35% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% of the
portion of the daily net assets exceeding $1.5 billion but not exceeding $2
billion; 0.30% of the portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.275% of the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3 billion; and 0.25% of the portion
of the daily net assets exceeding $3 billion. Under the terms of the Agreement,
in addition to managing the Trust's investments, the Investment Manager
maintains certain of the Trust's books and records and furnishes office space
and facilities, equipment, clerical, bookkeeping and certain legal services,
and pays the salaries of all personnel, including officers of the Trust 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
Trust.
3. PLAN OF DISTRIBUTION--Shares of beneficial interest of the Trust are
distributed by Dean Witter Distributors Inc. (the "Distributor"), an affiliate
of the Investment Manager. The Trust has entered into a Plan of Distribution
(the "Plan"), pursuant to Rule 12b-1 under the Act, with the Distributor
whereby the Distributor finances certain activities in connection with the
distribution of shares of the Trust.
Under the Plan, the Distributor bears the expense of all promotional
and distribution related activities on behalf of the Trust, except for expenses
that the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor under the Plan:
(1) compensation to sales representatives of the Distributor and other broker-
dealers; (2) sales incen-
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
===============================================================================
tives and bonuses to sales representatives and to marketing personnel in
connection with promoting sales of shares; (3) expenses incurred in connection
with promoting sales of shares; (4) preparing and distributing sales
literature; and (5) providing advertising and promotional activities, including
direct mail solicitation and television, radio, newspaper, magazine and other
media advertisements.
The Trust is authorized to reimburse the Distributor for specific
expenses the Distributor incurs or plans to incur in promoting the distribution
of the Trust's shares. The amount of each monthly reimbursement payment may in
no event exceed an amount equal to a payment at the average annual rate of .15
of 1% of the Trust's average daily net assets during the month. For the six
months ended December 31, 1993, the distribution fee established by the
Trustees and accrued was at the average annual rate of .10 of 1%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and the proceeds from sales/maturities of portfolio securities for
the six months ended December 31, 1993 aggregated $1,143,109,050 and
$1,267,212,412, respectively.
On April 1, 1991 the Trust established an unfunded noncontributory
defined benefit pension plan covering all independent Trustees of the Trust who
will have served as an independent Trustee 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 cost for
the six months ended December 31, 1993, included in Trustees' fees and expenses
in the Statement of Operations, amounted to $5,141. At December 31, 1993, the
Trust had an accrued pension liability of $38,325 which is included in accrued
expenses in the Statement of Assets and Liabilities.
Dean Witter Trust Company ("DWTC"), an affiliate of the Investment
Manager and the Distributor, is the Trust's transfer agent. During the six
months ended December 31, 1993, the Trust incurred transfer agent fees and
expenses of $172,308 with DWTC, of which $30,775 was payable at December 31,
1993.
5. FEDERAL INCOME TAX STATUS--During the year ended June 30, 1993, the Trust
utilized approximately $16,000 of its net capital loss carryovers. At June 30,
1993, the Trust had net capital loss carryovers of approximately $57,000 of
which approximately $10,000 will be available through June 30, 1994 and
approximately $47,000 available through June 30, 2000. To the extent that this
capital loss carryover is used to offset future capital gains, it is probable
that the gains so offset will not be distributed to shareholders. For the six
months ended December 31, 1993 the Trust had approximately $3,200 in net
realized gains.
6. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial
interest, at $1.00 per share, were as follows:
For the For the year
six months ended ended
December 31, 1993 June 30, 1993
----------------- --------------
Shares sold.................................. 2,836,662,652 5,085,457,781
Shares issued in reinvestment of dividends... 14,330,895 29,438,000
------------- --------------
2,850,993,547 5,114,895,781
Shares repurchased........................... (2,799,925,008) (5,064,030,621)
------------- -------------
Net increase in shares outstanding........... 51,068,539 50,865,160
============= ============
<PAGE>
<TABLE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL HIGHLIGHTS (unaudited)
===================================================================================================================================
Selected data and ratios for a share of beneficial interest outstanding throughout each period:
<CAPTION>
For the six For the year ended June 30,
months ended -----------------------------------------------------------------
December 31, 1993 1993 1992 1991 1990 1989
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
Investment income--net............ 0.010 0.021 0.033 0.047 0.054 0.056
Less dividends from net
investment income................ (0.010) (0.021) (0.033) (0.047) (0.054) (0.056)
------ ------ ------ ------ ------ ------
Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN............ 1.00%(1) 2.15% 3.38% 4.84% 5.57% 5.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................... $1,406,086 $1,355,019 $1,304,136 $1,341,515 $1,174,460 $1,111,861
Ratio of expenses to average
net assets....................... 0.57%(2) 0.57% 0.59% 0.60% 0.56% 0.58%
Ratio of net investment income to
average net assets............... 1.98%(2) 2.13% 3.30% 4.71% 5.44% 5.66%
- ------------
<FN>
(1) Not annualized
(2) Annualized
See Notes to Financial Statements
</TABLE>
<PAGE>
TRUSTEES
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Mr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Albert T. Sommers
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Katherine H. Stromberg
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center--Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the
records of the Trust without examination by the independent accountants
and accordingly they do not express an opinion thereon.
This report is submitted for the general information of shareholders of
the Trust. For more detailed information about the Trust, its officers and
trustees, fees, expenses and other pertinent information, please see
the prospectus of the Trust.
This report is not authorized for distribution to prospective investors
in the Trust unless preceded or accompanied by an effective prospectus.
ACTIVE
ASSETS
ACCOUNT
ACTIVE ASSETS
TAX-FREE TRUST
SEMIANNUAL REPORT
DECEMBER 31, 1993
