<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- -----------------------------------------------------------------------------
Calendar year 1994 was challenging for the fixed-income markets, including
the tax-free money sector. Throughout the year, the overriding story was the
Federal Reserve Board's moves to tighten monetary policy. Those steps
translated into an increase in the federal-funds rate from 3.00 percent to
5.50 percent which, in turn, triggered large increases in short-term
municipal rates. While seasonal scarcity pushed rates lower in January and
July, the overall trend was toward higher yields.
Although rates for variable rate demand obligations (VRDOs) with daily and
weekly rate changes fluctuated in response to the usual seasonal changes in
supply and demand, the obvious trend was toward higher levels. Weekly VRDO
yields rose from an average of 1.90 percent in January to 2.40 percent in
June and to 4.25 percent in December. For longer-term municipal money market
instruments, the rise in yields proceeded with little interruption. The Bond
Buyer One-Year Note Index rose from 3.75 percent at the end of June to almost
5.00 percent in late December, its highest level since August, 1991 and more
than double the yield of 2.30 percent at the end of 1993.
ORANGE COUNTY
The other defining event for 1994 occurred late in the year when Orange
County, California, and its investment pool filed for bankruptcy protection.
The pool's collapse was caused by the rapid market decline of its leveraged
investment position in volatile derivative securities. The debacle
precipitated concern that other municipal investment pools might have made
similar speculative investments. However, investigation of other municipal
investment practices uncovered only a few instances of limited use of
leverage and derivatives.
Active Assets Tax-Free Trust had no exposure to Orange County or its pool
participants at the time of the declaration of bankruptcy. The failure of the
Orange County investment pool reinforced the continuing need to emphasize
safety and credit quality in the selection of the Trust's investments.
PORTFOLIO MANAGEMENT AND PERFORMANCE
The Trust's annualized yield for the twelve-month period ended December
31, 1994 was 2.38 percent. At the end of December, the Trust had net assets
of $1.4 billion and its portfolio was broadly diversified geographically and
across market sectors. At year-end, 79 percent of the Trust's portfolio was
invested in VRDOs. Tax-exempt commercial paper and municipal notes, the two
other types of securities utilized in the portfolio, comprised 10 percent and
11 percent of the portfolio, respectively.
The Trust's weighted-average maturity was held within a short to moderate
range throughout the year because of rising in interest rates. Even at
mid-year when seasonal factors cause the available supply of investments to
be heavily concentrated among one-year maturities, care was taken to limit
the average maturity to 60 days, well within the 90 day maximum. At the end
of December, the Trust's average maturity was 47 days.
<PAGE>
<PAGE>
LOOKING FORWARD
As we move into 1995, it is widely anticipated that the Federal Reserve
Board will adhere to its anti-inflationary stance by taking additional steps
to tighten monetary policy. The continued bias toward higher short-term
interest rates warrants a cautious approach in the management of the Trust's
portfolio. The average maturity of the Trust's investments will be monitored
closely to minimize exposure to market volatility. As always, we will
maintain our emphasis on quality and liquidity in making investment
selections.
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,
/s/ Charles A. Fiumefreddo
Charles A. Fiumefreddo
Chairman of the Board
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1994 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ----------- ------------- --------------
<S> <C> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS* (77.3%)
ALABAMA
$ 4,000 Birmingham Medical Clinic Board, University of Alabama Health
Services Foundation Ser 1991, 5.95% due 1/3/95 .................. 5.95 % $ 4,000,000
5,800 McIntosh Industrial Development Board, Ciba-Geigy Corp Ser 1986,
6.15% due 1/3/95 ................................................ 6.15 5,800,000
ARIZONA
2,900 Phoenix, Ser 1994-1, 5.85% due 1/3/95 ........................... 5.85 2,900,000
3,725 Phoenix Civic Improvement Corporation, Excise Tax Ser 1994 (MBIA
Insured), 4.30% due 7/1/95 ...................................... 4.30 3,725,000
ARKANSAS
20,000 Crossett, Georgia Pacific Corp Ser 1984, 5.45% due 1/5/95 ...... 5.45 20,000,000
CALIFORNIA
12,000 California Housing Finance Agency, 1994 Ser 2 (AMT), 4.30% due
5/1/95 .......................................................... 4.30 12,000,000
10,000 San Diego County Regional Transportation Commission, Second
Senior Sales Tax 1994 Ser A (FGIC Insured), 5.75% due 1/4/95 ... 5.75 10,000,000
COLORADO
28,000 Arapahoe County, Highway E-470 Ser 1986 F, 3.90% due 2/28/95 ... 3.90 28,000,000
5,000 Colorado Student Obligation Bond Ser 1990 A, (AMT) 5.05% due
1/4/95 .......................................................... 5.05 5,000,000
10,000 Moffat County, Pollution Control Pacificorp Proj (AMBAC
Insured), 6.15% due 1/3/95 ...................................... 6.15 10,000,000
CONNECTICUT
9,000 Connecticut, Economic Recovery Ser B, 5.40% due 1/4/95 ......... 5.40 9,000,000
29,700 Connecticut Development Authority, Connecticut Light & Power Co
1993 A Ser, 5.40% due 1/4/95 .................................... 5.40 29,700,000
Connecticut Housing Finance Authority, 1994
10,000 Subser E-1, 4.40% due 11/15/95 ................................. 4.40 10,000,000
5,000 Subser H-1, 4.30% due 9/1/95 ................................... 4.30 5,000,000
5,000 Subser H-2 (AMT), 4.40% due 9/1/95 ............................. 4.40 5,000,000
10,000 Connecticut Special Assessment, Unemployment Compensation 1993
Ser C (FGIC Insured), dtd 9/23/93 3.85% due 7/1/95 .............. 3.85 10,000,000
DISTRICT OF COLUMBIA
District of Columbia,
24,100 General Fund Recovery Ser 1991 B-1, 6.00% due 1/3/95 .......... 6.00 24,100,000
8,025 Georgetown University Ser 1988 B, 5.55% due 1/4/95 ............ 5.55 8,025,000
FLORIDA
17,000 Dade County, Water & Sewer System Ser 1994 (FGIC Insured), 4.95%
due 1/4/95 ...................................................... 4.95 17,000,000
3,000 Dade County Health Facilities Authority, Miami Childrens Hosp
Ser 1990, 6.05% due 1/3/95 ...................................... 6.05 3,000,000
23,100 Dade County Industrial Development Authority, Dolphins Stadium
Ser 1985 B & C, 5.50% due 1/3/95 ................................ 5.50 23,100,000
6,205 Gulf Breeze, Local Government Ser 1985 B (FGIC Insured), 5.50%
due 1/5/95 ...................................................... 5.50 6,205,000
10,500 Sarasota County Health Facilities Authority, Venice Hospital,
6.05% due 1/3/95 ................................................ 6.05 10,500,000
19,500 Volusia County Health Facilities Authority, Pooled Ser 1985
(FGIC Insured), 5.50% due 1/4/95 ................................ 5.50 19,500,000
</TABLE>
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1994 (unaudited) (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ----------- ------------- --------------
<S> <C> <C> <C>
GEORGIA
$10,000 Albany-Dougherty County Hospital Authority, Phoebe-Putney
Memorial Hospital Ser 1991 (AMBAC Insured), 5.70% due 1/4/95 ... 5.70 % $10,000,000
9,800 Burke County Development Authority, Oglethorpe Power Corp Vogtle
Proj Ser 1993 A, 4.95% due 1/4/95 ............................... 4.95 9,800,000
17,441 Georgia Municipal Association, Pool Ser 1990 COPs (MBIA
Insured), 5.40% due 1/5/95 ...................................... 5.40 17,441,046
HAWAII
Hawaii Department of Budget & Finance,
9,000 Kaiser Permanente Semiannual Tender Ser 1984 B, 3.60% due
3/1/95 .......................................................... 3.60 9,000,000
22,800 Queens Medical Center Ser 1985 B (FGIC Insured), 5.50% due
1/4/95 .......................................................... 5.50 22,800,000
IDAHO
20,000 Idaho Health Facilities Authority, Pooled Ser 1985, 5.50% due
1/3/95 .......................................................... 5.50 20,000,000
ILLINOIS
Chicago,
4,000 Gas Supply People's Gas, Light, & Coke Ser 1993 B (AMT), 4.95%
due 6/1/95 ...................................................... 4.95 4,000,000
15,000 Tender Notes Ser 1994 A, 4.15% due 7/19/95 ..................... 4.15 15,000,000
5,000 Chicago O'Hare International Airport 2nd Lien Ser 1994 B (AMT),
5.60% due 1/4/95 ................................................ 5.60 5,000,000
Illinois Health Facilities Authority,
5,150 The Carle Foundation Ser 1992 (FGIC Insured), 5.40% due 1/4/95 5.40 5,150,000
20,370 Franciscan Sisters Health Care Corp Ser 1992, 6.00% due 1/3/95 6.00 20,370,000
9,000 Gottlieb Health Resources Inc Ser 1990, 3.85% due 2/9/95 ...... 3.85 9,000,000
3,950 LaGrange Memorial Health System Ser 1990, 6.00% due 1/3/95 .... 6.00 3,950,000
22,500 Lutheran General Health Care System Ser 1985 B, 3.75% due
1/3/95 .......................................................... 3.75 22,500,000
10,000 Parkside Development Corp Ser 1991, 5.45% due 1/4/95 .......... 5.45 10,000,000
13,500 Resurrection Health Care System Ser 1993, 5.90% due 1/3/95 .... 5.90 13,500,000
INDIANA
13,300 Indiana Hospital Equipment Financing Authority, Ser 1985 (MBIA
Insured), 5.40% due 1/4/95 ...................................... 5.40 13,300,000
6,760 Indianapolis, Resource Recovery Ogden Martin System Inc Ser 1987
(AMT), 6.10% due 1/3/95 ......................................... 6.10 6,760,000
KENTUCKY
7,000 Jamestown, Union Underwear Co, 5.40% due 1/4/95 ................. 5.40 7,000,000
20,000 Kentucky Pollution Abatement & Water Resources Authority, Toyota
Motor Manufacturers USA Inc Ser 1986 (AMT), 5.95% due 1/3/95 ... 5.95 20,000,000
LOUISIANA
20,000 Louisiana Offshore Terminal Authority, LOOP Inc 1991 Ser A,
5.45% due 1/4/95 ................................................ 5.45 20,000,000
24,000 New Orleans Aviation Board, Ser 1993 B (MBIA Insured), 5.40% due
1/4/95 .......................................................... 5.40 24,000,000
</TABLE>
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1994 (unaudited) (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ----------- ------------- --------------
<S> <C> <C> <C>
MAINE
$ 8,900 Biddeford, Maine Energy Recovery Co Ser 1985, 3.70% due 1/3/95 . 3.70 % $ 8,900,000
MARYLAND
7,650 Maryland Energy Financing Administration, Baltimore Ferst Ltd
Partnership Ser 1991 (AMT), 6.00% due 1/3/95 .................... 6.00 7,650,000
MASSACHUSETTS
4,800 Massachusetts, Dedicated Income Tax Ser 1990 E, 5.85% due 1/3/95 5.85 4,800,000
5,000 Massachusetts Bay Transportation Authority, 1984 Ser A, 3.75%
due 3/1/95 ...................................................... 3.75 5,000,000
Massachusetts Health & Educational Facilities Authority,
6,700 Capital Asset Prog Ser B (MBIA Insured), 5.20% due 1/3/95 ..... 5.20 6,700,000
14,000 Harvard University Ser 1985 I, 5.00% due 1/5/95 ................ 5.00 14,000,000
6,100 Massachusetts Municipal Wholesale Electric Company, Power Supply
System 1994 Ser C, 5.25% due 1/4/95 ............................. 5.25 6,100,000
MICHIGAN
7,600 University of Michigan, Hospital Ser 1992 A, 6.15% due 1/3/95 .. 6.15 7,600,000
MINNESOTA
3,900 Beltrami County, Environmental Northwood Panelboard Co Ser 1991,
6.00% due 1/3/95 ................................................ 6.00 3,900,000
12,000 University of Minnesota, Ser 1985 F, 3.60% due 2/1/95 .......... 3.60 12,000,000
MISSOURI
Missouri Economic Development Export & Infrastructure Board,
10,000 Advance Fdg Ser 1994 B, 3.90% due 8/1/95 ....................... 3.90 10,000,000
5,000 Advance Fdg Ser 1994 C, 3.95% due 8/1/95 ....................... 3.95 5,000,000
10,000 Missouri Environmental Improvement & Energy Resources Authority,
Noranda Aluminum Inc Ser 1982, 5.40% due 1/4/95 ................. 5.40 10,000,000
Missouri Health & Educational Facilities Authority,
13,500 Missouri Baptist Medical Center Ser 1990 B, 3.60% due 2/1/95 .. 3.60 13,500,000
10,000 Sisters of Mercy Health System St Louis Inc Ser 1989 A, 5.20%
due 1/5/95 ...................................................... 5.20 10,000,000
9,800 St Anthony's Medical Center Ser 1989 A, 5.55% due 1/3/95 ...... 5.55 9,800,000
NEBRASKA
Nebraska Higher Education Loan Program Inc,
10,000 1985 Ser E (MBIA Insured), 5.45% due 1/4/95 .................... 5.45 10,000,000
8,600 1986 Ser C (AMT), 5.50% due 1/4/95 ............................. 5.50 8,600,000
NEVADA
20,000 Clark County, Airport Sys Refg Ser 1993 A (MBIA Insured), 4.95%
due 1/4/95 ...................................................... 4.95 20,000,000
NEW HAMPSHIRE
2,500 New Hampshire Higher Educational & Health Facilities Authority,
Dartmouth Education Loan Corp Ser 1993 (AMT), 3.75% due 6/1/95 . 3.75 2,500,000
NEW JERSEY
9,800 New Jersey Economic Development Authority, Center For Aging
Inc-Applewood Estates Ser 1989, 5.45% due 1/5/95 ................ 5.45 9,800,000
</TABLE>
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1994 (unaudited) (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ----------- ------------- --------------
<S> <C> <C> <C>
NEW YORK
$ 3,700 New York City Industrial Development Agency, The Calhoun School
Inc Ser 1990, 5.20% due 1/5/95 .................................. 5.20 % $ 3,700,000
3,400 New York State Environmental Facilities Corporation, OFS Equity
of Huntington Inc Ser 1989 (AMT), 6.10% due 1/3/95 .............. 6.10 3,400,000
New York State Power Authority, Tender Notes
7,000 3.80% due 3/1/95 ............................................... 3.80 7,000,000
4,800 3.80% due 3/1/95 ............................................... 3.80 4,800,000
NORTH CAROLINA
North Carolina Medical Care Commission, Duke University Hosp
16,200 Ser 1985 B, 5.45% due 1/5/95 ................................... 5.45 16,200,000
10,785 Ser 1985 C, 5.45% due 1/5/95 ................................... 5.45 10,785,000
21,700 Person County Industrial Facilities & Pollution Control
Financing Authority, Carolina Power & Light Co Ser 1992 A, 5.55%
due 1/4/95 ...................................................... 5.55 21,700,000
OKLAHOMA
12,000 Oklahoma Water Resources Board, State Loan Prog Ser 1994 A,
3.85% due 3/1/95 ................................................ 3.85 12,000,000
OREGON
10,000 Oregon, Veterans' Welfare Ser 73 H, 5.60% due 1/4/95 ........... 5.60 10,000,000
PENNSYLVANIA
10,000 Allegheny County Hospital Development Authority, Health
Education & Research Corp Ser 1988 B, 5.40% due 1/4/95 ......... 5.40 10,000,000
10,000 Beaver County Industrial Development Authority, Toledo Edison Co
1992 Ser E, 3.85% due 2/7/95 .................................... 3.85 10,000,000
15,000 Emmaus General Authority, Local Govt Ser 1989 B Subser B-5,
5.70% due 1/4/95 ................................................ 5.70 15,000,000
10,500 Pennsylvania Energy Development Authority, Clarion Co Piney
Creek Ser A (AMT), 5.75% due 1/4/95 ............................. 5.75 10,500,000
8,300 Washington County Authority, Pooled Ser 1985 A-1 Subser B, 5.55%
due 1/4/95 ...................................................... 5.55 8,300,000
SOUTH CAROLINA
11,000 York County, North Carolina Electric Membership Corp Pooled Ser
1984 N-3 (NRU-CFC Gtd), 3.75% due 3/15/95 ....................... 3.75 11,000,000
SOUTH DAKOTA
10,000 South Dakota Housing Development Authority, Homeownership Mtge
1994 Ser H (AMT), 4.95% due 12/13/95 ............................ 4.95 10,000,000
TENNESSEE
10,000 Tennessee, Ser 1994 B BANs, 5.50% due 1/4/95 .................... 5.50 10,000,000
TEXAS
9,700 Gulf Coast Industrial Development Authority, Amoco Oil Co Ser
1993 (AMT), 5.65% due 1/3/95 .................................... 5.65 9,700,000
Gulf Coast Waste Disposal Authority, Amoco Oil Co ...............
5,700 Ser 1991 (AMT), 3.95% due 4/1/95 ............................... 3.95 5,701,383
9,100 Ser 1992, 6.15% due 1/3/95 ..................................... 6.15 9,100,000
</TABLE>
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1994 (unaudited) (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ----------- ------------- --------------
<S> <C> <C> <C>
Harris County, Toll Road Unlimited Tax Sub Lien
$ 9,900 Ser 1985 B, 5.75% due 1/5/95 ................................... 5.75 % $ 9,900,000
6,400 Ser 1985 E, 5.75% due 1/5/95 ................................... 5.75 6,400,000
12,000 Ser 1994 B, 5.40% due 1/4/95 ................................... 5.40 12,000,000
10,000 Ser 1994 C, 5.40% due 1/4/95 ................................... 5.40 10,000,000
8,000 Ser 1994 E, 5.40% due 1/4/95 ................................... 5.40 8,000,000
10,000 Harris County Health Facilities Development Corp, Methodist
Hospital Series 1994, 5.85% due 1/3/95 .......................... 5.85 10,000,000
UTAH
17,500 Intermountain Power Agency, 1985 Ser E & F, 3.75% due 3/15/95 .. 3.75 17,500,000
10,900 Utah Housing Finance Agency, Single Family Mtge 1994 Ser 2
(AMT), 5.80% due 1/4/95 ......................................... 5.80 10,900,000
VIRGINIA
Richmond Redevelopment & Housing Authority, Tobacco Row 1989
7,000 Ser B-4 (AMT), 5.70% due 1/4/95 ................................ 5.70 7,000,000
8,710 Ser B-7 (AMT), 5.70% due 1/4/95 ................................ 5.70 8,710,000
5,000 Virginia Housing Development Authority, Ser 1993 I (AMT), 3.40%
due 5/11/95 ..................................................... 3.40 5,000,000
WASHINGTON
5,800 Seattle, Municipal Light & Power Ser 1993, 5.50% due 1/4/95 .... 5.50 5,800,000
14,100 Washington Suburban Sanitary District, 1993 Ser BANs, 5.35% due
1/4/95 .......................................................... 5.35 14,100,000
WISCONSIN
10,000 Wisconsin Health Facilities Authority, Franciscan Health Care
Inc Ser 1985 A-1, 5.40% due 1/4/95 .............................. 5.40 10,000,000
--------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (AMORTIZED COST
$1,090,172,429) ................................................................ 1,090,172,429
--------------
<CAPTION>
YIELD TO
MATURITY ON
DATE OF
PURCHASE
------------
TAX-EXEMPT COMMERCIAL PAPER (10.3%)
FLORIDA
5,000 Jacksonville, Ser A, 3.60% due 2/7/95 ........................... 3.60 5,000,000
6,500 Jacksonville Electric Authority, 4.25% due 3/10/95 ............. 4.25 6,500,000
8,000 Lee County Hospital Board of Directors, Lee Memorial
Hospital Ser 1992 B, 4.00% due 2/21/95 .......................... 4.00 8,000,000
GEORGIA
4,000 Burke County Development Authority, Oglethorpe Power Corp
Ser 1992 A, 3.80% due 2/7/95 .................................... 3.80 4,000,000
LOUISIANA
25,000 St James Parish, Texaco Inc Ser 1988 B, 3.95% due 2/9/95 ....... 3.95 25,000,000
MARYLAND
7,700 Baltimore County, Baltimore Gas & Electric Co Ser 1985,
3.75% due 2/1/95 ................................................ 3.75 7,700,000
MICHIGAN
15,000 Michigan Building Authority, Ser 1, 3.80% due 1/26/95 .......... 3.80 15,000,000
</TABLE>
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1994 (unaudited) (continued)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY ON
AMOUNT (IN DATE OF
THOUSANDS) PURCHASE VALUE
- ----------- ------------ --------------
<S> <C> <C> <C>
NEW HAMPSHIRE
$10,000 New Hampshire Business Finance Authority, New England Power Co
1990 Ser A (AMT), 3.75% due 2/22/95 ............................ 3.75 % $ 10,000,000
NEW YORK
14,200 New York City Municipal Water Finance Authority, Ser 1994,
3.75% due 2/8/95 ............................................... 3.75 14,200,000
OHIO
8,000 Ohio Water Development Authority, Duquesne Light Co Ser 1988
(AMT), 4.40% due 3/14/95 ....................................... 4.40 8,000,000
TENNESSEE
10,000 Metropolitan Government of Nashville & Davidson County Health &
Educational Board, Baptist Hospital Inc Ser 1992, 4.20% due
3/13/95 ........................................................ 4.20 10,000,000
TEXAS
10,000 Brazos River Authority, Texas Utilities Electric Co Ser 1994 B
(AMT), 3.95% due 2/13/95 ....................................... 3.95 10,000,000
9,800 Lower Colorado River Authority, Ser C, 3.60% due 2/24/95 ...... 3.60 9,800,000
UTAH
7,000 Tooele County, Union Pacific Corp Ser A (AMT), 3.65% due 2/9/95 3.65 7,000,000
WYOMING
5,000 Lincoln County, Exxon Corp Ser 1987 C (AMT), 3.80% due 1/31/95 3.80 5,000,000
--------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER (AMORTIZED COST $145,200,000) ............. 145,200,000
--------------
SHORT-TERM MUNICIPAL NOTES (11.0%)
CALIFORNIA
12,000 Alameda County, 1994-1995 TRANs, dtd 7/21/94 4.75% due 8/11/95 4.20 12,038,476
20,000 California School Cash Reserve Program Authority, 1994 Pool Ser
A, dtd 7/5/94 4.50% due 7/5/95 ................................. 3.75 20,073,584
25,000 California Statewide Communities Development Authority, 1994
Ser A TRANs, dtd 7/6/94 4.50% due 7/17/95 ...................... 3.65 25,111,112
13,000 Los Angeles County Local Educational Agencies, Pooled 1994-95
Ser A TRANs, dtd 7/7/94 4.50% due 7/6/95 ....................... 3.75 13,048,086
ILLINOIS
Illinois GO Certificates Ser 1994, dtd 8/24/94
10,000 4.75% due 6/15/95 ............................................. 3.97 10,030,781
13,700 4.75% due 5/15/95 ............................................. 4.05 13,738,461
INDIANA
25,000 Indiana Bond Bank, Advance Funding Notes, Ser 1994 A-2, dtd
1/18/94 3.03% due 1/17/95 ...................................... 2.75 25,003,163
10,850 Indianapolis, Local Public Improvement Bond Bank Notes Ser 1994
E, dtd 12/21/94 5.25% due 7/14/95 .............................. 4.851 10,872,500
</TABLE>
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
PORTFOLIO OF INVESTMENTS December 31, 1994 (unaudited) (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY ON
AMOUNT (IN DATE OF
THOUSANDS) PURCHASE VALUE
<S> <C> <C> <C>
- ----------- ------------ --------------
IOWA
$25,000 Iowa School Corporations, Warrant Certificates Ser A 1994 (CGIC
Insured), dtd 6/29/94 4.25% due 7/17/95 ....................... 3.60 % $ 25,084,913
--------------
TOTAL SHORT-TERM MUNICIPAL NOTES (AMORTIZED COST $155,001,076) .............. 155,001,076
--------------
TOTAL INVESTMENTS (AMORTIZED COST $1,390,373,505) (A) ......... 98.6% 1,390,373,505
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ............... 1.4 19,495,513
-------- ---------------
NET ASSETS ....................................................100.0% $1,409,869,018
======== ===============
<FN>
AMT Alternative Minimum Tax.
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
TRANs Tax and Revenue Anticipation Notes.
* Due date reflects next rate change.
(a) Cost is the same for federal income tax purposes.
See Notes to Financial Statements
</TABLE>
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $1,390,373,505) .......... $1,390,373,505
Cash ...................................... 430,102
Receivable for:
Investments sold ......................... 10,000,000
Interest ................................. 9,852,073
Prepaid expenses and other assets ........ 99,178
--------------
TOTAL ASSETS ............................ 1,410,754,858
--------------
LIABILITIES:
Payable for: ..............................
Investment management fee ................ 516,655
Plan of distribution fee ................. 124,246
Shares of beneficial interest repurchased 94,544
Accrued expenses .......................... 150,395
--------------
TOTAL LIABILITIES ....................... 885,840
--------------
NET ASSETS:
Paid-in-capital ........................... 1,409,937,184
Accumulated undistributed net investment
income ................................... 1,415
Accumulated net realized loss ............. (69,581)
NET ASSETS .............................. $1,409,869,018
==============
NET ASSET VALUE PER SHARE, 1,409,937,183
shares outstanding (unlimited shares
authorized of $.01 par value) ........... $1.00
==============
</TABLE>
STATEMENT OF OPERATIONS For the six months
ended December 31, 1994 (unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ................. $24,425,915
-------------
EXPENSES
Investment management fee ..... 3,109,085
Plan of distribution fee ...... 745,197
Transfer agent fees and
expenses ..................... 184,088
Registration fees ............. 37,849
Custodian fees ................ 37,802
Professional fees ............. 33,543
Shareholder reports and notices 23,437
Trustees' fees and expenses ... 15,389
Other ......................... 10,155
-------------
TOTAL EXPENSES ............... 4,196,545
-------------
NET INVESTMENT INCOME AND NET
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .. $20,229,370
=============
</TABLE>
<PAGE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
DECEMBER 31, 1994 ENDED JUNE 30,
(UNAUDITED) 1994
----------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations: ...................................................
Net investment income ........................................ $ 20,229,370 $ 29,143,761
Net realized loss ............................................ -- (12,019)
----------------- ---------------
Net increase ................................................ 20,229,370 29,131,742
----------------- ---------------
Dividends to shareholders from net investment income .......... (20,228,311) (29,144,673)
FOR THE SIX
MONTHS ENDED FOR THE YEAR
DECEMBER 31, 1994 ENDED JUNE 30,
(UNAUDITED) 1994
----------------- ---------------
Net increase (decrease) from transactions in shares of
beneficial interest ........................................... (6,432,853) 61,295,026
----------------- ---------------
Total increase (decrease) ................................... (6,431,794) 61,282,095
NET ASSETS:
Beginning of period ........................................... 1,416,300,812 1,355,018,717
----------------- ---------------
END OF PERIOD (including undistributed net investment income
of $1,415 and $356, respectively) ........................... $1,409,869,018 $1,416,300,812
================= ===============
</TABLE>
See Notes to Financial Statements
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -----------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Active Assets Tax-Free Trust (the
"Trust") is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified, open-end management investment company. The
Trust was organized as a Massachusetts business trust on March 30, 1981 and
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). Realized gains
and losses on security transactions are determined by the identified cost
method. The Trust amortizes premiums and discounts on securities purchased
over the life of the respective securities. Interest income is accrued daily.
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 nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. Dividends and Distributions to Shareholders -- The Trust records
dividends and distributions to shareholders as of the close of each business
day.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays its Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to the net assets of the
Trust determined as of the close of each business day: 0.50% to the portion
of the daily net assets not exceeding $500 million; 0.425% to the portion of
the daily net assets exceeding $500 million but not exceeding $750 million;
0.375% to the portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.35% to the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.325% to the portion of the daily
net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the
portion of the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.275% to the portion of the daily net assets exceeding $2.5 billion
but not exceeding $3 billion; and 0.25% to 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, 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 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 -- Dean Witter Distributors Inc. (the "Distributor"),
an affiliate of the Investment Manager, is the distributor of the Trust's
shares and, in accordance with a Plan of Distribution (the "Plan") pursuant
to Rule 12b-1 under the Act, finances certain expenses in connection
therewith.
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.
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- -----------------------------------------------------------------------------
The following activities and services may be provided by the Distributor and
other broker-dealers under the Plan: (1) compensation to and expenses of the
Distributor and other broker-dealers; (2) sales incentives and bonuses to
sales representatives and to marketing personnel in connection with promoting
sales of the Trust's shares; (3) expenses incurred in connection with
promoting sales of the Trust's 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 annual rate of 0.15% of the
Trust's average daily net assets during the month. Expenses incurred by the
Distributor pursuant to the Plan in any fiscal year will not be reimbursed by
the Trust through payments accrued in any subsequent fiscal year. For the six
months ended December 31, 1994, the distribution fee was accrued at the
annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales/maturities of portfolio securities for the
six months ended December 31, 1994 aggregated $1,229,107,902 and
$1,298,810,000, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At December 31, 1994, the Trust
had transfer agent fees and expenses payable of approximately $23,000.
The Trust established an unfunded noncontributory defined benefit pension
plan covering all independent Trustees of the Trust who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the six
months ended December 31, 1994, included in Trustees' fees and expenses in
the Statement of Operations amounted to $4,092. At December 31, 1994, the
Trust had an accrued pension liability of $46,903 included in accrued
expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest, at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED JUNE 30,
DECEMBER 31, 1994 1994
----------------- ---------------
<S> <C> <C>
Shares sold ................................... 2,664,715,179 5,847,211,623
Shares issued in reinvestment of dividends ... 20,228,311 29,144,673
----------------- ---------------
2,684,943,490 5,876,356,296
Shares repurchased ............................ (2,691,376,343) (5,815,061,270)
----------------- ---------------
Net increase (decrease) in shares outstanding (6,432,853) 61,295,026
================= ===============
</TABLE>
6. FEDERAL INCOME TAX STATUS -- At June 30, 1994, the Trust had capital loss
carryovers of approximately $47,000 available through June 30, 2000 which may
be used to offset future capital gains to the extent provided by regulations.
Capital losses incurred after October 31 within the taxable year are deemed
to arise on the first day of the Fund's next taxable year. The Trust incurred
and will elect to defer such net capital losses of approximately $12,000
during fiscal 1994.
<PAGE>
<PAGE>
ACTIVE ASSETS TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED JUNE 30,
DECEMBER 31, 1994 ----------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------------- ------ ------ ------ ------ ------
<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
----------------- --------- --------- --------- --------- ---------
Net investment income ....... 0.015 0.020 0.021 0.033 0.047 0.054
Less dividends from net
investment income ........ (0.015) (0.020) (0.021) (0.033) (0.047) (0.054)
----------------- --------- --------- --------- --------- ---------
Net asset value, end of
period .................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
================= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN ..... 1.37%(1) 2.01% 2.15% 3.38% 4.84% 5.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in millions) ............ $1,410 $1,416 $1,355 $1,304 $1,342 $1,174
Ratios to average net assets:
Expenses .................... 0.56%(2) 0.56% 0.57% 0.59% 0.60% 0.56%
Net investment income ....... 2.71%(2) 1.98% 2.13% 3.30% 4.71% 5.44%
<FN>
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
<PAGE>
<PAGE>
TRUSTEES
- -------------------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------
Price Waterhouse LLP
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.
A C T I V E
.............................................................................
A S S E T S ((REGISTERED TRADEMARK))
.............................................................................
A C C O U N T
ACTIVE ASSETS
TAX-FREE TRUST
SEMIANNUAL REPORT
DECEMBER 31, 1994
</TABLE>
