UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-03162

Active Assets Tax-Free Trust
(Exact name of registrant as specified in charter)

1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)

Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)

Registrant's telephone number, including area code: 212-762-4000

Date of fiscal year end: June 30, 2004

Date of reporting period: December 31, 2003

Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Active Assets Tax-Free
Trust performed during the semiannual period. We will provide an overview of the
market conditions, and discuss some of the factors that affected performance
during the reporting period. In addition, this report includes the Fund's
financial statements and a list of Fund investments.

This material must be preceded or accompanied by a prospectus for the fund being
offered. Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that market values
of securities owned by the Fund will decline and, therefore, the value of the
Fund's shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund.

FUND REPORT

For the six-month period ended December 31, 2003

MARKET CONDITIONS

The six months ended December 31, 2003, was a period of record low yields in the
municipal money market. After its latest cut in the federal funds rate target on
June 25, 2003, the Federal Reserve Open Market Committee (the "Fed") indicated
that it intended to remain in an accommodative stance for a considerable period
in an attempt to get the economy back onto a solid footing. The short end of the
tax-free money market yield curve was largely flat through much of the year,
though it inverted in the last quarter of the period as seasonal redemptions
pushed yields for the shortest maturities higher. Yields on municipal money
market paper were highly attractive relative to taxable instruments. Among
one-year maturities the ratio of municipals to taxable yields exceeded 90
percent for much of the year and for overnight paper the ratio at times rose
above 100 percent.

The accommodative monetary policy appeared to be having a positive effect as
corporate profits and overall GDP growth began to show signs of life. As the
year drew to a close, these improvements were reflected in better prospects for
most municipalities, with tax receipts on the rise and the general trend toward
widespread credit downgrades slowing. Many states worked to close budget gaps
through a combination of increased fees and service cuts and one-time measures
such as tobacco bond receipts and long-term refinancing. New York and California
continued to lead the country in both issuance and deficits, with California
experiencing downgrades in its general obligation bond ratings by both Standard
& Poor's and Moody's.

Against this backdrop, the issuance of traditional notes rose considerably in
2003. Rising deficits led many issuers to turn to the capital markets for
temporary borrowing to meet shortfalls in cash flow. Long-term bond issuance
also rose as many states and local issuers moved to lock in low financing rates
for capital expenditures and to refinance higher-cost debt. Overall municipal
issuance for the calendar year 2003 exceeded the record levels of 2002, setting
a new all-time high.

PERFORMANCE ANALYSIS

As of December 31, 2003, Active Assets Tax-Free Trust had net assets of more
than $2,862 million. For the six-month period ended December 31, 2003, the Fund
provided a total return of 0.24 percent. For the seven-day period ended December
31, 2003, the Fund provided an effective annualized yield of 0.65 percent and a
current yield of 0.65 percent, while its 30-day moving average yield for
December was 0.57 percent. Past performance is no guarantee of future results.

The general shape of the yield curve and the very low level of interest rates
reduced incentives for extending the portfolio's maturity structure. As a
result, Active Assets Tax-Free Trust spent the period with an emphasis on the
short-to-intermediate maturity range within the municipal money market. This
approach had the added benefit of positioning the Fund defensively against any
potential increases in interest rates at the short end of the curve. The
uncertain state of the economy also made us largely unwilling to introduce added
interest-rate risk into the Fund's portfolio.

Our general caution was reflected in the Fund's composition. By the end of the
period, the portfolio was comprised of 70 to 75 percent short-term variable rate
paper, with the remainder in short-term tax-exempt commercial paper and fixed
rate notes and bonds. As always, we remained highly selective in our security
selection and thoroughly screened potential purchases to ensure that they met
the Fund's credit criteria.

<Table>
<Caption>
PORTFOLIO COMPOSITION

Variable Rate Municipal Obligations 74.8%
Commercial Paper 13.4
Municipal Notes and Bonds 11.8
</Table>

<Table>
<Caption>
MATURITY SCHEDULE

1-30 Days 74.6%
31-60 Days 6.0
61-90 Days 2.6
91-120 Days 3.1
121+ Days 13.7
</Table>

Subject to change daily. All percentages are as a percentage of total
investments. Provided for informational purposes only and should not be deemed
as a recommendation to buy or sell the securities mentioned. Morgan Stanley is a
full-service securities firm engaged in securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services.

INVESTMENT STRATEGY

1) THE FUND INVESTS IN HIGH QUALITY SHORT-TERM DEBT OBLIGATIONS.

2) IN SELECTING INVESTMENTS, THE FUND'S "INVESTMENT MANAGER," MORGAN STANLEY
INVESTMENT ADVISORS INC., SEEKS TO MAINTAIN THE FUND'S SHARE PRICE AT $1.00.
THE SHARE PRICE REMAINING STABLE AT $1.00 MEANS THAT THE FUND WOULD PRESERVE
THE PRINCIPAL VALUE OF YOUR INVESTMENT.*
- ----------------------------------------------------
* An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED)

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------

Short-Term Variable Rate Municipal Obligations (76.6%)
Alabama
$28,565 University of Alabama, Hospital Ser 2000................. 1.07% 01/08/04 $ 28,565,000
Arizona
20,000 Arizona Board of Regents, Arizona State University Ser
2003 B (Ambac)......................................... 1.06 01/08/04 20,000,000
2,400 Pinal County Industrial Development Authority, Newmont
Mining Co Ser 1984..................................... 1.30 01/02/04 2,400,000
California
1,000 California Health Facilities Financing Authority,
Adventist Health Systems 1998 Ser B (MBIA)............. 1.27 01/02/04 1,000,000
4,300 Golden Empire Schools Financing Authority, Kern High
School District Ser 2001............................... 1.12 01/08/04 4,300,000
Colorado
15,000 Colorado Student Obligation Bond Authority, Ser 1989 A
(Ambac) (AMT).......................................... 1.15 01/08/04 15,000,000
Delaware
14,000 Delaware Economic Development Authority, Delaware Clean
Power Ser 1997 C (AMT)................................. 1.31 01/08/04 14,000,000
District of Columbia
16,000 District of Columbia, George Washington University Ser
1999 C (MBIA).......................................... 1.25 01/08/04 16,000,000
Florida
22,250 Dade County Industrial Development Authority, Dolphins
Stadium Ser 1985 B & C................................. 1.12 01/08/04 22,250,000
8,000 Jacksonville Economic Development Commission, Florida
Proton Therapy Institute Ser 2003 A.................... 1.23 07/01/04 8,000,000
9,800 Jacksonville Electric Authority, Water & Sewer System
2003 Ser B (XLCA)...................................... 1.07 01/08/04 9,800,000
44,150 Orlando-Orange County Expressway Authority,
Ser 2003C3 (FSA) & 2003C4 (FSA)........................ 1.20 01/08/04 44,150,000
20,200 Orlando Utility Commission, Water & Electric Ser 2002
A...................................................... 1.10 01/08/04 20,200,000
18,600 Tampa Bay Water, Utility System Ser 2002 (AMT)........... 1.35 01/08/04 18,600,000
16,840 Volusia County Health Facilities Authority, Pooled
Hospital Loan (FGIC)................................... 1.10 01/08/04 16,840,000
Georgia
21,000 Albany-Dougherty County Hospital Authority, Phoebe Putney
Memorial Hospital Ser 1991 (Ambac)..................... 1.25 01/08/04 21,000,000
47,100 Atlanta, Water & Wastewater Ser 2001 B (FSA)............. 1.22 01/08/04 47,100,000
</Table>

4
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------

$26,285 Burke County Development Authority, Oglethorpe Power Co
Ser 1994 A (FGIC)...................................... 1.15% 01/08/04 $ 26,285,000
13,600 Clayton County Hospital Authority, Southern Regional
Medical Center Ser 1998 B.............................. 1.20 01/08/04 13,600,000
20,000 Metropolitan Atlanta Rapid Transit Authority, Ser 2000
A...................................................... 1.20 01/08/04 20,000,000
45,215 Private Colleges & Universities Authority, Emory
University 2000 Ser B & 2001 Ser B..................... 1.08 01/08/04 45,215,000
Illinois
15,000 Chicago, Ser 2002 B (FGIC)............................... 1.30 01/08/04 15,000,000
Chicago Metropolitan Water Reclamation District,
60,000 2002 Ser A............................................. 1.07 01/08/04 60,000,000
24,000 2002 Ser E............................................. 1.15 01/08/04 24,000,000
30,500 Cook County, Ser 2002 B.................................. 1.28 01/08/04 30,500,000
8,000 Illinois Development Finance Authority, Palos Community
Hospital Ser 1998...................................... 1.25 01/08/04 8,000,000
4,800 Illinois Health Facilities Authority, Northwestern
Memorial Hospital Ser 2002 A........................... 1.30 01/02/04 4,800,000
19,900 Illinois Toll Highway Authority, Refg 1993 Ser B
(MBIA)................................................. 1.07 01/08/04 19,900,000
Indiana
Indiana Health Facilities Financing Authority,
35,000 Ascension Health Ser 2001 A............................ 0.98 07/02/04 35,000,000
11,500 Clarian Health Obligated Group Ser 2003 H.............. 1.10 01/08/04 11,500,000
Kentucky
3,345 Breckinridge County, Kentucky Association of Counties
Leasing Trust 2002 Ser A............................... 1.30 01/02/04 3,345,000
22,500 Kenton County Airport Board, Flight Safety International
Inc Ser 2001 A (AMT)................................... 1.33 01/08/04 22,500,000
Louisiana
2,100 Louisiana Public Facilities Authority, Kenner Hotel Ltd
Ser 1985............................................... 1.26 01/02/04 2,100,000
12,100 New Orleans Aviation Board, Ser 1993 B (MBIA)............ 1.12 01/08/04 12,100,000
Massachusetts
36,250 Massachusetts Bay Transportation Authority, Ser 2000..... 1.10 01/08/04 36,250,000
Massachusetts Health & Educational Facilities Authority,
20,000 Amherst College 2003 Ser H............................. 0.88 06/09/04 20,000,000
20,000 Bentley College Ser K.................................. 1.20 01/08/04 20,000,000
440 Capital Asset Ser D (MBIA)............................. 1.26 01/02/04 440,000
1,500 Wellesley College Ser 1999 G........................... 1.22 01/02/04 1,500,000
22,100 Massachusetts Water Resources Authority,
Multi-Modal Sub 2001 Ser A (FGIC)...................... 1.06 01/08/04 22,100,000
</Table>

5
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------

Michigan
Detroit,
$20,000 Sewage Disposal System Second Lien Ser 2000 E (FGIC)... 1.05% 09/02/04 $ 20,000,000
49,855 Sewage Disposal System Senior Lien Ser 2001 C-1
(FSA).................................................. 1.22 01/08/04 49,855,000
25,000 Detroit, Water Supply System Refg Second Lien Ser 2001-C
(FGIC)................................................. 1.12 01/08/04 25,000,000
29,665 Holt Public Schools, Ser 2002............................ 1.20 01/08/04 29,665,000
21,410 Michigan Housing Development Authority, Rental Housing
2002 Ser B (MBIA)...................................... 1.22 01/08/04 21,410,000
11,000 Oakland University, Ser 2001 (FGIC)...................... 1.25 01/08/04 11,000,000
Minnesota
7,000 Minneapolis, Guthrie Theater on the River Ser 2003 A..... 1.27 01/08/04 7,000,000
6,500 University of Minnesota Regents, Ser 2001A............... 1.28 01/08/04 6,500,000
Mississippi
Perry County,
12,900 Leaf River Forest Products Inc Ser 2002................ 1.22 01/08/04 12,900,000
35,000 Leaf River Forest Products Inc Ser 2003................ 1.10 01/08/04 35,000,000
Missouri
25,000 Lee's Summit, Multifamily Housing Ser 2001 A............. 1.47 01/08/04 25,000,000
38,600 Missouri Health & Educational Facilities Authority,
Stowers Institute Ser 2002 (MBIA)...................... 1.25 01/08/04 38,600,000
Nebraska
25,000 American Public Energy Agency, National Public Gas Agency
2003 Ser A............................................. 1.06 01/08/04 25,000,000
Nevada
Clark County,
9,000 Airport Sub Lien Ser 1999B-1 (AMT)..................... 1.11 01/08/04 9,000,000
30,000 Airport System Sub Lien Ser 2001C (FGIC)............... 1.06 01/08/04 30,000,000
New Hampshire
16,000 New Hampshire Health & Education Facilities Authority,
Dartmouth College Ser 2002............................. 1.20 01/08/04 16,000,000
New Jersey
39,800 New Jersey Turnpike Authority, Ser 1991 D (FGIC)......... 1.07 01/08/04 39,800,000
New York
1,400 Jay Street Development Corporation, Fiscal 2001 Ser
A-3.................................................... 1.08 01/08/04 1,400,000
10,000 Long Island Power Authority, Electric System Ser 2 Subser
2A..................................................... 1.10 01/08/04 10,000,000
900 Nassau County Industrial Development Agency, 1999 Cold
Spring Harbor Laboratory............................... 1.27 01/02/04 900,000
42,800 Triborough Bridge & Tunnel Authority, Ser 2002 F......... 1.25 01/08/04 42,800,000
</Table>

6
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------

North Carolina
$10,800 Charlotte, Fiscal Year 2002 Ser C COPs................... 1.25% 01/08/04 $ 10,800,000
30,000 Charlotte-Mecklenburg Hospital Authority, Health Care
System Ser 1996 C...................................... 1.20 01/08/04 30,000,000
2,900 Durham, Ser 1993A COPs................................... 1.13 01/08/04 2,900,000
12,625 Mecklenburg County, Ser 2001 COPs........................ 1.25 01/08/04 12,625,000
North Carolina,
13,700 Ser 2002 C............................................. 1.06 01/08/04 13,700,000
15,000 Ser 2002 E............................................. 1.10 01/08/04 15,000,000
15,000 Ser 2002 F............................................. 1.05 01/08/04 15,000,000
North Carolina Medical Care Commission,
25,000 Firsthealth of the Carolinas Ser 2002.................. 1.10 01/08/04 25,000,000
35,000 North Carolina Baptist Hospitals Ser 2000.............. 1.13 01/08/04 35,000,000
Ohio
10,000 Cleveland, Airport System Ser 2001 C (FSA)............... 1.25 01/08/04 10,000,000
Oklahoma
Oklahoma Water Resources Board, State Loan Program
8,985 Ser 1995............................................... 0.90 03/01/04 8,985,000
12,620 Ser 1999............................................... 0.95 03/01/04 12,620,000
26,420 Ser 2001............................................... 1.00 04/01/04 26,420,000
Tulsa County Industrial Authority,
10,000 Capital Improvement Ser 2003 A......................... 1.13 05/15/04 10,000,000
5,000 Montereau in Warren Woods Ser 2002 A................... 1.30 01/02/04 5,000,000
Oregon
5,000 Clackamas County Hospital Facility Authority, Legacy
Health System Ser 2003................................. 1.10 01/08/04 5,000,000
45,000 Oregon, Veterans' Welfare Ser 73 G....................... 1.13 01/08/04 45,000,000
Pennsylvania
Pennsylvania Higher Education Assistance Agency,
33,000 Student Loan 1988 Ser B (Ambac) (AMT).................. 1.13 01/08/04 33,000,000
15,000 Student Loan 2001 Ser A (Ambac) (AMT).................. 1.34 01/08/04 15,000,000
6,000 Pennsylvania Higher Educational Facilities Authority,
Carnegie Mellon University Ser 1995 A.................. 1.30 01/02/04 6,000,000
25,000 Pennsylvania Turnpike Commission, 2002 Ser A-2........... 1.15 01/08/04 25,000,000
14,800 Philadelphia, Water & Wastewater Ser 2003 (FSA).......... 1.09 01/08/04 14,800,000
23,300 York General Authority, Harrisburg School District Subser
1996B (Ambac).......................................... 1.25 01/08/04 23,300,000
</Table>

7
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------

Rhode Island
$33,620 Rhode Island Convention Center, Ser 2001................. 1.22% 01/08/04 $ 33,620,000
8,000 Rhode Island Health & Educational Building Corporation,
Brown University 2003 Ser B............................ 1.20 01/08/04 8,000,000
South Carolina
13,100 Florence County, McLeod Regional Medical Center Ser 1985
A (FGIC)............................................... 1.10 01/08/04 13,100,000
24,000 Greenwood County, Fuji Photo Film Inc Ser 2001........... 1.35 01/08/04 24,000,000
21,000 Piedmont Municipal Power Agency,
Electric Refg Ser 1997 A (MBIA)........................ 1.20 01/08/04 21,000,000
Tennessee
6,500 Memphis, Airport Refg Ser 1995 B (AMT)................... 1.18 01/08/04 6,500,000
Metropolitan Government of Nashville & Davidson County
Health & Educational Facilities Board,
10,000 Ensworth School Ser 2002............................... 1.15 01/08/04 10,000,000
21,600 Vanderbilt University 2002 Ser B....................... 1.30 01/02/04 21,600,000
Montgomery County Public Building Authority,
49,825 Pooled Financing Ser 1997 & 1999....................... 1.25 01/08/04 49,825,000
11,000 Pooled Financing Ser 2003.............................. 1.30 01/02/04 11,000,000
Texas
1,400 Bell County Health Facilities Development Corporation,
Scott & White Memorial Hospital Ser 2001-2 (MBIA)...... 1.20 01/02/04 1,400,000
26,100 Brownsville, Utilities System Sub Lien Ser 2001 B
(MBIA)................................................. 1.10 01/08/04 26,100,000
5,440 Harris County Health Facilities Development Corporation,
Methodist Hospital Ser 2002............................ 1.30 01/02/04 5,440,000
19,000 Harris County Industrial Development Corporation, Baytank
Inc Ser 1998........................................... 1.15 01/08/04 19,000,000
16,500 San Antonio, Water System Ser 2003 B (MBIA).............. 1.15 01/08/04 16,500,000
9,300 Texas, Veterans' Housing Assistance Fund II Ser 2003 A
(AMT).................................................. 1.11 01/08/04 9,300,000
31,245 Texas Municipal Gas Corporation, Senior Lien Ser 1998
(FSA).................................................. 1.15 01/08/04 31,245,000
25,000 Texas Turnpike Authority, Central Texas Turnpike System
Ser 2002 B (Ambac)..................................... 1.06 01/08/04 25,000,000
Utah
9,500 Eagle Mountain, Gas & Electric Ser 2001.................. 1.30 01/08/04 9,500,000
Intermountain Power Agency,
30,000 1985 Ser E (Ambac)..................................... 1.05 06/01/04 30,000,000
16,750 1985 Ser E (Ambac)..................................... 0.92 03/15/04 16,750,000
35,900 1985 Ser F (Ambac)..................................... 0.90 03/15/04 35,900,000
</Table>

8
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------

Murray City,
$ 9,400 IHC Health Services Inc Ser 2003 C..................... 1.30% 01/02/04 $ 9,400,000
19,000 IHC Health Services Inc Ser 2003 D..................... 1.33 01/02/04 19,000,000
5,500 Weber County, IHC Health Services Inc Ser 2000C.......... 1.30 01/02/04 5,500,000
Virginia
15,000 Chesapeake Hospital Authority, Chesapeake General
Hospital Ser 2001A..................................... 1.15 01/08/04 15,000,000
Loudoun County Industrial Development Authority,
10,000 Howard Hughes Medical Institute Ser 2003 B............. 1.05 01/08/04 10,000,000
44,100 Howard Hughes Medical Institute Ser 2003 F............. 1.06 01/08/04 44,100,000
Washington
15,000 Port of Seattle, 1997 Ser A (AMT)........................ 1.33 01/08/04 15,000,000
18,800 Washington State, Ser VR-96 A............................ 1.06 01/08/04 18,800,000
Wisconsin
9,500 Brokaw, Wausau Paper Mills Co Ser 1995 (AMT)............. 1.55 01/08/04 9,500,000
Wyoming
1,000 Uinta County, Chevron USA Inc Ser 1993................... 1.30 01/02/04 1,000,000
--------------
Total Short-Term Variable Rate Municipal Obligations
(Cost $2,192,400,000)..................................................... 2,192,400,000
--------------
</Table>

<Table>
<Caption>
YIELD TO
MATURITY
COUPON MATURITY ON DATE OF
RATE DATE PURCHASE
------ -------- ----------

Tax-Exempt Commercial Paper (13.8%)
Alabama
Montgomery County Industrial Development
Board,
16,400 PECO Energy 1994 Ser A................... 0.98% 01/15/04 0.98% 16,400,000
13,000 PECO Energy 1994 Ser A................... 1.05 02/23/04 1.05 13,000,000
Colorado
7,500 Regional Transportation District, Sub Lien
Sales Tax Ser 2001 A..................... 1.05 02/10/04 1.05 7,500,000
</Table>

9
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
YIELD TO
PRINCIPAL MATURITY
AMOUNT IN COUPON MATURITY ON DATE OF
THOUSANDS RATE DATE PURCHASE VALUE
- ---------------------------------------------------------------------------------------------------------

Florida
$15,000 Hillsborough County, Ser 2002 A............ 1.05% 05/20/04 1.05% $ 15,000,000
Jacksonville Health Facilities Authority,
17,445 St Luke's Hospital Association Ser 2001
A........................................ 1.03 02/24/04 1.03 17,445,000
20,000 St Luke's Hospital Association Ser 2001
A........................................ 1.10 01/12/04 1.10 20,000,000
Maryland
Maryland Health & Higher Educational
Facilities Authority,
22,750 The Johns Hopkins Hospital Ser C......... 1.02 02/18/04 1.02 22,750,000
15,000 The Johns Hopkins Hospital Ser C......... 1.05 02/11/04 1.05 15,000,000
Massachusetts
10,000 Massachusetts Port Authority, Ser 2003 A... 0.90 01/14/04 0.90 10,000,000
Massachusetts Water Resources Authority,
10,000 Ser 1999................................. 0.90 01/21/04 0.90 10,000,000
8,500 Ser 1999................................. 1.05 02/23/04 1.05 8,500,000
Minnesota
Rochester, Mayo Foundation/Mayo Medical
Center
5,700 Ser 1992 A............................... 1.00 01/22/04 1.00 5,700,000
15,000 Ser 1992 C............................... 1.05 02/24/04 1.05 15,000,000
10,000 Ser 2000 C............................... 1.05 01/15/04 1.05 10,000,000
15,000 Ser 2001 D............................... 0.95 01/21/04 0.95 15,000,000
Nebraska
10,000 Omaha Public Power District, Ser A......... 0.90 01/13/04 0.90 10,000,000
South Carolina
12,000 South Carolina Public Service Authority,
Santee Cooper Ser 1998................... 0.90 01/14/04 0.90 12,000,000
Tennessee
9,000 Tennessee School Bond Authority, Higher
Educational Facilities Ser 1997 A........ 1.05 02/19/04 1.05 9,000,000
Texas
20,000 Dallas Area Rapid Transit, Senior Sub Lien
Ser 2001................................. 1.07 01/29/04 1.07 20,000,000
Houston,
25,000 Water & Sewer Ser A...................... 0.95 01/27/04 0.95 25,000,000
25,000 Water & Sewer Ser A...................... 0.95 01/28/04 0.95 25,000,000
20,000 Water & Sewer Ser A...................... 0.95 02/12/04 0.95 20,000,000
10,000 Water & Sewer Ser A...................... 1.00 02/11/04 1.00 10,000,000
10,000 Water & Sewer Ser A...................... 1.03 02/11/04 1.03 10,000,000
</Table>

10
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

$13,000 San Antonio, Electric & Gas Ser 1995 A..... 1.00% 02/18/04 1.00% $ 13,000,000
15,000 University of Texas System, Permanent
University Fund Ser A.................... 0.97 02/19/04 0.97 15,000,000
Washington
23,600 King County, Sewer Ser A................... 1.05 01/22/04 1.05 23,600,000
--------------
Total Tax-Exempt Commercial Paper
(Cost $393,895,000)...................................................... 393,895,000
--------------
Short-Term Municipal Notes & Bonds (12.0%)
California
22,500 California School Cash Reserve Program
Authority, 2003 Pool Ser A (Ambac),
dtd 07/03/03............................. 2.00 07/06/04 0.90 22,625,541
Colorado
38,000 Colorado, Education Loan Ser 2003 B TRANs,
dtd 12/11/03............................. 2.00 08/09/04 0.90 38,179,065
Illinois
25,000 Illinois, Revenue Anticipation Certificates
Ser 2003, dtd 05/22/03................... 2.00 04/15/04 0.96 25,073,804
Indiana
40,000 Indiana Bond Bank, Midyear Funding Notes
Ser 2003 A, dtd 06/12/03................. 1.25 04/15/04 0.93 40,036,409
15,000 Indianapolis Local Public Improvement Bond
Bank, Ser 2003 F Notes, dtd 06/26/03..... 1.25 01/08/04 0.88 15,001,055
Kentucky
50,000 Kentucky Association of Counties Advance
Revenue Program, Ser 2003 A COPs TRANs,
dtd 07/01/03............................. 2.00 06/30/04 0.90 50,269,516
Michigan
22,500 Michigan Municipal Bond Authority, Ser 2003
B-1, dtd 08/20/03........................ 2.00 08/20/04 1.02 22,638,344
New York
17,500 Erie County, Ser 2003 A RANs (FGIC),
dtd 06/24/03............................. 1.50 06/23/04 0.90 17,549,471
Oregon
22,000 Oregon, 2003 Ser A TANs, dtd 10/22/03...... 2.25 11/15/04 1.07 22,223,856
</Table>

11
See Notes to Financial Statements

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

Texas
Texas,
$37,000 Ser 2003 TRANs, dtd 09/02/03............. 2.00% 08/31/04 1.12% $ 37,213,907
18,000 Ser 2003 TRANs, dtd 09/02/03............. 2.00 08/31/04 1.15 18,100,458
10,000 Ser 2003 TRANs, dtd 09/02/03............. 2.00 08/31/04 1.16 10,055,142
Wisconsin
25,000 Wisconsin, Operating Notes Ser 2003, dtd
09/18/03................................. 2.25 06/15/04 1.12 25,127,256
--------------
Total Short-Term Municipal Notes & Bonds
(Cost $344,093,824)...................................................... 344,093,824
--------------
Total Investments
(Cost $2,930,388,824) (a) (b)................................... 102.4% 2,930,388,824

Liabilities in Excess of Other Assets............................. (2.4) (67,680,349)
----- --------------
Net Assets........................................................ 100.0% $2,862,708,475
===== ==============
</Table>

- ---------------------

<Table>

AMT Alternative Minimum Tax.
COPs Certificates of Participation.
RANs Revenue Anticipation Notes.
TANs Tax Anticipation Notes.
TRANs Tax and Revenue Anticipation Notes.
+ Rate shown is the rate in effect at December 31, 2003.
* Date on which the principal amount can be recovered through
demand.
(a) Securities have been designated as collateral in an amount
equal to $68,396,525 in connection with the purchase of
delayed delivery securities.
(b) Cost is the same for federal income tax purposes.

Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
XLCA XL Capital Assurance Inc.
</Table>

12
See Notes to Financial Statements

Active Assets Tax-Free Trust
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
December 31, 2003 (unaudited)

<Table>

Assets:
Investments in securities, at value
(cost $2,930,388,824)..................................... $2,930,388,824
Cash........................................................ 980,123
Receivable for:
Interest................................................ 5,644,773
Shares of beneficial interest sold...................... 199,577
Prepaid expenses and other assets........................... 47,318
--------------
Total Assets............................................ 2,937,260,615
--------------
Liabilities:
Payable for:
Investments purchased................................... 73,200,518
Investment management fee............................... 981,842
Distribution fee........................................ 275,660
Accrued expenses............................................ 94,120
--------------
Total Liabilities....................................... 74,552,140
--------------
Net Assets.............................................. $2,862,708,475
==============
Composition of Net Assets:
Paid-in-capital............................................. $2,862,678,754
Accumulated undistributed net investment income............. 39,811
Accumulated net realized loss............................... (10,090)
--------------
Net Assets.............................................. 2,862,708,475
==============
Net Asset Value Per Share,
2,862,719,488 shares outstanding (unlimited shares
authorized of $.01 par value)............................... $1.00
==============
</Table>

13
See Notes to Financial Statements

Active Assets Tax-Free Trust
FINANCIAL STATEMENTS continued

Statement of Operations
For the six months ended December 31, 2003 (unaudited)

<Table>

Net Investment Income:
Interest Income............................................. $14,802,726
-----------
Expenses
Investment management fee................................... 5,556,750
Distribution fee............................................ 1,569,285
Transfer agent fees and expenses............................ 193,275
Custodian fees.............................................. 63,885
Registration fees........................................... 46,177
Shareholder reports and notices............................. 37,372
Professional fees........................................... 24,177
Trustees' fees and expenses................................. 20,078
Other....................................................... 47,874
-----------
Total Expenses.......................................... 7,558,873

Less: expense offset........................................ (63,316)
-----------
Net Expenses............................................ 7,495,557
-----------
Net Investment Income....................................... $ 7,307,169
===========
</Table>

14
See Notes to Financial Statements

Active Assets Tax-Free Trust
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 2003 JUNE 30, 2003
----------------- --------------
(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 7,307,169 $ 24,809,627

Dividends to shareholders from net investment income........ (7,308,886) (24,808,438)

Net increase (decrease) from transactions in shares of
beneficial interest....................................... (252,948,671) 169,007,069
-------------- --------------
Net Increase (Decrease)................................. (252,950,388) 169,008,258
Net Assets:
Beginning of period......................................... 3,115,658,863 2,946,650,605
-------------- --------------
End of Period
(Including accumulated undistributed net investment income
of $39,811 and $41,528, respectively)....................... $2,862,708,475 $3,115,658,863
============== ==============
</Table>

15
See Notes to Financial Statements

Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003 (UNAUDITED)

1. Organization and Accounting Policies

Active Assets Tax-Free Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is to provide a
high level of daily income which is exempt from federal income tax consistent
with stability of principal and liquidity. The Fund 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.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially 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 Fund records dividends and
distributions to shareholders as of the close of each business day.

E. Use of Estimates -- 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.

2. Investment Management Agreement

Pursuant to an Investment Management Agreement with Morgan Stanley Investment
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 net assets of the Fund 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 $1.5 billion; 0.325% to the
portion of daily net assets exceeding $1.5 billion but not exceeding $2 billion;
0.30% to the portion of daily net assets exceeding $2 billion but not exceeding

Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

$2.5 billion; 0.275% to the portion of daily net assets exceeding $2.5 billion
but not exceeding $3 billion; 0.25% to the portion of daily net assets exceeding
$3 billion but not exceeding $15 billion; and 0.249% to the portion of daily net
assets exceeding $15 billion.

3. Plan of Distribution

Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, is the distributor of the Fund'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 with the promotion of sales of Fund
shares.

Reimbursements for these expenses are made in monthly payments by the Fund to
the Distributor, which will in no event exceed an amount equal to a payment at
the annual rate of 0.15% of the Fund'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 Fund through payments accrued in any
subsequent fiscal year. For the six months ended December 31, 2003, 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, 2003, aggregated $3,066,912,460 and
$3,348,754,000, respectively.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At December 31, 2003, the Fund had transfer agent
fees and expenses payable of approximately $1,200.

The Fund has an unfunded noncontributory defined benefit pension plan covering
certain 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 factors which include years of service and compensation.
Aggregate pension costs for the six months ended December 31, 2003, included in
Trustees' fees and expenses in the Statement of Operations amounted to $3,674.
At December 31, 2003, the Fund had an accrued pension liability of $60,293 which
is included in accrued expenses in the Statement of Assets and Liabilities.

On December 2, 2003, the Trustees voted to close the plan to new participants,
eliminate the future benefits growth due to increases to compensation after July
31, 2003 and effective April 1, 2004, establish an unfunded deferred
compensation plan which allows each independent Trustee to defer payment of all
or a portion of the fees he receives for serving on the Board of Trustees
throughout the year.

Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003 (UNAUDITED) continued

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
DECEMBER 31, 2003 JUNE 30, 2003
----------------- --------------
(unaudited)

Shares sold................................................. 5,022,228,644 9,532,821,650
Shares issued in reinvestment of dividends.................. 7,308,886 24,808,438
-------------- --------------
5,029,537,530 9,557,630,088
Shares redeemed............................................. (5,282,486,201) (9,388,623,019)
-------------- --------------
Net increase (decrease) in shares outstanding............... (252,948,671) 169,007,069
============== ==============
</Table>

6. Federal Income Tax Status

At June 30, 2003, the Fund had a net capital loss carryover of approximately
$10,000 which will be available through June 30, 2009, to offset future capital
gains to the extent provided by regulations.

7. Expense Offset

The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Fund.

8. Legal Matters

The Investment Manager, certain affiliates of the Investment Manager and certain
investment companies advised by the Investment Manager or its affiliates,
including the Fund, are named as defendants in a number of recently filed,
similar class action complaints. These complaints generally allege that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Manager and certain affiliates of the Investment Manager allegedly offered
economic incentives to brokers and others to steer investors to the funds
advised by the Investment Manager or its affiliates rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Manager or
its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their alleged efforts to steer investors to these funds.
The complaints seek, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants intend to move to dismiss
these actions and otherwise vigorously to defend them. While the Fund believes
that it has meritorious defenses, the ultimate outcome of these matters is not
presently determinable at this early stage of the litigation, and no provision
has been made in the Fund's financial statements for the effect, if any, of
these matters.

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 FOR THE YEAR ENDED JUNE 30,
MONTHS ENDED ----------------------------------------------------------------
DECEMBER 31, 2003 2003 2002 2001 2000 1999
----------------- -------- -------- -------- -------- --------
(unaudited)

Selected Per Share Data:

Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- ------- -------

Net income from investment operations...... 0.002 0.008 0.014 0.033 0.031 0.027

Less dividends from net investment
income.................................... (0.002) (0.008) (0.014) (0.033) (0.031) (0.027)
------ ------- ------- ------- ------- -------

Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======= ======= ======= =======

Total Return............................... 0.24%(1) 0.81% 1.38% 3.34% 3.15% 2.73%

Ratios to Average Net Assets:
Expenses (before expense offset)........... 0.48%(2) 0.48% 0.48%(3) 0.48% 0.50% 0.52%

Net investment income...................... 0.47%(2) 0.80% 1.38% 3.28% 3.11% 2.68%

Supplemental Data:
Net assets, end of period, in millions..... $2,863 $3,116 $2,947 $3,075 $2,660 $2,290
</Table>

- ---------------------

<Table>

(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
</Table>

See Notes to Financial Statements

TRUSTEES

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid

OFFICERS

Charles A. Fiumefreddo
Chairman of the Board

Mitchell M. Merin
President

Ronald E. Robison
Executive Vice President and Principal Executive Officer

Barry Fink
Vice President and General Counsel

Joseph McAlinden
Vice President

Stefanie V. Chang
Vice President

Francis J. Smith
Treasurer and Chief Financial Officer

Thomas F. Caloia
Vice President

Mary E. Mullin
Secretary

TRANSFER AGENT

Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT AUDITORS

Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT MANAGER

Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020

The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.

This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.

[MORGAN STANLEY LOGO]

MORGAN STANLEY FUNDS

Active Assets
Tax-Free Trust

Semiannual Report
December 31, 2003

[MORGAN STANLEY LOGO]

13680B04-AP-2/04

Item 2. Code of Ethics.

Not applicable for semiannual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semiannual reports.

Item 4. Principal Accountant Fees and Services

Not applicable for semiannual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable for semiannual reports.

Item 6. [Reserved.]

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.

Not applicable for semiannual reports.

Item 8. [Reserved.]

Item 9 - Controls and Procedures

(a) The Fund's principal executive officer and principal financial officer
have concluded that the Fund's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the Fund
in this Form N-CSR was recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, based upon such officers' evaluation of these controls and procedures as
of a date within 90 days of the filing date of the report.

There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal
controls or in other factors that could significantly affect the Fund's
internal controls subsequent to the date of their evaluation.

(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.

Item 10 Exhibits

(a) Code of Ethics - Not applicable for semiannual reports.

(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Active Assets Tax-Free Trust

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 18, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 18, 2004

/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 18, 2004