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, 2005

Date of reporting period: December 31, 2004

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, 2004

MARKET CONDITIONS

The six-month review period was marked by steady increases in the federal funds
rate, as the Federal Open Market Committee (the "Fed") delivered on its
long-signaled intention to raise interest rates at a "measured" pace. The
federal funds rate ended 2004 at 2.25 percent, its highest level since October
2002. The Fed's tightening stance was supported during the period by improving
employment figures, high oil prices and generally positive economic indicators.
In this environment, securities with variable coupons outperformed most other
areas of the municipal money market thanks to their ability to adjust to rising
interest rates.

PERFORMANCE ANALYSIS

As of December 31, 2004, Active Assets Tax-Free Trust had net assets of more
than $2.66 billion and an average portfolio maturity of 31 days. For the six-
month period ended December 31, 2004, the Fund provided a total return of 0.48
percent. For the seven-day period ended December 31, 2004, the Fund provided an
effective annualized yield of 1.37 percent and a current yield of 1.36 percent,
while its 30-day average yield for December was 1.18 percent. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.

Our primary strategy in managing the Fund was to adjust its portfolio in
anticipation of rising interest rates. The Fund avoided securities with 12-month
maturities in order to avoid locking in potentially lower interest rates. In
their stead, the Fund emphasized bonds with variable rate coupons that
automatically adjust to rising rates to capitalize on any increases. Among
fixed-rate investments, the Fund focused on tax-exempt commercial paper and
municipal notes with shorter maturities in the four- to six-month range to
maintain flexibility.

<Table>
<Caption>
PORTFOLIO COMPOSITION

Variable Rate Municipal Obligations 75.8%
Tax-Exempt Commercial Paper 12.8
Municipal Notes & Bonds 11.4
</Table>

<Table>
<Caption>
MATURITY SCHEDULE

1 - 30 Days 78.7%
31 - 60 Days 7.6
61 - 90 Days 2.2
91 - 120 Days 1.8
121+ Days 9.7
</Table>

Data as of December 31, 2004. Subject to change daily. All percentages for
portfolio composition and maturity schedule are as a percentage of total
investments. Provided for informational purposes only and should not be deemed 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

THE FUND WILL INVEST IN HIGH QUALITY, SHORT-TERM SECURITIES THAT ARE NORMALLY
MUNICIPAL OBLIGATIONS THAT PAY INTEREST EXEMPT FROM FEDERAL INCOME TAXES. 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.

FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS

EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL
QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS.

HOUSEHOLDING NOTICE

TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.

EXPENSE EXAMPLE

As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and service (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 07/01/04 - 12/31/04.

ACTUAL EXPENSES

The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second line of the table is useful in
comparing ongoing costs, and will not help you determine the relative total cost
of owning different funds that have transactional costs, such as sales charges
(loads), and redemption fees, or exchange fees.

<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
07/01/04 -
07/01/04 12/31/04 12/31/04
------------- ------------- ---------------

Actual (0.48% return)....................................... $1,000.00 $1,004.80 $2.48
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,022.74 $2.50
</Table>

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

* Expenses are equal to the Fund's annualized expense ratio of 0.49%
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED)

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

Short-Term Variable Rate Municipal Obligations (80.0%)
Alabama
$14,350 Morgan County-Decatur Health Care Authority, Decatur
General Hospital Ser 1994 P-FLOATs PT-947.............. 2.03% 01/07/05 $ 14,350,000
Arizona
5,000 Pima County Industrial Development Authority, El Dorado
Hospital Ser 2004...................................... 2.02 01/07/05 5,000,000
4,000 Sun Devil Energy Center LLC, Arizona State University Ser
2004 (FGIC)............................................ 2.01 01/07/05 4,000,000
2,900 University of Arizona, Arizona Board of Regents Ser 1999
COPs (Ambac)........................................... 1.95 01/07/05 2,900,000
California
14,000 California, Economic Recovery Ser 2004 C-4............... 2.20 01/03/05 14,000,000
California Health Facilities Financing Authority,
Adventist Health System/West
3,490 1998 Ser A (MBIA), Ser B (MBIA) & Ser C (MBIA)......... 2.20 01/03/05 3,490,000
400 2002 Ser B............................................. 2.20 01/03/05 400,000
1,175 California Statewide Communities Development Authority,
House Ear Institute 1993 Ser A COPs.................... 2.21 01/03/05 1,175,000
13,100 Los Angeles Department of Water & Power, Power System
2001 B Subser B-6...................................... 2.19 01/03/05 13,100,000
Colorado
26,900 Colorado Health Facilities Authority, Catholic Health
Initiatives Ser 2004 B-4 & B-5......................... 1.95 01/07/05 26,900,000
15,000 Colorado Student Obligation Bond Authority, Ser 1989 A
(Ambac) (AMT).......................................... 2.03 01/07/05 15,000,000
8,000 Denver Urban Renewal Authority, Stapleton Senior Tax
Increment Ser 2004 A-1 P-FLOATs PT-999................. 2.08 01/07/05 8,000,000
16,750 Midcities Metropolitan District No 1, STARS BNP Ser
2004-110............................................... 2.06 01/07/05 16,750,000
5,775 Park Creek Metropolitan District, Ser 2001 P-FLOATs
PT-2321................................................ 2.08 01/07/05 5,775,000
5,170 Thornton, Water Enterprise ROCs II-R Ser 301 (MBIA)...... 2.04 01/07/05 5,170,000
10,000 University of Colorado Hospital Authority, Ser 2004 A.... 1.97 01/07/05 10,000,000
14,010 Westminster, Multifamily Housing Camden Arbors Apartments
Ser 2004............................................... 1.99 01/07/05 14,010,000
Connecticut
8,900 Connecticut Health & Educational Facilities Authority,
Quinnipiac University 2001 Ser F (Radian).............. 2.21 01/03/05 8,900,000
Delaware
1,250 Delaware Economic Development Authority, St Andrew's
School Ser 2004........................................ 2.00 01/07/05 1,250,000
</Table>

See Notes to Financial Statements
5

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

Florida
$22,250 Dade County Industrial Development Authority, Dolphins
Stadium Ser 1985 B & C................................. 1.98% 01/07/05 $ 22,250,000
5,600 Orlando Utilities Commission, Water & Electric Ser 2002
A...................................................... 1.95 01/07/05 5,600,000
4,195 Palm Beach County School Board, Ser 2004 A COPs ROCs II-R
Ser 6008 (FGIC)........................................ 2.02 01/07/05 4,195,000
18,300 Tampa Bay Water, Utility System Ser 2002 (AMT)........... 2.05 01/07/05 18,300,000
Georgia
20,300 Albany-Dougherty County Hospital Authority, Phoebe Putney
Memorial Hospital Ser 1991 (Ambac)..................... 1.99 01/07/05 20,300,000
4,000 Atlanta, Airport Ser 2004 A MERLOTs Ser C14 (FSA)
(AMT).................................................. 2.11 01/07/05 4,000,000
28,329 Burke County Development Authority, Oglethorpe Power Co
Ser 1994 A (FGIC)...................................... 2.00 01/07/05 28,329,000
Gwinnett County Water & Sewerage Authority,
16,450 Ser 2004 A............................................. 1.96 01/07/05 16,450,000
20,300 Ser 2004 B............................................. 1.95 01/07/05 20,300,000
22,260 Private Colleges and Universities Authority, Emory
University 2000 Ser B.................................. 1.95 01/07/05 22,260,000
Hawaii
13,750 Hawaii, ROCs II-R Ser 6012............................... 2.04 01/07/05 13,750,000
Illinois
16,100 Bi-State Development Agency of the Missouri-Illinois
Metropolitan District, Metrolink Cross County Extension
Ser 2002 A (FSA)....................................... 1.95 01/07/05 16,100,000
Chicago,
5,000 2004 Ser A P-FLOATs PT-2361 (FSA)...................... 2.03 01/07/05 5,000,000
8,910 Ser 2004 Eagle Ser 20041002 Class A (FGIC)............. 2.04 01/07/05 8,910,000
30,500 Cook County, Ser 2002 B.................................. 2.02 01/07/05 30,500,000
12,400 Glendale Heights, Glendale Lakes Ser 2000................ 1.99 01/07/05 12,400,000
Illinois Development Finance Authority,
8,000 Palos Community Hospital Ser 1998...................... 2.02 01/07/05 8,000,000
500 Young Men's Christian Association Ser 2001............. 2.19 01/03/05 500,000
2,500 Illinois Finance Authority, Northwestern University Ser
2004 B................................................. 1.97 01/07/05 2,500,000
Illinois Health Facilities Authority,
76,250 Northwestern Memorial Hospital Ser 1995................ 2.00 01/07/05 76,250,000
100 Northwestern Memorial Hospital Ser 2004 B Subser 2004
B-1.................................................... 2.19 01/03/05 100,000
10,200 Illinois Toll Highway Authority, Refg 1993 Ser B
(MBIA)................................................. 1.96 01/07/05 10,200,000
11,595 Kane, Cook & DuPage Counties, School District #U-46
PUTTERs Ser 426 (Ambac)................................ 2.06 01/07/05 11,595,000
</Table>

See Notes to Financial Statements
6

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

$ 5,020 Metropolitan Pier & Exposition Authority, McCormick Place
Expansion Ser 2002 A Eagle #20040030 Class A (MBIA).... 2.04% 01/07/05 $ 5,020,000
12,510 Roaring Fork Municipal Products, Cook County Class A
Certificates Ser 2004-1 (Ambac)........................ 2.07 01/07/05 12,510,000
Indiana
6,000 Franklin Community Multi-School Building Corporation, Ser
2004 ROCs II-R Ser 2140 (FGIC)......................... 2.04 01/07/05 6,000,000
4,375 Indiana Educational Facilities Authority, Bethel College
Ser 2004............................................... 1.99 01/07/05 4,375,000
35,000 Indiana Health Facilities Financing Authority, Ascension
Health Ser 2001 A...................................... 1.73 05/15/05 35,000,000
2,470 Indianapolis, Health Quest Realty XXI Ser 1994 A TOBs
(FHA).................................................. 2.17 01/07/05 2,470,000
1,575 Merrillville, Southlake Care Center Ser 1992 A TOBs
(FHA).................................................. 2.17 01/07/05 1,575,000
2,430 South Bend, Fountainview Place Ser 1992 A TOBs (FHA)..... 2.17 01/07/05 2,430,000
5,785 University of Southern Indiana, Student Fee ROCs II-R Ser
2117 (Ambac)........................................... 2.04 01/07/05 5,785,000
Kansas
Kansas Department of Transportation,
50,315 Highway Ser 2004 C-1 & C-2............................. 1.97 01/07/05 50,315,000
18,400 Highway Ser 2004 C-4................................... 1.95 01/07/05 18,400,000
Kentucky
22,500 Kenton County Airport Board, Flight Safety International
Inc Ser 2001A (AMT).................................... 2.02 01/07/05 22,500,000
2,600 Shelby County, Kentucky Association of Counties Leasing
Trust 2004 Ser A....................................... 2.20 01/03/05 2,600,000
Maryland
7,400 Maryland Health & Higher Educational Facilities
Authority, Catholic Health Initiatives Ser 1997 B...... 1.95 01/07/05 7,400,000
Massachusetts
44,500 Massachusetts Bay Transportation Authority, Ser 2000..... 1.95 01/07/05 44,500,000
11,505 Massachusetts Development Finance Agency, Dana Hall
School Ser 2004........................................ 1.98 01/07/05 11,505,000
3,000 Massachusetts Health & Educational Facilities Authority,
Cape Cod Healthcare Obligated Group 2004 D............. 2.07 01/07/05 3,000,000
Michigan
73,200 Detroit, Sewage Disposal System Senior Lien 2001 Ser C-1
(FSA).................................................. 1.95 01/07/05 73,200,000
45,200 Detroit, Water Supply System Refg Second Lien Ser 2001-C
(FGIC) & Senior Lien Ser 2003-D (MBIA)................. 2.00 01/07/05 45,200,000
8,900 Holt Public Schools, Ser 2002............................ 1.95 01/07/05 8,900,000
</Table>

See Notes to Financial Statements
7

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

$16,000 Michigan, Grant Anticipation Notes Ser 2002 C (FSA)...... 1.95% 01/07/05 $ 16,000,000
3,900 Michigan Strategic Fund, The Van Andel Research Institute
Ser 2001............................................... 2.00 01/07/05 3,900,000
9,500 Oakland University, Ser 2001 (FGIC)...................... 2.00 01/07/05 9,500,000
Minnesota
5,000 Minneapolis, Guthrie Theater on the River Ser 2003 A..... 2.00 01/07/05 5,000,000
9,735 Minnesota Housing Finance Agency, Residential Housing
2002 Ser C............................................. 1.20 05/18/05 9,735,000
17,025 University of Minnesota Regents,
Ser 1999 A & Ser 2001A................................. 2.03 01/07/05 17,025,000
Mississippi
30,500 Perry County, Leaf River Forest Products Inc Ser 2002.... 1.95 01/07/05 30,500,000
Missouri
Missouri Health & Educational Facilities Authority,
29,300 Stowers Institute Ser 2002 (MBIA)...................... 2.00 01/07/05 29,300,000
2,500 Washington University Ser 2004......................... 2.19 01/03/05 2,500,000
Nebraska
9,900 American Public Energy Agency, National Public Gas Agency
2003 Ser A............................................. 2.02 01/07/05 9,900,000
7,000 Omaha, Eagle #2004001 Class A............................ 2.04 01/07/05 7,000,000
New Hampshire
16,000 New Hampshire Health & Education Facilities Authority,
Dartmouth College Ser 2002............................. 1.95 01/07/05 16,000,000
New York
Jay Street Development Corporation,
1,500 Fiscal 2001 Ser A-1.................................... 1.95 01/07/05 1,500,000
1,400 Fiscal 2001 Ser A-3.................................... 2.03 01/07/05 1,400,000
10,000 Long Island Power Authority, Electric System Ser 2 Subser
2A..................................................... 1.95 01/07/05 10,000,000
2,000 New York City Industrial Development Agency, One Bryant
Park LLC Ser 2004 A.................................... 2.03 01/07/05 2,000,000
1,200 Suffolk County Water Authority, Ser 2003 BANs............ 1.96 01/07/05 1,200,000
North Carolina
40,000 Charlotte-Mecklenburg Hospital Authority, Health Care
System Ser 1996 C...................................... 2.00 01/07/05 40,000,000
2,200 Durham, Ser 1993A COPs................................... 2.03 01/07/05 2,200,000
9,155 Mecklenburg County, Ser 2004 COPs........................ 2.00 01/07/05 9,155,000
North Carolina,
30,000 Ser 2002 C............................................. 1.96 01/07/05 30,000,000
34,000 Ser 2002 D............................................. 2.00 01/07/05 34,000,000
</Table>

See Notes to Financial Statements
8

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

$10,000 North Carolina Capital Facilities Finance Agency, Durham
Academy Ser 2001....................................... 1.99% 01/07/05 $ 10,000,000
North Carolina Medical Care Commission,
27,000 Firsthealth of the Carolinas Ser 2002.................. 1.97 01/07/05 27,000,000
600 Mission-St Joseph's Health System Ser 2003............. 2.05 01/07/05 600,000
33,400 North Carolina Baptist Hospitals Ser 2000.............. 2.00 01/07/05 33,400,000
6,450 Rowan Regional Medical Center Ser 2004 ROCs II-R
Ser 296 (FSA)........................................ 2.04 01/07/05 6,450,000
North Dakota
12,490 North Dakota Housing Financing Agency, Home Mortgage
Finance 2003 Ser A (AMT)............................... 2.01 01/07/05 12,490,000
Ohio
4,000 Cincinnati City School District, Ser 2003 Eagle #20040034
Class A (FSA).......................................... 2.03 01/07/05 4,000,000
4,900 Middletown City School District, ROCs II-R Ser 303
(FGIC)................................................. 2.03 01/07/05 4,900,000
5,610 Ohio, Ser 2004 P-FLOATs PT-2137.......................... 2.02 01/07/05 5,610,000
Oklahoma
Oklahoma Water Resources Board, State Loan Program
38,475 Ser 1994 A, 1995 & 1999................................ 1.35 03/01/05 38,475,000
24,700 Ser 2001............................................... 1.58 04/01/05 24,700,000
10,000 Tulsa County Industrial Authority, Capital Improvement
Ser 2003 A............................................. 2.05 05/16/05 10,000,000
Oregon
14,000 Clackamas County Hospital Facility Authority, Legacy
Health System Ser 2003................................. 1.98 01/07/05 14,000,000
4,500 Oregon Department of Administrative Services, Oregon
Appropriation Ser 2003 Eagle #20041010 Class A (FSA)... 2.04 01/07/05 4,500,000
20,000 Oregon Health Sciences University, OHSU Medical Group Ser
2004 A................................................. 1.96 01/07/05 20,000,000
Pennsylvania
15,000 Pennsylvania Higher Education Assistance Agency, Student
Loan 2001 Ser A (Ambac) (AMT).......................... 2.05 01/07/05 15,000,000
17,200 Pennsylvania Turnpike Commission, 2002 Ser A-2........... 2.00 01/07/05 17,200,000
27,800 Philadelphia, Water & Wastewater Ser 2003 (FSA).......... 1.97 01/07/05 27,800,000
1,200 Philadelphia Hospitals & Higher Education Facilities
Authority, Children's Hospital of Philadelphia Ser 2002
D (MBIA)............................................... 2.19 01/03/05 1,200,000
31,700 Washington County Authority, The Trustees of the
University of Pennsylvania Ser 2004.................... 1.96 01/07/05 31,700,000
22,800 York General Authority, Harrisburg School District Subser
1996 B (Ambac)......................................... 1.99 01/07/05 22,800,000
</Table>

See Notes to Financial Statements
9

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

Rhode Island
$28,120 Rhode Island Convention Center Authority, Refg 2001 Ser A
(MBIA)................................................. 1.95% 01/07/05 $ 28,120,000
16,000 Rhode Island Health & Educational Building Corporation,
Brown University 2003 Ser B............................ 1.95 01/07/05 16,000,000
South Carolina
13,100 Florence County, McLeod Regional Medical Center Ser 1985
A (FGIC)............................................... 1.95 01/07/05 13,100,000
5,000 Greenwood County, Fuji Photo Film Inc Ser 2004 (AMT)..... 2.15 01/07/05 5,000,000
5,000 South Carolina Jobs Economic Development Authority,
Burroughs & Chapin Business Park Ser 2002.............. 2.05 01/07/05 5,000,000
9,845 South Carolina Public Service Authority, ROCs II-R Ser
2098 (Ambac) & Ser 6007 (Ambac)........................ 2.04 01/07/05 9,845,000
Tennessee
13,000 Chattanooga Health, Educational & Housing Facility Board,
The Baylor School Ser 2004............................. 2.00 01/07/05 13,000,000
17,000 Greeneville Health & Educational Facilities Board,
Laughlin Memorial Hospital Ser 2004.................... 2.00 01/07/05 17,000,000
5,100 Memphis, Airport Refg Ser 1995 B (AMT)................... 2.05 01/07/05 5,100,000
7,600 Metropolitan Government of Nashville & Davidson County
Health & Educational Facilities Board, Ensworth School
Ser 2002............................................. 2.00 01/07/05 7,600,000
27,035 Montgomery County Public Building Authority, Pooled
Financing Ser 1999..................................... 2.00 01/07/05 27,035,000
22,000 Shelby County Health, Educational and Housing Facilities
Board, Baptist Memorial Health Care Ser 2004A P-FLOATs
PA-1277................................................ 2.04 01/07/05 22,000,000
Texas
12,000 Austin, Water & Wastewater System Ser 2004............... 2.00 01/07/05 12,000,000
300 Bell County Health Facilities Development Corporation,
Scott & White Memorial Hospital Ser 2001-2 (MBIA)...... 2.20 01/03/05 300,000
1,775 Bexar County Housing Finance Corporation, Multi-Family
P-FLOATs PT-2082....................................... 2.03 01/07/05 1,775,000
4,500 Cypress-Fairbanks Independent School District, Ser 2004
MERLOTs Ser C-16....................................... 2.06 01/07/05 4,500,000
6,180 Dallas Independent School District, Ser 2004A ROCs II-R
Ser 6038............................................... 2.04 01/07/05 6,180,000
8,630 El Paso Independent School District, Ser 2004 A ROCs II-R
Ser 2129............................................... 2.04 01/07/05 8,630,000
19,519 Garland Health Facilities Development Corporation,
Chambrel Club Hill Ser 2002............................ 2.00 01/07/05 19,519,000
</Table>

See Notes to Financial Statements
10

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

Harris County Health Facilities Development Corporation,
$20,640 Methodist Hospital Ser 2002............................ 2.20% 01/03/05 $ 20,640,000
3,700 Texas Medical Center Ser 1999 B (FSA).................. 2.20 01/03/05 3,700,000
28,200 Harris County Industrial Development Corporation, Baytank
Inc Ser 1998........................................... 2.00 01/07/05 28,200,000
5,185 Houston, Combined Utility System Ser 2004 ROCs II-R Ser
4559 (FSA)............................................. 2.04 01/07/05 5,185,000
8,000 Lower Neches Valley Authority, Chevron USA Inc Ser
1987................................................... 1.28 02/15/05 8,000,000
8,900 Mansfield Independent School District, ROCs II-R Ser
6005................................................... 2.04 01/07/05 8,900,000
5,380 Northside Independent School District, Ser 2003 P-FLOATs
PT-2254................................................ 2.03 01/07/05 5,380,000
9,110 Roaring Fork Municipal Products, Dallas Independent
School District Class A Certificates Ser 2004-6........ 2.07 01/07/05 9,110,000
San Antonio,
6,015 ROCs II-R Ser 6003 (FSA)............................... 2.04 01/07/05 6,015,000
19,900 Water System Ser 2003 B (MBIA)......................... 1.95 01/07/05 19,900,000
13,000 Texas, Ser 2004 TRANs Floater-Trust Receipts Ser 2004
L61J................................................... 2.05 01/07/05 13,000,000
7,150 Texas Department of Housing & Community Affairs, High
Point III Development Ser 1993 A....................... 2.00 01/07/05 7,150,000
21,860 Texas Municipal Gas Corporation, Senior Lien Ser 1998
(FSA).................................................. 2.00 01/07/05 21,860,000
Utah
Intermountain Power Agency,
17,600 1985 Ser E (Ambac)..................................... 2.02 06/01/05 17,600,000
16,750 1985 Ser E (Ambac)..................................... 1.43 03/15/05 16,750,000
35,900 1985 Ser F (Ambac)..................................... 1.40 03/15/05 35,900,000
Various States
43,150 Municipal Securities Pooled Trust Receipts, Various
States
Ser 2004 SG P-18....................................... 2.14 01/07/05 43,150,000
Vermont
6,000 Vermont Housing Finance Agency, West Block University of
Vermont Apartments Ser 2004 A.......................... 2.02 01/07/05 6,000,000
Virginia
16,000 Chesapeake Hospital Authority, Chesapeake General
Hospital Ser 2001A..................................... 2.00 01/07/05 16,000,000
7,575 Fairfax County, Ser 2004 A PUTTERs Ser 461............... 2.01 01/07/05 7,575,000
41,100 Loudoun County Industrial Development Authority, Howard
Hughes Medical Institute Ser 2003 F.................... 1.96 01/07/05 41,100,000
</Table>

See Notes to Financial Statements
11

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

Washington
$ 6,050 Bellevue, Ser 2004 Eagle #20041011 Class A (MBIA)........ 2.04% 01/07/05 $ 6,050,000
3,585 King County School District No 216, ROCs II-R Ser 5026
(FSA).................................................. 2.04 01/07/05 3,585,000
4,185 Pierce County, Puyallup School District No 3 PUTTERs Ser
415 (FSA).............................................. 2.03 01/07/05 4,185,000
15,000 Port of Seattle, 1997 Ser A (AMT)........................ 2.08 01/07/05 15,000,000
Wisconsin
9,500 Brokaw, Wausau Paper Mills Co Ser 1995 (AMT)............. 2.30 01/07/05 9,500,000
6,295 Wisconsin, Clean Water 2004 Ser 1 ROCs II-R Ser 2165
(MBIA)................................................. 2.04 01/07/05 6,295,000
3,250 Wisconsin Health & Educational Facilities Authority,
Ministry Health Care PUTTERs Ser 399 (MBIA)............ 2.03 01/07/05 3,250,000
Puerto Rico
11,795 Commonwealth of Puerto Rico Public Improvement Bonds, Ser
2001-1 TOCs (FSA)...................................... 2.00 01/07/05 11,795,000
--------------
Total Short-Term Variable Rate Municipal Obligations
(Cost $2,132,763,000)....................................................... 2,132,763,000
--------------
</Table>

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

Tax-Exempt Commercial Paper (13.5%)
Alabama
12,600 Montgomery County Industrial Development
Authority, PECO Energy Co 1994 Ser A..... 1.82% 01/18/05 1.82% 12,600,000
California
16,100 University of California Regents, Ser A.... 1.70 01/19/05 1.70 16,100,000
Florida
8,500 Jacksonville, Ser A........................ 1.83 03/08/05 1.83 8,500,000
17,445 Jacksonville Health Facilities Authority,
St Luke's Hospital Association Ser 2001
A........................................ 1.88 01/12/05 1.88 17,445,000
Sunshine State Governmental Financing
Commission,
5,382 Coral Gables Ser E....................... 1.75 02/17/05 1.75 5,382,000
18,000 Miami-Dade County Ser G.................. 1.72 02/11/05 1.72 18,000,000
8,510 Orlando Ser H............................ 1.75 02/17/05 1.75 8,510,000
Massachusetts
11,000 Massachusetts Health & Educational
Facilities Authority, Harvard University
Ser EE................................... 1.75 02/23/05 1.75 11,000,000
</Table>

See Notes to Financial Statements
12

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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

Minnesota
$23,000 Rochester, Mayo Foundation/Mayo Medical
Center Ser 1992 C & Ser 2000 C........... 1.88% 01/13/05 1.88% $ 23,000,000
Nebraska
6,700 Omaha Public Power District, Ser A......... 1.68 01/10/05 1.68 6,700,000
Nevada
10,000 Clark County, Sales Tax Ser 2004B.......... 1.70 01/13/05 1.70 10,000,000
New Hampshire
16,100 New Hampshire, Ser A 1998 BANs............. 1.70 02/09/05 1.70 16,100,000
Ohio
13,000 Ohio State University, General Receipts Ser
2004 F................................... 1.75 02/17/05 1.75 13,000,000
Pennsylvania
8,000 Montgomery County Industrial Development
Authority, PECO Energy Co 1994 Ser A..... 1.84 01/20/05 1.84 8,000,000
Tennessee
Metropolitan Government of Nashville &
Davidson County Health & Educational
Facilities Board,
8,000 Vanderbilt University Ser 2004 A......... 1.83 01/25/05 1.83 8,000,000
18,500 Vanderbilt University Ser 2004 A......... 1.82 04/12/05 1.82 18,500,000
Texas
Dallas Area Rapid Transit,
15,000 Senior Sub Lien Ser 2001................. 1.85 01/24/05 1.85 15,000,000
10,000 Senior Sub Lien Ser 2001................. 1.72 01/26/05 1.72 10,000,000
15,000 Senior Sub Lien Ser 2001................. 1.81 01/31/05 1.81 15,000,000
5,100 Harris County, Ser C....................... 1.74 02/09/05 1.74 5,100,000
San Antonio,
20,600 Electric & Gas Ser 1995 A................ 1.82 01/21/05 1.82 20,600,000
22,000 Electric & Gas Ser 1995 A................ 1.87 02/22/05 1.87 22,000,000
20,000 Texas Public Finance Authority,
Unemployment Compensation Ser 2003 C-1... 1.80 01/19/05 1.80 20,000,000
University of Texas Regents,
25,000 Permanent University Fund Ser A.......... 1.82 01/27/05 1.82 25,000,000
15,000 Permanent University Fund Ser A.......... 1.85 02/24/05 1.85 15,000,000
</Table>

See Notes to Financial Statements
13

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

Washington
$10,000 King County, Sewer Ser A................... 1.83% 01/24/05 1.83% $ 10,000,000
--------------
Total Tax-Exempt Commercial Paper
(Cost $358,537,000)........................................................ 358,537,000
--------------
Short-Term Municipal Notes & Bonds (12.0%)
California
30,000 California, Ser 2004-2005 RANs, dtd
10/06/04................................. 3.00 06/30/05 1.74 30,184,854
Illinois
7,270 Chicago Park District, Tax Anticipation
Warrants Ser 2004 A, dtd 06/23/04........ 3.00 05/02/05 1.55 7,304,512
Indiana
Indiana Bond Bank,
25,000 Advance Funding Notes Ser 2004 A,
dtd 01/29/04........................... 2.00 01/25/05 1.10 25,014,586
16,000 Midyear Funding Notes Ser 2004 A,
dtd 06/24/04........................... 2.50 01/26/05 1.38 16,012,111
25,000 Indianapolis Local Public Improvement Bond
Bank, Ser 2004 F Notes, dtd 07/15/04..... 2.00 01/06/05 1.33 25,002,279
Kentucky
20,000 Kentucky Association of Counties Advance
Revenue Program, Ser 2004 A COPs TRANs,
dtd 07/01/04........................... 3.00 06/30/05 1.68 20,127,978
Massachusetts
20,000 Gateway Regional School District, Ser 2004
BANs, dtd 05/05/04....................... 3.00 02/10/05 1.55 20,030,922
10,000 Pioneer Valley Transportation Authority,
Ser 2004 RANs, dtd 08/06/04.............. 2.75 08/05/05 2.00 10,043,497
7,800 Southeastern Regional Transportation
Authority, Ser 2004 RANs, dtd 09/10/04... 2.50 09/09/05 1.85 7,834,208
14,167 Woburn, Ser 2004 BANs, dtd 10/08/04........ 2.50 07/22/05 1.74 14,225,930
Minnesota
2,420 Buffalo-Hanover-Montrose Independent School
District No 877, Aid Anticipation
Certificates
Ser 2004 A, dtd 07/20/04............... 2.75 08/20/05 1.70 2,435,763
2,845 Chisago Lakes Independent School District
No 2144, Aid Anticipation Certificates
Ser 2004 B, dtd 07/29/04............... 2.75 08/29/05 1.70 2,864,242
</Table>

See Notes to Financial Statements
14

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

$ 4,500 Orono Independent School District No 278,
Aid Anticipation Certificates Ser 2004 A,
dtd 07/29/04........................... 2.75% 08/29/05 1.72% $ 4,530,436
2,600 Rocori Area Schools Independent School
District No 750, Aid Anticipation
Certificates
Ser 2004 A, dtd 07/15/04............... 3.00 08/15/05 1.70 2,620,498
New Hampshire
18,500 New Hampshire, Ser 2004 RANs, dtd
12/30/04................................. 2.20 06/01/05 2.10 18,507,486
New Jersey
19,830 Trenton, Ser 2004 BANs, dtd 10/14/04....... 3.00 10/14/05 1.92 19,994,548
7,021 Wood-Ridge Board of Education, Temporary
Notes Ser 2004, dtd 07/29/04............. 2.00 01/27/05 1.20 7,024,942
New York
7,500 Board of Cooperative Educational Services,
Erie, Chautaugua & Cattaraugus Counties,
Second Supervisory District, Ser 2004
RANs,
dtd 10/28/04........................... 2.75 10/14/05 1.98 7,544,367
10,000 Cato-Meridian Central School District, Ser
2004 BANs, dtd 07/22/04.................. 2.75 07/22/05 1.75 10,054,346
9,000 Marlboro Central School District, Ser 2004
BANs, dtd 12/21/04....................... 2.75 04/15/05 1.74 9,017,906
1,885 Murray, Ser 2004 BANs, dtd 08/05/04........ 3.00 08/04/05 1.75 1,898,639
17,000 Poughkeepsie City School District, Ser 2004
BANs, dtd 05/06/04....................... 2.50 05/06/05 1.59 17,051,904
7,200 Steuben-Allegany Board of Cooperative
Educational Services, Sole Supervisory
District, Ser 2004 RANs, dtd
06/30/04................................. 3.00 06/30/05 1.80 7,241,843
14,000 Spencer-Van Etten Central School District,
Ser 2004 BANs, dtd 06/17/04.............. 3.00 06/17/05 1.88 14,070,716
North Carolina
10,700 Beaufort County Water District VI, Water
Ser 2004 BANs, dtd 10/12/04.............. 2.75 02/16/05 1.65 10,714,572
Ohio
1,860 St Bernard, Ser 2004 BANs, dtd 07/15/04.... 2.60 07/14/05 1.80 1,867,762
</Table>

See Notes to Financial Statements
15

Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

Texas
$ 7,225 Houston, 2001 Ser A, dtd 09/01/01.......... 5.00% 03/01/05 1.90% $ 7,261,208
--------------
Total Short-Term Municipal Notes & Bonds
(Cost $320,482,055)........................................................ 320,482,055
--------------
Total Investments
(Cost $2,811,782,055) (a)......................................... 105.5% 2,811,782,055

Liabilities in Excess of Other Assets............................. (5.5) (145,922,034)
----- --------------
Net Assets........................................................ 100.0% $2,665,860,021
===== ==============
</Table>

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

<Table>

AMT Alternative Minimum Tax.
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
MERLOTs Municipal Exempt Receipts - Liquidity Option Tender.
P-FLOATs Puttable Floating Option Tax-Exempt Receipts.
PUTTERs Puttable Tax-Exempt Receipts.
RANs Revenue Anticipation Notes.
ROCs Reset Option Certificates.
STARS Short Term Adjustable Rate Securities.
TOBs Tender Option Bonds.
TOCs Tender Option Certificates.
TRANs Tax and Revenue Anticipation Notes.
+ Rate shown is the rate in effect at December 31, 2004.
Date on which the principal amount can be recovered through
* demand.
(a) Cost is the same for federal income tax purposes.

Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FHA Federal Housing Administration.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
Radian Radian Asset Assurance Inc.
</Table>

See Notes to Financial Statements
16

Active Assets Tax-Free Trust
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
December 31, 2004 (unaudited)

<Table>

Assets:
Investments in securities, at
value
(cost $2,811,782,055)........... $2,811,782,055
Cash.............................. 37,703
Receivable for:
Interest...................... 8,653,230
Shares of beneficial interest
sold........................ 77,934
Prepaid expenses and other
assets.......................... 60,444
--------------
Total Assets.................. 2,820,611,366
--------------
Liabilities:
Payable for:
Investments purchased......... 153,508,268
Investment advisory fee....... 768,802
Distribution fee.............. 247,332
Administration fee............ 123,666
Accrued expenses and other
payables........................ 103,277
--------------
Total Liabilities............. 154,751,345
--------------
Net Assets.................... $2,665,860,021
==============
Composition of Net Assets:
Paid-in-capital................... $2,665,817,980
Accumulated undistributed net
investment income............... 41,199
Accumulated undistributed net
realized gain................... 842
--------------
Net Assets.................... $2,665,860,021
==============
Net Asset Value Per Share,
2,665,858,714 shares outstanding
(unlimited shares authorized $.01
par value)........................ $1.00
==============
</Table>

Statement of Operations
For the six months ended December 31, 2004 (unaudited)

<Table>

Net Investment Income:
Interest Income...................... $21,538,096
-----------
Expenses
Investment advisory fee.............. 5,176,584
Distribution fee..................... 1,515,378
Administration fee................... 246,826
Transfer agent fees and expenses..... 191,048
Custodian fees....................... 64,249
Registration fees.................... 51,971
Professional fees.................... 29,884
Trustees' fees and expenses.......... 22,803
Shareholder reports and notices...... 21,496
Other................................ 85,676
-----------
Total Expenses................... 7,405,915
-----------

Less: expense offset................. (64,197)
-----------
Net Expenses..................... 7,341,718
-----------
Net Investment Income................ $14,196,378
===========
</Table>

See Notes to Financial Statements
17

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, 2004 JUNE 30, 2004
----------------- --------------
(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 14,196,378 $ 15,202,722
Net realized gain........................................... -- 10,932
-------------- --------------
Net Increase............................................ 14,196,378 15,213,654

Dividends to shareholders from net investment income........ (14,194,413) (15,205,016)

Net decrease from transactions in shares of beneficial
interest.................................................. (191,803,592) (258,005,853)
-------------- --------------
Net Decrease............................................ (191,801,627) (257,997,215)
Net Assets:
Beginning of period......................................... 2,857,661,648 3,115,658,863
-------------- --------------
End of Period
(Including accumulated undistributed net investment income
of $41,199 and $39,234, respectively)....................... $2,665,860,021 $2,857,661,648
============== ==============
</Table>

See Notes to Financial Statements
18

Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004 (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 Advisory/Administration Agreements

Effective November 1, 2004, pursuant to an Investment Advisory Agreement with
Morgan Stanley Investment Advisors Inc. (the "Investment Adviser"), the Fund
pays the Investment Adviser an advisory 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: 0.45% to the portion of daily net assets
not exceeding $500 million; 0.375% to the portion of daily net assets exceeding
$500 million but not exceeding $750 million; 0.325% to the portion of daily net
assets exceeding $750 million but not exceeding $1 billion; 0.30% to the portion
of daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.275%
to the portion of daily net assets exceeding $1.5 billion but not exceeding $2
billion; 0.25% to the portion of daily net assets exceeding

Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

$2 billion but not exceeding $2.5 billion; 0.225% to the portion of daily net
assets exceeding $2.5 billion but not exceeding $3 billion; 0.20% to the portion
of daily net assets exceeding $3 billion but not exceeding $15 billion; and
0.199% to the portion of daily net assets exceeding $15 billion.

Effective November 1, 2004, pursuant to an Administration Agreement with Morgan
Stanley Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays an administration fee, accrued daily and
payable monthly, by applying the annual rate of 0.05% to the Fund's daily net
assets.

Prior to November 1, 2004, the Fund retained the Investment Adviser to provide
administrative services and to manage the investment of the Fund's assets
pursuant to an investment management agreement pursuant to which the Fund paid
the Investment Adviser a monthly management fee accrued daily and payable
monthly, by applying the annual rate of 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 $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 Adviser, 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, 2004, the
distribution fee was accrued at the annual rate of 0.10%.

Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

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, 2004, aggregated $3,750,028,915 and
$3,937,346,000, respectively.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administration and
Distributor, is the Fund's transfer agent.

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, 2004, included in
Trustees' fees and expenses in the Statement of Operations amounted to $3,719.
At December 31, 2004, the Fund had an accrued pension liability of $61,825 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 and
eliminate the future benefits growth due to increases to compensation after July
31, 2003.

Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "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. Each eligible Trustee generally may elect to have the deferred amounts
credited with a return equal to the total return on one or more of the Morgan
Stanley funds that are offered as investment options under the Compensation
Plan. Appreciation/depreciation and distributions received from these
investments are recorded with an offsetting increase/decrease in the deferred
compensation obligation and do not affect the net asset value of the Fund.

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, 2004 JUNE 30, 2004
----------------- ---------------
(unaudited)

Shares sold................................................. 5,415,679,985 10,208,181,474
Shares issued in reinvestment of dividends.................. 14,194,413 15,205,016
-------------- ---------------
5,429,874,398 10,223,386,490
Shares redeemed............................................. (5,621,677,990) (10,481,392,343)
-------------- ---------------
Net decrease in shares outstanding.......................... (191,803,592) (258,005,853)
============== ===============
</Table>

Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2004 (UNAUDITED) continued

6. Expense Offset

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

7. Legal Matters

The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Adviser and certain affiliates of
the Investment Adviser allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Adviser or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Adviser or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, rescissionary damages, fees and costs.
The defendants have moved to dismiss the action and intend to otherwise
vigorously defend it. While the Fund believes that it has meritorious defenses,
the ultimate outcome of this matter 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 this matter.

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, 2004 2004 2003 2002 2001 2000
----------------- -------- -------- -------- -------- --------
(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........... 0.005 0.005 0.008 0.014 0.033 0.031

Less dividends from net investment income....... (0.005) (0.005) (0.008) (0.014) (0.033) (0.031)
------ ------- ------- ------- ------- -------

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

Total Return.................................... 0.48%(1) 0.50% 0.81% 1.38% 3.34% 3.15%

Ratios to Average Net Assets:
Expenses (before expense offset)................ 0.49%(2) 0.48% 0.48% 0.48%(3) 0.48% 0.50%

Net investment income........................... 0.94%(2) 0.50% 0.80% 1.38% 3.28% 3.11%

Supplemental Data:
Net assets, end of period, in millions.......... $2,666 $ 2,858 $ 3,116 $ 2,947 $ 3,075 $ 2,660
</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
23

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
Fergus Reid

OFFICERS

Charles A. Fiumefreddo
Chairman of the Board

Mitchell M. Merin
President

Ronald E. Robison
Executive Vice President and Principal Executive Officer

Joseph J. McAlinden
Vice President

Barry Fink
Vice President

Amy R. Doberman
Vice President

Carsten Otto
Chief Compliance Officer

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 REGISTERED PUBLIC ACCOUNTING FIRM

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

INVESTMENT ADVISER

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, 2004

[MORGAN STANLEY LOGO]

RA05-00110P-Y12/04

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.

Refer to Item 1.

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

Not applicable for semiannual reports.

Item 8. Closed-End Fund Repurchases

Applicable to reports filed by closed-end funds.

Item 9. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 10 - 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.

(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 11 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 17, 2005

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 17, 2005

/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 17, 2005