UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
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, 2007
Date of reporting period: December 31, 2006
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 A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. AN
INVESTMENT IN A MONEY MARKET 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 AN INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE
TO LOSE MONEY BY INVESTING IN THE FUND. PLEASE SEE THE PROSPECTUS FOR MORE
COMPLETE INFORMATION ON INVESTMENT RISKS.
FUND REPORT
For the six months ended December 31, 2006
MARKET CONDITIONS
During the second half of 2006, as economic growth moderated and inflation
concerns eased, the Federal Open Market Committee (the "Fed") finally paused in
its record two-year cycle of monetary tightening, electing to keep the target
federal funds rate unchanged at 5.25 percent, where it had stood since the end
of June. Despite the pause in its tightening campaign, the Fed continued to
stress that policy makers considered inflation to be "uncomfortably high" and
further actions regarding interest rates would be data dependent. In response to
the Fed's decision to maintain a stable monetary policy during the period, U.S.
Treasury rates -- which had been steadily climbing during the first six months
of the year -- reversed course and drifted lower throughout most of the
remaining year. Most of these yield changes, however, occurred on the short end
of the yield curve.
Yields on municipal money-market securities generally declined during the
reporting period, and the spread between the yield on one-week and one-year
tax-exempt paper contracted from already compressed levels. During periods of
technical supply and demand imbalances in the variable-rate demand note market,
the slope of the short-term municipal curve became inverted, with
shorter-maturity securities offering higher yields than those with longer
maturities.
The Bond Buyer One Year Note Index, a benchmark indicator for the longest
maturities in the tax-free money market sector, declined from its high for the
period of 3.77 percent to 3.51 percent in mid-September, then held steady to
finish the year at 3.52 percent. Although yields for daily and weekly variable
rate demand obligations (VRDO) also ended the year lower, yield swings were much
more dramatic. Weekly VRDO yields peaked at 3.97 percent in July then fell to a
low of 3.35 percent in September before rebounding to 3.91 at year end.
PERFORMANCE ANALYSIS
As of December 31, 2006, Active Assets Tax-Free Trust had net assets of
approximately $5.9 billion and an average portfolio maturity of 20 days. For the
six-month period ended December 31, 2006, the Fund provided a total return of
1.56 percent. For the seven-day period ended December 31, 2006, the Fund
provided an effective annualized yield of 3.45 percent and a current yield of
3.40 percent, while its 30-day moving average yield for December was 3.15
percent. Past performance is no guarantee of future results.
Throughout the reporting period we continued our research-intensive approach,
selectively investing only in those securities that we believed would add value
while still meeting our conservative, risk-conscious criteria. Given our
expectations that the target federal funds rate would remain stable through the
end of the year, we adopted a laddered portfolio structure by investing in
securities with a range of different maturities. We also modestly reduced the
portfolio's allocation to variable-rate securities early in the period,
selectively investing the proceeds in short-term commercial paper notes and
bonds in order to lock in higher yields.
2
We continued to find reasonable value in securities with maturities of six
months or less. At the end of the reporting period, 97 percent of the
portfolio's assets fell within this maturity range.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Fund in
the future.
<Table>
<Caption>
PORTFOLIO COMPOSITION
Variable Rate Municipal Obligations 93.4%
Tax-Exempt Commercial Paper 3.9
Municipal Notes & Bonds 2.7
</Table>
<Table>
<Caption>
MATURITY SCHEDULE
1 - 30 Days 94.5%
31 - 60 Days 0.5
61 - 90 Days 0.0
91 - 120 Days 0.8
121+ Days 4.2
</Table>
Data as of December 31, 2006. Subject to change daily. All percentages for
portfolio composition and maturity schedule are as a percentage of total
investments. These data are 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.
3
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 ADVISER," 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. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE
FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM
N-CSRS AND FORM N-CSR, RESPECTIVELY. 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.
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.
4
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including advisory 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 07/01/06 - 12/31/06.
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 *
------------- ------------- ---------------
07/01/06 -
07/01/06 12/31/06 12/31/06
------------- ------------- ---------------
Actual (1.56% return)....................................... $1,000.00 $1,015.60 $2.31
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,022.64 $2.32
</Table>
- ------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.46%
multiplied by the average account value over the period, multiplied by
182/365 (to reflect the one-half year period).
5
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Short-Term Variable Rate Municipal Obligations (95.0%)
Alabama
$ 40,000 Birmingham Medical Clinic Board, University of Alabama
Health Services Foundation Ser 1991.................... 3.92% 01/08/07 $ 40,000,000
Infirmary Health System Special Care Facilities Financing
Authority of Mobile,
19,000 Ser 2006 A............................................. 3.91 01/08/07 19,000,000
19,600 Ser 2006 B............................................. 3.95 01/08/07 19,600,000
7,770 Roaring Fork Municipal Products, Alabama State University
Class Ser 2006 Class A Certificates Ser 2006-18
(XLCA)................................................. 3.98 01/08/07 7,770,000
Alaska
21,810 Valdez, Marine Terminal Exxon Pipeline Co Ser 1985....... 3.94 01/02/07 21,810,000
Arizona
59,185 Arizona Health Facilities Authority, Banner Health Ser
2005 A (MBIA) (DD)..................................... 3.89 01/08/07 59,185,000
15,000 McAllister Academic Village LLC, Arizona State University
Ser 2005 A (Ambac)..................................... 3.90 01/08/07 15,000,000
5,000 Pima County Industrial Development Authority, El Dorado
Hospital Ser 2004...................................... 3.95 01/08/07 5,000,000
16,900 Pine Ridge Village/Campus Heights LLC, Northern Arizona
University Ser 2005 (FGIC)............................. 3.92 01/08/07 16,900,000
12,000 Phoenix Civic Improvement Corporation, Civic Plaza
Expansion Ser 2005 B Floaters Ser 84Z (FGIC)........... 3.97 01/08/07 12,000,000
37,400 Scottsdale Industrial Development Authority, Scottsdale
Healthcare Ser 2006 D (FSA)............................ 3.89 01/08/07 37,400,000
13,505 Sun Devil Energy Center LLC, Arizona State University Ser
2004 (FGIC)............................................ 3.92 01/08/07 13,505,000
California
56,000 California Department of Water Resources, Power Supply
Ser 2002 B Subser B-1.................................. 3.92 01/02/07 56,000,000
36,000 California Health Facilities Financing Authority, Kaiser
Permanente Ser 2006 C.................................. 3.77 01/08/07 36,000,000
1,300 Los Angeles Department of Water & Power, Water System
2001 Ser B Subser B-1.................................. 3.82 01/08/07 1,300,000
5,000 Pleasanton, Greenbriar Bernal Apartments Ser 2001 A
(AMT).................................................. 3.87 01/08/07 5,000,000
Colorado
12,000 Broomfield Urban Renewal Authority, Broomfield Event
Center Ser 2005........................................ 3.93 01/08/07 12,000,000
7,900 Centerra Metropolitan District No 1, Ser 2004............ 3.94 01/08/07 7,900,000
12,545 Colorado, UCDHSC Fitzsimons Academic Facilities Ser 2005
B COPs P-FLOATs PT-3336 (MBIA)......................... 3.95 01/08/07 12,545,000
</Table>
See Notes to Financial Statements
6
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
$ 6,255 Colorado Educational & Cultural Facilities Authority,
Oklahoma's Public Radio Ser 2005 A..................... 3.93% 01/08/07 $ 6,255,000
Colorado Health Facilities Authority,
10,000 Catholic Health Initiatives Ser 2004 B-4............... 3.93 01/08/07 10,000,000
19,835 NCMC Inc Ser 2005 (FSA)................................ 3.90 01/08/07 19,835,000
51,250 Colorado Springs, Utilities System Sub Lien
Ser 2004 A & 2006 A.................................... 3.95 01/08/07 51,250,000
15,000 Colorado Student Obligation Bond Authority, Ser 1989 A
(Ambac) (AMT).......................................... 3.95 01/08/07 15,000,000
12,500 Denver Urban Renewal Authority, Stapleton Senior Tax
Increment Ser 2004 A-1 P-FLOATs PT-290................. 3.99 01/08/07 12,500,000
13,190 Midcities Metropolitan District No 1, STARS BNP Ser
2004-110............................................... 3.97 01/08/07 13,190,000
14,010 Westminster, Multifamily Housing Camden Arbors Apartments
Ser 2004............................................... 3.91 01/08/07 14,010,000
Delaware
7,700 Delaware Economic Development, St Andrew's School Ser
2004................................................... 3.90 01/08/07 7,700,000
8,820 New Castle County, University Courtyard Apartments Ser
2005................................................... 3.95 01/08/07 8,820,000
District of Columbia
3,500 District of Columbia, Public Welfare Foundation Ser
2000................................................... 3.92 01/08/07 3,500,000
Florida
17,570 Broward County School Board, Ser 2005 COPs (FSA)......... 3.90 01/08/07 17,570,000
13,800 Cape Coral, Water & Sewer Ser 2006 P-FLOATs PT- 3695
(Ambac)................................................ 3.95 01/08/07 13,800,000
Capital Trust Agency,
20,655 Multifamily Housing Floater-TRs Ser 2005 F7............ 4.08 01/08/07 20,655,000
16,675 Multifamily Housing Ser 2006 P-FLOATs MT-194........... 3.99 01/08/07 16,675,000
24,500 Collier County Health Facilities Authority, The Moorings
Inc Ser 2005........................................... 3.91 01/08/07 24,500,000
26,440 Dade County, Water & Sewer System Ser 1994 (FGIC)........ 3.89 01/08/07 26,440,000
22,250 Dade County Industrial Development Authority, Dolphins
Stadium Ser 1985 B & C................................. 3.76 01/08/07 22,250,000
55,000 Florida Gas Utility, Gas Supply Acquisition No 2 Ser 2006
A-1.................................................... 3.91 01/08/07 55,000,000
7,325 Florida Housing Finance Corporation, Monterey Lake
Apartments 2005 Ser C.................................. 3.92 01/08/07 7,325,000
22,200 Jacksonville Health Facilities Authority, Charity
Obligated Group Ser 1997C (MBIA)....................... 3.95 01/02/07 22,200,000
8,000 Leesburg, The Villages Regional Hospital Ser 2006
(Radian)............................................... 3.97 01/08/07 8,000,000
56,350 Miami-Dade County, Water & Sewer System Ser 2005 (FSA)... 3.93 01/08/07 56,350,000
8,800 Miami-Dade County Educational Facilities Authority,
Carlos Albizu University Ser 2000...................... 3.95 01/08/07 8,800,000
12,735 Orange County Housing Finance Authority, Post Lake
Apartments Ser 1997 F.................................. 3.95 01/08/07 12,735,000
</Table>
See Notes to Financial Statements
7
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Orlando Utilities Commission,
$ 18,300 Water & Electric Ser 2002 A............................ 3.86% 01/08/07 $ 18,300,000
37,940 Water & Electric Ser 2002 B (DD)....................... 3.91 01/08/07 37,940,000
4,165 Palm Beach County School Board,
Ser 2004 A COPs ROCs II-R Ser 6008 (FGIC).............. 3.95 01/08/07 4,165,000
33,695 Port St Lucie, Utility System Ser 2005 (MBIA)............ 3.90 01/08/07 33,695,000
Georgia
Atlanta,
11,625 Airport Ser 2003RF B-2 (MBIA).......................... 3.89 01/08/07 11,625,000
15,000 Sub Lien Tax Allocation Atlantic Station Ser 2006...... 4.01 01/08/07 15,000,000
7,900 Water & Wastewater Ser 2001 B (FSA).................... 3.93 01/08/07 7,900,000
13,000 DeKalb County Hospital Authority, DeKalb Medical Center
Ser 2005............................................... 3.92 01/08/07 13,000,000
16,550 DeKalb Private Hospital Authority, Egleston Children's
Health Care System Ser 1994 B.......................... 3.91 01/08/07 16,550,000
11,000 Floyd County Development Authority, Berry College Ser
2006................................................... 3.92 01/08/07 11,000,000
8,900 Fulton County Development Authority, St George Village
CCRC Ser 2004.......................................... 3.90 01/08/07 8,900,000
49,500 Georgia Municipal Gas Authority, Gas Portfolio II Ser
1997 C................................................. 3.95 01/08/07 49,500,000
Hawaii
13,625 Hawaii, ROCs II-R Ser 6012 (MBIA)........................ 3.95 01/08/07 13,625,000
8,400 University of Hawaii Board of Regents,
Ser 2006 A P-FLOATs PT-3685 (MBIA)..................... 3.95 01/08/07 8,400,000
Illinois
14,800 Bi-State Development Agency of the Missouri-Illinois
Metropolitan District, Metrolink Cross County Extension
Ser 2002 A (FSA)....................................... 3.93 01/08/07 14,800,000
Chicago,
6,505 2004 Ser A P-FLOATs PT-2361 (FSA)...................... 3.95 01/08/07 6,505,000
7,415 Chicago O'Hare International Airport Third Lien
Ser 2005 A P-FLOATs PT-3340 (MBIA)................... 3.95 01/08/07 7,415,000
96,000 Chicago O'Hare International Airport Third Lien
Ser 2005 C & D (CIFG)................................ 3.90 01/08/07 96,000,000
17,900 Neighborhoods Alive Ser 21 B (MBIA).................... 3.95 01/08/07 17,900,000
25,000 Refg Ser 2005 D (FSA).................................. 3.91 01/08/07 25,000,000
11,000 Ser 2002 B (FGIC)...................................... 3.96 01/08/07 11,000,000
5,300 Chicago Board of Education, Ser 2004 C-2 (FSA)........... 3.91 01/08/07 5,300,000
82,000 Cook County, Ser 2002 B.................................. 3.93 01/08/07 82,000,000
12,400 Glendale Heights, Glendale Lakes Ser 2000................ 3.91 01/08/07 12,400,000
Illinois Development Finance Authority,
6,905 Jewish Federation of Metropolitan Chicago Ser 1999
(Ambac).............................................. 3.95 01/08/07 6,905,000
20,000 Presbyterian Home Lake Forest Place Ser 1996 (FSA)..... 3.93 01/08/07 20,000,000
</Table>
See Notes to Financial Statements
8
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Illinois Finance Authority,
$ 7,500 Dominican University Ser 2006.......................... 3.95% 01/08/07 $ 7,500,000
10,000 Elmhurst Memorial Healthcare Municipal CRVS Ser
2006-2001............................................ 3.96 01/08/07 10,000,000
23,800 Loyola University Health System Ser 2006 C............. 3.93 01/08/07 23,800,000
20,000 Rush University Medical Center Ser 2006 A-1 (MBIA)..... 3.89 01/08/07 20,000,000
7,500 Three Crowns Park Ser 2006 C........................... 3.93 01/08/07 7,500,000
Illinois Health Facilities Authority,
56,140 Advocate Health Care Network Ser 1997 B................ 3.91 01/08/07 56,140,000
40,000 Northwestern Memorial Hospital Ser 1995................ 3.95 01/08/07 40,000,000
11,595 Kane, Cook & DuPage Counties, School District #U-46
PUTTERs Ser 426 (Ambac)................................ 3.97 01/08/07 11,595,000
5,020 Metropolitan Pier & Exposition Authority, McCormick Place
Expansion Ser 2002 A Eagle #20040030 Class A (MBIA).... 3.96 01/08/07 5,020,000
13,050 Oak Forest, Homewood South Suburban Mayors & Managers
Association Ser 1989................................... 3.96 01/08/07 13,050,000
32,770 Regional Transportation Authority, Refg Ser 2005 B....... 3.90 01/08/07 32,770,000
Roaring Fork Municipal Products,
6,460 Chicago Water Ser 2006 A Class A Certificates Ser
2006-7 (Ambac)....................................... 3.98 01/08/07 6,460,000
8,395 Kendall & Kane Counties Community Unit School District
No 115 Class A Certificates Ser 2006-4 (FSA)......... 3.99 01/08/07 8,395,000
Indiana
7,105 Franklin Community Multi-School Building Corporation, Ser
2004 ROCs II-R Ser 2140 (FGIC)......................... 3.95 01/08/07 7,105,000
4,400 Indiana Educational Facilities Authority, Bethel College
Ser 2004............................................... 3.91 01/08/07 4,400,000
50,000 Indiana Health & Educational Facility Financing
Authority, Sisters of St Francis Health System Ser 2006
A (MBIA)............................................... 3.90 01/08/07 50,000,000
11,765 Indiana Health Facility Financing Authority, Deaconess
Hospital Ser 2004 B.................................... 3.96 01/08/07 11,765,000
1,970 Indianapolis, Health Quest Realty XXI Ser 1994 A TOBs
(FHA).................................................. 4.08 01/08/07 1,970,000
7,000 Indianapolis Local Public Improvement Bond Bank,
Waterworks Ser 2005 H (MBIA)........................... 3.89 01/08/07 7,000,000
990 Merrillville, Southlake Care Center Ser 1992 A TOBs
(FHA).................................................. 4.08 01/08/07 990,000
12,400 Purdue University, Student Facilities System Ser 2005
A...................................................... 3.90 01/08/07 12,400,000
25,800 Richmond Hospital Authority, Reid Hospital Ser 2005 A
(FSA).................................................. 3.90 01/08/07 25,800,000
2,045 South Bend, Fountainview Place Ser 1992 A TOBs (FHA)..... 4.08 01/08/07 2,045,000
11,000 Zionsville Community Schools Building Corporation, Boone
County Ser 2005 A P-FLOATs PT-2870 (FSA)............... 3.95 01/08/07 11,000,000
Iowa
Iowa Finance Authority,
25,390 Iowa Health System Ser 2005 A-1 (FGIC)................. 3.90 01/08/07 25,390,000
9,445 Northcrest Inc Ser 2006................................ 3.93 01/08/07 9,445,000
</Table>
See Notes to Financial Statements
9
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Kansas
$ 30,315 Kansas Department of Transportation, Highway Ser 2004
C-2.................................................... 3.87% 01/08/07 $ 30,315,000
Kentucky
10,900 Georgetown, Industrial Building Refg Georgetown College
Ser 2006............................................... 3.96 01/08/07 10,900,000
17,190 Henderson County, Community United Methodist Hospital Inc
Ser 2003 B............................................. 3.96 01/08/07 17,190,000
116,900 Kentucky Public Energy Authority Inc, Gas Supply Ser 2006
A...................................................... 4.00 01/02/07 116,900,000
12,975 Louisville & Jefferson County Metropolitan Government,
Waterford Place Apartments Ser 2003.................... 3.90 01/08/07 12,975,000
36,585 Ohio County, Big Rivers Electric Corp Ser 1983 (Ambac)... 3.93 01/08/07 36,585,000
10,375 Williamsburg, Cumberland College Ser 2002................ 3.96 01/08/07 10,375,000
Louisiana
12,000 Louisiana Municipal Natural Gas Purchasing & Distribution
Authority, Gas Project No 1 Ser 2006 PUTTERs Ser
1411Q.................................................. 3.97 01/08/07 12,000,000
Maryland
Maryland Health & Higher Educational Facilities
Authority,
6,400 Catholic Health Initiatives Ser 1997 B................. 3.95 01/08/07 6,400,000
34,995 Mercy Medical Center Ser 2006 P-FLOATs MT-276.......... 3.99 01/08/07 34,995,000
Massachusetts
65,400 Massachusetts, Refg 2001 Ser B........................... 3.96 01/08/07 65,400,000
Massachusetts Development Finance Agency,
11,265 Dana Hall School Ser 2004.............................. 3.92 01/08/07 11,265,000
10,415 New Jewish High School Ser 2002........................ 3.91 01/08/07 10,415,000
14,800 Phillips Academy Ser 2003.............................. 3.91 01/08/07 14,800,000
7,000 The Institute of Contemporary Art Ser 2004 A........... 3.86 01/08/07 7,000,000
29,100 Massachusetts Water Resources Authority, Multi-Modal Sub
2000 Ser C (FGIC)...................................... 3.88 01/08/07 29,100,000
Michigan
80,000 Detroit, Water Supply System Refg Second Lien Ser 2001-C
(FGIC)................................................. 3.93 01/08/07 80,000,000
19,185 Holt Public Schools, Refg Ser 2002....................... 3.93 01/08/07 19,185,000
22,000 Kalamazoo Hospital Finance Authority, Bronson Methodist
Hospital Ser 2006 (FSA)................................ 3.89 01/08/07 22,000,000
Kent Hospital Finance Authority,
17,800 Metropolitan Hospital Ser 2005 B....................... 3.96 01/08/07 17,800,000
26,050 Spectrum Health Ser 2005 A (FGIC)...................... 3.89 01/08/07 26,050,000
Michigan Hospital Finance Authority,
15,000 Ascension Health Ser 1999 B............................ 3.88 01/08/07 15,000,000
79,650 Henry Ford Health System Ser 2006 B & C................ 3.90 01/08/07 79,650,000
</Table>
See Notes to Financial Statements
10
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
$ 6,000 Michigan Strategic Fund, The Van Andel Research Institute
Ser 2001............................................... 3.95% 01/08/07 $ 6,000,000
11,100 Oakland University, Ser 2001 (FGIC)...................... 4.00 01/08/07 11,100,000
8,655 RBC Municipal Products Trust Inc, Detroit Sewage Disposal
System Ser 2003 A Floater Certificates Ser I-2 (FSA)... 3.96 01/08/07 8,655,000
Minnesota
32,080 Minneapolis, Fairview Health Services Ser 2005 B
(Ambac)................................................ 3.90 01/08/07 32,080,000
14,700 Oak Park Heights, Multifamily Boutwells Landing Ser
2005................................................... 3.92 01/08/07 14,700,000
10,710 University of Minnesota Regents, Ser 1999 A.............. 3.97 01/08/07 10,710,000
Mississippi
49,500 Mississippi Development Bank, MGAM Natural Gas Supply Ser
2005................................................... 3.88 01/08/07 49,500,000
13,125 Mississippi Hospital Equipment & Facilities Authority,
Baptist Memorial Health Care Ser 2004B1 P-FLOATs
PA-1276................................................ 3.96 01/08/07 13,125,000
42,800 Perry County, Leaf River Forest Products Inc Ser 2002.... 3.93 01/08/07 42,800,000
Missouri
64,000 Kansas City Industrial Development Authority, Kansas City
Downtown Redevelopment District
Ser 2005 A (Ambac) & 2006 A (Ambac).................... 3.95 01/08/07 64,000,000
7,005 Kansas City Tax Increment Financing Commission, Chouteau
I-35 Ser 2003 A (MBIA)................................. 3.95 01/08/07 7,005,000
7,975 Kirkwood School District Educational Facilities
Authority, Ser 2005 B P-FLOATs PT-3164 (MBIA).......... 3.95 01/08/07 7,975,000
Nebraska
52,190 American Public Energy Agency, Gas Supply Ser 2005A...... 3.88 01/08/07 52,190,000
20,630 Lancaster County Hospital Authority No 1, BryanLGH
Medical Center Ser 2002 (Ambac)........................ 4.00 01/02/07 20,630,000
7,000 Omaha, Eagle #2004001 Class A............................ 3.96 01/08/07 7,000,000
Nevada
Clark County,
28,000 Airport Improvement Refg 1993 Ser A (MBIA)............. 3.90 01/08/07 28,000,000
117,315 Airport System Sub-Lien Ser 2001C (FGIC) & Ser 2005 D-1
(FGIC)............................................... 3.90 01/08/07 117,315,000
16,000 Las Vegas-McCarran International Airport Passenger
Facility 2005 Ser A (MBIA) (AMT)..................... 3.96 01/08/07 16,000,000
10,500 Las Vegas, Andre Agassi Charitable Foundation Ser 2005... 3.91 01/08/07 10,500,000
New Hampshire
New Hampshire Health & Education Facilities Authority,
8,500 LRG Healthcare Ser 2006 B.............................. 3.96 01/08/07 8,500,000
8,500 Tilton School Ser 2006................................. 3.92 01/08/07 8,500,000
</Table>
See Notes to Financial Statements
11
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
New Jersey
$ 20,340 New Jersey Economic Development Authority, School
Facilities Construction Ser 2005 O ROCs II-R Ser 437... 3.95% 01/08/07 $ 20,340,000
2,430 New Jersey Transportation Trust Fund Authority, Ser 2004
A PUTTERs Ser 503 (FGIC)............................... 3.95 01/08/07 2,430,000
New York
6,300 Monroe County Industrial Development Agency, St John
Fisher College Ser 2005 (Radian)....................... 3.85 01/08/07 6,300,000
78,500 New York City Industrial Development Agency, One Bryant
Park LLC Ser 2004 A.................................... 3.96 01/08/07 78,500,000
5,100 New York City Transitional Finance Authority, Future Tax
Fiscal 2007 Ser A P-FLOATs PT-3668..................... 3.95 01/08/07 5,100,000
17,000 New York State Dormitory Authority, Rochester General
Hospital Ser 2005 P-FLOATs PA-1335 (Radian)............ 3.96 01/08/07 17,000,000
10,000 New York State Local Government Assistance Corporation,
Sub Lien Ser 2003 A-4V (FSA)........................... 3.90 01/08/07 10,000,000
700 Suffolk County Water Authority, Ser 2003 BANs............ 3.85 01/08/07 700,000
Triborough Bridge & Tunnel Authority,
200 Ser 2005 B-2........................................... 3.90 01/08/07 200,000
200 Ser 2005 B-4........................................... 3.88 01/08/07 200,000
25,805 Special Obligation Ser 2000 C (FSA).................... 3.85 01/08/07 25,805,000
North Carolina
31,025 Cary, Ser 2006........................................... 3.88 01/08/07 31,025,000
5,150 Charlotte, Convention Facility Ser 2003 B COPs........... 3.90 01/08/07 5,150,000
47,400 Charlotte, Water & Sewer System Ser 2006 B............... 3.89 01/08/07 47,400,000
7,505 Guilford County, Ser 2005 A.............................. 3.90 01/08/07 7,505,000
7,375 Mecklenburg County, Ser 2004 COPs........................ 3.90 01/08/07 7,375,000
North Carolina,
15,295 Ser 2002 E............................................. 3.88 01/08/07 15,295,000
36,810 Ser 2002 E............................................. 3.87 01/08/07 36,810,000
North Carolina Capital Facilities Agency,
12,900 Capital Area YMCA Ser 2002............................... 3.97 01/08/07 12,900,000
9,500 Durham Academy Ser 2001.................................. 3.92 01/08/07 9,500,000
69,165 North Carolina Eastern Municipal Power Agency, Power
System Ser 2006 A (MBIA)............................... 3.89 01/08/07 69,165,000
North Carolina Medical Care Commission,
67,130 Duke University Health System Ser 2005 A & C........... 3.88 01/08/07 67,130,000
33,200 Firsthealth of the Carolinas Ser 2002.................. 3.90 01/08/07 33,200,000
29,900 North Carolina Baptist Hospitals Ser 2000.............. 3.90 01/08/07 29,900,000
52,000 Raleigh, Downtown Improvement Ser 2005 B COPs............ 3.89 01/08/07 52,000,000
30,300 Wake County, School Bonds Ser 2004 A..................... 3.88 01/08/07 30,300,000
</Table>
See Notes to Financial Statements
12
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Ohio
$ 4,000 Cincinnati City School District,
Ser 2003 Eagle #20040034 Class A (FSA)................. 3.96% 01/08/07 $ 4,000,000
74,070 Franklin County, Ohio Health Corp Ser 2006 (Ambac)
(DD)................................................... 3.88 01/08/07 74,070,000
35,000 Montgomery County,Catholic Health Initiatives
Ser 2006 B-1 & B-2..................................... 3.93 01/08/07 35,000,000
Ohio,
10,000 Common Schools Ser 2006 C.............................. 3.90 01/08/07 10,000,000
5,545 Ser 2004 P-FLOATs PT-2137.............................. 3.94 01/08/07 5,545,000
15,805 Portage County, Robinson Memorial Hospital Ser 2005...... 3.96 01/08/07 15,805,000
19,170 University of Toledo, Ser 2002 (FGIC).................... 4.00 01/02/07 19,170,000
Oklahoma
8,000 Oklahoma Student Loan Authority, Ser 2005A (MBIA)
(AMT).................................................. 3.95 01/08/07 8,000,000
10,985 Oklahoma Water Resources Board, State Loan Program Ser
2003 A................................................. 3.55 04/02/07 10,985,000
Oregon
14,500 Clackamas County Hospital Facility Authority, Legacy
Health System Ser 2003................................. 3.90 01/08/07 14,500,000
10,105 Oregon, Homeowner Ser 2005 A P-FLOATs MT-133............. 3.96 01/08/07 10,105,000
20,000 Oregon Health Sciences University, OHSU Medical Group Ser
2004 A................................................. 3.93 01/08/07 20,000,000
Pennsylvania
11,300 Allegheny County Industrial Development Authority,
Carnegie Museums of Pittsburgh Ser 2002................ 3.95 01/08/07 11,300,000
25,000 Cumberland County Municipal Authority, Asbury
Pennsylvania Obligated Group Ser 2006.................. 3.93 01/08/07 25,000,000
3,200 Derry Township Industrial & Commercial Development
Authority, Hotel Tax Arena Ser 2000 A.................. 3.95 01/08/07 3,200,000
25,300 Erie City Water Authority, Ser 2006 A (FSA).............. 3.95 01/08/07 25,300,000
9,500 Lancaster County Hospital Authority, Willow Valley
Retirement Communities Ser 2002 B (Radian)............. 3.95 01/08/07 9,500,000
11,300 Northampton County Higher Education Authority, Lafayette
College Ser 1998 A..................................... 3.90 01/08/07 11,300,000
15,000 Pennsylvania Higher Education Assistance Agency, Student
Loan 2001 Ser A (Ambac) (AMT).......................... 4.00 01/08/07 15,000,000
Pennsylvania Turnpike Commission,
29,900 2002 Ser A-2........................................... 3.95 01/08/07 29,900,000
10,000 2002 Ser B............................................. 3.91 01/08/07 10,000,000
47,860 Philadelphia, Water & Wastewater Ser 2003 (FSA).......... 3.89 01/08/07 47,860,000
21,895 York General Authority, Harrisburg School District Subser
1996 B (Ambac)......................................... 3.92 01/08/07 21,895,000
</Table>
See Notes to Financial Statements
13
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Rhode Island
$ 5,805 Rhode Island Convention Center Authority, Refg 2001 Ser A
(MBIA)................................................. 3.93% 01/08/07 $ 5,805,000
Rhode Island Health & Educational Building Corporation,
11,100 Meeting Street Center Ser 2005......................... 3.93 01/08/07 11,100,000
25,535 Roger Williams University Ser 2006 A (Radian).......... 3.90 01/08/07 25,535,000
South Carolina
37,500 Charleston Educational Excellence Finance Corporation,
Charleston County School District Ser 2005 ROCs II-R
Ser 471................................................ 3.95 01/08/07 37,500,000
13,100 Florence County, McLeod Regional Medical Center Ser 1985
A (FGIC)............................................... 3.93 01/08/07 13,100,000
5,000 Greenwood County, Fuji Photo Film Inc Ser 2004 (AMT)..... 4.10 01/08/07 5,000,000
10,955 South Carolina Educational Facilities Authority,
Charleston Southern University Ser 2003................ 3.90 01/08/07 10,955,000
South Carolina Jobs Economic Development Authority,
5,600 Burroughs & Chapin Business Park Ser 2002.............. 3.95 01/08/07 5,600,000
7,500 Oconee Memorial Hospital Ser 2006 B (Radian)........... 3.94 01/08/07 7,500,000
4,530 South Carolina Public Service Authority, ROCs II-R Ser
6007 (Ambac)........................................... 3.95 01/08/07 4,530,000
Tennessee
10,300 Chattanooga Health, Educational & Housing Facility Board,
The Baylor School Ser 2004............................. 3.92 01/08/07 10,300,000
16,400 Greeneville Health & Educational Facilities Board,
Laughlin Memorial Hospital Ser 2004.................... 3.92 01/08/07 16,400,000
59,400 Jackson, Jackson-Madison County General Hospital Ser 2006
B (Ambac).............................................. 3.89 01/08/07 59,400,000
9,500 Jackson Health, Educational & Housing Facility Board,
Union University Ser 2005.............................. 3.92 01/08/07 9,500,000
17,945 Memphis Health Educational & Housing Facility Board,
Watergrove Apartments Ser 2004......................... 3.90 01/08/07 17,945,000
Metropolitan Government of Nashville & Davidson County
Health & Educational Facilities Board,
7,600 Ensworth School Ser 2002............................... 3.92 01/08/07 7,600,000
7,270 Mary Queen of Angels Inc Ser 2000...................... 3.92 01/08/07 7,270,000
33,565 Vanderbilt University Ser 2005 A-2..................... 3.84 01/08/07 33,565,000
23,700 Montgomery County Public Building Authority, Pooled
Financing Ser 1999..................................... 3.90 01/08/07 23,700,000
22,000 Shelby County Health, Educational & Housing Facilities
Board, Baptist Memorial Health Care Ser 2004 A P-FLOATs
PA-1277................................................ 3.96 01/08/07 22,000,000
Tennergy Corporation,
28,000 Gas Ser 2006 A PUTTERs Ser 1258Q....................... 3.97 01/08/07 28,000,000
55,000 Gas Ser 2006 B PUTTERs Ser 1260B....................... 3.96 01/08/07 55,000,000
</Table>
See Notes to Financial Statements
14
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Tennessee Energy Acquisition Corporation,
$ 30,000 Gas Ser 2006 A Floaters Ser 2006-47TP.................. 3.96% 01/08/07 $ 30,000,000
28,525 Gas Ser 2006 A PUTTERs Ser 1418........................ 3.97 01/08/07 28,525,000
10,000 Gas Ser 2006 A ROCs II-R Ser 598....................... 3.95 01/08/07 10,000,000
6,395 Wilson County, Ser 2005 P-FLOATs PT-2661 (MBIA).......... 3.95 01/08/07 6,395,000
Texas
6,510 Beaumont, Waterworks & Sewer System
Ser 2005 P-FLOATs PT-2895 (MBIA)....................... 3.95 01/08/07 6,510,000
34,155 Coastal Bend Health Facilities Development Corporation,
Christus Health Ser 2005 Subser B-3 (Ambac)............ 3.89 01/08/07 34,155,000
6,125 Dallas Independent School District,
Ser 2004 A ROCs II-R Ser 6038.......................... 3.95 01/08/07 6,125,000
8,570 El Paso Independent School District,
Ser 2004 A ROCs II-R Ser 2129.......................... 3.95 01/08/07 8,570,000
19,519 Garland Health Facilities Development Corporation,
Chambrel Club Hill Ser 2002............................ 3.91 01/08/07 19,519,000
Harris County Health Facilities Development Corporation,
30,000 Baylor College of Medicine Ser 2005 A (Ambac).......... 3.89 01/08/07 30,000,000
65,000 Christus Health Ser 2005 Subser A-1 (Ambac)............ 3.89 01/08/07 65,000,000
84,700 Methodist Hospital System Ser 2006 A................... 3.99 01/02/07 84,700,000
20,300 Harris County Industrial Development Corporation, Baytank
Inc Ser 1998........................................... 3.95 01/08/07 20,300,000
5,150 Houston Combined Utility System Ser 2004 ROCs II-R Ser
4559 (FSA)............................................. 3.95 01/08/07 5,150,000
5,830 Houston Health Facilities Development Corporation,
Buckingham Senior Living Community Inc Ser 2004 C...... 3.91 01/08/07 5,830,000
14,000 Lower Neches Valley Authority, Chevron USA Inc Ser
1987................................................... 3.63 02/15/07 14,000,000
37,100 North Texas Tollway Authority, Dallas North Tollway
System Ser 2005 C (FGIC)............................... 3.90 01/08/07 37,100,000
5,305 Northside Independent School District,
Ser 2003 P-FLOATs PT-2254.............................. 3.95 01/08/07 5,305,000
6,530 Port Arthur Independent School District,
Ser 2005 P-FLOATs PT-2679 (FGIC)....................... 3.95 01/08/07 6,530,000
9,035 Roaring Fork Municipal Products, Dallas Independent
School District Class A Certificates Ser 2004-6........ 3.99 01/08/07 9,035,000
20,700 San Antonio, Water System Sub Lien Ser 2003 B (MBIA)..... 3.92 01/08/07 20,700,000
6,795 Texas Department of Housing & Community Affairs, High
Point III Development Ser 1993 A....................... 3.92 01/08/07 6,795,000
16,000 Texas Transportation Commission, Mobility Fund Ser
2006-B................................................. 3.52 09/05/07 16,000,000
7,180 Upper Trinity Regional Water District, Regional Treated
Water Supply System Refg Ser 2005 P-FLOATs PT-3290
(Ambac)................................................ 3.96 01/08/07 7,180,000
</Table>
See Notes to Financial Statements
15
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Utah
$ 15,000 Central Utah Water Conservancy District, Ser 1998 E
(Ambac)................................................ 3.92% 01/08/07 $ 15,000,000
Murray City,
11,900 IHC Health Services Inc Ser 2003 D..................... 3.95 01/02/07 11,900,000
43,825 IHC Health Services Inc Ser 2005 D..................... 3.91 01/08/07 43,825,000
Various States
50,000 J P Morgan Chase & Co, I-PUTTERs Ser 1633P............... 4.11 01/08/07 50,000,000
84,065 Puttable Floating Option Tax-Exempt Receipts, P-FLOATs
EC-002................................................. 4.11 01/08/07 84,065,000
Vermont
16,455 Vermont Economic Development Authority, Wake Robin
Corporation Ser 2006 B................................. 3.95 01/08/07 16,455,000
11,000 Vermont Housing Finance Agency, West Block University of
Vermont Apartments Ser 2004 A.......................... 3.93 01/08/07 11,000,000
Virginia
16,000 Chesapeake Hospital Authority, Chesapeake General
Hospital Ser 2001A..................................... 3.92 01/08/07 16,000,000
83,020 Fairfax County Industrial Development Authority, Inova
Health System Foundation Ser 2005 A-1, A-2 & C-2....... 3.87 01/08/07 83,020,000
41,100 Loudoun County Industrial Development Authority, Howard
Hughes Medical Institute Ser 2003 F.................... 3.88 01/08/07 41,100,000
Washington
6,050 Bellevue, Ser 2004 Eagle #20041011 Class A (MBIA)........ 3.96 01/08/07 6,050,000
9,775 Eclipse Funding Trust, Seattle Water System
Ser 2005 Solar Eclipse Ser 2006-0002 (MBIA)............ 3.94 01/08/07 9,775,000
14,675 Energy Northwest, Columbia Generating Station Electric
Ser 2006-A ROCs II-R Ser 6063.......................... 3.95 01/08/07 14,675,000
10,000 King County, Sewer Ser 2006 A............................ 3.89 01/08/07 10,000,000
13,860 King County Rural Library District, Ser 2005 P-FLOATs
PT-3053 (MBIA)......................................... 3.95 01/08/07 13,860,000
4,145 Pierce County, Puyallup School District No 3 PUTTERs Ser
415 (FSA).............................................. 3.97 01/08/07 4,145,000
20,000 Washington Health Care Facilities Authority, Swedish
Health Services Ser 2006............................... 4.00 01/08/07 20,000,000
10,000 Washington State, Floater-TRs Ser 2006 P23U 2006 D
(MBIA)................................................. 4.03 01/08/07 10,000,000
99,200 Washington State Housing Commission, Mirabella Ser 2006
A...................................................... 4.00 01/02/07 99,200,000
Wisconsin
9,500 Brokaw, Wausau Paper Mills Co Ser 1995 (AMT)............. 4.16 01/08/07 9,500,000
6,225 Wisconsin, Clean Water 2004 Ser 1 ROCs II-R Ser 2165
(MBIA)................................................. 3.95 01/08/07 6,225,000
3,250 Wisconsin Health & Educational Facilities Authority,
Ministry Health Care PUTTERs Ser 399 (MBIA)............ 3.97 01/08/07 3,250,000
</Table>
See Notes to Financial Statements
16
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------
Wyoming
$ 50,000 Campbell County, Two Elk Power Generation Station Ser
2005 B (AMT)........................................... 3.80% 11/30/07 $ 50,000,000
--------------
Total Short-Term Variable Rate Municipal Obligations (Cost
$5,649,664,000)............................................................. 5,649,664,000
--------------
</Table>
<Table>
<Caption>
YIELD TO
MATURITY
COUPON MATURITY ON DATE OF
RATE DATE PURCHASE
------ -------- ----------
Tax-Exempt Commercial Paper (4.0%)
Georgia
Georgia Municipal Electric Authority,
$ 41,955 Ser TE-A................................. 3.63% 01/11/07 3.63% $ 41,955,000
34,955 Ser TE-B................................. 3.60 04/12/07 3.60 34,955,000
Kentucky
Kentucky Asset Liability Commission,
37,000 General Fund Second Ser 2005 A-1......... 3.57 01/17/07 3.57 37,000,000
15,000 General Fund Second Ser 2005 A-2......... 3.53 05/01/07 3.53 15,000,000
15,000 General Fund Second Ser 2005 A-2......... 3.53 05/07/07 3.53 15,000,000
Maryland
Maryland Health & Higher Educational
Facilities Authority,
15,000 Johns Hopkins Hospital Ser B............. 3.60 01/22/07 3.60 15,000,000
20,000 Johns Hopkins Hospital Ser B............. 3.54 01/26/07 3.54 20,000,000
Massachusetts
15,000 Massachusetts, Ser H....................... 3.72 01/19/07 3.72 15,000,000
Texas
20,000 Dallas Area Rapid Transit, Senior Sub Lien
Ser 2001................................. 3.58 02/20/07 3.58 20,000,000
24,900 University of Texas Regents, Permanent
University Fund Ser A.................... 3.60 01/18/07 3.60 24,900,000
--------------
Total Tax-Exempt Commercial Paper (Cost $238,810,000)...................... 238,810,000
--------------
Short-Term Municipal Notes & Bonds (2.8%)
Massachusetts
19,000 Pioneer Valley Transit Authority, Ser 2006
RANs, dtd 08/03/06....................... 4.50 08/03/07 4.00 19,053,970
</Table>
See Notes to Financial Statements
17
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
<Table>
<Caption>
YIELD TO
PRINCIPAL MATURITY
AMOUNT IN COUPON MATURITY ON DATE OF
THOUSANDS RATE DATE PURCHASE VALUE
- ---------------------------------------------------------------------------------------------------------
Michigan
$ 30,000 Michigan, Fiscal 2007 Ser A, dtd
12/13/06................................. 4.25% 09/28/07 3.50% $ 30,162,918
New Jersey
61,475 New Jersey, Ser Fiscal 2007 A TRANs, dtd
10/05/06................................. 4.50 06/22/07 3.52 61,750,380
8,000 New Jersey Transit Corporation, Federal
Transit Administration Grants Ser 2000 B
COPs (Ambac), dtd 10/01/00............... 5.50 09/15/07 3.56 8,107,185
New York
10,000 Gloversville City School District, Ser 2006
BANs, dtd 06/29/06....................... 4.50 06/29/07 3.90 10,028,613
South Carolina
6,660 Three Rivers Solid Waste Authority, Ser
2006 BANs, dtd 05/15/06.................. 4.75 01/15/07 3.73 6,662,884
Texas
28,000 Texas, Ser 2006 TRANs, dtd 08/31/06........ 4.50 08/31/07 3.58 28,162,646
--------------
Total Short-Term Municipal Notes & Bonds (Cost $163,928,596)............... 163,928,596
--------------
Total Investments (Cost $6,052,402,596) (a) (b)............... 101.8% 6,052,402,596
Liabilities in Excess of Other Assets......................... (1.8) (108,583,978)
----- --------------
Net Assets.................................................... 100.0% $5,943,818,618
===== ==============
</Table>
See Notes to Financial Statements
18
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
- ---------------------
<Table>
AMT Alternative Minimum Tax.
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
CRVS Custodial Residual & Variable Securities.
DD All or a portion of this security was purchased on a delayed
delivery basis.
Floater-TRs Floating Rate Trust Receipts.
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.
TRANs Tax Revenue Anticipation Notes.
+ Rate shown is the rate in effect at December 31, 2006.
* Date on which the principal amount can be recovered through
demand.
(a) Securities have been designated as collateral in an amount
equal to $135,109,064 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.
CIFG CIFG Assurance North America Inc.
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.
XLCA XL Capital Assurance Inc.
</Table>
See Notes to Financial Statements
19
Active Assets Tax-Free Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2006 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $6,052,402,596)..................................... $6,052,402,596
Cash........................................................ 353,131
Interest receivable......................................... 28,258,165
Prepaid expenses and other assets........................... 181,531
--------------
Total Assets............................................ 6,081,195,423
--------------
Liabilities:
Payable for:
Investments purchased................................... 135,109,064
Investment advisory fee................................. 1,194,500
Distribution fee........................................ 468,140
Administration fee...................................... 234,070
Shares of beneficial interest redeemed.................. 30,131
Accrued expenses and other payables......................... 340,900
--------------
Total Liabilities....................................... 137,376,805
--------------
Net Assets.............................................. $5,943,818,618
==============
Composition of Net Assets:
Paid-in-capital............................................. $5,943,741,111
Accumulated undistributed net investment income............. 47,328
Accumulated net realized gain............................... 30,179
--------------
Net Assets.............................................. $5,943,818,618
==============
Net Asset Value Per Share
5,943,780,996 shares outstanding (unlimited shares
authorized of $.01 par value)............................... $1.00
==============
</Table>
See Notes to Financial Statements
20
Active Assets Tax-Free Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended December 31, 2006 (unaudited)
<Table>
Net Investment Income:
Interest Income............................................. $96,618,067
-----------
Expenses
Investment advisory fee..................................... 7,029,637
Distribution fee............................................ 2,704,544
Administration fee.......................................... 1,352,272
Transfer agent fees and expenses............................ 575,777
Shareholder reports and notices............................. 280,630
Registration fees........................................... 210,373
Custodian fees.............................................. 106,784
Trustees' fees and expenses................................. 35,537
Professional fees........................................... 35,190
Other....................................................... 141,358
-----------
Total Expenses.......................................... 12,472,102
Less: expense offset........................................ (21,225)
-----------
Net Expenses............................................ 12,450,877
-----------
Net Investment Income................................... 84,167,190
Net Realized Gain....................................... 38,783
-----------
Net Increase................................................ $84,205,973
===========
</Table>
See Notes to Financial Statements
21
Active Assets Tax-Free Trust
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 2006 JUNE 30, 2006
----------------- --------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 84,167,190 $ 102,564,742
Net realized gain (loss).................................... 38,783 (8,541)
-------------- --------------
Net Increase............................................ 84,205,973 102,556,201
Dividends to shareholders from net investment income........ (84,160,703) (102,563,944)
Net increase from transactions in shares of beneficial
interest.................................................. 1,306,685,789 1,780,513,305
-------------- --------------
Net Increase............................................ 1,306,731,059 1,780,505,562
Net Assets:
Beginning of period......................................... 4,637,087,559 2,856,581,997
-------------- --------------
End of Period
(Including accumulated undistributed net investment income
of $47,328 and $40,841, respectively)....................... $5,943,818,618 $4,637,087,559
============== ==============
</Table>
See Notes to Financial Statements
22
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (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, in accordance with Rule 2a-7 under the
Act .
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
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 the daily net assets not exceeding $500
million; 0.375% to the portion of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.325% to the portion of the daily net assets
exceeding $750 million but not exceeding $1 billion; 0.30% to the portion of the
daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.275% to
the portion of the daily net assets exceeding $1.5 billion but not exceeding $2
billion; 0.25% to the portion of the daily net assets exceeding $2 billion but
not
23
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
exceeding $2.5 billion; 0.225% to the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; 0.20% to the portion of the daily net
assets exceeding $3 billion but not exceeding $15 billion; and 0.199% to the
portion of the daily net assets exceeding $15 billion.
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.
3. Plan of Distribution
Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the
Investment Adviser and Administrator, 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, 2006, 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, 2006, aggregated $7,402,089,659 and
$6,100,933,217, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator 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. 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. Aggregate
pension costs for the six months ended December 31, 2006, included in Trustees'
fees and expenses in the Statement of Operations amounted to $1,443. At December
31, 2006, the Fund had an accrued pension liability of $62,554 which is included
in accrued expenses in the Statement of Assets and Liabilities.
24
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
The Fund has 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 or she 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, 2006 JUNE 30, 2006
----------------- ---------------
(unaudited)
Shares sold................................................. 13,226,255,365 21,066,195,217
Shares issued in reinvestment of dividends.................. 84,160,703 102,563,944
--------------- ---------------
13,310,416,068 21,168,759,161
Shares redeemed............................................. (12,003,730,279) (19,388,245,856)
--------------- ---------------
Net increase in shares outstanding.......................... 1,306,685,789 1,780,513,305
=============== ===============
</Table>
6. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest
earned on cash balances maintained by the Fund with the transfer agent and
custodian.
7. Federal Income Tax Status
As of June 30, 2006, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year).
8. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is to be
applied to all open tax years as of the effective date. Recent SEC guidance
allows implementing FIN 48 in the fund NAV calculations on the fund's last NAV
calculation in the first required financial statement period. As a result, the
Fund will
25
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2006 (UNAUDITED) continued
incorporate FIN 48 in its annual report on June 30, 2007. The impact to the
Fund's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
26
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, 2006 2006 2005 2004 2003 2002
----------------- -------- -------- -------- -------- --------
(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........ 0.016 0.025 0.013 0.005 0.008 0.014
Less dividends from net investment income.... (0.016) (0.025) (0.013) (0.005) (0.008) (0.014)
------ ------ ------ ------ ------ -------
Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== =======
Total Return................................. 1.56%(1) 2.53% 1.32% 0.50% 0.81% 1.38%
Ratios to Average Net Assets:
Total expenses (before expense offset)....... 0.46%(2) 0.47% 0.49% 0.48% 0.48% 0.48%(3)
Net investment income........................ 3.11%(2) 2.57% 1.30% 0.50% 0.80% 1.38%
Supplemental Data:
Net assets, end of period, in millions....... $5,944 $4,637 $2,857 $2,858 $3,116 $2,947
</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
27
Active Assets Tax-Free Trust
RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED)
On August 1, 2006, a Special Meeting of Shareholders of the Fund was scheduled
in order to vote on the proposals set forth below. The proposals failed to
achieve the quorum necessary in order to hold the meeting, and, therefore, the
meeting was adjourned until several times, most recently to October 30, 2006 to
permit further solicitation of proxies. The meeting was held on October 30, 2006
and the voting results with respect to these proposals were as follows:
(1) Election of Trustees:
<Table>
<Caption>
FOR WITHHOLD ABSTAIN BNV*
--------------------------------------------------------
Frank L. Bowman....................................... 2,348,557,788 107,862,931 0 0
Kathleen A. Dennis.................................... 2,350,261,685 106,159,034 0 0
James F. Higgins...................................... 2,346,721,830 109,698,889 0 0
Joseph J. Kearns...................................... 2,337,325,242 119,095,477 0 0
Michael F. Klein...................................... 2,348,014,185 108,406,534 0 0
W. Allen Reed......................................... 2,344,137,991 112,282,728 0 0
Fergus Reid........................................... 2,337,075,416 119,345,303 0 0
</Table>
The following Trustees were not standing for reelection at this meeting: Michael
Bozic, Dr. Manuel H. Johnson and Michael E. Nugent.
(2) Elimination of certain fundamental investment restrictions:
<Table>
<Caption>
FOR AGAINST ABSTAIN BNV*
--------------------------------------------------------
Elimination of the fundamental policy restricting the
Fund's ability to pledge assets..................... 2,274,894,415 117,760,116 63,766,188 0
Elimination of the fundamental policy restricting
purchases of securities on margin................... 2,264,596,742 127,414,473 64,409,504 0
Elimination of the fundamental policy prohibiting
investments in oil, gas, and other types of minerals
or mineral leases................................... 2,273,783,106 117,811,474 64,826,139 0
Elimination of the fundamental policy prohibiting or
restricting the purchase of securities of issuers in
which Trustees or Officers have an interest......... 2,282,517,803 115,957,097 57,945,819 0
Elimination of the fundamental policy prohibiting
investments for purposes of exercising control...... 2,289,563,672 106,648,557 60,208,490 0
Elimination of the fundamental policy prohibiting the
purchase of common stocks and other instrument...... 2,286,652,969 112,051,233 57,716,517 0
Elimination of the fundamental policy regarding
investments in unseasoned companies................. 2,273,162,958 121,259,107 61,998,654 0
</Table>
28
Active Assets Tax-Free Trust
RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED) continued
(3) Modify certain fundamental investment restrictions:
<Table>
<Caption>
FOR AGAINST ABSTAIN BNV*
--------------------------------------------------------
Modify fundamental policy regarding diversification... 2,278,838,663 108,656,749 68,925,307 0
Modify fundamental policy regarding borrowing money... 2,275,100,601 122,576,820 58,743,298 0
Modify fundamental policy regarding loans............. 2,271,361,791 124,154,742 60,904,186 0
Modify fundamental policy regarding investment in
commodities, commodity contracts and futures
contracts........................................... 2,281,542,166 114,966,343 59,912,210 0
Modify fundamental policy regarding issuance of senior
securities.......................................... 2,282,620,874 110,457,904 63,341,941 0
</Table>
(4) Reclassify certain fundamental policies as non-fundamental policies:
<Table>
<Caption>
FOR AGAINST ABSTAIN BNV*
--------------------------------------------------------
Reclassification as non-fundamental the fundamental
policy regarding the short sale of securities....... 2,279,319,278 117,759,218 59,342,223 0
Reclassification as non-fundamental the fundamental
policy prohibiting investments in other investment
companies........................................... 2,281,558,352 113,210,173 61,652,194 0
Reclassification as non-fundamental the fundamental
policy on the purchase or sale of puts, calls, and
combinations thereof................................ 2,273,540,856 119,560,294 63,319,569 0
</Table>
- ------------------
* Broker "non-votes" are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial
owners or other persons entitled to vote and for which the broker does not
have discretionary voting authority.
29
(This Page Intentionally Left Blank)
(This Page Intentionally Left Blank)
TRUSTEES
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
OFFICERS
Michael E. Nugent
Chairman of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
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 the 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.
Morgan Stanley Distributors Inc., member NASD
(c) 2006 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Active Assets
Tax-Free Trust
Semiannual Report
December 31, 2006
[MORGAN STANLEY LOGO]
AATSAR RA07-00148P-Y12/06
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. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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 second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. 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.
2
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 9, 2007
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 9, 2007
/s/ Francis Smith
- -------------------------------------
Francis Smith
Principal Financial Officer
February 9, 2007
3