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)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Ronald E. Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-296-6990
Date of fiscal year end: June 30, 2008
Date of reporting period: December 31, 2007
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, 2007
MARKET CONDITIONS
The latter half of 2007 was marked by market turmoil and uncertainty. The
dislocations stemming from subprime mortgage woes permeated all sectors of the
fixed income markets, leading to a significant contraction in credit and
liquidity. Growing losses and mark-to-market writedowns announced by major
financial institutions had a crippling effect on the transaction of business.
The monoline bond insurers - insurance companies that provide guarantees to
issuers that enhance their credit and which have played a significant role in
the municipal bond market in recent years - were also caught up in the crisis.
Furthermore, state and local governments began to feel the effects of the
slowing housing market as incoming tax receipts lagged behind projections. At
the same time, signs began to emerge in the fourth quarter of the year that the
problems in the markets were beginning to slow economic growth. In an effort to
spur the economy and ease the liquidity crunch, the Federal Open Market
Committee (the "Fed") lowered the target federal funds rate a total of one
percent in three separate moves between September and year end, bringing the
rate to 4.25 percent.
The troubling events had an impact on tax-exempt money market interest rates as
well. Dealers became reluctant to carry large inventories and in an effort to
appeal to non-traditional investors, kept rates for variable-rate instruments at
attractive levels compared to taxable alternatives. As a result, the Securities
Industry and Financial Markets Association (SIFMA) Index of weekly municipal
variable-rate yields dropped only 31 basis points from 3.73 percent to 3.42
percent during the second half of the year, which did not fully reflect the 100
basis point cut in the federal funds rate target. At the same time, tax-free
money market funds experienced steady cash inflows. The result was an odd
combination of relatively high municipal money market rates amid tight supply
conditions.
PERFORMANCE ANALYSIS
As of December 31, 2007, Active Assets Tax-Free Trust had net assets of
approximately $8.5 billion and an average portfolio maturity of 25 days. For the
six-month period ended December 31, 2007, the Fund provided a total return of
1.62 percent. For the seven-day period ended December 31, 2007, the Fund
provided an effective annualized yield of 3.04 percent and a current yield of
3.00 percent, while its 30-day moving average yield for December was 2.94
percent. Past performance is no guarantee of future results.
Given the unsettling events and uncertain market conditions during the reporting
period, daily and weekly variable-rate securities remained the dominant
investments in the Fund's portfolio. In the latter months of the period,
however, prospects for declining short-term interest rates led us to seek
opportunities to lock in attractive yields through investments in longer-term
fixed-rate instruments. We selectively added to holdings in notes in the six-to-
12 month range and commercial paper in the 30-to-90 day range. A light financing
calendar, however, limited opportunities to extend the weighted average maturity
of the Fund's portfolio.
Growing evidence of a softening economy called for a strong focus on credit
review and analysis. We will continue to proceed with caution as we await a more
stable market environment.
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.
2
<Table>
<Caption>
PORTFOLIO COMPOSITION
Variable Rate Municipal
Obligations 88.0%
Municipal Notes 6.3
Tax-Exempt Commercial Paper 5.7
</Table>
<Table>
<Caption>
MATURITY SCHEDULE
1-30 Days 88.8%
31-60 Days 2.5
61-90 Days 1.2
91-120 Days 0.6
121+ Days 6.9
</Table>
Data as of December 31, 2007. 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.
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
3
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) 869-NEWS, 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 07/01/07 - 12/31/07.
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*
-------------------- -------------------- --------------------
07/01/07 -
07/01/07 12/31/07 12/31/07
-------------------- -------------------- --------------------
Actual (1.62% return)................... $1,000.00 $1,016.20 $2.20
Hypothetical (5% annual return before
expenses)............................. $1,000.00 $1,023.16 $2.20
</Table>
- ---------
* Expenses are equal to the Fund's annualized expense ratio of 0.43%
multiplied by the average account value over the period, multiplied by
185**/365 (to reflect the one-half year period).
** Adjusted to reflect non-business days accruals.
5
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Short-Term Variable Rate Municipal
Obligations (87.6%)
Alabama
$ 19,600 Infirmary Health System Special Care
Facilities Financing Authority of
Mobile, Ser 2006 B...................... 3.43% 01/08/08 $ 19,600,000
30,000 Lower Alabama Gas District, Gas Supply Ser
2007 A.................................. 3.50 01/08/08 30,000,000
129,800 Southeast Alabama Gas District, Supply Ser
2007 A.................................. 3.75 01/02/08 129,800,000
Alaska
Alaska Housing Finance Corporation,
65,400 Home Mortgage Ser 2007 A................ 3.45 01/08/08 65,400,000
30,000 Home Mortgage Ser 2007 D................ 3.40 01/08/08 30,000,000
Arizona
16,700 Pine Ridge Village/Campus Heights LLC,
Northern Arizona University Ser 2005
(FGIC Insd)............................. 3.48 01/08/08 16,700,000
26,605 Sun Devil Energy Center LLC, Arizona State
University Ser 2004 (FGIC Insd)......... 3.48 01/08/08 26,605,000
California
242,050 Enhanced Return Puttable Floating Option
Tax-Exempt Receipts, Ser 2007 P-FLOATs
Ser EC-1008 & EC-1011................... 3.82 01/08/08 242,050,000
81,800 Puttable Floating Option Tax-Exempt
Receipts, Ser 2007 P-FLOATs Ser EC-
1177.................................... 3.82 01/08/08 81,800,000
Colorado
12,000 Broomfield Urban Renewal Authority,
Broomfield Event Center Ser 2005........ 3.44 01/08/08 12,000,000
12,480 Colorado, UCDHSC Fitzsimons Academic
Facilities Ser 2005 B COPs P-FLOATs PT-
3336 (MBIA Insd)........................ 3.59 01/08/08 12,480,000
6,255 Colorado Educational & Cultural Facilities
Authority, Oklahoma's Public Radio Ser
2005 A.................................. 3.44 01/08/08 6,255,000
40,400 Colorado Health Facilities Authority,
Catholic Health Initiatives Ser 2004 B-
4....................................... 3.40 01/08/08 40,400,000
41,000 Colorado Springs, Utilities System Sub
Lien Ser 2007 A......................... 3.48 01/08/08 41,000,000
13,155 Midcities Metropolitan District No 1,
STARS BNP Ser 2004-110.................. 3.52 01/08/08 13,155,000
14,010 Westminster, Multifamily Housing Camden
Arbors Apartments Ser 2004.............. 3.42 01/08/08 14,010,000
Delaware
8,595 New Castle County, University Courtyard
Apartments Ser 2005..................... 3.48 01/08/08 8,595,000
13,010 University of Delaware, Ser 1998.......... 3.40 01/08/08 13,010,000
District of Columbia
1,400 District of Columbia, Public Welfare
Foundation Ser 2000..................... 3.44 01/08/08 1,400,000
</Table>
See Notes to Financial Statements
6
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Florida
$ 13,800 Cape Coral, Water & Sewer Ser 2006 P-
FLOATs PT-3695 (AMBAC Insd)............. 3.61% 01/08/08 $ 13,800,000
20,655 Capital Trust Agency, Multifamily Housing
Floater-TRs Ser 2005 F7................. 3.57 01/08/08 20,655,000
24,500 Collier County Health Facilities
Authority, The Moorings Inc Ser 2005.... 3.48 01/08/08 24,500,000
59,625 Dade County, Water & Sewer System Ser 1994
(FGIC Insd)............................. 3.46 01/08/08 59,625,000
19,000 Gainesville, Utilities System 2007 Ser A.. 3.45 01/08/08 19,000,000
46,575 Highlands County Health Facilities
Authority, Adventist Health
System/Sunbelt Obligated Group Ser 2007
A-1..................................... 3.49 01/08/08 46,575,000
177,540 JEA, Electric System Ser Three 2007 A & B
(CIFG Insd)............................. 3.45 01/08/08 177,540,000
60,850 Miami-Dade County, Water & Sewer System
Ser 2005 (FSA Insd)..................... 3.43 01/08/08 60,850,000
8,600 Miami-Dade County Educational Facilities
Authority, Carlos Albizu University Ser
2000.................................... 3.53 01/08/08 8,600,000
36,210 North Broward Hospital District, Ser 2005
A (MBIA Insd)........................... 3.47 01/08/08 36,210,000
88,450 Orlando Utilities Commission, Water &
Electric Ser 2002 A..................... 3.38 01/08/08 88,450,000
10,000 Pinellas County Health Facilities
Authority, Pooled Loan Ser 1985 (AMBAC
Insd)................................... 3.80 01/02/08 10,000,000
Port St Lucie,
44,560 Municipal Complex Ser 2007 COPs (MBIA
Insd)................................... 3.45 01/08/08 44,560,000
35,895 Utility System Ser 2005 (MBIA Insd)..... 3.45 01/08/08 35,895,000
80,595 Puttable Floating Option Tax-Exempt
Receipts, Miami-Dade County School
District Ser 2007 A BANs P-FLOATs MT-
413..................................... 3.97 01/08/08 80,595,000
45,595 Seminole County, Water & Sewer Ser 2007
PUTTERs Ser 2039........................ 3.50 01/08/08 45,595,000
Georgia
16,610 DeKalb County Hospital Authority, DeKalb
Medical Center Ser 2005................. 3.44 01/08/08 16,610,000
16,550 DeKalb Private Hospital Authority,
Egleston Children's Health Care System
Ser 1994 B.............................. 3.44 01/08/08 16,550,000
62,400 Enhanced Return Puttable Floating Option
Tax-Exempt Receipts, Main Street Gas Ser
2006 P-FLOATs Ser EC-1029............... 4.02 01/08/08 62,400,000
11,000 Floyd County Development Authority, Berry
College Ser 2006........................ 3.44 01/08/08 11,000,000
37,500 Gainesville & Hall County Hospital
Authority, Northeast Georgia Health
System Inc Ser 2007 C (MBIA Insd)....... 3.47 01/08/08 37,500,000
71,835 Gwinnett County Hospital Authority,
Gwinnett Hospital System Ser 2007 B & D
(FSA Insd).............................. 3.46 01/08/08 71,835,000
Hall County & Gainesville Hospital
Authority,
41,620 Northeast Georgia Health System Inc Ser
2005 B (MBIA Insd)...................... 3.47 01/08/08 41,620,000
94,800 Northeast Georgia Health System Inc Ser
2007 G (AGC Insd)....................... 3.47 01/08/08 94,800,000
50,000 Metropolitan Atlanta Rapid Transit
Authority, Sales Tax Ser 2007 B ROCs II-
R Ser 9158 (FSA Insd)................... 3.50 01/08/08 50,000,000
</Table>
See Notes to Financial Statements
7
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
$ 36,500 Georgia Municipal Electric Authority,
General Sub Ser 1985 C.................. 3.40% 01/08/08 $ 36,500,000
50,160 Private Colleges & Universities Authority,
Emory University 2000 Ser B & 2005 Ser
B-2..................................... 3.35 01/08/08 50,160,000
Hawaii
13,565 Hawaii, ROCs II-R Ser 6012 (MBIA Insd).... 3.50 01/08/08 13,565,000
Illinois
Chicago,
7,380 Chicago O'Hare International Airport
Third Lien Ser 2005 A
P-FLOATs PT-3340 (MBIA Insd).......... 3.70 01/08/08 7,380,000
25,000 Refg Ser 2003 B (FSA Insd).............. 3.42 01/08/08 25,000,000
16,500 Refg Ser 2005 D (FSA Insd).............. 3.43 01/08/08 16,500,000
40,000 Refg Ser 2007 E (MBIA Insd)............. 3.42 01/08/08 40,000,000
13,605 Ser 2002 B (FGIC Insd).................. 3.44 01/08/08 13,605,000
46,500 Chicago Board of Education, Ser 2005 E-1
(CIFG Insd)............................. 3.44 01/08/08 46,500,000
93,400 Cook County, Ser 2002 B................... 3.42 01/08/08 93,400,000
15,000 Crestwood, Trinity Christian College
Association Ser 2007.................... 3.44 01/08/08 15,000,000
Illinois Development Finance Authority,
28,400 Evanston Northwestern Healthcare
Corporation Ser 2001 A.................. 3.43 01/08/08 28,400,000
6,330 Jewish Federation of Metropolitan
Chicago Ser 1999
(AMBAC Insd).......................... 3.43 01/08/08 6,330,000
14,300 Museum of Contemporary Art Ser 1994..... 3.43 01/08/08 14,300,000
38,900 Presbyterian Home Lake Forest Place Ser
1996 (FSA Insd)......................... 3.42 01/08/08 38,900,000
2,600 Young Men's Christian Association of
Metropolitan Chicago
Ser 2001.............................. 3.43 01/08/08 2,600,000
Illinois Finance Authority,
13,200 Dominican University Ser 2006........... 3.43 01/08/08 13,200,000
40,000 Edward Hospital Obligated Group Ser 2007
B-1 (AMBAC Insd)........................ 3.46 01/08/08 40,000,000
10,000 Elmhurst Memorial Healthcare Municipal
CRVS Ser 2006-2001...................... 3.50 01/08/08 10,000,000
59,350 Loyola University Health System Ser 2006
C....................................... 3.40 01/08/08 59,350,000
21,155 Resurrection Health Care System Ser 2005
C....................................... 3.45 01/08/08 21,155,000
7,500 Three Crowns Park Ser 2006 C............ 3.44 01/08/08 7,500,000
40,000 Illinois Health Facilities Authority,
Northwestern Memorial Hospital Ser
1995.................................... 3.43 01/08/08 40,000,000
11,595 Kane, Cook & DuPage Counties, School
District #U-46 PUTTERs Ser 426 (AMBAC
Insd)................................... 3.52 01/08/08 11,595,000
74,350 Metropolitan Pier & Exposition Authority,
McCormick Place Expansion Ser 2002 A
ROCs II-R Ser 10026Z (MBIA Insd)........ 3.51 01/08/08 74,350,000
13,050 Oak Forest, Homewood South Suburban Mayors
& Managers Association Ser 1989......... 3.44 01/08/08 13,050,000
33,395 Regional Transportation Authority, Refg
Ser 2005 B.............................. 3.45 01/08/08 33,395,000
</Table>
See Notes to Financial Statements
8
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Indiana
$ 49,700 Indiana Health & Educational Facility
Financing Authority, Sisters of St
Francis Health System Ser 2006 A (MBIA
Insd)................................... 3.44% 01/08/08 $ 49,700,000
Indiana Health Facility Financing
Authority,
49,000 Ascension Health Ser 2001 A............. 3.47 01/08/08 49,000,000
11,765 Deaconess Hospital Ser 2004 B........... 3.44 01/08/08 11,765,000
45,075 Indianapolis Local Public Improvement Bond
Bank, Waterworks Ser 2005 G-3 & H (MBIA
Insd)................................... 3.44 01/08/08 45,075,000
26,900 Richmond Hospital Authority, Reid Hospital
Ser 2005 A (FSA Insd)................... 3.47 01/08/08 26,900,000
17,000 St Joseph County, University of Notre Dame
du Lac Ser 2007......................... 3.35 01/08/08 17,000,000
10,940 Zionsville Community Schools Building
Corporation, Boone County Ser 2005 A P-
FLOATs PT-2870 (FSA Insd)............... 3.59 01/08/08 10,940,000
Iowa
Iowa Finance Authority,
25,390 Iowa Health System Ser 2005 A-1 (FGIC
Insd)................................... 3.47 01/08/08 25,390,000
9,350 Northcrest Inc Ser 2006................. 3.44 01/08/08 9,350,000
Kentucky
10,800 Georgetown, Industrial Building Refg
Georgetown College Ser 2006............. 3.44 01/08/08 10,800,000
21,190 Henderson County, Community United
Methodist Hospital Inc Ser 2003 B....... 3.44 01/08/08 21,190,000
Kentucky Public Energy Authority Inc,
139,710 Gas Supply Ser 2006 A................... 3.75 01/02/08 139,710,000
90,435 Gas Supply Senior Ser 2007 A-2.......... 3.33 01/08/08 90,435,000
19,250 Madisonville, Trover Clinic Foundation Inc
Ser 2006 (AGC Insd)..................... 3.48 01/08/08 19,250,000
36,585 Ohio County, Big Rivers Electric Corp Ser
1983 (AMBAC Insd)....................... 3.45 01/08/08 36,585,000
10,275 Williamsburg, Cumberland College Ser
2002.................................... 3.44 01/08/08 10,275,000
Louisiana
50,000 Ascension Parish Industrial Development
Board, IMTT-Geismar Ser 2007............ 3.44 01/08/08 50,000,000
11,187 Louisiana Municipal Natural Gas Purchasing
& Distribution Authority, Gas Project No
1 Ser 2006 PUTTERs Ser 1411Q............ 3.52 01/08/08 11,187,000
Louisiana Public Facilities Authority,
50,000 CHRISTUS Health Ser 2005 C Subser C-2
(AMBAC Insd)............................ 3.46 01/08/08 50,000,000
40,000 CHRISTUS Health Ser 2007 C (MBIA Insd).. 3.46 01/08/08 40,000,000
Maryland
22,545 Maryland, 2007 First Series ROCs II-R Ser
10042................................... 3.50 01/08/08 22,545,000
Maryland Health & Higher Educational Facilities Authority,
9,100 Catholic Health Initiatives Ser 1997 B.. 3.43 01/08/08 9,100,000
15,400 Mercy Medical Center Ser 2006 P-FLOATs
MT-276.................................. 3.97 01/08/08 15,400,000
</Table>
See Notes to Financial Statements
9
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Massachusetts
$ 71,700 Massachusetts, Ser 2005 A................. 3.46% 01/08/08 $ 71,700,000
30,750 Massachusetts Water Resources Authority,
Multi-Modal Sub 2000 Ser C (FGIC Insd).. 3.45 01/08/08 30,750,000
95,015 University of Massachusetts Building
Authority, Ser 2006-1 (AMBAC Insd)...... 3.46 01/08/08 95,015,000
Michigan
Detroit,
32,000 Sewage Disposal System Second Lien Ser
2006 A (FGIC Insd)...................... 3.44 01/08/08 32,000,000
40,000 Water Supply System Refg Second Lien Ser
2001-C
(FGIC Insd)........................... 3.50 01/08/08 40,000,000
22,000 Kalamazoo Hospital Finance Authority,
Bronson Methodist Hospital Ser 2006 (FSA
Insd)................................... 3.46 01/08/08 22,000,000
Kent Hospital Finance Authority,
17,800 Metropolitan Hospital Ser 2005 B........ 3.43 01/08/08 17,800,000
86,010 Spectrum Health Ser 1998 (MBIA Insd) &
Ser 2007 B-2
(FGIC Insd)........................... 3.46 01/08/08 86,010,000
Michigan Hospital Finance Authority,
96,300 Ascension Health Ser 1999 B-2 & B-4..... 3.45 01/08/08 96,300,000
83,560 Henry Ford Health System Ser 2006 B &
C....................................... 3.46 01/08/08 83,560,000
95,000 Michigan Housing Development Authority,
Single-Family Mortgage Ser 2007 E & F
(AMT)................................... 3.54 01/08/08 95,000,000
6,000 Michigan Strategic Fund, The Van Andel
Research Institute Ser 2001............. 3.43 01/08/08 6,000,000
Minnesota
Minneapolis,
34,785 Fairview Health Services Ser 2005 B
(AMBAC Insd)............................ 3.45 01/08/08 34,785,000
32,195 Fairview Health Services Ser 2005 C
(MBIA Insd)............................. 3.47 01/08/08 32,195,000
Mississippi
17,575 Mississippi, Capital Improvement Ser 2003
E....................................... 3.40 01/08/08 17,575,000
49,400 Perry County, Leaf River Forest Products
Inc Ser 2002............................ 3.40 01/08/08 49,400,000
Missouri
14,800 Bi-State Development Agency of the
Missouri-Illinois Metropolitan District,
Metrolink Cross County Extension Ser
2002 A
(FSA Insd)............................ 3.40 01/08/08 14,800,000
126,905 Kansas City Industrial Development
Authority, Kansas City Downtown
Redevelopment District Ser 2005 B & C
(AMBAC Insd) & Ser 2006 A (AMBAC
Insd)................................... 3.47 01/08/08 126,905,000
6,805 Kansas City Tax Increment Financing
Commission, Chouteau I-35 Ser 2003 A
(MBIA Insd)............................. 3.47 01/08/08 6,805,000
</Table>
See Notes to Financial Statements
10
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Nebraska
$148,733 American Public Energy Agency, National
Public Gas Agency 2005 Ser A............ 3.50% 01/08/08 $ 148,733,000
Nevada
Clark County,
24,100 Airport Improvement Refg 1993 Ser A
(MBIA Insd)............................. 3.47 01/08/08 24,100,000
117,315 Airport System Sub-Lien Ser 2001C (FGIC
Insd) & Ser 2005 D-1
(FGIC Insd)........................... 3.47 01/08/08 117,315,000
New Hampshire
8,300 New Hampshire Health & Education
Facilities Authority, LRG Healthcare Ser
2006 B.................................. 3.49 01/08/08 8,300,000
New Jersey
20,340 New Jersey Economic Development Authority,
School Facilities Construction Ser 2005
O ROCs II-R Ser 437..................... 3.49 01/08/08 20,340,000
New York
36,000 New York, Fiscal 2008 Sub Ser D-4......... 3.38 01/08/08 36,000,000
24,675 New York City, Fiscal 2006 Sub Ser I-4.... 3.34 01/08/08 24,675,000
40,500 New York City Industrial Development
Agency,
One Bryant Park LLC Ser 2004 A.......... 3.48 01/08/08 40,500,000
34,700 New York City Municipal Water Finance
Authority,
Fiscal 2001 Sub-Ser F-2................. 3.34 01/08/08 34,700,000
38,160 Triborough Bridge & Tunnel Authority, Ser
2005 B-3................................ 3.38 01/08/08 38,160,000
9,700 Ulster County Industrial Development
Agency, Kingston Regional Senior Living
Corp - Woodland Pond at New Paltz Ser
2007 C.................................. 3.39 01/08/08 9,700,000
North Carolina
Charlotte-Mecklenburg Hospital Authority,
Carolinas HealthCare System
22,350 Ser 2005 C........................... 3.74 01/02/08 22,350,000
53,855 Ser 2007 B (AMBAC Insd).............. 3.45 01/08/08 53,855,000
6,460 Mecklenburg County, Ser 2004 COPs......... 3.48 01/08/08 6,460,000
12,600 North Carolina Capital Facilities Agency,
Capital Area YMCA Ser 2002.............. 3.50 01/08/08 12,600,000
24,665 North Carolina Eastern Municipal Power
Agency, Power System Ser 2006 A (MBIA
Insd)................................... 3.46 01/08/08 24,665,000
North Carolina Medical Care Commission,
114,930 Duke University Health System Ser 2005 A
& C..................................... 3.46 01/08/08 114,930,000
33,200 Firsthealth of the Carolinas Ser 2002... 3.47 01/08/08 33,200,000
45,100 Raleigh, Downtown Improvement Ser 2005 B
COPs.................................... 3.46 01/08/08 45,100,000
40,000 Winston-Salem, Water & Sewer System Ser
2007 B.................................. 3.48 01/08/08 40,000,000
</Table>
See Notes to Financial Statements
11
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Ohio
$ 35,000 Montgomery County, Catholic Health
Initiatives
Ser 2006 B-1 & B-2...................... 3.40% 01/08/08 $ 35,000,000
15,420 Portage County, Robinson Memorial Hospital
Ser 2005................................ 3.48 01/08/08 15,420,000
Oklahoma
16,000 Oklahoma Development Finance Authority,
Inverness Village Ser 2007 A............ 3.45 01/08/08 16,000,000
Oregon
37,600 Clackamas County Hospital Facility
Authority, Legacy Health System Ser
2003.................................... 3.47 01/08/08 37,600,000
5,520 Oregon, Homeowner Ser 2005 A P-FLOATs MT-
133..................................... 3.51 01/08/08 5,520,000
56,005 Oregon Health Sciences University, OSHU
Medical Group Ser 2004 A................ 3.37 01/08/08 56,005,000
Pennsylvania
Allegheny County Industrial Development
Authority,
10,900 Carnegie Museums of Pittsburgh Ser
2002.................................... 3.44 01/08/08 10,900,000
48,100 UPMC Children's Hospital Ser 2004 A..... 3.42 01/08/08 48,100,000
25,000 Cumberland County Municipal Authority,
Asbury Pennsylvania Obligated Group Ser
2006.................................... 3.44 01/08/08 25,000,000
3,200 Derry Township Industrial & Commercial
Development Authority, Hotel Tax Arena
Ser 2000 A.............................. 3.42 01/08/08 3,200,000
20,660 Owen J Roberts School District, Ser 2004
(FSA Insd).............................. 3.46 01/08/08 20,660,000
15,000 Pennsylvania Higher Education Assistance
Agency, Student Loan 2001 Ser A (AMBAC
Insd) (AMT)............................. 3.46 01/08/08 15,000,000
Pennsylvania Turnpike Commission,
29,900 2002 Ser A-2............................ 3.40 01/08/08 29,900,000
8,000 2002 Ser B.............................. 3.42 01/08/08 8,000,000
Philadelphia,
57,600 Gas Works Sixth Ser 1998 (FSA Insd)..... 3.42 01/08/08 57,600,000
119,245 Water & Wastewater Ser 2003 (FSA Insd).. 3.46 01/08/08 119,245,000
170,400 Philadelphia Industrial Development
Authority, Lease 2007 Ser B (FGIC
Insd)................................... 3.37 01/08/08 170,400,000
60,000 Pittsburgh & Allegheny County Sports &
Exhibition Authority, Commonwealth Lease
Ser 2007 A (FSA Insd)................... 3.43 01/08/08 60,000,000
27,400 Puttable Floating Option Tax-Exempt
Receipts, Lehigh County General Purpose
Authority St Luke's Hospital of
Bethlehem
Ser 2007 P-FLOATs MT-511.............. 3.80 01/08/08 27,400,000
5,500 Washington County Authority, Girard Estate
Ser 1999................................ 3.43 01/08/08 5,500,000
21,685 York General Authority, Harrisburg School
District Subser 1996 B (AMBAC Insd)..... 3.45 01/08/08 21,685,000
</Table>
See Notes to Financial Statements
12
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
South Carolina
$ 37,500 Charleston Educational Excellence Finance
Corporation, Charleston County School
District Ser 2005 ROCs II-R Ser 471..... 3.50% 01/08/08 $ 37,500,000
13,100 Florence County, McLeod Regional Medical
Center Ser 1985 A (FGIC Insd)........... 3.40 01/08/08 13,100,000
10,700 South Carolina Educational Facilities
Authority, Charleston Southern
University Ser 2003..................... 3.48 01/08/08 10,700,000
7,500 South Carolina Jobs - Economic Development
Authority, Oconee Memorial Hospital Ser
2006 B (Radian Insd).................... 3.45 01/08/08 7,500,000
Tennessee
9,200 Chattanooga Health Educational & Housing
Facility Board,
The Baylor School Ser 2004.............. 3.44 01/08/08 9,200,000
32,900 Greeneville Health & Educational
Facilities Board, Laughlin Memorial
Hospital Ser 2004....................... 3.44 01/08/08 32,900,000
59,400 Jackson City, Jackson-Madison County
General Hospital Ser 2006 B (AMBAC
Insd)................................... 3.46 01/08/08 59,400,000
9,000 Jackson Health Educational & Housing
Facility Board, Union University Ser
2005.................................... 3.44 01/08/08 9,000,000
Memphis & Shelby County Sports Authority,
Inc,
15,000 Memphis Arena Ser 2007 A (MBIA Insd).... 3.48 01/08/08 15,000,000
35,000 Memphis Arena Ser 2007 B (MBIA Insd).... 3.42 01/08/08 35,000,000
17,945 Memphis Health Educational & Housing
Facility Board, Watergrove Apartments
Ser 2004................................ 3.48 01/08/08 17,945,000
Metropolitan Government of Nashville &
Davidson County Health & Educational
Facilities Board,
4,400 Ensworth School Ser 2002............. 3.44 01/08/08 4,400,000
7,135 Mary Queen of Angels Inc Ser 2000.... 3.44 01/08/08 7,135,000
29,705 Montgomery County Public Building
Authority, Pooled Financing Ser 1997 &
Ser 1999................................ 3.48 01/08/08 29,705,000
Tennergy Corporation,
25,420 Gas Ser 2006 A PUTTERs Ser 1258Q........ 3.52 01/08/08 25,420,000
49,085 Gas Ser 2006 B PUTTERs Ser 1260B........ 3.52 01/08/08 49,085,000
30,000 Tennessee Energy Acquisition Corporation,
Gas Ser 2006 A Floaters Ser 2006-47TP... 3.53 01/08/08 30,000,000
</Table>
See Notes to Financial Statements
13
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Texas
$ 6,475 Beaumont, Waterworks & Sewer System Ser
2005 P-FLOATs PT-2895 (MBIA Insd)....... 3.70% 01/08/08 $ 6,475,000
58,280 Brazos River Authority, TXU Electric Co
Ser 2001 D-1 & D-2 (AMT)................ 3.60 01/08/08 58,280,000
6,095 Dallas Independent School District, Ser
2004 A ROCs II-R Ser 6038............... 3.50 01/08/08 6,095,000
8,545 El Paso Independent School District, Ser
2004 A ROCs II-R Ser 2129............... 3.50 01/08/08 8,545,000
Harris County Health Facilities
Development Corporation,
66,895 Baylor College of Medicine Ser 2005 A
(AMBAC Insd)............................ 3.46 01/08/08 66,895,000
65,000 CHRISTUS Health Ser 2005 Subser A-1
(AMBAC Insd)............................ 3.46 01/08/08 65,000,000
16,200 Methodist Hospital System Ser 2006 A.... 3.42 01/08/08 16,200,000
15,200 Harris County Industrial Development
Corporation, Baytank Inc Ser 1998....... 3.43 01/08/08 15,200,000
5,130 Houston, Combined Utility System Ser 2004
ROCs II-R Ser 4559 (FSA Insd)........... 3.50 01/08/08 5,130,000
12,000 Lower Neches Valley Authority, Chevron USA
Inc Ser 1987............................ 3.79 02/15/08 12,000,000
33,085 North Central Texas Health Facilities
Development Corporation, Baylor Health
Care System Ser 2006 A.................. 3.45 01/08/08 33,085,000
6,495 Port Arthur Independent School District,
Ser 2005 P-FLOATs PT-2679 (FGIC Insd)... 3.70 01/08/08 6,495,000
Puttable Floating Option Tax-Exempts
Receipts,
24,990 Texas Municipal Gas Acquisition & Supply
Corp II
Ser 2007 B P-FLOATs PT-4239........... 4.01 01/08/08 24,990,000
12,400 Texas Transportation Commission First
Tier
Ser 2006 P-FLOATs EC-1173 (MBIA
Insd)................................... 4.01 01/08/08 12,400,000
29,000 San Antonio, Water System Sub Lien Ser
2003 B (MBIA Insd)...................... 3.45 01/08/08 29,000,000
49,700 Tarrant County Cultural Education
Facilities Corporation,
CHRISTUS Health Ser 2007 B (MBIA Insd).. 3.46 01/08/08 49,700,000
44,000 Texas Municipal Gas Acquisition & Supply
Corp II,
Ser 2007 B ROCs II-R Ser 10014.......... 3.57 01/08/08 44,000,000
60,000 University of Texas Regents, Permanent
University Fund Notes Ser 2007 A........ 3.75 02/05/08 60,024,462
7,140 Upper Trinity Regional Water District,
Regional Treated Water Supply System
Refg Ser 2005 P-FLOATs PT-3290
(AMBAC Insd).......................... 3.70 01/08/08 7,140,000
Utah
15,000 Central Utah Water Conservancy District,
Ser 1998 E (AMBAC Insd)................. 3.48 01/08/08 15,000,000
45,850 Murray City, IHC Health Services Inc Ser
2005 D.................................. 3.47 01/08/08 45,850,000
</Table>
See Notes to Financial Statements
14
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------
Various States
$ 6,110 JPMorgan Chase & Co, I-PUTTERs Ser 1633P.. 3.57% 01/08/08 $ 6,110,000
5,625 Puttable Floating Option Tax-Exempts
Receipts,
Ser 2006 P-FLOATs EC-002................ 3.62 01/08/08 5,625,000
Vermont
16,455 Vermont Economic Development Authority,
Wake Robin Corporation Ser 2006 B....... 3.42 01/08/08 16,455,000
11,000 Vermont Housing Finance Agency, West Block
University of Vermont Apartments Ser
2004 A.................................. 3.45 01/08/08 11,000,000
Virginia
16,000 Chesapeake Hospital Authority, Chesapeake
General Hospital Ser 2001A.............. 3.44 01/08/08 16,000,000
41,100 Loudoun County Industrial Development
Authority, Howard Hughes Medical
Institute Ser 2003 F.................... 3.45 01/08/08 41,100,000
Washington
9,675 Eclipse Funding Trust, Seattle Water
System
Ser 2005 Solar Eclipse Ser 2006-0002
(MBIA Insd)............................. 3.82 01/08/08 9,675,000
14,615 Energy Northwest, Columbia Generating
Station Electric Ser 2006-A ROCs II-R
Ser 6063................................ 3.50 01/08/08 14,615,000
13,830 King County Rural Library District, Ser
2005 P-FLOATs PT-3053 (MBIA Insd)....... 3.59 01/08/08 13,830,000
4,125 Pierce County, Puyallup School District No
3 PUTTERs Ser 415 (FSA Insd)............ 3.50 01/08/08 4,125,000
20,000 Washington Health Care Facilities
Authority, Swedish Health Services Ser
2006.................................... 3.56 01/08/08 20,000,000
10,000 Washington State, Floater-TRs Ser 2006
P23U 2006 D (MBIA Insd)................. 3.64 01/02/08 10,000,000
135,545 Washington State Housing Commission,
Mirabella Ser 2006 A.................... 3.78 01/02/08 135,545,000
Wisconsin
6,185 Wisconsin, Clean Water 2004 Ser 1 ROCs II-
R Ser 2165 (MBIA Insd).................. 3.50 01/08/08 6,185,000
--------------
Total Short-Term Variable Rate Municipal Obligations (Cost
$7,415,534,462)............................................... 7,415,534,462
--------------
</Table>
See Notes to Financial Statements
15
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCI-
PAL
AMOUNT YIELD TO
IN MATURITY
THOU- COUPON MATURITY ON DATE OF
SANDS RATE DATE PURCHASE VALUE
- -------------------------------------------------------------------------------------------------------------------
Tax-Exempt Commercial Paper (5.7%)
Illinois
Chicago,
$39,311 Chicago O'Hare International Airport 2005
Program - 2007 Issue Ser B......................... 3.10% 02/14/08 3.10% $ 39,311,000
51,000 Water System 2004 Ser A.............................. 2.72 05/29/08 2.72 51,000,000
Kentucky
30,000 Kentucky Asset Liability Commission, General Fund
Second Ser 2005 A-1.................................. 3.47 02/07/08 3.47 30,000,000
Maryland
56,005 Maryland Health & Educational Facilities Authority,
Johns Hopkins Health System
Ser 2004 A......................................... 3.34 01/10/08 3.34 56,005,000
Massachusetts
50,000 Massachusetts, Ser F................................... 3.16 01/25/08 3.16 50,000,000
Michigan
80,000 Michigan, Multi-Modal School Loan Ser 2005 C........... 3.50 10/28/08 3.50 80,000,000
Texas
Dallas Area Rapid Transit,
10,000 Senior Sub Lien Ser 2001............................. 2.85 02/14/08 2.85 10,000,000
15,000 Senior Sub Lien Ser 2001............................. 3.42 03/17/08 3.42 15,000,000
30,000 Harris County, Notes Ser A-1........................... 3.50 03/06/08 3.50 30,000,000
Houston,
30,000 Combined Utility System Ser 2004 A................... 3.50 01/24/08 3.50 30,000,000
35,000 Ser D................................................ 3.10 04/03/08 3.10 35,000,000
Lower Colorado River Authority,
18,300 Ser A................................................ 3.10 02/06/08 3.10 18,300,000
20,000 Transmission Service Corp Ser 2003................... 3.40 02/05/08 3.40 20,000,000
19,000 San Antonio, Electric & Gas Ser 1995 A................. 3.25 03/10/08 3.25 19,000,000
--------------
Total Tax-Exempt Commercial Paper (Cost $483,616,000)................................... 483,616,000
--------------
Short-Term Municipal Notes (6.2%)
California
98,000 California, Ser 2007-2008 RANs,
dtd 11/01/07......................................... 4.00 06/30/08 3.37 98,299,787
60,000 Los Angeles Unified School District, Ser 2007 A TRANs,
dtd 12/11/07......................................... 4.00 12/29/08 3.18 60,478,139
Colorado
65,000 Colorado, Education Loan Ser 2007 A TRANs, dtd
07/16/07............................................. 4.25 08/05/08 3.74 65,175,247
</Table>
See Notes to Financial Statements
16
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIP-
AL
AMOUNT YIELD TO
IN MATURITY
THOU- COUPON MATURITY ON DATE OF
SANDS RATE DATE PURCHASE VALUE
- -------------------------------------------------------------------------------------------------------------------
Indiana
Indiana Bond Bank,
$20,000 Advance Funding Ser 2007 A, dtd 02/01/07............. 4.25% 01/31/08 3.65% $ 20,009,527
19,000 Midyear Funding Notes Ser 2007 A,
dtd 06/26/07....................................... 4.50 05/20/08 3.75 19,052,715
Massachusetts
20,000 Pioneer Valley Transit Authority, Ser 2007 RANs, dtd
08/03/07............................................. 4.25 08/01/08 4.10 20,016,736
Michigan
60,000 Michigan, Fiscal 2008 Ser A, dtd 12/20/07.............. 4.00 09/30/08 2.93 60,467,261
New York
22,500 Greater Southern Tier Board of Cooperative Educational
Services, Supervisory District
Ser 2007 RANs, dtd 09/25/07........................ 4.25 06/30/08 3.66 22,563,934
Oregon
70,000 Oregon, Ser 2007 A TANs, dtd 08/16/07.................. 4.50 06/30/08 3.63 70,291,926
Pennsylvania
20,000 Temple University Funding Ser 2007, dtd 04/25/07....... 4.25 04/24/08 3.62 20,037,854
South Carolina
39,810 South Carolina Association of Governmental
Organizations, Ser 2007 C COPs,
dtd 09/18/07....................................... 4.00 03/03/08 3.66 39,832,613
Washington
30,000 King County, Ser 2007 BANs, dtd 11/01/07............... 4.25 10/30/08 3.42 30,199,780
--------------
Total Short-Term Municipal Notes (Cost $526,425,519).................................... 526,425,519
--------------
Total Investments (Cost $8,425,575,981) (a)................................ 99.5% 8,425,575,981
Other Assets in Excess of Liabilities...................................... 0.5 38,899,805
----- --------------
Net Assets................................................................. 100.0% $8,464,475,786
===== ==============
</Table>
See Notes to Financial Statements
17
Active Assets Tax-Free Trust
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
- ----------
<Table>
AMT Alternative Minimum Tax.
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
CRVS Custodial Residual & Variable Securities.
Floater-TRs Floating Rate Trust Receipts.
I-PUTTERs Income Puttable Tax-Exempt 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.
TANs Tax Anticipation Notes.
TRANs Tax Revenue Anticipation Notes.
+ Rate shown is the rate in effect at December 31, 2007.
* Date on which the principal amount can be recovered through demand.
(a) Cost is the same for federal income tax purposes.
</Table>
<Table>
<Caption>
Bond Insurance:
- ---------------
AGC Assured Guaranty Corporation.
AMBAC AMBAC Assurance Corporation.
CIFG CIFG Assurance North America Inc.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
Radian Radian Asset Assurance Inc.
</Table>
See Notes to Financial Statements
18
Active Assets Tax-Free Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2007 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $8,425,575,981)....................................... $8,425,575,981
Cash.......................................................... 140,881
Interest receivable........................................... 41,544,674
Prepaid expenses and other assets............................. 230,319
--------------
Total Assets............................................... 8,467,491,855
--------------
Liabilities:
Payable for:
Investment advisory fee.................................... 1,649,544
Distribution fee........................................... 687,135
Administration fee......................................... 343,567
Shares of beneficial interest redeemed..................... 38,198
Transfer agent fee......................................... 3,335
Accrued expenses and other payables........................... 294,290
--------------
Total Liabilities.......................................... 3,016,069
--------------
Net Assets................................................. $8,464,475,786
==============
Composition of Net Assets:
Paid-in-capital............................................... $8,464,272,015
Accumulated undistributed net investment income............... 62,971
Accumulated undistributed net realized gain................... 140,800
--------------
Net Assets................................................. $8,464,475,786
==============
Net Asset Value Per Share
8,464,312,309 shares outstanding (unlimited shares authorized
of $.01 par value).......................................... $1.00
=====
</Table>
See Notes to Financial Statements
19
Active Assets Tax-Free Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended December 31, 2007 (unaudited)
<Table>
Net Investment Income:
Interest Income................................................ $132,638,405
------------
Expenses
Investment advisory fee........................................ 9,015,486
Distribution fee............................................... 3,686,351
Administration fee............................................. 1,843,176
Transfer agent fees and expenses............................... 774,629
Registration fees.............................................. 125,279
Custodian fees................................................. 147,149
Shareholder reports and notices................................ 68,903
Trustees' fees and expenses.................................... 52,779
Professional fees.............................................. 31,783
Other.......................................................... 210,282
------------
Total Expenses.............................................. 15,955,817
Less: expense offset........................................... (76,107)
------------
Net Expenses................................................ 15,879,710
------------
Net Investment Income....................................... 116,758,695
Net Realized Gain........................................... 83,065
------------
Net Increase................................................... $116,841,760
============
</Table>
See Notes to Financial Statements
20
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, 2007 JUNE 30, 2007
----------------- --------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income............................. $ 116,758,695 $ 185,290,775
Net realized gain................................. 83,065 66,339
-------------- --------------
Net Increase................................... 116,841,760 185,357,114
Dividends to shareholders from net investment
income.......................................... (116,745,131) (185,282,618)
Net increase from transactions in shares of
beneficial interest............................. 2,310,600,073 1,516,617,029
-------------- --------------
Net Increase................................... 2,310,696,702 1,516,691,525
Net Assets:
Beginning of period............................... 6,153,779,084 4,637,087,559
-------------- --------------
End of Period
(Including accumulated undistributed net
investment income of $62,971 and $49,407,
respectively)................................... $8,464,475,786 $6,153,779,084
============== ==============
</Table>
See Notes to Financial Statements
21
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007 (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 and are included in interest income. Interest income is
accrued daily.
C. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable and nontaxable income to its shareholders. Therefore, no federal income
tax provision is required. The Fund files tax returns with the U.S. Internal
Revenue Service and New York. The Fund adopted the provisions of the Financial
Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48") Accounting
for Uncertainty in Income Taxes on June 29, 2007. FIN 48 sets forth a minimum
threshold for financial statement recognition of the benefit of a tax position
taken or expected to be taken in a tax return. The implementation of FIN 48 did
not result in any unrecognized tax benefits in the accompanying financial
statements. If applicable, the Fund recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in other expenses in
the Statement of Operations. Each of the tax years in the four year period ended
December 31, 2007, remains subject to examination by taxing authorities.
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.
22
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
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 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.
Under an agreement between the Administrator and State Street Bank and Trust
Company ("State Street"), State Street provides certain administrative services
to the Fund. For such services, the Administrator pays State Street a portion of
the fee the Administrator receives from the Fund.
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, 2007, the
distribution fee was accrued at the annual rate of 0.10%.
23
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007 (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, 2007, aggregated $14,799,310,414 and
$12,659,834,065, 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, 2007, included in Trustees'
fees and expenses in the Statement of Operations amounted to $3,001. At December
31, 2007, the Fund had an accrued pension liability of $61,467 which is included
in accrued expenses in the Statement of Assets and Liabilities.
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, 2007 JUNE 30, 2007
----------------- ---------------
(unaudited)
Shares sold....................................... 18,198,047,907 28,033,735,995
Shares issued in reinvestment of dividends........ 116,614,819 185,206,802
--------------- ---------------
18,314,662,726 28,218,942,797
Shares redeemed................................... (16,004,062,653) (26,702,325,768)
--------------- ---------------
Net increase in shares outstanding................ 2,310,600,073 1,516,617,029
=============== ===============
</Table>
24
Active Assets Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007 (UNAUDITED) continued
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. Accounting Pronouncement
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.
25
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, 2007 2007 2006 2005 2004 2003
----------------- ------ ------ ------ ------ ------
(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 0.032 0.025 0.013 0.005 0.008
Less dividends from net investment income.... (0.016) (0.032) (0.025) (0.013) (0.005) (0.008)
------ ------ ------ ------ ------ ------
Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
Total Return................................. 1.62%(1) 3.22% 2.53% 1.32% 0.50% 0.81%
Ratios to Average Net Assets:
Total expenses (before expense offset)....... 0.43%(2) 0.45% 0.47% 0.49% 0.48% 0.48%
Net investment income........................ 3.17%(2) 3.19% 2.57% 1.30% 0.50% 0.80%
Supplemental Data:
Net assets, end of period, in millions....... $8,464 $6,154 $4,637 $2,857 $2,858 $3,116
</Table>
- ----------
<Table>
(1) Not annualized.
(2) Annualized.
</Table>
See Notes to Financial Statements
26
(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
Chairperson of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
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
LEGAL COUNSEL
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036
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 FINRA
(c) 2007 Morgan Stanley
(MORGAN STANLEY LOGO)
MORGAN STANLEY FUNDS
Active Assets
Tax-Free Trust
Semiannual Report
December 31, 2007
AATSAN
IU08-00773P-Y12/07
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 15, 2008
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 15, 2008
/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 15, 2008
3