<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS June 30, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Tax-Free Daily Income Trust for the six-month period ended
June 30, 1998.
Tax-free money market yields showed a modest bias toward lower rates in the
first half of 1998. With no change in Federal Reserve Board monetary policy and
little reason to believe that a move was imminent, short-term municipal
interest rates were driven primarily by market forces of supply and demand. The
benefits of continued economic growth were evident in stronger municipal
government balance sheets and reduced cash flow borrowing. The crisis in Asia
had little impact on the municipal money market because most tax-free money
funds had already significantly reduced or eliminated holdings of variable rate
demand obligations (VRDOs) with exposure to Asian bank liquidity facilities.
Yields edged downward for municipal securities maturing in six months to one
year. The Bond Buyer One-Year Note Index, a benchmark indicator of longer-term
municipal money market yields, declined 18 basis points from 3.77 percent in
late December 1997 to 3.59 percent at the end of June 1998. On a year-over-year
basis, one year note yields were 26 basis points lower this June. Reflecting
the relative stability of one year interest rates, the range from high to low
for the Index was only 27 basis points during the six-month period versus 56
basis points for the same period one year ago.
The ratio of the One Year Note Index to the yield for one-year U.S. Treasury
Bills was 66 percent at the end of June, somewhat lower than the 68 percent
ratio at the end of 1997. A declining ratio means that securities in this
sector of the municipal market outperformed Treasuries with comparable
maturities.
Yields for the shortest tax-free money market maturities responded quickly to
changing cash flow patterns of municipal money funds and fluctuated over a
wider range than yields for longer maturities. Yields for weekly VRDOs moved
over a 155 basis point range from a low of 2.85 percent in February to a high
of 4.40 percent during income tax payment season in April. This range of
movement was nearly identical to the range year.
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
PORTFOLIO MANAGEMENT AND PERFORMANCE
Morgan Stanley Dean Witter Tax-Free Daily Income Trust's annualized net
investment income (ratio to average net assets) was 2.84 percent for the
six-month period ended June 30, 1998. The Fund's thirty-day average yield was
2.87 percent as of June 30, 1998.
On June 30, the Fund's net assets exceeded $500 million with 55 percent of the
Fund's portfolio invested in VRDOs. Tax-exempt commercial paper and municipal
notes, the two other types of securities held in the portfolio, comprised 33
percent and 12 percent of the portfolio, respectively. The Fund was broadly
diversified geographically with holdings in 33 states.
Portfolio holdings are continuously reviewed to maintain or improve
creditworthiness. Particular effort is devoted to monitoring the credit quality
of institutions that provide credit enhancement and liquidity facilities for
money market investments. Holdings of issues with exposure to Asian bank
letters of credit or liquidity facilities were eliminated two years ago.
The Fund's weighted average maturity ranged from approximately 30 to 50 days
for most of the period between January and the middle of June. In late June,
investments were made in newly issued one year tax and revenue anticipation
notes (TRANs) which come to market in large supply at mid-year. The addition of
longer fixed-rate securities tends to smooth out portfolio yields by offsetting
some of the yield volatility of VRDOs with daily and weekly rate changes. At
the end of June, the Fund's weighted average maturity had lengthened to 68
days.
LOOKING FORWARD
The fundamentals are in place for a year of slower but solid domestic economic
growth in the United States. Events in Asia have strengthened the U.S. dollar
and contributed to lower long-term interest rates. Furthermore, the Asian
financial crisis seems likely to continue to moderate inflationary pressures.
Given the currently favorable outlook for interest rates, the weighted average
maturity for the Fund's portfolio is expected to remain in a moderate to longer
range of 40 to 70 days in the period ahead. In light of tight employment
conditions, however, we will be watchful for signs of accelerating labor costs
which could threaten the Federal Reserve Board's presently neutral monetary
policy.
2
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
LETTER TO THE SHAREHOLDERS June 30, 1998, continued
We appreciate your support of Morgan Stanley Dean Witter Tax-Free Daily Income
Trust and look forward to continuing to serve your investment needs and
objectives.
Sincerely yours,
/s/ CHARLES A. FIUMFREDDO
- ----------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (58.4%)
ALABAMA
$ 5,000 Birmingham Medical Clinic Board, University of Alabama Health Services
Foundation Ser 1991 ........................................................... 3.45 % 07/08/98 $ 5,000,000
ARIZONA
1,300 Maricopa County, Arizona Public Service Co Ser 1994 F .......................... 4.00 07/01/98 1,300,000
4,600 Tempe, Excise Tax Ser 1998 ..................................................... 3.85 07/01/98 4,600,000
CALIFORNIA
5,000 California Health Facilities Financing Authority, Catholic Healthcare West
1997 Ser B (MBIA) ............................................................. 3.00 07/08/98 5,000,000
3,000 California Pollution Control Financing Authority, Southern California
Edison Co 1986 Ser A .......................................................... 3.45 07/01/98 3,000,000
8,000 California Public Capital Improvements Financing Authority, Pooled
Ser 1988 C .................................................................... 3.65 09/15/98 8,000,000
COLORADO
9,000 Colorado Health Facilities Authority, Kaiser Permanente 1994 Ser A ............. 3.80 07/08/98 9,000,000
CONNECTICUT
2,500 Connecticut Health & Educational Facilities Authority, Yale University Ser T. 3.45 07/08/98 2,500,000
Connecticut Special Assessment,
10,000 Unemployment Compensation 1993 Ser C (FGIC) ................................... 3.90 07/01/98 10,000,000
6,000 Unemployment Compensation 1993 Ser C (FGIC) ................................... 3.60 07/01/99 6,000,000
DISTRICT OF COLUMBIA
4,800 District of Columbia, The American University Ser 1985 ......................... 3.60 07/08/98 4,800,000
FLORIDA
9,800 Dade County, Water & Sewer Ser 1994 (FGIC) ..................................... 3.40 07/08/98 9,800,000
17,600 Dade County Industrial Development Authority, Dolphins Stadium
Ser 1985 A** .................................................................. 3.55 07/08/98 17,600,000
4,000 Escambia County, Gulf Power Co Ser 1997 ........................................ 3.90 07/01/98 4,000,000
HAWAII
5,000 Hawaii Department of Budget & Finance, Kaiser Permanente Semiannual
Tender Ser 1984 B ............................................................. 3.70 09/01/98 5,000,000
ILLINOIS
10,000 Illinois Educational Facilities Authority, Northwestern University
Ser 1988** .................................................................... 3.55 07/08/98 10,000,000
3,000 Illinois Health Facilities Authority, Northwestern Memorial Hospital
Ser 1995 ...................................................................... 3.80 07/01/98 3,000,000
6,000 Illinois Toll Highway Authority, Refg Ser 1993-B (MBIA) ........................ 3.40 07/08/98 6,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10,000 Oak Forest, Homewood South Suburban Mayors & Managers Assn
Ser 1989 ................................................................ 3.50 % 07/08/98 $ 10,000,000
6,300 Chicago, Tender Notes Ser 1997, dtd 02/19/97 ............................ 3.55 10/29/98 6,300,000
INDIANA
3,600 Indiana Hospital Equipment Financing Authority, Ser 1985 A (MBIA) ....... 3.60 07/08/98 3,600,000
KENTUCKY
8,950 Mason County, East Kentucky Power Co-op Inc Ser 1984 (NRU-CFC Gtd)**..... 3.65 07/08/98 8,950,000
LOUISIANA
10,000 New Orleans Aviation Board, Ser 1993 B (MBIA) ........................... 3.50 07/08/98 10,000,000
MASSACHUSETTS
5,000 Massachusetts Bay Transportation Authority, 1984 Ser A .................. 3.40 09/01/98 5,000,000
Massachusetts Health & Educational Facilities Authority,
5,500 Amherst College Ser F ................................................... 3.40 07/08/98 5,500,000
5,000 Harvard University Ser 1985 I ........................................... 3.40 07/08/98 5,000,000
MINNESOTA
1,000 Beltrami County, Environmental Northwood Panelboard Co Ser 1991 ......... 4.00 07/01/98 1,000,000
4,600 Minneapolis & St Paul Housing & Redevelopment Authority, Childrens'
Health Care Ser 1995 B (FSA) ............................................ 4.05 07/01/98 4,600,000
MISSOURI
7,200 Missouri Health & Educational Facilities Authority, Cox Health Care
Ser 1997 (MBIA) ......................................................... 3.80 07/01/98 7,200,000
7,700 St Louis County Industrial Development Authority, Charity Obligated
Group - Daughters of Charity National Health System Ser 1997 E .......... 3.40 07/08/98 7,700,000
NEW JERSEY
4,000 Gloucester County, Mobil Oil Refining Corp Ser 1993 A ................... 3.15 07/08/98 4,000,000
NEW YORK
3,000 New York City Municipal Water Finance Authority, 1994 Ser C (FGIC) ...... 4.00 07/01/98 3,000,000
NORTH CAROLINA
4,700 Asheville, Ser 1993 A COPs .............................................. 3.50 07/08/98 4,700,000
5,000 North Carolina Medical Care Commission, Duke University Hospital
Ser 1985 B .............................................................. 3.45 07/08/98 5,000,000
OHIO
9,400 Columbus, Unlimited Tax Ser 1995-1 ...................................... 3.40 07/08/98 9,400,000
10,000 Cuyahoga County, Cleveland Clinic Foundation Ser 1998 A ................. 3.55 07/08/98 10,000,000
1,400 Ohio Air Quality Development Authority, Mead Co 1986 Ser A .............. 3.90 07/01/98 1,400,000
OKLAHOMA
11,465 Oklahoma Water Resources Board, State Loan Prog Ser 1994A & Ser 1995..... 3.55 09/01/98 11,465,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
PENNSYLVANIA
$ 2,100 Delaware County Industrial Development Authority, United Parcel Service
of America Ser 1985 ......................................................... 3.90 % 07/01/98 $ 2,100,000
SOUTH CAROLINA
York County,
7,815 North Carolina Electric Membership Corp, Ser 1984 N-5 (NRU-CFC Gtd) ......... 3.50 09/15/98 7,815,000
8,650 Saluda River Electric Co-op Inc Ser 1984 E-1 & E-2 (NRU-CFC Gtd) ............ 3.45 08/15/98 8,650,000
TEXAS
4,700 Lower Neches Valley Authority, Chevron USA Inc Ser 1987 ..................... 3.45 08/17/98 4,700,000
UTAH
10,000 Intermountain Power Agency, 1985 Ser F ...................................... 3.45 09/15/98 10,000,000
5,300 Salt Lake County, Service Station Holdings British Petroleum Ser 1994 B ..... 4.00 07/01/98 5,300,000
WASHINGTON
8,500 Washington, Ser 1996 A ...................................................... 3.40 07/08/98 8,500,000
WEST VIRGINIA
5,000 Pleasants County Commission, American Cyanamid Co Ser 1985 .................. 3.70 07/08/98 5,000,000
WISCONSIN
10,000 Wisconsin Health & Educational Facilities Authority, Franciscan Health
Care Inc Ser 1985 A-1 ....................................................... 3.50 07/08/98 10,000,000
------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS
(Amortized Cost $300,480,000)................................................ 300,480,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT IN COUPON MATURITY ON DATE OF
THOUSANDS RATE DATE PURCHASE VALUE
- ----------- -------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
TAX-EXEMPT COMMERCIAL PAPER (34.8%)
COLORADO
$ 6,800 Platte River Power Authority, Electric Subordinate Lien S-1 ..............3.65 % 10/22/98 3.65 % $ 6,800,000
GEORGIA
Georgia Municipal Gas Authority,
6,100 Southern Portfolio I Ser D ...............................................3.60 09/10/98 3.60 6,100,000
6,300 Southern Portfolio I Ser D ...............................................3.65 09/10/98 3.65 6,300,000
5,000 Southern Portfolio I Ser D ...............................................3.65 10/20/98 3.65 5,000,000
HAWAII
6,200 Hawaii Department of Budget & Finance, Citizens Utilities Co Ser 1985 ....3.65 10/15/98 3.65 6,200,000
INDIANA
5,000 Indianapolis, Citizens Gas & Coke Utility Ser 1987 .......................3.75 09/14/98 3.75 5,000,000
LOUISIANA
12,000 Louisiana Public Finance Authority, Our Lady of the Lake Regional
Medical Center Ser 1985 (FSA) ............................................3.70 10/15/98 3.70 12,000,000
4,200 Plaquemines Port Harbor & Terminal District, Electric-Coal Transfer Co
Ser 1985 D ...............................................................3.70 08/13/98 3.70 4,200,000
MARYLAND
5,000 Montgomery County, 1995 Ser BANs .........................................3.60 10/14/98 3.60 5,000,000
MINNESOTA
4,500 Rochester, Mayo Foundation/Mayo Medical Center Ser 1992 B ................3.70 08/13/98 3.70 4,500,000
MISSOURI
5,600 Missouri Health & Educational Facilities Authority, SSM Health Care
Ser 1988 C ...............................................................3.75 08/17/98 3.75 5,600,000
NORTH CAROLINA
7,900 North Carolina Eastern Municipal Power Agency, Ser 1996 ..................3.65 08/19/98 3.65 7,900,000
OHIO
5,500 Ohio Air Quality Development Authority, Cleveland Electric Illuminating Co
1988 Ser B (FGIC) ........................................................3.70 08/10/98 3.70 5,500,000
PENNSYLVANIA
12,000 Montgomery County Industrial Development Authority, PECO Energy Co
1994 Ser A ...............................................................3.55 07/21/98 3.55 12,000,000
5,000 Pennsylvania, Ser 1997 A BANs ............................................3.35 07/23/98 3.35 5,000,000
SOUTH CAROLINA
5,000 South Carolina Public Service Authority, Promissory Notes ................3.50 10/21/98 3.50 5,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT IN COUPON MATURITY ON DATE OF
THOUSANDS RATE DATE PURCHASE VALUE
- ----------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
TEXAS
$ 10,000 Bexar Metropolitan Water District, Ser 1997 ................................3.85 % 07/17/98 3.85 % $ 10,000,000
Houston,
8,100 1993 Ser A .................................................................3.45 07/14/98 3.45 8,100,000
5,600 1993 Ser A .................................................................3.70 08/20/98 3.70 5,600,000
8,000 Water & Sewer 1994 Ser A ...................................................3.70 08/26/98 3.70 8,000,000
5,100 Water & Sewer 1994 Ser A ...................................................3.60 10/06/98 3.60 5,100,000
6,000 San Antonio, Electric & Gas Ser 1995 A .....................................3.50 10/07/98 3.50 6,000,000
VIRGINIA
5,000 Virginia, Ser 1997 BANs ....................................................3.50 08/18/98 3.50 5,000,000
WASHINGTON
Seattle,
6,000 Municipal Light & Power Ser 1991 B .........................................3.45 07/22/98 3.45 6,000,000
11,300 Municipal Light & Power Ser 1991 B .........................................3.50 08/25/98 3.50 11,300,000
5,000 Municipal Light & Power Ser 1990 ...........................................3.625 10/28/98 3.625 5,000,000
WISCONSIN
6,907 Wisconsin, Ser 1997 A ......................................................3.75 07/28/98 3.75 6,907,000
------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER (Amortized Cost $179,107,000).............................................179,107,000
SHORT-TERM MUNICIPAL NOTES (12.5%) ------------
INDIANA
6,750 Indianapolis Local Improvment Bond Bank, Ser 1998 D Notes, dtd 06/18/98.....4.25 01/11/99 3.65 6,771,066
IOWA
11,000 Iowa School Corporations, Warrant Certificates 1998-99 Ser A (FSA),
dtd 06/25/98 ...............................................................4.50 06/25/99 3.65 11,088,717
KENTUCKY
5,000 Kentucky Asset/Liability Commission, 1998 Ser A TRANs,
dtd 07/01/98 (WI) ..........................................................4.50 06/25/99 3.57 5,044,150
MICHIGAN
10,000 Michigan Municipal Bond Authority, Ser 1997 B Notes, dtd 07/02/97 ..........4.50 07/02/98 3.89 10,000,160
NEW MEXICO
10,000 New Mexico, Ser 1998-1999 TRANs, dtd 07/02/98 (WI) .........................4.25 06/30/99 3.60 10,062,400
PENNSYLVANIA
6,000 Temple University, Ser 1998 B, dtd 05/15/98 ................................4.50 05/14/99 3.75 6,037,622
TEXAS
5,000 Texas, Ser 1997 A TRANs, dtd 09/02/97 ......................................4.75 08/31/98 3.73 5,008,040
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
YIELD TO
PRINCIPAL MATURITY
AMOUNT IN COUPON MATURITY ON DATE OF
THOUSANDS RATE DATE PURCHASE VALUE
- ----------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
WISCONSIN
$10,000 Wisconsin, Operating Notes of 1998, dtd 07/01/98 (WI) .................4.50 % 06/15/99 3.55 % $ 10,087,700
------------
TOTAL SHORT-TERM MUNICIPAL NOTES (Amortized Cost $64,099,855)......................................... 64,099,855
------------
TOTAL INVESTMENTS (Amortized Cost $543,686,855) (a) ........................................ 105.7% 543,686,855
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ............................................. (5.7) (29,591,957)
------ ------------
NET ASSETS ................................................................................. 100.0% $514,094,898
====== ============
</TABLE>
- -------------------------
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
NRU-CFC National Rural Utilities -- Cooperative Finance Corporation.
TRANs Tax and Revenue Anticipation Notes.
WI Security purchased on a "when-issued" basis.
+ Rate shown is the rate in effect at June 30, 1998.
* Date in which the principal amount can be recovered through demand.
** All or a portion of these securities are segregated in connection with
the purchase of "when-issued" and delayed delivery securities.
(a) Cost is the same for federal income tax purposes.
Bond Insurance:
- ---------------
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
EDGAR PASSTHROUGH ERROR
<TABLE>
<S> <C>
ASSETS :
Investments in securities, at value
(amortized cost $543,686,855) ............ $543,686,855
Cash ........................................ 923,605
Interest receivable ......................... 3,303,025
Prepaid expenses and other assets ........... 115,049
------------
TOTAL ASSETS .............................. 548,028,534
------------
LIABILITIES:
Payable for:
Investments purchased ..................... 31,194,250
Shares of beneficial interest
repurchased ......................... 2,365,335
Investment management fee ................. 229,797
Plan of distribution fee .................. 46,334
Accrued expenses and other payables ......... 97,920
------------
TOTAL LIABILITIES ......................... 33,933,636
------------
NET ASSETS ................................ $514,094,898
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ............................. $514,094,326
Accumulated undistributed net investment
income ................................... 927
Accumulated net realized loss ............... (355)
------------
NET ASSETS ................................ $514,094,898
============
NET ASSET VALUE PER SHARE,
514,094,326 shares outstanding
(unlimited shares authorized of $.01 par
value) ................................... $1.00
=====
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998 (unaudited)
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME .......................... $9,593,535
----------
EXPENSES
Investment management fee ................ 1,336,398
Plan of distribution fee ................. 252,020
Transfer agent fees and expenses ......... 214,865
Registration fees ........................ 38,645
Shareholder reports and notices .......... 27,611
Professional fees ........................ 22,748
Custodian fees ........................... 13,663
Trustees' fees and expenses .............. 9,754
Other .................................... 4,261
----------
TOTAL EXPENSES ......................... 1,919,965
Less: expense offset ..................... (13,619)
----------
NET EXPENSES ........................... 1,906,346
----------
NET INVESTMENT INCOME .................... 7,687,189
NET REALIZED GAIN ........................ 2,153
----------
NET INCREASE ............................. $7,689,342
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997
--------------- ------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 7,687,189 $ 16,002,243
Net realized gain .................................... 2,153 --
------------ -------------
NET INCREASE ....................................... 7,689,342 16,002,243
Dividends from net investment income ................. (7,686,717) (16,002,394)
Net decrease from transactions in shares of beneficial
interest ........................................... (3,345,940) (4,440,989)
------------ -------------
NET DECREASE ....................................... (3,343,315) (4,441,140)
NET ASSETS:
Beginning of period .................................. 517,438,213 521,879,353
------------ -------------
END OF PERIOD
(Including undistributed net investment income of
$927 and $455, respectively) ...................... $514,094,898 $ 517,438,213
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Tax-Free Daily Income Trust (the "Fund"), formerly
Dean Witter Tax-Free Daily Income Trust, 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 incorporated in
Maryland in 1980, commenced operations on February 20, 1981 and reorganized as
a Massachusetts business trust on April 30, 1987.
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.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
The Fund amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to shareholders as of the close of each business day.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., the Fund pays the Investment Manager a management fee, accrued daily and
payable monthly, by applying the following annual rates to the net assets of
the Fund determined as of the close of each business day: 0.50% to the portion
of the daily net assets not exceeding $500 million; 0.425% to the portion of
the daily net assets exceeding $500 million but not exceeding $750 million;
0.375% to the portion of the daily net assets exceeding $750 million but not
12
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (unaudited) continued
exceeding $1 billion; 0.35% to the portion of the daily net assets exceeding $1
billion but not exceeding $1.5 billion; 0.325% to the portion of the daily net
assets exceeding $1.5 billion but not exceeding
$2 billion; 0.30% to the portion of the daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.275% to the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the portion
of the daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"), an affiliate
of the Investment Manager, is the distributor of the Fund's shares and, in
accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor and other
broker-dealers under the Plan: (1) compensation to, and expenses of, Morgan
Stanley Dean Witter Financial Advisors and other selected broker-dealers; (2)
sales incentives and bonuses to sales representatives and to marketing
personnel in connection with promoting sales of the Fund's shares; (3) expenses
incurred in connection with promoting sales of the Fund's shares; (4) preparing
and distributing sales literature; and (5) providing advertising and
promotional activities, including direct mail solicitation and television,
radio, newspaper, magazine and other media advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's
average daily net assets. For the six months ended June 30, 1998, the
distribution fee was accrued at the annual rate of 0.09%.
13
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1998 (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 June 30, 1998 aggregated $568,658,576 and
$543,147,322, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At June 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $12,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all 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 years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended June 30, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,965. At June 30, 1998, the Fund had an accrued pension liability of
$48,803 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest, at $1.00 per share, were as
follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997
----------------- ------------------
(unaudited)
<S> <C> <C>
Shares sold ........................................ 572,757,247 1,145,733,981
Shares issued in reinvestment of dividends ......... 7,686,717 16,002,394
----------- -------------
580,443,964 1,161,736,375
Shares repurchased ................................. (583,789,904) (1,166,177,364)
------------ --------------
Net decrease in shares outstanding ................. (3,345,940) (4,440,989)
============ ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At December 31, 1997, the Fund had a net capital loss carryover of
approximately $2,500 which will be available through December 31, 2002 to
offset future capital gains to the extent provided by regulations.
14
<PAGE>
MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME 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 DECEMBER 31,
MONTHS ENDED ---------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
-------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
Net investment income ............................. 0.014 0.029 0.028 0.032 0.022 0.018
Less dividends from net investment income ......... (0.014) (0.029) (0.028) (0.032) (0.022) (0.018)
------ ------ ------ ------ ------ ------
Net asset value, end of period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN ........................... 1.42%(1) 2.98% 2.83% 3.22% 2.25% 1.85%
RATIOS TO AVERAGE NET ASSETS :
Expenses .......................................... 0.71% (2)(3) 0.72% (3) 0.71% 0.72% 0.71% 0.71%
Net investment income ............................. 2.84% (2) 2.93% 2.76% 3.16% 2.22% 1.83%
SUPPLEMENTAL DATA :
Net assets, end of period, in millions ............ $ 514 $ 517 $ 522 $ 522 $ 544 $ 568
</TABLE>
- -------------
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson Morgan Stanley
Micheal E. Nugent Dean Witter
Philip J. Purcell Tax-Free Daily
John L. Schroeder Income Trust
OFFICERS
- ---------------------------------- [LOGO]
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Katherine H. Stromberg
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Ce Semiannual Report
New York, New York 10048 June 30, 1998
The financial statements included herein have been taken from the
records of the Fund without examination by the independent accountants
and accordingly they do not express an opinion thereon.
This report is submitted for the general information of shareholders of
the Fund. For more detailed information about the fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
