MORGAN STANLEY DEAN WITTER TAX FREE DAILY INCOME TRUST, N-30D, 1999-08-20

MORGAN STANLEY DEAN WITTER TAX FREE DAILY INCOME TRUST
N-30D, 1999-08-20

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<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS June 30, 1999 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, 1999.

Tax-free money-market yields moved upward during this period, following the
lead of the taxable money market. This increase in yield reversed the trend of
the latter half of 1998 and reflected the market's response to the persistent
strength in the U.S. economy. The steady release of robust economic data
prompted the Federal Reserve Board to adopt a bias toward higher short-term
interest rates in mid-May. The anticipated Fed tightening became reality at the
end of June when the federal funds rate was increased from 4.75 percent to 5.00
percent. At the same time, however, the Fed reverted to a neutral stance that
appeared to make prospects for another rate hike less likely over the near
term. This had a stabilizing effect on the fixed-income markets.

MUNICIPAL MONEY MARKET OVERVIEW

Within the municipal money market, the trend of interest rates was most
apparent among securities maturing in six months to one year. Early in the
year, one-year yields declined moderately as demand for securities outstripped
supply, but from late February through the end of June, yields moved higher
along with taxable money-market yields. The Bond Buyer One Year Note Index, a
benchmark indicator for the longest maturities in the tax-free money market
sector, registered a net increase of 35 basis points, from 3.04 percent at the
end of December 1998 to 3.39 percent in late June. Nevertheless, one-year
yields as measured by the Index were still 20 basis points lower at the end of
June compared to one year earlier. 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,
unchanged from a year earlier. A stable ratio means that performance of
securities in this sector of the municipal market has tracked the performance
of Treasuries with comparable maturities.

<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
LETTER TO THE SHAREHOLDERS June 30, 1999, continued

At the short end of the tax-free money market, interest rates fluctuated in a
wider pattern. Yields for variable-rate demand obligations (VRDOs) with daily
and weekly rate changes were driven primarily by changing cash flows and
fluctuated more widely than yields for longer maturities. Yields for weekly
VRDOs moved over a 180-basis-point range from a low of 2.20 percent in early
February, when cash inflows were strong, to a high of 4.00 percent during tax
season in April. However, during periods when supply and demand were in
balance, the municipal money market yield curve was flat with little difference
between one-year note yields and yields for daily or weekly VRDOs. The average
yield for weekly VRDOs was approximately 3.10 percent for the first half of
1999. This was comparable to the average yield for one-year notes over the same
period.

PERFORMANCE AND PORTFOLIO STRATEGY

Morgan Stanley Dean Witter Tax-Free Daily Income Trust's annualized net
investment income ratio was 2.34 percent for the six-month period ended June
30, 1999. The Fund's thirty-day average yield was 2.43 percent as of June 30,
1999.

On June 30, the Fund's net assets totaled $494.9 million with 64 percent of the
Fund's portfolio invested in VRDOs. Tax-exempt commercial paper and municipal
notes, the two other types of securities utilized in the portfolio, comprised
28 percent and 8 percent of the portfolio, respectively. The Fund was broadly
diversified geographically with holdings in 38 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
our investments. The Fund has had no exposure to Asian bank letters of credit
or liquidity facilities for more than three years.

At the end of June the Fund's average maturity was 57 days, up from 47 days at
the end of December. The Fund's weighted average maturity is usually extended
each year between mid-June and early July when newly issued one-year tax and
revenue anticipation notes (TRANs) come to market in large supply. The addition
of longer fixed-rate securities smoothes out portfolio yields by offsetting
some of the yield volatility of VRDOs with daily and weekly rate changes.

LOOKING AHEAD

With the rate change in June the Federal Reserve Board has confirmed its
previously signaled intention of becoming less accommodative in the face of
continued strong domestic economic growth by taking back some of the liquidity
it provided in the fall of 1998. In this environment the Fund's average
maturity will be monitored carefully in order to meet the stated objectives of
stability of principal and liquidity.

2
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
LETTER TO THE SHAREHOLDERS June 30, 1999, continued

On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley
Dean Witter Funds. Mr. Merin is the President and Chief Operating Officer of
Asset Management for Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's investment manager. He also serves as Chairman, Chief Executive Officer
and Director of the Fund's distributor and transfer agent.

We appreciate your ongoing support of Morgan Stanley Dean Witter Tax-Free Daily
Income Trust and look forward to continuing to serve your investment
objectives.

Very truly yours,

/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin

CHARLES A. FIUMEFREDDO MITCHELL M. MERIN

Chairman of the Board President

3
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN CURRENT DEMAND
THOUSANDS RATE+ DATE* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (67.4%)
ALABAMA
$ 5,000 Birmingham Medical Clinic Board, University of Alabama Health Services
Foundation Ser 1991 ............................................................. 3.30% 07/08/99 $ 5,000,000
ARIZONA
3,000 Maricopa County, Arizona Public Service Co Palo Verde 1994 Ser C .................. 3.45 07/01/99 3,000,000
3,900 Tempe, Excise Tax Ser 1998 ........................................................ 3.55 07/01/99 3,900,000
CALIFORNIA
8,000 California Public Capital Improvements Financing Authority, Pooled
Ser 1988 C ...................................................................... 3.15 09/15/99 8,000,000
7,300 Foothill/Eastern Transportation Corridor Agency, Toll Road Ser 1995C .............. 3.30 07/08/99 7,300,000
CONNECTICUT
2,500 Connecticut Health & Educational Facilities Authority, Yale University
Ser T-2 ......................................................................... 3.60 07/08/99 2,500,000
Connecticut Special Assessment, Unemployment Compensation
6,000 1993 Ser C (FGIC) ............................................................... 3.60 07/01/99 6,000,000
7,000 1993 Ser C (FGIC) ............................................................... 3.38 07/01/00 7,000,000
DISTRICT OF COLUMBIA
4,800 District of Columbia, The American University Ser 1985 ............................ 3.50 07/08/99 4,800,000
FLORIDA
9,800 Dade County, Water & Sewer Ser 1994 (FGIC) ........................................ 3.30 07/08/99 9,800,000
17,400 Dade County Industrial Development Authority, Dolphins Stadium
Ser 1985 A** .................................................................... 3.50 07/08/99 17,400,000
2,000 Escambia County, Gulf Power Co Ser 1997 ........................................... 3.65 07/01/99 2,000,000
ILLINOIS
5,000 Chicago, Tender Notes Ser 1999 .................................................... 2.95 01/27/00 5,000,000
10,000 Illinois Educational Facilities Authority, Northwestern University Ser 1988**...... 3.70 07/08/99 10,000,000
3,685 Illinois Health Facilities Authority, Central Dupage Hospital Assn Ser 1990........ 3.45 07/01/99 3,685,000
10,000 Oak Forest, Homewood South Suburban Mayors & Managers Assn Ser 1989 ............... 3.65 07/08/99 10,000,000
INDIANA
5,000 Indiana Health Facilities Authority, Charity Obligated Group -- Daughters
of Charity National Health System Ser 1997 E .................................... 3.35 07/08/99 5,000,000
KENTUCKY
8,700 Mason County, East Kentucky Power Co-op Inc Ser 1984 (NRU-CFC Gtd) ................ 3.55 07/08/99 8,700,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

4
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN CURRENT DEMAND
THOUSANDS RATE+ DATE* VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOUISIANA
$ 5,000 New Orleans Aviation Board, Ser 1993 B (MBIA) ............................... 3.60% 07/08/99 $ 5,000,000
MARYLAND
4,700 Washington Suburban Sanitary District, 1998 Ser BANs ........................ 3.45 07/08/99 4,700,000
MASSACHUSETTS
5,000 Massachusetts, Refg 1998 Ser A .............................................. 3.60 07/08/99 5,000,000
5,000 Massachusetts Bay Transportation Authority, 1984 Ser A ...................... 2.95 09/01/99 5,000,000
Massachusetts Health & Educational Facilities Authority,
4,600 Amherst College Ser F ..................................................... 3.70 07/08/99 4,600,000
4,330 Harvard University Ser 1985 I ............................................. 3.70 07/08/99 4,330,000
5,000 Massachusetts Water Resources Authority, Multi-Modal Sub 1999 Ser B ......... 3.30 07/08/99 5,000,000
MICHIGAN
1,300 Delta County Economic Development Corp, Mead-Escanaba Paper Co
Ser 1985 E ................................................................ 3.45 07/01/99 1,300,000
MINNESOTA
5,000 University of Minnesota Regents, Ser 1999A .................................. 3.50 07/08/99 5,000,000
MISSOURI
9,200 Missouri Health & Educational Facilities Authority,
The Washington University, Ser C & D ...................................... 3.45 07/01/99 9,200,000
NEW HAMPSHIRE
5,000 New Hampshire Higher Educational & Health Facilities Authority, St Paul's
School Ser 1998 ........................................................... 3.60 07/08/99 5,000,000
NEW JERSEY
4,000 Gloucester County, Mobil Oil Refining Corp Ser 1993 A ....................... 3.05 07/08/99 4,000,000
2,600 New Jersey Educational Facilities Authority, College of New Jersey
Ser 1999 A (AMBAC) ........................................................ 3.50 07/08/99 2,600,000
NEW YORK
1,600 Nassau County Industrial Development Agency, 1999 Cold Spring Harbor
Laboratory ................................................................ 3.35 07/01/99 1,600,000
1,245 New York City Municipal Water Finance Authority, 1994 Ser C (FGIC) .......... 3.70 07/01/99 1,245,000
4,000 Port Authority of New York & New Jersey, Ser 2 .............................. 3.60 07/01/99 4,000,000
NORTH CAROLINA
3,400 Asheville, Ser 1993 A COPs .................................................. 3.30 07/08/99 3,400,000
5,000 North Carolina Medical Care Commission, Duke University Hospital
Ser 1985 B ................................................................ 3.65 07/08/99 5,000,000
4,000 Wake County Industrial & Pollution Control Facilities Authority,
Carolina Power & Light Ser 1990 A ......................................... 3.85 07/01/99 4,000,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

5
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN CURRENT DEMAND
THOUSANDS RATE+ DATE* VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO
$ 4,400 Columbus, Unlimited Tax Ser 1995-1 ........................................ 3.65% 07/08/99 $ 4,400,000
10,000 Cuyahoga County, Cleveland Clinic Health System Obligated Group
Ser 1998A ............................................................... 3.50 07/08/99 10,000,000
OKLAHOMA
Oklahoma Water Resources Board,
12,000 State Loan Program Ser 1994A & 1999 ..................................... 2.90 09/01/99 12,000,000
4,465 State Loan Program Ser 1995 ............................................. 2.95 09/01/99 4,465,000
OREGON
5,000 Oregon, Veterans' Ser 73 E ................................................ 3.50 07/08/99 5,000,000
PENNSYLVANIA
2,100 Delaware County Industrial Development Authority, United Parcel Service
of America Ser 1985 ..................................................... 3.80 07/01/99 2,100,000
3,100 York General Authority, Pooled Ser 1996 ................................... 3.80 07/08/99 3,100,000
PUERTO RICO
1,300 Puerto Rico Highway & Transportation Authority, 1998 Ser A (AMBAC) ........ 3.10 07/08/99 1,300,000
SOUTH CAROLINA
York County,
7,600 North Carolina Electric Membership Corporation, Ser 1984 N-5
(NRU-CFC Gtd) ........................................................... 3.00 09/15/99 7,600,000
8,410 Saluda River Electric Co-op Inc Ser 1984 E-1 & E-2 (NRU-CFC Gtd) ......... 2.75 08/16/99 8,410,000
2,800 South Carolina Jobs Economic Development Authority, St Francis Hospital
Ser 1990 ................................................................ 3.85 07/01/99 2,800,000
TENNESSEE
2,500 Metropolitan Nashville Airport Authority, American Airlines Refg
Ser 1995 B .............................................................. 3.85 07/01/99 2,500,000
15,000 Clarksville Public Building Authority, Pooled Financing Ser 1995 .......... 3.80 07/08/99 15,000,000
TEXAS
Harris County Health Facilities Development Corporation,
5,000 Methodist Hospital Ser 1994 ............................................. 3.50 07/01/99 5,000,000
3,300 St Luke's Episcopal Hospital Ser 1997 A ................................. 3.85 07/01/99 3,300,000
4,700 Lower Neches Valley Authority, Chevron USA Inc Ser 1987 ................... 2.75 08/16/99 4,700,000
UTAH
10,000 Intermountain Power Agency, 1985 Ser F .................................... 3.10 09/15/99 10,000,000
VIRGINIA
5,100 Roanoke Industrial Development Authority, Carilion Health System
Ser 1997 A .............................................................. 3.50 07/01/99 5,100,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

6
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MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued

<TABLE>
<CAPTION>
YIELD TO
MATURITY
COUPON MATURITY ON DATE OF
RATE DATE PURCHASE
------ -------- ----------
<S> <C> <C> <C> <C> <C>
TAX-EXEMPT COMMERCIAL PAPER (30.2%)
FLORIDA
5,000 Jacksonville Electric Authority, Ser C .................... 3.25% 09/10/99 3.25% 5,000,000
GEORGIA
10,000 Georgia Municipal Gas Authority, Southern
Portfolio I Ser D ....................................... 3.10 08/10/99 3.10 10,000,000
HAWAII
6,200 Hawaii Department of Budget & Finance, Citizens
Utilities Co Ser 1985 ................................... 3.15 08/11/99 3.15 6,200,000
LOUISIANA
8,000 Louisiana, Ser 1991-A ..................................... 3.15 09/09/99 3.15 8,000,000
10,000 Plaquemines Port Harbor & Terminal District,
Electric-Coal Transfer Co Ser 1985 D .................... 3.10 10/20/99 3.10 10,000,000
MARYLAND
Baltimore County,
5,000 Metro District Ser 1995 BANs ............................ 2.80 08/18/99 2.80 5,000,000
7,100 Metro District Ser 1995 BANs ............................ 2.95 09/08/99 2.95 7,100,000
NEW HAMPSHIRE
5,000 New Hampshire State Business Finance Authority,
New England Power Co Ser 1993 B ......................... 3.05 08/12/99 3.05 5,000,000
NORTH CAROLINA
7,200 North Carolina Eastern Municipal Power Agency,
Ser 1996 ................................................ 2.70 07/20/99 2.70 7,200,000
OHIO
7,600 Ohio Air Quality Development Authority,
Cleveland Electric Illuminating Co 1988
Ser B (FGIC) ............................................ 3.15 08/06/99 3.15 7,600,000
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

7
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (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>
PENNSYLVANIA
$ 8,450 Montgomery County Industrial Development Authority, PECO
Energy Co 1994 Ser A ........................................ 3.05% 10/07/99 3.05% $ 8,450,000
SOUTH CAROLINA
South Carolina Public Service Authority,
8,300 Santee Cooper Ser 1998 ...................................... 3.30 09/09/99 3.30 8,300,000
7,600 Santee Cooper Ser 1998 ...................................... 3.35 10/06/99 3.35 7,600,000
TEXAS
Houston,
7,000 Water & Sewer 1994 Ser A .................................... 2.85 07/20/99 2.85 7,000,000
8,000 Water & Sewer 1994 Ser A .................................... 3.00 07/27/99 3.00 8,000,000
5,000 Water & Sewer 1994 Ser A .................................... 3.00 08/24/99 3.00 5,000,000
WASHINGTON
Seattle,
5,000 Municipal Light & Power Ser 1990 ............................ 3.20 07/15/99 3.20 5,000,000
11,000 Municipal Light & Power Ser 1991 B .......................... 3.20 07/22/99 3.20 11,000,000
6,000 Municipal Light & Power Ser 1991 B .......................... 3.15 08/19/99 3.15 6,000,000
WISCONSIN
12,000 Wisconsin, Transportation Notes 1997 Ser A .................... 3.35 09/14/99 3.35 12,000,000
-------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER (Amortized Cost $149,450,000) ............................... 149,450,000
-------------
SHORT-TERM MUNICIPAL NOTES (8.1%)
IDAHO
5,000 Idaho, Ser 1999 TANs, dtd 07/01/99 (WI) ....................... 4.25 06/30/00 3.40 5,040,950
INDIANA
Indianapolis Local Improvement Bond Bank,
3,450 Ser 1998 E Notes, dtd 12/17/98 .............................. 3.50 07/12/99 2.95 3,450,561
5,900 Ser 1999 B Notes, dtd 06/17/99 .............................. 4.00 01/10/00 3.25 5,922,939
IOWA
Iowa School Corporations,
3,300 Warrant Certificates 1998-99 Ser B (FSA), dtd 01/28/99 ...... 3.50 01/28/00 2.97 3,309,805
7,000 Warrant Certificates 1999-2000 Ser A (FSA), dtd 06/24/99 .... 4.00 06/23/00 3.23 7,051,015
KENTUCKY
10,000 Kentucky Asset/Liability Commission, 1999 Ser A TRANs,
dtd 07/01/99 (WI) ........................................... 4.25 06/28/00 3.375 10,083,900
NEW MEXICO
5,000 New Mexico, Ser 1999-2000 Ser A TRANs, dtd 07/01/99 (WI) ...... 4.00 06/30/00 3.23 5,037,150
-------------
TOTAL SHORT-TERM MUNICIPAL NOTES (Amortized Cost $39,896,320).................................. 39,896,320
-------------
TOTAL INVESTMENTS (Amortized Cost $523,081,320) (a)................................ 105.7% 523,081,320
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .................................... (5.7) (28,162,995)
-------------
NET ASSETS ........................................................................ 100.0% $ 494,918,325
====== =============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

8
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
PORTFOLIO OF INVESTMENTS June 30, 1999 (unaudited) continued

- ---------------
BANs Bond Anticipation Notes.
COPs Certificates of Participation.
NRU-CFC National Rural Utilities - Cooperative Finance Corporation.
TANs Tax Anticipation Notes.
TRANs Tax and Revenue Anticipation Notes.
WI Security purchased on a "when-issued" basis.
+ Rate shown is the rate in effect at June 30, 1999.
* Date on which the principal amount can be recovered through demand.
** All or a portion of these securities have been segregated in
connection with the purchase of "when-issued" securities and a delayed
delivery security.
(a) Cost is the same for federal income tax purposes.

Bond Insurance:
- ---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.

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, 1999 (unaudited)

<TABLE>
<S> <C>
ASSETS :
Investments in securities, at value
(amortized cost $523,081,320) ............... $523,081,320
Cash ........................................... 1,141,412
Receivable for :
Interest .................................. 2,342,210
Investments sold .......................... 9,754
Prepaid expenses and other assets .............. 105,514
------------
TOTAL ASSETS .............................. 526,680,210
------------
LIABILITIES :
Payable for :
Investments purchased ..................... 27,162,000
Shares of beneficial interest
repurchased ............................ 4,240,322
Investment management fee ................. 224,312
Plan of distribution fee .................. 44,867
Accrued expenses ............................... 90,384
------------
TOTAL LIABILITIES ......................... 31,761,885
------------
NET ASSETS ................................ $494,918,325
============
COMPOSITION OF NET ASSETS :
Paid-in-capital ................................ $494,918,192
Accumulated undistributed net investment
income ...................................... 133
------------
NET ASSETS ................................ $494,918,325
============
NET ASSET VALUE PER SHARE,
494,918,192 shares outstanding (unlimited
shares authorized of $.01 par value)......... $1.00
=====
</TABLE>

STATEMENT OF OPERATIONS
For the six months ended June 30, 1999 (unaudited)

<TABLE>
<S> <C>
NET INVESTMENT INCOME :
INTEREST INCOME ................................ $7,882,676
----------
EXPENSES
Investment management fee ...................... 1,278,186
Plan of distribution fee ....................... 243,876
Transfer agent fees and expenses ............... 193,257
Registration fees .............................. 65,163
Professional fees .............................. 42,904
Shareholder reports and notices ................ 35,787
Custodian fees ................................. 12,699
Trustees' fees and expenses .................... 9,290
Other .......................................... 3,276
----------
TOTAL EXPENSES ............................ 1,884,438
Less : expense offset .......................... (12,658)
----------
NET EXPENSES .............................. 1,871,780
----------
NET INVESTMENT INCOME ..................... 6,010,896
NET REALIZED GAIN ......................... 429
----------
NET INCREASE ................................... $6,011,325
==========
</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, 1999 DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS :
OPERATIONS :
Net investment income ................................ $ 6,010,896 $ 14,720,592
Net realized gain .................................... 429 2,153
------------ -------------
NET INCREASE ...................................... 6,011,325 14,722,745
------------ -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM :
Net investment income ................................ (6,011,338) (14,720,472)
Net realized gain .................................... (74) --
------------ -------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................. (6,011,412) (14,720,472)
------------ -------------
Net decrease from transactions in shares of beneficial
interest ........................................... (3,153,716) (19,368,358)
------------ -------------
NET DECREASE ...................................... (3,153,803) (19,366,085)
NET ASSETS :
Beginning of period .................................. 498,072,128 517,438,213
------------ -------------
END OF PERIOD
(Including undistributed net investment income of
$133 and $575, respectively)....................... $494,918,325 $ 498,072,128
============ =============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

11
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited)

1. ORGANIZATION AND ACCOUNTING POLICIES

Morgan Stanley Dean Witter Tax-Free Daily Income 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 incorporated in Maryland on March 24, 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"), 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 exceeding $1 billion; 0.35% to

12
<PAGE>

MORGAN STANLEY DEAN WITTER TAX-FREE DAILY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS June 30, 1999 (unaudited) continued

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, 1999, 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, 1999 (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, 1999 aggregated $582,280,435 and
$557,844,590, respectively.

Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At June 30, 1999, the Fund had
transfer agent fees and expenses payable of approximately $11,000.

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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,884. At June 30, 1999, the Fund had an accrued pension liability of
$50,817 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, 1999 DECEMBER 31, 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
Shares sold .......................................................... 526,010,028 1,102,902,492
Shares issued in reinvestment of dividends and distributions ......... 6,011,413 14,720,472
----------- -------------
532,021,441 1,117,622,964
Shares repurchased ................................................... (535,175,157) (1,136,991,322)
------------ --------------
Net decrease in shares outstanding ................................... (3,153,716) (19,368,358)
============ ==============
</TABLE>

6. FEDERAL INCOME TAX STATUS

At December 31, 1998 the Fund had a net capital loss carryover of approximately
$400, 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, 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA :
Net asset value, beginning of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net investment income .......................... 0.012 0.028 0.029 0.028 0.032 0.022
Less dividends from net investment income ...... (0.012) (0.028) (0.029) (0.028) (0.032) (0.022)
------- ------- ------- ------- ------- -------
Net asset value, end of period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN ................................... 1.17%(1) 2.80% 2.98% 2.83% 3.22% 2.25%

RATIOS TO AVERAGE NET ASSETS:
Expenses ....................................... 0.73%(2) 0.72%(3) 0.72%(3) 0.71% 0.72% 0.71%
Net investment income .......................... 2.34%(2) 2.75% 2.93% 2.76% 3.16% 2.22%

SUPPLEMENTAL DATA:
Net assets, end of period, in millions ......... $495 $498 $517 $522 $522 $544
</TABLE>

- -------------
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

TRUSTEES

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder

OFFICERS

Charles A. Fiumefreddo
Chairman and Chief Executive Officer

Mitchell M. Merin
President

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 Center
New York, New York 10048

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. Read the
prospectus carefully before investing.

MORGAN STANLEY
DEAN WITTER
TAX-FREE DAILY
INCOME TRUST

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SEMIANNUAL REPORT
June 30, 1999