<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust Two World Trade Center,
Letter to the Shareholders June 30, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economic expansion stayed on course during the six-month period ended
June 30, 2000. Real personal consumption accelerated and unemployment reached a
30-year low. At the same time, a surge in oil prices heightened the risk of
inflation. In response, the Federal Reserve Board took added steps toward a
more restrictive monetary policy. The Fed raised the federal funds rate target
three times, by a total of 100 basis points, since February 2000, bringing the
rate to a nine-year high of 6.50 percent.
MUNICIPAL MONEY MARKET OVERVIEW
The rise in tax-free money market yields continued over the first half of 2000,
though at a slower pace than during the latter half of 1999. Yields for both
variable-rate and fixed-rate municipal money market instruments increased by
some 50 basis points on average from the previous six-month period. However,
the movement of yields was subject to the usual fluctuations stemming from
seasonal changes in the direction of cash flows. The trend toward higher
interest rates was interrupted in early January when heavy demand from new cash
in the market caused rates to drop temporarily. The rise in yields resumed when
demand subsided later in the month. Another marked departure from the measured
pace toward higher yields occurred in conjunction with the tax-payment season,
lasting from late April into early May, when yields took an exaggerated spike
upward.
The Bond Buyer One Year Note Index, a benchmark indicator for the longest
maturities in the tax-free money market sector, dropped modestly from 3.97
percent to 3.91 percent, its low for the first half of the year, during the
first week of January. The Index moved upward moderately to a level of 4.10
percent in mid April but then rose more than 50 basis points over the next
several weeks to a high of 4.64 percent in mid May. The Index settled down
again over the balance of the second quarter to end June at 4.29 percent for a
net increase of 32 basis points over the
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Letter to the Shareholders June 30, 2000, continued
six-month period. Over the 12-month period beginning in June 1999, when the
Federal Reserve Board first embarked on a less accommodative monetary policy,
the Index increased by 90 basis points, from 3.39 percent to 4.29 percent.
Although yields for daily and weekly variable rate demand obligations (VRDOs)
also rose, their yield swings were much more pronounced because these
instruments are the ones utilized most frequently to meet changing cash flows.
Weekly VRDO yields moved over a range of nearly 300 basis points during the
six-month period, from a low of 2.95 percent in early January to a high of 5.85
percent in early May. In a year-over-year comparison, the average yield for
weekly VRDOs rose from 3.30 percent in June 1999 to 4.40 percent in June 2000.
PORTFOLIO MANAGEMENT AND PERFORMANCE
Morgan Stanley Dean Witter Tax-Free Daily Income Trust's annualized net
investment income was 3.13 percent for the six-month period ended June 30, 2000.
The Fund's 30-day moving average yield was 3.48 percent as of June 30, 2000.
On June 30, the Fund's net assets totaled $526 million with 68 percent of the
Fund's portfolio invested in VRDOs. Tax-exempt commercial paper and municipal
notes or bonds, the two other types of securities utilized in the portfolio,
comprised 25 percent and 7 percent of the portfolio, respectively. The Fund was
broadly diversified geographically with holdings in 31 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.
At the end of June the Fund's average maturity was 41 days, up from 37 days at
the end of December. The Fund's average maturity is typically extended at
midyear with the purchase of newly issued one-year tax and revenue anticipation
notes (TRANs). However, our investments in TRANs were made more selectively
this year. Healthy municipal government balance sheets reduced the available
supply of cash flow notes. At the same time, a bias toward higher short-term
interest rates made commitments to longer fixed-rate notes less desirable.
LOOKING AHEAD
We expect the Federal Reserve Board to maintain its vigilant stance in its
efforts to contain inflation. Additional increases in short-term interest rates
remain a possibility if the central bank feels that economic momentum is not
slowing sufficiently. In this climate the Fund's average maturity is expected
to remain within a short to moderate range.
2
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Letter to the Shareholders June 30, 2000, continued
We appreciate your ongoing support of Morgan Stanley Dean Witter Tax-Free Daily
Income Trust and look forward to continuing to serve your investment needs.
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, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN CURRENT DEMAND
THOUSANDS RATE+ DATE* VALUE
----------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (69.7%)
ALABAMA
$ 10,000 Birmingham, University of Alabama Health Services Foundation Ser 1991 ......... 4.70 % 07/10/00 $ 10,000,000
ARIZONA
7,500 Maricopa County, Arizona Public Service Co Palo Verde Ser 1994 D .............. 4.45 07/03/00 7,500,000
CALIFORNIA
3,500 California Health Facilities Financing Authority, Scripps Memorial Hospital
Ser 1991 B (MBIA) ........................................................... 4.65 07/10/00 3,500,000
4,000 Metropolitan Water District of Southern California, Water 1999 Ser C .......... 4.15 07/03/00 4,000,000
10,900 San Bernardino County, Medical Center Financing Ser 1998 COPs (MBIA) .......... 4.70 07/10/00 10,900,000
5,900 Southern California Public Power Authority, Transmission 1991 Sub Refg
Ser (AMBAC) ................................................................. 4.30 07/10/00 5,900,000
CONNECTICUT
2,500 Connecticut Health & Educational Facilities Authority, Yale University
Ser T-2 ..................................................................... 4.35 07/10/00 2,500,000
7,000 Connecticut Special Assessment, Unemployment Compensation 1993 Ser C
(FGIC) ...................................................................... 3.38 07/01/00 7,000,000
7,000 Connecticut, Second Lien Special Tax Transportation Ser 1 ..................... 4.75 07/10/00 7,000,000
DISTRICT OF COLUMBIA
District of Columbia,
4,800 The American University Ser 1985 ............................................ 4.80 07/10/00 4,800,000
2,600 General Fund Recovery Ser 1991 B-3 .......................................... 4.75 07/03/00 2,600,000
4,000 George Washington University Ser 1999 C (MBIA) .............................. 4.80 07/10/00 4,000,000
FLORIDA
3,000 Collier County Health Facilities Authority, Cleveland Clinic Foundation
Ser 1999 .................................................................... 4.50 07/03/00 3,000,000
9,800 Dade County, Water & Sewer Ser 1994 (FGIC) .................................... 4.70 07/10/00 9,800,000
17,100 Dade County Industrial Development Authority, Dolphins Stadium
Ser 1985 A** ................................................................ 4.95 07/10/00 17,100,000
2,910 Pinellas County Health Facilities Authority, Pooled Loan Ser 1985 (AMBAC)...... 4.60 07/03/00 2,910,000
GEORGIA
Burke County Development Authority,
2,900 Georgia Power Co 5th Ser 1994 ............................................... 4.55 07/03/00 2,900,000
6,300 Oglethorpe Power Co Ser 1993A (FGIC) ........................................ 4.80 07/10/00 6,300,000
10,700 Clayton County, Delta Airlines Project Ser 2000 A ............................. 4.70 07/10/00 10,700,000
ILLINOIS
9,900 Illinois Educational Facilities Authority, Northwestern University Ser 1988 ... 4.75 07/10/00 9,900,000
</TABLE>
See Notes to Financial Statements
4
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Portfolio of Investments June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN CURRENT DEMAND
THOUSANDS RATE+ DATE* VALUE
----------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
KENTUCKY
$ 8,450 Mason County, East Kentucky Power Co-op Inc Ser 1984 (NRU-CFC Gtd) .......... 4.85 % 07/10/00 $ 8,450,000
LOUISIANA
2,500 Ascension Parish, Shell Oil Co Ser 1993 ..................................... 4.55 07/03/00 2,500,000
4,900 New Orleans Aviation Board, Ser 1993 B (MBIA) ............................... 4.80 07/10/00 4,900,000
MARYLAND
4,475 Washington Suburban Sanitary District, 1998 Ser BANs ........................ 4.75 07/10/00 4,475,000
MASSACHUSETTS
5,000 Massachusetts, Refg 1998 Ser A .............................................. 4.50 07/10/00 5,000,000
Massachusetts Health & Educational Facilities Authority,
4,600 Amherst College Ser F ..................................................... 4.70 07/10/00 4,600,000
3,730 Harvard University Ser 1985 I ............................................. 4.50 07/10/00 3,730,000
5,000 University of Massachusetts Ser A ......................................... 4.55 07/10/00 5,000,000
4,900 Massachusetts Water Resources Authority, Multi-Modal Sub 1999 Ser B ......... 4.40 07/10/00 4,900,000
MINNESOTA
12,300 Minneapolis, Convention Center Ser 1999 ..................................... 4.60 07/10/00 12,300,000
5,000 University of Minnesota Regents, Ser 1999A .................................. 4.80 07/10/00 5,000,000
MISSOURI
8,000 Missouri Health & Educational Facilities Authority, Washington University
Ser 1996 D ................................................................ 4.50 07/03/00 8,000,000
NEW HAMPSHIRE
5,000 New Hampshire Higher Educational & Health Facilities Authority, St Paul's
School Ser 1998 ........................................................... 4.75 07/10/00 5,000,000
NEW JERSEY
2,500 Gloucester County, Mobil Oil Refining Corp Ser 1993 A ....................... 4.60 07/10/00 2,500,000
2,600 New Jersey Educational Facilities Authority, College of New Jersey
Ser 1999 A (AMBAC) ........................................................ 4.45 07/10/00 2,600,000
NEW YORK
5,000 Nassau County Industrial Development Agency, 1999 Cold Spring Harbor
Laboratory ................................................................ 4.45 07/03/00 5,000,000
1,400 New York City, Fiscal Ser 1996 J Subser J-2 ................................. 4.65 07/10/00 1,400,000
1,650 New York City Cultural Resources Trust, Solomon R. Guggenheim
Foundation Ser 1990 B ..................................................... 4.40 07/03/00 1,650,000
10,000 New York State Housing Finance Agency, Normandie Court I Ser 1991 ........... 4.45 07/10/00 10,000,000
3,600 Port Authority of New York & New Jersey, Ser 2 .............................. 4.30 07/03/00 3,600,000
NORTH CAROLINA
2,200 Asheville, Ser 1993 A COPs .................................................. 4.85 07/10/00 2,200,000
5,000 North Carolina Medical Care Commission, Duke University Hospital
Ser 1985 B ................................................................ 4.75 07/10/00 5,000,000
</TABLE>
See Notes to Financial Statements
5
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Portfolio of Investments June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN CURRENT DEMAND
THOUSANDS RATE+ DATE* VALUE
----------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
OHIO
$ 4,200 Columbus, Unlimited Tax Ser 1995-1 ........................................ 4.60 % 07/10/00 $ 4,200,000
400 Ohio Air Quality Development Authority, Mead Co 1986 Ser A ................ 4.45 07/03/00 400,000
OKLAHOMA
Oklahoma Water Resources Board,
11,465 State Loan Program Ser 1994A & Ser 1995 ................................. 4.05 09/01/00 11,465,000
5,000 State Loan Program Ser 1999 ............................................. 4.10 09/01/00 5,000,000
OREGON
5,000 Oregon, Veterans' Ser 73 E ................................................ 4.75 07/10/00 5,000,000
PENNSYLVANIA
5,000 Delaware County Industrial Development Authority, United Parcel Service
of America Ser 1985 ..................................................... 4.45 07/03/00 5,000,000
SOUTH CAROLINA
7,350 York County, North Carolina Electric Membership Corporation Ser 1984
N-5 (NRU-CFC Gtd) ....................................................... 4.05 09/15/00 7,350,000
TENNESSEE
15,000 Clarksville Public Building Authority, Pooled Financing Ser 1995 .......... 4.75 07/10/00 15,000,000
4,400 Metropolitan Nashville Airport Authority, American Airlines Inc Refg
Ser 1995A ............................................................... 4.55 07/03/00 4,400,000
TEXAS
Harris County Health Facilities Development Corporation,
2,700 Methodist Hospital Ser 1994 ............................................. 4.55 07/03/00 2,700,000
10,000 St Luke's Episcopal Hospital Ser 1997 A ................................. 4.55 07/03/00 10,000,000
4,000 Young Men's Christian Association of the Greater Houston Area Ser 1999 .. 4.55 07/03/00 4,000,000
4,700 Lower Neches Valley Authority, Chevron USA Inc Ser 1987 ................... 3.95 08/15/00 4,700,000
4,000 Texas Water Development Board, Revolving Fund Ser 1992-A .................. 4.55 07/03/00 4,000,000
UTAH
10,000 Intermountain Power Agency, 1985 Ser F (AMBAC) ............................ 4.075 09/15/00 10,000,000
7,500 Weber County, IHC Health Services Inc Ser 2000A ........................... 4.85 07/10/00 7,500,000
WASHINGTON
21,000 Washington, Ser 1996 A .................................................... 4.80 07/10/00 21,000,000
WEST VIRGINIA
5,000 Pleasants County Commission, American Cyanamid Co Ser 1985 ................ 4.95 07/10/00 5,000,000
------------
TOTAL SHORT-TERM VARIABLE RATE MUNICIPAL OBLIGATIONS (Cost $366,830,000) ........................ 366,830,000
------------
</TABLE>
<TABLE>
<CAPTION>
YIELD TO
MATURITY
COUPON MATURITY ON DATE OF
RATE DATE PURCHASE
---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
TAX-EXEMPT COMMERCIAL PAPER (25.4%)
COLORADO
11,000 University of Colorado Regents, Ser A .............. 4.25 % 09/28/00 4.25% 11,000,000
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Portfolio of Investments June 30, 2000 (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>
DISTRICT OF COLUMBIA
$ 10,000 District of Columbia, The American National Red Cross Issue
Ser 2000 .......................................................... 4.20% 09/11/00 4.20% $ 10,000,000
FLORIDA
9,000 Orlando Utility Commission, Water & Electric Systems
Ser 1999 A ........................................................ 4.40 09/08/00 4.40 9,000,000
20,000 Sunshine State Governmental Financing Commission, Ser A & B.......... 4.20 07/31/00 4.20 20,000,000
LOUISIANA
10,000 Louisiana Public Facilities Authority, Christus Health Ser 1999 B
(AMBAC) ........................................................... 4.70 07/26/00 4.70 10,000,000
Plaquemines Port Harbor & Terminal District,
5,500 Electric-Coal Transfer Co Ser 1985 D .............................. 4.00 07/26/00 4.00 5,500,000
10,000 Electric-Coal Transfer Co Ser 1985 D .............................. 4.40 09/07/00 4.40 10,000,000
MASSACHUSETTS
3,500 Massachusetts Water Resources Authority, Ser 1999 ................... 4.35 08/14/00 4.35 3,500,000
MINNESOTA
Rochester, Mayo Foundation,
4,100 Mayo Medical Center Ser 1988 E .................................... 3.90 07/18/00 3.90 4,100,000
3,500 Mayo Medical Center Ser 2000 C .................................... 3.90 07/20/00 3.90 3,500,000
NEW HAMPSHIRE
New Hampshire State Business Finance Authority,
5,000 New England Power Co Ser 1993 B ................................... 4.10 07/20/00 4.10 5,000,000
7,000 New England Power Co Ser 1993 B ................................... 4.35 10/12/00 4.35 7,000,000
OKLAHOMA
Oklahoma City Industrial & Cultural Facilities Trust,
3,440 SSM Healthcare Ser 1998 B (MBIA) .................................. 3.85 07/25/00 3.85 3,440,000
5,000 SSM Healthcare Ser 1998 B (MBIA) .................................. 4.00 07/25/00 4.00 5,000,000
OREGON
4,500 Oregon Health Housing Educational & Cultural Facilities
Authority, Lewis & Clark College Ser 2000 A ....................... 4.30 08/30/00 4.30 4,500,000
SOUTH CAROLINA
6,800 South Carolina Public Service Authority, Santee Cooper Ser 1998..... 4.45 10/11/00 4.45 6,800,000
TEXAS
5,500 Dallas, Waterworks & Sewer Ser B .................................... 4.45 08/10/00 4.45 5,500,000
10,000 Texas Public Finance Authority, Ser 1993 A .......................... 4.25 08/16/00 4.25 10,000,000
------------
TOTAL TAX-EXEMPT COMMERCIAL PAPER (Cost $133,840,000) ............... 133,840,000
------------
SHORT-TERM MUNICIPAL NOTES & BONDS (7.4%)
ARIZONA
5,000 Arizona School District, Ser 1999A TANs, COPs dtd 08/19/99 .......... 4.05 07/31/00 3.58 5,001,864
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Portfolio of Investments June 30, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT IN MATURITY
THOUSANDS COUPON MATURITY ON DATE OF
----------- RATE DATE PURCHASE VALUE
<S> <C> ---------- ---------- ----------- ---------------
CONNECTICUT <C> <C> <C> <C>
$ 10,000 Connecticut, Ser 2000 B ................................... 5.00% 06/15/01 4.38% $ 10,057,136
GEORGIA
3,010 Georgia, Ser A ............................................ 5.80 03/01/01 4.10 3,043,016
INDIANA
7,000 Indianapolis Local Improvement Bond Bank, Ser 2000 B Notes,
dtd 06/29/00 ............................................ 5.00 01/08/01 4.30 7,025,008
KENTUCKY
5,000 Kentucky Asset/Liability Commission, Ser 2000 A TRANs,
dtd 07/03/00 (WI) ....................................... 5.25 06/27/01 4.54 5,033,400
TEXAS
3,500 Texas, Ser 1999 A TRANs, dtd 09/01/99 ..................... 4.50 08/31/00 3.70 3,504,510
WYOMING
5,000 Wyoming, Education Fund Ser 2000B TRANs, dtd 07/05/00 (WI) 5.25 06/27/01 4.33 5,043,150
-------------
TOTAL SHORT-TERM MUNICIPAL NOTES & BONDS (Cost $38,708,084) ............................... 38,708,084
-------------
TOTAL INVESTMENTS (Cost $539,378,084) (a) ..................................... 102.5% 539,378,084
LIABILITIES IN EXCESS OF OTHER ASSETS ......................................... (2.5) (12,917,888)
------ -------------
NET ASSETS .................................................................... 100.0% $526,460,196
====== =============
</TABLE>
---------------
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, 2000.
* Date on which the principal amount can be recovered through demand.
** This security has been segregated in connection with the purchase of
"when-issued" securities.
(a) Cost is the same for federal income tax purposes.
Bond Insurance:
---------------
AMBAC AMBAC Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(cost $539,378,084) .................... $539,378,084
Cash ...................................... 1,064,304
Interest receivable ....................... 2,971,534
Prepaid expenses and other assets ......... 72,068
------------
TOTAL ASSETS ......................... 543,485,990
------------
LIABILITIES:
Payable for:
Investments purchased ................ 10,076,550
Shares of beneficial interest
repurchased ....................... 6,601,678
Investment management fee ............ 215,768
Plan of distribution fee ............. 43,536
Accrued expenses .......................... 88,262
------------
TOTAL LIABILITIES .................... 17,025,794
------------
NET ASSETS ................................ $526,460,196
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................... $526,465,236
Accumulated undistributed net investment
income ................................. 260
Accumulated net realized loss ............. (5,300)
------------
NET ASSETS ........................... $526,460,196
============
NET ASSET VALUE PER SHARE,
526,465,162 shares outstanding
(unlimited shares authorized of $.01 par
value) ................................... $1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME .......................... $10,145,069
-----------
EXPENSES
Investment management fee ................ 1,307,218
Plan of distribution fee ................. 260,858
Transfer agent fees and expenses ......... 169,699
Registration fees ........................ 54,253
Shareholder reports and notices .......... 35,680
Professional fees ........................ 30,520
Custodian fees ........................... 12,526
Trustees' fees and expenses .............. 9,273
Other .................................... 4,801
-----------
TOTAL EXPENSES ...................... 1,884,828
Less: expense offset ..................... (12,526)
-----------
NET EXPENSES ........................ 1,872,302
-----------
NET INVESTMENT INCOME ............... 8,272,767
NET REALIZED LOSS ................... (5,300)
-----------
NET INCREASE ............................. $8,267,467
===========
</TABLE>
See Notes to Financial Statements
9
<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, 2000 DECEMBER 31, 1999
--------------- ------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ........................................ $ 8,272,767 $ 12,775,145
Net realized gain (loss) ..................................... (5,300) 429
------------ -------------
NET INCREASE .............................................. 8,267,467 12,775,574
------------ -------------
Dividends to shareholders from net investment income ......... (8,272,711) (12,775,516)
Net increase (decrease) from transactions in shares of
beneficial interest ........................................ 46,344,758 (17,951,504)
------------ -------------
NET INCREASE (DECREASE) ................................... 46,339,514 (17,951,446)
NET ASSETS:
Beginning of period .......................................... 480,120,682 498,072,128
------------ -------------
END OF PERIOD
(Including undistributed net investment income of
$260 and $204, respectively) .............................. $526,460,196 $480,120,682
============ =============
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Notes to Financial Statements June 30, 2000 (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 the portion of
the daily net assets exceeding $1 billion but not exceeding $1.5 billion;
0.325% to the
11
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Notes to Financial Statements June 30, 2000 (unaudited) continued
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.
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.
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. 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 June 30, 2000,
the distribution fee was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/maturities of portfolio
securities for the six months ended June 30, 2000 aggregated $726,607,762 and
$664,986,850, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At June 30, 2000, the Fund had
transfer agent fees and expenses payable of approximately $4,600.
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, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,970. At June 30, 2000, the Fund had an accrued pension liability of
$51,839 which is included in accrued expenses in the Statement of Assets and
Liabilities.
12
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Notes to Financial Statements June 30, 2000 (unaudited) continued
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, 2000 DECEMBER 31, 1999
----------------- ------------------
(unaudited)
<S> <C> <C>
Shares sold ........................................... 775,745,548 1,069,436,080
Shares issued in reinvestment of dividends ............ 8,272,711 12,775,516
----------- -------------
784,018,259 1,082,211,596
Shares repurchased .................................... (737,673,501) (1,100,163,100)
------------ --------------
Net increase (decrease) in shares outstanding ......... 46,344,758 (17,951,504)
============ ==============
</TABLE>
13
<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, 2000 1999 1998 1997 1996 1995
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
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 ....................... 0.016 0.025 0.028 0.029 0.028 0.032
Less dividends from net investment income ... (0.016) (0.025) (0.028) (0.029) (0.028) (0.032)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
TOTAL RETURN ................................ 1.57%(1) 2.53% 2.80% 2.98% 2.83% 3.22%
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................... 0.71%(2) 0.73%(3) 0.72%(3) 0.72%(3) 0.71% 0.72%
Net investment income ....................... 3.13%(2) 2.49% 2.75% 2.93% 2.76% 3.16%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ..... $526,460 $480,121 $498,072 $517,438 $521,879 $521,652
</TABLE>
-------------
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
See Notes to Financial Statements
14
<PAGE>
Morgan Stanley Dean Witter Tax-Free Daily Income Trust
Change in Independent Accountants
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to
make reference thereto in their report on the financial statements for such
years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
15
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
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
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
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 Distributors Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
TAX-FREE DAILY
INCOME TRUST
[GRAPHIC OMITTED]
SEMIANNUAL REPORT
June 30, 2000
