Morgan Stanley Tax Free Daily Income Trust N-CSRS Certified semi-annual shareholder report (management investment company)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-03031

Morgan Stanley Tax-Free Daily Income Trust

(Exact name of registrant as specified in charter)

522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices)       (Zip code)

Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)

Registrant’s telephone number, including area code: 212-296-6990

Date of fiscal year end: December 31, 2009

Date of reporting period: June 30, 2009

Item 1 — Report to Shareholders

INVESTMENT MANAGEMENT

Welcome, Shareholder:

In this report, you’ll learn about how your investment in Morgan Stanley Tax-Free Daily Income Trust performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund’s financial statements and a list of Fund investments.

This material must be preceded or accompanied by a prospectus for the fund being offered.

Market forecasts provided in this report may not necessarily come to pass. There is no assurance that a mutual fund will achieve its investment objective. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the fund. Please see the prospectus for more complete information on investment risks.

Fund Report

For the six months ended June 30, 2009

Market Conditions

June 30, 2009 marked the end of most state and local governments’ fiscal years. While many issuers made mid-year budget adjustments last winter to close their budget gaps, the economy continued to contract further, creating significant shortfalls that need to be addressed by further action as most state and local governments are required by law to have balanced budgets. Tax revenues have declined sharply this year; personal income tax receipts dropped an average of 15.8 percent in the first three months of 2009, according to the Rockefeller Institute, while corporate and sales tax receipts fell 16.2 percent and 7.6 percent, respectively. Given that tax collections lag economic activity, the few reports we have to date for the month of April are also alarming. New York State reported collecting $239 million less than was expected in April, while New Jersey’s fiscal year 2010 budget gap increased to $9 billion from $7 billion, based on the state’s poor April collections.

At the end of 2008, the municipal bond market came to a standstill and has been limping back this year. As a result, there has been limited supply in the market all year; U.S. municipal bond issuance was 15.9 percent lower in the first half of 2009 than it was in the first half of last year. The short-term tax-exempt market weathered this year’s tax season quite well, prompting broker/dealers to keep yields firm. At the end of June, yields for weekly variable-rate securities, as measured by the Securities Industry and Financial Markets Association (SIFMA) Index, stood at 0.35 percent, down slightly from 0.39 percent at the end of May. The Bond Buyer One-Year Note Index, which resets weekly, rose 14 basis points to 0.67 percent in June, from 0.53 percent in May.

Performance Analysis

As of June 30, 2009, Morgan Stanley Tax-Free Daily Income Trust had net assets of approximately $323.9 million and an average portfolio maturity of 24 days. For the six-month period ended June 30, 2009, the Fund provided a total return of 0.02 percent. For the seven-day period ended June 30, 2009, the Fund provided an effective annualized yield of 0.01 percent and a current yield of 0.01 percent, while its 30-day moving average yield for June was 0.01 percent. Yield quotations more closely reflect the current earnings of the Fund. Past performance is no guarantee of future results.

Protecting the stability and liquidity of the portfolio’s assets remained our first priority. In the recent turbulent markets, our emphasis has been on managing exposure to institutions under stress. To that end, we remained focused on securities where our credit and risk teams have confidence in the quality of the issuer, the structure of the program, and the financial strength of the supporting institutions.

There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.

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PORTFOLIO COMPOSITION as of 06/30/09
Variable Rate Municipal Obligations	86	.2%
Tax-Exempt Commercial Paper	7	.3
Municipal Notes	6	.5

MATURITY SCHEDULE as of 06/30/09
1-30 Days	87	.9%
31-60 Days	6	.2
61-90 Days	0	.6
91-120 Days	0	.0
121+ Days	5	.3

Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Portfolio composition and maturity schedule are as a percentage of total investments. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.

Investment Strategy

The Fund will invest in high quality, short-term securities that are normally municipal obligations that pay interest exempt from federal income taxes. The Fund’s “Investment Adviser,” Morgan Stanley Investment Advisors Inc., seeks to maintain the Fund’s share price at $1.00. The share price remaining stable at $1.00 means that the Fund would preserve the principal value of your investment.

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

For More Information About Portfolio Holdings

Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund’s second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund’s first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may, however, obtain the Form N-Q filings (as well as the

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Form N-CSR and N-CSRS filings) by accessing the SEC’s web site, http://www.sec.gov. You may also review and copy them at the SEC’s public reference room in Washington, DC. Information on the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC’s e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-0102.

Householding Notice

To reduce printing and mailing costs, the Fund attempts to eliminate duplicate mailings to the same address. The Fund delivers a single copy of certain shareholder documents, including shareholder reports, prospectuses and proxy materials, to investors with the same last name who reside at the same address. Your participation in this program will continue for an unlimited period of time unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 869-NEWS, 8:00 a.m. to 8:00 p.m., ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days.

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Expense Example

As a shareholder of the Fund, you incur ongoing costs, including advisory fees; distribution and shareholder servicing fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 01/01/09 – 06/30/09.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.

					Expenses Paid
	Beginning		Ending		During Period@
	Account Value		Account Value		01/01/09 –
	01/01/09		06/30/09		06/30/09
Actual (0.02% return)	$	1,000.00	$	1,000.20	$	2.88
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,021.92	$	2.91

@ Expenses are equal to the Fund’s annualized expense ratio of 0.58% multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). If the Fund had borne all of its expenses, the annualized expense ratio would have been 0.80%. These figures reflect fees paid in connection with the U.S. Treasury Guarantee Program for Money Market Funds. This fee had an effect of 0.05%.

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Investment Advisory Agreement Approval

Nature, Extent and Quality of Services

The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser (as defined herein) under the advisory agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund’s Administrator (as defined herein) under the administration agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser’s expense. (The Investment Adviser and the Administrator together are referred to as the “Adviser” and the advisory and administration agreements together are referred to as the “Management Agreement.”) The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper, Inc. (“Lipper”).

The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the administrative and advisory services to the Fund. The Board determined that the Adviser’s portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund and supported its decision to approve the Management Agreement.

Performance, Fees and Expenses of the Fund

The Board reviewed the performance, fees and expenses of the Fund compared to its peers, as determined by Lipper, and to appropriate benchmarks where applicable. The Board discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. When considering a fund’s performance, the Board and the Adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance as of December 31, 2008, as applicable). When a fund underperforms its benchmark and/or its peer group average, the Board and the Adviser discuss the causes of such underperformance and, where necessary, they discuss specific changes to investment strategy or investment personnel. The Board noted that the Fund’s performance was below its peer group average for the one-year period and better than its peer group average for the three- and five-year periods. The Board discussed with the Adviser the level of the advisory and administration fees (together, the “management fee”) for this Fund relative to comparable funds advised by the Adviser and compared to its peers as determined by Lipper. In addition to the management fee, the Board also reviewed the Fund’s total expense ratio. The Board noted that the Fund’s management fee and total expense ratio were higher but close to the peer

6

group average. After discussion, the Board concluded that the Fund’s management fee, total expense ratio and performance were competitive with the peer group average.

Economies of Scale

The Board considered the size and growth prospects of the Fund and how that relates to the Fund’s total expense ratio and particularly the Fund’s management fee rate, which includes breakpoints. In conjunction with its review of the Adviser’s profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Fund and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of the Fund supports its decision to approve the Management Agreement.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and its affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. The Board has determined that its review of the analysis of the Adviser’s expenses and profitability supports its decision to approve the Management Agreement.

Other Benefits of the Relationship

The Board considers other benefits to the Adviser and its affiliates derived from their relationship with the Fund and other funds advised by the Adviser. These benefits may include, among other things, “float” benefits derived from handling of checks for purchases and sales, research received by the Adviser generated from commission dollars spent on funds’ portfolio trading and fees for distribution and/or shareholder servicing. The Board reviewed with the Adviser each of these arrangements and the reasonableness of its costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.

Resources of the Adviser and Historical Relationship Between the Fund and the Adviser

The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Fund’s operations and the

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Board’s confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and that it is beneficial for the Fund to continue its relationship with the Adviser.

Other Factors and Current Trends

The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund’s Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund’s business.

General Conclusion

After considering and weighing all of the above factors, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement for another year. In reaching this conclusion the Board did not give particular weight to any single factor referenced above. The Board considered these factors over the course of numerous meetings, some of which were in executive session with only the Independent Board members and their counsel present. It is possible that individual Board members may have weighed these factors differently in reaching their individual decisions to approve the Management Agreement.

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Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments - June 30, 2009 (unaudited)

PRINCIPAL
AMOUNT IN			COUPON				DEMAND
THOUSANDS			RATE (a)				DATE (b)	VALUE
		Short-Term Variable Rate Municipal Obligations (86.3%)
		Alaska
		Alaska Housing Finance Corporation,
	$1,000	Home Mortgage Ser 2009 A		0	.14	%	07/08/09	$	1,000,000
	1,000	Home Mortgage Ser 2009 B		0	.13		07/08/09		1,000,000
		Arizona
	1,000	Arizona Health Facilities Authority, Banner Health Ser 2008 D ROCs II-R Ser 11687		0	.35		07/08/09		1,000,000
		California
	3,000	California Statewide Communities Development Authority, Kaiser Permanente Ser 2009 C-2		0	.22		07/08/09		3,000,000
		Colorado
	1,000	Aurora, The Children’s Hospital Association Ser 2008 C		0	.20		07/08/09		1,000,000
		Colorado Educational & Cultural Facilities Authority,
	5,250	Capital Christian School Ser 2007		0	.45		07/08/09		5,250,000
	2,930	Pueblo Serra Worship Holdings Ser 2006		0	.30		07/08/09		2,930,000
	4,400	Southern Ute Indian Tribe of the Southern Ute Indian Reservation, Ser 2001		0	.25		07/08/09		4,400,000
		Connecticut
	1,865	Connecticut Health & Educational Facilities Authority, Yale University Ser U-1		0	.17		07/08/09		1,865,000
		Delaware
	2,300	Delaware Economic Development Authority, Archmere Academy Inc Ser 2006		0	.32		07/08/09		2,300,000
	1,000	Delaware Health Facilities Authority, Christiana Care Health Services Ser 2008 B		0	.30		07/01/09		1,000,000
		Florida
	1,000	Florida State Board Of Education, Capital Outlay Ser 2005 G ROCs II-R Ser 12017		0	.35		07/08/09		1,000,000
	4,660	Highlands County Health Facilities Authority, Adventist Health System/Sunbelt Obligated Group Ser 2006 C ROCs II-R Ser 11564 (BHAC Insd)		0	.45		07/08/09		4,660,000
	1,000	Orange County Health Facilities Authority, Orlando Regional Healthcare System Ser 2008 E		0	.29		07/08/09		1,000,000
	1,000	Pinellas County Health Facilities Authority, Baycare Health System Ser 2009 A-2		0	.25		07/08/09		1,000,000
		Georgia
	1,543	Gwinnett County Development Authority, Civic & Cultural Center Ser 2001		0	.32		07/08/09		1,543,000
		Illinois
		Chicago,
	2,000	Refg Ser 2007 E		0	.20		07/01/09		2,000,000
	1,400	Refg Ser 2007 F		0	.18		07/01/09		1,400,000
	3,100	Cook County, Ser 2002 B		0	.37		07/08/09		3,100,000

See Notes to Financial Statements

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Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments - June 30, 2009 (unaudited) continued

PRINCIPAL
AMOUNT IN			COUPON				DEMAND
THOUSANDS			RATE (a)				DATE (b)	VALUE
	$1,000	Illinois, Ser 2004 A ROCs II-R Ser 10337		0	.35	%	07/08/09	$	1,000,000
		Illinois Development Finance Authority,
	6,100	Museum of Contemporary Art Ser 1994		0	.35		07/08/09		6,100,000
	3,400	Young Men’s Christian Association of Metropolitan Chicago Ser 2001		0	.35		07/08/09		3,400,000
	1,000	Illinois Educational Facilities Authority, University of Chicago Ser B-1		1	.85		07/28/09		1,000,000
		Illinois Finance Authority,
	1,700	Advocate Health Care Network Ser 2008 Subser C-2B		0	.26		07/08/09		1,700,000
	4,500	CHF-DeKalb LLC at Northern Illinois University Ser 2006 A		0	.32		07/08/09		4,500,000
	2,700	Dominican University Ser 2006		0	.35		07/08/09		2,700,000
	3,200	University of Chicago Medical Center Ser 2009 A-1		0	.30		07/08/09		3,200,000
	4,000	Village of Oak Park Residence Ser 2006		0	.40		07/08/09		4,000,000
	4,950	Springfield, Electric Ser 2006 Eagle #20070156 Class A (BHAC Insd)		0	.40		07/08/09		4,950,000
		Indiana
		Indiana Finance Authority,
	2,000	Ascension Health Ser 2008 E-2		0	.17		07/08/09		2,000,000
	1,000	Sisters of St Francis Health Services Inc Ser 2008 I		0	.16		07/08/09		1,000,000
	1,000	Sisters of St Francis Health Services Inc Ser 2008 J		0	.20		07/08/09		1,000,000
	2,250	Trinity Health Ser 2008 D-1 & D-2		0	.20		07/08/09		2,250,000
	1,230	Purdue University, Student Fee Ser 2005 V		0	.18		07/08/09		1,230,000
	2,000	St Joseph County, University of Notre Dame du Lac Ser 2005		0	.20		07/08/09		2,000,000
		Kentucky
	3,700	Kentucky Public Energy Authority Inc, Gas Supply Ser 2006 A		0	.30		07/01/09		3,700,000
		Louisiana
	2,920	Louisiana Local Government Environmental Facilities & Community Development Authority, St James Place of Baton Rouge Ser 2007 A		0	.38		07/08/09		2,920,000
		Maryland
	1,000	Maryland Economic Development Corporation, Howard Hughes Medical Institute Ser 2008 A		0	.12		07/08/09		1,000,000
	2,600	Maryland Health & Higher Educational Facilities Authority, Catholic Health Initiatives Ser 1997 B		0	.28		07/08/09		2,600,000
		Massachusetts
	4,805	Massachusetts Development Finance Agency, Cushing Academy Ser 2004		0	.30		07/08/09		4,805,000
		Massachusetts Health & Educational Facilities Authority,
	1,300	Amherst College Ser F		0	.17		07/08/09		1,300,000
	1,000	Harvard University Ser 2005 C ROCs II-R Ser 10390		0	.34		07/08/09		1,000,000
	2,000	Partners HealthCare System Inc 2003 Ser D-2		0	.17		07/08/09		2,000,000
		Michigan
	3,000	Kent Hospital Finance Authority, Metropolitan Hospital Ser 2005 B		0	.25		07/08/09		3,000,000
	7,000	Michigan Building Authority, Ser 2006 1A Eagle #20060156 Class A (FSA Insd)		0	.70		07/08/09		7,000,000
		Michigan Hospital Finance Authority,
	1,000	Ascension Health Ser 2008 B-4		0	.17		07/08/09		1,000,000
	1,000	Trinity Health Credit Group Ser 2005 F		0	.15		07/08/09		1,000,000

See Notes to Financial Statements

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Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments - June 30, 2009 (unaudited) continued

PRINCIPAL
AMOUNT IN			COUPON				DEMAND
THOUSANDS			RATE (a)				DATE (b)	VALUE
	$1,750	University of Michigan Regents, Hospital Ser 2007 B		0	.17	%	07/08/09	$	1,750,000
		Minnesota
		Minneapolis,
	1,200	Fairview Health Services Ser 2008 D		0	.16		07/08/09		1,200,000
	1,000	Fairview Health Services Ser 2008 E		0	.15		07/08/09		1,000,000
	3,200	Minneapolis & St Paul Housing & Redevelopment Authority, Allina Health System Ser 2007 C-2		0	.15		07/08/09		3,200,000
	1,800	Rochester, Health Care Facilities Mayo Clinic Ser 2008 A		0	.15		07/08/09		1,800,000
	7,550	St Cloud, CentraCare Health System Ser 2008 A (AGC Insd)		0	.38		07/08/09		7,550,000
		Missouri
	1,000	Cape Girardeau County Industrial Development Authority, St Francis Medical Center Ser 2009 B		0	.33		07/08/09		1,000,000
	1,000	Kansas City Industrial Development Authority, Kansas City Downtown Redevelopment District Ser 2006 B		0	.35		07/08/09		1,000,000
		Missouri Health & Educational Facilities Authority,
	2,000	BJC Health System Ser 2008 D		0	.17		07/08/09		2,000,000
	3,000	Sisters of Mercy Health System Ser 2008 E		0	.23		07/08/09		3,000,000
		New Mexico
	1,400	New Mexico Hospital Equipment Loan Council, Presbyterian Healthcare Services Ser 2008		0	.23		07/08/09		1,400,000
		New York
	4,000	Austin Trust, New York City Municipal Water Finance Authority Fiscal 2005 Ser B Custody Receipts Ser 2008-1199 (FSA Insd)		0	.45		07/08/09		4,000,000
	1,000	New York City Transitional Finance Authority, Fiscal 1999 2nd Ser Subser A-2		0	.17		07/08/09		1,000,000
	1,000	Triborough Bridge & Tunnel Authority, Ser 2008 D ROCs II-R Ser 11590 (BHAC Insd)		0	.39		07/08/09		1,000,000
		North Carolina
	1,000	Austin Trust, Charlotte-Mecklenburg Hospital Authority Carolinas Healthcare Ser 2008 A Custody Receipts Ser 2008-1149		0	.30		07/08/09		1,000,000
	7,445	North Carolina, Ser 2002 B, D & G		0	.10		07/08/09		7,445,000
	6,000	North Carolina Capital Facilities Finance Agency, High Point University Ser 2007		0	.29		07/01/09		6,000,000
		North Carolina Medical Care Commission,
	3,000	FirstHealth of the Carolinas Ser 2008 A		0	.25		07/08/09		3,000,000
	1,590	FirstHealth of the Carolinas Ser 2008 B		0	.29		07/08/09		1,590,000
	3,000	Novant Health Obligated Group Ser 2006 Eagle #20070065 Class A (BHAC Insd)		0	.40		07/08/09		3,000,000
	2,045	Novant Health Ser 2008 B		0	.45		07/08/09		2,045,000
	8,280	United Church Homes & Services Ser 2007		0	.29		07/08/09		8,280,000
	4,340	Piedmont Triad Airport Authority, Ser 2008 A		0	.32		07/08/09		4,340,000
		Ohio
	3,530	Columbus, Sewer Ser 2008 B		0	.17		07/08/09		3,530,000

See Notes to Financial Statements

11

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments - June 30, 2009 (unaudited) continued

PRINCIPAL
AMOUNT IN			COUPON				DEMAND
THOUSANDS			RATE (a)				DATE (b)	VALUE
		Franklin County,
	$4,700	OhioHealth Corp Ser 2008 A		0	.25	%	07/08/09	$	4,700,000
	2,900	OhioHealth Corp Ser 2009 B		0	.32		07/08/09		2,900,000
	2,975	Montgomery County, Catholic Health Initiatives Ser 2006 B-2		0	.17		07/08/09		2,975,000
	3,200	Ohio Higher Educational Facility Commission, Cleveland Clinic Health System Ser 2008 B-4		0	.18		07/01/09		3,200,000
	1,400	Ohio Water Development Authority, FirstEnergy Nuclear Generation Corp Ser 2006-B		0	.32		07/01/09		1,400,000
		Pennsylvania
		Bucks County Industrial Development Authority,
	1,000	Grand View Hospital Ser 2008 A		0	.16		07/08/09		1,000,000
	1,000	Grand View Hospital Ser 2008 B		0	.27		07/08/09		1,000,000
	4,120	Pennswood Village Ser 2007 A		0	.36		07/08/09		4,120,000
	1,690	Delaware River Joint Toll Bridge Commission, Bridge Ser 2007 A Eagle #20070154 Class A (BHAC Insd)		0	.45		07/08/09		1,690,000
	6,260	Derry Township Industrial & Commercial Development Authority, Hotel Tax Arena Ser 2000 A		0	.30		07/08/09		6,260,000
	8,000	Pennsylvania Turnpike Commission, 2002 Ser A-2 & A-3		0	.40		07/08/09		8,000,000
	1,000	RBC Municipal Products Trust Inc, Berks County Municipal Authority Reading Hospital & Medical Center Ser 2008 Floater Certificates Ser C-13		0	.40		07/08/09		1,000,000
	1,130	Southcentral Pennsylvania General Authority, WellSpan Health Ser 2008 A ROCs II-R Ser 11686		0	.35		07/08/09		1,130,000
	1,470	Washington County Authority, Girard Estate Ser 1999		0	.30		07/08/09		1,470,000
		Rhode Island
	3,200	Rhode Island Health & Educational Building Corporation, Brown University Ser 2001 B		0	.18		07/08/09		3,200,000
		South Carolina
		South Carolina Jobs – Economic Development Authority,
	2,000	AnMed Health Ser 2009 A & C		0	.18		07/08/09		2,000,000
	5,000	Goodwill Industries Ser 2006		0	.29		07/08/09		5,000,000
		Tennessee
	3,675	Shelby County Health Educational & Housing Facilities Board, Trezevant Manor Ser 2007 A		0	.31		07/08/09		3,675,000
		Texas
	4,500	Dallas Area Rapid Transit, Sales Tax Ser 2008 ROCs II-R Ser 11541		0	.35		07/08/09		4,500,000
	2,800	Harris County Health Facilities Development Corporation, Methodist Hospital System Ser 2008 A-2		0	.18		07/01/09		2,800,000
	5,300	Harris County Industrial Development Corporation, Baytank Inc Ser 1998		0	.35		07/08/09		5,300,000
	1,000	North Central Texas Health Facilities Development Corporation, Baylor Health Care System Ser 2006 A		0	.20		07/08/09		1,000,000
	2,000	Travis County Health Facilities Development Corporation, Longhorn Village Ser 2008 B		0	.25		07/08/09		2,000,000
	7,500	University of Texas Regents, Permanent University Fund Ser 2008 A		0	.15		07/08/09		7,500,000

See Notes to Financial Statements

12

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments - June 30, 2009 (unaudited) continued

PRINCIPAL
AMOUNT IN			COUPON				DEMAND
THOUSANDS			RATE (a)				DATE (b)	VALUE
		Utah
	$1,200	Utah Water Finance Agency, Ser 2009 B		0	.33	%	07/08/09	$	1,200,000
		Virginia
	3,200	Fairfax County Industrial Development Authority, Inova Health System Foundation Ser 1988 A & B		0	.18		07/08/09		3,200,000
		Washington
	1,000	Barclays Capital Municipal Trust Receipts, King County Limited Tax Ser 2009 Floater-TRs Ser 2009 1W (AGC Insd)		0	.31		07/08/09		1,000,000
	4,800	Energy Northwest, Project 1 Ser 2003 A PUTTERs Ser 2965		0	.28		07/08/09		4,800,000
	1,200	Washington State, Ser VR-96 B		0	.18		07/08/09		1,200,000
		Wisconsin
	1,000	Milwaukee Redevelopment Authority, University of Wisconsin-Milwaukee-Kenilworth Ser 2005		0	.35		07/08/09		1,000,000
	1,190	Rhinelander, YMCA of the Northwoods Ser 2006		0	.55		07/08/09		1,190,000
	3,150	Wisconsin Health & Educational Facilities Authority, Concordia University Inc Ser 2009		0	.35		07/08/09		3,150,000
		Total Short-Term Variable Rate Municipal Obligations (Cost $279,493,000)							279,493,000

							YIELD TO
							MATURITY
		COUPON				MATURITY	ON DATE OF
		RATE				DATE	PURCHASE
	Tax-Exempt Commercial Paper (7.3%)
	California
1,000	California Health Facilities Financing Authority, Kaiser Permanente Ser 2006 E		0	.35	%	08/04/09		0.35	%	1,000,000
1,000	California Statewide Communities Development Authority, Kaiser Permanente Ser 2009 B-5		0	.20		08/04/09		0.20		1,000,000
	Florida
1,000	Florida Municipal Power Agency, Ser A		0	.20		08/04/09		0.20		1,000,000
	Massachusetts
1,000	Massachusetts Health & Educational Facilities Authority, Harvard University Ser EE		0	.30		08/20/09		0.30		1,000,000
	Maryland
1,000	Maryland Health & Higher Educational Facilities Authority, Johns Hopkins Hospital Ser 2004 B		0	.35		08/05/09		0.35		1,000,000
1,000	Maryland Health & Higher Educational Facilities Authority, Johns Hopkins University Ser B		0	.30		08/20/09		0.30		1,000,000
	Michigan
1,000	University of Michigan Regents, General Ser 2009 B		0	.30		07/08/09		0.30		1,000,000
	Nevada
1,000	Las Vegas Valley Water District, Water Ser 2004 B		0	.15		08/04/09		0.15		1,000,000

See Notes to Financial Statements

13

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments - June 30, 2009 (unaudited) continued

								YIELD TO
PRINCIPAL								MATURITY
AMOUNT IN			COUPON				MATURITY	ON DATE OF
THOUSANDS			RATE				DATE	PURCHASE			VALUE
		New York
	$5,000	New York City Municipal Water Finance Authority, Ser 6		0	.45	%	08/27/09		0.45	%	$	5,000,000
		Texas
	1,500	Austin Independent School District, Ser 2005 A		0	.35		07/14/09		0.35			1,500,000
	1,000	Harris County Cultural Education Facilities Finance Corporation, Methodist Hospital System Ser 2009 C-1		0	.45		11/04/09		0.45			1,000,000
	1,000	Harris County Cultural Education Facilities Finance Corporation, Methodist Hospital System Ser 2009 C-1		0	.55		01/28/10		0.55			1,000,000
	1,000	Harris County Cultural Education Facilities Finance Corporation, Methodist Hospital System Ser 2009 C-1		0	.38		09/03/09		0.38			1,000,000
	1,000	Harris County Cultural Education Facilities Finance Corporation, Methodist Hospital System Ser 2009 C-1		0	.43		10/06/09		0.43			1,000,000
	1,000	Harris County Cultural Education Facilities Finance Corporation, Methodist Hospital System Ser 2009 C-1		0	.48		12/02/09		0.48			1,000,000
	1,000	Harris County Cultural Education Facilities Finance Corporation, Methodist Hospital System Ser 2009 C-1		0	.55		02/25/10		0.55			1,000,000
	1,000	Houston, Ser E-1		0	.40		08/03/09		0.40			1,000,000
	1,000	Houston, Ser E-1		0	.35		08/20/09		0.35			1,000,000
	1,000	University of Texas Regents, Financing System Ser 2002 A		0	.20		08/11/09		0.20			1,000,000
		Total Tax-Exempt Commercial Papers (Cost $23,500,000)										23,500,000
		Short-Term Municipal Notes and Bonds (6.5%)
		Illinois
	1,025	Cook County School District No. 99, Cicero GO Bonds Ser 2009 B, dtd 07/08/09 (WI)		2	.00		02/01/10		0.75			1,026,876
		Indiana
	1,000	Indiana Bond Bank, Midyear Funding Notes Ser 2009 A, dtd 06/25/09		2	.00		01/06/10		0.55			1,007,434
		Massachusetts
	2,000	Pioneer Valley Transit Authority, Ser 2008 RANs dtd 08/01/08		3	.00		07/30/09		2.47			2,000,823
	1,000	Worcester Regional Transit Authority, Ser 2009 RANs, dtd 06/26/09		2	.00		06/25/10		1.50			1,004,843
		New Jersey
	1,000	Galloway Township, Ser 2008 BANs, dtd 09/12/08		3	.00		09/11/09		2.06			1,001,816
		New York
	2,000	Hartford Central School District, Ser 2009 BANs, dtd 06/19/09		2	.50		06/18/10		2.00			2,004,117
	1,000	Holland Patent Central School District, Ser 2009 BANs, dtd 06/25/09		2	.00		06/25/10		1.20			1,003,310

See Notes to Financial Statements

14

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments - June 30, 2009 (unaudited) continued

								YIELD TO
PRINCIPAL								MATURITY
AMOUNT IN			COUPON				MATURITY	ON DATE OF
THOUSANDS			RATE				DATE	PURCHASE			VALUE
	$1,000	North Syracuse Central School District, Ser 2009 BANs, dtd 06/18/09		2	.25	%	06/18/10		1.28	%	$	1,009,229
	1,000	North Syracuse Central School District, Ser 2009 BANs, dtd 06/18/09		2	.25		06/18/10		1.28			1,009,229
	1,000	Sodus Central School District, Ser 2009 BANs, dtd 06/26/09		2	.00		06/25/10		1.23			1,003,186
	1,000	South Glens Falls Central School District, Ser 2009 BANs, dtd 06/18/09		2	.25		06/18/10		1.41			1,007,985
		Ohio
	1,000	Lucas County, Ser 2008 BANs dtd 07/30/08		3	.00		07/30/09		1.70			1,001,015
		Texas
	2,000	Harris County, Ser 2009 TANs, dtd 06/18/09		1	.50		02/25/10		0.40			2,014,359
	5,000	Texas, Ser 2008 TRANs dtd 08/28/08		3	.00		08/28/09		1.63			5,010,710
		Total Short-Term Municipal Notes and Bonds (Cost $21,104,932)										21,104,932
		Total Investments (Cost $324,097,932) (c)(d)							100.1	%		324,097,932
		Liabilities in Excess of Other Assets							(0.1	)		(202,694	)
		Net Assets							100.0	%	$	323,895,238

BANs	Bond Anticipation Notes.
GO	General Obligations.
PUTTERs	Puttable Tax-Exempt Receipts.
RANs	Revenue Anticipation Notes.
ROCs	Reset Option Certificates.
TANs	Tax Anticipation Notes.
TRANs	Tax and Revenue Anticipation Notes.
WI	Security purchased on a when-issued basis.
(a)	Rate shown is the rate in effect at June 30, 2009
(b)	Date on which the principal amount can be recovered through demand.
(c)	Securities have been designated as collateral in connection with the purchase of when-issued securities.
(d)	Cost is the same for federal income tax purposes.
Bond Insurance:
AGC	Assured Guaranty Corporation.
BHAC	Berkshire Hathaway Assurance Corp.
FSA	Financial Security Assurance Inc.

See Notes to Financial Statements

15

Morgan Stanley Tax-Free Daily Income Trust

Financial Statements

Statement of Assets and Liabilities

June 30, 2009 (unaudited)

Assets:
Investments in securities, at value (cost $324,097,932)	$324,097,932
Cash	76,549
Receivable for:
Shares of beneficial interest sold	1,239,929
Interest receivable	434,240
Prepaid expenses and other assets	88,520
Total Assets	325,937,170
Liabilities:
Payable for:
Investments purchased	1,026,876
Shares of beneficial interest redeemed	804,371
Investment advisory fee	46,753
Transfer agent fee	28,778
Administration fee	14,434
Accrued expenses and other payables	120,720
Total Liabilities	2,041,932
Net Assets	$323,895,238
Composition of Net Assets:
Paid-in-capital	$323,844,405
Accumulated undistributed net investment income	46,678
Accumulated undistributed net realized gain	4,155
Net Assets	$323,895,238
Net Asset Value Per Share 323,869,688 shares outstanding (unlimited shares authorized of $.01 par value)	$1.00

See Notes to Financial Statements

16

Morgan Stanley Tax-Free Daily Income Trust

Financial Statements continued

Statement of Operations

For the six months ended June 30, 2009 (unaudited)

Net Investment Income:
Income
Interest	$	1,168,980
Dividends from affiliate		13,124
Total Income		1,182,104
Expenses
Investment advisory fee		849,625
Shareholder servicing fee		187,293
Transfer agent fees and expenses		98,581
Mutual fund insurance (Note 10)		96,968
Administration fee		94,403
Registration fees		61,941
Professional fees		55,624
Shareholder reports and notices		29,245
Custodian fees		13,619
Trustees’ fees and expenses		8,133
Other		21,955
Total Expenses		1,517,387
Less: amounts waived		(409,961	)
Less: rebate from Morgan Stanley affiliated cash sweep (Note 4)		(5,017	)
Net Expenses		1,102,409
Net Investment Income		79,695
Net Realized Gain		4,505
Net Increase	$	84,200

See Notes to Financial Statements

17

Morgan Stanley Tax-Free Daily Income Trust

Financial Statements continued

Statements of Changes in Net Assets

	FOR THE SIX			FOR THE YEAR
	MONTHS ENDED			ENDED
	JUNE 30, 2009			DECEMBER 31, 2008
	(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income	$	79,695		$	7,877,041
Net realized gain		4,505			13,602
Net Increase		84,200			7,890,643
Dividends and Distributions to Shareholders from:
Net investment income		(80,573	)		(7,865,221	)
Net realized gain		—			(11,276	)
Total Dividends and Distributions		(80,573	)		(7,876,497	)
Net increase (decrease) from transactions in shares of beneficial interest		(127,584,868	)		23,287,869
Net Increase (Decrease)		(127,581,241	)		23,302,015
Net Assets:
Beginning of period		451,476,479			428,174,464
End of Period (Including accumulated undistributed net investment income of $46,678 and $47,556 respectively)	$	323,895,238		$	451,476,479

See Notes to Financial Statements

18

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements - June 30, 2009 (unaudited)

1. Organization and Accounting Policies

Morgan Stanley 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 and commenced operations on February 20, 1981 and reorganized as a Massachusetts business trust on April 30, 1987.

The following is a summary of significant accounting policies:

A. Valuation of Investments — Portfolio securities are valued at amortized cost, which approximates market value, in accordance with Rule 2a-7 under the Act. Investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day.

B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income. Interest income is accrued daily as earned.

C. Federal Income Tax Policy — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable and nontaxable income to its shareholders. Therefore, no federal income tax provision is required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund follows the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There are no unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. Each of the tax years in the four year period ended December 31, 2008, remains subject to examination by taxing authorities.

D. Dividends and Distributions to Shareholders — The Fund records dividends and distributions to shareholders as of the close of each business day.

E. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

19

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements - June 30, 2009 (unaudited) continued

F. Subsequent Events — The Fund considers events or transactions that occur after the date of the statement of assets and liabilities but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through August 25, 2009, the date of issuance of these financial statements.

2. Investment Advisory/Administration Agreements

Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment Advisors Inc. (the “Investment Adviser”), the Fund pays the Investment Adviser an advisory fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.45% to the portion of the daily net assets not exceeding $500 million; 0.375% to the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.325% to the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.30% to the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.275% to the portion of the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.25% to the portion of the daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.225% to the portion of the daily net assets exceeding $2.5 billion but not exceeding $3 billion; 0.20% to the portion of the daily net assets exceeding $3 billion but not exceeding $15 billion; and 0.199% to the portion of the daily net assets exceeding $15 billion.

Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the “Administrator”), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.05% to the Fund’s daily net assets.

Under an agreement between the Administrator and State Street Bank and Trust Company (“State Street”), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.

The Investment Adviser has voluntarily agreed to cap the Fund’s operating expenses (excluding fees paid in connection with the U.S. Treasury Temporary Guarantee Program for Money Market Funds) by assuming the Fund’s “other expenses” and/or waiving the Fund’s advisory fees, and the Administrator has agreed to waive the Fund’s administrative fees, to the extent that such operating expenses exceed 0.60% of the average daily net assets of the Fund on an annualized basis. Such voluntary waivers may be terminated at any time without notice.

3. Shareholder Service Plan

Pursuant to a Shareholder Service Plan (the “Plan”), the Fund may pay the Distributor as compensation for the provision of services to shareholders a service fee up to the rate of 0.15% on an annualized basis of the average daily net assets of the Fund.

20

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements - June 30, 2009 (unaudited) continued

Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund’s average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the six months ended June 30, 2009, the distribution fee was accrued at the annual rate of 0.10%.

The Distributor, Investment Adviser and Administrator have voluntarily agreed to waive all or a portion of the Fund’s shareholder service fee, investment advisory fee and administration fee, respectively, to the extent that total expenses exceed total income of the Fund on a daily basis. For the six months ended June 30, 2009, the Distributor waived $86,567 and the Investment Adviser waived $323,394. This waiver may be terminated at any time.

4. Security Transactions and Transactions with Affiliates

The Fund invests in Morgan Stanley Institutional Liquidity Funds – Government Portfolio – Institutional Class, an open-end management investment company managed by an affiliate of the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds – Government Portfolio – Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Funds – Government Portfolio – Institutional Class. For the six months ended June 30, 2009, advisory fees paid were reduced by $5,017 relating to the Fund’s investment in Morgan Stanley Institutional Liquidity Funds – Government Portfolio – Institutional Class. Income distributions earned by the Fund are recorded as “dividends from affiliate” in the Statement of Operations and totaled $13,124 for the six months ended June 30, 2009. For the six months ended June 30, 2009, cost of purchases and sales of investments in Morgan Stanley Institutional Liquidity Funds – Government Portfolio – Institutional Class aggregated $75,000,000 and $108,300,000, respectively.

The cost of purchases and proceeds from sales/maturities of portfolio securities for the six months ended June 30, 2009, aggregated $390,761,186 and $506,432,504, respectively. Included in the aforementioned transactions are purchases and sales of $28,200,000 and $59,150,000, respectively, with other Morgan Stanley funds.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund’s transfer agent.

The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. The Trustees voted to close the plan to new participants and eliminate the future benefits growth due to

21

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements - June 30, 2009 (unaudited) continued

increases to compensation after July 31, 2003. Aggregate pension costs for the six months ended June 30, 2009, included in “trustees’ fees and expenses” in the Statement of Operations amounted to $2,936. At June 30, 2009, the Fund had an accrued pension liability of $58,023 which is included in “accrued expenses and other payables” in the Statement of Assets and Liabilities.

The Fund has an unfunded Deferred Compensation Plan (the “Compensation Plan”) which allows each independent Trustee to defer payment of all, or a portion, of the fees they receive for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.

5. Shares of Beneficial Interest

Transactions in shares of beneficial interest, at $1.00 per share, were as follows:

	FOR THE SIX			FOR THE YEAR
	MONTHS ENDED			ENDED
	JUNE 30, 2009			DECEMBER 31, 2008
	(unaudited)
Shares sold		249,543,097			1,259,995,062
Shares issued in reinvestment of dividends		80,548			7,833,409
		249,623,645			1,267,828,471
Shares redeemed		(377,208,513	)		(1,244,540,602	)
Net increase (decrease) in shares outstanding		(127,584,868	)		23,287,869

6. Expense Offset

The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent and custodian. For the six months ended June 30, 2009, the Fund did not have an expense offset.

7. Federal Income Tax Status

The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital.

22

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements - June 30, 2009 (unaudited) continued

As of December 31, 2008, the Fund had temporary book/tax differences primarily attributable to nondeductible expenses.

8. Fair Valuation Measurements

The Fund adopted FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), effective January 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.

•  Level 1 — unadjusted quoted prices in active markets for identical investments

•  Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

•  Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

23

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements - June 30, 2009 (unaudited) continued

The following is a summary of the inputs used as of June 30, 2009 in valuing the Fund’s investments carried at value:

			FAIR VALUE MEASUREMENTS AT JUNE 30, 2009 USING
			UNADJUSTED
			QUOTED PRICES IN		SIGNIFICANT		SIGNIFICANT
			ACTIVE MARKET FOR		OTHER OBSERVABLE		UNOBSERVABLE
			IDENTICAL INVESTMENTS		INPUTS		INPUTS
INVESTMENT TYPE	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Short-Term Investments
Tax-Exempt Variable Rate Obligations	$	279,493,000		—	$	279,493,000		—
Tax-Exempt Commercial Paper		23,500,000		—		23,500,000		—
Tax-Exempt Municipal Notes and Bonds		21,104,932		—		21,104,932		—
Total	$	324,097,932		—	$	324,097,932		—

9. Accounting Pronouncements

On April 9, 2009, FASB issued Staff Position No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157, when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also requires additional disaggregation of the current SFAS 157 required disclosures. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. The Fund has adopted the provisions of FSP 157-4 as of June 30, 2009 and it did not have a material impact on the Fund’s financial statements. The disclosures required by FSP 157-4 are included in Note 8 of the financial statements.

In May 2009, FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS 165”), Subsequent Events, which is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The Fund has adopted the provisions of SFAS 165 as of June 30, 2009. Although the adoption of SFAS 165 did not materially impact its financial position, results of operations, or changes in net assets, the Fund is now required to provide additional disclosures, which are included in Note 1.

In June 2009, FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168 will become the source of authoritative U.S. Generally Accepted Accounting Principles recognized by the FASB to be applied by nongovernmental entities. Once in effect, all of the Codification’s content will carry the same level of authority, effectively superseding FASB Statement No. 162. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Fund does not anticipate that SFAS 168 will have a material impact on its financial statements.

24

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements - June 30, 2009 (unaudited) continued

10. Guarantee Program for Money Market Funds

On September 29, 2008, the Trustees approved the participation by the Fund in the U.S. Treasury’s Temporary Guarantee Program for Money Market Funds (the “Program”). Under this Program, the U.S. Treasury will guarantee to investors that they will receive $1.00 for each money market fund share held as of close of business on September 19, 2008. Eligible funds must be regulated under Rule 2a-7 of the Act, must maintain a stable share price of $1.00 and must be publicly offered and registered with the Securities and Exchange Commission (“SEC”). To participate in the Program, eligible funds must pay a fee. While the Program protects the accounts of investors, each money market fund makes the decision to sign up for the Program. Investors cannot sign up for the Program individually. The Program was in effect for an initial three month term, expiring December 18, 2008. On November 24, 2008, the U.S. Treasury announced an extension of the Program through April 30, 2009 and on March 31, 2009, the U.S. Treasury announced the further extension of the Program until September 19, 2009. All money market funds that currently participate in the Program and meet the extension requirements are eligible to continue to participate for an additional fee. The Fund has met the requirements and continues to participate in this Program. The Program will continue to provide coverage to shareholders up to amounts that they held in participating money market funds as of the close of business on September 19, 2008.

25

Morgan Stanley Tax-Free Daily Income Trust

Financial Highlights

Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:

	FOR THE SIX
	MONTHS ENDED			FOR THE YEAR ENDED DECEMBER 31,
	JUNE 30, 2009			2008				2007				2006				2005				2004
	(unaudited)
Selected Per Share Data:
Net asset value, beginning of period		$1.00			$1.00				$1.00				$1.00				$1.00				$1.00
Net income from investment operations		0.000	(1)		0.017				0.031				0.029				0.018				0.006
Less dividends and distributions from net investment income		0.000	(1)		(0.017	)(2)			(0.031	)			(0.029	)			(0.018	)			(0.006	)
Net asset value, end of period		$1.00			$1.00				$1.00				$1.00				$1.00				$1.00
Total Return		0.02%(3	)		1.67		%		3.16		%		2.90		%		1.86		%		0.60		%
Ratios to Average Net Assets:
Total expenses (before expense offset)		0.58%(4	)(5)(6)(9)		0.61%(5	)(6)(9)			0.61%(8	)(9)			0.61%(8	)(9)			0.61%(8	)(9)			0.64%(8	)(9)
Net investment income		0.04%(4	)(5)(6)(9)		1.64%(5	)(6)(9)			3.10%(8	)(9)			0.85%(8	)(9)			1.82%(8	)(9)			0.58%(8	)(9)
Rebate from Morgan Stanley affiliate		0.00%(4	)(7)		0.00%(7	)			—				—				—				—
Supplemental Data:
Net assets, end of period, in thousands		$323,895			$451,476				$428,174				$397,788				$380,423				$440,271

(1)	Amount is less than $0.001.
(2)	Includes capital gain distribution of less than $0.001.
(3)	Not annualized.
(4)	Annualized.
(5)	The ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate.”
(6)	Reflects fees paid in connection with the U.S. Treasury Guarantee Program for Money Market Funds. This fee had an effect of 0.05% (See Note 10).
(7)	Amount is less than 0.005%.
(8)	Does not reflect the effect of expense offset of 0.01%.
(9)	If the Fund had borne all its expenses that were reimbursed or waived by the Distributor, Investment Adviser and Administrator, the annualized expense and net investment income (loss) ratios, before expense offset, would have been as follows:

	EXPENSE			NET INVESTMENT
PERIOD ENDED:	RATIO			INCOME (LOSS) RATIO
June 30, 2009		0.80	%		(0.18	)%
December 31, 2008		0.72			1.53
December 31, 2007		0.73			2.98
December 31, 2006		0.72			2.74
December 31, 2005		0.71			1.72
December 31, 2004		0.71			0.51

See Notes to Financial Statements

26

Morgan Stanley Tax-Free Daily Income Trust

An Important Notice Concerning Our U.S. Privacy Policy (unaudited)

We are required by federal law to provide you with a copy of our Privacy Policy annually.

This Policy applies to individual clients who are current and former advisory clients of certain Morgan Stanley Investment Management’s U.S. investment advisers and to current and former individual investors in certain U.S. mutual funds advised by Morgan Stanley and its affiliates.

This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, or accounts subject to the Uniform Gifts to Minors Act.

Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law.

We Respect Your Privacy

We appreciate that you have provided us with your personal financial information and understand your concerns about safeguarding such information. We strive to maintain the privacy of such information while we help you achieve your financial objectives.

This Policy describes what nonpublic personal information we collect about you, how we collect it, when we may share it with others, and how others may use it. It discusses the steps you may take to limit our sharing of information about you with affiliated Morgan Stanley companies (“other Morgan Stanley companies”), including but not limited to our global financial services affiliates that are part of our integrated securities and investment management business, and our credit services affiliates. It also discloses how you may limit our affiliates’ use of shared information for marketing purposes.

Throughout this Policy, we refer to the nonpublic information that personally identifies you or your accounts as “personal information.”

1.  What Personal Information Do We Collect About You?

To better serve you and manage our business, it is important that we collect and maintain accurate information about you. We obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies and from third parties and other sources.

For example:

•  We collect information such as your name, address, e-mail address, phone number and account title.

•  We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources.

27

Morgan Stanley Tax-Free Daily Income Trust

An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued

•  We may obtain information about your creditworthiness and credit history from consumer reporting agencies.

•  We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements.

2.  When Do We Disclose Personal Information We Collect About You?

To provide you with the products and services you request, to better serve you, to manage our business and as otherwise required or permitted by law, we may disclose personal information we collect about you to other Morgan Stanley companies and to non-affiliated third parties.

A. Information we disclose to other Morgan Stanley companies.  In order to manage your account(s) effectively, including servicing and processing your transactions, to let you know about products and services offered by us and other Morgan Stanley companies, to manage our business, and as otherwise required or permitted by law, we may disclose personal information to other Morgan Stanley companies. Offers for products and services from other Morgan Stanley companies are developed under conditions designed to safeguard your personal information.

B. Information we disclose to third parties.  We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide marketing services on our behalf, to perform joint marketing agreements with other financial institutions, and as otherwise required or permitted by law. For example, some instances where we may disclose information about you to third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf.

Morgan Stanley recognizes that your relationship with your Financial Advisor is important. If your Financial Advisor’s affiliation with Morgan Stanley ends and he/she joins a non-affiliated securities broker-dealer with which Morgan Stanley has entered into an agreement limiting the use of information, Morgan Stanley will permit your Financial Advisor to retain certain of your contact information, limited to your name, address, e-mail address, phone number and account title.

When we share personal information with a non-affiliated third party, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose.

3.  How Do We Protect The Security And Confidentiality Of Personal Information We Collect About You?

We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client

28

Morgan Stanley Tax-Free Daily Income Trust

An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued

information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information.

4.  How Can You Limit The Sharing Of Certain Types Of Personal Information With Other Morgan Stanley Companies?

We respect your privacy and offer you choices as to whether we share with other Morgan Stanley companies personal information that was collected to determine your eligibility for products and services you request (“eligibility information”). Please note that, even if you direct us not to share eligibility information with other Morgan Stanley companies (“opt-out”), we may still share personal information, including eligibility information, with those companies in circumstances excluded from the opt-out under applicable law, such as to process transactions or to service your account. We may also share certain other types of personal information with other Morgan Stanley companies – such as your name, address, telephone number, e-mail address and account number(s), and information about your transactions and experiences with us.

5.  How Can You Limit The Use Of Certain Types Of Personal Information By Other Morgan Stanley Companies For Marketing?

You may limit other Morgan Stanley companies from marketing their products or services to you based on your personal information that they receive from other Morgan Stanley companies. This information includes your income, assets and account history. Your choice to limit marketing offers from other Morgan Stanley companies will apply until you tell us to change your choice.

If you wish to opt-out of sharing and to limit marketing offers, you may do so by:

•  Calling us at 800.350.6414
Monday-Friday between 8 a.m. and 8 p.m. (ET)

•  Writing to us at the following address:
Morgan Stanley Privacy Department
Harborside Financial Center, Plaza Two, 3rd Floor
Jersey City, NJ 07311

If you choose to write to us, your written request should include your name, address, telephone number and account number(s) to which the opt-out applies and should not be sent with any other correspondence. In order to process your request, we require that the request be provided by you directly and not through a third party.

If you have previously notified us about your privacy preferences, it is not necessary to do so again unless you decide to change your preferences. Your opt-out preference will remain in effect with respect to this Policy (as it may be amended) until you notify us otherwise in writing. If you have a joint account, your

29

Morgan Stanley Tax-Free Daily Income Trust

An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued

direction for us not to share this information with other Morgan Stanley companies and for those Morgan Stanley companies not to use your personal information for marketing will be applied to all account holders on that account.

Please understand that if you opt-out, you and any joint account holders may not receive information about Morgan Stanley products and services that could help you manage your financial resources and achieve your investment objectives.

If you hold more than one account with Morgan Stanley, you may receive multiple privacy policies from us, and would need to follow the directions stated in each particular policy for each account you have with us.

Special Notice To Residents Of Vermont

This section supplements our Policy with respect to our individual clients who have a Vermont address and supersedes anything to the contrary in the above Policy with respect to those clients only.

The State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with affiliated companies and non-affiliated third parties other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with non-affiliated third parties or other Morgan Stanley companies unless you provide us with your written consent to share such information (“opt-in”). If you wish to receive offers for investment products and services offered by or through other Morgan Stanley companies, please notify us in writing at the following address:

Morgan Stanley Privacy Department
Harborside Financial Center, Plaza Two, 3rd Floor
Jersey City, NJ 07311

Your authorization should include your name, address, telephone number and account number(s) to which the opt-in applies and should not be sent with any other correspondence. In order to process your authorization, we require that the authorization be provided by you directly and not through a third-party.

30

(This Page Intentionally Left Blank)

Trustees

Frank L. Bowman

Michael Bozic

Kathleen A. Dennis

James F. Higgins

Dr. Manuel H. Johnson

Joseph J. Kearns

Michael F. Klein

Michael E. Nugent

W. Allen Reed

Fergus Reid

Officers

Michael E. Nugent

Chairperson of the Board

Randy Takian

President and Principal Executive Officer

Kevin Klingert

Vice President

Carsten Otto

Chief Compliance Officer

Stefanie V. Chang Yu

Vice President

Francis J. Smith

Treasurer and Chief Financial Officer

Mary E. Mullin

Secretary

Transfer Agent

Morgan Stanley Trust

Harborside Financial Center, Plaza Two

Jersey City, New Jersey 07311

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Two World Financial Center

New York, New York 10281

Legal Counsel

Clifford Chance US LLP

31 West 52nd Street

New York, New York 10019

Counsel to the Independent Trustees

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Investment Adviser

Morgan Stanley Investment Advisors Inc.

522 Fifth Avenue

New York, New York 10036

The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon.

This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund’s Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing.

Morgan Stanley Distributors Inc., member FINRA.

(c)  2009 Morgan Stanley

INVESTMENT MANAGEMENT

Morgan Stanley

Tax-Free Daily

Income Trust

Semiannual
Report

June 30, 2009

DSTSAN

IU09-03448P-Y06/09

TABLE OF CONTENTS

	Item 1 — Report to Shareholders
	Item 2. Code of Ethics
	Item 3. Audit Committee Financial Expert
	Item 4. Principal Accountant Fees and Services
	Item 5. Audit Committee of Listed Registrants
	Item 6
	Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
	Item 8. Portfolio Managers of Closed-End Management Investment Companies
	Item 9. Closed-End Fund Repurchases
	Item 10. Submission of Matters to a Vote of Security Holders
	Item 11. Controls and Procedures
	Item 12. Exhibits
SIGNATURES

Item 2. Code of Ethics.

Not applicable for semiannual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semiannual reports.

Item 4. Principal Accountant Fees and Services

Not applicable for semiannual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable for semiannual reports.

Item 6.

(a) Refer to Item 1.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable for semiannual reports.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Applicable only to reports filed by closed-end funds.

Item 9. Closed-End Fund Repurchases

Applicable to reports filed by closed-end funds.

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 11. Controls and Procedures

(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.

(b) There were no changes in the registrant’s internal control over financial reporting that
occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits

(a) Code of Ethics — Not applicable for semiannual reports.

(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.

2

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Morgan Stanley Tax-Free Daily Income Trust

/s/ Randy TakianRandy Takian

Principal Executive Officer

August 20, 2009

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Randy TakianRandy Takian

Principal Executive Officer

August 20, 2009

/s/ Francis SmithFrancis Smith

Principal Financial Officer

August 20, 2009

3