Morgan Stanley California Tax-Free Daily Income Trust
Notes to Financial Statements
June 30, 2003 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley California 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 and California income tax, consistent with stability of principal and liquidity. The Fund was organized as a Massachusetts business trust on April 25, 1988 and commenced operations on July 22, 1988.
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. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily.
C. Federal Income Tax Policy — It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially 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. 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 financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital.
E. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.
2. Investment Management Agreement
Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Fund pays the Investment Manager a management fee, accrued daily and
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Morgan Stanley California Tax-Free Daily Income Trust
Notes to Financial Statements June 30, 2003 (unaudited) continued
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 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 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 with the promotion of sales of Fund shares.
Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the six months ended June 30, 2003, 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, 2003 aggregated $352,777,300 and $351,354,000, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At June 30, 2003, the Fund had transfer agent fees and expenses payable of approximately $900.
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, 2003 included in Trustees' fees and expenses in the Statement of Operations amounted to $3,589. At June 30, 2003, the Fund had an accrued pension liability of $58,088 which is included in accrued expenses in the Statement of Assets and Liabilities.
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Morgan Stanley California Tax-Free Daily Income Trust
Notes to Financial Statements June 30, 2003 (unaudited) continued
5. Shares of Beneficial Interest
Transactions in shares of beneficial interest, at $1.00 per share, were as follows:
| | | | | | | | | | |
| | | FOR THE SIX
MONTHS ENDED
JUNE 30, 2003 | | FOR THE YEAR
ENDED
DECEMBER 31, 2002 |
| | | (unaudited) |
| Shares sold | | | 182,560,317 | | | | 477,774,441 | |
| Shares issued in reinvestment of dividends | | | 524,359 | | | | 1,897,542 | |
| | | | 183,084,676 | | | | 479,671,983 | |
| Shares redeemed | | | (202,606,457 | ) | | | (480,386,236 | ) |
| Net decrease in shares outstanding | | | (19,521,781 | ) | | | (714,253 | ) |
|
6. Expense Offset
The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund.
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Morgan Stanley California 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
JUNE 30, 2003 | | FOR THE YEAR ENDED DECEMBER 31, | |
| | | 2002 | | 2001 | | 2000 | | 1999 | | 1998 |
| | | (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 investments operations | | | 0.002 | | | | 0.007 | | | | 0.017 | | | | 0.028 | | | | 0.023 | | | | 0.025 | |
| Less dividends from net investment income | | | (0.002 | ) | | | (0.007 | ) | | | (0.017 | ) | | | (0.028 | ) | | | (0.023 | ) | | | (0.025 | ) |
| Net asset value, end of period | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
| Total Return | | | 0.21 | % (1) | | | 0.71 | % | | | 1.76 | % | | | 2.86 | % | | | 2.28 | % | | | 2.54 | % |
| Ratios to Average Net Assets: |
| Expenses (before expense offset) | | | 0.70 | % (2)(3) | | | 0.69 | % | | | 0.69 | % | | | 0.69 | % | | | 0.72 | % (3) | | | 0.70 | % (3) |
| Net investment income | | | 0.42 | % (2) | | | 0.70 | % | | | 1.72 | % | | | 2.81 | % | | | 2.25 | % | | | 2.50 | % |
| Supplemental Data: |
| Net assets, end of period, in thousands | | | $255,749 | | | | $275,271 | | | | $275,985 | | | | $272,990 | | | | $281,541 | | | | $283,382 | |
|
| (3) | Does not reflect the effect of expense offset of 0.01%. |
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| | |
Trustees Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid Officers Charles A. Fiumefreddo
Chairman of the Board Mitchell M. Merin
President Ronald E. Robison
Executive Vice President and Principal Executive Officer Barry Fink
Vice President and General Counsel Joseph J. McAlinden
Vice President Stefanie V. Chang
Vice President Francis Smith
Treasurer and Chief Financial Officer Thomas F. Caloia
Vice President Mary E. Mullin
Secretary Transfer Agent Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311 Independent Auditors Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281 Investment Manager Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020 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. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. © 2003 Morgan Stanley 
38555rpt-11780G03-AP-7/03 | | TAX-FREE MONEY MARKET |
Morgan Stanley
California Tax-Free
Daily Income Trust
Semiannual Report
June 30, 2003
|
 |
Item 9 - Controls and Procedures
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.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
Item 10b Exhibits
A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
Items 2 - 8 and Item 10a are not applicable
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 California Tax-Free Daily Income Trust
Ronald E. Robison
Principal Executive Officer
August 19, 2003
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.
Ronald E. Robison
Principal Executive Officer
August 19, 2003
Francis Smith
Principal Financial Officer
August 19, 2003
2
EXHIBIT B1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATIONS
I, Ronald E. Robison, certify that:
1. I have reviewed this report on Form N-CSR of Morgan Stanley California
Tax-Free Daily Income Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in
net assets, and cash flows (if the financial statements are required
to include a statement of cash flows) of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rule 30a-2(c) under the Investment Company Act of 1940) for
the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
3
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: August 19, 2003
Ronald E. Robison
Principal Executive Officer
4
EXHIBIT B2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATIONS
I, Francis Smith, certify that:
1. I have reviewed this report on Form N-CSR of Morgan Stanley California
Tax-Free Daily Income Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in
net assets, and cash flows (if the financial statements are required
to include a statement of cash flows) of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Rule 30a-2(c) under the Investment Company Act of 1940) for
the registrant and have:
(i) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(ii) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this report (the "Evaluation Date"); and
(iii) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
5
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: August 19, 2003
Francis Smith
Principal Financial Officer
6
SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley California Tax-Free Daily Income Trust
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended June 30, 2003 that is accompanied by
this certification, the undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: August 19, 2003 Ronald E. Robison
Principal Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley California Tax-Free Daily Income Trust and will be
retained by Morgan Stanley California Tax-Free Daily Income Trust and furnished
to the Securities and Exchange Commission or its staff upon request.
7
SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley California Tax-Free Daily Income Trust
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended June 30, 2003 that is accompanied by
this certification, the undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: August 19, 2003 Francis Smith
Principal Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley California Tax-Free Daily Income Trust and will be
retained by Morgan Stanley California Tax-Free Daily Income Trust and furnished
to the Securities and Exchange Commission or its staff upon request.
8
