N-CSR 1 file001.htm FORM N-CSR





                                  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)

1221 Avenue of the Americas, New York, New York 10020
     (Address of principal executive offices)                        (Zip code)

Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
                     (Name and address of agent for service)

Registrant's telephone number, including area code: 212-762-4000

Date of fiscal year end: December 31, 2004

Date of reporting period: December 31, 2004


Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley Tax-Free Daily Income Trust performed during the annual 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 the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund.



	Fund Report
	For the year ended December 31, 2004

Market Conditions

The 12-month period under review began with interest rates at low levels not seen in more than four decades. With the surprisingly high March employment figures released in April, however, the market's expectations shifted to the likelihood of an imminent rate increase by the Federal Open Market Committee (the "Fed"). The Fed confirmed this expectation in June, when it began a series of increases in the federal funds rate that continued through its December meeting. These increases, which occurred in a series of 25 basis point (0.25 percent) increments, took the federal funds rate to 2.25 percent by the end of the year.

Performance Analysis

As of December 31, 2004, Morgan Stanley Tax-Free Daily Income Trust had net assets of more than $440 million and an average portfolio maturity of 27 days. For the 12-month period ended December 31, 2004, the Fund provided a total return of 0.60 percent. For the seven-day period ended December 31, 2004, the Fund provided an effective annualized yield of 1.30 percent and a current yield of 1.29 percent, while its 30-day average yield for December was 1.08 percent. Past performance is no guarantee of future results.

Our primary strategy in managing the Fund was to adjust its portfolio in anticipation of rising interest rates. The Fund avoided securities with 12-month maturities in order to avoid locking in potentially lower interest rates. In their stead, the Fund emphasized bonds with variable rate coupons that automatically adjust to rising rates to capitalize on any increases. Among fixed rate investments, the Fund focused on tax-exempt commercial paper and municipal notes with shorter maturities in the four- to six-month range to maintain flexibility.

There is no guarantee that any securities mentioned will continue to perform well or be held by the fund in the future.


MATURITY SCHEDULE
1 - 30 Days	80.3	%
31 - 60 Days	6.9
61 - 90 Days	3.7
91 - 120 Days	1.6
121 + Days	7.5

Data as of December 31, 2004. Subject to change daily. All percentages for portfolio composition and maturity schedule are as a percentage of total investments. Provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. 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 Manager," 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 by filing the schedule electronically with the Securities and Exchange Commission (SEC). The semiannual reports are filed on Form N-CSRS and the annual reports are filed on Form N-CSR. 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 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. You may obtain copies of a fund's fiscal quarter filings by contacting Morgan Stanley Client Relations at (800) 869-NEWS.

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) 350-6414, 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.



	Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) 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 07/01/04 – 12/31/04.

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.


	BEGINNING ACCOUNT VALUE		ENDING ACCOUNT VALUE		EXPENSES PAID DURING PERIOD*
	07/01/04		12/31/04		07/01/04 – 12/31/04
Actual (0.42% return)	$	1,000.00	$	1,004.20	$	3.07
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,022.07	$	3.10

Expenses are equal to the Fund's annualized expense ratio of 0.61% multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). If the Fund had borne all of its expenses, the annualized expense ratio would have been 0.71%.

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments December 31, 2004


PRINCIPAL AMOUNT IN THOUSANDS			CURRENT RATE†			DEMAND DATE*		VALUE
		Short-Term Variable Rate Municipal Obligations (77.2%)
		Arizona
$	6,690	Scottsdale Municipal Property Corporation, Excise Tax Ser 2004 A ROCs II-R Ser 2153 (MBIA)		2.04	%		01/07/05	$	6,690,000
	4,000	Sun Devil Energy Center LLC, Arizona State University Ser 2004 (FGIC)		2.01			01/07/05		4,000,000
		Colorado
	7,900	Colorado Health Facilities Authority, Catholic Health Initiatives Ser 2004 B-5		1.95			01/07/05		7,900,000
		Delaware
	6,450	Delaware Economic Development Authority, St Andrew's School Ser 2004		2.00			01/07/05		6,450,000
		Florida
	16,750	Dade County Industrial Development Authority, Dolphins Stadium Ser 1985 A		1.98			01/07/05		16,750,000
	10,000	Orlando Utilities Commission, Water & Electric Ser 2002 B		1.88			01/07/05		10,000,000
		Georgia
	2,000	Burke County Development Authority, Oglethorpe Power Co Ser 1994 A (FGIC)		2.00			01/07/05		2,000,000
	1,995	Georgia, PUTTERs Ser 440		2.01			01/07/05		1,995,000
		Hawaii
	4,990	Hawaii, ROCs II-R Ser 6012		2.04			01/07/05		4,990,000
		Illinois
	14,000	Chicago, Ser 2002 B (FGIC)		2.00			01/07/05		14,000,000
		Illinois Finance Authority,
	10,000	Northwestern University Ser 2004 B		1.97			01/07/05		10,000,000
	5,000	Revolving Fund ROCs II-R Ser 6015		2.04			01/07/05		5,000,000
	11,000	Oak Forest, Homewood South Suburban Mayors & Managers Association Ser 1989		1.99			01/07/05		11,000,000
		Kansas
		Kansas Department of Transportation,
	3,805	Highway Eagle #20041005 Class A		2.04			01/07/05		3,805,000
	7,510	Highway Ser 2004 C-1		1.97			01/07/05		7,510,000
		Maryland
	5,900	Maryland Health & Higher Educational Facilities Authority, Catholic Health Initiatives Ser 1997 B		1.95			01/07/05		5,900,000
		Massachusetts
	6,000	Massachusetts Bay Transportation Authority, Ser 2000		1.95			01/07/05		6,000,000

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments December 31, 2004 continued


PRINCIPAL AMOUNT IN THOUSANDS			CURRENT RATE†			DEMAND DATE*		VALUE
		Michigan
$	10,500	Detroit, Sewage Disposal System Senior Lien Ser 2001 C-1 (FSA)		1.95	%		01/07/05	$	10,500,000
		Minnesota
	10,000	Minneapolis, Guthrie Theater on the River Ser 2003 A		2.00			01/07/05		10,000,000
	15,130	University of Minnesota Regents, Ser 1999 A & Ser 2001 A		2.03			01/07/05		15,130,000
		Mississippi
	6,000	Perry County, Leaf River Forest Products Inc Ser 2002		1.95			01/07/05		6,000,000
		Missouri
	3,900	Missouri Development Finance Board, The Nelson Gallery Foundation Ser 2004 A		2.00			01/07/05		3,900,000
	1,700	Missouri Health & Educational Facilities Authority, Cox Health System Ser 1997 (MBIA)		2.15			01/03/05		1,700,000
		Nebraska
	8,900	American Public Energy Agency, National Public Gas Agency 2003 Ser A		2.04			01/07/05		8,900,000
		New York
	2,400	Long Island Power Authority, Electric Ser 7 Subser 7 B (MBIA)		1.95			01/07/05		2,400,000
	5,000	New York City Industrial Development Agency, One Bryant Park LLC Ser 2004 A		2.03			01/07/05		5,000,000
		North Carolina
	3,700	North Carolina, Ser 2002 D		1.95			01/07/05		3,700,000
	7,400	North Carolina Capital Facilities Agency, Durham Academy Ser 2001		1.99			01/07/05		7,400,000
		Ohio
	5,000	Cleveland, Water 2002 Ser L (FGIC)		1.99			01/07/05		5,000,000
	9,500	Cuyahoga County, Cleveland Clinic Ser 2004 B		2.27			01/03/05		9,500,000
	4,310	Ohio, Ser 2004 P-FLOATs PT-2139		2.02			01/07/05		4,310,000
		Oklahoma
	7,430	Oklahoma Water Resources Board,
		State Loan Programs Ser 1995 & Ser 1999		1.35			03/01/05		7,430,000
		Oregon
	5,000	Clackamas County Hospital Facility Authority, Legacy Health System Ser 2003		1.98			01/07/05		5,000,000
		Pennsylvania
		Pennsylvania Turnpike Commission,
	6,800	2002 Ser A-2		2.00			01/07/05		6,800,000
	5,000	Eagle #20040029 Class A (Ambac)		2.04			01/07/05		5,000,000
	1,900	Philadelphia Hospitals & Higher Education Facilities Authority, Children's Hospital of Philadelphia Ser 2002 B		2.19			01/03/05		1,900,000

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments December 31, 2004 continued


PRINCIPAL AMOUNT IN THOUSANDS			CURRENT RATE†			DEMAND DATE*		VALUE
$	5,500	Washington County Authority, The Trustees of the University of Pennsylvania Ser 2004		1.96	%		01/07/05	$	5,500,000
		Rhode Island
	11,115	Rhode Island Convention Center Authority, Refg 2001 Ser A (MBIA)		1.95			01/07/05		11,115,000
		South Carolina
	5,870	York County School District No 4, Fort Mill Ser 2004 F TOCs		2.03			01/07/05		5,870,000
		Tennessee
	3,800	Jackson Energy Authority, Gas System Ser 2002 (FSA)		2.00			01/07/05		3,800,000
	3,000	Montgomery County Public Building Authority, Pooled Financing Ser 1999		2.00			01/07/05		3,000,000
		Texas
	7,700	Harris County Health Facilities Development Corporation, Methodist Hospital Ser 2002		2.20			01/03/05		7,700,000
	4,400	Harris County Industrial Development Corporation, Baytank Inc Ser 1998		2.00			01/07/05		4,400,000
	3,500	Houston, Combined Utility System MERLOTs 2004 Ser C13 (MBIA)		2.06			01/07/05		3,500,000
	5,000	Lower Neches Valley Authority, Chevron USA Inc Ser 1987		1.28			02/15/05		5,000,000
	4,250	San Antonio, Water System Sub Lien 2003 B (MBIA)		1.95			01/07/05		4,250,000
	4,600	Texas Municipal Gas Corporation, Senior Lien Ser 1998 (FSA)		2.00			01/07/05		4,600,000
		Utah
	8,400	Eagle Mountain, Gas & Electric Ser 2001		2.00			01/07/05		8,400,000
		Intermountain Power Agency,
	7,000	Power Supply Ser 1985 F (Ambac)		1.40			03/15/05		7,000,000
	7,100	Power Supply Ser 1985 F (Ambac)		2.02			06/01/05		7,100,000
	1,900	Utah County, IHC Health Services Inc 2002 Ser B		2.00			01/07/05		1,900,000
		Various States
	4,700	Municipal Securities Pooled Trust Receipts, Various States Ser 2004 SG P-18		2.14			01/07/05		4,700,000
		Washington
	5,475	Snohomish County Public Utility District No 1, ROCs II-R Ser 4059 (FSA)		2.04			01/07/05		5,475,000
		Puerto Rico
	3,000	Puerto Rico Highway & Transportation Authority, Transportation 1998 Ser A (Ambac)		1.95			01/07/05		3,000,000
		Total Short-Term Variable Rate Municipal Obligations (Cost $339,870,000)							339,870,000

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments December 31, 2004 continued


PRINCIPAL AMOUNT IN THOUSANDS			COUPON RATE			MATURITY DATE		YIELD TO MATURITY ON DATE OF PURCHASE			VALUE
		Tax-Exempt Commercial Paper (12.8%)
		District of Columbia
$	8,000	National Academy of Science, Ser 1999 B (Ambac)		1.86	%		02/16/05		1.86	%	$	8,000,000
		Florida
	5,000	Collier County Health Facilities Authority, Cleveland Clinic Health System Ser 2003 C-2		1.78			03/09/05		1.78			5,000,000
	3,000	Jacksonville Health Facilities Authority, Baptist Medical Center Ser 2004		1.82			01/12/05		1.82			3,000,000
		Georgia
	5,000	Burke County Development Authority, Oglethorpe Power Co Ser 1998 B (Ambac)		1.85			01/18/05		1.85			5,000,000
	5,000	Metropolitan Atlanta Rapid Transit Authority, 2004 Ser A		1.80			04/07/05		1.80			5,000,000
		Indiana
	4,340	Indiana State Office Building Commission, Hoosier Notes Ser A		1.75			01/19/05		1.75			4,340,000
		Nebraska
	4,000	Omaha Public Power District, Ser A		1.68			01/10/05		1.68			4,000,000
		Nevada
	5,000	Las Vegas Valley Water District, Ser 2004 A		1.80			01/18/05		1.80			5,000,000
		Ohio
	5,000	Cuyahoga County, Cleveland Clinic Ser 2003 B		1.35			01/27/05		1.35			5,000,000
		Texas
	7,000	San Antonio, Electric & Gas Ser 1995 A		1.85			01/19/05		1.85			7,000,000
	5,000	University of Texas Regents, Permanent University Fund Ser A		1.85			02/17/05		1.85			5,000,000
		Total Tax-Exempt Commercial Paper (Cost $56,340,000)										56,340,000
		Short-Term Municipal Notes and Bonds (10.4%)
		California
	4,000	California, Ser 2004-2005 RANs, dtd 10/06/04		3.00			06/30/05		1.74			4,024,647
		Indiana
		Indiana Bond Bank,
	5,000	Advance Funding Notes Ser 2004 A, dtd 01/29/04		2.00			01/25/05		1.10			5,002,917
	3,000	Midyear Funding Notes Ser 2004 A, dtd 06/24/04		2.50			01/26/05		1.38			3,002,271

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments December 31, 2004 continued


PRINCIPAL AMOUNT IN THOUSANDS			COUPON RATE			MATURITY DATE		YIELD TO MATURITY ON DATE OF PURCHASE			VALUE
		Kentucky
$	1,800	Covington Independent School District, Ser 2002, dtd 07/01/04		2.75	%		06/30/05		1.88	%	$	1,807,545
	4,000	Kentucky Association of Counties Advance Revenue Program, Ser 2004 A COPs TRANs, dtd 07/01/04		3.00			06/30/05		1.68			4,025,596
		Massachusetts
	1,469	Cape Ann Transportation Authority, Ser 2004 RANs, dtd 07/16/04		2.75			07/14/05		2.10			1,473,962
	2,460	Rutland, Ser 2004 BANs, dtd 12/10/04		2.75			03/10/05		2.10			2,462,992
		New Hampshire
	4,000	New Hampshire, Ser 2004 RANs, dtd 12/30/04		2.20			06/01/05		2.10			4,001,619
		New Jersey
	2,500	Waldwick, Ser 2004 TANs, dtd 07/28/04		2.50			02/15/05		1.40			2,503,341
		New York
	2,500	Board of Cooperative Educational Services, Erie, Chautauqua & Cattaraugus Counties Second Supervisory District Ser 2004 RANs, dtd 07/06/04		3.00			06/30/05		1.80			2,514,528
	8,000	Brasher Falls Central School District, Ser 2004 BANs, dtd 07/09/04		3.00			07/08/05		1.75			8,050,615
	2,200	Holley Central School District, Ser 2004 TANs, dtd 08/05/04		2.75			04/29/05		1.53			2,208,595
		Ohio
	2,000	Youngstown City School District, Ser 2004 BANs, dtd 07/06/04		2.00			03/09/05		1.48			2,001,890
		Texas
	2,610	Carrollton-Farmers Branch Independent School District, Ser 2003, dtd 03/15/03		3.00			02/15/05		1.86			2,613,563
		Total Short-Term Municipal Notes and Bonds (Cost $45,694,081)										45,694,081
		Total Investments (Cost $441,904,081) (a)							100.4	%		441,904,081
		Liabilities in Excess of Other Assets						(0.4)				(1,633,320	)
		Net Assets							100.0	%	$	440,270,761

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Portfolio of Investments December 31, 2004 continued

COPs

Certificates of Participation.

BANs

Bond Revenue Anticipation Notes.

MERLOTs

Municipal Exempt Receipts-Liquidity Option Tender.

P-FLOATs

Puttable Floating Option Tax-Exempt Receipts.

PUTTERs

Puttable Tax-Exempt Receipts.

RANs

Revenue Anticipation Notes.

ROCs

Reset Option Certificates.

TOCs

Tender Option Certificates.

TANs

Tax Anticipation Notes.

TRANs

Tax and Revenue Anticipation Notes.

†

Rate shown is the rate in effect at December 31, 2004.

Date on which the principal amount can be recovered through demand.

(a)

Cost is the same for federal income tax purposes.

Bond Insurance:

Ambac

Ambac Assurance Corporation.

FGIC

Financial Guaranty Insurance Company.

FSA

Financial Security Assurance Inc.

MBIA

Municipal Bond Investors Assurance Corporation.

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Financial Statements

Statement of Assets and Liabilities

December 31, 2004


Assets:
Investments in securities, at value (cost $441,904,081)	$	441,904,081
Interest receivable		1,326,634
Prepaid expenses and other assets		16,306
Total Assets		443,247,021
Liabilities:
Payable for:
Shares of beneficial interest redeemed		2,157,476
Investment advisory fee		143,515
Distribution fee		38,274
Administration fee		19,137
Payable to bank		507,249
Accrued expenses and other payables		110,609
Total Liabilities		2,976,260
Net Assets	$	440,270,761
Composition of Net Assets:
Paid-in-capital	$	440,240,637
Accumulated undistributed net investment income		31,848
Accumulated net realized loss		(1,724	)
Net Assets	$	440,270,761
Net Asset Value Per Share, 440,272,121 shares outstanding (unlimited shares authorized of $.01 par value)	$	1.00

Statement of Operations

For the year ended December 31, 2004


Net Investment Income:
Interest Income	$	5,897,475
Expenses
Investment advisory fee		2,384,068
Distribution fee		481,469
Transfer agent fees and expenses		266,532
Registration fees		79,437
Professional fees		71,052
Shareholder reports and notices		51,468
Administration fee		37,894
Custodian fees		25,081
Trustees' fees and expenses		14,101
Other		26,846
Total Expenses		3,437,948
Less: amounts waived		(339,500	)
Less: expense offset		(24,563	)
Net Expenses		3,073,885
Net Investment Income	$	2,823,590

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Financial Statements continued

Statement of Changes in Net Assets


	FOR THE YEAR ENDED DECEMBER 31, 2004			FOR THE YEAR ENDED DECEMBER 31, 2003
Increase (Decrease) in Net Assets:
Operations:
Net investment income	$	2,823,590		$	2,048,929
Dividends to shareholders from net investment income		(2,823,636	)		(2,048,675	)
Net decrease from transactions in shares of beneficial interest		(66,128,565	)		(33,827,623	)
Net Decrease		(66,128,611	)		(33,827,369	)
Net Assets:
Beginning of period		506,399,372			540,226,741
End of Period (Including accumulated undistributed net investment income of $31,848 and $31,894, respectively)	$	440,270,761		$	506,399,372

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements December 31, 2004

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, 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.

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.

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 Advisory/Administration Agreements

Effective November 1, 2004, 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.

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements December 31, 2004 continued

Effective November 1, 2004, 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.

Prior to November 1, 2004, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets pursuant to an investment management agreement pursuant to which the Fund paid the Investment Adviser a monthly management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of the daily net assets not exceeding $500 million; 0.425% to the portion of the daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of the daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% to the 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.

Effective May 1, 2004, the Investment Adviser has agreed to assume all operating expenses and to waive the compensation provided for its Investment Advisory Agreement to the extent that such expenses and compensation on an annualized basis exceed 0.60% of the daily net assets of the Fund.

3. Plan of Distribution

Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Adviser, 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 year ended December 31, 2004, 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 year ended December 31, 2004, aggregated $1,057,268,514 and $1,130,354,000, respectively.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent. At December 31, 2004, the Fund had transfer agent fees and expenses payable of approximately $10,700.

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements December 31, 2004 continued

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. Aggregate pension costs for the year ended December 31, 2004, included in Trustees' fees and expenses in the Statement of Operations amounted to $7,405. At December 31, 2004, the Fund had an accrued pension liability of $61,825 which is included in accrued expenses in the Statement of Assets and Liabilities. On December 2, 2003, the Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003.

Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he receives 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 YEAR ENDED DECEMBER 31, 2004			FOR THE YEAR ENDED DECEMBER 31, 2003
Shares sold		1,122,405,560			1,275,824,200
Shares issued in reinvestment of dividends		2,823,636			2,048,675
		1,125,229,196			1,277,872,875
Shares redeemed		(1,191,357,761	)		(1,311,700,498	)
Net decrease in shares outstanding		(66,128,565	)		(33,827,623	)

6. Expense Offset

The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund.

7. Federal Income Tax Status

As of December 31, 2004, the Fund had a net capital loss carryforward of $1,719 which will expire on December 31, 2008, to offset future capital gains to the extent provided by regulations.

Morgan Stanley Tax-Free Daily Income Trust

Notes to Financial Statements December 31, 2004 continued

8. Legal Matters

The Investment Adviser, certain affiliates of the Investment Adviser, certain officers of such affiliates and certain investment companies advised by the Investment Adviser or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Adviser and certain affiliates of the Investment Adviser allegedly offered economic incentives to brokers and others to recommend the funds advised by the Investment Adviser or its affiliates to investors rather than funds managed by other companies, and (ii) that the funds advised by the Investment Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants have moved to dismiss the action and intend to otherwise vigorously defend it. While the Fund believes that it has meritorious defenses, the ultimate outcome of this matter is not presently determinable at this early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of this matter.

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 YEAR ENDED DECEMBER 31,
	2004			2003			2002			2001			2000
Selected Per Share Data:
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.006			0.004			0.008			0.021			0.033
Less dividends from net investment income		(0.006	)		(0.004	)		(0.008	)		(0.021	)		(0.033	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Return		0.60	%		0.37	%		0.78	%		2.13	%		3.38	%
Ratios to Average Net Assets:
Expenses (before expense offset)		0.64	% ⁽¹⁾⁽²⁾		0.68	%		0.68	%		0.68	% ⁽¹⁾		0.69	%
Net investment income		0.58	% ⁽²⁾		0.37	%		0.78	%		2.10	%		3.35	%
Supplemental Data:
Net assets, end of period, in thousands		$440,271			$506,399			$540,227			$563,914			$573,881

(1)

Does not reflect the effect of expense offset of 0.01%.

(2)

If the Investment Adviser had not waived a portion of its investment advisory fee, the expense and net investment income ratios would have been 0.71% and 0.51%, respectively.

See Notes to Financial Statements

Morgan Stanley Tax-Free Daily Income Trust

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of
Morgan Stanley Tax-Free Daily Income Trust:

We have audited the accompanying statement of assets and liabilities of Morgan Stanley Tax-Free Daily Income Trust (the "Fund"), including the portfolio of investments, as of December 31, 2004, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Tax-Free Daily Income Trust as of December 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
New York, New York
February 14, 2005

Morgan Stanley Tax-Free Daily Income Trust

Trustee and Officer Information

Independent Trustees:

Name, Age and Address of
Independent Trustee

Position(s) Held with Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s)
During Past 5 Years**

Number of Portfolios
in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Michael Bozic (63)
c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees
919 Third Avenue
New York, NY 10022-3902

Trustee

Since
April 1994

Private Investor; Director or Trustee of the Retail Funds (since April 1994) and the Institutional Funds (since July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co.

208

None.

Edwin J. Garn (72)
1031 N. Chartwell Court
Salt Lake City, UT 84103

Trustee

Since January 1993

Consultant; Managing Director of Summit Ventures LLC; Director or Trustee of the Retail Funds (since January 1993) and the Institutional Funds (since July 2003); member of the Utah Regional Advisory Board of Pacific Corp.; formerly Managing Director of Summit Ventures LLC (2000-2004); United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company).

208

Director of Franklin Covey (time management systems), BMW Bank of North America, Inc. (industrial loan corporation), United Space Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations.

Wayne E. Hedien (70)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
919 Third Avenue
New York, NY 10022-3902

Trustee

Since September 1997

Retired; Director or Trustee of the Retail Funds; (since September 1997) and the Institutional Funds (since July 2003); formerly associated with the Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994).

208

Director of The PMI Group Inc. (private mortgage insurance); Trustee and Vice Chairman of The Field Museum of Natural History; director of various other business and charitable organizations.

Morgan Stanley Tax-Free Daily Income Trust

Trustee and Officer Information continued

Name, Age and Address of
Independent Trustee

Position(s) Held with Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s)
During Past 5 Years**

Number of Portfolios
in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Dr. Manuel H. Johnson (55)
c/o Johnson Smick International, Inc.
2099 Pennsylvania
Avenue, N.W.
Suite 950
Washington, D.C. 20006

Trustee

Since
July 1991

Senior Partner, Johnson Smick International, Inc., a consulting firm; Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); Co-Chairman and a founder of the Group of Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury.

208

Director of NVR, Inc. (home construction); Director of KFX Energy; Director of RBS Greenwich Capital Holdings (financial holding company.

Joseph J. Kearns (62)
c/o Kearns & Associates LLC
PMB754
23852 Pacific Coast Highway
Malibu, CA 90265

Trustee

Since
July 2003

President, Kearns & Associates LLC (investment consulting); Deputy Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust.

209

Director of Electro Rent Corporation (equipment leasing), The Ford Family Foundation, and the UCLA Foundation.

Michael E. Nugent (68)
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022

Trustee

Since
July 1991

General Partner of Triumph Capital, L.P., a private investment partnership; Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988).

208

Director of various business organizations.

Fergus Reid (72)
c/o Lumelite Plastics Corporation
85 Charles Colman Blvd.
Pawling, NY 12564

Trustee

Since
July 2003

Chairman of Lumelite Plastics Corporation; Chairman of the Governance Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992).

209

Trustee and Director of certain investment companies in the JPMorgan Funds complex managed by J.P. Morgan Investment Management Inc.

Morgan Stanley Tax-Free Daily Income Trust

Trustee and Officer Information continued

Interested Trustees:

Name, Age and Address of
Interested Trustee

Position(s) Held with Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s)
During Past 5 Years**

Number of Portfolios
in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Charles A. Fiumefreddo (71)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ 07311

Chairman of the Board and Trustee

Since
July 1991

Chairman and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002).

208

None.

James F. Higgins (56)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ 07311

Trustee

Since
June 2000

Director or Trustee of the Retail Funds (since June 2000) and the Institutional Funds (since July 2003); Senior Advisor of Morgan Stanley (since August 2000); Director of the Distributor and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999).

208

Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services).

This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the "Retail Funds").

The dates referenced below indicating commencement of services as Director/Trustee for the Retail Funds and the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds") reflect the earliest date the Director/Trustee began serving the Retail or Institutional Funds as applicable.

***

The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.).

Morgan Stanley Tax-Free Daily Income Trust

Trustee and Officer Information continued

Officers:

Name, Age and Address of
Executive Officer

Position(s)
Held with
Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s) During Past 5 Years**

Mitchell M. Merin (51)
1221 Avenue of the Americas
New York, NY 10020

President

Since May 1999

President and Chief Operating Officer of Morgan Stanley Investment Management Inc.; President, Director and Chief Executive Officer of the Investment Adviser and the Administrator; Chairman and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds; Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee and President (since October 2002) of the Van Kampen Open-End Funds.

Ronald E. Robison (65)
1221 Avenue of the Americas
New York, NY 10020

Executive Vice President and Principal Executive Officer

Since April 2003

Principal Executive Officer of Funds in the Fund Complex (since May 2003); Managing Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and Morgan Stanley; Managing Director, Chief Administrative Officer and Director of the Investment Adviser and the Administrator; Director of the Transfer Agent; Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Retail Funds (March 2001-July 2003) and Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc.

Joseph J. McAlinden (61)
1221 Avenue of the Americas
New York, NY 10020

Vice President

Since July 1995

Managing Director and Chief Investment Officer of the Investment Adviser and Morgan Stanley Investment Management Inc.; Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995).

Barry Fink (49)
1221 Avenue of the Americas
New York, NY 10020

Vice President

Since
February 1997

General Counsel (since May 2000) and Managing Director (since December 2000) of Morgan Stanley Investment Management; Managing Director (since December 2000), Secretary (since February 1997) and Director of the Investment Adviser and the Administrator; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of the Distributor; previously Secretary (February 1997-July 2003) and General Counsel (February 1997-April 2004) of the Retail Funds; Vice President and Assistant General Counsel of the Investment Adviser and the Administrator (February 1997-December 2001).

Amy R. Doberman (42)
1221 Avenue of Americas
New York, NY 10020

Vice President

Since July 2004

Managing Director and General Counsel, U.S. Investment Management; Managing Director of Morgan Stanley Investment Management Inc. and the Investment Adviser, Vice President of the Institutional and Retail Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); previously, Managing Director and General Counsel — Americas, UBS Global Asset Management (July 2000 – July 2004) and General Counsel, Aeltus Investment Management Inc. (January 1997 – July 2000).

Carsten Otto (41)
1221 Avenue of the Americas
New York, NY 10020

Chief Compliance
Officer

Since October
2004

Executive Director and U.S. Director of Compliance for Morgan Stanley Investment Management (since October 2004); Executive Director of the Investment Adviser and Morgan Stanley Investment Management Inc.; formerly Assistant Secretary and Assistant General Counsel of the Morgan Stanley Retail Funds.

Morgan Stanley Tax-Free Daily Income Trust

Trustee and Officer Information continued

Name, Age and Address of
Executive Officer

Position(s)
Held with
Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s) During Past 5 Years**

Stefanie V. Chang (38)
1221 Avenue of the Americas
New York, NY 10020

Vice President

Since July 2003

Executive Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and the Investment Adviser; Vice President of the Institutional Funds and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP).

Francis J. Smith (39)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ 07311

Treasurer and Chief Financial Officer

Treasurer since July 2003 and Chief Financial Officer since September 2002

Executive Director of the Investment Adviser and Morgan Stanley Services (since December 2001); previously, Vice President of the Retail Funds (September 2002-July 2003), Vice President of the Investment Adviser and the Administrator (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000).

Thomas F. Caloia (58)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ 07311

Vice President

Since July 2003

Executive Director (since December 2002) and Assistant Treasurer of the Investment Adviser, the Distributor and the Administrator; previously Treasurer of the Retail Funds (April 1989-July 2003); formerly First Vice President of the Investment Adviser, the Distributor and the Administrator.

Mary E. Mullin (37)
1221 Avenue of the Americas
New York, NY 10020

Secretary

Since July 2003

Executive Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and the Investment Adviser; Secretary of the Institutional Funds and the Retail Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.

This is the earliest date the Officer began serving the Retail Funds. Each Officer serves an indefinite term, until his or her successor is elected.

The dates referenced below indicating commencement of service as an Officer for the Retail and Institutional Funds reflect the earliest date the Officer began serving the Retail or Institutional Funds, as applicable.

2004 Federal Tax Notice (unaudited)

For the year ended December 31, 2004, all of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes.


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 Fergus Reid Officers Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Joseph J. McAlinden Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Vice President Francis J. 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 Registered Public Accounting Firm Deloitte & Touche LLP Two World Financial Center New York, New York 10281 Investment Adviser Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 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. © 2004 Morgan Stanley 37955RPT-RA05-00107P-Y12/04		MORGAN STANLEY FUNDS
		Morgan Stanley Tax-Free Daily Income Trust Annual Report December 31, 2004





Item 2.  Code of Ethics.

(a)  The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.

(b)  No information need be disclosed pursuant to this paragraph.

(c)  The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":

"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."

(d)  Not applicable.

(e)  Not applicable.

(f)

     (1)  The Fund's Code of Ethics is attached hereto as Exhibit A.

     (2)  Not applicable.

     (3)  Not applicable.


Item 3.  Audit Committee Financial Expert.

The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of
Trustees/Directors in the absence of such designation or identification.








Item 4.  Principal Accountant Fees and Services.

(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:



           2004
                                                            REGISTRANT            COVERED ENTITIES(1)

              AUDIT FEES........................            $ 25,660              N/A

              NON-AUDIT FEES
                        AUDIT-RELATED FEES......            $    452  (2)         $ 3,746,495  (2)
                        TAX FEES...................         $  4,477  (3)         $    79,800  (4)
                        ALL OTHER FEES...........           $  -                  $ -
              TOTAL NON-AUDIT FEES..........                $  4,929              $ 3,826,295

              TOTAL..............................           $ 30,589              $ 3,826,295



           2003
                                                            REGISTRANT            COVERED ENTITIES(1)

              AUDIT FEES........................            $ 24,750              N/A

              NON-AUDIT FEES
                        AUDIT-RELATED FEES.....             $    684  (2)         $ 2,847,161  (2)
                        TAX FEES..................          $  4,428  (3)         $   736,810  (4)
                        ALL OTHER FEES...........           $ -                   $ -  (5)
              TOTAL NON-AUDIT FEES.........                 $  5,112              $ 3,583,971

              TOTAL..............................           $ 29,862              $ 3,583,971


              N/A- Not applicable, as not required by Item 4.

     (1)  Covered Entities include the Adviser (excluding sub-advisors) and any
          entity controlling, controlled by or under common control with the
          Adviser that provides ongoing services to the Registrant.
     (2)  Audit-Related Fees represent assurance and related services provided
          that are reasonably related to the performance of the audit of the
          financial statements of the Covered Entities' and funds advised by the
          Adviser or its affiliates, specifically data verification and
          agreed-upon procedures related to asset securitizations and
          agreed-upon procedures engagements.
     (3)  Tax Fees represent tax compliance, tax planning and tax advice
          services provided in connection with the preparation and review of the
          Registrant's tax returns.
     (4)  Tax Fees represent tax compliance, tax planning and tax advice
          services provided in connection with the review of Covered Entities'
          tax returns.
     (5)  All other fees represent project management for future business
          applications and improving business and operational processes.

                                       2


(e)(1) The audit committee's pre-approval policies and procedures are as
follows:

                                                                      APPENDIX A

                                 AUDIT COMMITTEE
                          AUDIT AND NON-AUDIT SERVICES
                       PRE-APPROVAL POLICY AND PROCEDURES
                                     OF THE
                  MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS

                     AS ADOPTED AND AMENDED JULY 23, 2004,(1)


   1.   STATEMENT OF PRINCIPLES

The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.

The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("general pre-approval"); or require the specific pre-approval of the Audit
Committee or its delegate ("specific pre-approval"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.

The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.

-----------------------
1    This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
     Procedures (the "Policy"), adopted as of the date above, supersedes and
     replaces all prior versions that may have been adopted from time to time.


                                       3



The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.

The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.

   2.   DELEGATION

As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.

   3.   AUDIT SERVICES

The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.

In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.

The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).

   4.   AUDIT-RELATED SERVICES

Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters

                                       4


not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.

The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).

   5.   TAX SERVICES

The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.

Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).

   6.   ALL OTHER SERVICES

The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.

The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).

   7.   PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS

Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.

   8.   PROCEDURES

All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be

                                       5


rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.

The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.

   9.   ADDITIONAL REQUIREMENTS

The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.

   10.  COVERED ENTITIES

Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:

         Morgan Stanley Retail Funds
         ---------------------------
         Morgan Stanley Investment Advisors Inc.
         Morgan Stanley & Co. Incorporated
         Morgan Stanley DW Inc.
         Morgan Stanley Investment Management Inc.
         Morgan Stanley Investment Management Limited
         Morgan Stanley Investment Management Private Limited
         Morgan Stanley Asset & Investment Trust Management Co., Limited
         Morgan Stanley Investment Management Company
         Van Kampen Asset Management
         Morgan Stanley Services Company, Inc.
         Morgan Stanley Distributors Inc.
         Morgan Stanley Trust FSB

                                       6


         Morgan Stanley Institutional Funds
         ----------------------------------
         Morgan Stanley Investment Management Inc.
         Morgan Stanley Investment Advisors Inc.
         Morgan Stanley Investment Management Limited
         Morgan Stanley Investment Management Private Limited
         Morgan Stanley Asset & Investment Trust Management Co., Limited
         Morgan Stanley Investment Management Company
         Morgan Stanley & Co. Incorporated
         Morgan Stanley Distribution, Inc.
         Morgan Stanley AIP GP LP
         Morgan Stanley Alternative Investment Partners LP


(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).

(f) Not applicable.

(g) See table above.

(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.


Item 5. Audit Committee of Listed Registrants.

(a)  The Fund has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.

(b) Not applicable.


Item 6. Schedule of Investments

Refer to Item 1.

                                       7



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

Applicable only to annual reports filed by closed-end funds.


Item 8. Closed-End Fund Repurchases

Applicable to reports filed by closed-end funds.


Item 9. Submission of Matters to a Vote of Security Holders

Not applicable.


Item 10 - 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 registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.


Item 11 Exhibits

(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.

(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.



                                       8



                                   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/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 17, 2005

     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/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
February 17, 2005

/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 17, 2005


                                       9



                                                                    EXHIBIT 11 A


           CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL
                                    OFFICERS
                           ADOPTED SEPTEMBER 28, 2004


I.   This Code of Ethics (the "Code") for the investment companies within the
     Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and
     each, a "Fund") applies to each Fund's Principal Executive Officer,
     President, Principal Financial Officer and Treasurer (or persons performing
     similar functions) ("Covered Officers" each of whom are set forth in
     Exhibit B) for the purpose of promoting:

     o    honest and ethical conduct, including the ethical handling of actual
          or apparent conflicts of interest between personal and professional
          relationships.

     o    full, fair, accurate, timely and understandable disclosure in reports
          and documents that a company files with, or submits to, the Securities
          and Exchange Commission ("SEC") and in other public communications
          made by the Fund;

     o    compliance with applicable laws and governmental rules and
          regulations;

     o    prompt internal reporting of violations of the Code to an appropriate
          person or persons identified in the Code; and

     o    accountability for adherence to the Code.

          Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to situations that may give rise to actual as
well as apparent conflicts of interest. Any question about the application of
the Code should be referred to the General Counsel or his/her designee (who is
set forth in Exhibit C).

II.  COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF
     INTEREST

     OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private
interest interferes, or appears to interfere, with the interests of, or his
service to, the Fund. For example, a conflict of interest would arise if a
Covered Officer, or a member of his family, receives improper personal benefits
as a result of his position with the Fund.

     Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the Investment Company Act of 1940 ("Investment Company Act") and
the Investment

                                       10


Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers
may not individually engage in certain transactions (such as the purchase or
sale of securities or other property) with the Fund because of their status as
"affiliated persons" (as defined in the Investment Company Act) of the Fund. The
Fund's and its investment adviser's compliance programs and procedures are
designed to prevent, or identify and correct, violations of these provisions.
This Code does not, and is not intended to, repeat or replace these programs and
procedures, and such conflicts fall outside the parameters of this Code, unless
or until the General Counsel determines that any violation of such programs and
procedures is also a violation of this Code.

     Although typically not presenting an opportunity for improper personal
benefit, conflicts may arise from, or as a result of, the contractual
relationship between the Fund and its investment adviser of which the Covered
Officers are also officers or employees. As a result, this Code recognizes that
the Covered Officers will, in the normal course of their duties (whether
formally for the Fund or for the investment adviser, or for both), be involved
in establishing policies and implementing decisions that will have different
effects on the Fund and its investment adviser. The participation of the Covered
Officers in such activities is inherent in the contractual relationship between
the Fund and the investment adviser and is consistent with the performance by
the Covered Officers of their duties as officers of the Fund. Thus, if performed
in conformity with the provisions of the Investment Company Act and the
Investment Advisers Act, such activities will be deemed to have been handled
ethically. In addition, it is recognized by the Funds' Boards of
Directors/Trustees ("Boards") that the Covered Officers may also be officers or
employees of one or more other investment companies covered by this or other
codes.

     Other conflicts of interest are covered by the Code, even if such conflicts
of interest are not subject to provisions in the Investment Company Act and the
Investment Advisers Act. The following list provides examples of conflicts of
interest under the Code, but Covered Officers should keep in mind that these
examples are not exhaustive. The overarching principle is that the personal
interest of a Covered Officer should not be placed improperly before the
interest of the Fund.

     Each Covered Officer must not:

     o    use his personal influence or personal relationships improperly to
          influence investment decisions or financial reporting by the Fund
          whereby the Covered Officer would benefit personally (directly or
          indirectly);

     o    cause the Fund to take action, or fail to take action, for the
          individual personal benefit of the Covered Officer rather than the
          benefit of the Fund; or

     o    use material non-public knowledge of portfolio transactions made or
          contemplated for, or actions proposed to be taken by, the Fund to
          trade personally or cause others to trade personally in contemplation
          of the market effect of such transactions.

                                       11


     Each Covered Officer must, at the time of signing this Code, report to the
General Counsel all affiliations or significant business relationships outside
the Morgan Stanley complex and must update the report annually.

     Conflict of interest situations should always be approved by the General
Counsel and communicated to the relevant Fund or Fund's Board. Any activity or
relationship that would present such a conflict for a Covered Officer would
likely also present a conflict for the Covered Officer if an immediate member of
the Covered Officer's family living in the same household engages in such an
activity or has such a relationship. Examples of these include:

     o    service or significant business relationships as a director on the
          board of any public or private company;

     o    accepting directly or indirectly, anything of value, including gifts
          and gratuities in excess of $100 per year from any person or entity
          with which the Fund has current or prospective business dealings, not
          including occasional meals or tickets for theatre or sporting events
          or other similar entertainment; provided it is business-related,
          reasonable in cost, appropriate as to time and place, and not so
          frequent as to raise any question of impropriety;

     o    any ownership interest in, or any consulting or employment
          relationship with, any of the Fund's service providers, other than its
          investment adviser, principal underwriter, or any affiliated person
          thereof; and

     o    a direct or indirect financial interest in commissions, transaction
          charges or spreads paid by the Fund for effecting portfolio
          transactions or for selling or redeeming shares other than an interest
          arising from the Covered Officer's employment, such as compensation or
          equity ownership.

III. DISCLOSURE AND COMPLIANCE

     o    Each Covered Officer should familiarize himself/herself with the
          disclosure and compliance requirements generally applicable to the
          Funds;

     o    each Covered Officer must not knowingly misrepresent, or cause others
          to misrepresent, facts about the Fund to others, whether within or
          outside the Fund, including to the Fund's Directors/Trustees and
          auditors, or to governmental regulators and self-regulatory
          organizations;

     o    each Covered Officer should, to the extent appropriate within his area
          of responsibility, consult with other officers and employees of the
          Funds and their investment advisers with the goal of promoting full,
          fair, accurate, timely and understandable disclosure in the reports
          and documents the Funds file with, or submit to, the SEC and in other
          public communications made by the Funds; and


                                       12



     o    it is the responsibility of each Covered Officer to promote compliance
          with the standards and restrictions imposed by applicable laws, rules
          and regulations.

IV.  REPORTING AND ACCOUNTABILITY

     Each Covered Officer must:

     o    upon adoption of the Code (thereafter as applicable, upon becoming a
          Covered Officer), affirm in writing to the Boards that he has
          received, read and understands the Code;

     o    annually thereafter affirm to the Boards that he has complied with the
          requirements of the Code;

     o    not retaliate against any other Covered Officer, other officer or any
          employee of the Funds or their affiliated persons for reports of
          potential violations that are made in good faith; and

     o    notify the General Counsel promptly if he/she knows or suspects of any
          violation of this Code. Failure to do so is itself a violation of this
          Code.

     The General Counsel is responsible for applying this Code to specific
situations in which questions are presented under it and has the authority to
interpret this Code in any particular situation. However, any waivers2 sought by
a Covered Officer must be considered by the Board of the relevant Fund or Funds.

     The Funds will follow these procedures in investigating and enforcing this
Code:

     o    the General Counsel will take all appropriate action to investigate
          any potential violations reported to him;

     o    if, after such investigation, the General Counsel believes that no
          violation has occurred, the General Counsel is not required to take
          any further action;

     o    any matter that the General Counsel believes is a violation will be
          reported to the relevant Fund's Audit Committee;

     o    if the directors/trustees/managing general partners who are not
          "interested persons" as defined by the Investment Company Act (the
          "Independent Directors/Trustees/Managing General Partners") of the
          relevant Fund concur that a violation has occurred, they will consider
          appropriate action, which may include review of, and appropriate
          modifications to, applicable

------------------
2    Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of
     a material departure from a provision of the code of ethics."




                                       13


          policies and procedures; notification to appropriate personnel of the
          investment adviser or its board; or a recommendation to dismiss the
          Covered Officer or other appropriate disciplinary actions;

     o    the Independent Directors/Trustees/Managing General Partners of the
          relevant Fund will be responsible for granting waivers of this Code,
          as appropriate; and

     o    any changes to or waivers of this Code will, to the extent required,
          be disclosed as provided by SEC rules.

V.   OTHER POLICIES AND PROCEDURES

     This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. Insofar as other
policies or procedures of the Funds, the Funds' investment advisers, principal
underwriters, or other service providers govern or purport to govern the
behavior or activities of the Covered Officers who are subject to this Code,
they are superseded by this Code to the extent that they overlap or conflict
with the provisions of this Code unless any provision of this Code conflicts
with any applicable federal or state law, in which case the requirements of such
law will govern. The Funds' and their investment advisers' and principal
underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act
and Morgan Stanley's Code of Ethics are separate requirements applying to the
Covered Officers and others, and are not part of this Code.

VI.  AMENDMENTS

     Any amendments to this Code, other than amendments to Exhibits A, B

 or C, must be approved or ratified by a majority vote of the Board of each
Fund, including a majority of Independent Directors/Trustees/Managing General
Partners.

VII. CONFIDENTIALITY

     All reports and records prepared or maintained pursuant to this Code will
be considered confidential and shall be maintained and protected accordingly.
Except as otherwise required by law or this Code, such matters shall not be
disclosed to anyone other than the Independent Directors/Trustees/Managing
General Partners of the relevant Fund or Funds and their counsel, the relevant
Fund or Funds and their counsel and the relevant investment adviser and its
counsel.

                                       14



VIII. INTERNAL USE

     The Code is intended solely for the internal use by the Funds and does not
constitute an admission, by or on behalf of any Fund, as to any fact,
circumstance, or legal conclusion



I have read and understand the terms of the above Code. I recognize the
responsibilities and obligations incurred by me as a result of my being subject
to the Code. I hereby agree to abide by the above Code.


________________________________

Date:___________________________




                                       15


                                    EXHIBIT B
                                    ---------

                               INSTITUTIONAL FUNDS
                                COVERED OFFICERS
                                ----------------

                          Mitchell M. Merin - President
  Ronald E. Robison - Executive Vice President and Principal Executive Officer
            James W. Garrett - Chief Financial Officer and Treasurer

                                  RETAIL FUNDS
                                COVERED OFFICERS
                                ----------------

                          Mitchell M. Merin - President
  Ronald E. Robison - Executive Vice President and Principal Executive Officer
               Frank Smith - Chief Financial Officer and Treasurer


                                       16




                                    EXHIBIT C
                                    ---------

                                 GENERAL COUNSEL
                                 ---------------

                                   Barry Fink




                                       17


                                                                   EXHIBIT 11 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 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-3(c) under the Investment Company Act of 1940) and internal
     control over financial reporting (as defined in Rule 30a-3(d) under the
     Investment Company Act of 1940) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, 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)   designed such internal control over financial reporting, or caused such
     internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

c)   evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of a date
     within 90 days prior to the filing date of this report based on such
     evaluation; and

d)   disclosed in this report any change in the registrant's internal control
     over financial reporting that occurred during the registrant's most recent
     fiscal half-year (the registrant's second fiscal half-year in the case of
     an annual report) that has materially affected, or is reasonably likely to
     materially affect, the registrant's internal control over financial
     reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed to the
     registrant's auditors and the audit committee of the registrant's board of
     directors (or persons performing the equivalent functions):

                                       18


a)   all significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize, and report financial information; 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
     over financial reporting.

Date: February 17, 2005
                                                     /s/ Ronald E. Robison
                                                     Ronald E. Robison
                                                     Principal Executive Officer



                                       19




                                                                   EXHIBIT 11 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 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-3(c) under the Investment Company Act of 1940) and internal
     control over financial reporting (as defined in Rule 30a-3(d) under the
     Investment Company Act of 1940) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, 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)   designed such internal control over financial reporting, or caused such
     internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

c)   evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of a date
     within 90 days prior to the filing date of this report based on such
     evaluation; and

d)   disclosed in this report any change in the registrant's internal control
     over financial reporting that occurred during the registrant's most recent
     fiscal half-year (the registrant's second fiscal half-year in the case of
     an annual report) that has materially affected, or is reasonably likely to
     materially affect, the registrant's internal control over financial
     reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed to the
     registrant's auditors and the audit committee of the registrant's board of
     directors (or persons performing the equivalent functions):

                                       20


a)   all significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize, and report financial information; 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
     over financial reporting.

Date: February 17, 2005
                                                    /s/ Francis Smith
                                                    Francis Smith
                                                    Principal Financial Officer


                                       21





                            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 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 December 31, 2004 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: February 17, 2005                             /s/ Ronald E. Robison
                                                    ---------------------------
                                                    Ronald E. Robison
                                                    Principal Executive Officer


A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Tax - Free Daily Income Trust and will be retained by
Morgan Stanley Tax - Free Daily Income Trust and furnished to the Securities and
Exchange Commission or its staff upon request.


                                       22



                            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 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 December 31, 2004 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: February 17, 2005                             /s/ Francis Smith
                                                    ----------------------
                                                    Francis Smith
                                                    Principal Financial Officer


A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Tax - Free Daily Income Trust and will be retained
Morgan Stanley Tax - Free Daily Income Trust and furnished to the Securities and
Exchange Commission or its staff upon request.



                                       23

PORTFOLIO COMPOSITION

Variable Rate Municipal Obligations

Tax-Exempt Commercial Paper

Municipal Notes & Bonds