UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number			811-03031

Morgan Stanley Tax-Free Daily Income Trust
(Exact name of registrant as specified in charter)

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

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

Registrant’s telephone number, including area code:				201-830-8894

Date of fiscal year end:	December 31, 2012

Date of reporting period:		December 31, 2012

Trustees

Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid

Officers

Michael E. Nugent
Chairperson of the Board

Kevin Klingert
President and Principal Executive Officer

Mary Ann Picciotto
Chief Compliance Officer

Stefanie V. Chang Yu
Vice President

Francis J. Smith
Treasurer and Principal Financial Officer

Mary E. Mullin
Secretary

Transfer Agent

Morgan Stanley Services Company Inc.
P.O. Box 219886
Kansas City, Missouri 64121

Custodian

State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111

Independent Registered Public Accounting Firm

Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116

Legal Counsel

Dechert LLP
1095 Avenue of the Americas
New York, New York 10036

Counsel to the Independent Trustees

Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036

Adviser

Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036

tread cautiously. Barring any unexpected shocks to the market, rates are likely to remain low into 2014, in our view. During this period of continuing uncertainty, we will maintain a watchful eye on state and local economies.

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

PORTFOLIO COMPOSITION as of 12/31/12
Weekly Variable Rate Bonds	72.6	%
Daily Variable Rate Bonds	8.6
Commercial Paper	7.2
Municipal Bonds & Notes	6.5
Put Option Bonds	3.0
Closed-End Investment Companies	2.1
MATURITY SCHEDULE as of 12/31/12
1 - 30 Days	86.5	%
31 - 60 Days	1.5
61 - 90 Days	1.2
91 - 120 Days	0.5
121 + Days	10.3

Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Portfolio composition and maturity schedule are as a percentage of total investments.

Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.

As a shareholder of the Fund, you incur ongoing costs, including advisory fees; administration fees; shareholder services 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.

This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 07/01/12 – 12/31/12.

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.

Please note that "Expenses Paid During Period" are grossed up to reflect Fund expenses prior to the effect of Expense Offset (See Note 8 in the Notes to Financial Statements). Therefore, the annualized net expense ratios may differ from the ratio of expenses to average net assets shown in the Financial Highlights.

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) or exchange fees.

	Beginning Account Value		Ending Account Value		Expenses Paid During Period@
	07/01/12		12/31/12		07/01/12 – 12/31/12
Actual (0.01% return)	$	1,000.00	$	1,000.10	$	0.86
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,024.41	$	0.87

@ Expenses are equal to the Fund's annualized expense ratio of 0.17% multiplied by the average account value over the period, multiplied by 185/366 (to reflect the one-half year period). If the fund had borne all of its expenses, the annualized expense ratio would have been 0.54%.

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)	MATURITY DATE	VALUE
		Weekly Variable Rate Bonds (72.5%)
		Arizona Health Facilities Authority,
$	1,000	Banner Health Ser 2008 D ROCs II-R Ser 11687 (c)		0.15	%	01/07/13	07/01/25	$	1,000,000
	9,845	Banner Health Ser 2008 G		0.12		01/07/13	01/01/29		9,845,000
	35,000	California Health Facilities Financing Authority, Kaiser Permanente Ser 2006 C		0.12		01/07/13	06/01/41		35,000,000
	27,200	California Statewide Communities Development Authority, Kaiser Permanente Ser 2002 E		0.11		01/07/13	11/01/36		27,200,000
	1,115	Cape Girardeau County Industrial Development Authority, MO, St. Francis Medical Center Ser 2009 B		0.14		01/07/13	06/01/39		1,115,000
		Capital Beltway Funding Corporation of Virginia,
	21,400	Senior Lien Toll I-495 Hot Lanes Ser 2008 C		0.10		01/07/13	12/31/47		21,400,000
	14,000	Senior Lien Toll I-495 Hot Lanes Ser 2008 D		0.10		01/07/13	12/31/47		14,000,000
	53,855	Central Plains Energy Project, NE, Gas Project No. 2 Ser 2009		0.13		01/07/13	08/01/39		53,855,000
	31,990	Charlotte, NC, Water & Sewer System Ser 2006 B		0.14		01/07/13	07/01/36		31,990,000
		Colorado Springs, CO,
	32,620	Utilities System Sub Lien Ser 2004 A		0.20		01/07/13	11/01/23		32,620,000
	10,000	Utilities System Sub Lien Ser 2006 A		0.15		01/07/13	11/01/25		10,000,000
	29,100	Utilities System Sub Lien Ser 2007 A		0.12		01/07/13	11/01/37		29,100,000
	20,000	Utilities System Sub Lien Ser 2007 B		0.14		01/07/13	11/01/26		20,000,000
	4,500	Dallas Area Rapid Transit, TX, Sales Tax Ser 2008 ROCs II-R Ser 11541 (c)		0.15		01/07/13	06/01/16		4,500,000
	4,130	Derry Township Industrial & Commercial Development Authority, PA, Hotel Tax Arena Ser 2000 A		0.12		01/07/13	11/01/30		4,130,000
	10,000	Deutsche Bank SPEARS, FL, Broward County Airport System Ser 2012 Q-1 SPEARS Ser DBE-1128X (c)		0.18		01/07/13	10/01/33		10,000,000
	2,500	Deutsche Bank SPEARS, NY, New York City Municipal Water Finance Authority Ser 2012 FF SPEARS Ser DBE-1090X (c)		0.15		01/07/13	06/15/45		2,500,000

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)	MATURITY DATE	VALUE
$	10,670	Deutsche Bank SPEARS, TX, Dallas Fort Worth International Airport Joint Ser 2012 E & F SPEARS Ser DBE-1127X (c)		0.18	%	01/07/13	11/01/35	$	10,670,000
	15,000	Eclipse Funding Trust, NY, New York State Dormitory Authority Personal Income Tax Ser 2012 B Solar Eclipse Ser 2012-0003 (c)		0.13		01/07/13	03/15/20		15,000,000
	1,000	Florida State Board Of Education, FL, Capital Outlay Ser 2005 G ROCs II-R Ser 12017 (c)		0.14		01/07/13	10/15/16		1,000,000
		Gainesville, FL,
	29,285	Utilities System 2007 Ser A		0.15		01/07/13	10/01/36		29,285,000
	30,900	Utilities System 2008 Ser B		0.12		01/07/13	10/01/38		30,900,000
	11,200	Golden Empire Schools Financing Authority, CA, Kern High School District Ser 2012		0.58		01/07/13	05/01/13		11,200,000
		Highlands County Health Facilities Authority, FL,
	37,075	Adventist Health System/Sunbelt Obligated Group Ser 2007 A-1		0.10		01/07/13	11/15/33		37,075,000
	26,300	Adventist Health System/Sunbelt Obligated Group Ser 2007 A-2		0.10		01/07/13	11/15/37		26,300,000
	26,400	Houston, TX, Combined Utility System First Lien Ser 2004 B4		0.12		01/07/13	05/15/34		26,400,000
		Illinois Toll Highway Authority,
	20,000	Toll Highway Senior Priority Ser 2007 A-1B		0.11		01/07/13	07/01/30		20,000,000
	22,500	Toll Highway Senior Priority Ser 2007 A-2B		0.11		01/07/13	07/01/30		22,500,000
	37,965	Indiana Finance Authority, Trinity Health Ser 2008 D-1		0.11		01/07/13	12/01/34		37,965,000
	2,000	Indiana Health Facility Financing Authority, Ascension Health Ser 2003 E-6		0.12		01/07/13	11/15/39		2,000,000
	10,000	Iowa Higher Education Loan Authority, Grinnell College Ser 2008		0.12		01/07/13	06/01/23		10,000,000
		JEA, FL,
	21,160	District Energy System Ser 2004 A		0.15		01/07/13	10/01/34		21,160,000
	19,970	Water & Sewer System Subser 2008 A-2		0.14		01/07/13	10/01/42		19,970,000

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)	MATURITY DATE	VALUE
$	21,825	JP Morgan Chase & Co., IL, Illinois Finance Authority University of Chicago Medical Center Ser 2011 C PUTTERs Ser 3907 (c)		0.16	%	01/07/13	02/15/19	$	21,825,000
	28,500	Long Island Power Authority, NY, Electric System Ser 2012 C		0.12		01/07/13	05/01/33		28,500,000
	31,800	Main Street Natural Gas, Inc., GA, Gas Ser 2010 A		0.13		01/07/13	08/01/40		31,800,000
	1,000	Maryland Economic Development Corporation, Howard Hughes Medical Institute Ser 2008 A		0.11		01/07/13	02/15/43		1,000,000
	4,130	Massachusetts, Refg 1997 Ser B		0.12		01/07/13	08/01/15		4,130,000
	28,320	Massachusetts Department of Transportation, Metropolitan Highway System Contract Assistance Ser 2010 A-2		0.13		01/07/13	01/01/37		28,320,000
	29,900	Massachusetts Health & Educational Facilities Authority, Massachusetts Institute of Technology Ser J-1		0.12		01/07/13	07/01/31		29,900,000
		Massachusetts Water Resources Authority,
	20,000	Gen Ser 2008 A-1		0.13		01/07/13	08/01/37		20,000,000
	20,000	Gen Ser 2008 A-2		0.11		01/07/13	08/01/37		20,000,000
	31,200	Gen Ser 2008 A-3		0.11		01/07/13	08/01/37		31,200,000
	21,785	Gen Ser 2008 F		0.10		01/07/13	08/01/29		21,785,000
	6,500	Mesa, AZ, Utility Systems Ser 2011 ROCs II-R Ser 11959X (c)		0.14		01/07/13	01/01/19		6,500,000
		Metropolitan Transportation Authority, NY,
	24,400	Ser 2005 E Subser E-1		0.12		01/07/13	11/01/35		24,400,000
	20,000	Ser 2011 B		0.12		01/07/13	11/01/41		20,000,000
	25,000	Michigan Finance Authority, Unemployment Obligation Assessment Ser 2012 C		0.13		01/07/13	07/01/24		25,000,000
	30,465	Michigan Hospital Finance Authority, Trinity Health Credit Group Ser 2005 F		0.11		01/07/13	11/01/18		30,465,000
		Mobile Downtown Redevelopment Authority, AL,
	10,000	Gulf Opportunity Zone Austal USA LLC Ser 2011 A		0.11		01/07/13	05/01/41		10,000,000
	10,000	Gulf Opportunity Zone Austal USA LLC Ser 2011 B		0.11		01/07/13	05/01/41		10,000,000
	31,000	Murray City, UT, IHC Health Services, Inc., Ser 2003 B		0.12		01/07/13	05/15/36		31,000,000

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)	MATURITY DATE	VALUE
$	28,290	New Mexico Finance Authority, Sub Lien Ser 2008 Subser B-1		0.10	%	01/07/13	12/15/26	$	28,290,000
	23,120	New Mexico Hospital Equipment Loan Council, Presbyterian Healthcare Services Ser 2008		0.12		01/07/13	08/01/34		23,120,000
	12,935	New Mexico Municipal Energy Acquisition Authority, Gas Supply Ser 2009		0.13		01/07/13	11/01/39		12,935,000
	30,600	New York City Municipal Water Finance Authority, NY, Second General Fiscal 2010 Ser CC		0.11		01/07/13	06/15/41		30,600,000
		New York City Transitional Finance Authority, NY,
	35,000	Future Tax Fiscal 2010 Ser F Subser F-5		0.11		01/07/13	02/01/35		35,000,000
	15,100	Future Tax Fiscal 2013 Ser A Subser A-7		0.10		01/07/13	08/01/39		15,100,000
	8,600	New York City, NY, Fiscal 2004 Subser H-2		0.13		01/07/13	03/01/34		8,600,000
	27,650	New York State Local Government Assistance Corporation, Ser 2008 B		0.11		01/07/13	04/01/21		27,650,000
	3,235	North Carolina Medical Care Commission, FirstHealth of the Carolinas Ser 2008 A		0.12		01/07/13	10/01/28		3,235,000
	19,000	Orlando Utilities Commission, FL, Utility System Ser 2008-2		0.13		01/07/13	10/01/33		19,000,000
	10,000	Pinellas County Health Facilities Authority, FL, Baycare Health System Ser 2009 A-2		0.12		01/07/13	11/01/38		10,000,000
	12,000	RBC Municipal Products Trust, Inc., IN, Indiana Finance Authority Indiana University Health Ser 2011 L & M Floater Certificates Ser E-23 (c)		0.13		01/07/13	03/01/36		12,000,000
	10,000	RBC Municipal Products Trust, Inc., MN, Minneapolis Fairview Health Services Ser 2010 C&D Floater Certificates Ser E-19 (c)		0.13		01/07/13	06/13/13		10,000,000
	27,970	RBC Municipal Products Trust, Inc., PA, Pennsylvania State Turnpike Commission Ser 2011 C-1 Floater Certificates Ser E-22 (c)		0.13		01/07/13	12/01/38		27,970,000
	20,000	San Antonio, TX, Electric & Gas Systems Jr. Lien Ser 2003		0.13		01/07/13	02/01/33		20,000,000

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)	MATURITY DATE	VALUE
$	10,000	Sheridan Redevelopment Agency, CO, Tax Incremental South Santa Fe Drive Corridor Ser 2011 A-1		0.18	%	01/07/13	12/01/29	$	10,000,000
	1,130	Southcentral Pennsylvania General Authority, PA, WellSpan Health Ser 2008 A ROCs II-R Ser 11686 (c)		0.14		01/07/13	12/01/24		1,130,000
		Texas Transportation Commission,
	28,800	Mobility Fund Ser 2006 Eagle # 20060126 CL A (c)		0.13		01/07/13	04/01/35		28,800,000
	10,000	Mobility Fund Ser 2007 Eagle #20070090 Class A (c)		0.13		01/07/13	04/01/37		10,000,000
		University of Texas Regents,
	28,030	Financing System Ser 2007 B		0.09		01/07/13	08/01/34		28,030,000
	42,600	Financing System Ser 2008 B		0.10		01/07/13	08/01/32		42,600,000
	7,365	Utah Water Finance Agency, Ser 2008 B		0.12		01/07/13	10/01/37		7,365,000
	5,000	Wells Fargo Stage Trust, NE, Omaha Public Power District Ser 2012 B Stage Trust Ser 79C (c)		0.16		01/07/13	02/01/46		5,000,000
	36,540	Wells Fargo Stage Trust, UT, Riverton IHC Health Services, Inc., Ser 2012 A Stage Trust Ser 2012-33C (c)		0.16		01/07/13	05/15/39		36,540,000
		Total Weekly Variable Rate Bonds (Cost $1,478,470,000)							1,478,470,000
		Daily Variable Rate Bonds (8.6%)
	12,450	East Baton Rouge Parish, LA, Exxon Mobil Corp., Ser 2010 B		0.09		01/02/13	12/01/40		12,450,000
	4,600	Gulf Coast Industrial Development Authority, TX, ExxonMobil Project Ser 2012		0.10		01/02/13	11/01/41		4,600,000
		JP Morgan Chase & Co., TX,
	53,095	Texas Ser 2012 TRANs PUTTERs Ser 4262 (c)		0.14		01/02/13	08/30/13		53,095,000
	10,000	Texas Ser 2012 TRANs PUTTERs Ser 4264 (c)		0.15		01/02/13	08/30/13		10,000,000
	42,490	Massachusetts, Central Artery Ser 2000 A		0.15		01/02/13	12/01/30		42,490,000
	7,090	Massachusetts Health & Educational Facility Authority, Harvard University Ser 2005 C ROCs II-R Ser 10390 (c)		0.11		01/02/13	01/15/14		7,090,000
	23,000	New York City, NY, Fiscal 2008 Ser J Subser J-3		0.11		01/02/13	08/01/23		23,000,000

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)			MATURITY DATE	VALUE
$	22,400	New York City Transitional Finance Authority, NY, Future Tax Fiscal 2010 Ser G Subser G-5		0.11	%	01/02/13			05/01/34	$	22,400,000
		Total Daily Variable Rate Bonds (Cost $175,125,000)									175,125,000
			COUPON RATE			YIELD TO MATURITY ON DATE OF PURCHASE
		Commercial Paper (7.2%)
	5,000	California Health Facilities Financing Authority, Kaiser Permanente Ser 2006 E		0.23	%		0.23	%	05/20/13		5,000,000
		Harris County Cultural Education Facilities Finance Corporation, TX,
	20,000	Methodist Hospital System Ser 2009 C-1		0.23			0.23		03/06/13		20,000,000
	10,000	Methodist Hospital System Ser 2009 C-1		0.23			0.23		05/20/13		10,000,000
	10,000	Methodist Hospital System Ser 2009 C-1		0.24			0.24		04/03/13		10,000,000
	5,000	Methodist Hospital System Ser 2009 C-2		0.22			0.22		08/05/13		5,000,000
	5,000	Methodist Hospital System Ser 2009 C-2		0.23			0.23		07/09/13		5,000,000
		Houston, TX,
	10,000	Ser G-2		0.22			0.22		01/24/13		10,000,000
	10,000	Ser H-2		0.22			0.22		01/17/13		10,000,000
	10,000	Howard County, Ser 2011 BANs		0.20			0.20		02/19/13		10,000,000
		JEA, FL,
	10,000	Electric System Subser 2000 F-1		0.20			0.20		01/10/13		10,000,000
	10,000	Electric System Subser 2001 C		0.21			0.21		01/10/13		10,000,000
		Missouri Development Finance Board,
	10,000	Missouri Association of Municipal Utilities Lease Ser 2005 A		0.17			0.17		01/08/13		10,000,000
	5,000	Missouri Association of Municipal Utilities Lease Ser 2008 A		0.17			0.17		01/08/13		5,000,000
	5,000	Nebraska Public Power District, Ser A Notes		0.23			0.23		03/07/13		5,000,000

PRINCIPAL AMOUNT (000)			COUPON RATE			YIELD TO MATURITY ON DATE OF PURCHASE			MATURITY DATE	VALUE
		North Texas Tollway Authority, TX,
$	1,000	Ser 2009 D		0.19	%		0.19	%	02/14/13	$	1,000,000
	2,000	Ser 2009 D		0.20			0.20		02/13/13		2,000,000
	4,000	Ser 2009 D		0.21			0.21		02/12/13		4,000,000
	5,000	Phoenix Civic Improvement Corporation, AZ, Airport Ser 2011 B-1		0.23			0.23		02/13/13		5,000,000
	10,000	San Antonio, TX, Electric & Gas Systems Ser B		0.15			0.15		01/18/13		10,000,000
		Total Commercial Paper (Cost $147,000,000)									147,000,000
		Municipal Bonds & Notes (6.4%)
	2,000	Antelope Valley Community College District, CA, Ser 2012-13 TRANs, dtd, 10/25/12		2.00			0.42		10/15/13		2,024,722
	52,000	California, Ser 2012-13 A-2 RANs, dtd, 08/23/12		2.50			0.43		06/20/13		52,499,563
	3,000	Hazard, KY, Appalachian Regional Healthcare Ser 2012 BANs, dtd, 12/27/12		1.00			0.50		12/01/13		3,013,656
	1,500	Kentucky Rural Water Finance Corporation, Public Projects Construction Notes Ser D-2012-1, dtd, 09/20/12		1.00			0.32		10/01/13		1,507,613
		Los Angeles County Schools Pooled Financing Program, CA,
	4,800	Pooled 2011-2012 Ser B-3 TRANs, dtd 03/01/12		2.00			0.45		01/31/13		4,806,060
	4,000	Pooled 2012-2013 Ser B-1 TRANs, dtd 12/14/12		2.00			0.30		11/29/13		4,061,619
	1,000	Lucas County, OH, Ser 2012 BANs, dtd, 07/18/12		1.00			0.37		07/18/13		1,003,401
	1,000	Minnesota Rural Water Finance Authority, Public Projects Construction Notes Ser 2012, dtd, 03/01/12		1.25			0.40		03/01/13		1,001,368
	60,000	New Jersey, Ser Fiscal 2013 C TRANs, dtd, 11/20/12		2.50			0.35		06/27/13		60,627,016
	1,000	North Dakota Rural Water Finance Corporation, Public Projects Construction Notes Ser 2012 B-1, dtd, 06/28/12		0.37			0.37		07/01/13		1,000,000
		Total Municipal Bonds & Notes (Cost $131,545,018)									131,545,018

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)	MATURITY DATE	VALUE
		Put Option Bonds (3.0%)
$	2,585	Deutsche Bank SPEARS, IL, Illinois Housing Development Authority Pioneer Village 2007 Ser C SPEARS Ser DBE-1117 (AMT) (c)		0.35	%	02/14/13	07/01/44	$	2,585,000
	2,000	Illinois Finance Authority, Advocate Health Care Window Ser 2011 B		0.25		07/29/13	04/01/51		2,000,000
	2,000	Kentucky Economic Development Finance Authority, Catholic Health Initiatives Window Ser 2011 B-1		0.23		07/29/13	02/01/46		2,000,000
	2,100	Kentucky Economic Development Finance Authority, Catholic Health Initiatives Window Ser 2011 B-3		0.23		07/29/13	02/01/46		2,100,000
	555	Massachusetts Bay Transportation Authority, Senior Sales Tax Window Ser 2010 A		0.22		07/29/13	07/01/30		555,000
	5,000	Metropolitan Water District of Southern California, Water 2009 Ser A-1		0.13		08/30/13	07/01/30		5,000,000
	21,000	New York Liberty Development Corporation, NY, 3 World Trade Center Ser 2011 A		0.25		08/22/13	12/01/49		21,000,000
	205	Norfolk Economic Development Authority, VA, Sentara Healthcare Window Ser 2010 B		0.25		07/29/13	11/01/34		205,000
	250	Norfolk Economic Development Authority, VA, Sentara Healthcare Window Ser 2010 C		0.25		07/29/13	11/01/34		250,000
	4,425	Norfolk Economic Development Authority, VA, Sentara Healthcare Window Ser 2012 A		0.21		07/29/13	11/01/34		4,425,000
	5,000	Orlando Utilities Commission, FL, Utility System Window Ser 2011 A		0.24		07/29/13	10/01/27		5,000,000
	8,000	Tarrant County Cultural Education Facilities Finance Corporation, TX, Baylor Health Care System Window Ser 2011 B		0.26		07/29/13	11/15/50		8,000,000
	4,000	Wells Fargo Stage Trust, CO, Regional Transportation District Sales Tax Ser 2012 A Stage Trust Ser 110C (c)		0.27		06/13/13	11/01/37		4,000,000

PRINCIPAL AMOUNT (000)			COUPON RATE (a)			DEMAND DATE (b)	MATURITY DATE			VALUE
$	4,170	Wells Fargo Stage Trust, WI, Ser 2012 B Stage Trust Ser 111C		0.27	%	06/13/13	05/01/33			$	4,170,000
		Total Put Option Bonds (Cost $61,290,000)									61,290,000
		Closed-End Investment Companies (2.1%)
	7,600	Nuveen Insured Premium Income Municipal Fund 2, VRDP Ser 2 (AMT) (c)		0.25		01/07/13	06/01/40				7,600,000
	12,000	Nuveen Premier Municipal Income Fund, Inc., VRDP Ser 1-1277 (AMT)		0.23		01/07/13	05/05/41				12,000,000
	23,000	Nuveen Select Quality Municipal Fund, Inc., VRDP Ser 1-2525 (AMT) (c)		0.23		01/07/13	05/01/41				23,000,000
		Total Closed-End Investment Companies (Cost $42,600,000)									42,600,000
		Total Investments (Cost $2,036,030,018)						99.8	%		2,036,030,018
		Other Assets in Excess of Liabilities						0.2			3,660,315
		Net Assets						100.0	%	$	2,039,690,333

AMT Alternative Minimum Tax.

BANs Bond Anticipation Notes.

PUTTERS Puttable Tax-Exempt Receipts.

RANs Revenue Anticipation Notes.

ROCs Reset Option Certificates.

TRANs Tax and Revenue Anticipation Notes.

VRDP Variable Rate Demand Preferred.

(a) Rate shown is the rate in effect at December 31, 2012.

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

(c) 144A security - Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

Statement of Assets and Liabilities

December 31, 2012

Assets:
Investments in securities, at value (cost $2,036,030,018)	$	2,036,030,018
Cash		196,064
Receivable for:
Shares of beneficial interest sold		45,113,460
Interest		1,156,483
Prepaid expenses and other assets		11,401
Total Assets		2,082,507,426
Liabilities:
Payable for:
Shares of beneficial interest redeemed		42,281,505
Transfer agent fee		230,584
Administration fee		86,624
Advisory fee		79,722
Accrued expenses and other payables		138,658
Total Liabilities		42,817,093
Net Assets	$	2,039,690,333
Composition of Net Assets:
Paid-in-capital	$	2,039,707,297
Dividends in excess of net investment income		(16,964	)
Net Assets	$	2,039,690,333
Net Asset Value Per Share
2,039,608,374 shares outstanding (unlimited shares authorized of $.01 par value)	$	1.00

Statement of Operations

For the year ended December 31, 2012

Net Investment Income:
Interest	$	3,550,139
Dividends from affiliate (Note 5)		215
Total Income		3,550,354
Expenses
Advisory fee (Note 3)		6,988,396
Shareholder services fee (Note 4)		2,044,087
Administration fee (Note 3)		1,022,043
Transfer agent fees and expenses		325,451
Professional fees		88,409
Shareholder reports and notices		80,144
Custodian fees		71,238
Trustees' fees and expenses		56,746
Registration fees		28,495
Other		236,761
Total Expenses		10,941,770
Less: amounts waived/reimbursed (Note 4)		(7,595,422	)
Less: rebate from Morgan Stanley affiliated cash sweep (Note 5)		(1,119	)
Net Expenses		3,345,229
Net Investment Income		205,125
Net Realized Gain		9,017
Net Increase	$	214,142

Statements of Changes in Net Assets

	FOR THE YEAR ENDED DECEMBER 31, 2012			FOR THE YEAR ENDED DECEMBER 31, 2011
Increase (Decrease) in Net Assets: Operations:
Net investment income	$	205,125		$	150,775
Net realized gain		9,017			42,986
Net Increase		214,142			193,761
Dividends to shareholders from net investment income		(204,961	)		(150,966	)
Net increase (decrease) from transactions in shares of beneficial interest		(59,472,187	)		1,861,138,012
Net Increase (Decrease)		(59,463,006	)		1,861,180,807
Net Assets:
Beginning of period		2,099,153,339			237,972,532
End of Period (Including dividends in excess of net investment income of $(16,964) and $(59,897), respectively)	$	2,039,690,333		$	2,099,153,339

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 fair value, in accordance with Rule 2a-7 under the Act. Investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day.

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

C. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the close of each business day.

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

E. Indemnifications — The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

2. Fair Valuation Measurements

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures ("ASC 820"), defines fair value as the value that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed

based on market data obtained from sources independent of the reporting entity (observable inputs); and (2) inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund's investments. The inputs are summarized in the three broad levels listed below.

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

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

• Level 3 — significant unobservable inputs including the Fund's own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances

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

The following is a summary of the inputs used to value the Fund's investments as of December 31, 2012.

INVESTMENT TYPE	LEVEL 1 UNADJUSTED QUOTED PRICES		LEVEL 2 OTHER SIGNIFICANT OBSERVABLE INPUTS		LEVEL 3 SIGNIFICANT UNOBSERVABLE INPUTS		TOTAL
Assets:
Weekly Variable Rate Bonds	$	—	$	1,478,470,000	$	—	$	1,478,470,000
Daily Variable Rate Bonds		—		175,125,000		—		175,125,000
Commercial Paper		—		147,000,000		—		147,000,000
Municipal Bonds & Notes		—		131,545,018		—		131,545,018
Put Option Bonds		—		61,290,000		—		61,290,000
Closed-End Investment Companies		—		42,600,000		—		42,600,000
Total Assets	$	—	$	2,036,030,018	$	—	$	2,036,030,018

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Fund recognizes transfers between the levels as of the

end of the period. As of December 31, 2012, the Fund did not have any investments transfer between investment levels.

3. Advisory/Administration Agreements

Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment Management Inc. (the "Adviser"), the Fund pays the 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. For the year ended December 31, 2012, the advisory fee rate (net of waivers/rebate) was equivalent to an annual effective rate of 0.07% of the Fund's daily net assets.

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

Under a Sub-Administration Agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.

The Adviser has agreed to cap the Fund's operating expenses by assuming the Fund's "other expenses" and/or waiving the Fund's advisory fees, and the Administrator has agreed to waive the Fund's administrative fees, to the extent that such operating expenses exceed 0.60% of the average daily net assets of the Fund on an annualized basis. These fee waivers and/or expense reimbursements will continue for at least one year or until such time that the Fund's Board of Trustees acts to discontinue all or a portion of such waivers and/or expense reimbursements when it deems such action is appropriate.

4. Shareholder Services Plan

Pursuant to a Shareholder Services Plan (the "Plan"), the Fund may pay Morgan Stanley Distribution, Inc. (the "Distributor") as compensation for the provision of services to shareholders a service fee up to the rate of 0.15% on an annualized basis of the average daily net assets of the Fund.

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, 2012, the distribution fee was accrued at the annual rate of 0.10%.

The Distributor, Adviser and Administrator have agreed to waive and/or reimburse all or a portion of the Fund's shareholder services fee, advisory fee and administration fee, respectively, to the extent that total expenses exceed total income of the Fund on a daily basis. For the year ended December 31, 2012, the Distributor waived $2,044,087, the Adviser waived $5,515,335 and the Administrator waived $36,000. These fee waivers and/or expense reimbursements will continue for at least one year or until such time that the Fund's Board of Trustees acts to discontinue all or a portion of such waivers and/or expense reimbursements when it deems such action is appropriate.

5. Transactions with Affiliates

The Fund invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds – Government Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser. Advisory fees paid by the Fund are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Funds. For the year ended December 31, 2012, advisory fees paid were reduced by $1,119 relating to the Fund's investment in the Liquidity Funds.

A summary of the Fund's transactions in shares of the Liquidity Funds during the year ended December 31, 2012 is as follows:

VALUE DECEMBER 31, 2011				PURCHASES AT COST				SALES				DIVIDEND INCOME				VALUE DECEMBER 31, 2012
$	—			$	59,800,000			$	59,800,000			$	215			$	—

Morgan Stanley Services Company Inc., an affiliate of the Adviser and Distributor, is the Fund's transfer agent.

The Fund has an unfunded noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. The Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Aggregate pension costs for the year ended December 31, 2012, included in "Trustees' fees and expenses" in the Statement of Operations amounted to $4,287. At December 31, 2012, the Fund had an accrued pension liability of $60,088, which is included in "Accrued expenses and other payables" in the Statement of Assets and Liabilities.

The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan"), which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she 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.

6. Shares of Beneficial Interest

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

	FOR THE YEAR ENDED DECEMBER 31, 2012			FOR THE YEAR ENDED DECEMBER 31, 2011
Shares sold		5,737,242,942			6,806,924,869
Shares issued in reinvestment of dividends		203,739			148,794
		5,737,446,681			6,807,073,663
Shares Redeemed		(5,796,918,868	)		(4,945,935,651	)
Net increase (decrease) in shares outstanding		(59,472,187	)		1,861,138,012

7. Federal Income Tax Status

It is the Fund's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for Federal income taxes is required in the financial statements.

Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is recognized on an accrual basis. Dividends from net investment income, if any, are declared and paid daily. Net realized capital gains, if any, are distributed at least annually.

FASB ASC 740-10, Income Taxes — Overall, sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Fund files tax returns with the U.S. Internal Revenue Service, New York and various states. Generally, each of the tax years in the four-year period ended December 31, 2012, remains subject to examination by taxing authorities.

The tax character of distributions paid may differ from the character of distributions shown in the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal 2012 and 2011 was as follows:

2012 Distributions Paid From:						2011 Distributions Paid From:
Tax-Exempt Income		Ordinary Income		Long-Term Capital Gain		Tax-Exempt Income		Ordinary Income		Long-Term Capital Gain
$	161,987	$	30,354	$	12,620	$	148,983	$	499	$	1,484

The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.

Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.

Permanent differences, primarily due to a distribution reclass, equalization and nondeductible expenses, resulted in the following reclassifications among the Fund's components of net assets at December 31, 2012:

DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME				ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN				PAID-IN-CAPITAL
$	42,769			$	(50,307	)		$	7,538

At December 31, 2012, the components of distributable earnings for the Fund on a tax basis were as follows:

UNDISTRIBUTED ORDINARY INCOME				UNDISTRIBUTED TAX-EXEMPT INCOME				UNDISTRIBUTED LONG-TERM CAPITAL GAIN
$	—			$	53,944			$	—

At December 31, 2012, the aggregate cost for federal income tax purposes is the same as the cost for book purposes.

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Modernization Act") was signed into law. The Modernization Act modernizes several tax provisions related to Regulated Investment Companies ("RICs") and their shareholders. One key change made by the Modernization Act is that capital losses will generally retain their character as short-term or long-term and may be carried forward indefinitely to offset future gains. These losses are utilized before other capital loss carryforwards that expire. Generally, the Modernization Act is effective for taxable years beginning after December 22, 2010.

8. Expense Offset

The Fund has entered into an arrangement with State Street (the "Custodian"), whereby credits realized on uninvested cash balances may be used to offset a portion of the Fund's expenses. If applicable, these custodian credits are shown as "expense offset" in the Statement of Operations.

9. Accounting Pronouncement

In December 2011, FASB issued Accounting Standards Update ("ASU") 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities. The pronouncement improves disclosures for recognized financial and derivative instruments that are either offset on the balance sheet in accordance with the offsetting guidance in ASC 210-20-45, Balance Sheet: Offsetting — Other Presentation Matters or ASC 815-10-45, Derivatives: Overall — Other Presentation Matters or are subject to enforceable master netting agreements or similar agreements. The Fund will be required to disclose information about rights to offset and related arrangements (such as collateral agreements) in order to enable financial statement users to understand the effect of those rights and arrangements on its financial position as well as disclose the following (1) gross amounts; (2) amounts offset in the statement of financial position; (3) any other amounts that can be offset in the event of bankruptcy, insolvency or default of any of the parties (including cash and noncash financial collateral); and (4) the Fund's net exposure. The requirements are effective for annual reporting periods beginning on or after January 1, 2013, and must be applied retrospectively. At this time, the Fund's management is evaluating the implications of ASU 2011-11 and its impact, if any, on the financial statements.

	FOR THE YEAR ENDED DECEMBER 31,
	2012			2011			2010^			2009^			2008^
Selected Per Share Data:
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net income from investment operations		0.000	⁽¹⁾		0.000	⁽¹⁾		0.000	⁽¹⁾		0.000	⁽¹⁾		0.017
Less dividends from net investment income		(0.000	)⁽¹⁾		(0.000	)⁽¹⁾		(0.000	)⁽¹⁾		(0.000	)⁽¹⁾		(0.017	)⁽²⁾
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Return		0.01	%		0.01	%		0.01	%		0.02	%		1.67	%
Ratios to Average Net Assets:
Net expenses⁽³⁾		0.16	%⁽⁴⁾		0.14	%⁽⁴⁾		0.30	%⁽⁴⁾		0.48	%⁽⁴⁾⁽⁵⁾		0.61	%⁽⁴⁾⁽⁵⁾
Net investment income⁽³⁾		0.01	%⁽⁴⁾		0.01	%⁽⁴⁾		0.01	%⁽⁴⁾		0.02	%⁽⁴⁾⁽⁵⁾		1.64	%⁽⁴⁾⁽⁵⁾
Rebate from Morgan Stanley affiliate		0.00	%⁽⁶⁾		0.00	%⁽⁶⁾		0.00	%⁽⁶⁾		0.00	%⁽⁶⁾		0.00	%⁽⁶⁾
Supplemental Data:
Net assets, end of period, in thousands	$	2,039,690		$	2,099,153		$	237,973		$	289,144		$	451,476

^ Beginning with the year ended December 31, 2011, the Fund was audited by Ernst & Young LLP. The previous years were audited by another independent registered public accounting firm.

(1) Amount is less than $0.001.

(2) Includes capital gain distribution of less than $0.001.

(3) If the Fund had borne all of its expenses that were reimbursed or waived by the Distributor, Adviser, and Administrator, the annualized expense and net investment income (loss) ratios, would have been as follows:

PERIOD ENDED	EXPENSE RATIO			NET INVESTMENT INCOME (LOSS) RATIO
December 31, 2012		0.54	%		(0.37	)%
December 31, 2011		0.53			(0.38	)
December 31, 2010		0.74			(0.43	)
December 31, 2009		0.77			(0.27	)
December 31, 2008		0.72			1.53

(4) The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as "Rebate from Morgan Stanley affiliate."

(5) Reflects fees paid in connection with the U.S. Treasury's Temporary Guarantee Program for Money Market Funds. This fee had an effect of 0.04% and 0.05% for the year ended 2009 and 2008, respectively.

(6) Amount is less than 0.005%.

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, 2012, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two 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. The financial highlights for the three years ended December 31, 2010 were audited by another independent registered public accounting firm whose report, dated February 25, 2011, expressed an unqualified opinion on those financial highlights.

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. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included 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 and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and others. 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 at December 31, 2012, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
February 22, 2013

An Important Notice Concerning Our U.S. Privacy Policy

This privacy notice describes the U.S. privacy policy of Morgan Stanley Distribution, Inc., and the Morgan Stanley family of mutual funds ("us", "our", "we").

We are required by federal law to provide you with notice of our U.S. privacy policy ("Policy"). This Policy applies to both our current and former clients unless we state otherwise and is intended for individual clients who purchase products or receive services from us for personal, family or household purposes. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, or accounts subject to the Uniform Gifts to Minors Act.

This notice sets out our business practices to protect your privacy; how we collect and share personal information about you; and how you can limit our sharing or certain uses by others of this information. We may amend this Policy at any time, and will inform you of any changes to our Policy as required by law.

We Respect Your Privacy

We appreciate that you have provided us with your personal financial information and understand your concerns about your information. We strive to safeguard the information our clients entrust to us. Protecting the confidentiality and security of client information is an important part of how we conduct our business.

This notice describes what personal information we collect about you, how we collect it, when we may share it with others, and how certain others may use it. It discusses the steps you may take to limit our sharing of certain information about you with our affiliated companies, including, but not limited to our affiliated banking businesses, brokerage firms and credit service affiliates. It also discloses how you may limit our affiliates' use of shared information for marketing purposes.

Throughout this Policy, we refer to the nonpublic information that personally identifies you as "personal information." We also use the term "affiliated company" in this notice. An affiliated company is a company in our family of companies and includes companies with the Morgan Stanley name. These affiliated companies are financial institutions such as broker-dealers, banks, investment advisers and credit card issuers. We refer to any company that is not an affiliated company as a nonaffiliated third party. For purposes of Section 5 of this notice, and your ability to limit certain uses of personal

information by our affiliates, this notice applies to the use of personal information by our affiliated companies.

1. What Personal Information Do We Collect From You?

We may collect the following types of information about you: (i) information provided by you, including information from applications and other forms we receive from you, (ii) information about your transactions with us or our affiliates, (iii) information about your transactions with nonaffiliated third parties, (iv) information from consumer reporting agencies, (v) information obtained from our websites, and (vi) information obtained from other sources. For example:

• We collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us.

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

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

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

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

We may disclose personal information we collect about you in each of the categories listed above to affiliated and nonaffiliated third parties.

a. Information We Disclose to Affiliated Companies. We may disclose personal information that we collect about you to our affiliated companies to manage your account(s) effectively, to service and process your transactions, and to let you know about products and services offered by us and affiliated companies, to manage our business, and as otherwise required or permitted by law. Offers for products and services from affiliated companies are developed under conditions designed to safeguard your personal information.

b. Information We Disclose to Third Parties. We may disclose personal information that we collect about you to nonaffiliated third parties to provide marketing services on our behalf or to other financial institutions with whom we have joint marketing agreements. We may also disclose all of the information we collect to other nonaffiliated third parties for our everyday business purposes, such as to process transactions, maintain account(s), respond to court orders and legal investigations, report to

credit bureaus, offer our own products and services, protect against fraud, for institutional risk control, to perform services on our behalf, and as otherwise required or permitted by law.

When we share personal information about you with a nonaffiliated third party, they are required to limit their use of personal information about you to the particular purpose for which it was shared and they are not allowed to share personal information about you with others except to fulfill that limited purpose or as may be permitted or required by law.

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

We maintain physical, electronic and procedural security measures that comply with applicable law and regulations to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information by employees. Third parties that provide support or marketing services on our behalf may also receive personal information about you, and we require them to adhere to appropriate security standards with respect to such information.

4. How Can You Limit Our Sharing Certain Personal Information About You With Our Affiliated Companies For Eligibility Determination?

By following the opt-out procedures in Section 6 below, you may limit the extent to which we share with our affiliated companies, personal information that was collected to determine your eligibility for products and services such as your credit reports and other information that you have provided to us or that we may obtain from third parties ("eligibility information"). Eligibility information does not include your identification information or personal information pertaining to our transactions or experiences with you. Please note that, even if you direct us not to share eligibility information with our affiliated companies, we may still share your personal information, including eligibility information, with our affiliated companies under circumstances that are permitted under applicable law, such as to process transactions or to service your account.

5. How Can You Limit the Use of Certain Personal Information About You by Our Affiliated Companies for Marketing?

By following the opt-out instructions in Section 6 below, you may limit our affiliated companies from marketing their products or services to you based on personal information we disclose to them. This information may include, for example, your income and account history with us. Please note that, even if you choose to limit our affiliated companies from using personal information about you that we may share with them for marketing their products and services to you, our affiliated companies may use your

personal information that they obtain from us to market to you in circumstances permitted by law, such as if the affiliated party has its own relationship with you.

6. How Can You Send Us an Opt-Out Instruction?

If you wish to limit our sharing of eligibility information about you with our affiliated companies, or our affiliated companies' use of personal information for marketing purposes, as described in this notice, you may do so by:

• Calling us at (800) 548-7786
Monday–Friday between 8a.m. and 5p.m. (EST)

• Writing to us at the following address:
Morgan Stanley Services Company Inc.
c/o Privacy Coordinator
201 Plaza Two, 3rd Floor
Jersey City, New Jersey 07311

If you choose to write to us, your request should include: your name, address, telephone number and account number(s) to which the opt-out applies and whether you are opting out with respect to sharing of eligibility information (Section 4 above), or information used for marketing (Section 5 above), or both. Written opt-out requests should not be sent with any other correspondence. In order to process your request, we require that the request be provided by you directly and not through a third party. Once you have informed us about your privacy preferences, your opt-out preference will remain in effect with respect to this Policy (as it may be amended) until you notify us otherwise. If you are a joint account owner, we will accept instructions from any one of you and apply those instructions to the entire account.

Please understand that if you limit our sharing or our affiliated companies' use of personal information, you and any joint account holder(s) may not receive information about our affiliated companies' products and services, including products or services that could help you manage your financial resources and achieve your investment objectives.

If you have more than one account or relationship with us, please specify the accounts to which you would like us to apply your privacy choices. If you have accounts or relationships with our affiliates, you may receive multiple privacy policies from them, and will need to separately notify those companies of your privacy choices for those accounts or relationships.

7. What if an affiliated company becomes a nonaffiliated third party?

If, at any time in the future, an affiliated company becomes a nonaffiliated third party, further disclosures of personal information made to the former affiliated company will be limited to those described in Section 2(b) above relating to nonaffiliated third parties. If you elected under Section 6 to limit disclosures we make to affiliated companies, or use of personal information by affiliated companies, your election will not apply to use by any former affiliated company of your personal information in their possession once it becomes a nonaffiliated third party.

Special Notice to Residents of Vermont
The following section supplements our Policy with respect to our individual clients who have a Vermont address and supersedes anything to the contrary in the above Policy with respect to those clients only.

The State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with nonaffiliated third parties, or eligibility information with affiliated companies, other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with nonaffiliated third parties or eligibility information with affiliated companies, unless you provide us with your written consent to share such information.

Special Notice to Residents of California
The following section supplements our Policy with respect to our individual clients who have a California address and supersedes anything to the contrary in the above Policy with respect to those clients only.

In response to a California law, if your account has a California home address, your personal information will not be disclosed to nonaffiliated third parties except as permitted by applicable California law, and we will limit sharing such personal information with our affiliates to comply with California privacy laws that apply to us.

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
Independent
Trustee**

Other Directorships
Held by Independent Trustee***

Frank L. Bowman (68)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036

Trustee

Since
August 2006

President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (since February 2007); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996); and on the Joint Staff as Director of Political Military Affairs (June 1992-July 1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; Awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009).

101

Director of BP p.l.c.; Director of Naval and Nuclear Technologies LLP; Director of the Armed Services YMCA of the USA and the U.S. Naval Submarine League; Director of the American Shipbuilding Suppliers Association; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board.

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
Independent
Trustee**

Other Directorships
Held by Independent Trustee***

Michael Bozic (72)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036

Trustee

Since
April 1994

Private investor and a member of the advisory board of American Road Group LLC (retail) (since June 2000); Chairperson of the Compliance and Insurance Committee (since October 2006); Director or Trustee of various Morgan Stanley Funds (since April 1994); formerly, Chairperson of the Insurance Committee (July 2006-September 2006); 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); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co.

103

Trustee and member of the Hillsdale College Board of Trustees.

Kathleen A. Dennis (59)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036

Trustee

Since
August 2006

President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); Chairperson of the Money Market and Alternatives Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006).

101

Director of various non-profit organizations.

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
Independent
Trustee**

Other Directorships
Held by Independent Trustee***

Dr. Manuel H. Johnson (64)
c/o Johnson Smick Group, Inc.
888 16th Street, N.W.
Suite 740
Washington, D.C. 20006

Trustee

Since
July 1991

Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since July 1991); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006), Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury.

103

Director of NVR, Inc. (home construction).

Joseph J. Kearns (70)
c/o Kearns & Associates LLC
PMB754
22631 Pacific Coast Highway
Malibu, CA 90265

Trustee

Since
August 1994

President, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (and since August 1994); CFO of the J. Paul Getty Trust.

104

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

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
Independent
Trustee**

Other Directorships
Held by Independent Trustee***

Michael F. Klein (54)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036

Trustee

Since
August 2006

Managing Director, Aetos Capital, LLC (since March 2000) and Co-President, Aetos Alternatives Management, LLC (since January 2004); Chairperson of the Fixed Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, various Morgan Stanley Funds (June 1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999).

101

Director of certain investment funds managed or sponsored by Aetos Capital, LLC. Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals).

Michael E. Nugent (76)
522 Fifth Avenue
New York, NY 10036

Chairperson of the Board and Trustee

Chairperson of the Boards since July 2006 and Trustee since July 1991

General Partner, Triumph Capital, L.P. (private investment partnership); Chairperson of the Boards of various Morgan Stanley Funds (since July 2006); Chairperson of the Close-End Fund Committee (since June 2012) and Director or Trustee of various Morgan Stanley Funds (since July 1991); formerly, Chairperson of the Insurance Committee (until July 2006).

103

None.

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
Independent
Trustee**

Other Directorships
Held by Independent Trustee***

W. Allen Reed (65)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036

Trustee

Since
August 2006

Chairperson of the Equity Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005).

101

Director of Temple-Inland Industries (packaging and forest products); Director of Legg Mason, Inc. and Director of the Auburn University Foundation.

Fergus Reid (80)
c/o Joe Pietryka, Inc.
85 Charles Colman Blvd.
Pawling, NY 12564

Trustee

Since
June 1992

Chairman, Joe Pietryka, Inc.; Chairperson of the Governance Committee and Director or Trustee of various Morgan Stanley Funds (since June 1992).

104

None.

Interested Trustee:

Name, Age and Address of
Interested Trustee

Position(s)
Held with
Registrant

Length of
Time Served*

Principal Occupation(s)
During Past 5 Years

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

Other Directorships
Held by Interested Trustee***

James F. Higgins (65)
c/o Morgan Stanley Services Company Inc.
Harborside Financial Center
201 Plaza Two
Jersey City, NJ 07311

Trustee

Since
June 2000

Director or Trustee of various Morgan Stanley Funds (since June 2000); Senior Advisor of Morgan Stanley (since August 2000).

102

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

* Each Trustee serves an indefinite term, until his or her successor is elected.

** The Fund Complex includes (as of December 31, 2012) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).

*** This includes any directorships at public companies and registered investment companies held by the Trustee at any time during the past five years.

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

Kevin Klingert (50)
522 Fifth Avenue
New York, NY 10036

President and Principal Executive Officer — Money Market and Liquidity Funds

Since September 2010

President and Principal Executive Officer (since September 2010) of the Money Market and Liquidity Funds; Head of Morgan Stanley Investment Management Liquidity business (since July 2010); Managing Director of the Adviser and various entities affiliated with the Adviser (since December 2007). Formerly, Global Head, Chief Operating Officer and Acting Chief Investment Officer of the Fixed Income Group of the Adviser (April 2008-July 2010); Head of Global Liquidity Portfolio Management and co-head of Liquidity Credit Research of Morgan Stanley Investment Management (December 2007-July 2010) and Vice President of the funds in the Fund Complex (June 2008-July 2010). Previously, Managing Director on the Management Committee and head of Municipal Portfolio Management and Liquidity at BlackRock (October 1991-January 2007).

Mary Ann Picciotto (39)
522 Fifth Avenue
New York, NY 10036

Chief Compliance Officer

Since May 2010

Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds (since May 2010); Chief Compliance Officer of the Adviser (since April 2007).

Stefanie V. Chang Yu (46)
522 Fifth Avenue
New York, NY 10036

Vice President

Since December 1997

Managing Director of the Adviser and various entities affiliated with the Adviser; Vice President of various Morgan Stanley Funds (since December 1997).

Francis J. Smith (47)
c/o Morgan Stanley Services Company Inc.
Harborside Financial Center
201 Plaza Two
Jersey City, NJ 07311

Treasurer and Principal Financial Officer

Treasurer since July 2003 and Principal Financial Officer since September 2002

Executive Director of the Adviser and various entities affiliated with the Adviser; Treasurer and Principal Financial Officer of various Morgan Stanley Funds (since July 2003).

Mary E. Mullin (45)
522 Fifth Avenue
New York, NY 10036

Secretary

Since June 1999

Executive Director of the Adviser and various entities affiliated with the Adviser; Secretary of various Morgan Stanley Funds (since June 1999).

* Each Officer serves an indefinite term, until his or her successor is elected.

2012 Federal Tax Notice (unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended December 31, 2012. The Fund designated 99.99% of its income dividends as tax-exempt income dividends. The Fund also designated and paid $12,620 as a long-term capital gain distribution.
In, January the Fund provides tax information to shareholders for the preceding calendar year.

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.

(d) Not applicable.

(e) Not applicable.

(f)

(1) The Fund’s Code of Ethics is attached hereto as Exhibit 12 A.

(2) Not applicable.

(3) Not applicable.

Item 3. Audit Committee Financial Expert.

The Fund’s Board of Trustees has determined that Joseph J. Kearns, an “independent” Trustee, is an “audit committee financial expert” serving on its audit committee. 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 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:

2012

	Registrant			Covered Entities(1)
Audit Fees	$	25,110		N/A

Non-Audit Fees
Audit-Related Fees	$		(2)	$		(2)
Tax Fees	$	4,446	(3)	$	3,789,467	(4)
All Other Fees	$			$	723,998
Total Non-Audit Fees	$	4,446		$	4,513,465

Total	$	29,556		$	4,513,465

2011

	Registrant			Covered Entities(1)
Audit Fees	$	25,110		N/A

Non-Audit Fees
Audit-Related Fees	$		(2)	$		(2)
Tax Fees	$	4,446	(3)	$	89,626	(4)
All Other Fees	$			$	1,133,094	(5)
Total Non-Audit Fees	$	4,446		$	1,222,720

Total	$	29,556		$	1,222,720

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.

(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.

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

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

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

Morgan Stanley Services Company, Inc.

Morgan Stanley Distributors Inc.

Morgan Stanley Trust FSB

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:

Joseph Kearns, Michael Nugent and Allen Reed.

(b) Not applicable.

Item 6. Schedule of Investments

(a) Refer to Item 1.

(b) Not applicable.

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

Applicable only to reports filed by closed-end funds.

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

Applicable only to reports filed by closed-end funds.

Item 9. Closed-End Fund Repurchases

Applicable only to reports filed by closed-end funds.

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

Not applicable.

Item 11. Controls and Procedures

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

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

Item 12. Exhibits

(a) 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.

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/ Kevin Klingert
Kevin Klingert
Principal Executive Officer
February 19, 2013

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/ Kevin Klingert
Kevin Klingert
Principal Executive Officer
February 19, 2013

/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 19, 2013

Welcome Shareholder					3
Fund Report					4
Expense Example					7
Portfolio of Investments					8
Statement of Assets and Liabilities					17
Statement of Operations					18
Statements of Changes in Net Assets					19
Notes to Financial Statements					20
Financial Highlights					27
Report of Independent Registered Public Accounting Firm					28
U.S. Privacy Policy					29
Trustee and Officer Information					34